Pakistan to Cut Budget Deficit First Time in 4 Years

[MirBadshah]

Pakistan to Cut Budget Deficit First Time in 4 Years (Update1)

http://quote.bloomberg.com/apps/news?pid=20601087&sid=aliTJeuHNqsQ

By Cherian Thomas and Mike Firn

May 7 (Bloomberg) -- Pakistan expects to cut its budget deficit for the first time in four years as record economic growth spurs company and personal tax collections, the government's chief economic adviser Ashfaque Hasan Khan said.

The deficit may narrow to 4 percent of gross domestic product in the year starting July 1, from 4.2 percent of GDP in the current year, Khan said in an interview in Kyoto. The government will release its budget in the first week of June.

Pakistan wants to cut the deficit to reduce its debt, which equals half the country's $129 billion economy, so that it can invest more in telecommunications, health and education. Only one in 10 of Pakistan's 160 million people have access to a telephone while 60 percent of people in rural areas do not have adequate sanitation, according to the Asian Development Bank.

``The budget deficit is the mother of all economic problems,'' Khan said. ``Growth has boosted tax collections and this has given us confidence that we will be able to cut the budget deficit.''

Khan said the deficit could have been around 3.7 percent of the GDP if money spent on earthquake relief wasn't taken into account. An October 2005 quake killed 73,000 people in the country's north. The government may spend 370 billion rupees ($6.1 billion) next year for earthquake victims, he said.

Pakistan, which has made three sovereign bond offerings since February 2004, plans to sell the next tranche of foreign- currency denominated bonds before the fiscal year ends on June 30, including to investors in the U.S. for the first time.

Bond Sale

Last month, Pakistan hired Citigroup Inc., Deutsche Bank AG and HSBC Holdings Plc to sell overseas bonds. Khan did not mention the size of the bond offering.

By improving government finances, Pakistan is aiming to get an investment grade rating from Standard and Poor's and Moody's Investors Service, which have placed the South Asian nation three levels below the investment grade. Moody's has assigned a B1 rating, while Standard and Poor's has a B+ rating on Pakistan's long term foreign currency debt.

``Pakistan will rely on a pro-growth budget in the next few years and that will slow down fiscal consolidation,'' said Ping Chew, managing director, Asia government ratings, at Standard and Poor's. ``The rating trigger in the short term will be the elections. The consensus is that if Benazir Bhutto returns with large support, and if this government can secure that support, then it can stabilize the economy.''

Secret Talks

Pakistani President Pervez Musharraf's secret talks with exiled former prime minister Bhutto are entering their ``final stage,'' the Newsweek magazine reported last month, citing Sheikh Rashid Ahmed, a senior government minister. The next general elections could be in January, Newsweek said.

Pakistan's Khan expects the economy to grow 7 percent next year after an average 7.5 percent expansion in the past three years, driven by construction, banking and farming.

The government may collect tax revenue of 1 trillion rupees for the year starting July 1, from an estimated 835 billion rupees this year, the adviser said.

``We are confident the economic growth momentum will be maintained because many construction companies such as Emaar are expanding in the country,'' Khan said. ``Once construction starts booming, at least 40 industries such as cement, steel and paints will start moving in the same direction.''

Emaar Properties PJSC, the largest publicly-traded property developer in the Middle East, in September received Pakistan's approval for a $43 billion project to develop two island resorts near the country's port city of Karachi.

Interest Rates

He saw ``no reason'' for an increase in interest rates as inflation may ease to an average 6 percent next fiscal from an average 8 percent in the first nine months of the current year, spurring company investments and consumption.

State Bank of Pakistan in July last year raised its key interest rate half a percentage point to 9.5 percent, the first increase in 15 months.

``Inflation is primary driven by food prices,'' Khan said. ``This year we will have a bumper wheat crop. The wheat crop serves as a trigger mechanism for food prices.''

Pakistan expects to harvest a record 23 million tons of wheat this year, Khan said.

To contact the reporter on this story: Cherian Thomas in Kyoto at cthomas1@bloomberg.net Mike Firn at mfirn@bloomberg.net

Last Updated: May 6, 2007 22:37 EDT

 

[Neo]

Target of record taxcollection of Rs1 trillion is not mentioned in the article.
Why?

 

[Shehz]

http://www.brecorder.com/index.php?id=544234&currPageNo=1&query=&search=&term=&supDate=

Trade deficit projections expanded to $13.4 billion

MUSHTAQ GHUMMAN

ISLAMABAD (March 29 2007): The government has once again revised trade deficit projections to $13.4 billion against the original target of $9.4 billion set for the current fiscal year.

Official documents, prepared separately by Commerce Ministry and Planning Commission, copies of which are available with Business Recorder, suggest that monetary policy is one of the major reasons behind this soaring trade deficit.

Commerce Ministry, which is apparently being kept away from the decision-making process on monetary policy, has projected imports of $31 billion during the current year.

"If the average trend in July-February 2006-07 remained intact during the coming months of the current fiscal year, imports may reach $31 billion against the projections of $28 billion," Commerce Ministry documents say.

The Planning Commission has expressed serious concerns over the slow growth in exports, which has mainly contributed to high cost of doing business, stiff competition between the competitors over government subsidies and other incentives.

"About $1 billion shortfall is likely in exports against $18.6 billion target for the current year," the Commission anticipated in its documents. The Commission has also expressed apprehension that the current state of exports, high cost of doing business, and some other factors might slacken the GDP growth rate, though only marginally.

The Commission is also of the view that several firms, especially in the textile sector, might be closed down, leading to increase in portfolio of non-performing loans, and their revival would be a costlier proposition.

If the picture remains the same, as the Planning Commission has painted in its documents, Pakistan's share in the international market would further dip and then it would be difficult to recapture it in the future.

While justifying unforeseen growth in imports, Commerce Ministry has argued that Pakistan's economy has been growing at a high rate for the last couple of years, as the GDP growth in 2005-06 was 6.6 percent, with 7 percent projection for 2006-07. The Ministry has further elaborated that with the increase in disposable income, demand for imports would also increase.

"Our imports are inelastic because they consist mainly of machinery, raw material, petroleum products and food items which cannot be curtailed without impacting economic growth and prices. These imports are essential for sustaining economic growth and stabilisation of prices by augmenting the supply position," Commerce Ministry said.

As Pakistan is following a liberal trade regime, in line with the World Trade Organisation (WTO) system, restriction on imports are neither feasible nor beneficial for the economic health of the country, it opines.

Commerce Ministry, which is not being consulted on monetary policies, has made it clear that fiscal, monetary and exchange rate policies are formulated by other ministries and organisations, such as Finance Ministry and State Bank of Pakistan, keeping in view the overall economic position of the country.


Copyright Business Recorder, 2007