ISLAMABAD: Minister for Finance Muhammad Ishaq Dar has said that promotion of agriculture and manufacturing sectors are the top priorities of the government for sustainable growth. Addressing National Pre-Budget seminar arranged by Federal Bureau of Revenue in collaboration with Federation of Pakistan Chambers of Commerce and Industry, he said present government is fully aware of the challenges and its responsibility and will restore macroeconomic stability in a reasonable time frame.
He said government has embarked upon a plan to reduce financial imbalances without wasting time by reducing budget deficit to a reasonable level of around 6.5 percent of GDP in the current fiscal year. He said the plan include rationalization of oil prices, cutting current expenditure and revenue mobilization. He said the government has also increased the support price of wheat facilitate the growers.
Highlighting the present economic situation of the country, the Minister said over one year of total inaction and political expediency of the previous government on addressing domestic and external challenges, it further accentuated macroeconomic imbalances. He said as a result the economy of Pakistan is currently under pressure and facing four major challenges; deceleration in growth, rising inflation particularly in food, growing fiscal deficit and widening of trade and current account deficit.
He said the growth target for the year has been revised downward from 7.2 percent to 6.0 percent against last year’s estimates of 7.0 percent. He said poor performance of agriculture and weaker growth in manufacturing and services are the key drivers for scaling down the growth target. He said higher food prices, expansionary fiscal policy, and extra-ordinary increase in govt. borrowing from the Central Bank and upward revision in local energy prices show that we will face the average inflation of over 10 percent against the target of 6.5 percent.
The Minster said the fiscal deficit for the year was targeted at 4.0 percent of GDP. During the first nine months of the current fiscal year, the fiscal deficit has already crossed the targeted level for the year and stood at 5 percent of GDP. Mr. Ishaq Dar said the weaker tax collection, failure to make adequate provision in the budget for increases in the prices of oil and food to consumers resulted in the over run of current expenditure. He said the subsidized power tariff also caused slippages in current expenditure because of under provision in the budget for 2007-08, mismanagement on account of export of wheat based on inaccurate estimates and subsequent import of wheat at much higher prices also contributed to the widening of budget deficit for the current financial year.
He said if the corrective measures are not taken it would undermine growth momentum and macroeconomic stability. He said as a result of higher oil prices the country’s oil import bill reached to a targeted level of 7.9 billion dollars for the whole year in just nine months of the fiscal year. He said the oil bill is expected to reach 11.3 billion dollars by the end of the fiscal year, almost 42 percent more than the targeted level.
As a result of increase in oil import bill and excessive imports of luxury goods, the trade deficit has surged to 10.8 billion dollars in the first nine months and the year is likely to end at 13.8 billion dollars. He said the current account deficit has widened to 9.86 billion dollars in the first nine months of the current fiscal year against the whole year target of 7.95 billion dollars. The current account deficit is projected to be 11.6 billion dollars for the year.
Mr. Ishaq Dar said Pakistan’s external balance of payment is under pressure and as such our foreign exchange reserves have declined. Regarding forthcoming budget of 2008-09, he said it will be the budget of fiscal consolidation. He said in view of the current state of financial imbalances and the measures taken so far by the government, we believe that much more needs to be done to further consolidate the fiscal discipline. He said achieving fiscal balance is the central point to stabilize macroeconomic environment which is absolutely essential for private sector development.
He said the current situation in the country also demands that the burden on the poor is minimized. He said the government is introducing a package of measures to help the poor and vulnerable segments of the society in the forthcoming budget. He said the government’s medium-term agenda of economic reform and development to sustain the growth momentum in the range of 6 to 7 percent in the next five years. He warned the unscrupulous elements of spreading rumors regarding country’s exchange rate. He said they should stay away from these anti-state activities otherwise stern action will be taken against them.-SANA