ISLAMABAD: As the National Economic Council (NEC) is meeting today (Saturday) to fix 4.2% growth target and approve development spending for the next fiscal year, the Planning Commission has proposed to the apex economic decisions making body to limit the government borrowings to 10% of the revenue collection to achieve the growth target and bring down galloping inflation, it was reliably learnt.
The NEC meeting will be chaired by the Prime Minister and attended by the chief ministers. Sources said that the planning commission has also proposed to the NEC to make sure that federal government observes strict adherence to Fiscal Responsibility and Debt limitation Act 2005 and provincial governments take initiatives to increase their own tax collection to demonstrate fiscal responsibility.
The monetary expansion for the next fiscal year would be in line with the projected growth and CPI inflation, but limiting government borrowing to previous year level would be critical to achieve the set targets of both growth and inflation and to encourage credit to private sector. The Planning Commission also proposed in the annul plan that the provinces should generate cash surpluses, in view of their enhanced share to 57.5 in divisible pool, to help the federation limit fiscal deficit at sustainable level and to attain higher tax to GDP ratio.
The 4.2% growth target for the next year is based on assumption of 3.4 percent projected growth in agriculture, 3.1 percent in industry and 5 percent in services during 2011-12, and on economic reforms and revitalisation of industrial sector by curtailing energy shortage and higher interest rates discouraging investment by private sector.
The Planning Commission pointed out that Foreign Direct Investment (FDI) would be highly dependent on the law and order situation, infrastructure investment, introduction of reforms to create conducive environment and also on increased competition in the domestic market. The FDI is expected in oil and gas exploration, trade, financial business, telecommunication, construction and chemicals in view of the measures aiming at opening up markets for private investment and limiting the role of government for bringing change in the form of increased competition and better services at micro level of the economy.
Planning Commission is of the view that the revival of the commodity producing sector will support growth in the services sector via rejuvenation of transport and finance sub sectors, especially after floods. Recovery in agriculture and industry will impact the performance of the services sector via improvement in wholesale and retail trade.
The investment to GDP ratio for the next year is projected at 13.7 percent with 12.1 percent fixed investment and 1.6 percent at stocks while national savings at 13 percent of GDP, reflecting a gap of 0.7 percent between national investment and savings. The government said that main focus of fiscal policy during 2011-12 would be to bring fiscal deficit to manageable level by building consensus among all stakeholders, for imposition of RGST, wealth tax, capital gain tax, bringing the un-taxed services sector in the tax net, and tax on agriculture income in order to broaden the tax base. Planning Commission has suggested that strengthening tax administration reforms, reducing tax slippages and enforcing tax compliance need to be undertaken in earnest. Provincial governments must take initiatives to increase their own tax collection to demonstrate fiscal responsibility.
The target rate of inflation (CPI) for 2011-12 is set at 13 percent as against expected CPI inflation of 15 percent for 2010-11. A deficit of $12.2 billion in trade account is estimated for next fiscal year with $25.8 billion exports and $36 billion imports. The current deficit is targeted at $1.4 billion for the Annual Plan 2011-12. The proposed overall Public Sector Development Programme (PSDP) is Rs 710 billion (Rs 270 billion federal, Rs 10 billion ERRA and Rs 430 billion for provincial programme) for fiscal year 2011-12.
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