The government has projected 7.2 percent GDP growth, 6.7 percent inflation, $8.1 billion current account deficit, and $17.7 billion foreign exchange reserves for the next fiscal year (2007-08), according to sources in Finance Ministry here on Tuesday.
All projected targets are to be finalised by the National Economic Council (NEC) in its meeting on May 31. Sources said that since the country had witnessed strong growth momentum during last four years, the prospects for sustained high economic growth in 2007-08 remain excellent.
"With evidence of a strong pick-up in domestic and foreign investments, and better performance in agriculture, manufacturing and services sectors, the real GDP growth for the year 2007-08 is targeted at 7.2 percent," they said.
The Planning Commission is of the opinion that 7.2 percent GDP growth target would be achieved through significant investment, both in public and private sectors and including foreign private investment.
The overall investment has been projected at 23.8 percent of the GDP, with private investment taking the lead, as public sector investment would mainly be on developing physical and scientific and technological infrastructure, sources said.
They said that emphasis in the development strategy for 2007-08 would be on achieving high value-addition in agriculture, including livestock and fisheries, and manufacturing, particularly engineering goods and services.
They said that national savings as ratio of GDP have been projected at 18.8 percent to reach the level of Rs 1,883 billion, and added that maintaining balance at the fiscal, monetary and external levels would be the underpinning factor of sustained macroeconomic stability during 2007-08.
Fixed investment is expected to reach Rs 2,221 billion, reflecting an increase of 19.2 percent over the investment during current year. To support the higher growth in GDP, PSDP projection, excluding earthquake rehabilitation allocation, has been project to increase from 4.2 percent of GDP (Rs 365 billion) in 2006-07 to 4.8 percent of GDP (Rs 485 billion) for 2007-08, sources said.
As far as financing of the targeted investment is concerned, it has been projected that about 79 percent would be financed through national savings and 21 percent through foreign savings.
Projections of exports would be based on assumptions, such as (i) an increase in exportable surplus through increase in agricultural production and manufacturing output, (ii) improvement in productivity of industrial workforce through technical education and on job training, (iii) greater market access through bilateral arrangements, preferential and free trade agreements with regional and other countries and (iv) improvement in the overall competitiveness of the external sector by enhancing value addition in the manufacturing sector.
Imports during 2007-08 have been projected to increase moderately by 9 percent, to $29.6 billion, from $27.1 billion in 2006-07, due to higher volume of import of food items, POL, edible oil and fertilisers. As a result, the trade account is projected to be in deficit by $10.6 billion in 2007-08, against the deficit of $9.9 billion estimated for in 2006-07.
Sources said that prospects for invisible balance would continue to be governed mainly by the behaviour of remittances during 2007-08, which have been projected at $5.8 billion, against expected level of $5.5 billion for 2006-07. Allowing for other invisible receipts and payments, the surplus on invisible account is anticipated at $2.5 billion, against a surplus of $2.8 billion estimated for 2006-07.
However, taking into consideration transactions of the banking system and a buildup of $2.8 billion in foreign exchange reserves, the gross reserves are likely to reach the level of $17.7 billion in 2007-08, compared to a level of $14.5 billion in 2006-07.
The main objective of the policy would be to allocate adequate resources for development activities, particularly for pro-poor expenditure, in conformity with the Fiscal Responsibility and Debt Limitation Act, 2005, to achieve the projected economic growth of above 7 percent, and reduce further unemployment and poverty and improve social indicators.
Sources said that concentrated efforts would be made by the government to bring it down during the fiscal year 2007-08 and beyond, adding that reduction in the rate of inflation would be achieved by tight monetary policy and increased supply of essential items.