The budget for the fiscal 2007-08 (FY-08) was presented in the National Assembly on the 9th June, 2007. As usual, Ministry of Finance released the "Economic Survey" a day earlier depicting developments in the economic field during the fiscal 2006-07 (FY-07).
Table "A" containing the details of the major economic indicators is appended:
Table "A" - Major economic indicators [percent].
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Sector FY-2005-06 FY-2006-2007 Remarks
Target Achievement -
1 2 3 4 5
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Inflation 7.9 6.5 7.9* *upto April,2007
2004-05 GDP
GDP growth 6.6 7.0 7.0 growth revised
from 8.6%
to 9%
Agriculture 1.6 - 5.0 -
Livestock 7.5 - 4.3 -
Manufacturing 10.0 - 8.4 -
LSM** 10.7 12.5 8.8 -
Construction - - 17.2 -
Banking/insurance - - 18.2 -
Electricity/gas - - (-)15.2 -
Overall services 9.6 - 8.0 -
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Source: Economic Survey June,2007.
Large scale manufacturing.
It will be seen from the Table below that each major indicator points out towards deceleration during the fiscal FY-07 excepting inflation. The FY-07 inflation target was fixed at 6.5 percent while it has touched 7.9 percent during the first 10 months of the fiscal while food inflation stands at 10.2 percent.
Due to sharp and rampant rise in prices of edibles, food inflation may exceed 11 percent by the close of the current fiscal. As the food inflation constitutes 56.1 percent of the CPI (State Bank of Pakistan's third quarterly report), the headline inflation (CPI) may cross 8.3-8.5 percent barrier by the close of the fiscal FY-07. It may not remain in the range of 7.5 percent as envisaged in the Economic Survey.
The agriculture growth of 5 percent is significant but it may not fully owe to the governmental efforts but natural factors such as availability of water in Rabi season, although governmental subsidy on fertiliser may have some role in the increased growth.
Wheat production has grown by 10.5 percent to 23.5 million metric tonnes, sugarcane by 22.6 percent to 54.8 million metric tonnes, while cotton production remained at previous year's level of 13 million bales.
Livestock sector, which comprises one half of the agriculture sector, however, has decelerated to 4.3 percent from 7.5 percent in FY-06. Likewise, deceleration is visible in manufacturing sector, including large scale manufacturing which grew by 8.8 percent as against the target of 12.5 percent and achievement of 10 percent in FY-06.
The growth in the GDP (3/5th) has come from the services sector - banking/insurance and construction - which grew by 18.2 and 17.2 percent respectively. The real sector growth - agriculture and manufacturing - could contribute merely 2/5th to the GDP.
However, deceleration in the overall services sector is also visible. It has grown by 8 percent in FY-07 when compared to the growth of 9.6 percent in FY-06.
There has been a negative growth of 15.2 percent during FY-07 in the electricity/gas sector. Is it not surprising that various sectors of economy grew by sizeable proportions without corresponding acceleration in the energy sector - rather substantial reduction has taken place? Coming to the budget for FY-08, it seems more or less a stereotype. It has been termed a pro-poor budget.
As per the advertisements inserted in the media by the government, a sum of Rs 13 billion has been earmarked for the sale of a few edibles through utility stores and it has also been proposed that the number of the utility stores will be raised to 5000 from the existing 1000.
As per government's own estimates, over 29 percent of the population viz 46.5 million is poor. If one distributes the allocation of Rs 13 billion among 46.5 million poor people, each individual will get the benefit of less than a rupee (paisas 76) per day.
The opening of 4000 new utility stores is a Herculean job. If one asks whether the government has done any homework for the opening of utility stores on such a large scale the answer will be in negative. While presenting the budget for FY-07, similar promises also indicating opening of such stores under franchise were made, but nothing happened.
Apart from that the purchases from the utility stores is also a Herculean job and the buyer has to forego his day's earning for the benefit of 50-100 rupees. The Malpractices among the utility stores officials envisaging selling commodities to retailers in the market are also not uncommon.
From any angle, the proposed arrangement is not likely to benefit poor people; rather the allocation is more likely to be devoured by officials. The proper course would be to waive the huge government taxes - particularly on edible oil - so that the domestic prices are lowered. In this context, government will have to be very vigilant to ensure that the benefit of waiver of taxes is passed on to the consumers and not usurped by the business community. No other measure benefiting the poor is visible in FY 2008 budget.
It, however, contains a lot of benefits for the affluent class, a few of which are enumerated below: -- exemption of the capital gain on the stock trading;
-- exemption of agricultural income from payment of tax; even though the fruit orchards could at least be taxed because the income can conveniently be quantified as such orchards or sold by the owners every season;
-- provision of interest rate subsidy to the spinning sector of the textile industry by allowing them to swap their long term high priced bank loans with the low-priced ones. This subsidy was earlier extended to the other sector of the textile industry.
It will be recalled that the spinning and other value-added sectors had been at loggerheads in the past. The value-added sectors like weaving, knitting and readymade garments had always opposed to providing such concessions to spinners.
According to them, these subsidies make spinners competitive in the international market and they maximise their exports leaving the value-added sector's demand unfulfilled, also raising the domestic prices of the yarn.
The question of subsidies is believably decided by the policy makers having regard to capacity of the industry to exercise its lobby. The textile sector has been seeking subsidies and concessions mainly on the plea that the concessions to exporters by India, China and Bangladesh have rendered the Pakistani industrialists un-competitive in the international market.
Here, the authorities forget the edge of about 34-35 percent available to the Pakistani exporters in the matter of exchange rate (P. Rs 60.6 per US $/I. Rs 45 per US$).
In case the Chinese, Indian and Bangladeshi exporters are exporting at cheaper rates due to subsidies being made available by their governments, it is tantamount to dumping in the international market. Why then the government or the exporters or both collectively move the World Trade Organisation (WTO) for redressal of grievances?
The government can provide assistance to exporters if the litigation at the WTO is costly. The question of non-availability of legal experts on the subject in Pakistan, often raised by the business lobby, is not a profound argument as experts from abroad can also be hired.
The budget for FY-08 imposes 1 percent surcharge on imports to bring reduction in the quantum of imports. It is merely a silly argument. The sharp devaluation of Rupee from Rs 9.90 = $1 in 1982 to Rs over 60.00 could not reduce imports. How can imposition of surcharge on imports bring the desired results? It is surely a move to raise the revenue resources, without naming it as such. If the imports are put @ $28 billion during FY-08, government will realise Rs 16-17 billion under this head.
An effort to enlarge the tax net is also not visible in the FY-08 budget. As against the GDP size of Rs 10 trillion, tax receipts have been estimated at Rs one trillion ie 10 percent as at present.
The sum of Rs 520 billion earmarked for Public Sector Development Programme (PSDP) in FY-08 budget constitutes 5.2 percent of the size of FY-08 GDP. In FY-07, the allocation of Rs 435 billion also bore the same ratio to the estimated GDP of that fiscal. There is thus no real increase in the PSDP allocation for FY-08.