Pak Budget Seen Aimed At Reform, Growth
Pakistans budget for fiscal 1997/98 (July-June), is likely to blend structural reforms and supply-side measures designed to slash interest rates and boost growth and exports, analysts said yesterday.
The government is likely to continue with the supply orientation, targeting a reduction in interest rates, increase in industrial production and a boost in exports, a research note by Jardine Fleming Pakistan Broking Ltd said.
It said the budget, to be presented later on Friday, was unlikely to contain big surprises as most measures have already been spelt out in various incentive packages announced after Prime Minister Nawaz Sharif swept to power in February 3 polls.
Analyst Pieter van der Schaft of ING Baring Securities said: Given Pakistans fragile economic and external financing condition, it is hoped that the pro-business government of Nawaz Sharif will announce meaningful structural reforms.
Schaft said the budget would also be crucial for talks expected to start in July with the International Monetary Fund on a new enhanced structural adjustment facility (ESAF) needed to tide Pakistan over its balance of payments crisis and help it meet its external financing obligations.
The budget deficit target is expected to be five percent of gross domestic product in 1997/98, down from 6.3 percent estimated for 1996/97, Schaft said in a research report.
The revenue base would be broadened by extending and improving the tax collection system, increasing the share of direct taxation in total revenues and improving efficiency and reducing overstaffing and corruption in the public sector.
Other targets would be to privatise state- owned entities and raise gross domestic savings and the flow of credit to the private sector while reducing non-productive expenses, he said. The government has requested domestic commercial banks to reduce their adminstrative costs, while lending rates should be cut by 100 to 150 basis points, the report said.
Schaft said the ambitious six per cent GDP growth target, up from 3.1 per cent estimated for 1996/97, was based on an expected reduction of internal and external financing constraints on the economy as a result of renewed IMF support. and containment of government bank borrowing to 58 billion rupees ($1.432 billion).
He said that attempts to reduce commercial bank lending rates through moral suasion might not help if the government overshoots its budget deficit target. The reduction in government bank borrowing from an expected 97 billion rupees in 1996/97 to 58 billion rupees seems ambitious, Schaft added.
He said export performance and agriculture growth would remain dependent on the volatile cotton crop. The target for export growth is expected to be set at 10.5 percent in 1997/98 after an estimated growth of 7.5 percent in 1996/97, while the agriculture growth target is likely to be five percent, compared to 0.7 percent in 1996/97, he said. Revenues are expected to remain flat over the revised 1996/97 target of 285 billion rupees. Whether higher GDP growth can generate higher direct tax revenues depends on whether the government can improve tax collection, Schaft said.
He said strict curbs were likely to be imposed on some expenditure categories, but increased outlays on defence and debt servicing were likely to take 46 billion rupees out of the increase of 63 billion rupees in current expenditure. The absence of outright defence cuts is disappointing given signs of better relations between India and Pakistan, he said.
Expected targets compiled by Jardine Fleming