KARACHI, June 19: Whereas the market has generally responded positively to the budget proposals, barring the levy of capital value tax, it does not fully share the official optimism on the pace of economic growth.

Speakers at a panel discussion on the "Next year's economic and market outlook", organized by the Pakistan Society of Investment Professionals, saw the projection on economic growth - 6.6 per cent for next year and eight per cent for 2006-07 - as too optimistic. It was argued that the factors contributing to the current's year 6.4 per cent growth rate are losing momentum. But there was consensus that the growth may be consolidated.

In fiscal 2004, the growth was driven by excess and cheap money. Such a large-scale liquidity, as witnessed this year, is not visible for next year. Inflation rate is picking and low interest rates may not be sustainable. The State Bank is in a discomfort zone.

A 17-per cent rise in output in large-scale industries has come about by increased capacity utilization, up from 50-85 per cent to 90-95 per cent. There is no such room left for industrial growth that could come about only by enhancing capacities.

The law and order situation marked by high profile attacks and murders and the Wana operation is a source of investor's worry. The political signals are not that positive raising sovereign risks. Besides, the fiscal measures on investment may begin to impact on the economy in the second half of the next fiscal.

Sakib Sherani, chief economist at ABN AMRO Bank, estimates the next year's growth at 6.2-6.4 per cent against official target of 6.6 per cent. For eight cent targeted under a three year plan, he notes that an investment of 24 per cent of the GDP would be required, apparently very difficult to achieve from the existing levels of 18.1 per cent. Officials estimate that investment to GDP ratio would by then reach 20 per cent.

It is, however, recognized that it was the right time to change gears to shift from macroeconomic stability to target high economic growth. Corporate profits and savings are up and capacity in traditional industries is almost fully utilized with continuing domestic demand.

A former president of the Karachi Stock Exchange (KSE), Firozeuddin A. Cassim sees more investment in modernization, balancing and expansion of existing industries and new investment in other areas. However, he says the domestic private investment does not have the kind of money required to invest in sectors like petroleum and gas etc.

Whereas the market is focussed on economic and business outlook, there is growing public concern over unemployment, poverty and falling incomes of educated youth and professionals entering into the labour market.

Speaking at a post budget seminar organized by the Institute of Bankers, an eminent chartered accountant Masoud Naqvi talked about a serious crisis gap between different income groups. He says that the absence of equity in income distribution is a grave crisis. Sometimes ago, a fresh MBA was offered a salary much beyond his expectation. But now it is a paltry sum. He stressed that the situation needs correction.

Appreciating the change in policy direction, Mr Masoud also questioned the official rate of inflation. The household budget and the perception of the poor is not compatible with the official claim. The gap in the perceptions has to be bridged. But he was happy, that it is the first budget after a long time which shows that the policy makers have started listening to the people.