WASHINGTON, Aug 14: Pakistan aims at economic growth of above 6 per cent annually, over the medium term, to significantly reduce poverty, "which is ambitious, but achievable."

Economic growth in 2003/04 is about 6.4 per cent, while for 2004/05, a growth rate of 6.5 per cent could very well be realized, building on the current momentum provided external demand and local weather conditions remain favourable.

Average inflation for 2003/04 was close to, or moderately above, the 4 per cent target, while "inflation will be targeted not to exceed 5 per cent in 2004/05."

This is stated in a Letter of Intent of the government of Pakistan, which describes the policies that Pakistan intends to implement in the context of its request for financial support from the IMF.

It says, Pakistan continues to make solid progress under its economic programme supported by the current arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF). Economic growth has recovered and is strengthening, while inflation has remained low.

Fiscal and external vulnerabilities have been reduced through a reduction in fiscal imbalances. The debt situation continues to improve toward sustainable levels, while the strengthened external position has allowed the State Bank of Pakistan (SBP) to rebuild its international reserves.

"Notwithstanding the economic successes, the challenges ahead include reducing poverty, creating job opportunities, and improving social indicators. We have outlined our strategy to meet these challenges in our Poverty Reduction Strategy Paper (PRSP) entitled 'Accelerating Economic Growth and Reducing Poverty: The Road Ahead,' which was completed by end-2003."

The letter of intent states that Pakistan successfully re-entered international capital markets, with the issuance of a $500 million, five-year Eurobond in February 2004. The overall setting for this issue proved favourable in view of Pakistan's improved fundamentals and the issue was four times oversubscribed. With a 6 percent coupon rate and issued at par, the yield spread was 370 bps over U.S. treasury bonds, significantly lower than prevailing yields on bonds of many other emerging economies, with similar, and in some cases better, credit ratings.

Monetary growth "continued to be strong," driven mainly by strong private sector credit growth. Broad money grew by 18.5 per cent in 2003, while reserve money grew by 16.5 per cent. Credit to the private sector accelerated to 28.5 per cent. This rapid pace of monetary expansion reflects a much stronger-than-expected increase in money demand. Meanwhile, the strong credit growth appears to reflect the buoyant economy, low interest rates, and ample liquidity in banks. The rate of monetary and credit expansion remained high in the first few months of 2004.

Further progress was made in implementing structural reform measures, although some delays occurred. In the area of tax policy and administration, the introduction of universal self-assessment has been successful. Guidelines for presumptive taxation of non-filers under the sales tax were issued in December 2003. No new exemptions have been granted regarding income tax, customs duties, or the general sales tax (GST).-APP