KARACHI, Sept 10: The government has set a number of economic targets for the financial year, 2004-05, which some analysts think may need to be re-evaluated.

The main changes were likely to be made in the case of the GDP growth, inflation and fiscal and trade deficits.

Against the GDP growth target of 6.6 per cent and the inflation rate of 5 per cent projected for the FY05, analyst Fauzan Abdullah at the KASB Securities visualized growth at 6.4-6.5 per cent. That was mainly due to a 5.5-6 per cent inflation rate fuelled by the agricultural sector's underperformance and rising core inflation.

"At the same time, we also expect the government's fiscal deficit to come in at 4.5 per cent versus a target of 4 per cent as a result of revenue pressures, which coupled with the increased administration expenses will likely offset the expected increase in the CBR's collections", said the analyst.

Finally, Pakistan's trade deficit could cross over the targeted figure by one billion dollars as a result of faster-than-projected growth in imports, which would continue to put downward pressure on the rupee.

After reporting the real economic growth of 6.4 per cent in the FY04, the government, in line with its medium-term target of 8 per cent growth by 2007, set a 6.6 per cent GDP growth target for the FY05.

While the services and industrial sectors were expected to attain and possibly even surpass their growth targets during the year, the agricultural sector, could be a dampener.

This sector was feared to fall short of the growth target of 4 per cent that was set for it, due to the lower-than-the-expected availability of water. In respect of inflation, the government had set a target of 5 per cent for the FY05 onwards.

Analysts observed that last year, the main drivers of inflation were the rising petroleum and food prices and house rent, but during the current year the government had taken steps to control those drivers. The steps included: to bear the brunt of higher oil prices without passing them on to the consumers and the import of wheat to meet any potential local shortfalls.

But economists thought that inflation still was accelerating. The problem this year was that even though fuel and wheat prices had been controlled to a certain extent, prices of other items had increased, thus causing inflation to shoot up over 9 per cent year-on-year (YoY) and the core inflation to climb by over 6 per cent YoY.

As for fiscal deficit, analysts noted that at the beginning of the FY05, the government had set a target of Rs580 billion for tax revenue collections which represented an increase of 14 per cent over the FY04's target of Rs510 billion.

The growth of tax revenue was expected as a result of higher than 6.4 per cent real growth in the Pakistani economy coupled with the 5 per cent inflation and a broadening of the tax base. However, the higher than targeted collections in July on the back of increased indirect tax collections, and the increased likelihood of greater than 5 per cent inflation led the IMF's visiting mission to encourage the CBR to raise its collections target for the FY05.

The CBR had since suggested a revised collections target of Rs590 billion, which in the opinion of the KASB analyst, Fauzan Abdullah was likely to be achieved and possibly surpassed during the FY05. At the same time however, Pakistan's fiscal deficit was likely to come to about 4.5 per cent, higher than the targeted 4 per cent.

This was attributed by the analyst to number of factors which included: The reduced Petroleum Development levy that the government was likely to collect during the year, since it sought to avoid passing on the high international oil prices to local consumers and secondly, as a result of much higher administration costs likely to be generated by the hugely expanded new Federal Cabinet. Thus, the government was expected to increase its bank borrowings beyond Rs45 billion that was targeted for the year, thereby crowding out private borrowing.

Regarding the trade deficit, economists thought that as per Pakistan's Trade Policy, exports were expected to grow at 11 per cent, while imports were projected to grow at 8 per cent during the FY05 resulting in a trade deficit of $3 billion.

"Given the current export and import growth patterns however, we expected that while exports will meet their target of 11 per cent, imports were likely to grow by a much more rapid pace of 15 per cent during the FY05" said the analyst, who reasoned that because of continued rise in machinery and raw material imports, trade deficit could rise to $4 billion, thereby maintaining the downward pressure on the Pakistani rupee.