June 06, 2006	Tuesday	Jumadi-ul-Awwal 9, 1427

ISLAMABAD, June 5: The government has projected real GDP growth target for the fiscal year 2006-07 at 7pc while inflation rate at 6.5pc as against the average of 8pc recorded in the outgoing year.

The total revenues, which were 14.1pc of the GDP according to revised estimates for 2005-06, are projected at 13.2pc for 2006-07 while tax revenues have been estimated to grow at 10.1pc in the new fiscal year compared to 9.8pc of this year.

The estimated current expenditure for next fiscal year has been put at 17.4pc as against 14.3pc in 2005-06 while the development expenditure will rise from 4.0pc to 4.6pc.

The projected fiscal deficit during 2006-07 is 4.2pc of the GDP, showing no signs of change. The revenue deficit of 0.2pc in 2005-06 has been targeted at 0.4pc in 2006-07.

The total public debt which remained 54.7pc in 2005-06 has been projected at 49.5pc of GDP in 2006-07.

The GDP (market prices) has been projected to soar up to Rs8,808 billion in 2006-07 from Rs7,713 billion in 2005-06.

State Minister for Finance Omar Ayub Khan on Monday laid before the Parliament a Medium Term Budgetary Framework (MTBF), which he said was consistent with the overall macroeconomic framework of the country.

He said rapid and sustained economic growth was essential for generating more public resources which can be utilised for improving the standards of living of the people.

The minister in his budget speech said that the economy had grown at an average rate of 7.5pc during the last three years. “Going ahead, we intend to maintain the same trend over the next three years with real GDP growing at 7.0pc in 2006-07, and 7.4pc and 7.8pc in the remaining two years respectively,” he added.

He said that the outgoing year was likely to end with an average inflation rate of 8pc and added that the government was targeting an inflation rate of 6.5pc in 2006-07, 5.5pc in 2007-08 and 5.0pc in 2008-09.

“Inflation results in inefficient resource allocation and reduces potential economic growth. It imposes high cost on economies and societies, disproportionally hurts the poor and fixed income groups, creates uncertainty throughout the economy and undermines economic stability,” the minister observed.

“Lowering inflation therefore directly benefits the low and fixed income groups and helps achieve macroeconomic stability which is vital for sustained high economic growth”, he remarked.

He said fiscal consolidation would undoubtedly contribute to sustain rapid, strong and broad-based economic recovery. The government would make every effort to consolidate its fiscal balance. Pakistan’s fiscal position had remained under pressure and would continue to remain so in the next two years owing to massive earthquake-related spending, he added.

“Apart from allocating resources for the rehabilitation and reconstruction of the earthquake affected people and areas, the government will also require resources to finance projects that will strengthen the country’s physical and human infrastructure,” the minister elaborate.

Omar Ayub said non-tax revenue as percentage of GDP was projected to decline because of privatisation of state-owned enterprises, therefore the government would be relying more on tax revenues and in this connection would make every effort to broaden the tax base.

He said broadening of tax base would enable the government to reduce marginal tax rates which would help further stimulate investment and production, promote tax compliance and ensure the fair distribution of tax burden among various sectors of the economy.

The total expenditure remains below 18pc of GDP while current expenditure stagnates at around 12.8pc of GDP. Development expenditure is projected to rise sharply to 5pc of GDP from last year’s level of 4pc. As a result of targets set for revenue and expenditure, the overall fiscal deficit is projected to decline sharply from 4.2pc of GDP to 3.4pc of GDP by 2008-09.

He said under the Fiscal Responsibility and Debt Limitation Act 2005, the government was obliged to bring revenue deficit to zero by 2007-08. The government will make every effort to achieve the target ahead of time and will maintain surplus thereafter.

Under the Act, the government was obligated to reduce public debt by 2.5 percentage points every year and that by 2012-13 the debt burden should not be more than 60pc of the GDP. “The government is making every effort to achieve these targets”, he assured.

He observed that a prudent fiscal policy was an essential prerequisite for the macroeconomic stability and stressed that there was no alternative to a rule-based fiscal policy as enshrined in the Act.

He said the government was committed to locking in stability and investing in the country’s future enabling it to meet the challenges and rise to the opportunity to the global economy.