KARACHI, June 1: The State Bank of Pakistan Governor Dr Shamshad Akhtar has emphasised upon the government to strictly adhere to the Fiscal Responsibility and Debt Limitation Act, 2005 and reduce its fiscal deficit and debt-GDP ratios during the next fiscal year.

For the central bank, too, she stressed the continuation of strong monetary management in 2007-08 to keep a check on demand pressures stemming from fiscal and external account deficits.

In her keynote presentation at a pre-budget seminar on Friday, where Prime Minister’s Adviser on Finance Dr Salman Shah did not turn up as announced by the organisers — the Press Information Department (PID) of the federal information ministry, the SBP governor said the government expects to reduce the debt-GDP ratio to 51.1 per cent by the end of 2007 and use privatisation proceeds for poverty alleviation.

Pakistan’s current year budget is under the impact of a fiscal deficit. Under the Fiscal Responsibility and Debt Limitation Act, 2005 the revenue deficit will be brought to zero by June 30, 2008. The government is also committed to reduce public debt to 60 per cent of the GDP by 2013.

She said that the SBP was working in house with the government to improve the monetary management and help in achieving the inflation target of 6.5 per cent. But she conceded that the progress in cutting inflation has been slower than original target but it is steady.

The State Bank’s monetary framework statement, she said, will be released by end July after the budget for 2008 has been finalised. However, there has been intensive consultation between the SBP and the government regarding the need for more consistency in the budget and monetary framework.

In line with the SBP Act 9(A), Dr Akhtar informed the audience - that included bankers, business leaders, agriculturists and media persons, the central bank has now institutionalised the process of determination of the level of government recourse to bank borrowing and its approval by the Central Board of the SBP.She informed the audience of the few understandings reached in the consultation between the government and the SBP. She said the first is the recognition of the need to formally impose a ceiling on government’s recourse to SBP borrowings. Secondly, there is a need to better manage the monthly and quarterly borrowings. Thirdly, the government and the SBP will work together towards reducing its stock of borrowings.

Fourthly, the government will continue to change its mix of domestic borrowings by relying on public and commercial bank borrowings rather than SBP borrowings. And finally, there will be a better planning for resource raising from the market to sequence the domestic and foreign borrowings more effectively.

The SBP governor disclosed that the government planned to raise the Public Sector Development Programme next fiscal to Rs724 billion, that includes the budget supported programme of Rs485 billion and Rs204 billion being financed outside the budget by a number of public entities.

“Private level investments for the year 2008 are assumed to grow to Rs1,651 billion, which translates into $27 billion and 16.5 per cent to the GDP,” she said. The private investments next year are expected to be 2.8 times of the level of public investments and once again three fourths the level of total investment.

Speaking about the financial scene, the governor said that the banks profitability exceeds $1 billion and the banking sector during last few years has attracted two $2 billion with $1 billion raised in 2007. The ratio of non-performing loans to net loans is all time low to 2 per cent and capital adequacy is around 13.5 per cent.

Mr Naveed Ahsan, the secretary general Finance, disclosed that Pakistan’s budget for 2007-08 will be of the order of Rs2 trillion and it will incorporate Rs500 billion plus public sector development budget. There will be no new tax in the budget but the tax collection will increase to more than Rs1 trillion in the year 2007-08.