ISLAMABAD, March 7: Despite apprehensions about the health of national economy, the government is confident FY2007-08 will end with a GDP growth of 7.2 per cent, inflation stabilising at 6.5 per cent and only about 10 per cent increase in total imports.
A fiscal policy statement prepared by the Ministry of Finance says the new government will be informed about a ‘buoyant estimate’, concerning all federal taxes except for excise duties.
The projections for 2007-08 contain the following mix of taxes: direct taxes 39.5 per cent, sales tax 37.3 per cent, federal excise 9.6 per cent and customs duties 13.7 per cent.
Significantly, there will again be a decline in the share of customs duties at the expense of federal excise duties (FEDs) because of the expansion of the tax base — from an imposition of 1 per cent additional duty and an extension of FED to all non-fund services of financial institutions.
The total expenditure is estimated at Rs1.875 trillion or 18.8 per cent of GDP for the fiscal 2007-08 — an 11.9 per cent year-on-year increase. Current expenditure is estimated at Rs1.378 trillion or 13.8 per cent of GDP for the current fiscal year. Within this category, interest payments are targeted at Rs375 billion or 3.8 per cent of GDP whereas defence spending for the current financial year is estimated at Rs275 billion or 2.8 per cent of GDP. Development expenditure adjusted for net lending is targeted at Rs546.5 billion or 5.5 per cent of GDP for the year 2007-08. Operational shortfall in development expenditure is projected at Rs50 billion; therefore, development expenditure adjusted for net lending and operational shortfall is estimated at Rs496 billion or 5 per cent of GDP.
The fiscal target for 2007-08 is targeted at 4 per cent of GDP or Rs399 billion.
The government has also projected a revenue surplus of Rs98 billion or just less than 1 per cent of GDP. The primary balance for the year is projected to be in deficit of Rs39 billion or 0.3 per cent of GDP.
The fiscal deficit for the first quarter of the current final financial year stood at Rs158 billion which is 1.6 per cent of the projected GDP. The revenue balance for the first quarter is in deficit by Rs27.3 billion. “If the current trends persist and strong corrective measures are not taken promptly, the annual fiscal deficit target of 4.0 per cent of GDP for 2007-08 may not be met,” the ministry of finance warned.
Furthermore, the target of achieving a revenue balance by the end of the current financial year may also not be achieved unless corrective measures to curtail expenditures or to increase revenues are taken during the remaining period of the fiscal year. “It is very crucial that the government makes an effort to achieve the fiscal deficit target as this would send a strong signal of the government’s commitment of fiscal discipline and macroeconomic stability”.
The consolidated public expenditure jumped sharply due to strong increase in both current and development spending. The exceptional 89.5 per cent year-on-year increase in the latter would be partially encouraging, if it translates into an improvement in the country’s infrastructure and human resource capital. The handsome growth in the current expenditure reflects a few major developments. First, interest payments on domestic debt doubled to reach Rs98.5 billion quashing the favourable impact of decline in interest payments on foreign debt.
Defence expenditure saw a surge of 26.3 per cent in the first quarter of 2007-08.
