ISLAMABAD, May 26: Budget-makers have recommended tight monetary measures and fiscal stringency to contain the inflation rate at eight per cent during the next financial year, it is learnt.

Documents of the national budget for fiscal 2008-09 obtained by Dawn show that the main thrust of the government will be to keep the fiscal deficit within a sustainable limit in conformity with the Fiscal Responsibility and Debt Limitation Act, 2005, in its pursuit of a 6.5 per cent growth rate.

The growth target has to be achieved to bring macro-economic stability by managing new resources for pro-poor expenditures and growth.

The 6.5 per cent GDP growth, against 7.2 per cent of the current financial year, will be achieved with sectoral growth of agriculture (four per cent), manufacturing (8.5 per cent) and services sector (6.7 per cent).

The inflation target of 6.5 per cent set for 2007-08 will not be met. It will be higher because of the rising food and energy prices. The Consumer Price Index (CPI) inflation has gone into double digit — 10.3 per cent — from 7.9 per cent.

Non-food inflation is 6.8 per cent, compared to 6.2 per cent last year. The core inflation (non-food, non-energy) rose to 7.5 per cent from six per cent.The Sensitive Price Indicator (combined for all income groups) recorded an increase of 1.8 per cent during July-April 2008 as against 9.7 per cent over the corresponding period last year.

As an outcome of the envisaged economic scenario, per capita Gross National Product (GNP) at current market prices would increase to Rs75,300 in 2008-09, compared to last year’s Rs66,550, an increase of 13.1 per cent. In real terms (2007-08 prices), the rate of increase would be 4.8 per cent.

To attain the projected growth target, total investment is estimated to increase by 19.66 per cent to Rs2702.2 billion from Rs2258.2 of 2007-08.

As a percentage of GDP, total investment is expected to rise from 21.6 per cent in 2007-08 to 22.4 per cent in 2008-09. Fixed investment has been projected to be Rs2509.2 billion, with public and private investment at Rs723.8 billion and Rs1785.4 billion, respectively.

National Savings as a ratio to GDP is projected to increase from 13.9 per cent in 2007-08 to 15.9 per cent in 2008-09, implying that about 71 per cent of total investment requirements of the new budget will be financed from National Savings and the remaining 29 per cent from external resources. This will mean a current account deficit of 6.5 per cent of the GDP.

The main thrust of fiscal policy during 2008-09 will be on keeping the fiscal deficit within a sustainable limit by furthering reforms in the tax system, broadening tax base, improving tax compliance and minimising tax evasion.

The main objective of the policy will be to allocate resources for development activities, particularly pro-poor expenditure with a view to reducing unemployment and poverty and improving social indicators.

The monetary expansion for 2008-09 will be in line with the projected GDP growth of 6.5pc and CPI inflation of eight per cent. To keep money supply (M2) growth rate in the vicinity of the targeted level and encourage private sector credit, it is imperative that government borrowings be limited to a safe level. This will help in bringing down the CPI inflation and strengthening growth prospects of the economy.

During the fiscal 2008-09, exports (fob) are projected to grow by 15.0 per cent to $21.6 billion from $18.8 billion set for 2007-08. Imports are anticipated to increase by 12 per cent to $37.6 billion owing to higher volume of imported food items, POL, edible oil and fertiliser. As a result, trade account is projected to be in deficit by $15.9 billion or 8.3 per cent of GDP in 2008-09.

The value-addition in major crops is projected to increase by 4.5 per cent to Rs406.4 billion from Rs388.9 billion of the current financial year. Cotton production is likely to increase by 21.1 per cent to 14.1 million bales in 2008-09. The production of sugarcane is targeted at 56.5 million tons, compared to 63.9 million tons achieved during 2007-08, a decline of about 11.6pc.

The wheat production has been projected at 24.0 million tons. Rice and maize productions have been targeted to increase 5.7pc and 3.3pc, respectively.

The value-addition in minor crops is projected to increase by 2.5 per cent to Rs134.2 billion, against Rs131 billion of 2007-08. The livestock sector has been projected to grow by four per cent to Rs623.2 billion against Rs599.2 billion. The mining and quarrying sector is projected to grow by five per cent based on 7.6 per cent increase in extraction of natural gas, crude oil 1.9 per cent, coal 15.2 per cent, limestone 3.5 per cent and rock salt seven per cent.