ISLAMABAD, Dec 23: Pakistan continues to face the challenges to attract investment, generate employment and reduce poverty while losses of its public sector entities have either worsened or remained unchanged, says the Asian Development Bank (ADB).

Marshuk Ali Shah, the ADB’s country Director in Pakistan also cautioned that country would face price pressure in the near future (about six months) and the corporations like Wapda and KESC needed a more careful watch, although overall GDP growth rate may surpass the 5.3 per cent annual target.

He was speaking at a news conference here on Tuesday to release quarterly “Pakistan-Economic Update (July-September 2003)”. The ADB’s senior economic adviser Naved Hamid said the interest rates in Pakistan have bottomed out and would start rising but could not be predicted how much and when.

The two ADB officials also showed concern over a discernible slowdown in the tax collection in the first quarter of the current fiscal year, more importantly the GST collection which could jeopardise the fiscal deficit target.

They, however, expressed the hope that robust growth in the real sector of the economy, presence of a number of factors conducive for growth, recent improvement in relations with India would improve investment climate and give a boost to economic activity. They also highlighted the emergence of non-traditional sectors like telecom and IT sectors to support the overall growth but said there was no data available on these sectors to justify this suggestion.

They also pointed out that poverty related expenditure on some core sectors like primary and secondary education and water supply and sanitation “has either stagnated or declined substantially, which is of concern from the perspective of poverty reduction.”

Naved Hamid said most of the indicators showed that economy was healthy, growing faster and its fundamentals moving in the right direction, but agreed that reliable data on un-employment and poverty was not available. Based on growth numbers, he said, one should expect decline in unemployment and poverty as each quarter showed economic build up.

Asked about reduction in foreign remittances and foreign investment during the first quarter of the year, Naved played it down saying one should not take “one-offs” to aggregate the figures. He pointed out that higher FDI last year was due to an expansion by ICI-Pakistan and there was a drop in remittance on account of compensation payments to the Kuwait-war victims.

The Pakistan Economic Update said after a sharp increase in fiscal 2003, there was a discernible slowdown in tax collection in first quarter of fiscal 2004. The slow-down in gross collection of direct taxes may be partly attributable to tax measures announced in fiscal year 2003 budget.

The decline in GST on domestic production, despite continuing recovery of domestic economic activity, may be partly explained by advance payments of GST last year by Pakistan Telecommunication Company Limited (PTCL) and electric power generation and distribution companies and consequently lower payments in the first quarter of fiscal year 2004.

Collection from these two sources was less than half that in the corresponding quarter last year. However, it is not clear why GST from these two sources was still only 1.8 per cent higher than last year when production was significantly higher, the ADB said.

The bank said Wapda, for which financial performance showed a sharp increase in fiscal 2003 but improvement in its cash flow was mostly due to exogenous factors like increased availability of water and resulting higher generation of hydel power.

Total transmission and delivery losses remained more or less unchanged and collection of bills worsened in the case of Wapda. Line losses of KESC in the first quarter of fiscal 2004 were also two per cent higher than the target for the quarter.

On the poverty reduction front, expenditure on 12 core sectors together registered an increase of only 10 per cent in fiscal 2003 compared with previous year. Expenditure on water supply and sanitation (WSS) declined by 29.7 per cent. The decline may be because of inadequate implementation capacity at tehsil level and lack of clarity in relation between district and tehsil governments as well as between concerned provincial departments and tehsil governments.

Within the education sector, in fiscal 2003 there was a discernible shift in expenditure from primary and secondary education to university and professional education. Expenditure on primary education declined by 4.4 per cent and that on secondary education increased by only 4.1 per cent.

On the other hand, expenditure on general college and university education increased by 51.2 per cent and that on professional education by 15.4 per cent. While large increase in expenditure on higher education is a positive development, it should not come at the expense of spending on primary and secondary education, as basic education indicators for the poor, who benefit the most from primary and secondary education provided by the public sector are extremely low and need considerable improvement.

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