ISLAMABAD, June 14: Pakistan's annual budget, presented at the weekend, marked a shift in fiscal policy toward growth and away from narrowing the deficit, international credit rating agency Standard & Poor's said on Monday.

S&P still saw the government reducing public debt, despite the switch in emphasis as Pakistan prepares to complete an International Monetary Fund assistance programme by the end of the year.

"The more gradual fiscal consolidation is, however, not expected to reverse the downward trajectory of public debt, which is estimated to fall to 85 per cent of GDP by end-June 2004," S&P said in a statement issued in London.

Setting the 2004-05 budget, Finance Minister Shaukat Aziz fixed a fiscal deficit target of four per cent of GDP, with an aim to bringing it down to three per cent by 2007. The deficit for the year ending on June 30 is seen at 3.9 per cent of GDP.

The fiscal deficit averaged seven per cent in the 1990s but has come down under Aziz's stewardship, encouraged by the IMF which bailed out Pakistan with a standby loan in 2000 and a poverty reduction growth facility a year later.

But after notching up growth of 6.4 per cent in 2003-04, Mr Aziz is looking for expansion averaging eight per cent over the next three years by cutting a little bit of fiscal slack, while keeping inflation at no more than five per cent.

Looking at the fiscal deficit, S&P raised concerns over the government's political will in raising revenues from a country where there are fewer than two million taxpayers out of a population of 150 million people.

"This slower fiscal consolidation, while partly due to increases in development spending, is also a reflection of the government's inability to increase revenues significantly, notwithstanding the improved economic growth," S&P said.

It said the budget showed the government planning to increase revenue collection by 4.6 per cent to Rs796 billion, but Pakistan's revenue collection is below most other government's carrying S&P's "B" credit rating. -Reuters