ISLAMABAD: The Annual Plan 2011-12, expected to be approved by the National Economic Council (NEC) on Saturday, seeks to focus on reducing energy shortages, interest rates and inflation during the next financial year with resource mobilisation measures like reforms in general sales tax and new taxes on wealth, services and agricultural income.
Prime Minister Yousuf Raza Gilani will preside over the meeting which will be attended by the four chief ministers, the prime minister of Azad Kashmir, Chief Executive of Gilgit-Baltistan, Governor of Khyber Pakhtunkhwa, provincial ministers for finance and planning and federal ministers.
The plan sets GDP (gross domestic product) growth rate at 4.2 per cent against 2.4 per cent expected during the current year.
Major contributors to this will be agricultural growth at 3.2 per cent, industrial growth at 3.1 per cent and 5 per cent improvement in services.
“Growth will rest primarily on revitalising the industrial sector by curtailing energy shortages and high interest rates that are presently discouraging the private sector from investing”, said Secretary Planning Sohail Ahmed in his summary sent to the NEC, a copy of which is available with Dawn.
Emphasis would be on restoring agricultural activity after the devastating floods that not only affected growth targets but also caused economic and social losses, he said.
The target rate of inflation (CPI) for 2011-12 has been set at 13 per cent against the revised estimate of 15 per cent for the current year, which was originally set at 9.5 per cent when last year’s budget was announced. “Taking into account ramifications of rising inflation during the last three years, price stability will be the top priority goal of the annual plan,” according to the summary.
It said: “Main focus of fiscal policy during 2011-12 would be to bring fiscal deficit to a manageable level by building consensus among all stakeholders for imposition of the RGST, wealth tax (and) capital gains tax; bringing the untaxed services sector under the tax net; imposing tax on agriculture income in order to broaden the tax base and addressing governance issues in resource mobilisation.”
The government will focus on managing its current expenditure by implementing austerity measures (approved by the cabinet two years ago), minimising untargeted subsidies and restructuring of public sector entities.
The development expenditure will be diverted to priority sectors like energy, water, human capital, innovation and technology transfer to lay foundation for long-term sustainable economic growth.
The NEC will ask provincial governments to lead their development programmes by directing resources to national priority sectors, mainly because of the completion of the devolution plan under the 18th Amendment on July 1 this year with the transfer of 18 federal ministries to the provinces.
Provinces will also be asked to generate cash surpluses in view of enhanced provincial share under the new NFC award to help the federal government limit fiscal deficit, attain higher tax-to-GDP ratio and adhere to the Fiscal Responsibility and Debt Limitation Act 2005.
The government expects to achieve an industrial growth rate of 3.1 per cent next year, with mining and quarrying growing by 1 per cent, manufacturing by 3.7 per cent, construction by 2.5 per cent and electricity, gas and water supply by 1 per cent.
Increased demand for construction after floods and uninterrupted power supply tariff for industrial zones should help revive industry.
During the current year, industrial sector was particularly hampered by electricity and gas shortages, resulting in a decline in production by 0.1 per cent.
The services sector is expected to grow by 5 per cent next year with the main contribution of 4.5 per cent growth coming from transportation, storage and communication.
The projected total investment to GDP ratio is 13.7 per cent with fixed investment at 12.1 per cent, while national saving is projected to be 13 per cent of GDP during the next fiscal, with national investment and saving gap at 0.7 per cent.
CORRIGENDUM: The government has set a tax revenue target of Rs2.1 trillion which is 23 per cent above the current year’s revised target of Rs1.71 trillion and not 2.3 per cent as printed on Friday in a report on next financial year’s budget.