Government to set 4.4% economic growth rate target: Dar

[Edevelop]

ISLAMABAD: The cash-strapped government on Tuesday set a target of 4.4% economic growth over the next fiscal year along with the challenge of arresting the soaring power crisis, finance minister Ishaq Dar said as he unveiled the national Economic Survey for the outgoing fiscal year 2012-2013.

“We have set the target for GDP growth rate at 4.4%percent,” Dar told a press conference on the eve of a federal budget presentation in the new parliament.

The new government of Prime Minister Nawaz Sharif’s Pakistan Muslim League-N faces a daunting array of problems ranging from an energy sector crippled by $5 billion of debt to dwindling foreign exchange reserves, all the while facing down a Taliban insurgency.

Dar said that the GDP growth rate in the current fiscal year ending on June 30 remained at 3.6% against a target of 4%.

He said that the fiscal deficit which had run to 4.7% would be curtailed by his government through “strict financial discipline”.

Power crisis

The finance minister revealed that the government had bloated borrowing to Rs14 trillion by giving subsidy, bridging the budget gap and in trying to service the increasing circular debt.

“The rate at which the ministry of finance has taken on circular debt, it is not sustainable.”

For their plan to address the power crisis, Dar said that the new government will start by addressing the circular debt that stands at over Rs500 billion. They will also reduce line losses to reduce the cost of providing electricity.

“We want to do it in minimum possible period and just finishing off this debt will not solve the problem unless we reduce our line losses or thefts which were more than 30%.”

The finance minister noted that non-payment of bills was also a major issue. “We will not only reduce it, but minimise it. We will try to resolve this problem of non-payments.”

He said an aggressive plan has been prepared to take the issue of circular debt head on and it would be eliminated within 60 days.

“We will need to address all the causes of loadshedding.”

Investment to GDP ratio

The Finance minister lamented that previous government had a very poor investment to GDP ratio and they aim to address this.

“We will bring the GDP back to 7%,” Dar said. “We believe if the economy is revived, terrorism can easily be dealt with.”

He said the outgoing government had borrowed extensively, even in violation of set rules.

“This is not sustainable,” Dar continued. “You’re not investing in dams, hydraulic projects or expressways and the rise in debt is self-servicing. This is also in direct violation of the public sector act.”

The rise in borrowings will only end up being a burden for the future generations, he said.

Dilating about the overall debt, he said it is set to cross Rs14 trillion by the end of June, 2013. Giving a break up, he said that the debt had risen by as much as Rs7.5 trillion only in the past five years.

“We will tackle the debt situation head-on, so that the power crisis can be resolved,” said Dar, though it was not going to improve in the short term. “Budgetary deficit was targeted at 4.7% but it would be around 8.5%.”

Currently, the country is facing a shortfall of Rs350 million in tax recoveries. He said, the government will empower the tax recovery system with technology so that no one is able to evade tax illegally.

“We will devise a progressive budget,” Dar said “and do away with the fiscal debt in two months.”

“Our stance on inflation is that it should remain around 8%. We will try not to add to that.”

Efforts will also be made to mitigate misuse of authority, to restore the confidence of investors, to hire new people on merit particularly in loss-making organisations such as PIA, Steel Mills etc. and to stay true to the plan chalked out by the Prime Minister Nawaz Sharif, Dar concluded.

Balance of Payments

The Finance minister, stressing on transparency, said that the country has a current account deficit of $2.9b while the State Bank has foreign reserves of just $6.2b.

The fiscal deficit, he said, stands at 4.7% of the GDP.

“It will be our endeavour to reduce this to 4% in the next three years.”

Public sector spending

Dar suggested that one of the major reasons for the structural collapse of the government is the lack of public sector spending and capital flight.

“We plan to increase public sector spending to Rs540 billion, and this will be by the federal government.”

He also promised that they will try to restore the confidence of investors. “People do not have confidence in us to do what we promise to do. We will try to address it and restore confidence of investors.”

3G licence

Dar said licenses for 3-G spectrum of mobile phone would be auctioned in a transparent manner in order for the mobile industry to grow further.

Fresh loans to pay old ones

Dar said that he had no option but to continue the old practice of getting fresh loans to pay old ones.

“There is no money to make heavy debt repayments by December and I think that in this situation, there is no harm in taking more loan to repay old debt,” Dar said.

The country is still paying off an $11.3 billion International Monetary Fund loan from 2008. Analysts have said it will need to go back to the lender for more to stave off a balance of payments crisis.

Government to set 4.4% economic growth rate target: Dar – The Express Tribune

 

[SHAMK9]

Very low for a country like Pakistan

 

[Edevelop]

Very low for a country like Pakistan

Well it would be better than current 3.6% left by PPP... First year for any new government is always about restructuring. Lets hope they achieve up to 7% growth rate as promised by the end of 2018.

 

[Jungibaaz]

Well it would be better than current 3.6% left by PPP... First year for any new government is always about restructuring. Lets hope they achieve up to 7 % growth rate by the end of 2018.

Still, the jump (not much of a jump) from 3.7% to 4.4% could have been achieved under last government, not owing to economic reform, but simply due to global economic recovery.

Anyway, lets give NS a fair chance.

We shouldn't expect him to pull off 5+% growth in the first year.
Remember, the fiscal year begins in July.

 

[farhan_9909]

the target should had been no less than atleast 5%

since the target is set at only 4.4%..we will achieve something around 4%

 

[aamerjamal]

the target is very low but is due to electricity shortage, other wise KSE clearly shows some indication about future growth.

 

[PakPrinciples]

If Pakistan raises its tax to GDP ratio to 17% to meet its yearly budget (just like China and India) we could use some (ex. 4.5%) if not all of the extra 7% the first year to finance combined cycle natural gas plants along with possibly using solar the funds can be raised in a year.

There are varying estimates but the most recent article I saw actually had the shortfall pegged at 4000 MW. A combined cycle natural gas plant costs $1500/KW of installed capacity so to meet the shortfall you would need an investment of $6 billion. 7% of our current GDP would be approximately $16.5 billion. We can even add on an additional 2000 MW of solar to meet peak energy demands which is costlier but the fuel source is free and considering the number of sun hours the country gets as well as it's solar inoculation rate its a good investment/profitable (current rates have solar set at $3000/KW installed capacity as per a South Korean firm that wanted to build a solar plant in Balochistan) and saves our natural gas sources for when we need it (ex. night times, during periods of little to no sunlight). Otherwise, we can simply add on another 2000 MW of combined cycle natural gas plants or even invest in Hydro (we need to build Kalabagh dam which is the absolute cheapest option) and raise an additional 1% a year on future taxes (i.e. tax to gdp of 18%) to put towards future electricity generation projects to ensure that an future crisis is averted.

What is weird is that Pakistan is building a $9.5 billion dollar nuclear power plant (1100 MW installed capacity) in Karachi at a cost of over $8500/KW when that investment could have actually met the monetary requirement Pakistan needed to end the energy crisis to begin with.

After the crisis is resolved the country would be growing about 8+% a year (we lose about 3 to 4% growth every year because of the electricity shortfall). In fact we could grow a lot faster if corruption is tackled but for now the energy shortfall is the main concern.

Pakistan has done a phenomenal job, as per the World Bank, in granting access to electricity to its population especially in comparison to India so the country should also be proud of its accomplishment.

However, even though 4.4% is definitely a lot better than 3.6% I do not see why we cant quickly get back to 8% growth considering what I have already stated above.

 

[Pandora]

Very low for a country like Pakistan

For next financial year this target is reasonable so lets hope they can achieve it.

 

[Cyberian]

Too low, disappointed. But I guess we don't have a choice as its the first year of the new Government.

At least they're honest about it.

 

[A.Rafay]

4.4% is not bad too considering the woes which Pakistan suffers from, The 2nd year target should be set at 7% or above.

 

[Edevelop]

Global recession. Even China and India, most talked about, have slowed