The country's growth rate has been estimated at 6.4 percent, against 7 percent target of first six months (July-December) of current fiscal, which is mainly attributed to low agriculture output, whereas manufacturing sector data paints a different picture.
The Planning Commission Mid Year Review, a copy of which was made available exclusively to Business Recorder, will be analysed in the meeting of National Economic Council (NEC) on February 28, to be held under the chairmanship of Prime Minister Shaukat Aziz.
"The growth rate of real GDP for 2005-06 has been estimated at 6.4 percent, against the target of 7.0 percent, which is contributed by 3.0 percent growth in agriculture, 12.0 percent in large-scale manufacturing and 6.8 percent in services sector," the document says.
The GDP growth has been estimated on the basis of available data of major crops, large scale manufacturing (LSM), and imports.
The government had projected 4.8 per cent growth in agriculture sector, 9.5 percent in industry and 6.8 percent in services, besides 18.1 percent in investment and 15.9 percent national saving.
The Ministry of Food, Agriculture and Livestock has provided the provisional estimates of four major crops--sugarcane, rice, maize and cotton--and revised target for wheat.
On the basis of data of these five crops, the major crops have been estimated to grow at 1.9 percent in 2005-06 against the target of 6.6 percent, resultantly pulling down the overall agriculture sector growth to 3.0 percent, against the target of 4.8 percent.
The decline in the major crop growth is largely due to reduction in the production of cotton and sugarcane. The combined weight of these two crops in major crops last year was 37.9 percent.
MANUFACTURING:
The Federal Bureau of Statistics (FBS) has furnished the production data of 100 items under large-scale manufacturing for first five months of the current fiscal year. On the basis of this data, the LSM sector has registered growth of 12.0 percent during July-November 2005 over July-November 2004 output.
The actual figure is lower, as cotton yarn growth has been indicated as 25 percent against actual figure of 10-12 percent confirmed by Textile Commissioner and Ministry of Textile Industry.
SERVICES:
The negative impact on wholesale and retail trade due to less-than-targeted output of agriculture and industry is likely to be offset by increased activities on account of earthquake relief and rehabilitation activities, significant increase in the volume of exports and imports, and unprecedently larger inflows of foreign private investment.
Therefore, the services sector growth rate has been estimated to maintain the target level (6.8 percent).
The projected 6.4 percent growth in GDP during 2005-06 has been estimated on the basis of 12 percent growth of LSM as provided by the FBS for July-November. There are, however, indications that LSM growth may be even lower than 12 percent, probably 10 percent, on account of two factors.
First, the sugarcane latest estimates are 40.947 million tons against the previous estimates of 45.886 million tons showing a further decrease of 10.8 percent. Thus, the total decline over last year works out to be 13.3 percent. This would result in a significant decline in production of sugar. As sugar carries 4.15 percent weight in the quantum index of LSM, the decline in sugar production would have significant negative impact on the LSM growth.
Second, less than targeted production of cotton would lead to reduced production of cotton yam and cotton cloth resulting in pulling down LSM growth.
It is also worth mentioning that the production data for 39 items provided by Ministry of Industries for July-December 2005 has shown 5.7 percent increase. If LSM growth is assumed at 10 percent, the overall GDP growth would come down further, to 6.2 percent, the Planning Commission observed.
FOREIGN PRIVATE INVESTMENT:
As per State Bank of Pakistan (SBP) data, the net foreign private investment during July-December 2005-06 showed an increase of 190 percent over the corresponding period of last year. The investment has been recorded at $1462.6 million (FDI $1103.3 million and Portfolio $359.3 million). Last year, net foreign private investment was $504.3 million (FDI $445.0 million and portfolio $59.3 million).
The countries making major contribution to FDI are Saudi Arabia $267.1 million, USA $236.7 million, U.K $87.0 million, Netherlands $54.7 million, Switzerland $46.5 million, and UAE $36.2 million.
The major sectors fetching FDI are telecommunications $304.4 million, power (including $255 millions of KESC privatisation proceeds) $286.6 million, oil & gas explorations $156.7 million, financial business $117.5 million, and petroleum refining $-92.9 million.
The negative FDI of petroleum refining is because of disinvestment of $108 million by Dubai-based company from Pak-Arab Refinery.
FISCAL PERFORMANCE:
For the year 2005-06, the fiscal policy was planned to remain consistent with the fiscal stance already adopted by the government. The main thrust would be on enhancement of revenues through broadening the tax base and improved tax collection by federal, provincial and district governments by adopting facilitative and educative measures for the tax payers.
The main objective of fiscal policy would be to make available adequate amount of resources for social and community-related services, poverty reduction, and development purposes (PSDP) with a view to achieving a growth rate of about 7.0 percent during the year.
For fiscal year 2006, the overall fiscal deficit was set at 3.8 percent of GDP, with revenues 13.3 percent and expenditures at 17.1 percent. Accordingly, the CBR tax collection target was fixed at Rs 690 billion, up by 32.5 percent over collections of 2004-05. The share of direct taxes and indirect taxes in the total collection was anticipated at 31 percent and 69 percent, respectively.
During July-December 2005-06, the CBR collected Rs 323 billion, against Rs 262 billion during the corresponding period of last year, up 23 percent. Of this, Rs 104 billion was collected as direct taxes as against Rs 78 billion during the same period last year, showing an increase of 33 percent. Thus, on CBR tax collection side, the situation is comfortable.
GOVERNMENT BORROWING FOR BUDGET FINANCING:
According to the monetary data, the government borrowing for budget financing from July 1, 2005 to January 21, 2006 (Rs 109.0 billion) has already crossed the annual credit plan target (98.0 billion). This element points to pressure on fiscal situation, which might necessitate revising the fiscal deficit target upward.
MONETARY DEVELOPMENTS:
Credit Plan for the year 2005-06 envisaged 12.8 percent increase in money supply, with credit to private sector stipulated at Rs 330 billion. During the period from July 1, 2005 to January 21 2006, monetary expansion amounted to Rs 209.9 billion (7.1 percent) as against Rs 221.4 billion (8.9 percent) during the corresponding period last year. Major factor for expansion has been the increase in net domestic credit (NDC), which rose to Rs 287.0 billion against the whole year target of Rs 365.0 billion.
Net Foreign Assets (NFA) of the banking system showed a massive contraction of Rs 77.1 billion mainly due to expanding trade deficit of $4.0 billion and repayment of Euro Bonds $0.16 billion during July-December 2005.
Within NDC, credit to private sector at Rs 268.8 billion has been somewhat less than Rs 286.8 billion extended during the corresponding period last year. However, government borrowing for budgetary support amounted to Rs 105.5 billion, which significantly exceeded the borrowing during the same period last year as well as the full year target of Rs 98.0 billion.
The Planning Commission, in its analysis, has said that GDP growth is running below the target. The above-target government borrowing for budget financing points to widening of the gap between the revenue and the expenditure.
The Planning Commission has also said that inflation is slightly above the target while money supply is below last year's level.
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