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EAB reviews performance

5 percent economic growth expected by 2003, inflation below 6pc

Recorder Report

ISLAMABAD: The Economic Advisory Board on Monday discussed the prospects of economic growth over the medium-term and reviewed the performance during the current fiscal year.

Presided over by Finance Minister Shaukat Aziz, the fourth meeting of the Board noted that, based on the early signs of recovery and picking up of economic activity during the current year, economic growth in the coming years up to 2003 would be around five percent, with relative price stability as inflation would be less than six percent.

An interesting feature was that fair and frank discussion, in which all members participated, took place about statistics. It was noted by some that the government should "develop stronger basis for a somewhat optimistic macro-economic framework" while another view was that the statistics " do not reflect the true pace of recovery. There was considerable under-reporting and the real growth may be higher than that reflected in the current growth rate"

The case in point was of cotton production. While the Cotton Committee estimated its production at 11.2 million bales, the ginning industry reported only 9.7 million bales, creating strong suspicions of leakages, as in the former case large-scale industrial growth would be much higher than 5.6 percent.

The Board meeting was attended by for Commerce Minister Abdul Razak Dawood, Communications Minister Syed Iftikhar Ali Shah, Food & Agriculture Minister Shafqat Ali Shah Jamote, Science & Technology Minister Dr Atta-ur-Rehman, Member, National Security Council Shafi Niaz, Punjab Finance Minister Shahid Kardar, Privatisation Commission Chairman Altaf Saleem and EPB Chairman Tariq Ikram.

The meeting discussed the macro-economic framework, in detail, for the uplift of economy and reducing the incidence of poverty.

A press release said that the meeting was briefed about the medium-term macro-economic framework and was informed that during the period 2000-2003 the economy is likely to achieve a growth rate of 5 percent, with relative price stability as inflation will be below 6 percent.

The Board was informed that the tax collections would increase from 10.3 percent to 10.8 percent of GDP in the current fiscal year. The Tax-to-GDP ratio envisaged would increase gradually over the medium-term plan, with emphasis on direct taxes and sales tax collection. Excise duty would be gradually declining and customs duty would remain more or less at the same level as a percentage of GDP over the medium-term. The reliance on surcharges for revenue purpose will decline.

On the expenditure side, the Board was informed that in the medium-term, current expenditure as a percentage of GDP would decline but development expenditure to GDP ratio would increase. This increase in development expenditure will become a vehicle to revive economic activities in the country and substantial amount will also be devoted to various programmes of poverty reduction. The Board was informed that as a result of revenue and expenditure projection, the debt-to-GDP ratio as well as debt-to-revenue ratio will improve in the medium-term.

Earlier, the Board reviewed the economic performance of the country during the current fiscal year and noted that there were early signs of recovery and that economic activity was gradually picking up the pace.

The meeting was informed that the industrial sector grew by 5.6 percent during July-February, exports by 8.9 percent and imports by 3.1 percent during July-March.

It was noted that import of food items had registered a decline as against POL imports, which alone showed an increase of $972 million due to increase in the oil prices at the international level.

In agriculture sector, all major crops exceeded the target which included rice, cotton and onions, except the sugarcane which registered a decline. Wheat estimates indicate that the target for the current crop would be achieved. It was also noted that the target for minor crops would be achieved as well.

On tax revenues, the Board was informed that the CBR had collected 17.8 percent more revenue on net basis and, so far, 66 percent of the total revenue target for the year was achieved during the past eight months. The stock market was indicating a positive trend and had almost doubled during the current fiscal year.

The exchange rate has been stabilised and reserves were adequate at $1.5 billion despite significant easing of restrictions on repatriation of foreign exchange and prompt payment of trade and loan obligations.

Later, the meeting reviewed government reforms programme in the area of capital market and business and finance.

Throughout the meeting there was a fair and frank exchange of views and all members of the Board participated in the discussions. Some members expressed the opinion that the government should make greater efforts to develop stronger basis for a somewhat optimistic macro-economic framework. There was need to clearly identify the areas that would unleash the growth, the specific policy actions that would do so and the impact they will have on the economy. Only such a basis would give a true appreciation of the confidence one can have on the macro-framework.

Another view was that the statistics do not appear to fully reflect the true pace of recovery. It was felt that in many areas, such as industrial production, there was considerable under-reporting and the real growth may be higher than the one reflected in the current growth rate. In particular, it was pointed out that the estimates of the Cotton Committee in the Agriculture Division showed that the cotton crop was 11.2 million bales whereas the ginning industry data reported arrival of only 9.7 million bales. This leakage has to be accounted for to truly measure the size of industrial growth, which is very likely to be substantially higher than the 5.6 percent growth reflected in the large scale manufacturing data.

Some members were of the view that in every policy discourse, a clear impact analysis on human development should invariably be presented. In particular, efforts should be made to develop reliable and timely statistics on the unemployment rates and incidence of poverty. In this connection, it was also pointed out that although Pakistan has a very low tax-to-GDP ratio, a measure that would reflect the contribution of the ordinary man and his access to government services would be to compare the welfare adjusted tax-to-GDP ratio. This would call for adjusting the revenues.

The meeting was also briefed on the on-going discussions with the IMF mission.