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Budget deficit reduced from 7.5 to 5.6 pc

Escap commends Pak

economic recovery

ISLAMABAD: Pakistan has succeeded in reducing its budgetary deficit from 7.5 percent of GDP in 1993 to an estimated 5.6 percent in 1995 with further reduction to five percent during the next fiscal year.

This was disclosed at annual economic and social survey by the Economic and Social Commission for Asia and Pacific (Escap) unfolded by Dr Sarfraz Khan Qureshi, Director pakistan Institute of Development Economics,(PIDE), Quaid-e-Azam University at a press conference held here Tuesday at United Nations Information Centre.

Dr Sarfraz further said that curtailment in the budgetary deficit indicated considerable success in approaching the four percent target of budgetary deficit originally agreed with the IMF in the context of the country's adjustment programmes.

The rate of monetary expansion in the economy, he said, had been quite moderate. The government's reliance on commercial bank borrowing rather than outright money creation, along with the slow growth of private-sector credit, contributed to the success in containing monetary expansion.

The exports recorded an increase of nine percent during 1994-95. The increase in 1995 was possible as a result of increased sales of such items as cotton yarn ( an increase of 15.9 percent), cotton fabric (29.8 percent), other made-up textiles (24 percent), rice (89 percent), leather (20.2 percent ) and carpets ( 26.8 percent).

Remittances from overseas workers, an important component of the balance of payments, he said witnessed a sharp rise of 30.2 percent in the first three quarters of the year 1995-96.

Pakistan, Dr Sarfraz said, had a comfortable level of foreign exchange reserves in 1995 which rose from the precarious level of $261 million in 1993 to $2.3 billion in june, 1994 and to $2.6 billion in May 1995.

The real consumption expenditure is estimated to have increased by 5.2 percent in 1995 compared with 0.6 percent in the previous year. The rise can be contributed mainly to an expansion in private consumption while government consumption expenditure remained under restraint as part of government efforts to reduce budget deficit. Real fixed investment in the economy is estimated to have increased at slow rates of around two percent from 1993 to 1995. That growth can be attributed largely to public investment and forJign private investment flow.

The domestic private sector remained largely unresponsive to government efforts to activate it through various incentives and facilities. As a result, the investment- GDP ratio has tended to stagnate around the 20 percent level during the past few years. The savings rate declined to about 15 percent in 1993 and 1994 from about 17 percent during the preceding two years.

Pakistan continued its efforts towards further deregulating and liberalising the economy and attracting foreign investment. In early 1995, the board of investment announced a package of incentives to encourage investment in the electronics, chemicals, and edible oil industries.

The package included reductions in the import duty of components, equipment and raw materials, as well as other tax concessions, he said adding that as part of privatizsation efforts, the sale of assets of public sector enterprises continued.

This included a proposal to sell a certain proportion of the Pakistan Telecommunications Corporation's equity to domestic and foreign private investors. The private sector was being enlisted in the production of electricity under agreements to buy back electricity from the private producers by public entities such as the Karachi Electric Supply Corporation at predetermined prices.

Country's tax structure had been undergoing reforms aimed at giving incentives to the private sector and liberalising foreign trade. The 1995/96 budget reduced corporation income tax rates from 49 to 46 percent while the minimum rate of import duty was reduced from 70 to 65 percent.

Import duty concessions were granted to capital goods and inputs used in the textiles, engineering and electronics industries. However, in October 1995, along with a seven percent devaluation of the Pakistani rupee, domestic prices of petroleum were raised by an equal percentage and temporary regulatory duty of 10 percent was imposed on all dutiable imports, subject to the condition that the maximum tariff would not exceed 65 percent. These measures on expected to stimulate domestic output and reduce pressure on the balance of payments, while enhancing fiscal revenue, the report said.-APP