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 ISLAMABAD: The Annual Plan Coordination Committee (APCC) approved next year’s economic strategy on Friday with focus on tight fiscal and monetary policies. It set a nominal growth target of 4.2 per cent with double-digit inflation for the upcoming financial year, suggesting that economic conditions will remain fragile for another year.The committee approved a macroeconomic framework that revolves around levying reformed General Sales Tax, wealth tax, tax on agricultural income and netting the services sector to its true potential. The strategy emphasised on increasing the tax base for getting rid of foreign dependence. In the given circumstances, it expected a net Rs151 billion ($1.7 billion) addition to foreign loans. The framework states that next year’ total investment in the country will grow to 13.7 per cent of the total size of economy, which is a mere 0.7 per cent above the level of the outgoing fiscal year. “The role of investment in the form of foreign direct investment will be highly dependent on the law and order situation, infrastructure investment and introduction of reforms to create conducive environment,” APCC said. Total investment grew to 13.4 per cent in the outgoing fiscal year, which was the lowest figure in 40 years, said finance ministry’s former economic adviser Dr Ashfaque Hasan Khan. He said that the drop in investment is a very dangerous sign that shows there is no growth in capital formation, as investors are not ready to invest due to the worsening conditions. The government approved a plan that has nothing in it to encourage national savings. It has targeted to keep national savings at 13 per cent of the total size of economy, which is mere 0.1 per cent more than the outgoing fiscal year’s growth. APCC set growth target at 4.2 per cent on the projections of healthy growth in the services sector and nominal growth in agriculture and industry. The growth target suggests the government will focus more on fiscal consolidation instead of taking measures to spur the economy. In the outgoing fiscal year, the economy grew at a rate of 2.4 per cent that was slightly above the population growth rate of 2.1 per cent and lower than the labour growth rate. APCC approved 13 per cent inflation target, suggesting the process of increase in petroleum products and electricity prices would continue next year as well. The government had targeted to restrict inflation at 9.5 per cent for the outgoing fiscal year but latest estimates of the central bank and the finance ministry put it above 15 per cent. The approved plan showed that Pakistan will retire $1.2 billion International Monetary Fund loan next year. The plan also accounted $12 billion remittances next year against $12.1 billion in the outgoing financial year. The export target has been set at $25.8 billion while import target has been fixed at $38.1 billion. The plan states that monetary expansion for the year 2011-12 will be in line with the projected GDP growth of 4.2 per cent and inflation at 13 per cent. “To keep M2 growth (money circulation) rate in the vicinity of the targeted level and to encourage private sector credit, it is imperative that government borrowings be limited to the safe level,” states the framework. Published in The Express Tribune, May 14th, 2011. |
