Islamabad eyes four percent GDP growth next year

[Neo]

Islamabad eyes four percent GDP growth next year

ISLAMABAD (April 07 2010): Pakistan's economy is likely to grow by 3.3 percent in the year to June 30 and strong manufacturing and steady farm growth have raised hopes of 4 percent growth next year, government officials said on Tuesday. Pakistan has struggled to keep its economy afloat with the help of a $11.3 billion loan from the International Monetary Fund.

Gross domestic product (GDP) growth in the 2008/09 fiscal year (July-June) slipped to 2 percent, tantamount to recession in a country with annual population growth of more than 2 percent.

But a rejuvenated manufacturing sector and prospects of stability in the farm sector have raised hopes for up to 4 percent growth in 2010/11, said officials at the Planning Commission, which has a main role in drawing up the budget. "With the economy showing signs of stability, there is no reason why we can't achieve up to 4 percent growth next year," said one of the officials, who declined to be identified.

Another commission official said that for this year, it would be realistic to assume about 3.3 percent GDP growth. The SBP last week kept its economic growth projection for this year at 2.5-3.5 percent. "The manufacturing sector has shown strong signs of revival and we are also seeing stability in agriculture growth," said the second official.

Large-scale manufacturing grew by 2.3 percent between January and July this year, after a 5.4 decline in the whole of the 2008/09 fiscal year. "Growth in the agriculture sector is likely to be about 3 percent, which is lower than the 4.7 percent last year, but still it has a stable outlook," said the first official. The budget for the 2010/11 is expected to be announced in the last week of May.

The 2009/10 fiscal deficit, originally targeted at 4.9 percent of GDP, was expected to be 5.2 percent this year, the officials said, attributing the wider deficit to the slow arrival of funds promised by allies. "The aid that was promised did not materialise and that certainly created a squeeze on the fiscal side," said the second official. The SBP last week raised its fiscal deficit forecast to between 5.0 and 5.5 percent from a previous forecast of 4.7-5.2 percent of GDP for this fiscal year.

Last year, Rs 178 billion ($2.11 billion) of aid from the Friends of Pakistan, who pledged $5.7 billion in April 2009, was factored in to the budget. But only a fraction of that has arrived, forcing the federal government to cut development spending by 25 percent to Rs 300 billion for the 2009/10 year and holding back growth, the officials said.

"For next year, development spending by the federal government is again being targeted at Rs 300 billion," said one of the officials. The overall development budget, known as the Pubic Sector Development Programme, which includes projects funded by provincial governments, was Rs 646 billion in 2009/10.

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