ISLAMABAD: Showing signs of a popular budget ahead of the next year’s general election, the government on Thursday decided to maximise spending in 2017-18 with a six per cent growth target for the national economy.
As a consequence, Prime Minister Nawaz Sharif agreed to relax the limit for the fiscal deficit for the next three years. Incentives will be provided to the farmers’ community and key investments will focus on the China-Pakistan Economic Corridor (CPEC), energy, communications and poverty reduction, according to an official announcement.
Presiding over a meeting of a select group of his cabinet colleagues, the prime minister also approved the Budget Strategy Paper (BSP) 2017-18 presented by Finance Minister Ishaq Dar. It was perhaps the first time in the last 15 years that the BSP was not shared with the entire federal cabinet even though it used to be presented to parliamentary committees for wider expert input.
However, the prime minister’s office said the government will aim to bring down the fiscal deficit to 4pc of gross domestic product (GDP) in 2020. This is significantly higher than the targets approved by parliament last year that put the current year’s fiscal deficit at 3.8pc and 3.5pc for 2017-18 and 2018-19. The fiscal deficit has already gone beyond 3.7pc of GDP in the first nine months of the current year.
Despite this expansionary fiscal policy, the government also reduced the economic growth rate target for the next year to 6pc instead of 6.2pc in view of slower-than-anticipated GDP growth during the current year. Sources said the BSP estimated the next year’s revenue target at around Rs4.1 trillion while the size of the federal budget is around Rs4.74tr.
The prime minister said the government is determined to increase investments in both human and physical infrastructure. Hence, highest priority will be accorded to an increase in the development budget and poverty reduction. “The time has come for the nation to reap the benefits of economic policies of the government,” a statement quoted him as saying.
The prime minister said measures should be taken to discourage hundi and other informal channels for money transfers in order to increase remittances through regular channels. He also appreciated the fact that the stock market capitalisation will soon touch $100bn.
Briefing the meeting, Mr Dar said a medium-term macroeconomic strategy has been devised to increase foreign reserves and reduce the fiscal deficit. “As per the Fiscal Responsibility and Debt Limitations Act, the fiscal deficit of the federal government will be brought down to 4pc of GDP by June 2020,” he said.
Mr Dar said the upcoming budget will demonstrate fiscal prudence while focusing on key investment sectors. He said fiscal prudence will provide impetus to lower inflation, higher investments and lower public debt. He said the government has initiated a study on the revaluation of GDP as many sectors are currently not fully recorded in the national accounts.
For 2017-18, he said the government aims to achieve 6pc economic growth and increase revenue generation. He expressed resolve to provide incentives to farmers as the prime minister’s agriculture package announced last year has yielded positive impact on the output. It is demonstrated by bumper crops of sugarcane, wheat and maize, he said.
Finance Secretary Tariq Bajwa made a presentation on the current state of the economy, outline of the 2017-18 budget and medium-term macroeconomic framework. He said Pakistan’s economy was moving in the right direction and inflation remained 4.09pc in the first nine months of the current fiscal year.
He said that credit to the private sector grew 53pc and agriculture credit rose 23pc in the first 10 months of 2016-17 on a year-on-year basis. In order to achieve 6pc economic growth, measures will be taken to enhance growth in agriculture, industrial and services sectors, he said.