Pakistan aims to keep deficit at 5pc of GDP, says Shaikh


KARACHI – Pakistan will aim to keep its budget deficit at five percent of gross domestic product (GDP) in the fiscal year 2010-11, Federal Finance Minister Hafiz Shaikh said on Saturday. “For this (fiscal) year, we will try to not let the fiscal deficit go beyond five percent,” Shaikh said after launching a margin trading system at the country’s main stock exchange. The 2010-11 fiscal year runs from July to June.
“This might not be possible but we will try our best.” The budget deficit for the six months ending December 31 was 2.9 percent of GDP. Pakistan, which is struggling to deal with extreme political instability in which two senior officials have been killed this year, revised last November its budget deficit target to 4.7 percent of GDP. That figure was agreed with the International Monetary Fund (IMF) after floods last year, which caused damages of around $10 billion.
Analysts say Pakistan’s 2010-11 budget deficit could widen to as much as eight percent, higher than the central bank’s forecast of between 6.0 and 6.5 percent if fiscal reforms are not implemented. The IMF team is in Pakistan conducting a review of the economy for the possible release of the sixth tranche of an $11 billion loan programme agreed in November 2008.
Policy level talks are expected to start on Monday. The IMF has said Pakistan must end subsidies and raise taxes, including implementing changes such as a reformed general sales tax (RGST). Pakistan’s tax-to-GDP ratio is only about 10 percent, one of the world’s lowest. “If the approval of RGST takes a lot of time, then yes other steps would have to be taken,” said Shaikh.
The government introduced a bill in the National Assembly last November on RGST, but the Pakistan People’s Party-led government faces fierce opposition. Critics say it will fuel inflation and further deepen public frustrations. In December, the IMF approved a nine-month extension of Pakistan’s $11 billion loan, which was due to end last year, to give authorities time to complete the implementation of key fiscal reforms. The extension runs to Sept. 30, 2011. Last May, Pakistan received $1.13 billion in the fifth tranche.