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The fiscal year 2008-2009 which areas as priorities for deep, broad The comparison of GDP growth in
started with macro economic ranging and sustained policy various sectors as per revised
asymmetries and increasing intervention for new equitable estimates for 2007-08 and
exposure of vulnerability of economic growth. The nine point projections for 2008-09 is
sustainable growth model, was medium term plan has been: summarised as follows:
further adversely affected by
2007-08 2008-09
unprecedented set of challenges Macroeconomic stabilisation
Economic Economic
during 2008-09. The key and real sector growth Survey Survey
07-08 08-09
challenges were domestic security
GDP (FC) 5.8 4.1 2.0
and political challenge, stabilisation Protecting poor and vulnerable
GNP (FC) 6.1 4.1 2.6
plan to address policy induced through social development
Commodities
macro economic balance, including social protection Producing
deterioration in external terms of Sector 3.2 1.4 0.2
Agriculture 1.5 1.1 4.7
trade compounded by supply Agriculture – increasing
Major Crops (3.0) (6.4) 7.7
shocks, adverse effect of turmoil in productivity and value addition
Minor Crops 4.9 10.9 3.6
global financial markets and
Livestock 3.8 4.2 3.7
deepening of the global financial Industrial competitiveness
Manufacturing 5.4 4.8 (3.3)
crisis, in the form of collapse of
Large Scale
external demand for exports and Human capital development Manufacturing 4.8 4.0 (7.7)
decline in availability of external Small Scale 7.5 7.5 7.5
capital to finance twin deficits. Integrated energy development Construction 15.2 (3.9) (10.8)
programme Electricity,
Gas
The macro economic asymmetries Distribution (14.7) (22.0) (3.7)
are gradually being ameliorated, Capital markets to mobilise Service Sector 8.2 6.6 3.6
but the outlook for the economic capital and finance for Finance and
growth remained pessimistic which development Insurance 17.0 12.9 (1.2)
© 2009 KPMG Taseer Hadi & Co, the Pakistan member firm of KPMG International, a Swiss cooperative. All rights Budget Brief 2009 9
reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
In the context of the above The overall position of inflation, than exports for the
scenario, the economic data based on CPI (Consumer Price corresponding period of last
indicates a sharp decline in the Index), has been as follows: year. The projected exports for
GDP growth from even the the year are expected to be
2007- 2007 2008
revised target of 4.5 percent to 08 -08 -09 US$ 19 billion.
2 percent which was mainly (Jul- (Jul-
Apr) Apr) Imports were targeted at US$
caused due to failure to
Overall inflation 12.0 10.2 22.4 37.2 billion. However, the
generate growth in Food inflation 17.6 15.0 26.6 imports for the ten months
manufacturing sector resulting Non-food inflation 7.9 6.8 19.0
have been US$ 29.0 billion and
in a major drag on the growth Core inflation 8.4 7.5 17.8
SPI (Sensitive Price 16.8 14.1 26.3 are showing a decrease of 9.8
achieved through agriculture. Index) percent, as against 28.3
Further, even the service WPI (Wholesale 16.6 13.7 21.4
Price Index) percent increase last year. The
sector did not achieve the
overall imports are projected at
expected growth mainly due to
The structure of savings and around US$ 31 billion.
decline in finance and
investment as a percentage of
insurance sector by 1.2 Trade deficit has decreased to
GDP is as follows:
percent as against the growth US$ 14.2 billion in the first ten
of 12.9 percent according to Description
(Percent of GDP) months as against US$ 16.8
revised estimates of 2007-08. 2005- 2006- 2007 2008 billion, for the corresponding
06 07 -08 -09
period, last year.
GDP growth of 2.0 percent in Total
investment 22.1 22.5 22.0 19.7
2008-2009 (2007-2008 4.1 Current account deficit during
Changes
percent) has been contributed in stock 1.6 1.6 1.6 1.6 July – April 2008-09 has been
as follows: Gross US$ 8.5 billion as against US$
fixed
Sectoral Contributions to the investment 20.5 20.9 20.4 18.1
11.2 billion in comparable
GDP growth (Percent Point)
- Public
period last year, showing an
2006- 2007- 2008- Investment 4.8 5.6 6.9 4.9 improvement of 23.5 percent.
07 08 09
- Private
Agriculture 0.9 0.24 1.00 Investment 15.7 15.9 15.2 13.2 Remittances are of US$ 6.4
Industry 2.3 0.45 -0.92 Foreign billion for the last ten months
Savings 3.9 5.1 8.5 5.3
Services 3.6 3.41 1.92 against US$ 5.3 billion for the
National
Real GDP 6.8 4.10 2.00 corresponding period.
Savings 18.2 17.4 13.5 14.3
Domestic
Per capita income increased Savings 16.3 15.6 11.5 11.2 Foreign exchange reserves
by 0.3 percent in dollar terms stood at US$ 11.6 billion in
from US$ 1,042 to US$ 1,046 The overall Fiscal deficit for May 2009 against US$ 11.4
per annum. 2008-09 was targeted at Rs. billion as of June 2009. The
582 billion i.e. 4.3 percent of reserves as of May 2009 were
The target for inflation for the sufficient for 18.0 weeks of
GDP which is expected to be
year was set at 12 percent . Rs. 562 billion i.e. 4.3 percent imports, up from 16.8 weeks in
However, as of 30 April, it has June 2008.
of GDP.
been at 22.4 percent and the
average for the year 2008-09 is Exports were targeted at US$ The overall foreign investment
expected to be 21 percent i.e. 23.0 billion, 10.2 percent over for the ten months (July’ 08 to
9.0 percent over the target. last year. However, the ten April’ 09) of the current year
months exports (up to April has declined by 42.7 percent
2009) have been US$ 14.8 and was US$ 2.2 billion as
billion i.e. 3.0 percent lower against US$ 3.9 billion in the
10 Budget Brief 2009 © 2009 KPMG Taseer Hadi & Co, the Pakistan member firm of KPMG International, a Swiss cooperative. All rights
reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
corresponding period, last As percentage of 702.5 billion during last year.
1999- 2005- 2006- 2007- March
year. 2000 2006 2007 2008 2008-
The increase in NDA, was
2009 mainly due to high government
Public debt decreased from Total Revenue 41.0 18.8 22.1 29.6 30.5
borrowings for budgetary
57.4 percent of GDP in 2007- Tax Revenue 51.8 25.2 32.3 42.2 41.8
support particularly due to
08 to 55.5 percent of GDP Total
Expenditure 29.6 14.4 16.0 19.5 23.0 contraction of Net Foreign
2008-09. Current Assets of Rs. 227.3 billion
Expenditure 33.5 19.6 20.9 23.9 29.4
Domestic debt is at Rs. 3,758.6 GDP 5.5 2.7 3.3 4.3 4.2 (NFA), caused by weakness in
billion as of 31 March 2009, external balance of payments
against Rs. 3,217.2 billion as of Monetary Policy position.
30 June 2008.
The tight monetary policy was The borrowing by government
Domestic debt as a percentage continued by SBP under the for budgetary support has
of GDP has declined from 31.3 macroeconomic stabilisation recorded an increase of Rs.
to 28.7 percent. programme. The discount rate 332.2 billion, as compared to
was raised by 200 bps on 13 Rs. 322.8 billion in the
Outstanding Domestic Debt
(Rupees in billions) November 2008 resulting in corresponding period last year.
2005 2006 2007 2008 2009
cumulative increase of 300 Budget 2009-2010
Permanent
Debt 526.2 514.9 562.5 616.7 660.4 bps. The monetary policy was
Floating Debt 778.2 940.2 1107.7 1589.6 1923.5 also supported by adjustments The total outlay of budget
Unfunded Debt 854.0 881.7 940.0 1010.9 1174.7 in the exchange rate during 2009-10 is Rs. 2,482 billion.
Total 2158.4 2336.8 2610.2 3217.2 3758.6 March – October 2008. These This size is 23.8 percent higher
Percent of measures did result in easing than the size of budget
GDP 33.2 30.7 30.1 31.3 28.7
the persistent demand estimates of 2008-09.
The external debt and foreign pressure in the economy
The resource availability during
exchange liabilities (EDL) as of resulting in deceleration in
2009-10 has been estimated at
31 March 2009 stood at US$ domestic inflation, slowdown in
Rs. 2,318 billion against Rs.
50.1 billion, increasing by US$ import growth and private
1,836 billion in the budget
3.8 billion or 8.2 percent as sector credit and reduction in
estimates of 2008-09.
against US$ 46.3 billion as of fiscal deficit.
30 June 2008. The EDL Net revenue receipts for 2009-
SBP in view of demand
represents 30.2 percent of 10 have been estimated at Rs.
compression reduced discount
GDP as against 52 percent as 1,371.5 billion, indicating an
rate by 100 bps on 20 April
of 30 June 2000 and 28.1 increase of 23.5 percent over
2009.
percent as of 30 June 2008. the budget estimates of 2008-
The EDL as a percentage of The M2 supply growth during 09.
Foreign Exchange earnings as July-May 2009 slowed to 4.6
The provincial share in federal
of 31 March 2009 was 144.3 percent as compared to 9.3
revenue receipts is estimated
percent against 124.3 percent percent during the
at Rs. 655 billion during 2009-
on 30 June 2008. corresponding period of
10 which is 15.3 percent higher
financial year 2007-08. The
The share of interest payments than the budget estimates for
Net Domestic Assets (NDA) of
as percentage of revenue and 2008-09.
the Banking system registered
expenditure has been as
an expansion of Rs. 443.8 The capital receipts (net) for
follows:
billion during July-May 2009 as 2009-10 have been estimated
against the expansion of Rs. at Rs. 190.5 billion, against the
© 2009 KPMG Taseer Hadi & Co, the Pakistan member firm of KPMG International, a Swiss cooperative. All rights Budget Brief 2009 11
reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
budget estimates of Rs. 221 PSDP allocation for the Power During the Fiscal Year 2009-
billion in 2008-09. Sector has been increased by 10, real GDP is expected to
100 percent from Rs. 11.4 grow by 3.3 percent.
The external receipts in 2009-
billion to Rs. 22.8 billion for
10 are estimated at Rs. 510 This will be contributed by
2009-10 to improve energy
billion. This shows an increase sectoral growth rates as
crisis.
of 79 percent over the budget follows:
estimates of 2008-09. A number of measures have
─ Agriculture - 3.8 percent;
been taken to resolve the issue
The overall expenditure during
of circular debt, In order to ─ Manufacturing - 1.8 percent;
2009-10 has been estimated at
improve the liquidity of power and
Rs. 2,482 billion of which the
sector, the government /
current expenditure is Rs. ─ Services - 3.9 percent.
holding company will assume
1,699 billion and development
certain liabilities of PEPCO. For Fiscal Year 2009-10, the
expenditure is Rs. 783 billion.
inflation target is 9.5 percent.
Current expenditure shows an An amount of Rs. 25 billion has
increase of 3.5 percent over been allocated to Earthquake A targeted decrease in current
the revised estimates of 2008- Rehabilitation Authority expenditure to 15.3 percent of
09, while development (ERRA) in 2009-10. GDP in FY 2009-10,owing to
expenditure will increase by elimination of unproductive
The size of current expenditure
68.1 percent in 2009-10, over subsidies is planned in order to
in total budget outlays for
the revised estimates for 2008- maintain the fiscal deficit at
2009-10 is 68.5 percent as
09. sustainable levels.
compared to 79 percent in
The expenditure on General revised estimates for 2008-09. The Government is going to
Public Services (inclusive of take all necessary measures to
Key objectives for the Budget
debt servicing, transfer ensure documentation of the
2009-10:
payments and superannuation economy and broadening of
allowance) is estimated at Rs. Provide protection to poor and the tax base in order to shift
1,189 billion, which is 70 vulnerable against the current reliance on domestic resource
percent of the current economic downturn. mobilization.
expenditure.
Revive manufacturing and Total revenue will grow by 15.7
The size of Public Sector industry, especially export percent and Federal Board of
Development Programme for oriented industry. Revenue collection is projected
2009-10 is Rs. 646 billion, to grow by 16.8 percent.
Broaden tax base, instead of
while for Other Development
Expenditure an amount of Rs.
overburdening the existing tax Revenue as a percentage of
payer. GDP is projected at 14.7
157 billion has been allocated.
The PSDP shows an increase percent in Fiscal Year 2009-10.
Restrain unnecessary imports
of 54 percent over the revised to improve the Balance of
estimates for 2008-09. payments position. Conclusions
An amount of Rs. 200 billion The Budget 2009-10 has been
has been allocated in budget In order to achieve the above, the announced at a very crucial
following macro-economic targets
estimates 2009-10 to provinces juncture of our history where we
are being set-up.
for their development are faced with both global and
expenditure. domestic unprecedented
challenges in the form of global
12 Budget Brief 2009 © 2009 KPMG Taseer Hadi & Co, the Pakistan member firm of KPMG International, a Swiss cooperative. All rights
reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
recession and financial crisis, effectively along with a marshal
domestic security, law and order plan to improve both Agriculture
threat, ever increasing level of and Manufacturing sectors.
unemployment and increased
The economy is by no means out
miseries for people living under
of woods, internal growth
poverty line.
dampener like energy shortage,
The failure to achieve macro- high inflation and interest rates and
economic stability and to energize the perilous security situation are
manufacturing sector has resulted still huge challenges.
in substantial slippages in macro-
Pakistan, given prudent economic
economic indicators, including
management and favourable
sharp reduction in GDP growth
external dynamics has the capacity
from 4.5 to 2 percent.
to regain growth pattern. However
These slippages and unbearable due to macro-economic
inflation, particularly food inflation, imbalances, severe infra-structure
have further worsened the miseries bottlenecks and continued political
of a large proportion of our and security woes, the country
population, which is estimated at could fail to make a sustained
around 80 million. departure from a low single digit
growth over the next few years.
The growth has again been
contributed by Agriculture and The BMI Political risk ratings of the
Services sectors. The growth in STPR of 46.3 and LTPR of 44.2,
Agriculture mainly depends on the clearly indicate the attribution of
weather conditions and any numerous structural weaknesses
variation in weather conditions as including recurring twin deficits, low
per experience, have caused GDP per capita and heavy reliance
slippages and the priority on on commodity imports and financial
Agriculture to increase productivity sector vulnerability.
and value additions has yet to bear
The continuation of a balanced
results.
stabilization plan with a continued
The overall objective of any elected growth momentum, particularly
government has to be the “Welfare quality and inclusive growth with
of the People” and in this context, good governance and successful
the reduction of unemployment and handling of internal insurgency,
creation of employment coupled with continued global
opportunities, reduction of inflation support could help us reap the
particularly food inflation, dividends of long struggle and to
enhancement of domestic security reconcile the parallel goals of
and to improve equity in distribution accelerated economic development
and income levels are the foremost and fiscal consolidation.
targets. The targeted intervention in
the form of Benazir Income Support
Fund and other similar measures
need to be implemented more
© 2009 KPMG Taseer Hadi & Co, the Pakistan member firm of KPMG International, a Swiss cooperative. All rights Budget Brief 2009 13
reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.
Strengths Weaknesses
Strategically geo political position post 9/11 inducing active Credibility of statistics
interest of USA and other global powers in safeguarding its Quality of governance
stability
Low Tax / GDP ratio
Strong large population base with potential to be a sizeable Incompatible contribution of various sectors of Economy in tax
market revenue
Medium term Development framework Inefficiency in utilization of development expenditure
IMF stabilization stand by arrangement High unproductive non development expenditure
Consensus on major political issues including fight against Continued trade and fiscal deficits
insurgency and extremism Low level of Foreign Currency reserves
Sustainable external and domestic debt Economy vulnerable to external shocks
Dependence on aid and loans from multilateral institutions and
Most liberal foreign investment regime bilateral parties
Tariff barriers are being reduced Potential impact of global recession on exports and expats
remittances
High cost of doing business
Poor HDI indicators
Decline in trend of Foreign investment
Continued subsidies for loss making public sector enterprises
Inequality in distribution of income
Continued increase in poverty
Fragile political system
Opportunities Threats