ISLAMABAD (November 13 2002) : IMF believes that 4.5 percent GDP growth and 4 percent inflation target, set in the budget 2002/03, are quite achievable for Pakistan, and this growth trend can be maintained for future — if no economic shock appears.
However, the fiscal projections for 2002-03 have been revised, including several changes in the planned expenditure compositions, but remain consistent with the original financial program. CBR revenue has been reduced by Rs 1.7 billion on account of exempting medicines from the GST, to be offset by an increase in petroleum surcharges.
These information were provided in the Country Report and Article IV Consultations with third review of the Poverty Reduction and Growth Facility (PRGF).
The current account balance is expected to move from a surplus to balance on account of a strong increase in imports and lower remittances and official transfers, more in line with historical trends. The capital account deficit is projected to be marginally lower compared to 2001/02 due to lower public sector net short-term outflows.
Non-tax revenue has been revised upwards on the assumption that Wapda would pay its full dues to the budget.
While projected foreign interest payments have been lowered due to revised data and more favourable interest rate assumptions (based on preliminary bilateral debt relief negotiations), other expenditures items have been increased. In particular, additional subsidies of about Rs 20 billion were allocated for KESC, Wapda, ADBP and PIA.
These include Rs 11 billion settlement of KESC supplier arrears for which the original program deficit ceiling was to be adjusted. Taken together deficit (excluding grants) in projected to reach 4.7% of GDP, consistent with the original program. While recognising that continued efforts were needed to tackle some contingent liabilities and restructure PSEs, staff expressed concern that some of the new expenditures items aim to restructure public enterprises without a firm strategy and timetable for privatisation. Moreover, staff voiced concern that introducing new expenditures items soon after passing the budget weakened the budget process itself.
IMF staff was impressed by the authorities' willingness to push ahead with the privatisation program, despite a difficult environment. Habib Bank's privatisation remains on schedule: nine expressions of interest (EOIs) and four statements of qualification (SOQs) have been received from and domestic and foreign investors.