ISLAMABAD: On the basis of budgetary measures, the Ministry of Finance estimates economic growth rate to further slow down to 2.4 per cent and inflation rate to rise up to 13pc, showing a wide margin with targets set by the National Economic Council (NEC) a few days ago.
The NEC had approved a target of 4pc GDP growth rate for fiscal year 2019-20 in its meeting presided over by Prime Minister Imran Khan on May 29. The meeting had also set a target of 8.5pc for inflation rate.
“The GDP growth is targeted at 4pc with agriculture (3.5pc), industry (2.2pc) and services (4.8pc). Inflation is projected at 8.5pc for 2019-20 in view of the higher administrative prices and monetary overhand of the past,” reported the Annual Plan 2019-20 of the Planning Commission released with the budget documents on June 11.
On the same day, the Ministry of Finance also released its documents including “Budget In Brief” that budgeted real GDP growth at 2.4pc and inflation rate at 11-13pc.
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The finance ministry reported that it had budgeted tax-to-GDP ratio at 16.3pc for current fiscal year (2018-19) but it was revised to 14.5pc. For next fiscal year, the tax to GDP ratio has been pitched at 16.7pc or Rs7.348 trillion.
Inflation rate is projected to rise to 13pc
When contacted, a senior official of the finance ministry explained that the Planning Commission had set “targets” based on certain assumptions while the ministry and the State Bank of Pakistan (SBP) made projections on the basis of up-to-date data. For example, he said, the Planning Commission would hardly know the precise fiscal deficit, or what would be the interest rates or the exchange rate movement.
“The projections of the SBP and the finance ministry regarding inflation, growth and many other indicators are always different from those targeted by the Planning Commission,” he said, adding that latest data now suggested that inflation rate next year would be lower than 13pc.
The medium term macroeconomic indicators for 2018-22 also put the growth rate for fiscal year 2020-21 at 3pc. This means that the finance ministry is not expecting the growth rate to recover over the next two fiscal years from a 9-year low of 3.3pc this year despite public pronouncements by the Prime Minister’s Adviser on Finance and Revenue Dr Hafeez Shaikh about economic difficulties subsiding in 6-8 months followed by economic recovery and then growth trajectory.
The finance ministry projects GDP growth rate to recover to 4.5pc by the end of third year i.e. 2021-22.
Likewise, inflation rate is projected by the ministry to come down to 8.3pc in 2020-21, instead of 2019-20 as targeted by the Planning Commission. The ministry projects inflation rate to reduce to 6pc by 2021-22.
The medium term budgetary framework (MTBF) of the finance ministry also projects FBR tax revenue at 12.6pc of GDP or about Rs5,544 billion for next fiscal year and total expenditure at 23.8pc or Rs10,472bn. The total expenditure is projected to slightly fall to 23.4pc of GDP in 2020-21 and 22.8pc in 2021-22.
The MTBF also estimates the total public debt to GDP ratio at 77.7pc during current year and projected to come down slightly to 77.6pc next year. It anticipates total public debt falling to 75.2pc in 2020-21 and 70.6pc in 2021-22.
The MTMF is prepared by the finance ministry and the Planning Commission in consultation with various ministries and the SBP. Based on the macroeconomic situation and future projections, the Ministry of Finance articulates its budgetary policy priorities and prepares a medium- term fiscal framework that is then endorsed by the federal cabinet for presentation to the parliament.
Published in Dawn, June 14th, 2019