Transcript Post Budget Seminar-kTBA 12th, June, 2007

FEDERAL BUDGET 2007-08
Macro Economic Aspects
Income Tax Bar Association, Karachi
Syed Masoud Ali Naqvi
Senior Partner
KPMG Taseer Hadi & Co.
Karachi
12 June 2006
Budget at a glance
Budget
Estimate
2006-07
Revenue
Revised Estimate
2006-07
Budget
Estimate 200708
---------------------------------(Rupees in billion)----------------------------
Tax Revenue - CBR
Direct Taxes
Income tax
257.8
305.0
388.0
14.1
15.6
20.2
271.9
320.6
408.2
Customs
157.1
134.0
154.0
Sales tax
341.6
311.0
375.0
68.1
72.0
91.0
2.2
2.0
2.3
569.0
519.0
622.3
840.9
839.6
1,030.5
Others
Indirect Taxes
Federal excise
Others
2
Budget at a glance
Budget Estimate
2006-07
Budget Estimate
2007-08
---------------------------------(Rupees in billion)-------------------------------
Revenue
Non Tax Revenue
241.9
374.4
337.6
1,082.8
1,214.0
1,368.1
378.2
390.9
465.9
704.6
823.1
902.2
16.4
80.5
58.5
239.3
276.6
258.5
by
85.6
95.5
122.7
cash
53.8
22.1
51.8
75.0
75.0
75.0
140.1
55.2
130.9
1,314.8
1,428.0
1,599.6
Less Provincial Share
Net Capital Receipts
External Receipts
Self Financing
Provinces
Change in
balance
Revised Estimate
2006-07
of
PSDP
Provincial
Privatisation Proceeds
Bank Borrowings
3
Budget at a glance
Budget Estimate
2006-07
Expenditure
Revised Estimate
2006-07
Budget Estimate
2007-08
---------------------------------(Rupees in billion)-------------------------------
Current Expenditure
General Public Services
Debt Servicing
295.8
389.9
437.4
Others
208.5
244.9
204.5
504.3
634.8
641.9
250.2
252.6
275.0
Economic Affairs
74.7
91.2
78.9
Others
50.6
54.9
60.5
879.8
1,033.5
1,056.3
PSDP
435.0
394.5
520.0
Others
-
-
23.3
435.0
394.5
543.3
1,314.8
1,428.0
1,599.6
Defence Affairs & Services
Developmental Expenditure
Total Expenditure
4
Composition of Sector GDP growth
(Growth in Percentage)
2004-2005
2005-2006
2006-2007
9.0
6.6
7.0
Manufacturing
15.5
10.0
8.4
Large scale manufacturing
19.9
10.7
8.8
Small scale manufacturing
6.3
8.3
7.7
18.6
5.7
17.2
6.5
2.5
5.0
Major Crops
17.7
- 4.1
7.6
Minor Crops
1.5
0.4
1.1
Livestock
2.3
7.5
4.3
Services sector
8.5
9.6
8.0
GNP (Constant Factor Cost)
8.7
6.4
6.9
GDP (Constant Factor Cost)
Construction
Agriculture
5
GDP Growth Trend
GDP Grow th Trend
10.0%
9.0%
9.0%
7.5%
8.0%
7.0%
7.0%
6.6%
6.5%
6.0%
4.7%
4.6%
5.0%
4.0%
3.1%
3.0%
2.0%
2.0%
1.0%
0.0%
1980s
1990s
00- 01
01- 02
02- 03
03- 04
04- 05
05- 06
06- 07
6
Sectoral contribution to GDP growth
Sectoral Contribution to the GDP growth (Percent Point)
2005-2006
2006-2007
Agriculture
0.4
1.1
Industry
1.3
1.8
Services
4.9
4.1
Real GDP
6.6
7.0
7
Inflation
2005-2006
July / April
2006-2007
Overall inflation
7.9
7.9
Food inflation
6.9
10.2
Non-Food inflation
8.6
6.2
Core inflation
7.5
6.0
SPI (Sensitive Price Index)
10.1
6.9
WPI
7.0
11.1
CPI (Consumer Price Index)
8
Domestic Debt
Outstanding
Domestic Debt
2002
2003
2004
2005
Permanent Debt
424.8
468.8
570.0
526.2
514.9
Floating Debt
557.8
516.3
542.9
778.2
940.2 1086.5
Unfunded Debt
792.1
909.5
899.2
854.0
859.2
1774.7 1894.5 2012.2
2158.4
Total
% of GDP
40.3
39.3
35.7
32.8
2006
2007
540.2
896.6
2314.3 2523.4
30
28.4
9
Domestic Debt
Domestic Debt as % of GDP
50.0%
43.4%
45.0%
43.2%
40.3%
39.3%
35.7%
40.0%
35.0%
32.8%
30.0%
28.4%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
99-00
00-01
01-02
02-03
03-04
04-05
05-06
06-07
10
Interest Payments
As percentage of
1999-2000 2004-2005 2005-2006 2006-2007
Total Revenue
41.0
20.0
18.3
17.1
Tax Revenue
51.8
27.3
24.9
22.4
Total Expenditure
29.6
16.1
14.3
12.9
Current Expenditure
33.5
19.1
18.3
17.9
5.5
2.7
2.6
2.3
GDP
11
Savings & Investment
Description
Total Investment
Changes in Stock
Gross Fixed
Investment
- Public Investment
- Private Investment
2001-02
2002-03
2003-04
2004-05
2005-06 (P)
2006-07
16.8
16.9
16.6
19.1
21.7
23.0
1.3
1.7
1.6
1.6
15
1.5
15.5
15.3
15.0
17.5
29.1
21.4
4.2
4.0
4.0
4.3
4.7
5.2
11.3
11.3
10.9
13.1
15.4
16.2
-1.9
-3.8
-1.3
1.6
4.5
5.0
18.6
20.8
17.9
17
17.2
18.0
18.1
17.6
15.7
15.4
15.3
16.1
Foreign Savings
National Savings
Domestic Savings
12
Trends in External Debt & Debt Burden
13
Pakistan Economy – SWOT Analysis
Strengths














4-5 years of strong growth has led to higher medium term growth path
Resilience against shock and extra ordinary jerks
Rise in per capita income for US $ 503 in 2002 to US $ 925 in 20062007
Robust Consumer spending
Substantial increase in private sector credit
Balance between fiscal deficit and growth
Medium Term Development Framework
Maintenance of external and domestic debt within limit
Reach to Global Capital Markets
Geo political situation post 9/11
Stable exchange rate
Higher foreign direct investment
Reduction in poverty level
Tighter monetary policy to moderate inflationary pressure
Weaknesses



Credibility of statistics
Sharp increase in prices of food items
Incompatible contributions of various sectors of economy in tax
revenue.
 Inefficiency in utilisation of development expenditure
 High administrative costs
 Perception gap between economic manager and people at large
 Quality of governance
 Record trade deficit
 Concentration of export in restricted items and markets
 High cost of doing business
 Lack of focus on agriculture sector
 Political instability
 Shortage of skilled workforce
 Energy crisis
 Poor HDI indicators
Threats
Opportunities








Capacity constraints with India in IT sector
Recent investment in IT sector
BPO’s potential
Telecom and Media revolution
Geo political situation
Foreign Direct Investment
Investment in education and health
Lapsing of WTO multi-fibre agreemen











Political uncertainty and current judicial crisis
Issues in Balochistan and Northern Areas
Worsening of situation on Western borders
Anti Pakistan attitude in Afghanistan
Election 2007
Level of corruption
Broadening gap between Rich and Poor
Social unrest
Public discontent with the policies which may threaten reform
process
Persistent high global oil prices
Increasing trend of terrorist activities
14
Pakistan Economy – SWOT Analysis
Strengths














4-5 years of strong growth has led to higher medium term growth path
Resilience against shock and extra ordinary jerks
Rise in per capita income for US $ 503 in 2002 to US $ 925 in
2006-2007
Robust Consumer spending
Substantial increase in private sector credit
Balance between fiscal deficit and growth
Medium Term Development Framework
Maintenance of external and domestic debt within limit
Reach to Global Capital Markets
Geo political situation post 9/11
Stable exchange rate
Higher foreign direct investment
Reduction in poverty level
Tighter monetary policy to moderate inflationary pressure
15
Pakistan Economy – SWOT Analysis
Weaknesses
















Credibility of statistics
Continued sharp increase in prices of food items
Incompetent contribution of various sectors of economy in tax revenue
Inefficiency in utilisation of development expenditure
High administrative costs
Quality of governance
Record trade deficit
Concentration of export in restricted items and markets
High cost of doing business
Lack of focus on agriculture sector
Political instability
Shortage of skilled workforce
Energy crisis
Poor HDI indicators
Increasing trade and current account deficit
Combined subsidies to loss making public sector companies
16
Pakistan Economy – SWOT Analysis
Opportunities








Capacity constraints with India in IT sector
Recent investment in IT sector
BPO’s potential
Telecom and Media revolution
Geo political situation
Foreign Direct Investment
Investment in education and health
Lapsing of WTO multi-fibre agreement
17
Pakistan Economy – SWOT Analysis
Threats









Political uncertainty and current judicial crisis
Issues in Balochistan and Northern Areas
Worsening of situation on Western borders
Anti Pakistan attitude in Afghanistan
Election 2007
Level of corruption
Broadening gap between Rich and Poor
Social unrest
Public discontent with the policies which may threaten reform
process
 Persistent high global oil prices
 Increasing trend of terrorist activities
18
Pakistan Economy – SWOT Analysis
Challenges









Sustainability of growth momentum Job creation
Poverty alleviation
Improving social indicators
Strengthening of physical infra-structure
Conversion of the demographic transitions into demographic dividend
Supply side improvement to match growing domestic demand
Achieving political stability
Harmonious relationship amongst Federation and its units
Equitable distribution of resources between federal, provincial & local
governments
 Revenue generation by provinces
19
Pakistan Economy – SWOT Analysis
Strengths






















Weaknesses
 Credibility of statistics
4-5 years of strong growth has led to higher medium term growth path
 Sharp increase in prices of food items
Resilience against shock and extra ordinary jerks
 Incompatible contributions of various sectors of economy in tax
Rise in per capita income for US $ 503 in 2002 to US $ 925 in
revenue.
2006-2007
 Inefficiency in utilisation of development expenditure
Robust Consumer spending
 High administrative costs
Substantial increase in private sector credit
 Perception gap between economic manager and people at large
Balance between fiscal deficit and growth
 Quality of governance
Medium Term Development Framework
 Record trade deficit
Maintenance of external and domestic debt within limit
 Concentration of export in restricted items and markets
Reach to Global Capital Markets
 High cost of doing business
Geo political situation post 9/11
Challenges
 Lack of focus on agriculture sector
Stable exchange rate  Sustainability of growth momentum
 Political instability

Job
creation
Higher foreign direct investment
 Shortage of skilled workforce

Poverty
alleviation
Reduction in poverty level

Improving
social
indicators
 Energy crisis
Tighter monetary policy to moderate inflationary pressure
 Strengthening of physical infra-structure
 Poor HDI indicators
 Conversion of the demographic transitions into demographic dividend
 Supply side improvement to match growing domestic demand
 Achieving political stability
 Harmonious relationship amongst Federation and its units
Threats
 Equitable distribution of resources between federal, provincial and local governments
Opportunities
 Revenue generation by provinces
Capacity constraints with India in IT sector
Recent investment in IT sector
BPO’s potential
Telecom and Media revolution
Geo political situation
Foreign Direct Investment
Investment in education and health
Lapsing of WTO multi-fibre agreemen











Political uncertainty and current judicial crisis
Issues in Balochistan and Northern Areas
Worsening of situation on Western borders
Anti Pakistan attitude in Afghanistan
Election 2007
Level of corruption
Broadening gap between Rich and Poor
Social unrest
Public discontent with the policies which may threaten reform
process
Persistent high global oil prices
Increasing trend of terrorist activities
20
PUBLIC SECTOR DEVELOPMENT
PROGRAMME
2006-2007
2007-2008
Federal Ministries
171
232
Special Areas
17
20
Special Programs
34
34
Corporations
48
49
270
335
Provincial PSDP
115
150
Earthquake
Rehabilitation
50
35
435
520
36
204
451
724
Federal PSDP
Outside PSDP
21
SECTORAL DISTRIBUTION AND
SHARE OF PSDP
FEDERAL GOVERNMENT
2006-2007
%
2007-2008
%
Infra-structure
132
49
167
49.7
Social Sector
131
48.4
156
46.6
7
2.6
12
3.7
270
100
335
100
Others
Operational Shortfall
20
35
250
300
July-April utilization
170
68
May-June
76
30
Expected upto 30
June
246
98
22
INFRA STRUCTURE - 2007-2008
Water
64
Power
21
PAEC
12
Communications
30
Railways
12
139
Others
28
167
23
SOCIAL SECTOR - 2007-2008
Special Program KPF&KP
34
Finance
17
Education
7
HEC
18
Health
14
I. T. & Telecom
3
S. & T.
4
Population Welfare
4
K. A. & N. A.
Sub & Frontier
14
8
Planning Commission
14
Others
19
156
24
Common Man’s Perception of Economic
Development
Food at affordable prices
Health support on efficient basis
Housing and shelter
Access to utilities (water, power, gas, telephone) on consistent
basis at affordable cost
Education
 Good quality at low costs
 Aligned to required skills and vocational development demand
Employment opportunities – Massive investment in human capital
Law and order , security and access to justice
Freedom of access to information
Value for contribution to federal, provincial and local revenue
Potential for vertical migration in terms of quality of life and a
mechanism to balance consumption and savings
Good governance
25
KEY TARGETS FOR POLICY MAKERS
Inflation




Inequality
 Growth to be inclusive
 Ensuring efficiency and productive
utilization of PSDP
 Accelerated focus on Social sector
Social Sector
 Reallocation of resources from general administration,
defence; etc.
 Raise revenue from Financial Services and other
Profitable Sector like trading etc. for direct transfer to
social sector to be managed by an independent
representative body
 MDG’s to be real goals rather than compliance of
committments. These goals should be dynamic and
progressive
26
Supply side planning and reforms
Balance between consumption and savings
Strengthening of direct government intervention
Import substitutions
KEY TARGETS FOR POLICY MAKERS
Manufacturing 
Sector
Focused planning for identified capacities in the sector
of competitive advantage to match demand and
preferential treatment for specified sectors for:
 Interest
 Utility costs
 Taxation
Agriculture
Sector
 Live stock to be doubled in 5 years
 Planned approach for both major and minor crops
Skills Development
 Huge capital investment by public and private sector to
and HRD
leverage the potential of knowledge economy
Transperency and unbiased accountability
Discouraging Elite Culture
27
Way Forward
Political consensus on leading National Economic imperatives
Agricultural sector- 22 percent GDP 45 percent labour
 Strategy for major crops to achieve higher quality, improved yield per
acre, seeds development and stronger research and technological
support
 Strategy for minor crops to meet local demand and lower dependence
on imports
 Development and higher allocation for water resources, storage and
equitable distribution
 Targeted Agricultural financing
 Exploiting the benefit of corporate farming
 Investment on infra-structure and communication to have efficient
supply chain management
 Development of cultivable waste land
 Balanced application of Fertilizer and Pesticides
28
Way Forward
Agro based industry and Live Stock sector Ventures.49 Percent of agriculture 11 percent GDP
 Identification and encouraging small and medium size Agro based
industries around rural areas
 Stronger focus on Live Stock sector and to encourage global players
to participate in Joint
Manufacturing Sector
 Identification of capacity demand for economically viable competitive
advantageous units
 Import substitution be the key strategy for manufacturing sector
 Preferential treatment
•
•
•
•
Interest
Tax
Research & Development
Utility costs
29
Way Forward
Venture Capital & Private equity to focus on:




Nano technology
I. T. based units (Software and Hardware)
Bio technology
Research & Development of chemical entities in pharmaceutical
sector
 Dairy and poultry industry
Infra-structure Development




Water Resources
Power generation and distribution
Communications
Railways
30
Way Forward
All the above are lagging well behind the required
infra-structure support to commensurate with the
demand and growth imperatives.
Water and power resources are substantially
inadequate, inefficient and incompatible and this
require a high priority for allocation of resources and
its efficient and expeditious utilization
31
MISSION
Our beloved country Islamic Republic of Pakistan has been a
gift to us from its Founder and has sustained all external
shocks and self destructive internal strife which is a blessing
of Almighty. We all owe a debt to this country which despite
constraints has given us a lot.
Let us now pledge to be unanimous in making it a country of
choice for all ‘Y’ and ‘Z’ generations, who do have unlimited
energy potential provided we are free and do justice to them.
Pakistan should have quality growth with a motto of a market
based economy with a balanced focus on social welfare and
community
development.
All sectors of population participates and benefit from such
development.
32
Thank you
33
Presenter’s contact details
SYED MASOUD ALI NAQVI
KPMG Taseer Hadi & Co.
+92 (21) 568 5847
[email protected]
www.kpmg.com.pk
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of the particular situation.
© 2005 KPMG Taseer Hadi & Co., the Pakistan member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in Pakistan.
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