1. Macro Economic Aspects
FEDERAL BUDGET
Macro Economic Aspects
Income Tax Bar Association, Karachi
Syed Masoud Ali Naqvi Senior Partner KPMG Taseer Hadi & Co. Karachi 12 June 2006

2. Budget at a glance Revenue Tax Revenue - CBR Direct Taxes Income tax
Budget Estimate
Revised Estimate
Budget Estimate
Revenue
(Rupees in billion)
Tax Revenue - CBR
Direct Taxes
Income tax
257.8
305.0
388.0
Others
14.1
15.6
20.2
271.9
320.6
408.2
Indirect Taxes
Customs
157.1
134.0
154.0
Sales tax
341.6
311.0
375.0
Federal excise
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

3. Budget at a glance Revenue Non Tax Revenue 241.9 374.4 337.6 1,082.8
Budget Estimate
Revised Estimate
Budget Estimate
Revenue
(Rupees in billion)
Non Tax Revenue
241.9
374.4
337.6
1,082.8
1,214.0
1,368.1
Less Provincial Share
378.2
390.9
465.9
704.6
823.1
902.2
Net Capital Receipts
16.4
80.5
58.5
External Receipts
239.3
276.6
258.5
Self Financing of PSDP by Provinces
85.6
95.5
122.7
Change in Provincial cash balance
53.8
22.1
51.8
Privatisation Proceeds
75.0
Bank Borrowings
140.1
55.2
130.9
1,314.8
1,428.0
1,599.6

4. Budget at a glance Expenditure Current Expenditure
Budget Estimate
Revised Estimate
Budget Estimate
Expenditure
(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
Defence Affairs & Services
250.2
252.6
275.0
Economic Affairs
74.7
91.2
78.9
50.6
54.9
60.5
879.8
1,033.5
1,056.3
Developmental Expenditure
PSDP
435.0
394.5
520.0 -
23.3
543.3
Total Expenditure
1,314.8
1,428.0
1,599.6

5. Composition of Sector GDP growth
(Growth in Percentage)
GDP (Constant Factor Cost)
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
Construction
18.6
5.7
17.2
Agriculture
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

6. GDP Growth Trend

7. Sectoral contribution to GDP growth
Sectoral Contribution to the GDP growth (Percent Point)
Agriculture
0.4
1.1
Industry
1.3
1.8
Services
4.9
4.1
Real GDP
6.6
7.0

8. Inflation 2005-2006 July / April 2006-2007 CPI (Consumer Price Index)
Overall inflation
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
WPI
7.0
11.1

9. Domestic Debt Outstanding Domestic Debt 2002 2003 2004 2005 2006 2007
Permanent Debt
424.8
468.8
570.0
526.2
514.9
540.2
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
896.6
Total
1774.7
1894.5
2012.2
2158.4
2314.3
2523.4
% of GDP
40.3
39.3
35.7
32.8 30
28.4

10. Domestic Debt

11. Interest Payments As percentage of 1999-2000 2004-2005 2005-2006
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
17.9
GDP
5.5
2.7
2.6
2.3

12. Savings & Investment Description 2001-02 2002-03 2003-04 2004-05
Total Investment
16.8
16.9
16.6
19.1
21.7
23.0
Changes in Stock
1.3
1.7
1.6 15
1.5
Gross Fixed Investment
15.5
15.3
15.0
17.5
29.1
21.4
- Public Investment
4.2
4.0
4.3
4.7
5.2
- Private Investment
11.3
10.9
13.1
15.4
16.2
Foreign Savings
-1.9
-3.8
-1.3
4.5
5.0
National Savings
18.6
20.8
17.9 17
17.2
18.0
Domestic Savings
18.1
17.6
15.7
16.1

13. Trends in External Debt & Debt Burden

14. Pakistan Economy – SWOT Analysis
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
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
Strengths
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
Weaknesses
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
Threats
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
Opportunities

15. 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
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

16. 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

17. 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

18. 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

19. 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

20. Pakistan Economy – SWOT Analysis
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
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
Strengths
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
Weaknesses
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 and local governments
Revenue generation by provinces
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
Threats
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
Opportunities

21. PUBLIC SECTOR DEVELOPMENT PROGRAMME
Federal PSDP
Federal Ministries
171
232
Special Areas 17 20
Special Programs 34
Corporations 48 49
270
335
Provincial PSDP
115
150
Earthquake Rehabilitation 50 35
435
520
Outside PSDP 36
204
451
724

22. SECTORAL DISTRIBUTION AND SHARE OF PSDP
FEDERAL GOVERNMENT %
Infra-structure
132 49
167
49.7
Social Sector
131
48.4
156
46.6
Others 7
2.6 12
3.7
270
100
335
Operational Shortfall 20 35
250
300
July-April utilization
170 68
May-June 76 30
Expected upto 30 June
246 98

23. INFRA STRUCTURE - 2007-2008 Water 64 Power 21 PAEC 12 Communications30
Railways
139
Others 28
167

24. 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
K. A. & N. A.
Sub & Frontier 8
Planning Commission
Others 19
156

25. 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

26. KEY TARGETS FOR POLICY MAKERS
Inflation
Supply side planning and reforms
Balance between consumption and savings
Strengthening of direct government intervention
Import substitutions
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

27. 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
and HRD
Huge capital investment by public and private sector to leverage the potential of knowledge economy
Transperency and unbiased accountability
Discouraging Elite Culture

28. 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

29. 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

30. 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

31. 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

32. 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.

33. Thank you

34. Presenter’s contact details SYED MASOUD ALI NAQVI
KPMG Taseer Hadi & Co.
+92 (21)
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