In election-year budget, Pakistan finmin goes for growth

ISLAMABAD, May 27, (RTRS): Pakistan will lower corporate taxes and step up agricultural subsidies and loans to boost growth in the financial year from July, Finance Minister Ishaq Dar said on Friday, outlining the plans in a final budget before elections in 2018.

Pakistan’s economy has rebounded in recent years, helped by improving security, low global oil prices and vast Chinese investment that is helping alleviate energy shortages.

Growth hit an estimated 5.3 percent in the year to July – short of the government’s 5.7 percent target but the fastest rate since 2007 as agriculture output rose and the industrial and service sectors performed steadily.

Dar said the government’s focus for the 2017/2018 financial year would be to boost growth, hoping to capitalise on greater economic stability in the last few years.

“It’s our number one priority,” said Dar, who has been credited with steering the economy through a turbulent 2013 when Pakistan sought IMF loans to alleviate a balance of payments crisis.

Dar said corporate tax rate would be trimmed to 30 percent, shaving about 100 basis points from the old rate, while agricultural subsidies announced last year would be continued.

He also promised a new loan scheme for farmers at reduced interest rates, likely to go down well with rural voters ahead of the next polls expected before June 2018, and promised to reduce taxes on a commonly used fertilizer.

Dar set a growth target of 6 percent for next year, which experts say is the minimum level needed for Pakistan to absorb new entrants to the workforce in a fast-growing population of nearly 200 million.

Dar also announced a rise in the minimum wage and a one-off payment for soldiers and civil servants. The federal government’s public sector development programme is due to be increased by 25 percent.

With the IMF’s three-year loan programme having ended in September 2016, there had been speculation Prime Minister Nawaz Sharif’s government would loosen the purse strings before the next poll.

Dar said the ruling PML-N party would maintain economic stability, forecasting the budget deficit would narrow to 4.1 percent in 2017/18 from the 4.2 percent estimated for the current year.

“By keeping the current expenditure under tight control, we will be able to create substantial space for development,” Dar said.

The finance ministry in its Annual Budget Statement said Pakistan’s total expenditure for next financial year would increase by about 4 percent to 5.2 trillion rupees ($50 billion).

Dar, in his speech, said the federal budget outlay would increase 11.7 percent to 4.75 trillion rupees. Various documents provided to journalists by the ministry showed slightly different figures.

Paying for the boost in spending, Dar expects record tax inflows of 13.7 percent of GDP in the $300 billion economy.

He announced a hike on dividend tax rates, from 12.5 percent to 15 percent.

Pakistan has one of the world’s lowest number of taxpayers as a percentage of the population, and Dar offered various incentives for citizens to become part of the tax net, including setting capital gains tax at 15 percent for filers and 20 percent for non-filers.

Also:

KABUL: Economic growth in Afghanistan will pick up slightly this year but not enough to provide the jobs needed by its growing population, leaving it dependent on foreign aid for years to come, according to World Bank and IMF forecasts on Thursday.

In its latest Afghanistan Development Update, the World Bank forecast growth of 2.6 percent for 2017, up from 2.2 percent last year but well below the rates of 9 percent and above seen in the decade before 2012.

“With an average annual population growth rate of 3 percent and with an estimated 400,000 Afghans entering the labor market each year, much higher growth rates are required to improve per capita incomes,” the report said.

In a separate report, the International Monetary Fund said growth could reach 3 percent in 2017, up from 2 percent in 2016.

While the United States and its NATO allies decide whether to increase the number of troops assigned to Afghanistan, the forecasts underline the fact that the economic fundamentals underpinning security and development remain dire.