Pakistan seeks US$4 bil. for budget deficit

Pakistan's GDP growth slumped to 2 percent this year, down from an average annual 6.8 percent over the past five years.

Economic growth is estimated to accelerate to 3.3 percent in the year starting July 1, Khar said Saturday . The pace of expansion is forecast to quicken to 4 percent and 4.5 percent in the subsequent two years, she added.

“Our first and foremost challenge is to maintain macroeconomic stability,” said the junior minister, who was presenting the budget on behalf of Finance Adviser Tarin. Pakistan needs to “arrest as best we can the economic crisis and terrorism that threatens the very fabric of our economy, polity and society,” she said.

Pakistan was forced to turn to the IMF for a rescue package in November 2008 to help prop up its crumbling economy, after the nation's foreign reserves plunged 75 percent in a year and the current-account deficit widened to a record.

Initial conditions for the IMF loan included a commitment by Pakistan to reduce its budget deficit to 3.4 percent of GDP next year, though the Washington-based lender last month agreed to relax that target to 4.6 percent to help “boost growth.”

Pakistan's central bank also agreed to raise borrowing costs in order to secure the IMF bailout, increasing its benchmark rate by the most in a decade to 15 percent.

The measures adopted to get the IMF loan “underestimated” the impact of higher borrowing costs on the banking system and resulted in a “sharper-than-anticipated” slowdown in growth, according to Sayem Ali, an economist at Standard Chartered Plc in Karachi.

Government workers and retirees will receive a 15 percent pay rise amid higher living costs. Inflation peaked at a 30-year high of 25.3 percent in August 2008 and the government is targeting consumer price gains of 9.5 percent next year.

Weaker economic growth has prompted the government to look for new areas of revenue to prevent a fiscal blowout. Tax will be imposed on services and real estate next year and a 30 percent levy will be applied to corporate bonuses above 1 million rupees, Khar said in Saturday's budget speech.

The government aims to collect a record 1.5 trillion rupees in taxes this year. Last year's tax revenue is estimated at 1.18 trillion rupees, less than a targeted 1.25 trillion rupees.

Cement makers like Lucky Cement. Ltd., the nation's biggest, and D.G. Khan Cement Co., the second-largest, will benefit from a reduction in duty and because of higher infrastructure spending, according to Imran Khan, research head at First Capital Equities in Karachi.

Car makers like Pak Suzuki Co., the biggest, and Indus Motor Co., which makes Toyota Motor Corp. cars, will also benefit due to a 5 percent reduction of import duties on assembly kits, Khan said.

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