Pakistan is unlikely to achieve a six percent gross domestic product (GDP) growth target set in the budget for fiscal 1997/98 (July-June), a broker research report said on Thursday.
The growth forecast of six percent for 1997/98 implies a doubling over the current years estimates (of 3.1 percent) and is, we believe, optimistic, said the report by brokers KASB & Co, an affiliate of Merrill Lynch.
The growth target hinges on expectations that Pakistans recession-hit economy will respond strongly to tax and tariff cuts.
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KASB also cast doubt on the revenue target of 335.8 billion rupees ($8.3 billion), against this yea rs estimated receipts of 257.1 billion.
We think it (the revenue target) is an uphill challenge to achieve in just one year, the report said, adding that the battered economy might not revive as early as predicted.
The risk is that the take-off in growth may come not, as the government hopes, in 1997/98, but rather, we think, in 1998/99, barring any unforeseen bumper crop year.
KASB & Co said the target to cut the fiscal deficit to five percent of GDP from 6.2 percent in 1996/97 assumes that GDP growth will double, tax collection will rise through voluntary compliance, tax administration will see better efforts at audit and recovery, and spending will be tightly controlled.
It said GDP growth depended on whether nature was kind to agriculture, while relying on voluntary tax compliance ignored the absence of a tax culture in Pakistan, which has only an estimated one million tax-payers among its 138 million people.
KASB & Co said better performance of tax auditing and recovery was a tall order without a major revamping of the tax system.
Fiscal tightening projected in 1997/98 is balanced between a 0.3 percent of GDP decline in spending and a 1.4 percent of GDP rise in revenues, the report said.
This implies that the overall revenue effort is weighted more towards non-tax revenue as total tax revenue would fall to 11.3 percent of GDP from 11.4 percent due to tax cuts.
However, the report said there were no clearly defined policies, other than downsizing of state-run institutions and domestic resource mobilisation by state corporations, that would indicate exactly where and how spending will be capped.
The budget proposals are short on substance, long on form and they (the government) may be underestimating the time-frame for the measures to perform, KASB & Co concluded. ($ = 40.34 Pakistani Rupees)