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Incentives in the new budget

April 22 - 28, 2002

Not only that no-new tax will be imposed in the budget 2002-2003, fresh relief will be provided to the common man in the coming budget which will be development and growth oriented the Finance Minister Shaukat Aziz announced in Islamabad on Monday. He hinted a slash on withholding tax and about 5 per cent reduction in custom tariff.

Speaking as a Chief Guest at a pre-budget seminar arranged by the Daily Pakistan Observer, the Finance Minister claimed that the economy was improving on a sound footing and the government will certainly like to transfer its fruits to the common man. Effective measures will be announced in the forthcoming budget to tackle the issues of unemployment and poverty, he added. Former Finance Minister Mr. Sartaj Aziz and Mr. Iftikhar Ali Malik, President Federation of Pakistan Chambers of Commerce and Industry (FPCCI) besides many other representatives of trade and industry spoke on the occasion and gave various proposals for the coming budget to make it realistic under the current economic conditions.

Mr. Shaukat Aziz was applauded by intellectuals, economists and journalists, attending the seminar, when he confidently announced that the current three year long Poverty Reduction and Growth Facility (PRGF) extended by the International Monetary Fund (IMF) may be the last foreign lending to Pakistan as the country has improved its economy considerably. By the year 2003-2004 when the present PRGF programme terminates we will be in a position to run the future programme without any foreign loan. The Finance Minister claimed that there has been absolutely no increase in the foreign debt burden of the country since 1999 when the present government took over. It was $38 billion then and it is same today. On the other hand there has been a reduction of about Rs.140 billion in the domestic debts. "It is a new chapter in economic history of the country," he claimed.

"We succeeded in reducing the current account deficit and fiscal deficit. Current account deficit is 2 per cent while fiscal deficit is 5.5 per cent of the GDP", he said adding that, on an average the current account deficit has been about 5 per cent and the fiscal deficit about 7 per cent of the GDP during the last ten years.

He claimed the foreign exchange reserves which are about 5.5 billion US dollar at present will exceed 6 billion by the end of next month. He dispelled the impression that Foreign Exchange Reserves level had increased due to September 11 attacks and said rather this incident cast bad impact on the economy. "Reserves increased due to ongoing reforms process and during July last year reserves had touched the US$ 3 billion mark," he said.

The Minister said the government attached top priority to economic viability as it ensures any country's sovereignty and defence. He also referred to various successes of the government in macroeconomics and said; "only solid foundation, and not the artificiality, would make the country economically strong". He said global economic recession and situation in Asia affected our economy as well, "Even though we have achieved some targets and results of reforms policies were gradually coming to the fore".

Aziz said new jobs would be created in different sectors in the next budget to provide job opportunities and decrease the unemployment by increasing the allocation of education, health, poverty reduction and social action programmes. Special stress in the budget for next fiscal year will be laid on the education, health and poverty reduction programmes, Shaukat Aziz said adding that the budget allocations in these sectors will be enhanced. The increase in budgetary allocations in these sectors could provide relief to the people as they will be provided better educational and health facilities, he continued.

Minister said that educational standards would be enhanced in order to produce a good lot of well-educated youth. He expressed hope that incentives would be given to the private sector enterprises to win the confidence of this important sector in the investment in different sectors.

Talking on the globalisation, the Finance Minister said that in 2005 an open economy would be introduced as a result of globalisation. It will affect Pakistan. It will be a challenge for the Pakistan and we have to prepare to meet these challenges. He said that private sector will be the target of globalisation, if this sector would not enhance their system, quality, productivity and creativity, they will face isolation. "This is era of competition, who will play effectively will remain in the competition", Aziz said.

Former Finance Minister Sartaj Aziz, speaking on the occasion proposed that the agriculture sector should be exempted from sales tax, saying already unfavourable conditions like drought had adversely affected the growers. He pointed out that it was the agriculture sector that had saved the national economy from any major disaster so far despite crisis like the post-September 11 scenario. He explained that the agriculture growth had been up to 6.1 per cent during 1999-2000, while it had shown a downward trend in the next year. Its growth was minus 2.6 per cent during 2000-2001.

The former Finance Minister minced no words in saying that levying of any tax on agriculture inputs would be totally unjustified as the agriculture was the main pillar of country's economy. The economy will suffer immensely, if on the dictation of world donors a tax is imposed on agriculture inputs", he warned. In the new budget, he proposed maximum emphasis should be laid on attracting foreign as well as local investment to help reduce unemployment and poverty.

Similarly, other areas which, he stressed, needed consistent attention were to help increase purchasing power. "There must be investment in the growth-oriented sectors", he noted. He also said there was no more space for levying new taxes and the government should try to reduce expenditures and take measures to provide a level playing field to the manufactures. More industrial units will be closed down if the manufactures went on suffering because of unfavourable conditions at the international market.

He also called for slashing cost of money, saying interest rate on lending in the regional countries like India and Bangladesh was not more than 10-12 per cent, while here in Pakistan it was around 16-17 per cent. The former Finance Minister further explained that among other factors why our manufactures fail to find a competitive atmosphere in the world market was high cost of production. "For instance, electricity tariff in Pakistan was the highest among all the South Asian countries," he elaborated.