Re: National Budget for fiscal year 2007-08
Pakistan Lifts Salaries, Subsidies Ahead of Elections
Pakistan’s government raised salaries and pensions and increased subsidies on basic foods including lentils, tea and cooking oil, aiming to allay voter concerns about inflation ahead of elections. The South Asian nation’s 3.5 million civil servants will receive a 15 percent salary increase and their pensions will be lifted as much as 20 percent, junior Finance Minister Omar Ayub Khan said in his budget speech in parliament in Islamabad today. The minimum wage for other workers will also be increased. Prime Minister Shaukat Aziz, a former Citibank executive who is enticing foreign investors and selling state assets, faces re-election in January with consumer prices rising at three times the pace they were before the previous poll in 2002. Political violence in Karachi last month, the worst since President Pervez Musharraf seized power in a military coup in 1999, may also cost the government votes. Political disturbances seem temporary and economic policy will maintain its direction even if there is a change of government,'' said Tanvir Ahmed Shaikh, president of the Karachi-based Federation of Pakistan Chambers of Commerce and Industry. There’s a good show on and the government will try to keep it going.‘’ Pakistan’s government expects the economy to expand 7.2 percent in the year starting July 1, accelerating from 7 percent in the previous 12 months. Growth has averaged 7.5 percent in the past four years.
`Transformed Pakistan’
``We have transformed Pakistan into one of Asia’s fastest growing economies and come a long way in the last eight years,‘’ Khan told parliament. Faster growth is fuelling inflation, which has averaged almost 8 percent in the past year, compared with 2.5 percent at the time of the last parliamentary elections in 2002. That’s increasing food prices in a nation where about 70 percent of the population of 160 million people lives on less than $2 a day. The minimum wage will be raised to 4,500 rupees ($74) a month from 4,000 rupees to help lower-income workers cope with higher prices, Khan said. Aziz’s government is also increasing development spending to ensure the faster growth needed to reduce poverty isn’t hampered by inadequate infrastructure. Outlays on development projects including power, health and education will rise 25 percent to 520 billion rupees, Khan told parliament.
Foreign Investment
Infrastructure has been neglected over the decades,'' said Ahsan Javed Chishty, an economist at Standard Chartered. The 2008 fiscal year is an election year and the government is running an augmented development spending program.‘’ Better infrastructure should help Pakistan attract more foreign investment. Overseas companies including Philip Morris International and ABN Amro Holding NV are increasing their presence in Pakistan to take advantage of spending by a middle class of 30 million people that Standard Chartered estimates now earn an average of about $10,000 a year. Pakistan’s textile industry, the nation’s biggest employer of industrial workers, will now pay a flat 1 percent withholding tax on their exports, Khan said. That should help the government achieve its goal of next year lifting textile exports, which make up more than 60 percent of overseas sales, by a quarter to $15 billion.
Bond Sales
Pakistan will take advantage of heightened overseas interest to sell $500 million in foreign-currency bonds next year. The nation last month raised $750 million selling foreign currency bonds in its fourth debt offering in three years. Subsidies on fertilizer, power and food will rise by about 6 percent to 113.9 billion rupees, according to budget papers, boosting agriculture growth. Farmers will receive a 25 percent subsidy on electricity costs, Khan said. The government is keen on public sector development which will help it remain popular,'' said Nasim Beg, who oversees the equivalent of $320 million in stocks and bonds as chief executive of Arif Habib Investment Management Ltd. in Karachi. This is especially evident by incentives for farmers and salary increases for government employees.‘’ Pakistan’s farm production, which accounts for about a quarter of the $146 billion economy, is forecast to expand 4.8 percent next year. The construction industry may get a lift as real estate investment trusts will now be exempt from tax, according to budget documents. As many as 30 new office towers with more than 25 stories are scheduled to be built in Pakistan in the next few years, compared with only two buildings of similar dimensions in the past three decades, according to Standard Chartered.
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