Rs1,418 bn development outlay okayed

ISLAMABAD: Envisaging a GDP growth of 5.5 percent and inflation of six percent for the next budget, the Annual Plan Coordination Committee (APCC) has cleared a development outlay of Rs1,418 billion, including Rs580 billion for the federal share and Rs838 billion for the provinces, in fiscal 2015-16.
Of the total Rs580 billion as the federal share of the federal Public Sector Development Programme (PSDP), the foreign exchange component (FEC), mainly in the shape of loans from multilateral and bilateral creditors, stands at Rs182.713 billion.
More than Rs150 billion have been allocated for the Pakistan-China Economic Corridor (CPEC) in the budget 2015-16 to undertake development projects for which the Chinese have committed $46 billion.
The major increase in allocation of development outlay was witnessed from the provincial side as their development share increased from Rs650 billion in the outgoing fiscal to Rs838 billion, registering an increase by 28.9 percent. The federal PSDP was increased by just 10 percent compared to the last fiscal year.
The APCC, which met under the chairmanship of Minister for Planning and Development Ahsan Iqbal, here at the P Block on Tuesday, recommended to the National Economic Council (NEC) to approve Rs250.752 billion for the federal ministries/divisions in the next fiscal year. For corporations such as Wapda and National Highway Authority (NHA), Rs272.747 billion have been earmarked of which the allocation for Wapda is Rs72.747 billion and that of the NHA Rs200 billion.
The government has allocated Rs20 billion for the MDGs and community development programme, Rs30 billion for special federally funded development programme and Rs6.5 billion for ERRA in the upcoming budget.
The federal PSDP was increased from Rs525 billion in the outgoing fiscal year to Rs580 billion for the next budget 2015-16, registering a 10 percent increase in the allocation of federal share of development outlay.
The government has envisaged the allocation of Rs30 billion for the Water and Power Division (water sector), Rs20 billion for the Higher Education Commission (HEC), Rs30.480 billion for Pakistan Atomic Energy Commission (PAEC), Rs29.460 billion for development projects of Planning and Development Ministry, Rs14.5 billion for Ports and Shipping, Rs40 billion for Pakistan Railways, Rs19 billion for States and Frontier Regions, federal education and training Rs3.45 billion, Defence Division Rs2.914 billion, Economic Affairs Division and Foreign Affairs zero amount, Finance Division Rs6 billion, Interior Division Rs7.5 billion and SUPARCO Rs1 billion in the next fiscal year.
The APCC also approved macroeconomic outlook for the fiscal year 2015-16 envisaging a significant recovery in growth momentum and trajectory amidst wide ranging challenges including persistent energy shortages, supply side constraints, inefficiencies of production, further reduction in fiscal deficit by mobilising additional revenues and demand for structural reforms besides security challenges. Similarly, regaining macroeconomic stability and adequate investment are critical for improved growth prospects and enhancing job-creating ability of the economy.
The annual plan for 2015-16 states that the stage is set for economic revival in the next fiscal year. The GDP growth rate is targeted at 5.5 percent with contribution from agriculture 3.9 percent, industry 6.4 percent and services 5.7 percent in 2015-16.
The nominal GDP is targeted at 11.8 percent and GNP per capita is projected at Rs167,915. The growth rate is subject to risks like deterioration in energy availability, extreme weather fluctuations, non-implementation of envisaged reforms programme and fiscal profligacy.
The economic growth that stood at 4% in the last fiscal year marginally grew to 4.2% in the outgoing fiscal year. However, the government has decided to ease some of the constraints to achieve 5.5% growth rate in the next fiscal year.
The industrial and services sectors are expected to steer the economy to higher growth whereas the agriculture sector will continue its modest growth in the short-run unless major changes in cultivation techniques are adopted.
The agriculture sector is targeted to grow by 3.9% on the basis of expected contribution from major and small crops. For the next fiscal year, the government has estimated 6.4% growth in the industrial sector on the back of better energy supply and investment in China-Pakistan Economic Corridor projects. Better energy supply is expected with the import of LNG. Likewise, some energy related fast-track projects under the CPEC are to be completed in the next fiscal year.
The services sector is targeted to grow by 5.7% with the contribution of transport, storage and communication, wholesale, retail trade, finance, and insurance sectors.
For the next fiscal year, the underlying assumption for inflation is 6%, which is consistent with fiscal prudence, stable exchange rate and responsive monetary policy. The circular debt was cleared temporarily without addressing structural issues in June 2013, which had some positive implications for the economy in the short run. However, it needs to be resolved permanently so that it does not impede growth momentum.
Investment is expected to improve from the current level of 15.1 percent to 17.7 percent in the next fiscal year. Fixed investment will inch up from 13.5 percent to 16.1 percent of GDP. Foreign direct investment net inflow has decreased substantially from $5.4 billion in 2007-8 to just $826 million in July-April period of 2014-15, which is 8 percent lower than meagre $898 million.
The annual plan states that the strategy of monetary policy during the next fiscal year will focus on price stability and will provide support to economic growth by improving the implementation of monetary policy and the operational framework. The monetary expansion will be in line with the projected GDP growth rate of 5.5% and inflation rate of 6%.
The government has planned to build on the gains of the current fiscal year and will focus on fiscal prudence. It has planned to curtail the budget deficit by mobilising additional revenues, controlling current spending by switching to more targeted subsidies and prioritising development spending for critical sectors. The budget deficit is targeted at 4.3% of the GDP.
Savings and Investments: Investment is targeted to improve from the current level of 15.1% of GDP to 17.7% — an ambitious goal of 2.6% of the GDP in a single year. The increase in investment will be primarily come from the private sector while the public sector will continue to support the private sector. Fixed investment is projected to grow from 13.5% to 16.1% of GDP.
According to the APCC, the inadequacy of national savings to finance investment has always led to increased dependence on foreign savings. However, national savings are now expected to improve from 14.5% of GDP to 16.8% in the fiscal year 2015-16.
Balance of payments: The outlook for 2015-16 is encouraging due to the optimism prevailing on account of better availability of energy supplies due to completion of various projects, according to the annual plan. It is also expected that a competitive exchange rate will improve the competitiveness of export sector.
Exports are estimated to grow to $25.5 billion in the next year — up by 5.5% from this year’s level of $24.2 billion. Imports during 2015-16 are projected to grow by 6% to $43.3 billion against this year’s $40.8 billion. Trade deficit is estimated at $17.7 billion for the next fiscal year. The current account deficit is projected at $2.8 billion in 2015-16 or almost 1% of the GDP.
Federal Minister for Planning, Development & Reforms Ahsan Iqbal anticipated higher economic growth in the present fiscal compared to the last seven years due to economic revival triggered by successful policies of the present government.
He stated in his opening speech that after achieving economic stability and maintaining fiscal discipline, now efforts were being directed at achieving higher rates. He laid special emphasis on social sector development and drew attention of the provinces towards higher allocations for education and health sectors. He said development in all regions of the country on an equal basis is part of the documented vision of the present government and it would make all-out efforts in this regard.
The minister extensively briefed the participants on the China-Pakistan Economic Corridor (CPEC) and sought the support of provinces for speedy work on this key project.
He termed all speculations regarding route change as ‘baseless’ and said the Western route was the government’s priority and it would be completed by December 2016.
He asked the provincial governments to identify viable economic zones in their areas so that they can be incorporated into the CPEC and said that the Joint Working Group on Economic Zones was yet to be established. As soon as the working group is established, the provinces will be consulted to finalise the sites, he said.