GDP growth to sustain at 7.5-6.8% in 2007-08: report



Staff Report

KARACHI: The government in the forthcoming budget 2007-08 is likely to reduce the burden on the corporate sector through reduction in taxes to 32 percent (from 35 percent) for public-listed companies, said Merrill Lynch and Company report on Pakistan’s economy.

The report said the GDP growth would sustain at 7.0-7.5% and 6.8% in 2007-2008, respectively, owing to robust consumption growth, supported by higher remittances from workers (up 21% YoY) and foreign investments (up 147%).
“Unlike the last budget, we expect the next budget (expected to be announced in June 2007), to be pro-market and pro-investments,” the report said.

The report said: “The budget would also make efforts to boost investment in the country. The government’s overwhelming confidence on the corporate sector can be gauged through direct tax collections, which grew 61.9 percent year to date.”
The report said the government would further reduce its public sector holding to promote investments and bring about depth in the stock market. It will continue to reduce its holding in public sector companies through GDRs, these being United Bank Limited, National Bank Limited, Habib Bank Limited and KAPCO. This should set the precedent for the private sector and encourage listings.

The report said despite adversities in domestic politics, foreign private investment has risen 147 percent on a year-on-year and continues to be a dominant feature over the last three months. This reflects investors’ confidence on Pakistan’s future economic growth prospects.The SBP is expected to follow the wait and watch approach over the next few months, so as to sterilize excessive foreign flows but continue to accommodate private credit growth demand, the report said. Through tight monetary policy, the SBP has successfully contained core inflation, private sector credit growth, and money supply.

However, the SBP’s struggle to control monetary base growth is evident in the last few months.

The SBP has released its half-yearly review of 2006-07 and expressed optimism on the Pakistan economy. The SBP has pointed out sustained GDP growth, openness of the economy, and stability in exchange rate, as the three factors that would drive foreign investments. These foreign inflows should help manage macro imbalances and sustain high growth

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