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Ahead of budget, Pakistan finance minister touts expanding economy
May 25, 2017 / 2:10 PM / in 5 months

Ahead of budget, Pakistan finance minister touts expanding economy

* Pakistan misses 5.7 pct growth target for 2016/17

* Current account deficit widens to $8.3 bln

* Growth of 6 pct targeted for next year

* Finance minister to deliver budget speech on Friday

By Drazen Jorgic

ISLAMABAD, May 25 (Reuters) - Pakistan’s economy is on track to expand 5.3 percent in the financial year 2016/2017, the fastest rate since 2007, Finance Minister Ishaq Dar said on Thursday, a day before he announces a budget plan which is likely to focus on boosting growth.

Analysts will be closely watching Dar’s final budget before the 2018 election for any clues about populist giveaways and to see if his government will maintain the macroeconomic discipline that has helped stabilise the economy in recent years.

Dar said estimated growth in 2016/2017 (July 1-June 30) had been driven by a rebound in agriculture, with the sector growing 3.5 percent compared with 0.3 percent a year earlier, and supported by steady performance of the services sector, which expanded 6 percent.

“Pakistan is in the midst of an economic revival,” Dar said in a statement detailing the 2016/2017 Pakistan Economic Survey.

He also told media that Pakistan would be targeting a 6 percent growth target for 2017/2018. In the past few years, the government has missed such targets, including the 5.7 percent aimed for in 2016/2017.

Pakistan’s economy needs to grow at more than 6 percent a year to absorb new entrants coming into the workforce in a fast-growing population of nearly 200 million people, experts say.

Pakistan in September concluded a three-year IMF bailout programme stemming from a balance of payments crisis in 2013, and Dar said Pakistan had no plans to go back to the IMF despite a ballooning current account deficit.

He estimated the current account gap would reach $8.3 billion in 2016/2017, from $2.5 billion the previous year.

PUBLIC DEBT

The spike has been mainly attributed to machinery imports for power plants and infrastructure projects linked to the Beijing-funded China-Pakistan Economic Corridor, which is a flagship project in China’s vast Belt and Road initiative.

Dar also rejected assertions by some analysts that Pakistan’s currency is overvalued by 20 percent. “If anything, it is not (overvalued) more than 5 percent,” he said.

He added that public debt stood at 59 percent of GDP as of March, while the value of Pakistan’s economy had increased to just over $300 billion.

Analysts say Friday’s budget will focus on spurring growth ahead of the 2018 election, with Prime Minister Nawaz Sharif’s government continuing to spend heavily on infrastructure and tightening tax collection efforts to pay for the spending plans.

Vahaj Ahmed, research analyst at investment bank Exotix Partners, said he also expected Islamabad to maintain fertiliser subsidies to the agricultural sector, and possibly waive a general sales tax (GST) on agricultural inputs, to help growth.

Citi, in a research note, said the 2017/2018 budget this week will be a “litmus test of the government’s fiscal intentions” before the 2018 poll, expected in May next year.

Topline Securities, a brokerage, said in an analyst note it expected the total 2017/2018 budget to be about 7 percent higher than last year, at 4.7 trillion rupees ($45 billion).

Topline said Dar was likely to target a budget deficit of about 3.5 percent, while the 2016/2017 deficit gap was expected to exceed 4 percent. ($1 = 104.8100 Pakistani rupees) (Additional reporting by Saad Sayeed; Editing by Alison Williams)

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