Pakistan expects to cut its budget deficit for the first time in four years as record economic growth spurs tax collections, the country’s chief economic adviser Ashfaque Hasan Khan said. The deficit may narrow to 4% of gross domestic product (GDP) in the year starting 1 July, from 4.2% of GDP in the current year, Khan said in Kyoto. The government will release its budget in the first week of June.
Pakistan wants to cut the deficit to reduce its debt, which equals half the country’s $129 billion (Rs5.3 lakh crore) economy. “Growth has boosted tax collections and this has given us confidence that we will be able to cut the budget deficit,” Khan said. He said the deficit could have been around 3.7% of the GDP if money spent on earthquake relief wasn’t taken into account. An October 2005 quake killed 73,000 people in the country’s north. The government may spend Rs37,000 crore next year for quake victims, he said.
By improving finances, Pakistan hopes to get an investment grade rating from Standard and Poor’s and Moody’s Investors Service, which have placed the country three levels below the investment grade.
Khan expects the economy to grow 7% next year after an average 7.5% expansion in the past three years, driven by construction, banking and farming. He saw “no reason” for an interest rate hike as inflation may ease to an average 6% next fiscal from an average 8% in the first nine months of the current year. “Inflation is primarily driven by food prices,” Khan said. “This year we will have a bumper wheat crop. The wheat crop serves as a trigger mechanism for food prices.”