ISLAMABAD: The upcoming Economic Survey 2010-11, to be unveiled by Minister for Finance Dr Abdul Hafeez Shaikh on June 2, will show a steep decline in spending on education and health in the aftermath of the inflated GDP size touching Rs18,000 billion or $210 billion for the outgoing financial year, The News has learnt.
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“Spending on education is expected to decline to 1.3 percent of GDP in 2010-11 from an earlier 2 percent of GDP in 2009-10 while spending on health will go down below one percent of GDP after the inflated size of GDP,” sources have confirmed.
“The highest ever inflationary pressure of 46 months, the longest period in the country’s history, has resulted in a substantial surge in the GDP size in the outgoing fiscal year which will translate into some good and some bad news in terms of indicators for the fiscal year 2010-11.”
The gravity of the situation can be gauged from the fact that the working paper prepared by the Planning Commission (PC) for National Economic Council, set to meet with the prime minister in the chair tomorrow (Saturday), contained some serious errors. An insider told The News that the Planning Commission never comprehended that the country’s current account would show surplus results, so they applied the definition of current account deficit in the released working paper.
“In reality, the current account is nothing but savings-investment gap. If the current account is in surplus then by definition savings exceed investment. But the PC document is showing the contradictory picture,” a PC source told The News. “No one in the Planning Commission is accepting responsibility for this error.”
However, the source said the inflated figures of GDP size would provide some good news to the economic managers since per capita income would touch $1,246 for the outgoing fiscal year and result in an improved position on the fiscal deficit side, a crucial number for the economy under the IMF programme.
The one percent of fiscal deficit in terms of GDP has been estimated at Rs180 billion from the earlier projection of Rs171 billion for the outgoing fiscal year, resulting in the desired result of restricting budget deficit in the range of 5.5 percent of the GDP for 2010-11. The current account in terms of the GDP will also show improvements.
The public debt to GDP ratio will also be improved in the upcoming Economic Survey 2010-11 because of the inflated GDP size. The debt to GDP ratio will show even better results if the government does not include IMF money in the public debt definition, though this will be a violation of the Fiscal Responsibility and Debt Limitation Act 2005 approved by Parliament.
On the negative side, the FBR’s tax to GDP ratio will decline to 8.8 percent of GDP in case the Board collects Rs1,580 billion till June 30, 2011 from the earlier number of 9.1 percent of the GDP for the last financial year 2009-10. The investment to GDP ratio and export to GDP ratio will also decline in the coming Economic Survey 2010-11.
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