Pakistan Economy - News & Updates - Archive

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KARACHI (June 05 2006): Foreign Direct Investment (FDI) in the first ten months (July-April) of the current fiscal year has reached $3.02 billion - the highest ever in the country's history, as against $0.89 billion in the same period last year, thus, registering an increase of 238.7 percent.

According to Economic Survey 2005-06 FDI is expected to reach $3.5 billion or 2.7 percent of GDP by the end of the current fiscal year.

FDI has become an important source of private external finance for developing countries. It is different from other major types of external private capital flows in that it is motivated largely by the investors' long-term prospects for making profits in production activities in the host countries.

Almost 75.0 percent of FDI have come from six countries, namely, the UAE, US, Saudi Arabia, Switzerland, UK and the Netherlands. The UAE with 42.5 percent ($1284.6 million) has topped the list of foreign investors followed by the US (13.9% or $419.1 million), Saudi Arabia (9.06% or $273.7 million), Switzerland (5.34% or $161.5 million), UK (5.0% or $151.4 million) and the Netherlands (2.9% or $87.1 million).

Telecom, energy (oil, gas and power), financial services, trade, construction, chemicals, food and personal services have been the major recipient of FDI, accounting for almost 94 percent or $2.082 billion. Telecom sector has been the single largest recipient of FDI with $1.0 billion followed by the energy sector ($304 million), financial services ($265.5 million), trade ($81.9 million), construction ($54.4 million), food ($52.7 million), personal services ($45.2 million) and cement ($33.6 million).

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ISLAMABAD (June 05 2006): Inflation, which impacts the poor disproportionately, has come down by 1.3 percentage points to 8 percent during ten months (July-April) of the current fiscal year , the government said on Sunday.

According to the Economic Survey 2005-06, released here at a news conference, the inflation, as measured by Consumer Price Index (CPI), averaged 8 percent during 2005-06 (July-April), against 9.3 percent in the corresponding period of 2004-05.

On current trends, and barring any adverse shocks, it says that the government is expecting that inflation would be within the target of 8.0 percent set by the government for full year.

During the period under review, food inflation was estimated at 7.0 percent as against 12.8 percent in the same period last year. Non-food inflation at 8.8 percent was on higher side compared with 6.9 percent in the same period last year. The core inflation, which excludes food and energy costs from the headline CPI, moved up and estimated at 7.7 percent as against 7.0 percent in the same period last year.

House rent index also played an important role in building inflationary pressure this year. With second largest weight in the CPI (23.4 percent) after food (40.3 percent), the house rent component of the CPI registered a marginal decline to 10.3 percent as against 11.1 percent in the same period last year.

The survey says that in terms of generating inflation, the phenomenal rise in aggregate demand in the economy, on the one hand, was compounded by supply shocks, on the other. Besides, it says that the eight per cent inflation is also due to various internal and external factors.

The adverse external developments, which impacted the price levels for the fiscal year under review included a continuation of the surge in international oil price to an all-time record of nearly US $75 per barrel in April this year, before pulling back somewhat, coupled with an unprecedented rise in world prices of commodities due to demand from fast-growing economies such as China and India.

Besides, decline in the size of sugarcane crop resulting in relatively less production of sugar within the country as well as significant rise in international prices of sugar owing to diversion of large portion of sugarcane into ethanol (a petroleum substitute) by the world's largest producer, Brazil, also impacted price development

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ISLAMABAD (June 05 2006): Adviser to the Prime Minister on Finance Dr Salman Shah on Sunday unveiled a plan to expand capital market, besides strengthening the banking system in the next fiscal year.

The plan included issuing of the new mutual funds, TFCs and bonds in the next fiscal year and continuing the reforms programme for the banking sector enabling it to take up the enhanced role to facilitate the capital market.

Salman Shah was responding to a questioner while releasing Economic Survey 2005-06 here.

The adviser said in the past weak banking system provided an opportunity to the influential and political elite to plunder billions of rupees of public money and the same unhealthy practice would have continued if the government had not reformed entire banking system to help it function independently.

He said the banks were operating under a strict monetary regulation system, which does not allow them cartelisation. The reforms in banking sector helped it come out of gray area and now the banks were performing very well in the private as well as the public sector, he added.

Salman Shah said that in the past influential and political elite made the entire banking system vulnerable to risks. He said a very big portion of the bank loans was turning into bad debt every year as long as they were being run by the public sector and added that the policy of handing over the banking business to the private sector did a marvellous job in their proper functioning and reduced the percentage of bad debt.

He said that our privatisation programme is the best in the world and hiring of reputed international financial adviser was indicative of its credibility. He said the Supreme Court''s review of Pakistan Steel Mills sell-off case would vindicate the Privatisation Commission''s decision.

Regarding debt retirement and the current debt level, Salman Shah said the government was strictly following Fiscal Discipline Law and maintaining debt level to a restricted level. He said Pakistan''s total debt in term of Pak rupee was Rs 4217 billion.

The adviser denied that any change has been done in the methodology to assess poverty and that the figures quoted by the official document were fudged. He added that the international donors and experts have certified the poverty figures and reduction in its percentage.

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Economic Survey 2005-06: overview of the economy

Read the link: http://www.brecorder.com/index.php?...&term=&supDate=

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ISLAMABAD (June 05 2006): High international commodity prices have inflated Pakistan's imports by over 2.3 billion dollars, including 1.915 billion dollars for oil import alone, during the outgoing fiscal 2005-06.

Economic Survey 2005-06 released here on Sunday says that during the first nine months (July-March) 2005-06, the country had to bear additional cost of 1.915 billion dollars against corresponding period of the last fiscal year owing to high international oil prices.

During the first three quarters of the current fiscal year, the consumption of petroleum products in households, agriculture, transport and power sectors, exhibited sharp decline to the extent of 35.3 percent, 47.4 percent, 8 percent and 16.8 percent, respectively, the survey said.

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KARACHI (June 05 2006): Airblue is set to induct 4 new aircraft and will be the first Pakistani private airline to operate long haul flights to United Kingdom in its third year of operations, said Shahid Khaqan Abbasi, Chief Operating Officer Airblue, in Lahore on Sunday.

He was addressing 40 corporate managers from Airblue's domestic and international network attending the airlines second Management Conference, "Blue-II Expanding Horizons" concluded here.

Abbasi emphasised that continued expansion was essential for the airline to continue surviving in the prevailing environment.

He said Airblue would be acquiring two Airbus A330s for UK operation, which are scheduled to be launched in December 2006.

Airblue will also be acquiring two Airbus A321s to further consolidate its domestic and regional schedule, he said, adding that in its third year of operation the airline would have a fleet of nine next-generation jet aircraft operating on a network of nearly one dozen destinations.

He pointed out that Airblue would be introducing a turbo prop operation on the socio-economic routes starting with a daily flight to Gwadar.

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ISLAMABAD (June 05 2006): Despite two percent increase of energy supply, the electricity generation showed only a marginal increase of 0.3 percent, while the number of consumers increased to 15.6 million from 14.9 million, says Economic Survey 2005-06.

The survey, which covers the first nine months of the outgoing fiscal year, further said the oil production also showed a decrease of 1.23 percent, while gas showed 4.4 percent production growth.

In the first three quarters of the outgoing fiscal year, the consumption of petroleum products in household, agriculture, transport and the power sector showed a declining trend, while energy supply registered an increase of two percent.

The Economic Survey data also said the decline in the use of petroleum products in households, agriculture, transport and power sectors, was due mainly to the availability of alternative and relatively cheaper fuels, low demand of LDO in agriculture and lastly, the massive increase of CNG and natural gas in transport and power sectors.

The consumption of gas in cement industry increased by 25 percent, while the power sector consumption grew by 9.9 percent followed by the fertiliser industry (8.0 percent), industrial sector (7.9 percent) and household sector (0.7 percent), it said, adding that a substantial increase in the consumption of electricity has also been witnessed during the first nine months of the current fiscal year.

The energy supplies increased to 42.449 million TOE from 41.617 million TOE, which is an increase of two percent, mainly due to appropriate and timely measures taken by the government to provide an investment-friendly environment for the energy sector to attract more local and foreign investors, the survey said.

The average crude oil production during July-March 2005-06 was 65,385 barrels per day as against 66,199 barrels per day during the corresponding period last year, showing a decrease of 1.23 percent and is due mainly to lower production by 10 percent from southern region oil fields.

The average production of natural gas during July-March 2005-06 was 3,826 million cubic feet per day (mmcfd) as against 3,663 mmcfd during the corresponding period last year, showing an increase of 4.4 percent.

The total installed capacity of electricity generation increased to 19,439 MW in 2005-06 from 19,389 MW last year, showing a marginal increase of 0.3 percent.

The number of electricity consumers has increased over the years due to rapid extension of electric supply to villages and fast urbanisation. The number of consumers has increased to 15.6 million, up to March 2006, from 14.9 million in 2004-05, showing an increase of 5 percent over the last year and a growth of 64 percent since 1995-96.

The NTDC and Discos have reduced power losses thus increasing the revenue by adopting measures such as renovation, rehabilitation, capacitor installation and strengthening consumer-end distribution supply network. It decreased the power losses from 24.2 to 22.8 percent during the first nine months.

The government has approved the recommendations under the Energy Security Action Plan, which include development of wind and solar energy to ensure that at least five percent of total power generation capacity is met through these resources by 2030 ie (9700 MW), it said.

The Alternative Energy Development Board to ensure the installation of 100 MW wind power by June 2006 at Keti Bandar and Gharo in Sindh and 700 MW by 2010, the survey added.

Due to the import of high cost energy resources, the government will enhance the share of coal in the overall energy mix from 5 percent to 18 percent up to 2018.

The Energy Security Action Plan has also set a target of generating about 20,000 MW power from coal by 2030 and 50 percent by 2050, the Economic Survey added.

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KARACHI (June 05 2006): Pakistan is ironically dependent on the import of crude oil to meet the demand gap, as the country was meeting only 18 percent of its oil needs from indigenous production and it had to import the remaining 82 percent and pay international prices.

The crude oil and petroleum products import for the year 2004-05 amounted to about 8.3 million tonnes and 5.7 million tonnes, respectively with actual amount of payments worth $2,606 million and $1,998 million, respectively. The total annual oil import bill stood at $4,604 million during 2004-05.

According to Economic Survey 2005-06, the production levels may still be insufficient, our country is undoubtedly thriving with potential.

Pakistan has an interesting geo-dynamic history of large and prospective basin (onshore and offshore) with sedimentary area of 827,268 square kilometres.

So far about 844 million barrels of crude oil reserves have been discovered, of which 535 million barrels have already been produced.

Prognostic potential of total endowment of hydrocarbons has been estimated as 27 billion barrels of oil and 282 trillion cubic feet of gas in Pakistan.

Until recently, over 620 exploratory wells have been drilled by various national and international exploration and production companies, resulting in over 177 oil and gas discoveries.

In addition, indigenous production of crude oil during the year 2004-05 was 66,095 barrels per day. Similarly, 50 percent of the indigenous gas contributed a substantial portion of the energy requirements of the country.

Considering this, the government is making great efforts to attract local and foreign investors.

As a result of these financial and structural reforms, the energy sector has already become one of the most attractive sectors in the country.

Recently, the government had signed a number of agreements worth $42 million, with various international companies to carry out exploration activities in the oil and gas sector.

It is expected that the energy supply position will be better after the implementation of plans for pipeline projects from Iran and the Central Asian countries.

Similar pipelines are also being negotiated with Qatar and Turkmenistan. These energy development projects in the country would help battle future energy shortage in the country and pave the way for enhanced economic activities, reduction of poverty and bring Pakistan's backward areas at par with the developed areas.

As for energy in Pakistan, power, gas, petroleum and coal are the main components of this sector.

During 2004-05, the primary commercial energy supplies increased by 9.2 percent to 55.5 million tonnes of oil equivalent (MTOE), as compared to 50.8 (MTOE), in 2003-04. The major increases derived from natural gas (2.7 MTOE) oil (1.2 MTOE) and coal (0.9 MTOE).

In comparison to the previous year, the supplies from nuclear and LPG have also illustrated a slight increase, while those from hydel have decreased.

The share of natural gas in primary energy supplies, during 2004-05, has also reached up to 50.4 percent, followed by oil (29.4 percent), hydro electricity (11.0 percent), coal (7.6 percent), nuclear electricity (1.2 percent) and lastly, LPG (0.4 percent). The drilling activity, particularly exploratory drilling has slowed down during the last two years ie 2004-05 and 2003-04; only 19 exploratory wells were drilled during 2004-05 as compared to 29 during 2003-04 and 32 during 2002-03. The number of development wells drilled during 2004-05 was 28 as against 24 during 2003-04 and 45 during 2002-03.

Oil and gas production showed positive growth during 2004-05 and the oil production increased by seven percent from 61,774 barrels per day, in 2003-04, to 66,095 barrels per day in 2004-05.

At the same time, the natural gas production increased by 11.8 percent from 3,295 to 3,685 million cubic feet per day (MCFD) during the same period.

As far as consumption is concern, during the period of last 10 years (1995-96 to 2004-05), the consumption of petroleum products has increased by an average rate of 0.9 percent per annum. The consumption of gas, electricity and coal have also increased at an average rate of 7.9 percent, 4.6 percent and 9.1 percent per annum, respectively.

It is important to note that a structural shift is taking place in energy consumption in Pakistan, since 2000-01. While consumption of petroleum products is declining except in 2004-05, the consumption of other components of energy is rising. The average consumption of petroleum products has in fact, registered a decline of 3.3 percent per annum since 2000-01.

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KARACHI (June 05 2006): The government has decided to enhance the share of coal in the overall energy mix from five percent to 18 percent up to 2018, due to the import of high cost energy resources. The coalfield in the Sindh province has huge coal resources of about 175 billion tonnes.

According to Economic Survey 2005-06, in view of the anticipated shortfall of electricity and other energy resources during the next 10 years, the maximum utilisation of coal would be required in power generation and gasification.

The Approved Energy Security Action Plan has set a target of generating about 20,000 Megawatt (MW) of power from coal by 2030 and 50 percent by 2050.

As a result of the government endeavours, about 80 percent of the cement industry have now switched over to indigenous coal from furnace oil that has saved considerable foreign exchange being spent on the import of furnace oil.

The conversion of the whole cement industry to coal would generate demand for 2.5 million tonnes of coal per annum.

To ascertain commercial viability of mining coal from Thar, the German consultant Rheinbraun Engineering has completed a mining feasibility on a specific block in Thar coalfield.

The same block has been assigned to a firm from the United States for commissioning of integrated coal mining and 1000-MW power generation project.

The government has also decided to establish a coal mining and power generation company on the pattern of WAPDA for harnessing the Thar coal resource.

As a part of the promotional activities to increase the share of coal, the Government of Sindh has leased out a coal block to Fatteh Group of Hyderabad to commission a coal-based power plant of 250-MW.

In addition, the government has also allowed a Chinese company namely, China National Chemical Engineering Group Corporation (CNCEC) to conduct a feasibility study on a coal block in Sonda Jherrick coalfields in the Sindh province for an integrated mining project of one million tonnes and commission a 250-MW coal based power plant.

In pursuit of a Presidential directive, the Sui Northern Gas Pipeline Limited (SNGPL) is in the process of preparing pre-feasibility for the commissioning of town gas plant at Bakar (Punjab), by utilising Makarwal coal.

The total national coal production from operational coal-mines during 2004-05 remained around 4.60 millions and about 80 percent of it was consumed by the brick kiln industry.

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Inaugurating the ‘marble city’ at Gaddani in Balochistan, the President General Pervez Musharraf assured the manufacturers that the government would serve as a facilitator to promote the marble industry and its mining will be undertaken by utilizing the latest technologies to avoid wastages.

About 300 units have been planned for the marble city on some 600 acres of land. Four units are currently in production at the facility and investment has been made by expatriate Pakistanis from USA, Japan, Spain and the UAE. The President also assured some other measures to help the marble industry.

The industry has failed to benefit from the marble boom. Disorganized and mismanaged and possessing poor technology, the industry has been shy of sizeable investment.

Pakistan is currently mining 40 types of natural colour marble and also dying the marble in various colours which is processed by 150 different units. Only now utilization of modern machines has started to produce qualitative products in bigger quantities.

The efficiency of marble processing industry depends on the quarry products. Development of the skills of the local quarry masters can improve the quality and raise productivity to meet international standards and demand. Private sector can be encouraged to establish a large number of marble enterprises in Balochistan, which would carry out the quarrying, processing and trading of marble products.

The use of out-dated technology in the mining results in some 70 per cent of wastage, as the explosives are used for the purpose. Obsolete methods are still in practice and a lot of breakage occurs.

The government needs to develop processing centres with automatic tiling plants in the Gaddani marble city and the president has assured that the equipment would be imported for the purpose.

Marble is largely used in construction and handicrafts sectors. Amongst the building stones, marble occupies a unique position. Marble slabs and handicrafts have great demand in national and international market. The ministry of industries and production has set a marble export target of $500 million.

Marble is an export-oriented sector. There is a big demand for this mineral in the Middle East, Far East and European countries, where almost 50 per cent of the world’s marble output is consumed. Pakistan earned $15.8 million foreign exchange with the export of marble in FY 2001-02.

The 40 per cent export was in the shape of handicraft, while the rest of 60 per cent in slabs and bricks form. Marble is exported to the USA, Dubai, Korea and Bangladesh while Europe is considered a potential market. What is needed is the tapping of the world markets and improving quality, value addition and bringing down the extraction losses.

Marble in commercial quantities is found at a number of places including Lasbela, Khuzdar and Chaghi districts. Commercial marble is defined as “any crystalline rock capable of taking a polish and suitable for decorative and structural purposes�.

Marble in Chaghi district is of onyx variety and is being mined since 1950’s. The term ‘onyx’ signifies a banded variety of quartz, highly prized as an ornamental stone.

The onyx is largely used for beads, brooches, ring-stones and other small ornamental objects, while the larger pieces are occasionally wrought in the form of cups, howls, vases etc. Onyx is the favourite stone for cameo work because its layers can be cut to show a colour contrast between the design and the background.

For its vast applications and uses, onyx marble is in great demand in the international market. The onyx marble from Chaghi can meet the international standards and demands if it is processed efficiently.

A marble policy should envisage the sanction of mining leases to private firms in Balochistan. Prospecting license may also be granted to firms for unexplored areas and the local private sector should be extended incentives for making investment in the marble sector. The marble city is a step in the right direction.

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Dubai: DP World, the world's third largest container port operator and a unit of holding company Dubai World, said on Sunday it was discussing with the Pakistani government the terms of reference for taking over the strategic Arabian Sea port of Gwadar.

"We have been confirmed as the preferred bidder by the Gwadar Port Implementation Authority. We are currently in discussions to finalise the terms of reference for the concession," a company spokesperson told Gulf News.

A Pakistani official earlier said that operational management at the deep-sea port, built with Chin-ese assistance and located about 120 kilometres from the Iranian border, has been given to the Dubai firm.

Balochistan Chief Minister Jam Mohammad Yousaf on Saturday also said five border points have been opened with Iran to promote trade via Gwadar port, according to an agency report.

DP World emerged as the favourite for operating Gwadar after the world's number one port management firm Hutchison Port Holdings of Hong Kong withdrew a bid for the facility.

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Monday, June 05, 2006

ISLAMABAD: Over three million people in the labour force were unemployed in the first six months (July to December 2005) of fiscal 2005-06 and the unemployment during this period was 6.50 percent, according to the Economic Survey 2005-06 released on Sunday.

Agriculture employment increased from 43 percent in fiscal year 2003-04 to almost 45 percent in the first six months of 2005-06. In Pakistan, labour force participation is estimated on the basis of Crude Activity Rate (CAR) and Refined Activity Rate (RAR). CAR and RAR were 32.8pc and 46.9pc respectively during the first half of 2005-06, up from 30.4 percent and 43.7 percent in the same period in 2003-04. The survey said 5.82 million jobs were created from 2003-04 to December 2005, 4.4 million in rural areas.

The employed labour force shows an increase in women’s number in most sectors. The increase in rural female employment was mainly in the category of unpaid family helpers. The largest increase in female employment was in agriculture and allied industries, supporting the view that employment gains are concentrated in female unpaid workers.

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ISLAMABAD (updated on: June 06, 2006, 04:19 PST): The government will inject Rs 105 billion in the form of subsidy into different sectors of the economy for providing some relief to the common man in the next fiscal year.

According to official figures released here on Monday, the government will provide Rs 55 billion subsidy to power sector, Rs 10 billion to fuel sector, Rs 12 billion to food sector, Rs 13 billion to fertiliser, Rs 10 billion for pay/pension relief and Rs 5 billion for safety net (Bait-ul-Maal).

PETROLEUM: The government will provide Rs 10 billion subsidy in the form of Petroleum Development Levy (PDL) to the fuel sector. In the past, the PDL was a major source of revenue. However, from 2006-07 the government has decided not to use it as a source of budget revenue. Instead, it will be utilised to fund as subsidy (Price Differential Claims) for petroleum products.

CEMENT: An amount of Rs 720 million has been earmarked in the budget to arrest hike in cement prices. It has also allowed import of cement till the stabilisation of prices at Rs 285-Rs 290 per bag.

FERTILIZER: The government has allocated Rs 12.3 billion to subsidize urea and other fertilisers.

Nearly Rs 7 billion has been earmarked to overcome the on-going sugar crisis. In this connection, the government has allowed duty-free import and has also entrusted the Trading Corporation of Pakistan (TCP) to import 200,000 tons per month sugar to ensure its availability at utility stores.

PULSES: The government has allocated Rs 2.5 billion to meet the pulses shortage that has created enormous price hike. The nation consumes 800,000 tons pulses, out of which 600,000 tons is daal chana alone. The government has also imposed export duty to discourage the commodity's export.

Besides, the government will also import 300,000 tons daal chana to ensure its availability at Rs 25 per kg. In addition, 10,000 tons daal mash is also being imported.

The government has announced that all types of pulses would be available at Utility Stores Corporation at 10 percent below the market price.

PAY/PENSION RELIEF AND SAFETY NET: An amount of Rs 10 billion has been earmarked for raise in the salaries and pensions, whereas Rs 5 billion has been kept for Safety Net (Bait-ul-Maal).

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ISLAMABAD (updated on: June 06, 2006, 04:12 PST): The government has fixed Rs 835 billion revenue target for financial year 2006-07, which is Rs 120 billion higher as compared to the revised target of Rs 715 billion for the 2005-06. However, it is Rs 145 billion more than the original target of Rs 690 billion set for fiscal 2005-06.

Direct taxes receipts have been projected at Rs 270 billion, higher by Rs 36 billion than the revised target of Rs 234 billion for the ongoing fiscal.

The share of indirect taxes has been projected at Rs 565 billion, Rs 85 billion higher than the previous year's figures of Rs 480 billion.

The government has fixed income tax collection target at Rs 257 billion against 2005-06 revised target of Rs 215 billion.

According to the break-up, customs duty estimates have been projected at Rs 157 billion, as compared to Rs 136 billion revised estimates for the year 2005-06. The customs officials have been given assignment to generate Rs 21 billion more during the next financial year.

Sales tax target has been enhanced to Rs 341 billion, from Rs 286 billion. This indicates that the sales tax wing will have to collect Rs 55 billion more.

The share of federal excise duty (CED) has been fixed at Rs 68 billion against Rs 56 billion. The Board will have to collect Rs 12 billion more in 2006-07 from excisable commodities.

Out of total direct taxes target of Rs 272 billion, the target of capital value tax (CVT) has been projected at Rs 2900 million against last year's estimates of Rs 4000 million.

The estimate of worker's welfare tax (WWT) has been projected at Rs 1000 million against last year's revised projection of Rs 5500 million.

The target of Worker's Participation Tax (WPT), has been fixed at Rs 6500 million as compared to the revised target of Rs 7000 million.

The share of foreign travel tax has been projected at Rs 3713 million as compared to previous target of Rs 2739 million.

It has been estimated that the target of customs duty of Rs 157 billion for the next fiscal would be achieved through the import of chemicals and their products; dyes, colours, paints and varnishes; iron, steel; machinery; metals; minerals, fuel oils (POL); rubber and other products like plastic resins; vehicles; wood pulp and papers; yarn and fabrics; medical and photographic equipment and other items.

As far as excisable commodities are concerned, it has been estimated that Rs 4478 million would be generated from the beverage in 2006-2007; beverage concentrate, Rs 1777 million; cement Rs 13339 million; cigarette and tobacco Rs 25047 million; natural gas Rs 5990 million; perfumery/cosmetics Rs 599 million; petroleum gases Rs 28.900 million; POL products Rs 3878.900 million; insurance Rs 774.600 million; imported goods Rs 4272 million; recovery of excisable arrears Rs 594.900 and Rs 7567 million would be collected under the head of miscellaneous products.

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ISLAMABAD (updated on: June 05, 2006, 20:56 PST): The Government unveiled a new budget on Monday with a big increase in spending to tackle poverty but analysts say much more must be done to spread prosperity despite robust growth in recent years.

Delivering the budget statement in parliament, Minister of State for Finance Omar Ayub Khan said "revolutionary" steps should be taken to remove bottlenecks in various sectors and sustain growth.

"A co-ordinated strategy and a plan of action are needed to eliminate poverty so that our economic growth continues to grow at the rate of 6 to 8 percent," Khan said.

The budget for the next fiscal year totalled 1,315 billion rupees ($21.86 billion), up 19.7 percent from 1,098 billion rupees last year with a deficit of 4.2 percent of gross domestic product (GDP).

The government has already announced it was aiming for growth of 7 percent in gross domestic product (GDP) in the fiscal year beginning on July 1, compared with 6.6 percent for the current year.

"To attain this, it is necessary that the investment to GDP ratio, which for the first time in the history of the country has reached 20 percent, should be increased," Khan said.

"For this, the production sectors of the economy which include agriculture, manufacturing and services need to be cleared of all bottlenecks ... Revolutionary steps are being taken to remove these bottlenecks."

Development spending, which is channelled into a range of sectors including education, health, infrastructure, agriculture and irrigation, was increased by 52.57 percent to 415 billion rupees.

The government announced a modest 3.78 percent increase in defence spending over last year's actual spending of 241.06 billion rupees, as tension with old rival India eased.

But critics say that despite strong growth in recent years the poor have seen few benefits and poverty remains a huge problem.

The proportion of the population living below the poverty line has fallen to 23.9 percent in 2004/05 from 34.5 percent in 2000/01. But that still means about a quarter of the country's 160 million people live in poverty.

"I think the government's poverty numbers are ambitious, and there seems to be no direct co-relation between them and the actual poverty level," said Arshad Arif, research director at KASB Group.

"A lot more still needs to be done to reduce poverty.

POLITICAL, ECONOMIC STABILITY

President Pervez Musharraf promotes a vision of "enlightened moderation" and says tackling poverty and ignorance must be part of the campaign against religious militancy.

But analysts say the government has yet to take concrete measures to spread the benefits of growth.

"A reduction of poverty is obviously very crucial to political as well as economic stability," said Sakib Sherani, chief economist at ABN AMRO Bank.

"However, the government's claim that unemployment is being reduced is hard to swallow. I think there is a clear disconnect."

The middle and lower middle classes have been hit by high inflation that stood at 8 percent in the first 10 months of the current fiscal year.

But some relief measures were announced on Monday.

Tax rates for salaried workers are to be reduced to between 0.25 percent and 20 percent from 3.5 percent to 30 percent.

Government workers' salaries are to be increased by 15 percent and pension payments to be increased by 15 to 20 percent.

Growth in the agriculture sector is vital for reducing poverty and the government said it would spend 68 billion rupees on improving the country's water supply system.

A total of 10 billion rupees will be allocated for the construction of big dams.