KEYNOTE ADDRESS BUDGET 2008

1. KPMG TASEER HADI & CO. KEYNOTE ADDRESSBUDGET 2008 POST BUDGET SEMINAR 2008 The Income Tax Bar Association, Karachi Syed Masoud Ali NaqviSenior Partner Beach Luxury Hotel, Karachi, 17 June 2008

2. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Budget 2008-09 at a glance  3  Key objectives for the Budget 2008-09 6  Common Man’s Perception of Economic Development 7  Key Targets for Policy Makers 9  GDP Growth Trend 10 11  Composition of Sector GDP growth 12  Sectoral Contribution to GDP growth  Inflation 13 CONTENTS

3. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi  Domestic Debt 14  Interest Payments 16  Savings & Investments 17  Pakistan Economy: SWOT Analysis 18  Public Sector Development Programme 25  Composition of PSDP 26  Sectoral Distribution and Share of PSDP 28  Subsidies 29 CONTENTS

4. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Budget 2008-2009 at a glance

5. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Budget 2008-2009 at a glance

6. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Budget 2008-2009 at a glance

7. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Key objectives for the Budget 2008-2009 • Reduction in Fiscal and Current Account deficits. • Rationalization of subsidies. • Building Foreign exchange reserves to US$12 billion. Restore economic stability through: • Protect vulnerable groups through targeted program of cash transfers. • Focus on Agriculture and Manufacturing sectors to enhance productivity and competitiveness. • Restore Investors confidence. • Remove key bottlenecks in supportive infrastructure for spurring growth. • Increase social sector allocations to improve social indicators. • Significant addition to low cost housing for low income groups.

8. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Key objectives for the Budget 2008-2009 • Restore economic stability through: • Protect vulnerable groups through targeted program of cash transfers. • Focus on Agriculture and Manufacturing sectors to enhance productivity and competitiveness. • Restore Investors confidence. • Remove key bottlenecks in supportive infrastructure for spurring growth. • Increase social sector allocations to improve social indicators. • Significant addition to low cost housing for low income groups. • Reduction in Fiscal and Current Account deficits. • Rationalization of subsidies. • Building Foreign exchange reserves to US$12 billion.

9. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi • Food at affordable prices • Health support on efficient basis • Housing and shelter • Access to utilities (water, power, gas, telephone) on consistent basis at affordable cost • Education • Good quality at low costs • Aligned to required skills and vocational development demand • Employment opportunities – Massive investment in human capital • Law and order , security and access to justice • Freedom of access to information • Value for contribution to federal, provincial and local revenue • Potential for vertical migration in terms of quality of life and a mechanism to balance consumption and savings • Good governance Common Man’s Perception of Economic Development

10. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi • Supply side planning and reforms • Balance between consumption and savings • Strengthening of direct government intervention • Import Substitution • Growth to be inclusive • Ensuring efficiency and productive utilization of PSDP • Accelerated focus on Social sector • Reallocation of resources from general administration, defence; etc. • Raise revenue from Financial Services and other Profitable Sector like trading etc. for direct transfer to social sector to be managed by an independent representative body • MDG’s to be real goals rather than compliance of commitments. These goals should be dynamic and progressive Common Man’s Perception of Economic Development • Inflation • Inequality • Social Sector

11. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi • Manufacturing Sector • Agriculture Sector • Skills Development • and HRD • Focused planning for identified capacities in the sector of competitive advantage to match demand and preferential treatment for specified sectors for: •  Interest •  Utility costs •  Taxation • Live Stock to be doubled in 5 years • Planned approach for both major and minor crops • Huge capital investment by public and private sector to leverage the potential of knowledge economy Key Targets for Policy Makers • Transparency and unbiased accountability • Discouraging Elite Culture

12. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi GDP Growth Trend

13. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Composition of Sector GDP growth

14. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Sectoral Contribution to GDP growth î

15. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Inflation î

16. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Domestic Debt î

17. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Domestic Debt î

18. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Savings & Investments î

19. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Interest Payments î

20. Strengths Weaknesses • 4-5 years of strong growth has led to higher medium term growth path • Resilience against shock and extra ordinary jerks • Rise in per capita income for US$503 in 2002 to US$1,085 in 2007-08 • Robust Consumer spending • Substantial increase in private sector credit • Balance between fiscal deficit and growth • Medium Term Development Framework • Maintenance of external and domestic debt within limit • Reach to Global Capital Markets • Geo political situation post 9/11 • Higher foreign direct investment • Reduction in poverty level • Tight monetary policy to moderate inflationary pressure • Credibility of statistics • Indications of doubtful sustainability of growth momentum • Continued sharp increase in prices of food items • Incompetent contribution of various sectors of economy in tax revenue • Inefficiency in utilization of development expenditure • High administrative costs • Quality of governance • Increasing trade and current account deficit • Concentration of export in restricted items and markets • High cost of doing business • Lack of focus on agriculture sector • Political instability • Shortage of skilled workforce • Energy crisis and water crisis • Poor HDI indicators • Decline in trend of foreign investment • Continued subsidies to loss making public sector companies Opportunities Threats • Capacity constraints with India in IT sector • Recent investment in IT sector • BPO’s potential • Telecom and Media revolution • Geo political situation • Foreign Direct Investment • Investment in education and health • Lapsing of WTO multi-fibre agreement • Global high commodity prices • Focused skills development to secure dividend from demographic advantage • Political uncertainty and current judicial crisis • Issues in Balochistan and Northern Areas • Worsening of situation on Western borders • Anti Pakistan attitude in Afghanistan • Level of corruption • Broadening gap between Rich and Poor • Social unrest • Public discontent with the policies which may threaten reform process • Persistent high global oil prices • Increasing trend of terrorist activities • Pressure on exchange rates • Soaring core and food inflation Pakistan Economy: SWOT Analysis

21. 4-5 years of strong growth has led to higher medium term growth path • Resilience against shock and extra ordinary jerks • Rise in per capita income for US$503 in 2002 to US$1,085 in 2007-08 • Robust Consumer spending • Substantial increase in private sector credit • Balance between fiscal deficit and growth • Medium Term Development Framework • Maintenance of external and domestic debt within limit • Reach to Global Capital Markets • Geo political situation post 9/11 • Higher foreign direct investment • Reduction in poverty level • Tight monetary policy to moderate inflationary pressure Pakistan Economy: SWOT Analysis Strengths

22. Credibility of statistics • Indications of doubtful sustainability of growth momentum • Continued sharp increase in prices of food items • Incompetent contribution of various sectors of economy in tax revenue • Inefficiency in utilization of development expenditure • High administrative costs • Quality of governance • Increasing trade and current account deficit • Concentration of export in restricted items and markets • High cost of doing business • Lack of focus on agriculture sector • Political instability • Shortage of skilled workforce • Energy crisis and water crisis • Poor HDI indicators • Decline in trend of foreign investment • Continued subsidies to loss making public sector companies Pakistan Economy: SWOT Analysis Weaknesses

23. Capacity constraints with India in IT sector • Recent investment in IT sector • BPO’s potential • Telecom and Media revolution • Geo political situation • Foreign Direct Investment • Investment in education and health • Lapsing of WTO multi-fibre agreement • Global high commodity prices • Focused skills development to secure dividend from demographic advantage Pakistan Economy: SWOT Analysis Opportunities

24. Political uncertainty and current judicial crisis • Issues in Balochistan and Northern Areas • Worsening of situation on Western borders • Anti Pakistan attitude in Afghanistan • Level of corruption • Broadening gap between Rich and Poor • Social unrest • Public discontent with the policies which may threaten reform process • Persistent high global oil prices • Increasing trend of terrorist activities • Pressure on exchange rates • Soaring core and food inflation Pakistan Economy: SWOT Analysis Threats

25. Pakistan Economy: SWOT Analysis Challenges • Sustainability of growth momentum • Addressing structural problems in energy, agriculture and exports sectors • Job creation • Poverty alleviation • Improving social indicators and enhancement of safety nets • Strengthening of physical infra-structure • Converting the demographic transitions into demographic dividend • Supply side improvement to match growing domestic demand • Achieve political stability and institutional strengthening • Harmonious relationship amongst Federation and its units • Equitable distribution of resources between Federal, Provincial and Local governments • Revenue generation by provinces • Balanced approach of combination of Fiscal and Monetary Policy measures to combat inflation

26. Strengths Weaknesses • 4-5 years of strong growth has led to higher medium term growth path • Resilience against shock and extra ordinary jerks • Rise in per capita income for US$503 in 2002 to US$1,085 in 2007-08 • Robust Consumer spending • Substantial increase in private sector credit • Balance between fiscal deficit and growth • Medium Term Development Framework • Maintenance of external and domestic debt within limit • Reach to Global Capital Markets • Geo political situation post 9/11 • Higher foreign direct investment • Reduction in poverty level • Tight monetary policy to moderate inflationary pressure • Credibility of statistics • Indications of doubtful sustainability of growth momentum • Continued sharp increase in prices of food items • Incompetent contribution of various sectors of economy in tax revenue • Inefficiency in utilization of development expenditure • High administrative costs • Quality of governance • Increasing trade and current account deficit • Concentration of export in restricted items and markets • High cost of doing business • Lack of focus on agriculture sector • Political instability • Shortage of skilled workforce • Energy crisis and water crisis • Poor HDI indicators • Decline in trend of foreign investment • Continued subsidies to loss making public sector companies Challenges • Sustainability of growth momentum • Addressing structural problems in energy, agriculture and exports sectors • Job creation • Poverty alleviation • Improving social indicators and enhancement of safety nets • Strengthening of physical infra-structure • Converting the demographic transitions into demographic dividend • Supply side improvement to match growing domestic demand • Achieve political stability and institutional strengthening • Harmonious relationship amongst Federation and its units • Equitable distribution of resources between Federal, Provincial and Local governments • Revenue generation by provinces • Balanced approach of combination of Fiscal and Monetary Policy measures to combat inflation Opportunities Threats • Capacity constraints with India in IT sector • Recent investment in IT sector • BPO’s potential • Telecom and Media revolution • Geo political situation • Foreign Direct Investment • Investment in education and health • Lapsing of WTO multi-fibre agreement • Global high commodity prices • Focused skills development to secure dividend from demographic advantage • Political uncertainty and current judicial crisis • Issues in Balochistan and Northern Areas • Worsening of situation on Western borders • Anti Pakistan attitude in Afghanistan • Level of corruption • Broadening gap between Rich and Poor • Social unrest • Public discontent with the policies which may threaten reform process • Persistent high global oil prices • Increasing trend of terrorist activities • Pressure on exchange rates • Soaring core and food inflation Pakistan Economy: SWOT Analysis

27. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Public Sector Development Programme (Rupees in Billions)

28. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Composition of PSDP (Rupees in Billions) î

29. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Composition of PSDP (Rupees in Billions) î

30. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Sectoral Distribution and Share of PSDP (Rupees in Billions) î

31. POST BUDGET SEMINAR 2008The Income Tax Bar Association, Karachi Subsidies (Rupees in Billions)

32. KPMG TASEER HADI & CO. Presenter’s contact details SYED MASOUD ALI NAQVI KPMG Taseer Hadi & Co. +92 (21) 568 5847 mnaqvi@kpmg.com www.kpmg.com.pk