VZCZCXRO8177
RR RUEHLH RUEHPW
DE RUEHIL #2107/01 1650057
ZNR UUUUU ZZH
R 130057Z JUN 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 7352
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4226
RUEAIIA/CIA WASHDC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC
RUEHBUL/AMEMBASSY KABUL 8719
RUEHDO/AMEMBASSY DOHA 1551
RUEHNE/AMEMBASSY NEW DELHI 3387
RUEHLO/AMEMBASSY LONDON 8090
RUEHKP/AMCONSUL KARACHI 9884
RUEHLH/AMCONSUL LAHORE 5628
RUEHPW/AMCONSUL PESHAWAR 4374

UNCLAS SECTION 01 OF 02 ISLAMABAD 002107 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD EAGR ENRG ELAB PREL PGOV PK
SUBJECT: PAKISTAN'S 2008-09 BUDGET: FOCUS ON DEVELOPMENT AND 
AGRICULTURAL REFORM, PART THREE OF THREE 
 
REF: ISLAMABAD 2061 
 
¶1. (SBU) Summary: During the official announcement of Pakistan's 
fiscal year 2008-09 budget proposal to Parliament, Finance Minister 
Naveed Qamar described poverty reduction as the "main plank" of the 
Government of Pakistan's (GOP) economic policy.  Qamar announced a 
proposed development strategy that aims to increase funding to 
Pakistan's poor.  The GOP will provide the nation's poorest 
households with a ration card, known as the Benazir card, to buy 
food and services at a discount.  Development assistance in this 
year's budget seeks to protect rural and poor populations from 
increasing prices and falling real incomes, focusing on cash 
transfers, vocational training and microfinance.  Recognizing that 
agriculture remains the backbone of Pakistan's economy, the GOP will 
increase funding for agricultural infrastructure and finance, as 
well as increasing subsidies on fertilizer.  This cable is the third 
in a series of three outlining the GOP's proposed fiscal year 
2008-09 budget.  End Summary. 
 
POVERTY REDUCTION AND DEVELOPMENT ASSISTANCE 
- - - - - - - - - - - - - - - - - - - - - - - 
 
¶2. (SBU) Describing poverty reduction as the "main plank" of the 
Government of Pakistan's (GOP) economic policy, Finance Minister 
Qamar announced a development strategy in the proposed FY2008-09 
budget that aims to reduce poverty through increased program 
assistance, income support, and the provision of low-cost housing. 
Calling public investment an "important engine of growth," Finance 
Minister Qamar reported that the budget contains a Rs 549.7 billion 
(USD 8.13 billion) development plan, up five percent from Rs 520 
billion (USD 7.69 billion) last fiscal year.  The program intends to 
"protect vulnerable groups" by increasing incomes through a targeted 
program of cash transfers, aiming to bring about a "meaningful 
change in social indicators."  Upon taking office, Prime Minister 
Gilani promised to add an additional one million housing units to 
the national housing stock; the FY08-09 budget provides Rs two 
billion (USD 29.56 million) to expand housing construction. 
 
¶3. (SBU) The GOP proposes to launch the Benazir Income Support 
Program, named after former Prime Minister Benazir Bhutto, to 
provide Rs 50 billion (USD 739 million) in direct cash transfers to 
low income groups.  Over four million households will likely 
qualify.  Each qualifying household will be given Rs 1,000 per month 
(USD 14.78) for the purchase of basic agricultural commodities.  The 
GOP will provide all eligible households with a "Benazir Card" to be 
used for food purchases and eventually, for vocational skills 
training, medical care and employment assistance.  This food 
assistance comes in addition to a nation-wide system of 6,000 
utility stores that provide subsidized food to Pakistan's poor and 
rural communities. 
 
¶4. (SBU) The budget contains a number of human resource development 
and employment projects.  Rs 28.4 billion (USD 420 million) will be 
allocated to the People's Works Program to fund small rural 
infrastructure development projects to increase employment 
opportunities.  The GOP will also establish a Human Resources 
Development Commission to monitor national unemployment and 
coordinate human resource development programs.  The GOP has also 
allocated Rs 1.6 billion (USD 23.65 million) to continue a National 
Internship Program to provide enhanced vocational training to 30,000 
students that have completed at least 16 years of education. 
Finance Minister Qamar announced that the GOP would direct the 
National Bank of Pakistan to increase credit access for small 
business loans.  The GOP expects to provide rural microfinance loans 
to three million Pakistanis by 2010. 
 
AGRICULTURAL SECTOR REFORM 
- - - - - - - - - - - - - - 
 
¶5. (SBU) Recognizing that agriculture remains the backbone of 
Pakistan's economy, Qamar reported that the agricultural sector has 
been neglected over the last eight years.  "This was an agricultural 
country which has been handed back to us with famine-like 
conditions," he declared. Citing insufficient incentives as a reason 
 
ISLAMABAD 00002107  002 OF 002 
 
 
for the decline in agricultural sector growth, the Finance Minister 
announced a number of initiatives aimed at promoting increased 
investment in agriculture.  The GOP will waive the custom duty on 
the importation of rice seeds as well as grain harvesting machinery 
and equipment.  A mandatory five percent federal excise on crop 
insurance will also be repealed, freeing up additional capital for 
investment. The government will also subsidize the import of 
bulldozers to increase cultivatable area and provide a series of 
cold storage facilities to better preserve crops for export. 
 
¶6. (SBU) Pakistan's fiscal year 2008-09 budget aims to improve 
agricultural infrastructure and decrease the cost of production 
inputs.  The budget provides Rs 75 billion (USD 1.11 billion) for 
the improvement of water and irrigation resources, including dams, 
irrigation systems and canals.  In addition, wheat flour and ghee 
production facilities will be guaranteed at least 18 hours of power, 
despite nation-wide power shortages.  The GOP will seek to lower the 
cost of fertilizer by raising total Government fertilizer subsidies 
from Rs 25 billion (USD 370 million) to Rs 32 billion (USD 473 
million), more than doubling the subsidy on DAP (Diammonium 
phosphate) fertilizer from Rs 470 per bag (USD 6.95) to Rs 1,000 
(USD 14.78).  Fertilizers will be exempted from all sales taxes and 
duties, decreasing government revenue by an estimated Rs 6 billion 
(USD 88.7 million). 
 
¶7. (SBU) The Finance Minister reported that the budget will 
formalize an increase in the government purchase price of wheat. 
GOP brokers currently procure wheat at Rs 625 (USD 9.24) per 40 kg 
bag, despite the fact that wheat trades on the Pakistani open market 
at Rs 800 per 40 kg bag (USD 11.83).  The FY08-09 budget maintains 
the Rs 625 purchase price, thus failing to raise prices to meet 
domestic market prices (Reftel).  The Government of Pakistan plans 
to review the support price for next year's wheat crop to adjust to 
global market conditions and the production price of wheat.   Qamar 
also announced the Prime Minister's "White Revolution" to provide an 
additional Rs 1.5 billion (USD 22.2 million) to the livestock and 
dairy industries.  The initiative will target programs for meat 
production and development, increased veterinary services for 
livestock, and the establishment of an integrated plant and animal 
health inspection facility.  The GOP will also fund improvements at 
animal health laboratories nation-wide. 
 
¶8. (SBU) The budget seeks to increase the availability of credit for 
agricultural producers, allocating an additional Rs 30 billion (USD 
443 million), bringing total annual agricultural credit to Rs 160 
billion (USD 2.37 billion).  The GOP also seeks to increase foreign 
investment in the sector to improve productivity and expand the 
amount of cultivatable land.  While details were not provided in the 
Finance Minister's speech, the GOP will set aside tracts of land for 
foreign agricultural investment. 
 
¶9. (SBU) Comment: While it is unsurprising that the Pakistan Peoples 
Party (PPP)-led government increased development spending and 
programs targeting the poor, a five percent rise in development 
spending with inflation running at twelve percent translates to a 
real decline in development projects.  The budget is dependent on 
cash transfers and the nationwide "Benazir card" system will be 
difficult to implement and will most likely run over the budget as 
poverty levels increase on the back of rising global commodity 
prices.  Creating a more vibrant agricultural sector remains crucial 
to both poverty alleviation, increased exports, and Pakistan's 
economic growth.  The GOP is banking on a considerable increase in 
agricultural growth and productivity to meet its FY 2008-09 GDP 
growth target.  Increased infrastructure funding and credit access 
are steps in the right direction.  However, additional steps are 
necessary to improve the management of the agricultural sector, 
including realistic price mechanisms that accurately reflect global 
and domestic market prices.  End Comment. 
 
PATTERSON