As a clear sign of weak economic situation of the country, the Ministry of Finance (MoF) has slashed the projected GDP growth rate for the fiscal year 2005-06 by one percent to 3.5 percent.

The half-yearly review bases this correction in projection on the overall state of the economy of the country, mobilisation of foreign resources, progress of budgetary policies and programmes and expenditure and implementations of projects.

Increase in the cost of petroleum products in the international market has led to an increment in the average price index by 7 percent in the first six months of the current fiscal year as compared to the 4.6 percent increment over the entire period of the previous year, according to reports.

Inflation however is expected to be maintained at 7 percent with effective implementation of Value Added Tax (VAT).

Deposit mobilisation, which witnessed a 4.2 percent increment in the fiscal year 2004-05, has gone up by 5.8 percent in the current year.

Increase in imports as compared to exports has inflated the trade deficit. Export has increased by 10.5 percent in the first six months of the current fiscal year, amounting to Rs 31.03 billion whereas imports increased by 18.6 percent, amounting to Rs 82.15 billion.

Foreign currency reserve has increased by 7.8 percent, mainly due to increased remittance.

In the first six months, contracts amounting to Rs 14.28 billion have been signed with donor agencies out of which Rs 12.35 billion has been in the shape of aid and Rs 1.92 billion as loans. During the same period last year, foreign resource contracts was worth Rs 23.12 billion.

In terms of development budget expenditure, Rs 40.27 billion has been spent which is a rise by 8.9 percent compared to the previous fiscal year. Current expenditure till mid-January 2006 was Rs 28.54 billion while capital expenditure stood at Rs 4.9 billion. Rs 4.24 billion has been spent for repayment of principle loans.

The revision came at a time when economists have warned that the economy might be bankrupt within a few months if the economic situation of the country remained the same.