Economic Survey 2005-06



Pakistan's economy continues to maintain solid pace of expansion since the fiscal year 2002-03 recovery in the economy has been strong, rapid and sustained. During the fiscal year 2005-06, Pakistan's economic fundamentals have gained further strength. The most important achievements of this year include:


Pakistan's economy maintains a solid pace of expansion during the fiscal year 2005-06 despite facing headwinds from rising energy prices at $70-75 per barrel and the widespread damage caused by the earthquake of October 8, 2005.

The growth momentum that Pakistan sustained for the last four years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong credit growth.

Real GDP grew by 6.6 % in 2005-06 as against 8.6 % last year and fell short of the target (7.0 %). With economic growth at 6.6 % in 2005-06, Pakistan's economy has grown at an average rate of almost 7.0 % per annum during the last four years and over 7.5 % in the last three years, thus enabling it to join the exclusive club of the fastest growing economies of the Asian region.

Annual GDP Growth Rate in % (1997-2006)


GDP Growth Rate (%)

















2005-06 (for 10 months)


Growth of value addition in Commodity Producing Sector (CPS) slowed to 4.3 % in 2005-06 as against 9.2 % last year. Both the important components of the commodity producing sector namely, agriculture and manufacturing performed less than their targets. Within the CPS, agriculture and manufacturing grew by 2.5 % and 8.6 %, respectively.

Agriculture and particularly its crop sector could not perform up to the expectation especially major crops registered a 3.6 % contraction in growth. Livestock, a major component of agriculture, exhibited strong showing and pulled the overall growth in agriculture to 2.5 % as against the target of 4.2 %.

Overall manufacturing, accounting for 18.2 % of GDP, registered the growth of 8.6 % against the target of 12.0 % and last year's phenomenal achievement of 12.6 %.

Large-scale manufacturing grew by 9.0 % as against 15.6 % of last year and 14.5 % target for the year, exhibiting signs of moderation on account of higher capacity utilisation on the one hand and strong base effect along with several other factors on the other hand. Small-scale manufacturing grew at estimated 9.3 % in 2005-06.

The Construction sector continued its strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas. The construction sector is estimated to grow by 9.2 % in 2005-06 as against extraordinary growth of 18.6 % last year.

The services sector impressively grew by 8.8 % in 2005-06 as against 8.0 % of last year. Growth in the services sector in 2005-06 was primarily attributable to strong growth in the finance and insurance sector, better performance of wholesale and retail trade, as well as transport and the communications sector. Finance and insurance sector spearheaded the growth in the services sector and registered stellar growth of 23.0 % during the current fiscal year 2005-06, which is slightly lower than 29.7 % of last year.

Value added in the wholesale and retail trade sector has increased by 9.9 % over the previous year, compared to 11.1 % growth last year. The transport, storage and communications sector has an impressive growth of 7.1 % compared to 3.5 % growth last year.

Major contribution towards growth has come from the services sector.  The commodity producing sectors (agriculture and industry) has contributed 1/3rd of the GDP growth and the services sector contributed the remaining 2/3rd to the real GDP growth of 6.6%.

The CPS contributed 31.7 % or 2.1 percentage point to this year's growth while the remaining 68 % or 4.5 percentage points contribution came from services sector.

Within the CPS, agriculture contributed 0.55 percentage points or 8.4 % to overall growth while industry contributed 1.54 percentage points or 23.3 %. Within services sector wholesale and retail trade has contributed 27.9 % or 1.84 percentage points to GDP growth.

Pakistan's per capita real GDP has risen at a faster pace during the last three years (5.6 % per annum on average in rupee terms) leading to a rise in average income of the people. Such increases in real per capita income have led to a sharp increase in consumer spending during the last three years. Per capita income defined as Gross National Product at market price in dollar term divided by the country's population, grew by an average rate of 13.9 % per annum during the last four years - rising from $579 in 2002-03 to $847 in 2005-06. Per capita income in dollar term registered a phenomenal increase of 14.1 % over last year - rising from $742 to $847.


During the fiscal year 2005-06, gross fixed capital formation or domestic fixed investment sharply grew by 30.7 % as against the rise of 28.6 % last year. Private sector investment grew by 31.6 % this year as against a growth of 29.1 % last year.

Major growth in investment by private sector is witnessed in agriculture (15.3 %), manufacturing (14.4 %), mining and quarrying (45.5 %), construction (9.5 %), transport and communication (20.2 %), and wholesale and retail trade (424.5 %). Public sector investment on the other hand registered massive growth of 46.7 % as against a hefty 32.9 % increase last year.

The growth in domestic investment was largely a public sector phenomenon last year but this year, it was mainly public-private sector partnership driven. Total investment increased from 18.1 % of GDP last year to 20.0 % of GDP in 2005-06.

Fixed investment as percentage of GDP is estimated at 18.4 % as against 16.5 % last year. Both public sector investment and private sector investment as percentage of GDP have increased to 4.8 % and 13.6 % respectively, up from 4.4 % and 12.1 % last year. 


National savings as percentage of GDP stood at 16.4 % in 2005-06 fractionally lower than last year's level of 16.5 %. Domestic savings stood at 14.4 % of GDP in 2005-06 slightly lower than 14.5 % of GDP last year.


Agriculture is the mainstay of Pakistan's economy. Nearly 22 % of total output (GDP) and 44.8 % of total employment is generated in agriculture. It also contributes substantially to Pakistan's exports. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products.

The performance of agriculture during the fiscal year 2005-06 has been weak. Against the target of 4.2 % and last year's achievement of 6.7 %, overall agriculture grew by 2.5 % in 2005-06, due to a relatively poor performance of major crops and forestry, and weaker one of minor crops and fishery. At the same time, Livestock has been the sole saving grace.

Major corps, accounting for 35.2 % of value added in agriculture, registered a decline of 3.6 % as production of two of the four major crops, namely cotton and sugarcane has been significantly less than last year for a variety of reasons including, excessive rains at the time of sowing, high temperature at the flowering stage, late harvesting of wheat crop, a strong base effect (cotton) and lastly the incidence of frost, damaging sugarcane crop in the month of January, 2006.

The production of third major crop, namely wheat, remained more or less at last year's level at 21.7 million tons thereby registering a meager growth of 0.4 %. The production of rice - the fourth major crop - has been the sole major crop which registered an impressive growth of 10.4 %, but failed to turn the negative growth in major crops to a positive one.

Minor crops, accounting for 12.3 % of agricultural value added, barely managed to register a positive growth of 1.6 % in 2005-06 as against a growth of 3.0 % last year.

The performance of livestock, the single largest sector accounting for almost one - half of agricultural value added, has been impressive as this sector grew by 8.0 % on the back of substantial increase in the population of species, milk etc. The performance of fisheries has been poor as it grew by 1.9 % only in 2005-06. Forestry has been registering negative growth for three consecutive years - registering a negative growth of 9.7 % in 2005-06 as against a negative growth of 30.4 %.

Pakistan's agriculture has been suffering, on and off, from a severe shortage of irrigation water in recent years. As against the normal surface water availability at canal heads of 103.5 million-acre feet (MAF), the overall (both for Kharif and Rabi) water availability has been less in the range of 5.9 % (2003-04) to 29.4 % (2001-02). Relatively speaking, the Rabi season faced more shortage of water than Kharif during these periods.

Amongst major crops, cotton production is estimated at 12.417 million bales for 2005-06 lower by 13 % over the last year's production of 14.265 million bales. Wheat production is estimated at 21.7 million tons in 2005-06, as against 21.612 million tons last year, showing an increase of 0.4 %. Rice production has increased by 10.4 % in 2005-06 from 5.025 million tons last year to 5.547 million tons in 2005-06. Sugarcane production, however, decreased from 47.244 million tons in 2004-05 to 44.312 million tons in 2005-06, showing a decrease of 6.2 %.

As regards the minor crops, the production of chillies and onions increased by 34.8 and 29.0 % respectively during 2005-06. The production of all the pulses, namely masoor, mung and mash are down by 13.5, 12.6 and 9.8 %, respectively during 2005-06.

The production of potato also decreased by 17.9 % on account of frost, which affected the potato crop. Agriculture credit disbursement of Rs 91.161 billion during July-March, 2005-06 is higher by 23.5 %, as compared to Rs 73.811 billion over the corresponding period last year. The fertiliser off-take stood at 2982 thousand nutrient tons in July- March 2005-06 or higher by 6.1 %, as compared to 2811 thousand nutrient tons for the corresponding period last year.


The overall manufacturing sector continued to maintain its growth momentum with more vigour during the current fiscal year. Overall manufacturing recorded an impressive and broad based growth of 8.6 %, against a target of 12.0 % and last year's growth of 12.6 %. Large-scale manufacturing registered an impressive growth of 9.0 % in the current fiscal year 2005-06 against a target of 14.5 % and last year's achievement of 15.6 %.

The main contributors to this impressive growth of 9.0 % in July-March 2005-06 over last year are the automobile group (29.76 %), engineering goods group (6.46 %), non-metallic mineral products (9.49 %), leather products (10.91 %), chemicals (9.08 %), pharmaceuticals (14.83 %) and electricals (11.78 %).

The items that registered positive growth were cotton cloth (0.07 %) and cotton yarn (11.16 %) in the textile group; cooking oil (17.6 %) in the food, beverages and tobacco groups; nitrogenous fertiliser (4.46 %), in the chemical group, cement (9.75 %) in the non-metallic mineral products group and Jeeps & Car (29.9 %), LCV's (29.3 %) and motorcycles/scooters (15.04 %) in the automobile group. The individual items exhibiting negative growth include; sugar (2.40 %), coke (77.39 %), power looms (24.67 %) and billets (47.95 %).

The output of the mining and quarrying sector grew by 3.8 % this year as against the rise of 9.6 % last year. The principal minerals which have shown positive growth are: baryte (11.4 %), limestone (9.9 %), natural gas (4.5 %), rock salt (13.2 %), sulphur (5.4 %) and gypsum (12.6 %). While negative growth was exhibited by chromite (6.7 %) and magnetite (10.7 %).

Foreign direct investment has witnessed an increase of 238.7 % in the first ten months (July-April, 2005-06), whereas, net foreign private investment stood at US $3376 million against US $1027 million last year, thereby, showing increase of $2349 million, i.e., an increase of 229%. The increase in foreign private investment is because of the inflow of portfolio investment of $355.8 million as compared to inflow of $135.5 million in the comparable period last year.

The privatisation program maintained its pace during 2005-06 and succeeded in privatising some high-ticket items despite an inhospitable global environment. By end April 2006, Pakistan had completed or approved 160 transactions at gross proceeds of Rs 985 billion. This includes 57 transactions for Rs 337.908 billion completed during October 1999 to April 2006.


In Pakistan, the Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. Preliminary findings of Pakistan Social and Living Standards Measurement Survey (PSLM 2004-05) on poverty status were released at the end of February 2006, which indicates that the poverty level in Pakistan has been reduced during the last four years.

A strong growth (7.5 % on average) for three years in a row, with per capita income growing at an average rate of 5.6 %; a large inflow of remittances (over $4.0 billion per annum) in recent years, a huge expenditure on poverty-related and social sector program, and many other interventions have made a significant dent to poverty in Pakistan.

As per HIES survey 2004-05, the percentage of the population living below the poverty line is provisionally estimated at 25.4 % in 2005 - down from 32.1 % in 2001.

The social sector and poverty related expenditures grew at an average rate of more than 20 % per annum during 2001-05.

Within the various categories of pro-poor expenditure, human development comes out to be the priority item of the Government with expenditures under this head constituting, on average, more than 50 % of all PRSP related expenditures.


Pakistan has gained further strength on fiscal side. Revenues are buoyant, expenditure is rationalised, fiscal deficit is at sustainable level and revenue deficit has almost been eliminated. Resultantly, Public debt is fast moving towards a sustainable level. Much progress has been made towards fiscal consolidation.

As a result of prudent fiscal management over the last 5 years, the burden of interest payment in domestic budget has declined sharply, thereby, releasing resources for development and social sector program.

During the five years from 2000-01 to 2005-06, tax collection by the CBR increased by 81.0 %. The Central Board of Revenue (CBR) was targeted to collect Rs 690 billion but it is most likely to collect Rs 710 billion - Rs 20 billion more than the target and 20.6 % more than last year.

The total expenditure remains more or less stable in a narrow band of 17 to 18.8 % of GDP during the last six years.

Substantial decline in interest payments from as high as 7.5 % of GDP in 1998-99 to 3.1 % of GDP in 2005-06, has provided fiscal space to reorient expenditure in favour of development expenditure. Resultantly the share of current expenditure in total expenditure declined from 89 % of total expenditure in 1998-99 to 78 % in 2005-06. In addition, the share of development expenditure doubled from 11 % to 22 % in the same period.

During the last six years the development expenditure improved from 2.2 % of GDP in 2000-01 to 4.2 % of GDP in 2005-06. Second largest component of the current expenditure, namely, defence spending remained stagnant at around 3.1 % to 3.3 % of GDP during the last six years. Government is achieving the goal of fiscal stabilisation without compromising spending on the social sector. Non-defence-non-interest expenditure has improved from 7.8 % of GDP in 1999-2000 to 11.8 % of GDP in 2005-06.

During the last six years the real growth in current expenditure hovered around 3 % per annum and pace of growth has slowed down. Total expenditure grew by 3.4 % in the first three years (2000-03) but accelerated to 5.6 % during the last three years (2003-06). The main contribution is coming from development expenditure which grew by 7.4 % per annum in first three years (2000-03) and by 23.8 % in recent three years (2003-06).

Total consolidated revenues are targeted at Rs 1095.6 billion in 2005-06 compared to Rs 900.0 billion in 2004-05, an increase of 21.7 %. This was primarily due to a rise of 22.2 % in tax revenue on the back of increases in both federal and provincial tax revenues, which grew by 19.8 % and 50.1 %, respectively. Non-tax revenue increased by 19.3 % in 2005-06 but remained stagnant at 3.8 % of GDP.

In 2005-06, Pakistan is likely to face an overall fiscal deficit of Rs 261.6 billion or 3.4 % of GDP excluding earthquake effect and if we include earthquake related spending worth Rs 65.8 billion, the size of the deficit stood at Rs 327.3 billion or 4.2 % of GDP. This revenue-expenditure gap was financed through external and domestic sources.

Out of the gap of Rs 327.3 billion, financing from external sources is expected at Rs 118.4 billion. The remaining gap of Rs 208.9 billion is likely to be financed from domestic sources. Within domestic sources, financing from non-bank sources amounted to Rs 22.4 billion while Rs 96.7 billion would be contributed by the Banking sources, and Rs 90.0 billion is to be financed through privatisation proceeds.

The revenue deficit (the difference between total revenue and total current expenditure), a measure of government dis-saving, was at a deficit of 0.7 % of GDP in 2004-05 compared to a deficit of 2.2 % in 2000-01. It has further progressed towards almost elimination at 0.03 % of GDP in 2005-06.

The public debt- to-GDP ratio, which stood at almost 85 % in end June 2000, declined substantially to 61.4 % by the end of June 2005, i.e. 23.6 % decline in country's debt burden in 5 years. By end March 2006, public debt further declined to 54.7 % of the projected GDP for the year.

Following the debt reduction strategy in which raising revenue was one of the key elements, the public debt burden in relation to total revenue has declined substantially from 562.5 % in 1999-2000 to 448.9 % by end-June 2005 and further to 384.9 % by end-March 2006 to the projected revenue for the year. During the last six years, the debt servicing liabilities have declined sharply from 65.4 % of revenue in 1999-2000 to 27.8 % of revenue and from 53.5 % to 27.8 % of current expenditure in 2005-06.

The ratios of domestic debt to GDP and to tax revenue both decreased during 2005-06. The stock of domestic debt as % of GDP declined from 35.7 % in 2003-04 to 32.8 % in 2004-05 and further to 29.4 % by end March 2006.

Interest payments as a percentage of total revenue have been reduced to one-half (41 % to 20 %) over the last six years.  Similarly, share in total expenditure declined from 30 % to 16 % during the same period. Most importantly, as percentage of GDP, interest payments declined from 6 % to 2.6 % in the last six years.


The easy and accommodative monetary policy stance that had been pursued during the last few years by the SBP underwent considerable changes during the FY05, switching from a broadly accommodative to aggressive tightening in the second half of the last fiscal year, since April 2005.

The same tight monetary policy stance continued during the current fiscal year despite declines in both core and overall inflation. Notwithstanding the tight monetary policy stance the SBP continued to strike a balance between promoting growth and controlling inflation on the one hand and maintaining a stable exchange rate environment on the other.  Tight monetary policy stance is likely to continue until inflationary pressures are significantly eased off.

The State Bank of Pakistan has taken a number of steps in various areas to further enhance the effectiveness of the banking industry in Pakistan. To further revamp the financial sector in line with the global financial system, the State Bank of Pakistan has set out a road map for the implementation of Basel-II. It is the new regulatory capital adequacy regime, which offers a series of approaches ranging from simple to more complex methodologies for capital allocation against credit and operational risk.

The credit plan for 2005-06 set the target for monetary expansion at Rs 380 billion or 12.8 % higher than last year (FY05) on the basis of a growth target of 7.0 % and inflation target of 8 %. The money supply during July-April 22, 2006 of the current fiscal year expanded by Rs 294.9 billion or 9.94 % as against an expansion of Rs 332.4 billion or 13.37 % in the same period last year.

The net credit to the Government for budgetary purposes was Rs 43.3 billion compared to the annual credit plan target of Rs 98 billion and Rs 15.0 billion borrowed in the corresponding period of last year. However, credit to the private sector has exceeded the credit plan target and stood at Rs 345.1 billion as against Rs 330 billion envisaged for the year in the credit plan.

Despite the tight monetary policy stance of the SBP, credit to the private sector was broad-based which grew by 20.2 % (Rs 345.1 billion) during July-April 22, 2006 compared with the growth of 28.0 % or Rs 357.4 billion during the same period of last year.  Credit to the private sector continued to exhibit strong demand, reflecting the confidence of the private sector on the continuously improving macroeconomic fundamentals of the country.

Credit to manufacturing sector – the manufacturing sector continued to be the largest recipient of bank credit, amounting to Rs 130.0 billion during July- March 2005-06, -- 17.1 % more than the comparable period of last year and accounting for almost 47.9 % of the credit to private sector businesses.

Credit disbursement to the agriculture sector also remained consistent with the previous year trend. Scheduled banks and DFIs advances to SME sector witnessed a growth of Rs 40.6 billion during July-February FY06 compared with an expansion of Rs 59.9 billion in the same period of last year.

The growth in consumer loans remained robust, and their scale expanded by 27 % to Rs 67.2 billion. The consumer loans were acquired to finance a range of products including automobiles, personal loans, credit cards and house building.

The scheduled banks have opened 304 offices during the period from 01-04-2005 to 31-03-2006. During July-March 2005-06, there was an increase of Rs 303.9 billion (17.3 %) in the net advances of the scheduled banks. Their deposits increased by Rs 272.9 billion (11.5 %) and their total investments increased by Rs 77.1 billion during the first nine months of the current fiscal year. In 2005, the banking sector produced impressive results. The year has been unprecedented in terms of profits.

Pakistan continues to be at the forefront of the Micro-Finance Sector Development Program (MSDP). Within the overall MSDP framework, Khushhali Bank (KB) is the lead micro-finance institution in Pakistan. The Bank now serves nearly 250,000 clients, with a cumulative disbursement of over Rs 6.0 billion in 75 districts of Pakistan with high poverty incidence. 60 % of KB's clients are in the rural areas, roughly one-third being women.


During the fiscal year 2005-06, the stock market continued to maintain its strong performance and achieved new heights by creating many new records. The KSE-100 Index crossed the barrier of 12000 mark for the first time in the history of capital market and touched an all time high on April 13, 2006.

The KSE-100 index made further inroad and reached 12274 points on April 17, 2006 showing a growth of 64.7 % over June 2005. Between December 2005 and April 2006 alone, the KSE share index increased by 25 %. Similarly, the total market capitalisation also increased to Rs 3419.4 billion on April 17, 2006 (US $57.0 billion) from Rs 2013.2 billion ($33.7 billion) showing a growth of 70 % over June 2005. At current levels, KSE's market capitalisation is equivalent to about 44.3 % of estimated GDP of FY06.


For the first ten months of the current fiscal year (July - April) 2005-06, the inflation as measured by the Consumer Price Index (CPI), declined to 8.0 % from 9.3 % in the same period last year. Food price inflation averaged at 7.0 % compared to12.8 % for the same period last year. Non-food inflation (i.e., house rent, energy and transport components) increased to 8.8 % versus 6.9 % in the comparable period of last year.

Factor contributing to the build-up in inflationary pressures is the increase in aggregate demand in the economy, which is compounded by supply shortages of principal commodities.

Cognisant of the impact of inflation on the economy and its disproportionate effect on the poor and fixed income groups of society, the government has responded in a multi-pronged manner to the rise in the price level. A strategy of regular monitoring of domestic stocks of key commodities and their prices was adopted, by which the government was able to respond in a timely manner to shortages by importing substantial quantities of wheat, sugar, pulses and other essential commodities.


Ratio of CPI Inflation (1998-2006)


Inflation (%)















2005-06 (for 10 months)




Export during the first nine months (July-March), of the current fiscal year, are up by 18.6 % - rising from $10183 million to $12073 million in the same period last year. Thus, Pakistan is gradually moving towards higher value added in exports of textile manufacturers. The shares of value added exports have also increased. Pakistan doubled its exports in seven years and has increased its trade-to-GDP ratio from close to 26 % in 1999-2000 to an estimated 34 % in 2005-06.

The exports of primary commodities were up by 22 %; prominent among those are exports of:

Exports of textile manufactures grew by 19.2 %; prominent among those are exports of:

Exports of other manufactures also registered a high double-digit growth of 19.2 %.  Within this category, exports of following come under this category:

In recent years, Pakistan has also entered in the exports of engineering goods. Though relatively small in numbers, exports of engineering goods were up by 10.3 %.

The overall exports posted an increase of $1890.2 million, in absolute term in the first nine months, of the current fiscal year over the same period of last year. Of this increase, 61.4 % or $1160.5 million has come alone from textile manufactures followed by other manufactures (20.9 % or $395.7 million), primary commodities (11.1 % or $209.6 million) and other exports (6.5 % or $124.5 million). In other words, over 82 % incremental exports in the first nine months (July-March) of the current fiscal year owe to textile and other manufactures and the remaining 18 % to primary and non-traditional exports.

The seven countries, namely USA, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia account for 50 % of its exports. The United States is the single largest export market for Pakistan, accounting for 27 % of its exports followed by the United Kingdom, Dubai, Germany and Hong Kong. Japan as Pakistan's export destination is fast loosing its significance less than one percent of its exports entering Japan. Pakistan needs to diversify its exports not only in terms of commodities but also in terms of markets. Heavy concentration of exports in few commodities and few markets could cause serious export instability.

Imports, on the other hand, have risen by 43.2 % or $6247 million in absolute terms during the first nine months of the current FY 05-06, i.e., rising from $14446 million to $20693 million.  This higher import bill is due to unprecedented rise in oil prices, and the continued strength of non-oil imports.

Imports of petroleum group have played a key role in taking Pakistan’s import to a new height.  Emerging as the largest single item in the country’s import bill, the petroleum group import amounted to $4615.8 million, during the first nine months (July-March), of the current fiscal year, as against $2806.6 million in the same period last year.

The trade deficit increased to $8620 million, in comparison to $4263.4 million in the same period last year.

Like exports, Pakistan's imports are also highly concentrated in few items namely, machinery, petroleum & petroleum products, chemicals, transport equipments, edible oil, iron & steel, fertiliser and tea. These eight categories of imports accounted for 72.5 % of total imports during 2005-06. Among these categories machinery, petroleum & petroleum products and chemicals accounted for 53.4 % of total imports.

Pakistan's imports are highly concentrated in few countries. Over 40 % of them continue to originate from just seven countries namely, the USA, Japan, Kuwait, Saudi Arabia, Germany, the UK and Malaysia. Saudi Arabia is emerging as major suppliers to Pakistan followed by the USA and Japan.

Exports and Imports (1998-2006)

(All figures in US $ Million)






















2004-05 (11 months)



2005-06 (for 10 months)




The current account deficit, excluding official transfers, stood at $4696 million in the first nine months (July-March) of the current fiscal year as $1181 million in the same period last year. As percentage of projected GDP for the year the current account deficit stood at 3.7 % as against 1.1 % in the same period last year.  This heavy current account deficit is brought about by high crude prices, hefty rise non-oil imports, higher freight charges by international shipping lines, and the growth in personal travel.


Workers' remittances, the second largest source of foreign exchange inflow after exports, continue to maintain its rising trend. Workers' remittances totalled $3.63 billion during the first ten months (July - April) of the current fiscal year, as against $3.45 billion in the same period last year, depicting an increase of 5.2 %. The United States continues to be the single largest source of cash workers' remittances accounting for 27.4 % or $995 million, followed by Saudi Arabia ($585 million or 16.1 %), UAE ($556 million or 15.3 %), UK ($346 million or 9.5 %) and other GCC countries ($426 million or 13.2 %). Given the trend so far, it is likely that workers remittances may touch $4.4 billion in 2005-06. Remittances have so far proved remarkably resilient and have hovered around $4.0 billion since 2002-03.


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 %. By the end of the current fiscal year, FDI is expected to reach $3.5 billion or 2.7 % of GDP.

Almost 75.0 % of FDI has come from six countries, namely, the UAE, US, Saudi Arabia, Switzerland, UK and Netherlands:

The telecom sector has been the single largest recipient of FDI with $1 billion followed by the energy sector:


Pakistan's total liquid foreign exchange reserves stood at $13.0 billion at the end of April, 2006. Of which, reserves held by the State Bank of Pakistan amounted to $10.6 billion and by banks stood at $2.4 billion.

During this period, Pakistan has added $407.0 million in its foreign exchange reserves. Many factors contributed towards this comfortable position of reserves. The most prominent among those are: private transfers that include remittances, higher export proceeds, floatation of bonds, higher FDI flows and privatisation proceeds. With this build up in reserves, Pakistan is in a position to meet any abnormal external shock.


Foreign investors are not only entering into the greenfield projects but are also actively participating in Pakistan's privatisation program.  This is also the reflection of the confidence of the global investors on the transparent privatisation program that has been followed in the past several years.

Since January 1991 and until April 18, 2006, Pakistan has completed 160 transactions with gross proceeds of Rs 395.2 billion. Of which, 57 transactions worth Rs 338 billion were completed during October 1999 to April 2006. During the first ten months (July - April) of the current fiscal year, 11 transactions worth Rs 217.9 billion have been completed.

The major milestones achieved under the privatisation program for the year include the strategic sale of the entities like KESC, Pak-Arab Fertilisers, PTCL, PSM, Pak-American Fertiliser, Mustehkam Cement, Javedan Cement and CTI. The upfront payment of $1.4 billion by Etisalat and transfer of management control of PTCL has been one of the major achievements of privatisation program for the year.  However, in June 2006, the Supreme Court, on the petition of the employees, declared the privatisation of PSM as an illegal transaction.

The major privatisation initiatives which are under process and are likely to be complete soon include: PSO, PPL, OGDCL, FESCO, GENCO-1 Jamshoro, NIT and other industrial units.


Pakistan's total stock of external debt and foreign exchange liabilities grew at an average rate of 7.4 % per annum during 1990-99 - rising from $20.5 billion in 1990 to $38.9 billion by end June 1999 but declined slightly to $37.9 billion in 1999-2000.  It exhibited a declining trend thereafter. Pakistan's external debt and liabilities have declined by $3.1 billion - down from $38.9 billion in 1998-99 to $35.834 billion by 2004-05. However, external debt and liabilities increased to $36.557 billion by end-March 2006, thus showing a rise of $0.723 billion in the first nine months of the current fiscal year. The rise is mainly on account of issuance of Sovereign bonds worth $800 million in March 2006.

External debt and foreign exchange liabilities, instead of growing at the pace of the 1990s, were in fact reduced from U.S. $38.9 billion in 1998-99 to $36.5 billion by end-March 2006 - a reduction of $2.4 billion in seven years.

Most importantly, the burden of the debt has declined substantially during the same period. For example, the external debt and liabilities as a percentage of foreign exchange earnings which stood at 335.4 % in 1998-99, declined to 127.6 % by end-March 2006.

The external debt and liabilities stood at 64.1 % of GDP in end-June 1999, declined to 28.3 % in end-March 2006. The annual debt servicing payments made during the period 1999-2000 to 2003-04 averaged just above $5 billion per annum. This amount has drastically come down to around $3 billion in 2004-05. An amount of $2.4 billion has been paid during July-March 2005-06 and the amount rolled over declined from $4.1 billion in 1999-2000 to $1.1 billion in July-March 2005-06.

On March 23, 2006, Pakistan successfully issued US $500 million new 10-year Eurobond and US $300 million new 30-year Bonds in the international debt capital markets lead managed by J. P Morgan, Citi group and Deutsche Bank.  This transaction, which represented the first international 144A bond issued by Pakistan since 1999, raised significant interest amongst international Institutional investors.

By issuing 10 and 30 year tranches, Pakistan completed its primary objective of establishing a full Pakistani International yield curve in record time. With over 170 accounts participating, books closed with total orders exceeding US $2bn. The issue was over 2.5 times oversubscribed.


Government’s reform agenda include:


Currently, in Pakistan, the literacy rate is 53 % which is much below the targets set to be achieved in 2005 (60 % ESR and 58 % in PRSP) and far away from reaching the Millennium Development Goals (MDGs) target of 80 % literacy till 2015.

Looking at the gender disaggregated data for overall literacy, 65 % of males and 40 % of females were literate in the year 2004-05. District disaggregated data for adult literacy show that, in Punjab Rawalpindi with 75 % is ranked at the top and Lohdran with 34 % at the bottom. Karachi with 78 % literacy is ranked at the top while Jacobabad with 43 % is ranked at the bottom in Sindh. In NWFP, Abbotabad (65 %) is at the top and Kohistan (25 %) at the bottom. Finally, in Balochistan Quetta (65 %) at the top and Jhal Magsi (20 %) and Qilla Saifullah (20 %) are at the bottom.

The key impediments to the progress in reaching a higher level of literacy in Pakistan are the low enrolment rates and poor quality of education provided by the public sector. In case of enrolments, Net Enrolment Rate (NER) has seen a considerable increase of 10 percentage points from 42 % in 2001-02 to 52 % in 2004-05. The MDG targets to reach 100 % NER till 2015. This requires almost 50 % increase in enrolment in next 10 years, which is a huge challenge for the policy makers.

Another factor that contributes to lower literacy rates is the high dropout rate at all levels. Major reasons behind dropout include poor quality of infrastructure, teacher's absenteeism, quality of education and the value of returns attached to sending children to schools. There exist wide gender gaps especially in the rural areas in enrolments at all levels.

In the past year, 2187 new primary schools were established, 1221 in the public sector and 881 in the private sector. This increase has occurred in both rural and urban areas. Enrolment at the primary level increased from 19.92 million in 2001-02 to 21.33 million in 2004-05, 4.28 million to 4.55 million at the middle level and 1.79 million to 1.88 million at the secondary level during 2001-02 to 2004-05. During the past four years 249 additional technical and vocational institutions were established.

There is a significant increase of 35 universities during the period 2001-02 to 2004-05 including 13 new public and 22 new private universities. Government of Pakistan is currently spending 2.1 % of its GDP on education sector which is very low as compared to other countries in the region. The share of education sector has not seen much change in the past several years, in fact it has stagnated to about 2 % from 2003-2005.


The existing vast network of health care facilities consist of 946 hospitals, 4554 dispensaries, 5290 basic health units/sub health centres (BHUs/SHCs), 552 rural health centres (RHCs), 907 maternal and child health centres (MCHs) and 289 TB centres (TBCs).

Available human resource for the fiscal year 2005-06 turn out to be 118160 doctors, 6761 dentists and 33427 nurses which makes the ratio of population per doctor as 1310, population per dentist 25297 and population per nurse as 4636. The new health facilities added to overall health services include construction of 56 new facilities (42 BHU and 14 RHCs), upgrading of 59 existing facilities (18 RHCs and 41 BHUs) and addition of 3500 new doctors, 1900 nurses, and 15000 lady health workers.

The total outlay on health sector is budgeted at Rs 40 billion which shows an increase of 5.3 % over the last year and turns out to be 0.51 % of GDP. To reduce incidence of disease and to alleviate their suffering and pain so as to improve the health status of people, various health programmes like Lady health worker program, Malaria, Tuberculosis, HIV/AIDS control program, the expanded program on immunisation, National Maternal and child Health Program, Prime Minister Program for prevention and Control of Hepatitis in Pakistan, Drug Abuse, Cancer Treatment program remained operative during fiscal year 2005-06.


Pakistan being a developing country also faces the problem of over population. During the past 25 years, cultivable land has increased by 27 % compared to 98 % increase in population, resulting in reduced individual land holdings in Pakistan. Due to a high birth rate urban population will double in the next 20 years causing more and more forests to be cut to make way for humanity.

Even now each year, deforestation occurs at the rate of 2.5 %. In addition, since only 60 % of our population has sewerage facility, the remaining 40 % churn out wastes damaging the environment and causing a lot of diseases. Rising levels of income on the one hand and easy availability of loan facility/financing on the other has lead to an increase in motorization in the country and almost 70 % of our on-the-road vehicles have outlived their life span and emit unburnt monoxide gases.

In Pakistan, labour force participation is estimated on the basis of the Crude Activity Rate (CAR) and the Refined Activity Rate (RAR). The CAR is the percentage of the labour force in the total population while RAR is the percentage of the labour force in the population of persons 10 years of age and above.

The figures both for CAR (32.8 %) and RAR (46.9 %) for the first half of 2005-06 fare higher than LFS 2003-04 (30.4 % and 43.7 %). This phenomenon is more obvious for rural areas and women. Augmentation of the rates for the set of economic activities carried out within the house precincts also depicts the same scenario (42.8 vs. 38.5 %).

Agriculture still accounts for the largest source of employed work force. The share of agriculture in employment has increased from 43 % in 2003-04 to almost 45 % by mid of 2005-06. Sector wise break up of employed labour force shows that female labour force participation is on the rise for most sectors especially agriculture, fishery and telecom sectors.


A strong, efficient and affordable infrastructure is a critical element of a good investment climate and therefore, is a pre-condition to sustain the growth momentum. Transport and Communications both are important elements of infrastructure services and are essential in maintaining economic growth and competitiveness. In fact, the transport and communication sector in Pakistan account for about 11 % of GDP, 16 % of fixed investment, 6 % of employment and about 15 % of the Public Sector Development Programme.

Road transport is a backbone of Pakistan's transport system, accounting for 90 % of national passenger traffic and 96 % of freight movement. Over the past ten years, road traffic - both passenger and freight - has grown much faster than the country's economic growth. The 9,518 km long National Highway and Motorway network contributes about 3.7 % of the total road network and carries 90 % of Pakistan's total traffic.

The total length of roads in Pakistan was 258,340 Km, including 165,762 Km of high type (64 %) and 92,578 Km of low type roads (36 %) by the end of March 2006. During the outgoing fiscal year, the length of high type roads has increased by 1.8 % over the last year but the length of low type roads has declined by 2.9 %.

The construction work on Islamabad-Peshawar Motorway (M-1) however, is still in progress.

Furthermore, the Pakistan Railways have carried 61.3 million passengers and 4.3 million tons freight, with its gross earnings stood at Rs 12.5 billion during July-March 2005-06.

In comparison, PIA carried 3.972 million passengers during July-February 2005-06 as against 3.571 million in the same period last year, showing an increase of 11.2 %. Both passenger capacity and traffic volume also increased by 2.4 % and 8.7 %, respectively. In addition, its fleet consists of 41 aircrafts of various types. In addition, there are three private airlines, operating in the country and provide both domestic and international services.

Karachi Port has also handled 24,572 thousand tons of cargo during July-March, 2005-06, compared to 21,845 thousand tons during the same period last year, showing an increase of 12.5 %. Port Qasim has handled 16.8 million ton of cargo during July-March 2005-06 compared to16 million cargo handled during the corresponding period last year, registering a growth of 5 %. The Gwadar Port is also being built with Chinese assistance and its first phase has almost been completed.

In 1999-2000, there were only 0.3 million cellular mobile subscribers in Pakistan which jumped to 2.4 million by 2002-03 as a result of introduction of CPP regime and addition of another mobile operator (Ufone). Mobile subscribers continued to rise at an unprecedented pace, reaching 12.8 million by 2004-05. A major turnaround was witnessed when the mobile companies started giving free mobile connections and bearing the cost of government levies themselves. In a short period of 9 months in the outgoing fiscal year, more than 16 million new subscribers have been added to the list, reaching over 29.6 million by end April 2006. In other words, a more than 131 % increase in subscribers in just 9 months was unprecedented. Accordingly, the total teledensity (Fixed + Cellular + WLL) has jumped form 3.7 % in 2001-02 to 23.1 % by end March 2005-06.

For promotion of Information Technology, 2339 cities/towns/villages have been provided Internet facility, by March 2006. Total fixed telephone lines installed by March 2006 were 5.2 million as against 5.1 million up to June 2005 last year.


The overall production of crude oil has decreased to 17.9 million barrels during July-March 2005-06 from 18.1 million barrels during the corresponding period last year, showing a decline of 1.1 %. On an average, the transport sector consumes 49.7 % of the petroleum products, followed by power sector (32.3 %), industry (11.8 %), household (2.5 %), other government (2.3 %), and agriculture (1.4 %) during last 10 years i.e. 1995-96 to 2004-05.

The overall production of gas has increased to 1,048,190 million cubic feet during July-March 2005-06 as compared to 1,003,189 million cubic feet daily in the same period last year, showing an increase of 4.5 %. On average, the power sector consumes 36.6 % of gas, followed by fertiliser (22.5 %), industrial sector (18.8 %), household (18.4 %), commercial sector (2.8 %) and cement (1.3 %) during last 10 years i.e. 1995-96 to 2004-05.

Total installed capacity of electricity (WAPDA, KESC, KANUPP AND IPPs) stood at 19,439 MW during July-March 2005-06, compared to 19,389 MW during July-March 2004-05. Total installed capacity of WAPDA stood at 11,363 MW during July-March 2005-06 of which, hydel accounts for 56.9 % or 6,463 MW, thermal accounts for 43.1 % or 4,900 MW. During the first three quarters of current fiscal year, 63,978 GWh electricity has been generated as against 61,758 GWh were produced in the same period last year. The number of villages electrified increased to 99,595 by March 2006 from 90,467 up to 2004-05, showing an increase of 10 %.

Presently, some 930 CNG stations are operating in the country, while 200 are under construction. By March 2006 about one million vehicles were converted to CNG as compared to 700,000 vehicles during the same period last year, showing an increase of 43%. With these developments Pakistan has become the leading country in Asia and the third largest user of CNG in the world after Argentina and Brazil.


Several policies, plans, programs and projects have been initiated for environmental protection and conservation in the sectoral areas of water and air pollution control, land use, forest management, energy efficiency, biodiversity conservation, and waste management, etc. One of the major achievements during 2005-06 was the formulation of the "National Environmental Policy 2005" which addresses the sectoral issues such as:

(a)    water management and conservations,

(b)   energy efficiency and renewable,

(c)    agriculture and livestock,

(d)   forestry and plantation,

(e)    biodiversity and protected areas,

(f)     climate change, air quality and noise, and

(g)    pollution and waste management.

Housing is one of the basic human requirements, as every family needs a roof. Providing shelter to every family has become a major issue as a result of rapid urbanisation and higher population growth.

According to the housing census 1998, the housing backlog, which stood at 4.30 million, has been currently projected at 6.19 million. It is estimated that to address the backlog and to meet the housing shortfall in the next 20 years the overall housing production has to be increased to 500,000 housing units annually.

The present housing stock is also rapidly aging and estimates suggest that more than 50% stock is over 50 years old.  It is also estimated that 50 % of the urban population now live in slums and squatter settlements. Meeting the backlog in housing, besides replacement of out-lived housing units is beyond the financial resources of the Government.

The Government of Pakistan is, therefore, encouraging the participation of local as well as foreign investors, developers, private sector companies and financial sector to build more and more housing projects and to provide housing finance to meet the demands of vast segment of the society.  Having realised the importance of the housing sector in the overall economic development of the country, the government, as an immediate measure, declared Housing and Construction as a priority industry and simultaneously formulated a pragmatic and workable National Housing Policy.  This is aimed at revitalising the housing sector, providing therein various incentives for the construction industry and the private sector builders/developers.


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