Economic Survey 2005-06
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:
GROWTH AND INVESTMENT:
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.
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.
GDP Growth Rate in % (1997-2006)
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 %.
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 %.
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
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%.
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.
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.
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 %
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.
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.
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 %
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.
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.
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.
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
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.
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
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 %.
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.
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
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.
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.
MANUFACTURING, MINING AND INVESTMENT:
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 %.
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 %).
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 %).
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 %).
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.
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.
POVERTY AND INCOME DISTRIBUTION:
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.
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.
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
social sector and poverty related expenditures grew at an average rate of more
than 20 % per annum during 2001-05.
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.
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.
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.
total expenditure remains more or less stable in a narrow band of
17 to 18.8 % of GDP during the last six years.
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.
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.
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).
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.
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.
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
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.
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.
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.
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
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
MONEY & CREDIT:
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.
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.
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.
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
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.
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
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.
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
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.
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.
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.
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.
contributing to the build-up in inflationary pressures is the increase in
aggregate demand in the economy, which is compounded by supply shortages of
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
of CPI Inflation (1998-2006)
2005-06 (for 10 months)
TRADE AND PAYMENTS:
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:
rice (33.6 %),
fish and fish preparation (30.2 %), and
fruits (20.6 %).
Exports of textile manufactures grew by 19.2 %; prominent among those are exports of:
bedwear (58.4 %),
readymade garments (31 %),
cotton yarn (29.4 %),
cotton cloth (16.5 %), and
towels (12 %).
Exports of other manufactures also registered a high double-digit growth of 19.2 %. Within this category, exports of following come under this category:
petroleum products (80.8 %), and
leather manufactures (44 %).
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.
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.
trade deficit increased to $8620 million, in comparison to $4263.4 million in
the same period last year.
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.
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.
and Imports (1998-2006)
figures in US $ Million)
2004-05 (11 months)
2005-06 (for 10 months)
CURRENT ACCOUNT BALANCE:
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
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.
FOREIGN DIRECT INVESTMENT:
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:
telecom sector has been the single largest recipient of FDI with $1 billion
followed by the energy sector:
FOREIGN EXCHANGE RESERVES:
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.
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.
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
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.
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
EXTERNAL DEBT AND LIABILITIES:
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.
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.
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.
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.
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:
Government’s reform agenda include:
strengthening institutions, including judiciary, police, civil service and pension,
restructuring the institutions, including Central Directorate of National Savings (CDNS), transforming the existing Monopoly Control Authority into a Competition Authority Organisation, and introduction and adoption of e-Government Strategy,
improving the competitiveness of our industry,
building a robust financial system in an environment of global financial restructuring,
strengthening of tax administration, including the restructuring of CBR,
promoting transparency in economic policy-making,
reform in capital market, and
strengthening the country’s physical and human infrastructure.
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.
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
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
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.
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.
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.
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
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
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.
POPULATION, LABOUR FORCE & EMPLOYMENT:
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.
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
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
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 %).
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.
TRANSPORT AND COMMUNICATIONS:
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.
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.
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 %.
construction work on Islamabad-Peshawar Motorway (M-1) however, is still in
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
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.
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.
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.
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.
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.
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.
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 %.
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
ENVIRONMENT AND HOUSING:
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:
water management and conservations,
efficiency and renewable,
agriculture and livestock,
biodiversity and protected areas,
climate change, air quality and noise, and
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.
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.
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.
Prof. Dr. Kh. Amjad Saeed, Economy of Pakistan
A. Hamid Shahid, Economic Planning w.r.t. Pakistan
ICMAP, Management Accountant
ICAP, Pakistan Accountant