8/14/2019 Pakistan Economy 21
1/40
PAKISTAN ECONOMY
SUBMITTED TO:
SIR NAWAZ AHMED
SUBMITTED BY:
MUHAMMAD ALI ILYAS
NIDA BAYUNUS
SANA WAHID
8/14/2019 Pakistan Economy 21
2/40
ECONOMY OF PAKISTAN
Population : 164.7 (July 2007 est.)
GDP growth rate: 7.0%
GDP per capita: US$3,004 (2007)
Country Rating: S&P B+/Positive, Moodys Ba3
FX Reserves (2007): US$ 13.1 billion
Stock Market Cap. (July 27th
2006): US$49.6bn Primary exports: textiles, leather, rice
Primary imports: petroleum, machinery, chemicals
Industrial
25%Services
60%
Agriculture
15%
Components of FY07 GDP Demographics
Source: Economic Survey 2005-06
81%
8/14/2019 Pakistan Economy 21
3/40
INTRODUCTION
Pakistans economy continues to gain traction as itexperiences the longest spell of its strongest growth inyears. The outcomes of the outgoing fiscal yearindicate that Pakistans upbeat economic momentumremains on track.
Economic growth accelerates to 7.0 percent in 2006-07at the back of robust growth in agriculture,manufacturing and services.
Average real GDP growth during 2003-07 was the best
performance since many decades, and it now seemsthat Pakistan has decisively broken out of the lowgrowth rut that it was in for more than one decade.Economic growth has been notably stable and resilient
8/14/2019 Pakistan Economy 21
4/40
OVERVIEW
Pakistans economy turned in a strong performance for the FY07 with areal GDP growth of 7% which remains higher than the desired long termaverage of 6.6%.
This was supported by growth in exports and private investments andalso contributed a little to poverty reduction.
8/14/2019 Pakistan Economy 21
5/40
MAJOR REFORMS HAVE BEEN
DELIVERED
GovernanceReforms
Capital Market Reforms
Industry &Investment
Reforms
MajorEconomicReforms
Tax Reforms Fiscal Transparency
Agriculture SectorReforms
Financial SectorReforms
Deregulation,liberalization
&Privatisation
Fiscal Responsibility & DebtLimitation Act Consistency & Continuity InPolicies
8/14/2019 Pakistan Economy 21
6/40
MACROECONOMIC OBJECTIVES
The government set forward four major policyobjectives on the economic front:
Stabilize the countrys debt situation
Revive economic growth
Arrest the rising trends in poverty and
Improve governance
8/14/2019 Pakistan Economy 21
7/40
Pakistan's new government, which assumed office underPresident Musharraf in October 1999, was faced with four mainchallenges:
Heavy indebtedness
High fiscal deficit
Rising poverty and unemployment
Weak balance of payments
MAJOR CHALLENGES FOR THE NEW
GOVERNMENT
8/14/2019 Pakistan Economy 21
8/40
CHANGES IN KEY ECONOMIC
INDICATORS
2006 2007
GDP Growth Rate 6.6% 7.0%
Inflation 7.9% 7.5%
Monetary Assets M2 15.2% 14%
As a percentage of GDP
Fiscal deficit 4.2% 4.0%
Foreign Debt 30% 27.1%
In Billions of Dollars
Exports $16.5 billion $13.9 billion
Imports $24.9 billion $40.4 billion
8/14/2019 Pakistan Economy 21
9/40
AN INCREASINGLY ATTRACTIVE MARKET
Regional Comparison - 2005-06
Population
0
50
100
150
200
250
300
Indon
esia
Pakis
tan
Philip
pines
Vietn
amEg
ypt
Turke
y
Malay
sia
GDP in US$ bn (2005
0
50100
150
200
250
300
350
Turke
y
Indon
esia
Pakis
tan
Malay
siaEg
ypt
Philip
pines
Vietn
am
GDP Grow th
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Turke
y
Pakis
tan
Indon
esia
Malay
sia
P
hilipp
ines
Egypt
Public Debt % of GD
0%
20%
40%
60%
80%
100%
Egypt
India
P
hilipp
ines
Vietn
amTu
rkey
Pakis
tan
Indon
esia
Malay
sia
Source : Economic Survey 2004-05, 2005-06, IMF Annual Report 2006 Chapter 1: Prospects for world growth
*Annual estimates taken from IMF Annual Report 2006
Population bigger than Vietnam, Egypt and Malaysia GDP bigger than Vietnam, Egypt and Malaysia
Growth unparalleled* More fiscal space than others
8/14/2019 Pakistan Economy 21
10/40
SECTRAL GROWTH RATE
Year GDP Agriculture Manufacturing ServicesSector
99-00 3.9 6.1 1.5 4.2
00-01 2.2 -2.7 8.2 4.7
01-02 3.1 0.1 4.5 4.8
02-03 4.8 4.1 6.9 5.2
03-04 7.5 2.2 14.0 5.9
04-05 8.6 6.7 12.6 8.0
05-06 6.6 2.5 8.6 8.8
Source: SBP annual report
8/14/2019 Pakistan Economy 21
11/40
GDP GROWTH Real GDP growth accelerated to 7.0 percent in 2006-07
as against the revised estimates of 6.6 percent last yearand the 7.0 percent target for the year
Agriculture enhanced its contribution to real GDP growth
of 15 percent The manufacturing sectors contribution to this years
real GDP growth declined to 23 percent The construction and banking & insurance sectors grew
by17.2 percents and 18.2 percent respectively The banking and financial sector grew at an average rate
of 27 percent per annum over the last three years
The electricity and gas sectors registered a negative
growth of 15.2 percent
8/14/2019 Pakistan Economy 21
12/40
THE SERVICES SECTOR
The service sector continued to performstrongly for third year in a row and grewby 8.0 percent in 2006-07 as against 9.6
percent last Services sector has grown at an average
rate of 8.7 percent per annum
Almost 60 percent contribution to this
years growth has come from servicessector.
8/14/2019 Pakistan Economy 21
13/40
AGRICULTURE
Overall agriculture grew by 5.0 percent in 2006-07 from 1.6percent last year
The major crops witnessed strong recovery by growing at 7.6percent against a negative growth of 4.1 percent last year
Wheat production was up by 10.5 percent to 23.5 milliontons Sugarcane production, likewise, Improved by 22.6 percent
last year to 54.8 million tons Cotton production at 13.0 million bales remained at last
years level
Rice and maize registered negative growth rates of 2.0percent and 4.5 percent Gram pulse exhibited an impressive growth of 75.4percent in
2006-07 to 0.842 million tons compared with 0.480 milliontons last year
8/14/2019 Pakistan Economy 21
14/40
AGRICULTURE
8/14/2019 Pakistan Economy 21
15/40
MANUFACTURING
Manufacturing is the second largest sector of theeconomy accounting for 19.1 percent of GDP
Overall manufacturing grew by 8.4 percent thisyear as against 10 percent last year
The LSM (large scale manufacturing) sector grewby 8.8 percent against the target of 12.5 percentand last years achievement of 10.7 percent
The relatively slower pace of expansion this yearperhaps exhibits signs of moderation on account
of higher capacity utilization, difficulties in thetextile sector and lower than expected scale ofoperations of oil refineries
8/14/2019 Pakistan Economy 21
16/40
PER CAPITA INCOME
Per capita income, defined as GNP at market price indollar terms divided by the countrys population, grewby 11 percent this year to US$925 up from US$833 lastyear
The per capita income in dollar terms has grown at anaverage rate of 13 percent per annum during the lastfive years, rising from US$ 586 in 2002-03 to US$ 925in 2006-07.
Per capita income grew at a much slower pace of 1.4percent per annum in the 1990s.
Real per capita GDP grew by 5.2 percent in 2006-07 and5.5 percent on average during the last four years asagainst 1.4 percent in decade of the nineties.
8/14/2019 Pakistan Economy 21
17/40
CONSUMPTION
Pakistans economy is undergoing structural shiftthat are fueling rapid changes in consumerspending patterns
Pakistans real per capita GDP has increased at an
average rate of 5.5 percent per annum over thelast four years, giving rise to the average incomeof the people
As opposed to an average annual increase of 1.4percent during 2000-03, the real private
consumption expenditure has grown at anaverage rate of 7.4 percent per annum during thelast four years.
8/14/2019 Pakistan Economy 21
18/40
INVESTMENT During the fiscal year 2006-07, the real gross fixed
capital formation (real investment) grew by 20.6 percentas against 17.6 percent last year
Over the last three years, real fixed investment grew atan average rate of 17.3 percent
As percentage of GDP, total investment reached newheights touching 23 percent in 2006-07 increasing from21.7 percent last year
Over the last four years, total investment has increased
6.4 percentage points of GDP, rising from 16.6 Percent in2003-04 to 23 percent this year Real private investment grew by 19.6 percent this year
as against 20.0 percent last year Public sector investment grew by 31.7 percent this year
as against 7.3 last year
8/14/2019 Pakistan Economy 21
19/40
INFLATION
During the past few years with a pick-up in growth, inflation has also started to rise sharply. Thereare several internal and external factors which have contributed to the recent pick up in inflation inPakistan.
These factors include: a sharp economic recovery resulting in a rise in the rise in the levels ofincome with the consequential increase in domestic demand; the effect of the rise in internationaloil prices; and a sharp pick up in the international prices of essential commodities.
Continuously upward adjustments in the administered prices, such as the prices of wheat, as wellas lower than expected production of essential perishable (vegetable and fruits) and non-perishable (pulses, sugar, chilies etc) commodities also contributed to inflation.
The government has been vigilant about inflation and has taken various steps to augmentsupplies of essential commodities by liberalizing import regime and allowing imports of severalessential items with a view to increasing the supply of those items.
8/14/2019 Pakistan Economy 21
20/40
INFLATION AND MONETARY
FLEXIBILITY
Recent pressure in inflation is being managed carefully to ensure monetary
flexibility
Inflation
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
FY01 FY02 FY03 FY04 FY05 FY06
%
YoY
Source : Economic Survey 2004-05, 2005-06
8/14/2019 Pakistan Economy 21
21/40
ANNUAL INFLATION RATE OF
PAKISTAN
INFLATIO
N
RA
YEARS
8/14/2019 Pakistan Economy 21
22/40
MONETARY POLICY
Monetary policy stance of the SBP has undergone considerable changesover the last several years switching from an easy (2000-03) to abroadly accommodative stance (2003-04) and then from a gradualtightening (2004-05) to an aggressive tightening stance till date.
During the fiscal year 2006-07, the SBP also raised the discount rate(policy rate) from 9 percent to 9.5 percent.
The increase in interest rates was in conformity with the internationalrising trends also taken to curtail the lending ability of the commercialbanks to the private sector.
It aimed to curb strong domestic demand that was one of the maindriving forces for fueling inflation
8/14/2019 Pakistan Economy 21
23/40
CAPITAL MARKET
Pakistans stock market is benchmarked through theKarachi Stock Exchange 100-index (KSE-100). Thisindex stood at 9989 points at the end of the fiscal year2005-06.
Aggregate market capitalization also increased by 35.0percent from Rs 2801 billion in June 2006 to Rs 3781billion ($ 62.3 billion) as of 31st May 2007.
Foreign portfolio investment in Pakistans stock marketduring the first ten months of the current fiscal yearamounted to $ 1.82 billion, which is the highest everinflow of portfolio investment in Pakistans history, asagainst $ 1.011 billion in the corresponding period oflast year, thereby registering an increase of 80 percent.
8/14/2019 Pakistan Economy 21
24/40
FISCAL POLICY A sound fiscal position is an essential prerequisite
for achieving macroeconomic stability which isincreasingly recognized as a critical ingredient forpromoting strong and sustained economic growthand lasting poverty reduction
Pakistan has succeeded in reducing fiscal deficitfrom an average of 7 percent of GDP in the decadesof 1980s and 1990s to an average of 3.5 percentduring the last seven years.
The associated public debt also declined sharplyfrom over 100 percent of GDP to 53 percent byend-March 2007
During the last six years from 2000-01 to 2006-07, taxcollection by the CBR increased by 112.8%.
8/14/2019 Pakistan Economy 21
25/40
FISCAL POLICY The revenue deficit was at a deficit of 0.2% of GDP in 2005-06
compared to a deficit of 2.2% in 2000- 01 It has further progressed towards a targeted revenue surplus
of 0.6 percent of GDP in 2006-07 The structure of taxation has undergone considerable changes
since the 1990s the share of direct taxes in total taxes increased from 18% to
over 38.5% (July-April 2006-07) The share of indirect taxes declined from 82 percent to 61.5
percent (July-April 2006-07) The total expenditure remains more or less stable in a narrow
band of 17 to 18.8 percent of GDP during the last seven years
Total revenues are budgeted at Rs. 1163.1 billion in 2006-07compared to Rs. 1087.0 billion in 2005-06, showing anincrease of 7.0%.
The Central Board of Revenue (CBR) is targeted to collect Rs.835 billion in 2006-07, which is 17.1% higher than last yearscollection.
8/14/2019 Pakistan Economy 21
26/40
EXPORTS Exports were targeted at $ 18.6 billion or 12.9 percent higher than last year.
Exports during the first ten months (July-April) of the current fiscal year areup by 3.4 percent rising from $ 13.46 billion to $ 13.9 billion in the sameperiod last year.
In absolute term the overall exports posted an increase of $ 452.1 million inthe first ten months of the current fiscal year over the same period last year
Pakistan's exports are highly concentrated in a few items namely, cotton,leather, rice, synthetic textiles and sports goods
These five categories of exports account for 77.2 percent of total exportsduring the first nine months of 2006-07 with cotton 61.5%, followed byleather 4.5%, rice 6.6%, synthetic textiles 3.0% and sports goods 1.6%
Pakistans exports are highly concentrated in few countries including the US,
UK, Germany, Japan, Hong Kong, Dubai and Saudi Arabia
8/14/2019 Pakistan Economy 21
27/40
EXPORTS
8/14/2019 Pakistan Economy 21
28/40
IMPORTS Imports were targeted to decline by 2.1 percent in 2006-07 to $ 28.0 billion
from last years level of $ 28.6 billion Growth in import decelerated to 8.9 percent during the first ten months (July-
April) of the current fiscal year as against hefty increase of 40.4 percent in thesame period last year
Disaggregating of total imports suggests that food imports grew by 5.3 percent- up from $ 2241.5 million to $ 2360.6 million.
Imports of machinery rose by 18.6 percent up from $ 3303 million to $ 3916million Imports of petroleum products registered sharp increase of 38.6 percent Imports of electrical machinery & appliances registered a heavy increase of 35
percent. Imports of raw materials registered a marginal (2.4%) decline mainly on
account of 49.4 percent decline in the import of fertilizer Imports of telecom (cell phone as well as equipments, towers etc.) grew by
17.3 percent Pakistan's imports are also highly concentrated in few items namely,
machinery, petroleum & petroleum products, chemicals, transport equipments,edible oil, iron & steel, fertilizer and tea
These eight categories of imports account for 75.5 percent of total importsduring 2006-07.
Over 40 percent of them continue to originate from just seven countriesnamely, the USA, Japan, Kuwait, Saudi Arabia, Germany, the UK and Malaysia.
8/14/2019 Pakistan Economy 21
29/40
IMPORTS
8/14/2019 Pakistan Economy 21
30/40
TRADE BALANCE
The merchandise trade deficit widen to$11.1 billion in the first ten months (July-April) of the current fiscal year as against$9.5 billion in the same period last year.
However, as percentage of GDP, tradedeficit is likely to be 9.0 percent in 2006-07 as against 9.5 percent last year.
Thus, trade deficit is expected to improve
this year despite less than satisfactoryperformance of exports.
8/14/2019 Pakistan Economy 21
31/40
TRADE BALANCE
8/14/2019 Pakistan Economy 21
32/40
EXTERNAL DEBT
The external debt and liabilities aspercentage of GDP which stood at around 52percent in end-June 2000, declined to 26.3percent in end-March 2007.
The external debt and liabilities aspercentage of foreign exchange earningswas reduced from 236.8% to 119.7%during the same period.
Across all measures of vulnerability toexternal shocks, Pakistans debt profile hasimproved significantly over the last seven
/eight years.
8/14/2019 Pakistan Economy 21
33/40
POVERTY AND UNEMPLOYMENT
Poverty and unemployment are posing serious challenges to thepolicy makers.
The government of Pakistan has launched a poverty alleviationstrategy with the help of the IMF and the World Bank; still, 23.9percent of the people live below the poverty line.
The rising population and lack of employment opportunities createpersistent unemployment problems in the country.
There is a need to devise a comprehensive employment strategy totackle this gigantic problem.
I t t Hi hli ht Att ti
8/14/2019 Pakistan Economy 21
34/40
Investment Highlights: AttractivePolicy & Regulatory Fundamentals
Government Strategy Infrastructure being brought up to international
standard: power, water, telecom and transportnetworks being overhauled
Increasing expenditure on education: literacy rates
rising with increasing enrollment in higher education Business environment being made conducive:
liberalization and deregulation policies
Access to capital: increasing focus on providingfinance to SMEs
Leveraging physical location: Pakistan being convertedinto Asias trade, energy and transport corridor
8/14/2019 Pakistan Economy 21
35/40
GDP and Per Capita IncomeGrowthPakistans GDP grew 6.6%YoY in FY06, while per capita income in current dollarterms grew by 14.2%YoY to US$846 in FY06
Source : Economic Survey 2004-05, 2005-06 * At current dollar prices
Per Capita Income*GDP Growth
442424
526501 503
579
669
742
847
0
100
200
300
400
500
600
700
800
900
98 99 00 01 02 03 04 05 06
US
D
3.5%
4.2%3.9%
2.0%
3.1%
4.7%
7.5%
8.6%
6.6%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
98 99 00 01 02 03 04 05 06
C St bili ti R fl t
8/14/2019 Pakistan Economy 21
36/40
Currency Stabilization ReflectsOptimism in the Pakistan Economy
Exchange Rate (PKR/USD)
55
56
57
58
59
60
61
62
63
64
65
Mar-01
Jul-01
Nov-01
Mar-02
Jul-02
Nov-02
Mar-03
Jul-03
Nov-03
Mar-04
Jul-04
Nov-04
Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Source : Economic Survey 2004-05, 2005-06
8/14/2019 Pakistan Economy 21
37/40
Foreign Investment andRemittances Surging
Foreign Direct Investment (US$ million)
322485
798949
1,524
3,521
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY01 FY02 FY03 FY04 FY05 FY06
1,087
2,390
4,237
3,871
4,168
4,600
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY01 FY02 FY03 FY04 FY05 FY06
Remittances (US$ million)
Source : Economic Survey 2004-05, 2005-06
8/14/2019 Pakistan Economy 21
38/40
PRIVATISATION POLICY
The Governments Role should be confined to:
Making Policy and providing good governance
Providing a sound and effective regulatory framework, to
ensure social equity and economic justice
Providing an enabling environment, including physical andtechnical infrastructure and social services
Privatisation Policy to encourage and promote private sector asengine of growth to increase investment and introduce new
technology, improve management and increase productivity
To ensure better quality, lower cost and higher profits andincreased dividends and tax revenues
The Government has no Business to do Business
Broad Based Privatisation Programme
8/14/2019 Pakistan Economy 21
39/40
Broad Based Privatisation Programme
Financial
Institutions
United Bank
Habib BankNational Bank
ICP
Strategic Sale and IPO
Strategic SaleIPO and Secondary Offering
Sale of management rights
Telecommunicatio
n
Pakistan Telecommunication
Co
Strategic Sale
Oil & Gas
Working interest in 9 fieldsNational Refinery
Oil & Gas Development Co
Pakistan Petroleum
Sui Southern Gas Co
Strategic SaleStrategic Sale
IPO
IPO
Secondary Offering
Power Karachi Electric Supply Corp
Kot Addu Power Co
Strategic Sale
IPO
Fertilizer Pak Saudi Fertilizer
Pak Arab Fertilizer
Pak American Fertilizer
Strategic Sale
Strategic Sale
Strategic Sale
Key Recent Privatisations
To date the current government has realised over US$5.3bn
8/14/2019 Pakistan Economy 21
40/40
CONCLUSION
In the recent years there has been a considerable improvement in themacroeconomic indicators.
External debt burden has been reduced as a proportion of GDP, from 52.6% to30% from the year 1999 to 2006. The exchange rate has been stabilized, andworker remittances have been improved significantly.
Pakistan has also managed to reach to a significant debt reduction in theprevious years.
The manufacturing and agriculture sectors emerged as the main engines ofgrowth, experiencing 8.6% and 2.5% growth rates respectively over the year withthe services sector growth rate being 8.8%.Manufacturing growth was led by a sharp increase in cotton cloth and cotton yarnproduction, while the best agricultural performers were wheat and sugarcane.
Pakistans economy is still at a takeoff stage and faces many challenges ahead.