Current Economic Situation in Pakistan and the role of Government in it

8/4/2019 Current Economic Situation in Pakistan and the role of Government in it...

1/4

Murtaza Moiz Farooqui | SP11-MM-0002 | M.A.J.U. , Karachi_______________________________________________________________________________________

________________________________________________________________________________________

Page 1 of 4

Current Economic Situation of Pakistan and Pakistani Government

Pakistan's Cultivation of the Rich alluvial soil of the Indus River basin is its single

most important economic activity. Because of extensions and improvements to the ir-

rigation system, waters of the Indus River and its tributaries flow to the fields, a ne-

cessity because of scant rainfall. The Indus irrigation system is the world's largest,but there are many problems because of inadequate water management and use.

Farmers continue to employ traditional cultivation practices, and support services,

such as research and development, are inadequate, although high-yield seeds and

ferti l izers are fairly widely used. Yields of most crops, with the significant exception of

cotton, are low by international standards and substantially below the area's potential.

Many farms are too small to support a family using existing agricultural practices. The

landless often sharecrop or work as agricultural laborers. A flood in September 1992

temporarily displaced as many as 3 mill ion people and destroyed many irrigation net-

works. Its effects are expected to limit agricultural production, particularly cotton, in

the 1990s.

Since Pakistan became independent in 1947, its leaders have generally sought to in-

crease the role of industry in the nation's economy. They achieved a remarkable de-

gree of success toward this end. A broad industrial base is now in place, producing a

wide range of products for both consumer and industrial use. Industrialization, how-

ever, has failed to create sufficient jobs for the rapidly expanding urban population.

Construction and service-sector activities, especially in trade, transportation, and

government, have expanded and now provide more employment than industry. None-

theless, underemployment remains prevalent throughout the economy. An outdated

infrastructure is another problem facing the economy. Frequent electricity shortages,

for example, hamper industrial development and production.

Introduction to some of the major problems haunting current Pakistani government

Pakistan economic environment is affected by intensification of war on terror and

deepening of the global financial crisis which penetrated into domestic economy

through the route of substantial decline in Pakistans exports and a visible slowdown

in foreign direct inflows. Pakistan economy continues to remain exposed to the vagar-

ies of international developments as well as internal security environment. The inten-

sity of the global financial crisis has further added to Pakistan predicament. Despite

support from the IMF and other bilateral and multi lateral donors, Pakistan external

account remains exposed to a host of uncertainties.

IMPROVING THE EFFICIENCY OF DIFFERENT SECTORS OF ECONOMY

Agriculture

Pakistan irrigates three times more acres than Russia. Agriculture accounts for

about 21% of GDP and employs about 41% of the labor force . In spite of structuralshift towards industrialization, agriculture sector is sti l l the largest sector of the

economy with deep impact on socio-economic set up. It is the source of the

livelihood of almost 44.7 percent of the total employed labor force in the country . Ag-

riculture in Pakistan used to contribute 53% of the national economy but has now

declined to 23% when the manufacturing industry is going up to as much as 55%of the national GDP . As mentioned, agriculture remain to be an important eco-


2/4


________________________________________________________________________________________

Page 2 of 4

nomic contributor as in fact Pakistan is the largest producers and suppliers of

agricultural products according to the 2005 Food and Agriculture Organization.

Pakistan likewise ranks high with respect to f arm output. It is the f ifth in the

Muslim world and worldwide it ranks within the two twenty farm output contrib u-

tors. With the present contribution to GDP at 21.8 percent , agriculture sector is the

mainstay of the rural economy around which socio-economic privileges anddeprivations resolve. Therefore, government needs to give importance to agri-

cultural sector, as we can take example of Australia, which gives a backbone

importance to agriculture, and now agriculture sector is one of the most privi-

leged sector which Australia possesses, having contribution of $155 billion-a-yearfor a 12% share of GDP , Australian farmers and grazers own approximate 135,996

farms, covering 61% of Australias landmass and there is a close-to-perfect mix of

irrigation and dry-land farming over there.

CONVERSION FROM IMPERFECT MARKET TO PERFECT

Inequality in allocation on resources in the economyThe markets in an economy like Pakistan which is more influenced towards im-

perfect market modules, therefore influence on invisible hands can easily be

seen. Theyve the power to divert the investments and capitals from one sector

of the economy to another. Take example of Cellular Service sector in contrast

to neglected Education sector, therefore allocation of resources provided to

both sectors arent on the equality basis but on the interest of individu-

al/invisible hands/motives basis.

REDUCING ECONOMIC INEQUALITY

Growth and investmentIn growth and in investment we lost investor because of global economic situa-

tion, through financial markets which collapse the external demand for its ex-

ports and decline in availability of external capital to finance or invest in growth

process of the country. According to global financial crisis was felt on market

and investor confidence in many developing countries, including Pakistan, as

banking systems and asset markets came under stress.

STABILIZING THE ECONOMY THROUGH MACROECONOMIC POLICIES


3/4


________________________________________________________________________________________

Page 3 of 4

1. Inflation

The rate of inflation is an important macroeconomic indicator and one of

the key variables most central banks around the world scrutinize when

setting their main policy rate. Pakistan is one of only a handful of coun-

tries that is sti l l experiencing double-digit inflation. The surge in food and

commodity prices witnessed during the start of fiscal year 2008-09 pushed

the Consumer Prices Index (CPI) in Pakistan to a record level of 25.3 percentin August 2008, remaining above the 20 percent level up until February 2009,

but on the contrary, it has been 13.8 percent as of July of 2011 .

2. Trade and Payments

The global economic meltdown is affecting the Pakistan economy through

three indirect channels: the sharp drops in oil prices, has led to sharp

easing of import demand pressures; the contraction in global demand,

trade, and related activity, is impacting adversely demand for exports

and remittances from EU and US in particular; and constricted access to

the international credit markets and lower investor appetite for risk is af-

fecting capital inflows, depressing local asset prices, and reducing al-

ready low investment level. Pakistan economy needs an integrated policy

to deal with external sector vulnerabilities like removing structural rigidi-

ties in the exports and imports sectors.

3. Poverty

The inadequacy of income to meet basic needs, low quality of l ife, denial

of opportunities and choices basic to human development are different

facets of poverty. The main objectives of government policies are to raisethe standard of l iving and improve the socio-economic conditions of the

people and thus reduce the incidence of poverty in the country.

4. Transport and Communication facilities

Transportation network of any country is of vital importance to its devel-

opment and affects all sectors through economic linkages. It ensures

safe and timely travel encourages business activities and cuts down

transportation costs while granting produces access to markets for their

goods. A reliable transportation network also provides swift access to la-

bor force and hence generates employment opportunities. It has beenwidely recognized that economies with better road and communication

networks are positioned more advantageously in terms of overall compet-

itiveness as compared to economies having poor networks. Enhance-

ments in transportation and telecommunication benefit industry, agricul-

ture, and other services sectors as well as improving the standard of l iv-

ing of the general public, it is therefore, crucial that investments be made

to develop and maintain an efficient network of transportation and tele-

communication to ensure cost efficient integration of markets both do-

mestically and internationally.


4/4


________________________________________________________________________________________

Page 4 of 4

5. Energy sector

The world energy scenario during 2008-09 has been very eventful, same

as Pakistan. International oil prices fluctuated widely , leaving all vulnerable

oil import countries like Pakistan under great stress. The volatile energy

picture not only made major dents in the macroeconomic variables such

as budget deficit, current account balance, inflation, exchange rates and foreignexchange reserves, but also eroded the purchasing power of poor on the

back of rising prices of petroleum products. So the major impact has

been experienced in the industrial and agriculture sector, because of en-

ergy shortfall. Energy consumption being an integral part of all the eco-

nomic activities has also declined as a result of the economic slow down,

and therefore the government usually finds it difficult to cope with the

ever-fluctuating prices of furnace oil, but also lags in investing in alterna-

tives solutions like solar, wind and heat powered resources, which Paki-

stan is lucky to have such resources in abundant but fail ing to util ize

them and in return, an expensive mode of electricity is produced andgenerated in comparison to the regional countries, and therefore textile

manufacturers are preferring transfer their businesses to Bangladesh and

Sri Lanka, where electricity tariff in comparison to Pakistan are quite low

and competitive, therefore its the responsibil ity of Pakistani government

to give subsidies to local and national businessman and investors, and

on the same time, tax exemptions to foreign investors and traders in or-

der to win their trust to do business and trading activities in Pakistan, so

that investment can be done in Pakistans energy sector so that expan-

sion can be done over there, which would yield in reduction of prices of

energy prices which could attract more investors, both foreign and na-tional investors.

Documents

Current Economic Situation in Pakistan and the role of Government in it