Economic Activity of Pakistan 2001-2010

8/3/2019 Economic Activity of Pakistan 2001-2010

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Measuring Economic

Activity of Pakistan2001-2010

Course:Economic Analysis for

Managers

Class Timings:Thursday (6-9)

Submitted by:Sidrah Shaikh 11562

Submission Date:15th Dec, 2011


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Introduction to the Economy of Pakistan

The economy of Pakistan is the47th largestin the world in nominal terms and27th largestinthe world in terms ofpurchasing power parity(PPP).Pakistanhas a semi-industrializedeconomy, which mainly encompassestextiles,chemicals,food processing,agricultureand other

industries. Growth poles of Pakistan's economy are situated along theIndus River;[14][15]

diversified economies ofKarachiandPunjab's urban centers coexist with lesser developed areasin other parts of the country. The economy has suffered in the past from decades of internalpoliticaldisputes, a fast growing population, mixed levels of foreign investment, and a costly,ongoing confrontation with neighboringIndia. However,IMF-approved government policies,

bolstered byforeign investmentand renewed access to global markets, have generated solidmacroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, mostnotably at privatizing the banking sector have helped the economy.

GDPgrowth, spurred by gains in the industrial and service sectors, remained in the 6-8% rangein 2004-06 due to economic reforms in the year 2000 by theMusharrafgovernment. In 2005, the

World Banknamed Pakistan the top reformer in its region and in the top 10 reformers globally.Islamabadhas steadily raised development spending in recent years, including a 52% realincrease in the budget allocation for development in FY07, a necessary step toward reversing thebroad underdevelopment of its social sector. The fiscal deficit - the result of chronically low taxcollection and increased spending, including reconstruction costs from the devastatingKashmirearthquakein 2005 was manageable.

Inflationremains the biggest threat to the economy, jumping to more than 9% in 2005 beforeeasing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistanreached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying topreserve growth.Foreign exchangereserves are bolstered by steady worker remittances, but a

growing current account deficit - driven by a widening trade gap as import growth outstripsexport expansion - could draw down reserves and dampen GDP growth in the medium term.

Recent Decades:

This is a chart of trend of gross domestic product of Pakistan at market prices estimated by theInternational Monetary Fund with figures in millions of Pakistani Rupees.

Economic Resilience:
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Background:

Historically, Pakistan's overall economic output (GDP) has grown every year since a 1951recession. Despite this record of sustained growth, Pakistan's economy had, until a few yearsago, been characterized as unstable and highly vulnerable to external and internalshocks.

However, the economy proved to be unexpectedly resilient in the face of multiple adverse eventsconcentrated into a four-year (19982002) period

theAsian financial crisis; Theglobal recessionof 2001-2002; a severedroughtthe worst in Pakistan's history, lasting about four years; heightened perceptions of risk as a result of military tensions with India with as many

as 1 million troops on the border, and predictions of impending (potentially nuclear) war; thepost-9/11 military actionin neighboring Afghanistan, with a massive influx of

refugees from that country;

Despite these adverse events, Pakistan's economy kept growing, and economic growthaccelerated towards the end of this period. This resilience has led to a change in perceptions of

the economy, with leading international institutions such as the IMF, World Bank, and the ADB

praising Pakistan's performance in the face of adversity.

More Recent Reports Of Resilience:

After thehighly destructive2005 earthquake, Pakistan's economy kept expanding, growing byover 7% in the twelve months ending June 30, 2006.

Pakistan emerged as one of the best performers in the wake of theglobal financial crisis, even asthe country waged a costly war against militants. Its domestically-driven economy wasminimally affected and its banking sector boasted surplus liquidity while remaining unharmed.However the impact was seen for export sectors which shrank as a result of lower externaldemand

Macroeconomic Reform And Prospects:

National Highways, Motorways & Strategic Roads of

Pakistan.

According to many sources, the Pakistani government hasmade substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are thebest in nearly a decade.

Government revenues have greatly improved in recent years, asa result of economic growth, tax reforms - with a broadening ofthe tax base, and more efficient tax collection as a result of self-assessment schemes and
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corruption controls in theCentral Board of Revenue- and the privatization of public utilities andtelecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improvingports, roads, electricity supplies and irrigation projects. Islamabad has doubled developmentspending from about 2% of GDP in the 1990s to 4% in 2003, anecessary step towards reversing the broad underdevelopment of its

social sector.

Liberalization in the international textile trade has already yieldedbenefits for Pakistan's exports, and the country also expects to profitfrom freer trade in agriculture. As a large country, Pakistan hopes totake advantage of significant economies of scale, and to replaceChina as the largest textile manufacturer as the latter China movesup the value-added chain. These industries play to Pakistan's relativestrengths in low labor costs.

Growing stability in the nation's monetary policies has contributed to

a reduction in money-market interest rates, and a great expansion inthe quantity of credit, changing consumption and investment patternsin the nation. Pakistan's domesticnatural gasproduction, and itssignificant use ofCNGin automobiles, has cushioned the effect ofthe oil-priceshockof 2004-2005. Pakistan is also moving away fromthe doctrine of import substitution which some developing countries (such as Iran) dogmaticallypursued in the twentieth century. The Pakistani government is now pursuing an export-drivenmodel of economic growth successfully implemented by South East Asia and now highlysuccessful inChina.

In 2005, theWorld Bankreported that

"Pakistan was the top reformer in the region and the number 10 reformer globally

making it easier to start a business, reducing the cost to register property, increasing

penalties for violating corporate governance rules, and replacing a requirement to

license every shipment with two-year duration licenses for traders."

Doing Business:

The World Bank (WB) and International Finance Corporation's flagship reportEase of DoingBusiness Index2010 ranked Pakistan 85 among 181 countries around the globe. Pakistan comeshighest in South Asia but also ranks higher than China, Russia and India which is at 133. The top

five countries are Singapore, New Zealand, the United States, Hong Kong and United Kingdom.

TheGovernment of Pakistanhas granted numerous incentives to technology companies wishingto do business in Pakistan. A combination of decade-plustax holidays, zerodutieson computerimports, government incentives forventure capitaland a variety of programs for subsidizingtechnical education, are intended there.
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The Economy Today:

Due to inflation and economic crisis worldwide, Pakistan's economyreached a state ofBalance of Paymentcrisis. "The InternationalMonetary Fund bailed out Pakistan in November 2008 to avert a

balance of payments crisis and in July last year increased the loan to$11.3 billion from an initial $7.6 billion."

During the mid-2000s, Pakistan experienced a period of tremendousgrowth, averaging 7% yearly GDP growth between 2003-07. Dueto its large population of 186 million, it was included in 2005 by theGoldman Sachs Global Economics Groupas one of the "Next Eleven(N-11)"a group of countries with economies that might have thekind of potential for global impact that the BRICs projectionshighlighted, essentially an ability to match the G7 in size.

By October 2007, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion.Exceptional policies kept Pakistan's trade deficit controlled at $13 billion, exports boomed to $18billion, revenue generation increased to become $13 billion and attracted foreign investment of$8.4 billion.

Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Securityconcerns stemming from the nation's role in theWar on Terrorhave created great instability andled to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscalyear. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf.Combined with high global commodity prices, the dual impact has shocked Pakistan's economy,with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen

from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have toseek external funding as Balance of Payments support. Consequently, S&P lowered Pakistansforeign currency debt rating to CCC-plus from B, just several notches above a level that wouldindicate default. Pakistans local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moodys Investors Service cut its outlook onPakistansdebt to negative from stable due to political uncertainty,though it maintained the countrys rating at B2.

The EIU estimates that inflation should drop back to single digits in

2010, and that growth should pick up to over 5% per annum by 2011.

Although less than the previous 5 year average of 7%, it would

represent an overcoming of the present crisis wherein growth is a mere3.5-4%.
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Economic Comparison of Pakistan 1999-2008

YearGross Domestic Product US Dollar Exchange Per Capita

Income(as % of

USA)1960 20,058 4.76 Pakistani Rupees 3.37

1965 31,740 4.76 Pakistani Rupees 3.40





1990 1,029,093 21.41 Pakistani Rupees 1.92




The Greek alphabet

Indicator 1999 2007 2009

GDP $ 75 billion $ 160 billion $ 185 billion

GDP Purchasing

Power Parity (PPP)

$ 270 billion $ 475.5 billion $ 545.6billion

GDP per Capita

Income

$ 450 $ 925 $1250

Revenue collection Rs. 305 billion Rs. 708 billion Rs. 1.05

trillionForeign reserves $ 1.96 billion $ 16.4 billion $ 17.21

billion

Exports $ 7.5 billion $ 18.5 billion $ 18.45billion

Textile Exports $ 5.5 billion $ 11.2 billion -

KHI stock exchange(100-Index)

$ 5 billion at 700 points $ 75 billion at 14,000points

$ 26.5 billionat 9,000points

Foreign Direct

Investment

$ 1 billion $ 8.4 billion $ 4.6 billion

External Debt &Liabilities

$ 39 billion $ 40.17 billion $ 50.1 billion

Poverty level 34% 24% -

Literacy rate 45% 53% -


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Calculating Overall Economic Avtivity or GDP:

GDP per capita is not a measurement of thestandard of livingin aneconomy. However, it isoften used as such an indicator, on the rationale that all citizens would benefit from theircountry's increased economic production.GDP can be determined in three ways, all of which

should, in principle, give the same result. They are

The product (or output) approach, The income approach, and The expenditure approach.

We will go for expenditure approach as it works on the principle that all of the product must bebought by somebody, therefore the value of the total product (goods & services), produced in aneconomy must be equal to people's total expenditures in buying things. measuring the totalexpenditure of money used to buy things is a way of measuring production. This is known as theexpenditure method of calculating GDP.

The Expenditure Method:

GDP =private consumption+gross investment+government spending+ (exportsimports), or

C (consumption) is normally the largest GDP component in the economy, consisting of private(household final consumption expenditure) in the economy. These personal expenditures fall under one ofthe following categories:durable goods, non-durable goods, and services. Examples include food, rent,jewelry, gasoline, and medical expenses but does not include the purchase of new housing.

I (investment) includes business investment in equipments for example and does not include exchangesof existing assets. Examples include construction of a newmine, purchase of software, or purchase ofmachinery and equipment for a factory. Spending by households (not government) on new houses is alsoincluded in Investment. In contrast to its colloquial meaning, 'Investment' in GDP does not meanpurchases offinancial products. Buying financial products is classed as 'saving', as opposed toinvestment.

G (government spending) is the sum ofgovernment expendituresonfinal goodsand services. It includessalaries ofpublic servants, purchase of weapons for the military, and any investment expenditure by agovernment. It does not include anytransfer payments, such associal securityorunemployment benefits.

X (exports) represents gross exports. GDP captures the amount a country produces, including goods andservices produced for other nations' consumption, therefore exports are added.

M (imports) represents gross imports. Imports are subtracted since imported goods will be included in theterms G, I, or C, and must be deducted to avoid counting foreignsupplyas domestic.
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Pakistans Overall Economic Situation As Reflected By GDP:

Pakistans GDP growth recovered from its sharp slide to 1.2% in FY2009 and rose to 4.1% inFY2010. This was still much lower than in recent years and is not sufficient to make significantimprovements in living standards. Pakistans growth grew significantly in the mid-2000s but it

has faltered recently, although a notable increase has been realized in 2009-2010 (Figure 1.1).

Figures 1.1 & 1.2

Pakistan is under-performing relative to nearby Asian economies (Figure 1.2). Several common

explanations for Pakistans low growth rates are not valid when compared to nearby economies,for example, the global economic downturn has had a dampening effect on international demand,lowering growth rates in Europe and the US. However, economic growth in China and India hasremained high despite the global financial crisis. Sri Lankas growth remained relatively robustdespite the fact that it too faced a major civil war, which required military mobilization in an all-out effort to restore national sovereignty, defeat terrorism by Tamil Tigers, and restore peace tothe citizenry.

3.9

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3.1

4.7

7.5

9

5.86.8

3.7

1.2

4.1

0

2

4

6

8

10

GDP Growth (%)

GDP Growth

0

2

4

6

8

10

12

14

2006 2007 2008 2009

GDP Growth in Other Asian Countries (%)

Bangladesh

India

Indonesia

Sri Lanka

China

Pakistan


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Living standards in Pakistan hit a plateau and are now growing more slowly. Robust rates of

economic growth and job creation must be achieved if Pakistan is to reduce poverty levels and

improve the standards of living for Pakistanis. However, income per-capita, after rising

significantly, has now slowed. Pakistans population growth means that it must achieve robust

rates of growth for living standards to improve on a per-capita basis.

Drivers of Economic Growth in FY2010Manufacturing and services contributed to economic growth. In FY2010 the 4.1% of GDP

growth was achieved mainly by a 5.2% expansion in the manufacturing sector, and a 4.6%

increase in services, while agriculture grew by only 2%. In manufacturing, both large and small-

scale enterprises have played a role growing at 4.4% and 7.5% respectively. Agricultures slower

overall rate of growth was nonetheless buoyed by a 4.1% growth in livestock, while major and

minor crops actually contracted by 0.2% and 1.1% respectively. Growth in services was

propelled by transport and communication (4.5%) as well as wholesale and retail trade (5.1%).

Sector contribution to GDP growth is shown in Figure 2.4. The services sector now constitutes

over 50% of Pakistans GDP (Figure 2.5).

Sectoral contribution to GDP GrowthMost of the recent acceleration in GDP growth has come from the industrial and service

sectors.

2002-

2001

2001-

2002

2002-

2003

2003-

2004

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

2009-

2010

Agriculture -2.5 0 3 2.5 4.5 4.5 4 1 4.5 2

service 3.5 5 5.5 6 8.5 7 7.3 6.5 2 5

Industry 4.5 3 4 16.5 12 4.5 9 1.5 -2 5

-5

0

5

10

15

20Growth By Sector as a % of GDP


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Sector 2000-01 2001-02 2002-03 2003-04 2004-05

Goods (1+2+3+4+5) 48.2 47.3 47.1 47.4 47.6

3.16.3 25.1 24.4 24.2 23.3 23.1

2. Mi6.5ning 1.3 1.4 1.5 1.5 1.4

3. Manu6.7facturing 15.9 16.1 16.4 17.6 18.3

4. Construc6.5tion 2.4 2.4 2.4 2.1 2.0

5. Energy Distribution 3.4 3.0 2.5 2.9 2.7Services (6+7+8+9+10+11) 51.8 52.7 52.9 52.6 52.4

6. Transportation & Comm. 11.7 11.5 11.5 11.4 11.1

7. Trade 18.1 18.0 18.2 18.5 19.18. Finance & Insurance 3.1 3.6 3.3 3.3 3.7

9. Ownership of Dwellings 3.2 3.2 3.2 3.1 2.9

10. Public Admin. & Defense 6.3 6.5 6.7 6.5 6.0

11. Other Services 9.4 9.9 10.0 9.9 9.6

GDP growth in FY2011 is expected to remain modest at 4.5%.13 Estimates currently predict a3.8% growth in agriculture, a 5.6% growth in manufacturing, and a 4.7% growth in services.14This rate of growth is significantly lower than that achieved earlier in the decade. This earlierhigh growth resulted from economic reforms including privatization, deregulation andliberalization, robust levels of private investment, strong growth in remittances, the US

government-led Paris Club rescheduling of Pakistans USD 12 billion debt on exceptionallyfavorable terms, and substantial international economic assistance, including direct assistancefrom the US Government in the form of USD 3.1 billion in economic aid, and USD 8.1 billion insecurity-related aid during 200208.15Nonetheless, most of the economic growth achievedduring that period was driven by consumption and was not export-led growth.

Pakistan continues to be over-reliant on consumption to drive growth. Net exports have not

contributed significantly to growth, raising questions regarding the international competitiveness

0

5

10

15

20

25

30

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Share of Various Sectors in GDP Growth

Agriculture

Mining

Manufacturing

Construction

Energy Distribution

Transportation & Comm.

Trade

Finance & Insurance

Ownership of Dwellings

Public Admin. & Defense


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of Pakistans industries. 16 While net exports contributed 2.2 percentage points to the GDP

growth of 3.6% in FY2009, they have contributed very little to growth in FY 2010. Much of the

net export growth in 2009 came from a decline in imports, rather than an increase in exports.

Total investment made a negative contribution of 0.3 percentage points, while net exports

contributed a meager 0.6 percentage points to growth.

Domestic savings are extremely low and have consistently lagged behind the investment needs of the

economy. The domestic savings rate fluctuated at around 15% of GDP over the last decade before

declining to 9.9% in FY2010 Low domestic savings are partly due to very low Government tax

collection.

Public and private investment has fallen off sharply from the higher levels. After increasing from around

17% of GDP in FY2003, to a record high of almost 23% of GDP in FY2007, total investment in Pakistan

declined to a little over 16.6% in FY2010. Fixed investment decreased from 20.5% of GDP in FY2007 to

15% in FY2010. Public sector investment, critical for facilitating private investment and for social and

infrastructure development, is not only low, but also decreased as a percentage of GDP during the last

three years.

-6

-4

-2

0

2

4

6

8

10

12

Compostion of GDP Growth (%)

Consumption

Investment

NE

gdp


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Data on GDP and Economic Information:

Central bank State Bank of Pakistan

International Reserves US$ 11.318 billion (Source: World Bank; Data updated: December 2009)

Gross Domestic Product - GDP US$ 202.831 billion (2010 estimate)

GDP (Purchasing Power Parity) 482.913 billion of International dollars (2010 estimate)

Real GDP growth 2000 2001 2002 2003 2004 2005 2006 2007

4.3% 1.9% 3.2% 4.9% 7.4% 7.7% 6.1% 5.6%

2008 2009 2010 2011*

1.6% 3.4% 4.8% 2.8%

GDP per capita - current prices US$ 1,197 (2008 estimate)

GDP - composition by sector agriculture: 20.8% industry: 24.3% services: 54.9% (2009 estimate)

Inflation 2008 2009 2010 2011*

12% 20.8% 11.7% 15.5%

Unemployment rate 2008 2009 2010 2011*

0

5

10

15

20

25

Total Investment

Total Investment


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6.2% 6.2% 6.2% 6.2%

Public deficit (Generalgovernment netlending/borrowing as a % ofGDP)

2007 2008 2009 2010* 2011**

-5.5% -7.3% -4.9% -6.2% -3.6%

Government bond ratings Standard & Poor's: B-/Stable/C

Moody's rating: B3

Moody's outlook: STA

Largest companies in Pakistan Oil & Gas Development (Oil & Gas Operations)(2010)

Highlights from Economic Survey 2009-10:

Gross domestic product (GDP) was at 4.1 percent as compared with 1.1 percent of theprior economic year.

Inflation is decreased from 22% but still in double digits i.e. 11.5%. Current account deficit is expected to decline during the outgoing fiscal year. Decline is

expected below 3% of Gross Domestic Product. External current account deficit was contained to 5.6 % of GDP (US dollars 9.3 billion)

in fiscal 2008-09, from a high of 8.3 % of GDP in 2007-08 (US dollars 13.9 billion) Economic growth in 2009-10 is 4.1% which is higher than the targeted growth 3.3%t. The fiscal deficit was slashed to 5.2 % of GDP in financial year 2008-09, from 7.6 % of

GDP in 2007-08, a fiscal adjustment of 2.4 % of GDP. Foreign Exchange Reserves have been rebuilt to nearly dollars 16 billion, from their low

of under dollar 6 billion in October 2008. International credit rating agencies upgradedPakistanfrom CCC plus to B Minus by

S&P, while Moodys revised its outlook to Stable. Manufacturing Sector posted a positive growth of 5.2 % during the current fiscal year. 44 % of population has access to sanitation, while 65 % to clean water. Pakistan has become the largest user of Compressed Natural Gas (CNG) in the world, as

per the statistics issued by International Association of National Gas Vehicles on CNG.Presently, 3105 CNG stations are operating in the country and 2.4 million vehicles areusing CNG as fuel.

Literacy Rate has improved from 56% to 57%. Literacy rate in Punjab is (59 %), Sindh,(59%), Khyber Pakhtunkhwa (50%) and Balochistan at (45%).

Social protection measures were expanded from around Rs 8 billion two years ago toaround Rs 80 billion this year.
http://www.geotauaisay.com/category/pakistan/http://www.geotauaisay.com/category/pakistan/http://www.geotauaisay.com/category/pakistan/http://www.geotauaisay.com/category/pakistan/


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Conclusion:\

Pakistans trade deficit is now between $12 - $13 billion. In addition, the Pakistani governmenthad not managed the countrys agricultural sector properly and has failed to invest in the powersector. For instance, the government maintains insufficient buffer stock and it has no fund to

manage the import and export of agricultural commodities. The poor management of theagricultural sector is further compounded by the smuggling of wheat into Afghanistan.Additionally, the Pakistani government has not carried out a serious analysis of the impact of thecountrys economic growth on the increased demand forenergy. Demand elasticity for powertends to be in the range 1.4 to 1.5. This means that there is a 1.4%increase in demand forelectricity for every 1% increase in GDP growth.Since Pakistan does not perform well on most macroeconomic variables. Its inflation rate is highat almost 14%, and the country places 87th for gross domestic savings, which accounts for just11% of GDP. While 5% of the workforce is officially unemployed, just 44%* of respondents to a2010 survey claimed to be in some form of employment, placing Pakistan 92nd on this variable.Pakistan places 85th* with respect to citizens ability to afford food and shelter. Despite this,

two-thirds* of people are satisfied with their standard of living, placing the country around theglobal** average on this variable.Average annual GDP growth per capita was 2.7% between2005 and 2009, yet many* Pakistanis believe that current economic conditions are worsening.Whilst the country has the 47th largest domestic market, valued at 104 billion USD, the amountof physical capital per worker is low, placing Pakistan 93rd on this variable. Pakistan scorespoorly with regard to foreign direct investment performance, as measured by both net inflowsand volatility, and high-tech exports constitute less than 2% of total manufactured exports. Over12% of all loans are non-performing, indicating a high degree of instability in the banking sector.The fact that fewer than six out of 10* Pakistanis express confidence in financial institutionsreflects this.

Reference:

http://en.wikipedia.org/wiki/Main_Page

The State of Pakistans Competitiveness Report 2010-2011

Pakistan Country Report: GDP data and GDP forecasts; economic, financial and tradeinformation; the best banks in Pakistan; country and population overview

http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3
http://en.wikipedia.org/wiki/Main_Pagehttp://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.html#ixzz1gR25oLB3http://en.wikipedia.org/wiki/Main_Page

Documents

Economic Activity of Pakistan 2001-2010