State of Pakistan Economy

1

Dr. Vaqar Ahmed23rd May 2014

Long term sources of

growth

Labour

Capital

Productivity

Short term drivers of growth

Energy

Water

Growth enablers

Political Governance

Institutions

Simplistic View – Pakistan Economy

19611966

19711976

19811986

19911996

20012006

20110

2

4

6

8

10

12%

Cha

nge

in R

eal G

DP

19601964

19681972

19761980

19841988

19921996

20002004

20082012

0

5

10

15

20

25

30

35

40

Pakistan South Asia

% o

f GD

P

Fixed Investment 1961 - 2012Economic Growth 1961-2012

19711974

19771980

19831986

19891992

19951998

20012004

20072010

0

5

10

15

20

25

30

35

Pakistan South Asia

% o

f GD

P

Gross Domestic Savings 1971-2011

20012002

20032004

20052006

20072008

20092010

20112012

0

5

10

15

20

25

Government RevenueGovernment Expenditure

% o

f GD

PFiscal Performance 2001-2012

Inflationary Pressures

2007 2008 2009 2010 2011 20120

5

10

15

20

25

PakistanSouth Asia

Cons

umer

Pri

ces

(% C

hang

e)

Pakistan had higher price levels in comparison to its neighbors. While South Asian economies also maintained high subsidies, however they were better targeted and prudently financed

Current Vs. Development Expenditure 2001-2012

20012003

20052007

20092011

02468

101214161820

Current ExpenditureDevelopment Expen-diture%

of G

DP

Debt servicing, defense, law & order have not allowed government’s current expenditures to come down. This also implied lesser expenditure availability for MDGs

Spending on Education & Health

20012002

20032004

20052006

20072008

20092010

20112012

0

0.5

1

1.5

2

2.5

3

Education SpendingHealth Spending

% o

f GN

P

Education and health expenditures are compromised first once current expenditures increase. The also impact longer run productivity of the economy

External Performance - I

19801983

19861989

19921995

19982001

20042007

2010

-15

-10

-5

0

5

10

15

20

25

30

Current account balanceExports of goods and servicesImports of goods and services

% o

f GD

P

External Performance - II

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

Remittances

USD

Billi

on

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201205

101520253035404550

External Debt Outstanding

USD

Billi

on

2007 2008 2009 2010 2011 2012-1000

0

1000

2000

3000

4000

5000

6000 Foreign Direct Investment

USD

Mill

ion

2005 2006 2007 2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16 Net Forex Reserves

USD

Billi

on

Rising remittances and debt contribute to Dutch disease effect

Real Sector Outlook

Indicators 2012-13 (Provisional)

2013-14 (Projected)

Economic Growth (%)

GDP Growth 3.6 4.4

Agriculture 3.3 3.8

Manufacturing 3.5 4.5

Services 3.7 4.6

Investment and Savings (as percent of GDP) Investment 14.2 15.1

National Savings 13.5 14.0

Foreign Savings -0.7 1.1

Inflation (% Growth) 7.7 8.0

GNP Per Capita (PKR) 1368 1464

Source: Economic Survey of Pakistan and Planning Commission’s Annual Plan 2013-14

Fiscal Sector Outlook

Indicators 2012-13PKR Billion

2013 (July-Mar)PKR Billion

Total Revenue 2982 2477

Tax Revenue 2,199 1786

Total Expenditure 4,816 3289

Current Expenditure 3,660 2904

Interest 991 909

Defense 541 452

Development Exp. 1140 556

Fiscal Deficit 1834 812

Fiscal Deficit (% of GDP) 8.0 3.1

External financing 1676 -51

Domestic financing 1836 862

Source: Finance Division, Government of Pakistan

Balance of PaymentsIndicators 2012-13

USD Million2013-14 (Jul-Apr)

USD Million

Exports (fob) 24802 20550

Imports (fob) 40157 33372

Workers’ Remittances 13922 11570

Current account balance

-2496 -1574

Foreign Direct Investment

1456 862

Long term loans 2274 1833

Foreign Exchange Reserves

11,019 13132

Source: State Bank of Pakistan

2 month import bill available to provide for Letter of Credits, & imports for food,edible &crude oil

Monetary Sector Flows

Indicators 2012-13PKR Million

Up to 9th May ‘14PKR Million

Net Foreign Assets -263,300 236908

Net Domestic Assets 1,479,317 411369

Net Government Borrowing

1,479,183 199565

Credit to Private Sector -19,041 296441

Credit to Public Sector Enterprises

31,096 55093

Broad Money (M2) 1,216,017 648217

Percent Growth 15.91% 7.32%

Source: State Bank of Pakistan

• Three Year Under Extended Fund Facility (EFF), with focus

on structural reforms

• Access to 425 % of Quota; Amount $6.6 billion

IMF Program

• FDI in textile sector– Chinese example

• Critical question of energy supplies to energy

• Building value chains– Bangladesh example

Will GSP+ Deliver?

Structural ReformsShort-term

Kickstarting growth

Public investment

Taxation reforms

Private investment

Energy reforms

• Eliminating SROs and related exemptions

• Tax administration and human interference

• Debate on including new sources of income in the tax net

– Agriculture

– Services

– Capital and money markets

Taxation Reforms

• Correct energy prices

– To cover full cost of production

– To correct incentives for private sector

• Eliminate untargeted, hidden and cross subsidies

– Retain only for life line block

• Check technical losses and theft

– Transmission and distribution losses

– Kunda methods

Energy Reforms

• Restructuring liabilities and outstanding debt

• Empowering management with autonomy

– NBP and Finance Secretary [Conflict of Interest]

• Private participation in state enterprises

– Public Private Partnerships

– Privatization

Public Sector Enterprises

• Trade in goods (Afghanistan, China and India)

• Trade in services (Afghanistan and China)

• Trade in energy (Iran and India)

– Long term options (CASA-1000, TAPI)

Regional Trade

• Pakistan’s economy stabilized but structural reforms missing. The window of

opportunity may be short lived

• Growth now being financed by greater debt

• Implications of gift payments by Saudi government not known, Manage bond-related

debt, carefully spend proceeds for 3G/4G

• Improvement in the economic situation will also hinge on

o The Security Situation

o Electricity situation – as summer months peak

• If Pakistan manages to sustain reserves build up (2 month’s import cover) by June

2014 then conditions will improve in 2014-15 and beyond

• Pakistan can then start a program of economic revival and try to achieve 6 per cent

growth rate by 2016-17: Economy of Tomorrow Report

Way Forward

Long term sources of

growth

Labour

Capital

Productivity

Short term drivers of growth

Energy

Water

Growth enablers

Political Governance

Institutions

Simplistic View – Pakistan Economy

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