Economic Development and Growth of Pakistan

7/30/2019 Economic Development and Growth of Pakistan

1/45


2/45

Prepared For

Sir Faseeh Ullah Khan

Faculty of Economics

Business Administration Department

Federal Urdu University of Arts Science and Technology

Prepared By

Kashif Abbas

Roll Number 38

Section A


3/45

P a g e | 2

DEDICATION

-to

All Those

Praiseworthy Teachers

And

Devoted Students

Who are Sincere and Honest with Their Responsibilities-


4/45

P a g e | 3

ny attempt at any level cant be knowledge provoking andsatisfactorily completed without the help and guidance of thelearned people. Completing a report requires the support of

experienced and skilled persons and isnt always a solitary efforts. There are a lwaysmany hands and minds contributing to our success. Similarly I am also over-helmed inall humbleness and great fullness to acknowledge my depth to all those who havefacilitated me to put these ideas well above the level of simplicity and somethingconcrete.

First of all I am highly obliged to Almighty Allah Subhana Tala for blessing mewith the courage health and strength to complete this report.

I shall also acknowledge my parents and all the family members for the amountof patience and tolerance they have shown throughout the entire time period of thepreparation of this report.

I would also like to express my gratitude towards our admirable and honorableteacher Sir Faseeh Ullah Khan (Faculty of Economics), as he had created a goldenopportunity for us to utilize our skills, knowledge and abilities by making this report ona very broad scope topicEconomic Development and Growth. During making thisreport I have learned and experienced many new things about the topic.

I would also like to forward my gratitude towards Mr. Zaheer Abbas, at (whohelped me a lot in gathering information, collecting data and guiding time to timeduring the fabrication of this report despite of his own busy schedule. He gave me themoral support in different matters regarding the topic.

I would like to thanks to all my friends and other faculty members who alwaysendured me and stood by me and without whom I could not have envisaged the

completion of my report.

Last but not the least I am also grateful to all search engines as they made myworking simpler and saved a lot of time.

A


5/45

P a g e | 4

he overriding objective of this report is to analyze Pakistan needs to

bolster its economic growth and development in a sustainable fashion. The

report seeks to meet its objective by pursuing three principal thrusts. It

will identify and analyze key internal and external factors that affect Pakistan's recent

Economic Growth and Development performance. These include factors associated with

the recent slow-down in economic activity. The report will also indentify and analyze

the drivers of growth capable of enhancing the country's competitiveness. In so doing

the study will inform and contribute to the debate on drivers of growth and

competitiveness in Pakistan especially against the backdrop of the prevailing economic

malaise. In the report some strategic competiveness interventions are discussed by

which, through their impact on economic growth, aim to make the economy more

productive, prosperous and sustainable.


6/45

P a g e | 5

Table of Content Page NumberSection A

OVERVIEW: INTRODUCTION TO ECONOMICS.................................................... 7

Economics... .. 7Economic Development and Growth... 7Fundamental Elements for the Economic Development & Growth. 8Difference between Economic Development & Growth.. 9

Economic Factors for Development. 9A. Natural Resources9

B. Capital Formation.9

C. Specialization..10

D. Technology10

E. Transport and Communication10

F. Entrepreneurship..10

Non-Economic Factors for Development10A. Social Values & Attitudes10

B. Political Stability........ 10

C. Administrative Efficiency.10D. Economic Freedom..11

E. Right of Private Property.11

Role of Different Fields of Country in Economic Development & Growth 11A. Natural Resources11

B. Human Resources.11

C. Capital Resources/Capital Formation.11

D. Agricultural Sector13

E. Industries Sector13

F. Banking and Financial Sector.13

G. Transportation and Communication Sector14H. Economic Planning..14

Section BOVERVIEW:ECONOMICS OF PAKISTAN15Introduction... .. 15Main Features of Mixed Economic System 16

A. Co-Existence of the Public and Private Sector..16

B. Role of Price System and Government Directions.16

C. Government Regulations and Control of Private Sector.16

D. Consumers Sovereignty Protected..17

E. Government Protection ofLabor...17F. Reduction ofEconomic Inequalities.17

History of Economics of Pakistan. 17Economic Resilience.. 19Recent Economic History . 19Structure of Pakistan's Economy.. 211.AGRICULTURAL SECTOR. 21

A. Livestock. 22

B. Fishery..23

C. Forestry25


7/45

P a g e | 6

Table of Content (cont.) Page Number

2. INDUSTRY SECTOR 26A. Fuel Extraction Industry26

B. Mining and Quarrying26

C. Electricity, Gas and Water Supply..27

3. SERVICES SECTOR 27A. Transport, Storage and Communication28

B. Finance and Insurance30

C. Investment.30

D. Foreign Trade..31

E. Exports..31

F. Imports.31

Recent Structural Reforms.. 32A. Privatization, Deregulation, Liberalization..32

B. Tax Reforms..33

C. Financial Sector Reforms.34

Concluding Remarks .. A

Resources.. D


8/45

P a g e | 7

OVERVIEW:

INTRODUCTION TO ECONOMICS

Before embarking the topic it is necessary to identify what we meant by

Economics, Economic Development and Economic Growth? By understanding the

meaning of it we may be able to understand the text more clearly.

Economics:

Economics is not a natural science, i.e. it is not concerned with studying the physica

world like chemistry, biology. Social sciences are connected with the study of people insociety. It is not possible to conduct laboratory experiments, nor is it possible to fully unrave

the process of human decision making. But what is Economics? so here is the simple

Definition of Economics;

Economics is the study of how we the people engage ourselves in production,

distribution andconsumption of goods and services in a society.

Economic Development And Growth:

According, to Prof. Arthur Lewis,

Economic Development and Growth means increase in the output per

head.

Professor Michael Todaro in his bookEconomic Developmenthas said that,

Economic Development must be conceived of as a multi-dimensiona

process involving major changes in social structures, popular attitudes, national

institutions, and acceleration of economic growth and reduction of inequality.

And

Economic Growth is a steady process by which the productive capacity of

an economy increases overtime to bring about rising levels of national output

and income. Economic growth is the name of more production. Growth is

measured in terms of an increase in real gross national product (GNP or GDP)

over time or an increase in per capita income.


9/45

P a g e | 8

According to Prof. Kindleberger,

Economic Development means increase in output of goods and services inan economy. Economic Development is more important than economic growthbecause economic development is wider and more comprehensive process thaneconomic growth. Economic growth is a quantitative term because it representsquantitative increase in production of goods, services and the factors of

production in an economy, whereas economic development is a qualitative termsbecause it indicates continuous increase in the real national income andstructural changes in the economy of a country.

In general, we can say that,

Economic Development and Growth is a process of economic transitioninvolving structural transformation of an economy through industrialization,raising gross national product and per capita income.

In a nutshell, Economic Development & Growth means Economic expansions

coupled with the structural changes in the economy for obtaining a better life. It is a

process, which results in the change in supply of factors as well as in the nature of

demand of goods & services.

Here a question may be arises that why countries are busy in making their

Economy Developed, the answer to this question is presented in the following four

objectives.

Increase of supply of food, clothing, health, and education facilities. Increase in standard of living of the people. Increase in leisure, political freedom & equal opportunities of life. Increase in capital formation (new buildings and industries).

Fundamental Elements for the Economic Development & Growth:

The ability of an economy to produce more goods and services is dependent onthe following factors:

1)An increase in stock and quality of its capital goods.2)An increase in quantity and quality of its labor force.3)An increase in quantity and quality of its natural resources.4)An efficient use of factor inputs so as to maximize their contribution to theexpansion of output, through improved productivity.

5) Development and introduction of innovative techniques and new products

i.e. technological progressiveness.

6) An increase in level of demand to ensure full utilization of the increased

productive e capabilities of the economy.


10/45

P a g e | 9

The achievement of a high rate of economic growth is one of the main

objectives of macroeconomic policy. The significance of economic growth lies in its

contribution to the general prosperity of the community. Growth is desirable because

it enables the community to consume more goods and services and it also contributes

to the provision of a greater quantity of social goods and services such as health and

education, thereby improving real standards of living of the people. Government can

stimulate growth process by increasing current spending in the economy through tax

cuts by adopting fiscal policy and by increasing the money supply and reducing

interest rates by monetary policy.

Difference between Economic Development & Growth:

Economic Developmentmeans increase in output of goods and services in aneconomy. Economic development is more important than economic growth becauseeconomic development is wider and more comprehensive process than economic

growth. Economic development is a process of economic transition involvingstructural transformation of an economy through industrialization, raising grossnational product and per capita income. Economic development is a qualitativeterms because it indicates continuous increase in the real national income andstructural changes in the economy of a country.

Economic Growth is a quantitative term because it represents quantitativeincrease in production of goods and services in an economy. Economic Growth is asteady process by which the productive capacity of an economy increases overtime tobring about rising levels of national output and income. Economic growth is the nameof more production. Growth is measured in terms of an increase in real gross nationa

product (GNP or GDP) over time or an increase in per capita income.

Economic Factors for Development:

Some key factors which are required to commence Economic Development are

discussed below;

A.Natural Resources:Natural resources are one of the three main factors of production the other two

are labor and capital. Natural resources include area of land, forests, rivers, climateand mines. If a country is rich in better quality of all natural resources, it will develop

economically at a fast speed.

B.Capital Formation:It is the process of adding net physical capital stock of an economy. Capita

formation creates productive potential for future production. Capital formation has

three stages namely (1) savings, (2) financial institutions and capital market for

mobilization of savings and (3) act of investment in machinery and buildings.


11/45

P a g e | 10

C.Specialization:Output is greater as a result of specialization. Specialization enables an

economy to use its scarce resources more efficiently, thereby producing a largervolume of goods and services. It increases the rate of economic development of acountry.

D.Technology:Inventions and innovations reduce the manufacturing and distribution costs.

Technological progressiveness serves to change cost conditions in the long run; thustechnological changes play an important role in economic development.

E. Transport And Communication:Efficient communication facilities increase the production capacity of all the

sectors of the economy. It reduces cost of production, increases mobility of goodswithin & outside the country.

F. Entrepreneurship:If an entrepreneur is capable, skillful and trained then output of his

organization will be greater. Entrepreneurship results in the introduction of new typeof output, new techniques and new sources of supply of inputs for business andindustry.

Non- Economic Factors for Development:

A.Social Values & Attitudes:It includes culture, religion, and life style of people of a society. Some societies

are orthodox and do not like materials approach of life. Religion does not allow themto keep busy day in and day out for their material prosperity. Most societies believe infestivals and different cultural ceremonies. They do not prefer to save money; hencesavings rate reduces too much. In such societies material gains are not appreciatedProf. Myrdal in his book Asian Drama has said that Asian countries shouldmodernize their values for rapid Economic Development and Progress in theircountries.

B.Political Stability:Strong and stable Governments can prepare five-year development plans, canenforce monetary and fiscal policies and change social attitudes and institutions

which may be progressive one. The frequent changes in Government setup results inthe lack of concrete economic policy decisions.

C.Administrative Efficiency:Educated, trained, skillful, and hardworking Government officers can push the

development of a country at a very fast speed, whereas weak and untrainedadministration of a country retards the economic growth.


12/45

P a g e | 11

D.Economic Freedom:Private ownership of resources and maximum freedom to deploy these

resources in line with profit signals create strong incentives to work hard. Ifeverybody is allowed to participate in economic activity then due to competition therate of economic development will increase.

E. Right Of Private Property:Private ownership of the means of production results in the increase in supply

of goods and services. In order to own and accumulate profit and property, peoplework hard, thus trade and business activity flourishes.

Role of Different Fields of A Country In Economic Development AndGrowth:

It is noted that every aspect of different fields of a country have some influenceon Economic Development and Growth. In this section of report we will also take a

look on all those fields to some extent it will help us to better understand theEconomic Development and Growth of Pakistan which is discussed in the nextsection. So without wasting time lets have a look on them step by step;

A.Natural Resources:Natural resources are backbone for the industrial development of a country

These resources play a dominant role in accelerating the pace of progress andprosperity. Thus due to the availability of Natural Resources Economic development ofan economy is possible. Natural resources are divided into Minerals, Forests andHydlepower/Energy.

B.Human Resources:Human resources are second very important resource for economic

development and growth of a country. If people are educated, well trained, skillfuand healthy then they would be in a position to utilize the countrys natural resourcesin such a way that output of goods and services will enhance. There will be prosperityin the country and standard of living of masses will increase. The country will becomeprosperous and will be developing by leaps and bounds. The best example in thisregard is Japan. In Japan, natural resources are very less but Japanese are weleducated, technically highly trained and hard working. That is the reason that Japanhas developed economically. Similarly Singapore is a very small country and there areno natural resources, yet it has developed the reason is that the people are very welleducated, skillful and hardworking.

C.Capital Resources/Capital Formation:Capital formation consists of both tangible goods like plants and machinery

and intangible goods like high standards of education, health, scientific tradition andresearch. It is the process of adding to the net physical capital stock of an economy inan attempt to achieve greater total output. The rate of accumulation of an economysphysical stock of capital is an important determinant of the rate of growth of an


13/45

P a g e | 12

economy. It creates productive potential for future production. It has three stages

namely savings, existence of financial institutions and capital market for mobilization

of savings and finally act of investment in capital goods. Capital formation results in

increase in employment opportunities increase in output of goods and services and

the use of new and most modern technology. Following is the importance of capita

formation.

Importance of Capital Formation:

1.Vicious circle of poverty is broken.2.Increase in productivity.3.Market expansion.4.Increase in export earnings.5.Technological development.6.Increase in employment.7.Decrease in general price level.8.Improvement in health and education facilities.9.Increase in the pace of industrialization.

10. Increase in the economic growth rate.Capital formation results in overall improvement of economy. With the increase

in machine and equipment total output increases, hence national income increases

Increase in national income results improvement in per capita income. This increases

purchasing power and standard of living of masses. Since output of goods and

services increases, price level goes down, which in turn increases welfare of the

people? Employment opportunities also increase. Due to increase in local production

foreign imports are reduced, which in turn reduces burden on foreign exchangepayments, rather balance of payments is improved. Since capital formation is carried

on in all sectors of economy, including health, education and technical training

facilities, the work-efficiency of manpower increases. In nutshell Capital formation

quickens the pace of economic growth of the country.

InternalSources of Capital Formation:

1.Voluntary savings.2.Taxes.3.Government borrowing.4.Use of idle resources.5.Deficit financing.

External Sources of Capital Formation:

1.Foreign loans and credits.2.Foreign Grant assistance.3.Foreign Aid.


14/45

P a g e | 13

D.Agricultural Sector:Agriculture also performs a vital role in Economic Development and Growth. It

provides food i.e. wheat, rice, pulses, vegetables, fruit and other items for growing

population of the any country. If any country is rich by means of agriculture products

than it can save much of its capital resources which can be spent on to improve

Economic System of country.

Agriculture also contributes to growth as a supplier of raw materials to industry

as well as market for industrial products. Not only that a big portion of countrys work

force is employed in agriculture. Whatever happens to agriculture is bound to affect

not only countrys growth performance but to a large segment of countrys

population as well. Hence its important to have field of agriculture as good as

possible. Here are some main features of Agriculture;

Main Features of Agriculture:

1.Main source of food supply.2.Provides employment opportunities.3.Major source of national income.4.Provides raw material for industries.5.Good market for agricultural machinery and equipment.6.Market for fertilizers, pesticides and insecticides.7.Main source of foreign exchange earnings.8.Expands industrial goods market.E. Industries Sector:

Industries play a dominant role in the economic development of a country

Western countries standard of living is very high. They enjoy all comforts and luxuries

of life due to higher productivity of goods and services in their countries. This is

because of industrialization. In developed countries a very minor portion of

population relies on agriculture for their livings; for example in Britain and America

only 5% and 12 percent rely on agriculture respectively.

F. Banking And Financial Sector:Banking and financial sector is a key element of macroeconomic stability. A

weak financial sector can undermine efforts to achieve stability through prudent fisca

and monetary policies. A strong and well functioning financial and banking sector is

also critical for sustained higher economic growth. They can provide credit to those

investments that offer highest risk adjusted rates of return. For example Capita

markets play crucial role in investment promotion and economic development of a

country.


15/45

P a g e | 14

G.Transportation And Communication Sector:A strong, efficient and affordable infrastructure is a critical element of good

growth of Economic system. Same as Transport and Communications are importantelements of infrastructure services and are essential in maintaining economic growthand development. Transport includes: (1) Roads (2) Railways (3) Air transport and (4Shipping while Communications includes: (1) Post (2) Telegraph (3) Telephone (4)

Radio (5) Television and (6) Information Technology/Computer.

Importance Of Transport And Communications Can Be Judged From The FollowingFactors:

1.Helps in the expansion of internal and foreign trade.2.Increases employment opportunities.3.Increases government revenues.4.Develops unity and brotherhood among the people.5.Helps in the improvement of law and order situation.6.Stabilizes the price level.7.Reduces cost of production of goods.8.Helps in the expansion of education.9.Maintains the sound defense of the country.

10.Develops the political awareness.H.Economic Planning:

Last but not least Economic planning is the making of major economicdecisionswhat and how much is to be produced and to whom it is to be allocated bythe conscious decision of a determinate authority, on the basis of a comprehensive

survey of the economic system as a whole. Planning is a technique for achievingcertain self-defined and pre-determined goals laid down by a central planningauthority. It is a conceiving, initiating, regulating and controlling economic activity bythe State according to set priorities with a view to achieving well-defined objectiveswithin a given time. It is planning alone which can guarantee quick economic growthin under-developed countries.

Objectives of Economic Planning:

The main objectives of economic planning are as under: -

1.Increase in the rate of economic development.

2.Diversification of economy.3.Price stability.4.Higher standard of living.5.Improving the balance of payments.


16/45

P a g e | 15

OVERVIEW:

ECONOMICS OF PAKISTAN

Introduction:

As we discussed in the Section A that an economy is the system of humanactivities related to the production, distribution, exchange, and consumption ofgoods and services of a country or other area.

The composition of a given economy is inseparable from technologicalevolution, civilization's history and social organization, as well as from Earth'sgeography and ecology, e.g. eco-regions which represent different agricultural and

resource extraction opportunities, among other factors. Economy refers also to themeasure of how a country or region is progressing in terms of product.

Pakistan has a Mixed Economic System in which features of Islamic EconomicSystem, Capitalist Economic System and Socialist Economic System. Economic Systemof Pakistan there is both Public and Private sector are playing their role in EconomicDevelopment and Growth. Arrangement Zakat Fund (1980) was the first step towardsthe Islamic Economic System.

In 21st century, what we find mostly are mixed economies. Mixed economy

means that it is operated by both Private Enterprise and Public Enterprise. That is

private enterprise is not permitted to function freely and uncontrolled through the

price mechanism. On the other hand government intervenes is to control and regulate

the private enterprise in many ways. It has been realized that free functioning of

private enterprise causes several types of evils. For instance, free working of private

enterprise produces trade cycles, i.e. sometimes depression and sometimes

unemployment and at other times booms and inflationary situations. It is also realized

That in under-developed countries, like Pakistan, Economic development cannot be

achieved at the desired rate of growth without any active support and guidance of

government. Hence the government is such countries actively participates in

economic activities in order to minimize the evils of unadulterated capitalism and toaccelerate Economic Growth and Development. Thats the reason that most of the

Capitalistic Economic Systems to Mix Economic System as in all economies the role of

the State is significantly increased.

The mixed economic system, as stated above, is the mixtures of capitalismand socialism the mixed economy tries to avoid the two extremes of pure capitalismand pure socialism and the evils associated with each. In other words mixed economicsystem strikes the middle path between capitalism and socialism.


17/45

P a g e | 16

Main Features of Mixed Economic System:

Having understood the meaning of mixed economy. We are now in position tobring out the main features of the mixed economy. Following are the maincharacteristics of a mixed economy.

A.Co-Existence of The Public And Private Sector:The chief characteristics of the mixed economy are that in this economy both

Public and Private Sector function together. They co-exist. The industries of the co

exist economy are divided into two parts. In one part are the industries the

responsibility for the development of which is entitled to the State and they are owned

and managed by the state. Other industries are left under the authority and control of

Private Entrepreneurs. The private sector is free to developed them and start new

enterprises in this sector. Generally the heavy and basic industries like the industries

manufacturing defense equipment, atomic energy like SUPARCO, heavy engineering

industries like Steel Mills, etc, are dealt by public sector. On the other side of picture

the consumers goods industries, textile and leather goods industries, small andcottage industries, etc, are generally assigned to the private sector. On the contrary

government helps and encourages the private sector by providing them different

subsidies, incentives and facilities so that these industries can be able to develop

properly and play their role efficiently in the development of economy of state.

B.Role of Price System And Government Directions:Another characteristic of mixed economy is that it is operated by the both price

system and government directives. So far as the public sector is concerned with theeconomic decision relating to production, price and investment are made by the

government or authorities appointed by the government. But the private sector isoperated through the price-mechanism. In other words the industries in the privatesector, the decisions regarding investment, production, prices etc, are made byprivate entrepreneurs-capitalists and industrialist-with the object of making maximumprofits on the basis of the price system. It is clear in the mixed economy theallocation of productive resources is partly determined by the price system and partlyby the government directives.

C.Government Regulations And Control Of Private Sector:In the mixed economy government adopts necessary measures to regulate and

influence the private sector, so that it may function in the interest of the nation ratherthan in the exclusively in the interest of entrepreneurs. For this purpose government

introduced the licensing system according to which government approval or license is

vital for setting up a factory. If the government consider that in the certain industry

there is already heavy investments or excess capacity, no new license are issued for

setting up factory in that industry. Hence licensing system is an instrument by which

government regulates and controls the investments and outputs. The government can

also control the private sector via Fiscal and Monetary Policies.


18/45


19/45

P a g e | 18

foreign investment and renewed access to global markets, have generated solidmacroeconomic recovery the last decade. Substantial macroeconomic reforms since2000, most notably at privatizing the banking sector have helped the economy.Pakistan has seen a growing middle class population since then and poverty levelshave decreased by 10% since 2001. GDP growth, spurred by gains in the industriaand service sectors, remained in the 6-8% range in 2004-06. In 2005, the World Banknamed Pakistan the top reformer in its region and in the top 10 reformers globally.

The salient features of Pakistans economic history are:

Pakistan is self sufficient in most food production. Per capita incomes have expanded more than six-fold in US Dollar terms. Pakistan has emerged as one of the leading and successful producers of

cotton and cotton textiles. Pakistan has developed a highly diversified base of manufactured

products for domestic and world markets. Physical infrastructure network has expanded with a vast network of gas,

power, roads and highways, ports and telecommunication facilities.

Pakistan was a very poor and predominantly agricultural country when it gainedindependence in 1947. Pakistan's average economic growth rate since independencehas been higher than the average growth rate of the world economy during theperiod. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s withsignificantly lower growth in the second half of that decade. Industrial-sector growth,including manufacturing, was also above average. In the late 1960s Pakistan was seenas a model of economic development around the world, and there was much praisefor its economic progression. Later, economic mismanagement in general, and fiscallyimprudent economic policies in particular, caused a large increase in the country's

public debt and led to slower growth in the 1990s.However condition improvedgradually after 2000.1

Figures A2

and B3

1. Calculated from World Bank, World Development Indicators 2009.

2. Pakistan Economic Survey, several issues.

3. World Development Indicators, 2009.


20/45

P a g e | 19

Economic Resilience:

Historically, Pakistan's overall economic output (GDP) has grown every yearsince a 1951 recession. Despite this record of sustained growth, Pakistan's economyhad, until a few years ago, been characterized as unstable and highly vulnerable toexternal and internal shocks. However, the economy proved to be unexpectedlyresilient in the face of multiple adverse events concentrated into a four-year period

The Asian financial crisis; Economic sanctions-according to Colin Powell, Pakistan was "sanctioned to

the eyeballs"

Global recession; Severe rioting in the port city of Karachi; A severe drought-the worst in Pakistan's history, lasting four years; Heightened perceptions of risk as a result of military tensions with India

with as many as a million troops on the border, and predictions of

impending (potentially nuclear) war;

The post-9/11 military action in neighboring Afghanistan, with a massiveinflux of refugees from that country;

The 2005 Pakistan earthquake;Despite these adverse events, Pakistan's economy kept growing, and economic

growth accelerated 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.

Recent Economic History:

Pakistan's economic outlook has brightened in recent years in conjunction with

rapid economic growth and a dramatic improvement in its foreign exchange position

as a result of its current account surplus and a consequent rapid growth in hard

currency reserves. The state-owned firm in early 2002 signed agreements with five

international telecom companies for terminating additional international incomingtraffic to capture the grey market by using voice over Internet protocol technology

from the US and Europe into Pakistan. The conditionality of the IMF program, which

was suspended in July 1999 & resumed later during the administration of

Government. Having improved its finances, Pakistan's government announced in 2004

that it would no longer require IMF assistance, and the assistance program ended in

that year. With accelerating economic growth, economists are now emphasizing a

different range of problems.


21/45

P a g e | 20

According to Ahmed Rashid, the World Bank Country Director for Pakistan,

"Now Pakistan faces higher quality problemsthe problems of success.

Demand has risen faster than supply. This has shown up in high inflation and a

zooming trade deficit. The tight fiscal, easy money formula to get growth going

needs to be tight fiscal, tight money and credit to sustain rapid growth. Idle

domestic production capacity allowed the rising demand to be accommodated byrising capacity utilization in cement, steel, fertilizer, textiles, automobiles and

motorcycles. Now that capacity is more than fully utilized, resulting in backlogs

and imports."2

Government economic agenda continues to include measures to widen the tax

net, privatize public sector assets, and improve its balance of trade. Pakistan has

made governance reforms, privatization, and deregulation the cornerstones of its

economic revival. The Economic Survey of Pakistan for 2006-2007 has concluded the

country's economy recorded 7.3 percent growth, Prime Minister said that Pakistan's

economy should continue to grow every year at about seven percent and he alsoassured that many measures will be taken to give the economy a further boost. He

promised privatization of companies and he also invested in the economy by allowing

free education for under 16's and also came up with a scheme to pay students two

hundred rupees a month as an incentive to attend school. Also in the next five years

many foreign universities from different European nations have announced they will

be opening campuses in Pakistan.

Figures C and D4

4. Pakistan Economic Survey (2008-09: 6-7). Social and Economic Indicators, Pakistan Economic Survey (2008-09)

http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf. Pakistan Economic Survey (2008-09: 11-13)

Also see Pakistan Economic Survey - Statistical Appendix (2007- 08: 2). Social and Economic Indicators, Pakistan

Economic Survey (2008-09).http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf
http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf.http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdfhttp://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdfhttp://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdfhttp://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdfhttp://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf.


22/45

P a g e | 21

Structure of Pakistan's Economy:

From modest beginnings, Pakistani economy has moved successfully to a low

inflation high-growth trajectory since 2000. The central bank has controlled inflation

at around 3% per annum in recent years - a record since 1980.Over 1,081 patent

applications were filed by non-resident Pakistanis in 2004 revealing a new-found

confidence. Agriculture accounted for about 53% of GDP in 1947. While per-capitaagricultural output has grown since then, it has been outpaced by the growth of the

non-agricultural sectors, and the share of agriculture has dropped to roughly one-fifth

of Pakistan's economy. In recent years, the country has seen rapid growth in

industries (such as apparel, textiles, and cement) and services (such as

telecommunications, transportation, advertising, and finance).

3

1.Agricultural Sector:Agriculture is backbone and the largest sector of Pakistans economy, which

plays a very important role in its development. It provides food i.e. wheat, rice,pulses, vegetables, fruit and other items for growing population of the country. Nearly

22 percent of total output i.e. GDP, and 44.8 percent of total employment is

generated in agriculture. It also contributes substantially to Pakistans exports.

Agriculture also contributes to growth as a supplier of raw materials to industry

as well as market for industrial products. Not only that 44.8 % of countrys work force

is employed in agriculture but also 65.9 percent of countrys population living in rura

areas is directly or indirectly linked with agriculture for their livelihood. Whatever

happens to agriculture is bound to affect not only countrys growth performance but

to a large segment of countrys population as well.

It employs 30 percent of countrys work force. Countrys 67% population lives

in villages. It contributes about 25 percent to GDP5. It provides raw material such as

cotton, sugarcane, tobacco, cottonseed, edible oil seeds, citrus fruits, leather, wool,

paper pulp, wood and other items for various industries. Major crops accounting for

35.2% of value added in agriculture, registered a decline of 3.6 percent as production

of two of the four major crops, namely cotton and sugarcane has been significantly

less for a variety of reasons including excessive rains at the time of sowing, high

temperature at flowering stage, late harvesting of wheat crop, strong effect (cotton)

and incidence of frost, damaging sugarcane crop in the month of January 2006.

5. See Pakistan Economic Survey (2007-08: 184-186 and 198). Social and Economic Indicators, Pakistan Economic Survey

(2008-09). http://www.finance.gov.pk/survey/survey%202008-09/Indicator.pdf.
http://www.finance.gov.pk/survey/survey%202008-09/Indicator.pdf.http://www.finance.gov.pk/survey/survey%202008-09/Indicator.pdf.http://www.finance.gov.pk/survey/survey%202008-09/Indicator.pdf.


23/45

P a g e | 22

Pakistan is one of the world's largest producers and suppliers of the following

according to the 2005 Food and Agriculture Organization of The United Nations and

FAOSTAT given here with ranking:

Pakistan ranks fifth in the Muslim world and twentieth worldwide in farm

output. It is the world's fifth largest milk producer.

Pakistan's principal natural resources are arable land and water. About 25% of

Pakistan's total land area is under cultivation and is watered by one of the largestirrigation systems in the world. Pakistan irrigates three times more acres than Russia.

Agriculture accounts for about 23% of GDP and employs about 44% of the labor force.

The most important crops are wheat, sugarcane, cotton, and rice, which together

account for more than 75% of the value of total crop output.

Pakistan's largest food crop is wheat. In 2005, Pakistan produced 21,591,400

metric tons of wheat, more than all of Africa (20,304,585 metric tons) and nearly as

much as all of South America (24,557,784 metric tons).The economic importance of

agriculture has declined since independence, when its share of GDP was around 53%.

Following the poor harvest of 1993, the government introduced agriculture

assistance policies, including increased support prices for many agricultura

commodities and expanded availability of agricultural credit. From 1993 to 1997, rea

growth in the agricultural sector averaged 5.7% but has since declined to about 4%

Agricultural reforms, including increased wheat and oilseed production, play a centra

role in the government's economic reform package.

A.Livestock:Livestock plays an important role in the economy of the country. Livestock

sector contributed approximately 53.2 percent of the agriculture value added and

11.4 percent to national GDP during 2009-10. While other development sector

experienced saturation and decline there has been an increase in livestock sector in

2009-10. Gross value addition of livestock at current factor cost has increased from

Rs. 1304.6 billion (2008-09) to Rs. 1537.5 billion (2009-10) showing an increase of

17.8% as compared to previous year.

Agricultural Product Rank Agricultural Product Rank

Chickpea Second Tangerine & Clementine Eight

Apricot Fourth Sugarcane FourthCotton Fourth Date Palm Sixth

Onion Fifth Oranges TenthMilk Fifth Mango Seventh

Rice Eight Wheat Ninth


24/45

P a g e | 23

The population growth, increase in per capita income and export revenue is

fueling the demand of livestock & livestock products. In order to speed up the pace of

development in livestock sector, The Ministry of Livestock & Dairy Development was

created as a part of Reform Agenda and political commitment of Government to

improve service delivery, reduce poverty, achieve sustainable economic growth and

expand opportunities to address the needs of livestock rural farmers and to protect

the livelihood concerns of rural community.

According to the Economic Survey of Pakistan, the livestock sector contributesabout half of the value added in the agriculture sector, amounting to nearly 11 percent of Pakistan's GDP, which is more than the crop sector. The leading dailynewspaper Jang reports that the national herd consists of 24.2 million cattle, 26.3million buffaloes, 24.9 million sheep, 56.7 million goats and 0.8 million camels. Inaddition to these there is a vibrant poultry sector in the country with more than 530million birds produced annually. These animals produce 29.472 million tons of milk(making Pakistan the 5th largest producer of milk in the world), 1.115 million tons ofbeef, 0.740 million tons of mutton, 0.416 million tons of poultry meat, 8.528 billion

eggs, 40.2 thousand tons of wool, 21.5 thousand tons of hair and 51.2 million skinsand hides. The Food and Agriculture Organization reported in June 2006 that inPakistan, the world's fifth largest milk producing country, government initiatives arebeing undertaken to modernize milk collection and to improve milk and milk productstorage capacity.

The Federal Bureau of Statistics provisionally valued this sector at Rs.758,470million in 2005 thus registering over 70% growth since 2000.

B.Fishery:Fishery plays an important role in Pakistans economy and is considered to be a

source of livelihood for the coastal inhabitants. A part from marine fisheries, inlandfisheries (based in river, lakes, ponds, dams etc.) is also very important activitythroughout the country. Fisheries share in GDP although very little but it addssubstantially to the national income through export earnings. During the year 200809, a total of 134,000 million tons of fish and fishery products were exported earningUS$ 236 million. Government of Pakistan is taking a number of fruitful steps toimprove fisheries sector which include inter alia strengthening of extension services,introduction of new fishing methodologies, increased production throughaquaculture, development of value added products, enhancement of per capitaconsumption of fish, up-gradation of socio-economic conditions of the fishermens

community.

Marine Fisheries Department is executing two development projects i.e. the

project Stock assessment survey programmed in EEZ of Pakistan through chartering

Research vessel and capacity building of Marine Fisheries Department is aimed to

charter a suitable vessel of conducting stock assessment resource surveys in the

coastal and offshore waters of Pakistan, including Exclusive Economic Zone. The

project is also aimed to strengthen Marine Fisheries Department by capacity building


25/45

P a g e | 24

to conduct resource survey and stock assessment on regular basis and to

development management strategy for the fish exploitation and utilization. For this

purposes Iranian research vessel was chartered and first trip of stock assessment

survey was undertaken during 30th October to 7th November 2009. The data

collected during the survey have been analyzed and cruise report has been prepared

and submitted to concerned agencies.

Two other projects i.e. Accreditations of quality control laboratories of Marine

Fisheries Department and Establishment of Integrated National Animal and Plant

Health Inspection Service (NAPHIS) (MFD component), are also being implemented to

provide improved quality control services to the seafood export industry. These two

projects are aimed to get the laboratories of the Marine Fisheries Department

accredited with international bodies and meet the requirements of ISO 17025. It also

aimed to improve the human resources capabilities of the department by inducting

trained manpower and also to provide training to existing staff and officers.

Microbiological and Chemical Laboratories were Accredited by the Norwegian

Accreditation Agency under ISO/IEC-17025 will now be got accredited from P.N.A.C.

A hatchery complex was established under the auspices of a development

project entitled Established of hatchery complex for production of seeds of fish and

shrimps in 2001 is being renovated from funds provided by Fisheries

Development Board. The renovation work will be completed by December 2010.

During the period July-March 2009-10 the total marine and inland fish

production was estimated 952,735 Million tons out which 667,762 Million tons was

marine production and the remaining catch come from inland waters. Whereas the

Production for the July-March 2008-09 was estimated to be 914,141 Million tons in

which 660,141 Million tons was for marine and the remaining was produced by inland

fishery sector. There is an increase of 1.3% in the quantity compared to the last year.

The major fish harbors of Pakistan are;

Karachi Fisheries Harbor is being operated by Provincial Government ofSindh.

Karachi Fish Harbor handles about 90% of fish and seafood catch inPakistan and 95% of fish and seafood exports from Pakistan.

Korangi Fish Harbor is being managed by Federal Ministry of Food,Agriculture and Livestock.

Pasni Fish Harbor being operated by Provincial Government of Balochistan. Gwadar Fish Harbor being operated by Federal Ministry of Communication.


26/45

P a g e | 25

Recent Performance in Agricultural Growth6

C.Forestry:Forests are crucial for the well being of humanity. They provide foundations

of life on earth through technological functions, by regulating the climate and

water resources and by serving as habitats for plants and animals. Forests also

furnish a wide range of essential goods such as wood, food fodder and medicines in

addition to opportunities for recreation, and other services. Forests are under

pressure for expanding human and livestock populations with frequently leads to

conversion or degradations of forests into unsustainable forms of land use.

When forests are lost or severely degraded, their capacity to function as regulators of

the environment is also lost, increasing floods and erosion hazards, reducing

soil fertility and contributing to the loss of plant and animal life. Under MillenniumDevelopment Goals of Forestry sector, Pakistan is committed to increase forest cover

from existing 5.2 percent to 5.7 percent by the year 2011 and 6 percent by the year

2015. An increase of 1 percent implies that an additional 1.051 million hectares area

has to be brought under forest cover by 2015. There is shortage of forests in Pakistan

Pakistan has 4.01 million hectares covered by forests, which is about 5 percent of the

total land area. Eighty-five percent of this is a public forest, which includes 40 percent

coniferous and scrub forests on the northern hills and mountains. The balance is

made up if irrigated plantations and River-ain forests along major rivers on Indus

plains, mangrove forests on the Indus delta and trees planted on farmlands. Though

the forest resources are meager, it plays an important role in Pakistans economy by

employing half a million people and fulfills one-third of the nations energy needs

Forest and Rangelands support about 30 million herds of livestock. Total forests area

of Punjab, NWFP, Sindh and Balochistan is 0.48, 1.33, 0.84 and 1.36 million hectares

respectively.4

6. Federal Bureau of Statistics.

Year Agriculture Major Crops Minor Crops Livestock Fishery Forestry

200304 2.4 1.7 3.9 2.9 3.0 (3.2)200405 6.5 17.7 1.5 2.3 0.6 (32.4)2005

06 6.3 (3.9) 0.4 15.8 20.8 (1.1)

200607 4.1 7.7 (1.0) 2.8 15.4 (5.1)200708 1.0 (6.4) 10.9 4.2 9.2 (13.0)200809 4.0 7.3 (1.7) 3.5 2.3 (3.0)200910 2.0 (0.2) (1.2) 4.1 1.4 2.2

N.B.Amounts in braces are negative in value


27/45

P a g e | 26

The Federal Bureau of Statistics provisionally valued this sector at Rs.25,637

million in 2005 thus registering over 3% decline since 2000.

Pakistan ranks forty-first in the world and fifty-fifth worldwide in factory output

Pakistans industrial sector accounts for about 24% of GDP. Cotton textile production

and apparel manufacturing are Pakistan's largest industries, accounting for about 66%

of the merchandise exports and almost 40% of the employed labor force. Other majorindustries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals,

machinery, and food processing. The government is privatizing large-scale semi-

public units, and the public sector accounts for a shrinking proportion of industria

output, while growth in overall industrial output (including the private sector) has

accelerated. Government policies aim to diversify the country's industrial base and

bolster export industries.

2.Industry Sector:The Federal Bureau of Statistics provisionally valued this sector at Rs.18,290

million in 2005 thus registering over 10% growth since 2000.

A.Fuel Extraction Industry:Pakistan's first oil field was discovered in the late 1952 in Baluchistan near a

giant gas field at Sui in Balochistan. The Toot oilfield was discovered in the early

1960's the Islamabad in the Punjab. Production has steadily increased since then

Pakistan's first gas field was the giant gas field at Sui in Balochistan which was

discovered in the late 1952.Pakistan is also a major producer of Bituminous coal, Sub-

bituminous coal and Lignite. Coal mining started in the British colonial era and has

continued to be used by Pakistani industries after independence in 1947. Pakistan

produced about 45 tons of Uranium in 2006.

B.Mining And Quarrying:Important minerals found in Pakistan are gypsum, limestone, chromites, iron

ore, rock salt, silver, gold, precious stones, gems, marble, copper, coal, graphite

sulphurate, fire clay, silica. The salt range in Punjab Province has large deposits of

pure salt. Balochistan province is a mineral rich area having substantial mineral, oiland gas reserves which have not been exploited to their full capacity. The province

has significant quantities of copper, chromate and iron, and pockets of antimony and

zinc in the south and gold in the far west. Natural gas was discovered near Sui in

1952, and the province has been gradually developing its oil and gas projects over

the past fifty years. Major reserves of copper and gold in Baluchistans Rekodeck area

have been discovered in early 2006. The Rekodeck mining area has proven estimated

reserves of 2 billion tons of copper and 20 million ounces of gold. According to the

current market price, the value of the deposits has been estimated at about $65


28/45

P a g e | 27

billion, which would generate thousands of jobs. The discovery has ranked Rekodeck

among the world's top seven copper reserves. The Rekodeck project is estimated to

produce 200,000 tons of copper and 400,000 ounces of gold per year, at an

estimated value of $1.25 billion at current market prices. The copper and gold are

currently traded at about $5,000 per ton and $600 per ounce respectively in the

international market. North West Frontier Province accounts for at least 78% of the

marble production in Pakistan. The Federal Bureau of Statistics provisionally valuedthis sector at Rs.211,851 million in 2005 thus registering over 99% growth since

2000.

C.Electricity, Gas And Water Supply:Pakistan has extensive energy resources, including fairly sizable natural gas

reserves, some proven oil reserves, coal (Pakistan has the fourth-largest coal reserves

in the world), and a large hydropower potential. However, the exploitation of energy

resources has been slow due to a shortage of capital and domestic politica

constraints. Domestic petroleum production totals only about half the country's oineeds, and the need to import oil has contributed to Pakistan's trade deficits and past

shortages of foreign exchange. The current government has announced that

privatization in the oil and gas sector is a priority, as is the substitution of indigenous

gas for imported oil, especially in the production of power. Pakistan is a world leader

in the use of compressed natural gas (CNG) for personal automobiles.

The short-term national energy demand has expanded significantly since 2001

due to massive rise in sales of durable goods like refrigerators, washing machines

split air conditioners, et al. In 2004, Access Group International announced plans to

invest $1 billion over the next 5 years in solar cell manufacture and wind farms. MOUs

have been signed with Alternate Energy Development Board. In early 2005, the

government approved a 25-year Energy Security Plan to boost electric capacity

eightfold. The Canadian conglomerate Cathy Oil and Gas signed a memorandum of

understanding in late 2006 to invest $5 billion in oil and gas exploration,

development, production and commercialization in Pakistan. The World Bank

estimates that it takes about 32 days only to get an electrical connection in Pakistan.



3.Services Sector:Pakistan's service sector accounts for about 53.3% of GDP. Transport, storage

communications, finance, and insurance account for 24% of this sector, and wholesale

and retail trade about 30%. Pakistan is trying to promote the information industry and

other modern service industries through incentives such as long-term tax holidays.

The government is acutely conscious of the immense job growth opportunities in


29/45

P a g e | 28

service sector and has launched aggressive privatization of telecommunications,

utilities and banking despite union unrest.

A.Transport, Storage And Communication:Pakistan Telecommunication Company Ltd has emerged as a successful Forbes

2000 conglomerate with over $1 billion in sales in 2005. Cell phone market has

exploded almost fourteen fold since 2000 to reach a subscriber base of over 60

million in 2007. In addition, there are over 6 million landlines in the country. As a

result, Pakistan won the prestigious Government Leadership award of GSM

Association in 2006.The World Bank estimates that it takes about 50 days only to get

a phone connection in Pakistan.

In Pakistan, following are the top mobile phone operators:

Mobilink Ufone Telenor Warid Paktel(recently been acquired by China Mobile for US$ 450 million)

The cellular base in Pakistan is growing at around 14% per year and already thecellular customer has outpaced the fixed line customers. Wireless revolution hasswept Pakistan, and competition among the mobile operators is pulling the pricesdown. Its as cheap as Rs.2 to call to USA per minutes (that is 3 -4 cents per minutes)

Sony Ericsson, Nokia and Motorola along with Samsung and LG remain to be thepopular brands among customers. Though Nokia has a strong market presence thishas been somewhat taken over by Sony Ericsson, through aggressive marketing andadvertisement. Pakistan is on the verge of Telecom revolution and it is by far the mostattracted sector in Pakistan in terms of Foreign Direct investment coming in Pakistan.It s estimated alone that this year 2006-07, FDI attracted by Telecom will be US$ 2Billion out of the total FDI of US$ 6 Billion, the highest in Pakistan history. PakistanInternational Airlines, the flagship airline of Pakistan's civil aviation industry, hasturnover exceeding $1 billion in 2005. The government announced a new shippingpolicy in 2006 permitting banks and financial institutions to mortgage ships. Amassive rehabilitation plan worth $1 billion over 5 years for Pakistan Railways hasbeen announced by the government in 2005.

Private sector airlines in Pakistan include Airblue, Aeroasia and Shaheen Air

International. Many private airlines are in pipeline including Air Mahreq, Dewan Air

and Pearl Air.Airblue is using the state of the art A-320 and A-321 aircraft for flying

across Pakistan and will soon commence UK operation. Airblue has recently ordered 6

New A-321 aircraft, while 2 aircraft will be taken on lease which will be added to the

existing fleet of 4-5 aircraft, making it the second biggest fleet behind PIA which has

42 aircraft.


30/45

P a g e | 29

The Government of Pakistan has, over the last few years, granted numerous

incentives to technology companies wishing to do business in Pakistan. A

combination of decade-plus tax holidays, zero duties on computer imports

government incentives for venture capital and a variety of programs for subsidizing

technical education, are intended to give impetus to the nascent Information

Technology industry. This in recent years has resulted in impressive growth in that

sector. Pakistan saw an increase in IT export cash inflows of 50% from 2003-4 to2004-5, with total export cash inflows standing at $48.5 million. In 2005-6 export

cash inflows increased to greater than $73 million. This year the government has set

a goal of $108 million. Exports account for 11% of the total revenues of the IT sector

in Pakistan. Compared to India, Pakistan's IT sector is relatively small, but recent

growth has been extremely high leading economists to be optimistic about the IT

industrys future prospects in Pakistan. Gartner, one of the worlds leading

information technology research and advisory companies has placed Pakistan

amongst the top countries of the world in terms of suitability for offshore

outsourcing.

Paging and mobile (cellular) telephone were adopted early and freely. Cellular

phones and the Internet were adopted through a rather laissez-faire policy with a

proliferation of private service providers that led to fast adoption. Both have taken off

and in the last few years of the 1990s and first few years of the 2000s. With a rapid

increase in the number of internet users and ISPs, and a large English-speaking

population, Pakistani society has seen major changes.

Pakistan has more than 20 million internet users as of 2005. The country

is said to have a potential to absorb up to 50 million mobile phone Internetusers in the next 5 years thus a potential of nearly 1 million connections per

month.

Almost all of the main government departments, organizations and

institutions have their own websites.

The use of search engines and instant messaging services is also

booming. Pakistanis are some of the most ardent chatters on the Internet,

communicating with users all over the world. Recent years have seen a huge

increase in the use of online marriage services, for example, leading to a major

re-alignment of the tradition of arranged marriages.

As of 2007 there were 6 cell phone companies operating in the country

with nearly 60 million mobile phone users in the country.

Wireless local loop and the landline telephony sector has also been

liberalized and private sector has entered thus increasing the teledensity rate

from less than 3% to more than 10% in span of two years.




31/45

P a g e | 30

Figures E and F7

B. Finance and Insurance:A reduction in the fiscal deficit has resulted in less government borrowing in

the domestic money market, lower interest rates, and an expansion in private sectorlending to businesses and consumers. Foreign exchange reserves continued to reachnew levels in 2003, supported by robust export growth and steady workerremittances. Credit card market continued its strong growth with sales crossing the 1million mark in mid-2005.

C.Investment:Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-on-

year to US$2.22 billion and portfolio investment by 276 percent to $407.4 millionduring the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP)reported on April 24. During July-March 2005-06, FDI year-on-year increased to$2.224 billion from only $792.6 million and portfolio investment to $407.4 millionwhereas it was $108.1 million in the corresponding period last year, according to thelatest statistics released by the State Bank Pakistan has achieved FDI of almost $7billion in the financial year 06/07, surpassing the government target of $4 billion.Pakistan is now the most investment-friendly nation in South Asia. Businessregulations have been profoundly overhauled along liberal lines, especially since

1999. Most barriers to the flow of capital and international direct investment havebeen removed. Foreign investors do not face any restrictions on the inflow of capital,and investment of up to 100% of equity participation is allowed in most sectors (locapartners must be brought in within 5 years and contribute up to 40% of the equity inthe services and agriculture sectors). Unlimited remittance of profits, dividends,service fees or capital is now the rule. Business regulations are now among the mostliberal in the region. This was confirmed by a World Bank report published in late2006 ranking Pakistan (at 74th) well ahead of neighbors like China (at 93rd) and India(at 134th) based on ease of doing business.


32/45

P a g e | 31

D.Foreign Trade:Pakistan is member of the World Trade Organization, and has bilateral and

multilateral trade agreements with many nations and international organizations.

Fluctuating world demand for its exports, domestic political uncertainty, and the

impact of occasional droughts on its agricultural production have all contributed to

variability in Pakistan's trade deficit. In the six months to December 2003, Pakistan

recorded a current account surplus of $1.761 billion, roughly 5% of GDP. Pakistan's

exports continue to be dominated by cotton textiles and apparel, despite government

diversification efforts. Exports grew by 19.1% in FY 2002-03. Major imports include

petroleum and petroleum products, edible oil, chemicals, fertilizer, capital goods,

industrial raw materials, and consumer products. While the country has a current

account surplus and both imports and exports have grown rapidly in recent years, it

still has a large merchandise-trade deficit. The budget deficit in fiscal year 2004-2005

was 3.4% of GDP. The budget deficit in fiscal year 2005-06 is expected to be over 4%

of GDP. Economists believe that the soaring trade deficit would have an adverse

impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 RupeesMarch 2006) and other currencies.

E. Exports:Pakistan's exports at $17.011 billion in the financial year 2006-2007, up by 3.4

percent from last year's exports of $16.451 billion. Pakistan exports rice, furniturecotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods(renowned for footballs/soccer balls), surgical instruments, electrical appliances,software, carpets, and rugs, ice cream, livestock meat, chicken, powdered milk,wheat, seafood (especially shrimp/prawns), vegetables, processed food items

Pakistani assembled Suzukis (to Afghanistan and other countries), defenseequipment (submarines, tanks, radars), salt, marble, onyx, engineering goods, andmany other items. Pakistan now is being very well recognized for producing andexporting cements in Asia and Mid-East. Starting August 2007, Pakistan will beexporting Cement to India.5

F. Imports:Pakistan's imports stood at $30.54 billion in the financial year 2006-2007, up

by 8.22 percent from last year's imports of $28.58 billion. Pakistans single largestimport category is petroleum and petroleum products. Other imports include

industrial machinery, construction machinery, trucks, automobiles, computerscomputer parts, medicines, pharmaceutical products, food items, civilian aircraftdefense equipment, iron, steel, toys, electronics, and other consumer items.

7. Pakistan Economic Survey (2008-09: 11-13). Social and Economic Indicators, Pakistan Economic Survey (2008-09)

http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf. Pakistan Economic Survey (2008-09: 11-13)

Also see Pakistan Economic Survey - Statistical Appendix (2007-08: 2). Social and Economic Indicators, Pakistan Economic

Survey (2008-09).http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf1

8. Pakistan Economic Survey (2008-09) and Statistical Appendix (2008-09: 2). Also see Economic Survey - Statistica

Supplement. www.finance.gov.pk/finance_survey_chapter.aspx?id=20
http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf.http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf1http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf1http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf1http://www.finance.gov.pk/finance_survey_chapter.aspx?id=20http://www.finance.gov.pk/finance_survey_chapter.aspx?id=20http://www.finance.gov.pk/finance_survey_chapter.aspx?id=20http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf1http://www.finance.gov.pk/survey/survey%20percent202008-09/Indicator.pdf.


33/45

P a g e | 32

Sales tax is levied at 15 percent both on imports and domestically producedproducts. The income withholding tax is levied at 6 percent on imports and at 3.5percent on the sales of domestic taxpayers.

Figures G, H8

Figures I and J

Recent Structural Reforms:

A.Privatization, Deregulation, Liberalization:The Government actively pursued an aggressive and transparent privatization

plan whose thrust was sale of assets in the oil and gas industry as well as in thebanking, telecommunications and energy sectors, to strategic investors, with foreigninvestors encouraged to participate in the privatization process. This plan wasfollowed by the elected Government under Prime Minister.


34/45

P a g e | 33

To demonstrate the seriousness of the government in encouraging foreigninvestment flows in Pakistan; there has been a major and perceptible. Liberalization offoreign exchange regime. Foreign investors can now bring in and take back theircapital, remit profits, dividends and fees etc., without any restrictions.

Foreign Portfolio Investors (FPI) can also enter and exit the market without any

restrictions or prior approvals. In the Karachi Stock Exchange with a market

capitalization of US$33 billion, over 650 listed companies showed average returns of15 per cent that were higher than those in most emerging countries. This makes

Pakistan an attractive place to invest for foreign portfolio investors. As part of this

liberalization, non-residents and residents are allowed to maintain and operate

foreign currency deposit accounts, and a market-based exchange rate in the inter

bank market is at work.

The financial sector too, has been restructured and opened up to competition.

Foreign and domestic private banks currently operating in Pakistan have been able to

increase their market share to more than 80 percent of assets and deposits. The

interest rate structure has been deregulated and monetary policy uses indirect tools

such as open market operations, discount rates etc.

Domestic interest rates on lending have dropped to as low as 5 percent from 20

percent substantially reducing financial costs of businesses. Central to the economic

reforms process has been a clear progression towards deregulation of the economy

Prices of petroleum products, gas, energy, agricultural commodities and other key

inputs are determined by market. Imports and domestic marketing of petroleum

products have been deregulated and opened up to the private sector. The markets do

not always function effectively. Independent regulatory agencies have been set up toprotect the interests of consumers and end-users of utilities and public services.

B.Tax Reforms:Taxation reform has figured prominently on the government's agenda, as the is

another area where the business community has innumerable grievances and

dissatisfaction with the arbitrary nature of tax administration. Tax reforms are aimed

at broadening the tax base, bringing in tax evaders under the tax net, minimizing

personal interaction between tax payer and tax collector, eliminating the multiplicity

of taxes and ultimately reducing the tax rate over time. A massive survey anddocumentation drive was undertaken to widen the tax base, extend incidence to all

sectors of the economy and develop the data for purposes of assessment. Universa

self assessment system has been introduced for tax collection whereby the returns

submitted by the tax payers are taken as final settlement of their tax liabilities. Only a

random sample of returns is picked up for audit. This system has been welcomed by

the tax payers. The Central Board of Revenue (CBR) is being restructured to improve

tax administration including tax payer facilitation.


35/45

P a g e | 34

C.Financial Sector Reforms:Financial sector has made the farthest progress by transforming itself into a

market oriented, private sector dominated sector performing efficient intermediationThe regulatory and supervision functions of the State Bank of Pakistan have beensignificantly strengthened, and strict enforcement of prudential regulations have ledto widespread recapitalization and a consequent improvement in the efficiency and

profitability of banking system. More than 80 percent of banking assets are nowowned and managed by the private sector. The ratio of net Non-Performing Loans(NPLs) to total advances in Pakistan has been brought down to less than 5 percentthrough a variety of strategic measures. An asset management company, theCorporate and Industrial Restructuring Corporation (CIRC), has taken over a largevolume of non-performing loans of NCBs and DFIs at a discount and disposed themoff to third party buyers. Development Financial Institutions (DFIs) have beenrestructured through mergers and acquisitions, closure, liquidation andreorganization. Auction of Pakistan Investment Bond (PIB) for tenures of five to tenyears government paper and a burgeoning corporate bond market has begun toemerge bringing together long term institutional investors and borrowers interested

in long term sources of financing.

Figures K, L, M and N


36/45

P a g e | 35

The Stand-By Arrangement (SBA) with the IMF helped restore confidence. Underthe current macroeconomic stabilization strategy as agreed with the IMF, thegovernment is expected to maintain tight monetary policy, reduce import tariffs,curtail public expenditures and reduce the fiscal deficit. Key economic indicatorssummarized below show that stabilization is working but it needs to be consolidated

to support continuous improvement in economic growth.9

Low but Positive Growth.GDP growth is expected to be between 3-3.5 percent for FY2009-10

10the

agriculture sector is showing signs of healthy growth supported by good cotton cropLarge Scale Manufacturing (LSM) is also showing signs of recovery as it expanded by7% in November 2009 compared to a 20 percent contraction March 2009.

Inflation Has Moderated But Is Still Very High.Inflation declined from 25.3 percent in August 2008 to 15 percent in December

2009. SBP expects it to settle between 11 and 12 percent during FY2009-1011

.

Trade Balance.The trade deficit declined to US$8.4 billion during July-January of FY2009-10

compared to US$10.2 during the same period of the prior year12. Despite difficulteconomic conditions, exports are expected to reach US$19 billion during FY2009-10.Textile and apparel exports are expected to pick up momentum due to a good cottonharvest. Imports are estimated to decline by 3.2 percent to reach US$30.7 billionduring FY2009-10 leading to a substantial commercial trade deficit.

Shrinking Current Account Deficit.Strong remittances and a decline in imports contributed to a reduction in the

current account deficit to US$2.5 billion during July-January of FY-2009-10 from

US$8.1 billion over the same period in the prior year13. The current account deficit isexpected to settle between 3.7 to 4.7 percent of GDP in FY2009-10 against 8.4

percent during FY2008-0914. During the first half of FY2009-10, workers' remittancesincreased by 25 percent to reach US$4.5 billion compared to US$3.6 billion in sameperiod in FY2008-09. These trends are expected to continue throughout the currentfiscal year.6

9. Economic Review of July-February 2008-09 by Ministry of Finance revealed that recent trends in most macroeconomic variables

suggest that the disciplined implementation of the macroeconomic stabilization program is paying dividends.

http://www.finance.gov.pk/finance_blog/wp-content/uploads/ReviewEconomy-Jul-Feb.pdf.

According to the Ministry of Finance by February 2009, early signs of improvement in economic variables such as inflation, foreign

exchange reserves, import growth, and government borrowings from the SBP are evident.

10.See Dawn, 28 January, 2010,

11. The SBP commented the inflation outlook is sensitive to fiscal consolidation efforts and to world commodity prices. Already

announced and planned electricity tariff increments and higher gas prices will also affect inflation. Added to these developments are

the difficult-to-assess negative impacts of the security situation and power shortages. The likelihood of an uptick in inflation in the

remaining months of FY10 thus seems quite plausible. (Monetary Policy Statement, January-2010: 1).

12. For details seeThe Nation Daily.

13-14. Ibid.
http://www.finance.gov.pk/finance_blog/wp-content/uploads/ReviewEconomy-Jul-Feb.pdf.http://www.dailytimes.com.pk/default.asp?page=2010%5C01%5C28%5Cstory_28-1-2010_pg5_16http://www.dailytimes.com.pk/default.asp?page=2010%5C01%5C28%5Cstory_28-1-2010_pg5_16http://www.dailytimes.com.pk/default.asp?page=2010%5C01%5C28%5Cstory_28-1-2010_pg5_16http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/18-Feb-2010/Current-account-deficit-narrows-to-2487bhttp://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/18-Feb-2010/Current-account-deficit-narrows-to-2487bhttp://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/18-Feb-2010/Current-account-deficit-narrows-to-2487bhttp://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/Business/18-Feb-2010/Current-account-deficit-narrows-to-2487bhttp://www.dailytimes.com.pk/default.asp?page=2010%5C01%5C28%5Cstory_28-1-2010_pg5_16http://www.finance.gov.pk/finance_blog/wp-content/uploads/ReviewEconomy-Jul-Feb.pdf.


37/45

P a g e | 36

Opportunities For Investment Remain Intact.FDI declined markedly to about US$1 billion during first half of FY2009-10,

down from US$2.4 billion in the same period during FY2008-09. However, a

sustained global economic recovery and stability of international financial markets

would help to regenerate the flow of FDI.

Steady Rebuilding Of Foreign Exchange Reserves.Reserves have been replenished from US$6.4 billion in November 2008 to over

US$15 billion in January 2010. This has improved the import coverage ratio to 14

weeks as compared to 9.1 in October 2008. Foreign exchange reserves are expected

to exceed US$15 billion at the end FY2009-10.

Consumption Drove Growth During 2003-08.Pakistan's brief spurt of high economic growth during this period was mainly

driven by private consumption. Consumption became the principal driver of growth

on the back of large foreign exchange inflows, monetary easing, the rise of consumer

credit15, and the continued emergence of a large middle class. Government

consumption also grew by large amounts especially during FY2005 and FY2006

Exports have generally made negative contribution to growth.

Figures O and P16

7

15. The slowdown in growth has increased the ratio of non-performing consumer loans to total loan from 0.9 to 9.1

percent since 2004. SBP Economic Data, Non Performing Loans,

http://sbp.org.pk/ecodata/index2.asp, Dec18, 2009

16. For details see Pakistan Economic Survey (2008-09: 8-10).
http://sbp.org.pk/ecodata/index2.asphttp://sbp.org.pk/ecodata/index2.asphttp://sbp.org.pk/ecodata/index2.asp


38/45

P a g e | 37

Savings Are Low.Low savings reduced the availability of domestic funds for investment. As a

result, investment made little contribution in driving growth. Total investment (public

and private) contributed on average less than one percentage point to annual GDP

growth during this period. After fluctuating close to 15 percent of GDP, the domestic

savings rate dropped to 11.2 percent of GDP in FY2008-09. Total savings (the sum ofdomestic saving and foreign saving) reached a peak of 18.2 percent of GDP before

declining to 14.3 percent in 2008-09. Low domestic savings reflect high inflation and

an inadequate array of accessible savings instruments17.

Potential individual savers lack awareness about risk and reward in placing their

savings in a bank account or other saving instruments. Pakistan lacks dynamic and

diversified financial services that would provide easy accessibility to saving

alternatives tailored to the needs of various niches of the market such as young

savers accounts, rural dwellers, higher education saving accounts, and retirement

accounts.

Figures Q and R18

8

17. Following the crisis of 2008, the government remained committed to reducing inflation to single digit levels by

pursuing a policy of fiscal and monetary restraint. However, consumer price inflation will probably remain above 11

percent in 2009-10 despite a reduction in the fiscal deficit to 4.9 percent of GDP. This points towards the role of cost

push and supply side factors in fueling inflation. The government will need to devise an appropriate policy response the

inflationary implications of imminent electricity tariff hikes and rebounds in world oil and commodity prices.

18.Pakistan Economic Survey, several issues.


39/45

P a g e | 38

Foreign Savings Have Been Important To Pakistan.Despite low domestic savings, foreign savings (the difference between tota

investment and domestic savings in Figure S) helped Pakistan increase its total

investment and fixed investment to about 20 percent of GDP during the past five

years. Public investment, which is critical for facilitating private investment and for

providing basis for economic development and growth, has been mostly below 5percent of GDP during the decade. Enjoying attractive incentives and opportunities

foreign investment increased to record levels during high growth period of 2003-08

However, global economic slowdown and financial crunch along with difficult

domestic conditions especially concerning the security situation has taken its toll on

foreign investment that has substantially declined over the last two years.

Figures S, T, U and V19

9

19. Government of Pakistan, Pakistan Economic Survey 2008-09, Ministry of Finance: Islamabad (2009:15)


40/45

P a g e | 39

Despite Formidable Challenges, Pakistan's Has Favorable Geostrategic,Demographic And Resource-Base Fundamentals.

The nine-point economic reform agenda presented in the 2009-10 government

budget represents an important step in this direction. Key points of the plan aim to

remove long-standing structural impediments constraining sustainable and equitable

economic growth. The plan's key objectives include macroeconomic stabilization;social development and social protection; improvement in agriculture performance;

enhancing industrial competitiveness; improvements in human capital; energy sector

development; efficient capital markets; promoting public-private partnerships for

infrastructure; and institutional/administrative reforms20. In addition to the nine-point

agenda, the country needs a structured dialogue and consensus among key

stakeholders to agree on a strategy to better enable the economy and firms to

compete in the face of the ever-changing international economic and trading

environment.

In fact, the country has the potential to become a locomotive for regiona

economic growth. The following Strengths-Weaknesses-Opportunities-Threats (SWOT)

analysis summarizes the country's strengths and weaknesses referenced in this

chapter. There are major new trade and investment opportunities related to Pakistan's

strategic location between the Middle East, Central Asia, Southwest China and South

Asia. There are major untapped energy sources. Greater peace and stability in

Afghanistan and the border regions of Pakistan could improve business confidence

and usher in a new era of growth. Special economic zones could boost employment.

And Pakistan's population boom is beginning to enter its most productive years. To

summarize, Pakistan faces formidable domestic constraints and internationachallenges to its global competitiveness which in turn is the basis for sustaining high

growth in the long term. While these changes may seem daunting, even

overwhelming, Pakistan also has many strengths and opportunities. The example of

other high-growth Asian economies is encouraging. All of this can provide optimism

that Pakistan can overcome these challenges and take advantages of newly emerging

opportunities.10

Growth and Development SWOT of Pakistan

20. Saleem (2010) noted that according to federal minister for finance Shaukat Tarin, despite many internal and externa

challenges national economy is showing some positive signs of development and sustainability. However globa

economic [difficulties], political instability, war on terror, energy shortfall, and prevailing drought in the country w

Date post:	14-Apr-2018
Category:	Documents
Upload:	kashif-abbas
View:	216 times
Download:	0 times

Economic Development and Growth of Pakistan

Documents