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Economic Review 2005-2006
Economic Review 2004-2005
- Agriculture
- Manufacturing
- Mining and Quarrying
- Services Sector
- Savings and Investment
-
Private Sector Development and Enhancing the Role of
the Private Sector
-
Enhancing Competitiveness and Productivity
- Special Economic Zones,
Industrial Parks, IT Parks and SME Cluster Development
- Inflation
- Money and Credit
- Capital Market
- External Sector (Balance of Payment)
- International Trade
- Foreign Exchange
- Finance
- Federal Budget 2007-08
Pakistan's economy has shown 7.0 percent growth in
2006-07 for another consecutive year as against the
economic growth of 6.6 percent in 2005-06. Now it has
achieved a growth at an average rate of almost 7.0
percent per annum during the last five years (2002-03 to
2006-07). With this performance it has achieved a status
of one of the fastest growing economies of Asian region.
The growth momentum is due to dynamism in industry,
agriculture and services, and the emergence of a new
investment cycle supported by growth in investment
demand.
Growth of value addition in commodity producing sector
(CPS) mainly comprising agriculture and manufacturing
showed 6.0 percent in 2006-07 as against 3.4 percent
last year thus performing more than their targets.
Within the CPS, agriculture and manufacturing grew by
5.0 percent and 8.4 percent respectively. Large scale
manufacturing registered a growth of 8,8 per cent in
2006-07 as against last year's achievement of 10.7
percent. Similarly major crops witnessed an impressive
growth of 7.6 percent as the growth of 4.1 percent last
year. Also in the CPS the construction industry recorded
a massive growth of 17.2 percent as compared to last
growth of 5.7 percent.
The Services sector grew by 8.0 percent in 2006-07.
Finance and insurance sector's growth in services sector
registered a growth of 18.2 percent during 2006-07,
while value addition in transport, storage and
communication sector grew by 5.7 percent compared to 6.9
percent last year.
Pakistan's per capita real GDP has risen at a faster
pace during the last four years (5.5 percent per annum
on average in rupees term) leading to a rise in average
income of the people. The per capital income in dollar
terms has grown at average rate of 13 percent per annum
during the last five years, rising from US$ 586 in
2002-03 to US$ 925 in 2006-07.
During the year 2006-07 total investment has reached
record level of 23.0 percent of GDP as against 2.7
percent of GDP during last year. Private sector
investment grew by 20.4 percent this year as against
37.5 percent during the last year in nominal terms,
while public sector investment has shown an increase of
25.7 percent.
The overall foreign investment during 2006-07 stood at
US$8416.6 million, the highest ever in the country's
history. This is against US$ 4485.5 during the last year
showing an increase of 87.6 percent. It is the private
sector which took the major task of providing impetus to
foreign investment.
Both National and Domestic Savings as percentage of GDP
stood at 18.0 percent and 16.1 percent respectively.
Inflation as measured by Consumer Price Index (CPI)
stood at 7.77 percent from 7.92 percent in the same
period last year. Food inflation during this period
increased to 10.2 percent as against 6.9 percent during
last year, whereas non food inflation is estimated at
6.2 percent as compared to 8.8 percent last year.
In spite of improvement in the international trading
environment, Pakistan's foreign trade sector shown
declining trends after growing at an impressive rate of
16.0 percent per annum in recent years. The Exports in
2006-07 stood at US$ 17.01 billion as compared to US$
16.47 billion showing an increase of only 3.28 percent
only, whereas the Imports at 30.54 billion against US$
28.59 during last year showing an increase of 6.8
percent.
Total revenues are estimated at Rs 1163.1billion in
2006-07 as compared with Rs 1087.0 billion in 2005-06,
thereby showing an increase of 7.0 percent.
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STRUCTURE OF PRODUCTION
(SECTOR ANALYSIS):
Agriculture the main contributor to Pakistan's economy,
accounts for nearly 22 percent of GDP and 44.8 percent of
total employment. The performance of agriculture during the
fiscal year 2005-06 was weak because of less production of
major crops in particular. However, in 2006-07 the
agriculture sector registered a sharp growth of 5 percent as
against last year's growth of 1.6 percent. Major crops
showed strong recovery due to higher production of wheat and
sugarcane. Wheat production of 23.5 million tons is highest
ever in the country's history registering an increase of
10,5 percent over last year. Sugar cane production likewise
is 54.7 million tons registering an improvement by 22.6
percent over the last year. The production of cotton at 13
million bales remained almost at the same level as compared
to last year's production of 13.02 million bales. Rice
production at 5.4 million tons was marginally less than 5.5
million produced last year. However among the minor crops
the production of potato increased by 67.2 percent and
pulses at an average of 20.0 percent, while the production
of chilies, onion and mash decreased by 49.6 percent, 14.3
percent and 3.6 percent respectively mainly due to shortfall
in cultivated area.
The performance of livestock, the single largest sector
accounting for almost one-half of agricultural value added,
has been impressive as this sector grew by 4.3 percent on
the back of substantial increase in the population of
species of livestock, milk, etc. as against last year's
growth of 7.5 percent. The growth in fisheries stood at 4.2
percent as against 1.9 percent during last year recording
better performance.
Forestry has been registering negative growth for four
consecutive years registering a negative growth of 3.8
percent in 2006-07 as against a negative growth of 43.7
percent in the preceding year showing a sort of recovery.
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The overall manufacturing sector continued to maintain
its growth momentum with more vigor during the current
fiscal year. Overall manufacturing recorded an impressive
and broad based growth of 8.45 percent, against last year's
growth of 10 percent. Large scale manufacturing accounting
for 70 percent of overall manufacturing, registered growth
of 8.0 percent in the fiscal year 2006-07 against last
year's achievement of 10.7 percent. The slight decline in
the manufacturing sector's performance may be attributed to
multiple reasons like moderation on account of higher
capacity utilization, difficulties in textile sector and
lower scale of operation in oil refineries etc.
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The mining and quarrying sector grew by 5.6 percent as
against 3.8 percent in 2005-06. The increased growth rate
was propelled by strong positive growths recorded in
magnetite, dolomite, limestone and chromites. The sector
contributed only 2.6 percent to GDP in spite of fact that
mineral resources are abundantly available in the country,
particularly in Balochistan, awaiting their exploration by
using appropriate technology and proper management.
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The services sector continued to perform well for the
third year in a row and grew by 8.0 percent as against 8.8
percent in 2005-06 and 8.0 percent in 2004-05. Growth in the
services sector in 2006-07 was primarily attributable to
strong growth in the finance and insurance sector, better
performance of wholesale and retail trade, as well as
transport and the communications sector. Major contributions
towards growth has come from the services sector which has
emerged at a new growth powerhouse for sometime.
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During the fiscal year 2006-07, Gross fixed capital
formation or domestic fixed investment grew by 20.6 percent
as against 17.6 percent last year. As percentage of GDP
total investment reached new heights of 23 percent in
2006-07. Private sector investment grew by 31.7 percent as
against 31.6 last year. Public sector investment on the
other hand registered massive growth of 46.7 percent as
against a hefty 2.9 percent increase last year.
National savings as percentage of GDP stood at 18.0 percent
as against 16.4 percent in 2005-06, contributing to 84.0
percent of financing of domestics fixed investment.
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The private sector will play an increasing role in
driving growth and creating job opportunities. A strong
Private Sector Development (PSD) strategy will therefore be
a key element in enhancing the competitiveness of the
private sector. The features of the strategy are: i)
lowering the
barriers to development of small and medium enterprises; ii)
developing a modern financial sector with a view to
providing a wide range of financial services; iii) removing
irritants and impediments to private sector growth; iv)
strengthening the country's physical and social
infrastructure, v) consistency and continuity of economic
policies. All these measures are expected to significantly
improve Pakistan's investment climate, reduce the cost of
doing business for the private sector, thus contributing to
enhancing the competitiveness of the private sector.
A forward looking PSD strategy, supported by a vastly
improved regulatory environment, processes and procedures
will go a long way in freeing the private sector from
constraints that impede its growth. This will create an
enabling environment that will allow the private sector to
focus on productivity, innovation and growth, responding to
opportunities in the national and global markets. Private
sector competitiveness is also being enhanced by taking into
account the recent findings on the state of Pakistan's
Competitiveness Report by the Competitiveness Support Fund.
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Competitiveness relies on ensuring that the population is
healthy, secure (in both civil and criminal aspects of
society) and capable of sustaining the basic requirements of
life through improved education, infrastructure and a stable
macro-economic climate. It is further enhanced by the
provision of world-class tertiary education and vocational
skills training and the development of a knowledge economy
based on a fully developed Information and Communications
Technology (ICT) infrastructure. Improved competitiveness
leads to sustained economic growth which has proven to be
effective in generating employment and reducing poverty.
Therefore, the Government recognizes improving
competitiveness as a cornerstone of its economic growth
strategy. The economy has responded well to the structural
reforms carried out in the last 7 years and has emerged as
one of the stronger growing economies of Asia. Although, as
a result, Pakistan has significantly improved its position
in the Global Forum, much more needs to be done. The
Government will therefore continue to implement its second
generation reforms in addition to the private sector
specific reforms listed above.
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Pakistan's location already provides it with a
competitive advantage that is unique. Situated strategically
at the cross roads of Central Asia, Middle East and the Far
East and its membership of growing organizations such as
SAARC and ECO. Pakistan has access to all growing markets of
the world. The Government intends to enhance the role of
Special Economic Zones (SEZs), etc in attracting investment
to achieve its goal of generating employment and further
augmenting industrialization, modernization within a
cohesive strategic plan. The SEZs and associated industrial
parks and clusters will play an important role in increasing
competitiveness. The SEZs are to be benchmarked with those
of other countries to ensure that they are developed on the
lines of best international practices.
There are already some excellent examples of industrial
parks such as "Marble City", "Textile City". Pak-China
Economic Zones near Lahore and the Lasbela Industrial Estate
in Balochistan. The Government has also declared that the
area around Gwadar Port city will be an SEZ. Cluster
development in Punjab, e.g., around Sargoda has been
extremely successful. Furthermore, the National Industrial
Parks Development and Management company (NIPDMC) has been
established as a public-private
partnership to foster this approach. These projects are
aimed at fast pace industrialization that will generate
employment in the country. The hallmarks of successful SEZs
include high quality infrastructure, access to a productive
labour pool, a critical mass of support industries,
streamlined bureaucratic processes, and a
suitable regulatory framework.
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During the year 2006-07 the average Inflation rate as
measured by the Consumer Price Index (CPI), declined to 7.9
percent from 8.0 percent in the same period last year.
Food price inflation increased at 10,2 percent from 7.0
percent during the same period last year. Non food inflation
however decreased to 6.2 percent as against 8.8 percent in
the comparable period of last year. The rise in the food
inflation is due to increasing prices of perishable
commodities, imbalance in demand and supply of these
commodities.
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The tight monetary policy stance of the SBP continued to
strike a balance between promoting growth and controlling
inflation on the one hand and maintaining a stable exchange
rate environment on the other.
During the fiscal year 2006-07, the SBP took several
additional policy measures in different phases as part of
tightening monetary policy such as raise of Statutory
Liquidity Ratio (SLR), Cash Review Ratio (CRR), Discount
Rate etc.
The credit plan for 2006-07 set the target for monetary
expansion at Rs 460 billion or 13.6 percent higher than last
year on the basis of a growth target of 7.0 percent and
inflation target of 6.5 percent. The pace of monetary
expansion remained well within the Credit Plan target for
the year. The projected monitory expansion during the year
was expected to result primarily from the build up in the
Net Domestic Assets (NDA) and a moderate rise in Net Foreign
Assets NFA).
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During the fiscal year 2007-07, the stock market
continued to maintain its stray performance and achieved new
heights by creating many new records. The KSE -100 Index
crossed the barrier of 12000 mark for the first time in the
history of capital market and touched an all time high at
12961 on 31st May 2007, showing a growth of 5.5 percent over
highest points reached in 17th April 2006. The total market
capitalization also increased to Rs3781 billion (US$ 62.3
billion) as of 31st May, 2007 from Rs 3419.4 billion ($57.0
billion) as of 17th April, 2006, showing a growth of 10.60
percent over April 2006. Portfolio investment has increased
from negative US$ 21140 million in fiscal year 2000-01 to
US$ 1819 million during July-April, 2006-07.
The improved performance of the stock market can mainly be
attributed to consistent and transparent economic policies
resulting in strong economic growth. A successful
privatization process attracting foreign investors in
prestigious organizations like PTCL and National Refinery,
sound monetary policy of SBP, maintenance of fiscal
discipline and the capital market reforms including
development measures introduced by the stock exchanges with
full support of the SECP. The privatization of the
government entities through the bourses helped to broad base
the equity ownership to a significant level.
The outgoing fiscal year has witnessed concerted foreign
investor's interest in Pakistan's stock market as a result
of large - scale coverage of market by foreign brokerage
houses. Brokerage houses providing research coverage on
Pakistan include: Merill Lynch, JP Morgan, Credit Suise,
Citigroup and UBS. Several foreign banks have also organized
road shows across the globe to introduce Pakistan to the
community of foreign investors, interested in fast growing
emerging markets.
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Pakistan Balance of Payment shows a record increase in
capital flows that has substantially offset a gradual
widening of the current account deficit. The magnitude of
the inflows has overwhelmed the State Bank of Pakistan and
complicated monetary policy. Pakistan's current account
deficit further widen to US$ 6.2 billion (4.3 percent of GDP
in the first nine month (July - March) of the fiscal year
2006-07 from 4.6 billion (3.6 percent of GDP) in the same
period last year. A striking feature of this year's current
account deficit is that it has widened even though the
import growth has slowed to 10.2 percent but the
performance of exports has been lack luster at best,
resulting in widening of trade deficit. Deficit in service
account also widened and as such even a robust growth of 7.8
percent in private transfers could not narrow the current
account deficit.
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Export proceeds remained short of target during the year
2006-07 by 6.9 percent and stood at 17.01 against the target
of 18.6 billion set for the same period, although it
registered about 3.3 percent increase over last year. This
would be straight two consecutive years when the export
proceeds missed the original targets announced in the
respective trade policies.
The imports during the year 2006-07 climbed by 8.9 percent
and stood at US$ 30.54 billion as against were US$ 28.59
billion during the corresponding period of last year. Trade
deficit rose to 13.53 billion dollars.
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The foreign exchange reserves stood at $ 15.6 billion at
the end of June, 2007. The workers' remittances stood at US$
5.493 billion during July -June 200506 as against US$4.6
billion in the corresponding period last registering an
increase of 19.0 percent.
The wide-ranging tax and tariff reforms as well as reform
in tax administration have started paying dividends. During
the last seven years the tax collection by the Federal Board
of Revenue (FBR) has increased picked up tremendously. As a
result of prudent fiscal management over the last five
years, the burden of interest payment in domestic budget has
declined sharply thereby releasing resources for development
and social sector program.
The revenue collection increased to Rs841.4 billion during
the year 2006-07 against the target of Rs835.0 billion
showing a growth of 6.4 percent over the target. The revenue
deficit, a measure of government dis-saving was at a deficit
of 0.7 percent of GDP in 2004-05 compared to a deficit of
2.2 percent in 2000-01. It has further progressed towards
almost elimination at 0.03 percent of GDP in 2005-06.
As a result of prudent fiscal management over the last 6
years, the burden of interest payments on the domestic
budget has declined sharply, thereby releasing resources for
development of social sector programs. Interest Payment as a
percentage of total revenue have been reduced to one-half
(41 to 20 percent) over the last tax years. Similarly share
in the total expenditure declined from 30 percent to 16
percent during the same period. Most importantly, as
percentages of GDP, interest payments declined from 6
percent to 2.6 percent in the last six years.
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The overall size of the budget outlay for 2007-08 is
projected at Rs1.6 trillion which is 21.7 percent higher
than the last year's Rs1.315 trillion budget. The current
expenditure of Rs1056.0 billion shows an increase of 20.0
percent and federal development expenditure at Rs335.0
billion a increase of 24.1 percent over the budget of the
year 2006-07.
With Rs150 billion provincial development budget, Rs35
billion for earthquake rehabilitation and over Rs23.3
billion for other expenditures, the total size of the budget
comes to Rs1.9 trillion..
Tax revenue is estimated at Rs1025.0 billion, which is 21.8
percent higher than the original budget estimates of Rs840
billion and 22.1 percent higher than revised estimated
collection of Rs839.6 during the year 2006-07.
The share of current expenditure in total budgetary outlay
for 2007-08 is 66 percent as against 67 percent for the
budget 2006-07 and 72.3 percent of revised estimates for
2006-07. Debt servicing (Rs437.4 billion) and Defense (Rs275
billion) together account for 67.5 percent of
current expenditure.
The budget for fiscal year 2007-08 envisages a allocation of
Rs520 billion for Public Sector Development Program (PSDP)
which is 19.5 percent higher than that of 2006-07. The
federal development budget of Rs335 billion is 24.0 percent
higher than original budget of Rs270 billion for the year
2006-07. The Provincial PSDP ofRs150 billion is 30 percent
higher than Rs115 billion of 2006-07. In addition, there
will be expenditure of Rs35 billion on rehabilitation and
reconstruction of earthquake hit areas.
Federal PSDP allocation includes 53.4 percent expenditure on
infrastructure and 46.60 percent on social sectors which
together will build up social and physical infrastructure
and ultimately bring about poverty reduction.
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