Pakistan         

PAKISTAN is Asia's seventh largest country, occupying the northwestern portion of South Asia.  It covers an area of 307,374 square miles (796,095 square km).  The country extends for more than 990 miles (1,600 km) from south to north and for about 550 miles (880 km) from west to east.  It is bounded to the west by Iran, to the north by Afghanistan, to the northeast by China, to the east and southeast by India, and to the south by the Arabian Sea.

Pakistan's population is a complex mixture of indigenous peoples. The population's ethnic composition has been affected by successive waves of Aryans, Persians, Greeks, Pashtuns (Pathans), and Mughals coming from the northwest. Arabs have also left their mark on the population.  Each of Pakistan's languages has a strong regional focus, and no single language can be said to be common to the whole population. The predominant linguistic group in Pakistan is Punjabi (more than one-half of the population); others include Pashtu (one-eighth), Sindhi (one-eighth), Saraiki (one-tenth), Urdu, and Baluchi.  In addition, there are refugees from Afghanistan and Iran in Pakistan.  Urdu is the lingua franca and is the national language of the country.  Almost 95% of the population is Muslim. Hindus and Christians and others make up the remaining 5% of the population.

Almost 40 per cent of the population is less than 15 years of age. The population is concentrated in the fertile Indus River valley and along that river's major tributaries in the north-eastern and northern portions of the country.  By contrast, western and south-western Pakistan are sparsely inhabited.

The President is the Head of State and is elected for a period of five years by the Federal Parliament and Provincial Assemblies. The current President is Mr. Perveez Musharaf. There is a bicameral federal legislature. The lower house, the National Assembly has 217 directly elected members, who serve for five-year term.  The upper house, the Senate, has 87 members elected for six-year term with one third retiring every two years. Each of the four provinces elects 19 Senators (14 seats are reserved for candidates from the general public while 5 are reserved for the technocrats).  The remaining 11 are elected from the Federal Capital Territory, and the tribal areas.

The Prime Minister is the Head of the Government and is elected by the National Assembly for a five-year term. The current Prime Minister, Mr Mohammad Nawaz Sharif, came into power with an overwhelming majority in 1997.

Pakistan's judicial system is headed by the Supreme Court, and each province has a high court.  The Federal Shariat Court, a court of Islamic law (Shari'a), was set up in the 1980s.

Pakistan has a developing mixed economy based largely on agriculture, light industries, and services.  The Government has placed special emphasis on the liberalization and privatization of the economy since 1990. The Gross National Product (GNP) is increasing more rapidly than the population, but the GNP per capita is among the lowest in Asia, albeit the highest in South Asia.

Agriculture accounts for approximately one-fourth of the GDP and employs about 46 per cent of the labor force.  Wheat is the chief staple, and sugarcane is widely grown. Cotton and rice are major export crops.   Manufacturing accounts for approximately one-fifth of the GDP and employs one-eighth of the labor force. Textiles, particularly cotton textiles, are the chief manufacture and are a leading export.  Mining, which is largely controlled by the government, accounts for about 0.4 percent of the GDP.  Coal and iron ore (both of which are mostly low-grade), some petroleum, and substantial quantities of natural gas are extracted.  Limestone, chromite, and gypsum are widely mined.

Imports : Total value: 24647  million US $ (2006)

Major Items: Industrial equipment, vehicles, iron ore, wheat, tea, fertilizer, non electrical machinery, petroleum & products, chemicals, edible oil, transport equipment, steel & products, grains, electrical goods.

 

Exports: Total value: 16388 million US $ (2006)

Major Items: Cotton, sugar, textile-goods, garments & hosiery, rice, leather items, carpet & rugs, sports goods, fruits, handicrafts, surgical instruments and electrical appliances, sea food (fisheries)

Pakistan has known deposits of coal, iron ore, chromite, gypsum, copper, rock salt, marble, and other mineral resources that remain largely unexploited.  Natural gas is by far the most valuable resource.

  

1.         The economy of Pakistan has grown on an average of 7.5 percent over the period 2003-07, whereas during the current year 2006-07 a growth rate of 7 percent has been achieved. The size of GDP increased three times from Rs 2,938 billion in 1998-99 to Rs 8,716 billion in 2006 -07, while per capita income increased more than two times from $ 438 to $ 926, investment by five times from Rs 409 billion to Rs 2,004 billion and national savings 4.6 times from Rs 344 billion to Rs 1,572 billion in the same period. On the basis of rapid and sustained growth achieved in the recent past, Pakistan has joined the fastest growing economies of the Asian region. Impressive growth of Pakistan’s economy is attributed to the continuity and consistency of policies initiated by the present regime within the overall framework of deregulation, privatization and liberalization.

 

2.         Efficient management and structural reforms introduced in the recent past have brought about healthy changes in almost all sectors of the economy. A major breakthrough has been achieved in managing the domestic and external debt. Total debt (domestic and external), which was 100.3 percent of the GDP in 1998-99, has been reduced by half to 51.1 percent by 2006-07. The ability of the country to borrow from international and regional capital markets at relatively low rates and long maturities has improved substantially. The recent floatation of Euro-Bond in the international market was subscribed by seven times to over $ 3.5 billion. The steep decline, both in the stock of debt and debt-servicing as a ratio to GDP has provided  ample fiscal space to pursue expansionary economic policies.

 

3.         Total investment has increased substantially and reached an all time record of Rs 2,004 billion (23.0 percent of GDP) in 2006 -07. The confidence of foreign investors in Pakistan economy has improved as non –debt creating capital inflows have touched the level of $ 8.4 billion during 2006-07. The foreign direct investment has risen from $ 485 million in 2001-02 to $ 5.1 billion in 2006-07. The economy has also witnessed a sharp rise in the workers’ remittances, which increased to $ 5.5 billion during 2006 -07, showing a five times increase from a level of $ 1.1 billion in 1998-99.

 

4.         As a consequence of tight monetary policy, inflation has marginally decline from 8.0 percent in 2005-06 to 7.8 percent in 2006-07. High economic growth, targeted poverty reduction, social protection programs and increase in pro-poor spending has created gainful employment opportunities and lifted millions of people out of poverty in the rural and urban areas. The unemployment rate has declined from 8.3 percent in 2001-02 to 6.2 percent in 2005-06. The poverty measured on head count basis, decreased from 34.4 percent in 2000-01 to 23.9 percent in 2004-05. The trend of poverty reduction is more pronounced in the rural areas.

 

5.         GDP and GNP Development:      The size of GDP increased three times from Rs. 2938 billion in 1998-99 to Rs. 8716 billion in 2006-07. The investment climate improved significantly. Total investment increased substantially and reached an all time record of Rs 2 trillion (23.0 percent of GDP) in 2006-07. The public sector development expenditure (PSDP) witnessed a sharp increase, from 2.2 percent of the GDP in 2002-03 to 4.2 percent in 2006-07 (excluding allocation for earthquake). The GNP has touched the level of $ 146 billion, and per capita income has reached to $ 926 in 2006-07.

 

6.         Composition of GDP and Sectoral Growth: The 7 percent real GDP growth in 2006-07 has been supported by the robust growth in agriculture and services sectors. The agriculture sector is estimated to record a growth rate of 5.0 percent. However, the growth of large-scale manufacturing (LSM) is likely to be around 8.8 percent.

 

7.         Agriculture Sector: The record output of wheat at 23.5 million tonnes and sugarcane 54.7 million tonnes is significantly higher than the output in 2005 -06 and exceeded the targets for the current year. The cotton crop at 13.0 million bales is close to the production level of 2005-06, while the rice output is slightly lower than the previous year level. The strong livestock production has significantly contributed to the increased growth in the agriculture sector.

 

8.         Industrial Sector: A large number of industrial items show significantly higher growth. The production of sugar, paints and varnishes, cement, steel products, cotton yarn, caustic soda, electric motors, refrigerators, bicycles all posted double-digit growth. Cement industry’s high growth (18.4 percent) is mainly attributable to enhanced installed capacity during the last five years and the rise in local as well as external demand. Similarly, the growth in sugar production at around 46.3 percent is partly due to about 23 percent increase in the sugarcane production during the kharif of 2006-07.

 

9.         Services sector: Based on the growth in value-added in agriculture and manufacturing sectors and increase in imports, the services sector has registered a growth of 8.0 percent, well above the target of 7.1 percent. The growth  in services sub -sector such as Transport, Storage and Communications (5.8 percent), Finance and Insurance (18.2 percent), Ownership of Dwellings (3.5 percent), Public Administration and Defense (7.0 percent) and Social, Community and Personal Services (8.5 percent) remained much high.

 

10.       Investment and Savings: The total investment in 2006-07 is expected to increase by 21.4 percent (23 percent of GDP) and fixed investment by 21.9 percent to Rs 1864 billion (21.4 percent of GDP).

 

11.       Price Development and Inflation: The underlying inflationary pressures in the economy continued to ease in 2006-07, with Consumer Price Index (CPI) inflation during July-April 2007 declining below 8 percent. The non-food inflation witnessed an increase of 6.2 percent as compared to 8.8 percent increase in the corresponding period in 2005 -06. However, the annualized increase in food prices accelerated to 10.2 percent from 7.0 percent in the same period of 2005 -06.

   

12.       Trade Balance: The trade deficit in the fiscal year 2006-07 is  $ 9.9 billion against the deficit of $ 8.3 billion during 2005-06.

 

13.       Exports:  Exports at $ 17.2 billion in 2006-07 are 5 percent higher than exports in 2005-06. Exports are projected to grow by 10 percent to $ 18.9 billion. Implementing various measures suggested under Pakistan Export Plan 2007 -13 is likely to accelerate this process.

 

14.       Imports: The imports at $ 27.1 billion are 10 percent higher than imports of $ 24.6 billion in 2005 –06. Imports for 2007 -08 are projected to increase by 9 percent to $ 29.6 billion.

 

15.       Balance of Payments: The trade deficit in the fiscal year 2006-07 is  $ 9.9 billion against the deficit of $ 8.3 billion during 2005-06. The invisibles balance is anticipated to register a surplus of $ 2.8 billion. On this basis, the current account deficit is likely to be around $ 7.1 billion (5.0 percent of GDP) for the year 2006 -07.

 

16.       Remittances: During the fiscal year 2006-07 Pakistan received remittances to $ 5,494 million. This showed an increase of 19.4 percent compared to $ 4,600 million received previous year.  The reforms in various sectors of the economy and macro economic stability encouraged overseas Pakistanis to remit money through official channels. As a result, Pakistan benefited from significant increase in home remittances through official banking channel. 

 

17.       Current Account Balance: With a trade deficit of $ 9.9 billion during 2006-07 and a surplus of $ 2.2 billion on invisibles account, the current account deficit increased to $ 7.7 billion from last year’s level of deficit $ 5.6 billion. The deterioration in the current account balance is mainly attributed to a significant increase in the trade deficit on account of higher imports bill.

 

18.       Forex Reserves: The foreign exchange reserves reached at $ 15.61 billion by the end June 2007 against $ 13.1 billion on 30^th June 2006. These reserves are sufficient to hedge against external shocks and provide stability to the exchange rate along with restoring investors’ confidence, improving country’s credit rating and attracting foreign investment in the country.

 

19.       Foreign Direct Investment (FDI): The foreign private investment has been an area of outstanding performance. Total foreign private investment in 2006-07 reached $ 6.960  billion including $5.140 billion foreign direct investment. During July-June 2006-07, total foreign private investment with privatization has increased by 79.3 percent to $ 6.945 billion (FDI $5.125 billion and portfolio $ 1.820 billion) from $ 3.872 billion (FDI $3.521 billion and portfolio $0.352 billion) over the corresponding period in 2005-06. The foreign private investment without privatization during July-June 2006-07 has increased by 186 percent to $6.679 billion (FDI $4.859 billion) against $2.33 billion (FDI $1.981 billion) in 2005-06. The major sectors attracting FDI are telecommunications $ 1898.7 million, financial business $ 930.3 million, oil & gas explorations $ 545.1 million, trade $ 172.1 million, power $ 193.4 million, and construction $ 157.1 million.

      

20.  The Budget 2006-07 estimated an overall fiscal deficit of Rs 373.5 billion (4.2 percent of GDP). Tax revenues collected by the Central Board of Revenue (CBR), during July-April 2006-07 increased more than 18 percent to touch the level of Rs 646.9 billion as against collection of Rs 547.0 billion for the corresponding period of 2005-06. It constitutes 77.5 percent of the full year target of Rs 835.0 billion. The direct taxes at Rs 2993.3 billion recorded the highest growth of 48.8 percent, followed by federal excise (17.8 percent) and sales tax (6.2 percent).

 

21.       External Debt: Pakistan’s external debt  stood at  US $ 38.6999 billion on 30^th June 2007. The debt burden for the previous two years i.e  as on 30^th June 2005  and  30^th June 2006 was US $ 34.037 billion on and 35.655 billion respectively. There is an increase of 3.044 billion which represents a 8.5 percent increase in external debt over the stock at the end of FY 2006. Majority of the EDLs are in the form of medium and long term borrowing from multilateral and bilateral lenders which accounts for 80 percent of outstanding debt. The share of short-term debt is extremely low at 0.1 percent.

 

22.       During the financial year 2005-06 external debt and liabilities declined from 32.7 percent of GDP in FY 2004-05 to 29.4 percent of GDP in 2005-06. Pakistan has succeeded in reducing the rising trend in external debt and foreign exchange liabilities. The external debt and liabilities as percentage of foreign exchange earning declined from 120.6 at the end of June 2006 to 119.7 at the end of March 2007.

       

23.       The tight monetary policy stance pursued by the SBP during the fiscal year 2004-05 and 2005-06 was further tightened in July 2006 by raising policy discount rate by 50 basis points to 9.5 percent, the Cash Reserve Requirement (CRR) from 5 to 7 percent on demand liabilities, and the Statutory Liquidity Requirement (SLR) from 15 to 18 percent, for the scheduled banks. At the same time, in order to give incentives to banks to mobilize long-term deposits, SBP reduced the CRR on their time liabilities from 5 to 3 percent.

 

24.       The Credit Plan for the fiscal year 2006-07 envisaged growth in money supply (M2) at 13.5 percent (Rs. 459.9 billion), which was based on the assumption of a GDP growth target of 7.0 percent and inflation rate target of 6.5 percent for the year.  The net domestic assets estimated to grow by Rs. 450.1 billion or 13.2 percent. The credit to government sector for budgetary support was targeted at Rs. 120.1 billion and credit to private sector at Rs. 390 billion.  The net foreign assets of the banking system were envisaged to exert an expansionary effect to the tune of Rs. 9.8 billion.

 

25.   The monetary expansion during July 1, 2006 to June 30, 2007 stood at Rs. 658.3 billion (19.3 percent) as against the full year target of 13.5 percent and an expansion of 15.1 percent during the corresponding period last year.

 

26.       The net bank credit to the government, used for financing budgetary expenditure and commodity operations, amounted to Rs. 92.8 billion during the year against the annual target of Rs. 130.1 billion. The government borrowing for budgetary support from the banking system amounted to Rs. 102 billion against the annual target of Rs. 120.1 billion and Rs. 67.1 billion during 2005-06. Demand for the private sector credit amounted to Rs. 356.3 billion is 91.35 percent of the target. Private sector credit registered a sharp slow down during 2006-07 compared with 2005-06 (Rs. 401.8 billion) due to tight monetary policy during the year. The net foreign assets expanded to the tune of Rs. 285.8 billion as against Rs. 51.5 billion during the corresponding period last year.

 

27.       The utilization of bank credit by various segments of the private sector during July 06-May 07 remained broad based.  The manufacturing sector as usual continued to dominate the consumption of bank credit as it consumed 45 percent of the bank credit while consumer financing was second largest as its share was 15.35 percent.

 

28.       The reserve money expanded by 20.9 percent in 2006-07 compared with an expansion of 10.2 percent in 2005-06.

 

 

29.       Stock Market Development: The Karachi Stock Exchange, one of the most emerging share markets in the region, witnessed bullish trend during the sixth consecutive year. The benchmark KSE-100 index grew by 38 percent during the financial year 2006-07. The KSE closed at its highest level of 13772 points during the last trading session of financial year 2006-07, recording a net gain of 3783 points on year on year basis, as it stood at 9989 points in 2005-06. The total market capitalization increased from Rs. 2801 billion in 2005-06 to Rs. 4019 billion in 2006-07 reflecting a growth of 43.5 percent.

 

30.       Interest rates of central bank & banking system:      State Bank of Pakistan continued to exercise tight monetary policy stance and frequently intervened in the inter-bank market to achieve the desired results by Open Market Operations. Cut-off yields on 6 month and 12 month treasury bills since July 2006 to June 2007 rose from 8.48 percent to 8.9 percent and 8.79 percent to 9.16 percent, respectively. The interest rates in the secondary market increased marginally. The short-term interest rates of 6 months Karachi inter-bank offered rate (KIBOR) since July 2006 to June 2007 rose from 9.92 percent to 10.02 percent and 10.35 percent to 10.45 percent, respectively. Tight monetary conditions also led the banking industry to raise the average deposit rate from 3.09 percent in July 2006 to 3.98 percent in June 2007. However, this rise was not enough as the banking spread (average lending rate minus average deposit rate) increased from 7.15 in July 2006 to 7.5 percent in December 2006. Although, it declined to 6.34 percent in June 2007 but it is still very high.

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