Economy of Pakistan
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| Economy of Pakistan | |
 | |
| Currency | 1 Pakistani Rupee (PKR) Rs. = 100 Paisas |
|---|---|
| Fiscal year | July 1–June 30 |
| Trade organisations | ECO, SAFTA, ASEAN, WIPO and WTO |
| Statistics | |
| GDP (PPP) | $504.3 billion (PPP) (2008) |
| GDP growth | 6.9%[1] (2008 est.) |
| GDP per capita | $3320.12 (PPP) (2008) |
| GDP by sector | agriculture: 19.6%, industry: 26.8%, services: 53.7% (2007) |
| Inflation (CPI) | 12.0% (Jul-Jun 2008)[2] |
| Population below poverty line | 23% ((2007)) [1] |
| Labour force | 49.18 million (2006 est.) |
| Unemployment | 7.5% (2007 est.) |
| Main industries | textiles, chemicals, food processing, steel, transport equipment, automotives, machinery, beverages, construction, materials, clothing, paper products |
| External | |
| Exports | $20.58 billion (2007 est.) (68th[3]) |
| Export goods | textile goods (garments, bed linen, cotton cloths, and yarn), rice, leather goods, sports goods, chemicals manufactures, carpets and rugs |
| Main export partners | United States 22.4%, UAE 8.3%,UK 6%, China 5.4%, Germany 4.7% (2006 est.) |
| Imports | $30.99 billion f.o.b. (2007 est.) |
| Import goods | Petroleum, Petroleum products, Machinery, Plastics, Transportation equipment, Edible oils, Paper and paperboard, Iron and steel, Tea |
| Main import partners | China 14.7%, Saudi Arabia 10.1%, UAE 8.7%, Japan 6.5%, United States 5.3%, Germany 5%, Kuwait 4.9% (2006 est.) |
| Public finances | |
| Public debt | $45 billion (2007) |
| Revenues | $27.5 billion (2006 est.) |
| Expenses | $35 billion (2006 est.) |
| Main data source: CIA World Factbook All values, unless otherwise stated, are in US dollars | |
Pakistan is a nation with a diverse economy that include textiles, chemicals, food processing, agriculture and other industries. It is the 25th largest economy in the world.
The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy. Pakistan has seen a growing middle class population since then and poverty levels have decreased by 10% since 2001.
GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. [4]
Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. Development in urban areas of Pakistan has remained high but is low in rural areas.
Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.[5]
Since the beginning of 2008, Pakistan's economic outlook has taken a dramatic downturn. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.
The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less then the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%. [6]
[edit] Economic history
[edit] First five decades
This is a chart of trend of gross domestic product of Pakistan at market prices estimated[7] by the International Monetary Fund with figures in millions of Pakistani Rupees. See also [2]
| Year | Gross Domestic Product | US Dollar Exchange | Inflation Index (2000=100) |
|---|---|---|---|
| 1960 | 100 | 4.76 Pakistani Rupees | |
| 1980 | 283,460 | 9.97 Pakistani Rupees | 21 |
| 1985 | 569,114 | 16.28 Pakistani Rupees | 30 |
| 1990 | 1,029,093 | 21.41 Pakistani Rupees | 41 |
| 1995 | 2,268,461 | 30.62 Pakistani Rupees | 68 |
| 2000 | 3,826,111 | 51.64 Pakistani Rupees | 100 |
| 2005 | 6,581,103 | 60.40 Pakistani Rupees | 126 |
Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade.
Industrial-sector growth, including manufacturing, was also above average. In the late 1960s Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s. Two wars with India in 1965 and 1971 adversely affected economic growth.[8] In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s.
[edit] Economic resilience
Historically, Pakistan's overall economic output (GDP) has grown every year since a 1951 recession. Despite this record of sustained growth, Pakistan's economy had, until a few years ago, been characterized as unstable and highly vulnerable to external and internal shocks. However, the economy proved to be unexpectedly resilient in the face of multiple adverse events concentrated into an eight-year period —
- the Asian financial crisis;
- economic sanctions — according to Colin Powell, Pakistan was "sanctioned to the eyeballs"[9];
- lop recession;
- severe rioting in the port city of Karachi;
- a severe drought — the worst in Pakistan's history, lasting about four years;
- heightened perceptions of risk as a result of military tensions with India — with as many as 1 million troops on the border, and predictions of impending (potentially nuclear) war;
- the post-9/11 military action in neighboring Afghanistan, with a massive influx 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.
Additional confirmation that the country's economy is not as weather-sensitive as had been previously perceived comes from a 2008 analysis that "examined 68 countries, quantifying their sensitivity to fluctuations in weather, using figures on GDP by industry sector and the sensitivity of particular sectors to given weather variables." The analysis found that of the 68 countries, the "least weather-sensitive country was Pakistan." [3] [4] [5]
[edit] Recent economic history
[edit] Macroeconomic reform and prospects
According to many sources, the Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.
Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms - with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue - and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.
Liberalization in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan's relative strengths in low labor costs.
Growing stability in the nation's monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan's domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.
In 2005, the World Bank reported that
- "Pakistan was the top reformer in the region and the number 10 reformer globally — making it easier to start a business, reducing the cost to register property, increasing penalties for violating corporate governance rules, and replacing a requirement to license every shipment with two-year duration licenses for traders."[10]
In addition, reduced tensions with India and the ongoing peace process raise new hopes for a prosperous and stable South Asia, with more intra-regional trade. However, due to global economic crisis in year 2007-2008 the economic progress has been adveresely affected and unemployment has increased.
President Musharraf led a great team of economists and professionals with ex-PM Shaukat Aziz, to mark their achievements. Their achievements caused Pakistan to emerge as a geo-strategic important country with a 100% better economy.[6]
PAKISTAN's ECONOMIC COMPARISON 1999 to 2008
Pak Economy in 1999 was: $ 75 billion
Pak Economy in 2007 is: $ 160 billion
Pak Economy in 2008 is: $ 170 billion
GDP Purchasing Power Parity (PPP) in 1999: $ 270 billion
GDP Purchasing Power Parity (PPP) in 2007: $ 475.5 billion
GDP Purchasing Power Parity (PPP) in 2008: $ 504.3 billion
GDP per Capita Income in 1999: $ 450
GDP per Capita Income in 2007: $ 926
GDP per Capita Income in 2008: $1085
Pak revenue collection 1999: Rs. 305 billion
Pak revenue collection 2007: Rs. 708 billion
Pak revenue collection 2008: Rs. 990 billion
Pak Foreign reserves in 1999: $ 1.96 billion
Pak Foreign reserves in 2007: $ 16.4 billion
Pak Foreign reserves in 2008: $ 8.89 billion
Pak Exports in 1999: $ 8 billion
Pak Exports in 2007: $ 18.5 billion
Textile Exports in 1999: $ 5.5 billion
Textile Exports in 2007: $ 11.2 billion
KHI stock exchange 1999: $ 5 billion at 700 points
KHI stock exchange 2007: $ 75 billion at 14,000 points
KHI stock exchange 2008: $ 46 billion at 9,300 points
Foreign Investment in 1999: $ 301 million
Foreign Investment in 2007: $ 8.4 billion
Debt servicing 1999: 65% of GDP
Debt servicing 2007: 28% of GDP
Debt servicing 2008: 27% of GDP
Poverty level in 1999: 34%
Poverty level in 2007: 24%
Literacy rate in 1999: 45%
Literacy rate in 2007: 53%
Pak Development programs 1999: Rs. 80 billion
Pak Development programs 2007: Rs. 520 billion
Pak Development programs 2008: Rs. 549.7 billion
For Complete Sources/Links: Economic Comparison 1999 - 2007 and beyond
[edit] The economy today
[edit] Stock market
- Main Article: Karachi Stock Exchange
In the first four years of the twenty-first century, Pakistan's KSE 100 Index was the best-performing stock market index in the world as declared by the international magazine “Business Week”. The stock market capitalisation of listed companies in Pakistan was valued at $5,937 million in 2005 by the World Bank. [7]. But in 2008, after the General Elections, uncertain political environment, rising militancy along western borders of the country, and mounting inflation and current account deficits resulted in the steep decline of the Karachi Stock Exchange. As a result, the corporate sector of Pakistan has declined dramatically in significance in recent times.
[edit] Manufacturing and finance
Pakistan's manufacturing sector has experienced double-digit growth in recent years, with large-scale manufacturing growing by 18% in 2003. 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 sector lending to businesses and consumers. Foreign exchange reserves continued to reach new levels in 2003, supported by robust export growth and steady worker remittances.
[edit] Growing middle class
Measured by purchasing power, Pakistan has a 30 million strong middle class, according to Dr. Ishrat Husain, Ex-Governor (2 December 1999 - 1 December 2005) of the State Bank of Pakistan.[11] It is a figure that correlates with research by Standard Chartered Bank which estimates that Pakistan possesses a "a middle class of 30 million people that Standard Chartered estimates now earn an average of about $10,000 a year."[12] In addition, Pakistan has a growing upper class with relatively high per capita incomes.
On measures of income inequality, the country ranks slightly better than the median. In late 2006, the Central Board of Revenue estimated that there were almost 2.8 million income-tax payers in the country. [8]
[edit] Poverty alleviation expenditures
Pakistan government spent over 1 trillion Rupees (about $16.7 billion) on poverty alleviation programs during the past four years, cutting poverty from 35 percent in 2000-01 to 24 percent in 2006.[13] Rural poverty remains a pressing issue, as development there has been far slower then in the major urban areas.
[edit] Demographics
With a per capita GDP of over $3000 (PPP, 2006) compared with $2600 (PPP, 2005) in 2005 the World Bank considers Pakistan a medium-income country, it is also recorded as a "Medium Development Country" on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 49% of adults are literate, and life expectancy is about 64 years. The population, about 168 million in 2007, is growing at about 1.80%.
Relatively few resources in the past had been devoted to socio-economic development or infrastructure projects. Inadequate provision of social services, high birth rates and immigration from nearby countries in the past have contributed to a persistence of poverty. An influential recent study[14] concluded that the fertility rate peaked in the 1980s, and has since fallen sharply. Pakistan has a family-income Gini index of 41, close to the world average of 39.
[edit] Employment
The high population growth in the past few decades has ensured that a very large number of young people are now entering the labor market. Even though it is among the seven most populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India, and the Philippines. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult. Significant progress in taxation and business reforms has ensured that many firms now are not compelled to operate in the underground economy.[15]
In late 2006, the government launched an ambitious nationwide service employment scheme aimed at disbursing almost $2 billion over five years. [9] [10]
[edit] Tourism
Tourism in Pakistan is a growing industry. Major attractions include ruins of Indus valley civilisation and mountain resorts in the Himalayas. Himalayan and Karakoram range (which includes K2, the second highest mountain peak in the world, attracts adventurers and mountaineers from around the world.
[edit] Revenue
The Board of Revenue has collected nearly one trillion Rupees($14.1 billion) in taxes in the 2007-2008 financial year.[16]
[edit] Currency system
[edit] Rupee
The basic unit of currency is the Rupee, which is divided into 100 paisas. Currently the newly printed 5,000 rupee note is the largest denomination in circulation. Recently the SBP has introduced all new design notes of Rs. 5, 10, 20, 100, 500, 1000, 5000 denomination, while the work of Rs.10,000 note is in progress which will help the banking industry in keeping few notes in saving accounts. The new notes have been designed using the euro technology and are made in good bright colors.
[edit] Foreign exchange rate
- 1 Pakistani Rupee (PKR) = 100 Paisa
The Pakistani rupee depreciated against the US dollar until the turn of the century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilized by lowering interest rates and buying dollars, in order to preserve the country's export competitiveness
- Exchange rates: Pakistani rupee (PKR) per US$1
| Year | Highest ↑ | Lowest ↓ | ||||
|---|---|---|---|---|---|---|
| Date | Rate | Date | Rate | |||
| 1995 | PKR 30.930 | |||||
| 1996 | PKR 35.266 | |||||
| 1997 | PKR 40.185 | |||||
| 1998 | PKR 44.550 | |||||
| 1999 | PKR 51.90 | |||||
| 2000 | PKR 53.6482 | |||||
| 2001 | PKR 61.9272 | |||||
| 2002 | PKR 59.7238 | |||||
| 2003 | PKR 57.752 | |||||
| 2004 | PKR 58.000 | |||||
| 2007 | Aug 05 | PKR 60.75 | Nov 01 | PKR 60.50 | ||
| 2008 | October 10 | PKR 80.00 | Apr 01 | PKR 63.50 | ||
| Source: PKR exchange rates in USD, SBP | ||||||
[edit] Foreign exchange reserves
By October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. His exceptional policies kept Pakistan's trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion. [[[Foreign Reserves Phenomenon: Shaukat Aziz versus PPP][11]]]
On October 11, 2008 State Bank of Pakistan reported that country's foreign exchange reserves had gone down by $571.9 Million to $7749.7 Million.[17]The foreign exchange reserves had declined more by $400 Million to an alarming rate of $6590 Million.[18]
[edit] Structure of economy
The economy of the Islamic Republic of Pakistan is suffering with high inflation rates well above 26%.
Over 1,081 patent applications were filed by non-resident Pakistanis in 2004 revealing a new-found confidence. [12]
Agriculture accounted for about 53% of GDP in 1947. While per-capita agricultural 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).
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