SALIENT FEATURES

Pakistan’s economy continues to maintain its strong growth momentum for the fifth year in a row in the fiscal year 2006-07. With economic growth at 7.0 percent in the current fiscal year, Pakistan’s economy has grown at an average rate of almost 7.0 percent per annum during the last five years.

GDP

Real GDP grew at 7.0 percent in 2006-07 as against the revised estimates of 6.6 percent for last year and 7.0 percent growth target for the year.

GDP GROWTH

CONTRIBUTION TO REAL GDP GROWTH

Agriculture

The performance of agriculture remained weak during 2005-06 because its crops sector particularly major crops could not perform up to the expectations. Growth in the agriculture sector registered a sharp recovery in 2006-07 and grew by 5.0 percent. Major crops posted strong recovery from negative 4.1 percent last year to positive 7.6 percent, mainly due to higher production of wheat and sugarcane. Wheat production of 23.5 million tons is highest ever in the country’s history. Sugarcane production likewise improved by 22.6 percent over last year to 54.8 million tons.

Manufacturing

Overall manufacturing recorded growth of 8.45 percent, against last year’s growth of 9.9 percent. Large-scale manufacturing, accounting for 69.5 percent of overall manufacturing registered growth of 8.75 percent in the current fiscal year 2006-07 against last year’s achievement of 10.68 percent. There has been a slight decline in growth in the manufacturing sector due to multiple reasons.

Performance of public sector industries (exclucluding Pak Steel) (July-June) (Rs. in Million)
			2005-2006		2006-2007 (Expected)		Increase/Decrease %
Production Value*			3,879		3,998		3.07
Net Sales			4,825		5,358		11.05
Pre-tax profit			9		-5		-155.56
Taxes and duties			360		355		-1.39
No. of employees**			5,491***		5,032		-8.36
*Production value of PACo is at current prices. NFC & SEC are at constant prices of 1999-2000 and 1992-93 respectively
**Including daily wagers
***Excluding holding corporations

Investment

The investment rate is on the rise since 2004-05, reaching as high as 23 percent of GDP in 2006-07. The composition of investment between private and public sector has changed considerably during the last three years. The overall foreign investment during the first ten months (July-April) of the current fiscal year has touched $ 6 billion.

Inflation

During the first ten months of the current year 2006-07 (July—April) averaged at 7.9 percent. This is a slight improvement over last fiscal year where 2005-06 (July—April) inflation stood at 8.0 percent. Unlike previous years, the inflation in the current year was primarily driven by food prices. Food inflation in turn, was principally based on increase in prices of a few items such as rice, edible oil, meat, pulses, tea, milk, fresh vegetables and fruits.

Stock Market

Pakistan’s capital and stock markets have witnessed impressive growth over the last several years. The KSE-100 index (Pakistan’s benchmarked stock market) has increased from 1521 points in June 2000 to 12370 points in April 2007 – a rise of over 10,800 points or an increase of 713 percent. Similarly aggregate market capitalization has increased from Rs 392 billion ($7.6 billion) in June 2000 to Rs 3604 billion ($ 59.4 billion) in April 2007, showing a rise of over Rs 3200 billion ($ 53 billion) or an increase of 819 percent.

Per Capita Income

Pakistan’s per capita real GDP has risen at a faster pace during the last four years (5.5% per annum on average in rupee terms). The main factor responsible for the sharp rise in per capita income include acceleration in real GDP growth, stable exchange rate and four fold increase in the inflows of workers’ remittances.

Trade Deficit

The slower growth in imports is likely to improve trade deficit from 9.5 percent of GDP last year to 9.0 percent this year.

Foreign Direct Investment

Almost 78 percent of FDI has come from five countries, namely, the UAE, US, China, UK and Netherlands. If we look at sectoral breakup, the communication sector (including telecom) spearheaded the FDI inflows followed by financial business, energy including oil gas and power and food, beverages and tobacco.

Foreign Exchange Reserves

Pakistan’s total liquid foreign exchange reserves stood at $ 13,738 million.

External Debt

Pakistan has reduced its public debt burden (including Rupees debt and foreign currency debt) from 100.3 percent of GDP in end-FY99 to 53.4 percent of GDP by end-March FY07.

Remittances

Workers’ remittances, the third largest source of foreign exchange inflows after exports and foreign investment, continue to maintain its rising trend. Workers’ remittances totaled $ 4.45 billion in the first ten months (July-April) of the fiscal year as against $ 3.6 billion in the same period last year, depicting an increase of 22.6 percent.

Current Account Deficit

Current account deficit is expected to be around 5.0 percent of GDP as against 4.4 percent last year. The strong inflows in capital account will more than offset the current account deficit and add to the stock of foreign exchange reserves.

Privatization

During the period July 2006 to February 2007, the privatization commission completed five transactions that fetched an amount of Rs. 67.664 billion. OGDCL’s 10 percent listing and domestic offering was over subscribed yielding a total of $811 million.

Assets Privatized During FY 07
Assets					Value
OGDCL (GDR & domestic offering)					Rs. 46.963 billion
Pak American Fertilizers (shares)					Rs. 15.949 billion
Javedan Cement Limited					Rs. 4.316 billion
Lyallpur Chemical & Fertilizers					Rs. 0.280 billion
Lasbella Textile Mills					Rs. 0.156 billion
				Source : Privatization Commission

Balance of Payments

Pakistan’s balance of payments 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 widened to $ 6.2 billion (4.3% of GDP) in the first nine months (July-March) of the current fiscal year from $ 4.6 billion (3.6% of GDP) in the same period last year.

COMMENTS

• It has been stated that hydel electricity (dams) cost over 4.5 cents per unit while the thermal electricity cost over 12.5 cents to 14 cents per unit; but cost of the time-frame for dams versus thermal units and the cost of land that is already under cultivation and becomes useless due to salinity may also be considered.
• It is stated that per capita income has increased in dollar terms, at an average rate of 13% during last five years. Furthermore, as stated, main factor responsible for sharp rise in per capita income, amongst other things, is a fourfold increase in the inflow of worker’s remittances. This gives rise to the question that the income of the local masses may have remained constant or even decreased but it is the remittances of the lucky few who are abroad and sending their earnings to Pakistan. This is painting a misguiding rosy picture of per capita income increase of the poverty stricken masses.
• Sugarcane production last year is stated to be highest in the history of the country whereas sugar prices could not fall back anywhere near the Rs. 19 per kg prices from where the sugar crisis took it to the highest in the history of the country. The complete picture of sugar production rise fall rise is given below:

1.      1998-99                                         54 million tons

2.      2000-01                                         44 million tons

3.      2003-04                                         53 million tons

4.      2005-06                                         45 million tons

5.      2006-07                                         55 million tons

• Wheat production of 23.5 million tons is said to be highest ever in the history of the country whereas wheat flour per 10 kg bag (Ashrafi brand), today, stands at an all time high of Rs.165/=
• The constant load shedding in the country is one of the enormous speed breakers for the progress and prosperity of the manufacturing sector but in the economic survey – in the relevant section, it has not been highlighted as a major reason for lower production.

RECOMMENDATIONS

The theory of balanced growth states that there should be simultaneous and homogeneous development of different sectors of the economy so that all sectors grow in union.

 According to Nurks, the vicious circles of poverty are at work in underdeveloped countries which retard economic development. If, however, the vicious circles are broken, economic development will follow.

 The vicious circles of poverty can be broken by simultaneous investment in a large number of industries with balanced growth. The doctrine of balanced growth requires a balance between investment in agriculture and industry, as both are complimentary. If employment increases in the industrial sector, it will lead to an increase in demand of foodstuff which will require, in turn, the expansion of agriculture output.

It is important that the agriculture sector must develop and progress along with the industrial sector, otherwise inflation will set in. A balance is also required between the domestic and foreign sector. The need of the time is also to see as to where the proceeds of privatization, being capital in nature, are utilized. i.e. whether the sale of assets – being capital assets are used to retire long term debts or are spent away in contingency expenditure.