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The Economy of Pakistan

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Adeel Asim

on 2 December 2013

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Transcript of The Economy of Pakistan

THE ECONOMY OF PAKISTAN
NS Muhammad Adeel Asim
What is Economy?
NS Abrar Anwar Qureshi
An introduction to economy of Pakistan
NS Abrar Anwar Qureshi
Structure of Pakistan's economy:
GC Saad Mirza
History of Pakistan economy:
NS Shahbaz Hameed
Current situation of Pakistan’s economy.
NS Shahbaz Hameed
How to improve economic condition
NS Muhammad Adeel Asim
Challenges to Pakistan’s Economy
In a planned economy the government makes all decisions for society. Producers only make what they are instructed to make
Planned Economy
A system which tries to balance the available resources of a country (land, labour, capital and enterprise) against the wants and needs of consumers.
Market economies.
In market economies the government's role is limited to providing legislation to protect businesses and consumers and making sure no single business or organization restricts competition
Mixed economies:
The mixed economy is a combination of both planned and market economies. • In a mixed economy, the government contributes and controls some resources and the market controls the rest
Features of Planned Economy
Little Capacity of Development
Growth and Investment is limited
• the infrastructure is usually under-developed

• wages are state-controlled
• Prices are fixed by government
Features of Planned Economy
• businesses are motivated by profits to make products that customers will buy
• customers' demand for products and services affects the levels of supply and the pricing
The economy of Pakistan is the 27th largest in the world in terms of purchasing power parity (PPP).
Pakistan is 44th largest in terms of nominal GDP.

Population and economic Statistics
As Pakistan has a population of over 183 million world's 6th largest country in terms of population. Population is growing at the rate of 1.80%.
Pakistan has a semi-industrial economy, comprising of textiles, chemicals, food processing, agriculture and other industries. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment and high defense spending.
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.
Export and Import Statistics
Pakistan exports textiles (garments, be linen, cotton cloth, yarn), rice, leather goods, sports goods, chemicals, manufactures,carpets, steel, foodstuffs, fertilizer,Cement, sugar, animals, electrical equipment, petroleum and rugs to united states, china, Afghanistan and united Arab emirates and is member of trade organizations like ECO, SAFTA, ASEAN, WIPO and WTO
. Pakistan import petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel, tea from china Saudi Arabia, United Arab Emirates and Kuwait
Pakistan a low-income country, it is also recorded as a "Low Development Country" on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 56% of adults are literate, and life expectancy is about 64 years.
At the time of independence the economy of Pakistan was an agro based economy as most of its population was living in villages and agriculture was their only source of earning, then economy passed from many transitions
now it has turned into a semi industrialized economy with an expanding services sector
agriculture now comprises of only 23%of its GDP in comparison of 53% at time of independence
Pakistan’s GDP by sector is agriculture: 21.2%, industry: 25.4%, services: 53.4% (2010 estimate.)
The major sectors which are taking part in the growth of economy
1-Agriculture:
According to FAOSTAT and the Food and Agriculture Organization of The United Nations2013 ranking Pakistan is one of the world's largest producers of the following commodities: Apricot (3rd), Buffalo Milk (2nd), Chickpea (3rd) ,Cotton, lint (4th) ,Cotton, Seed (3rd) ,Dates (5th) ,Mango (6th) ,Onion, dry (4th), Oranges (11th), Rice, paddy (11th) ,Sugarcane (5th) ,Wheat (10th)
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 largest irrigation systems in the world. Agriculture accounts for about 23% of GDP and employs about 44% of the labor force.
ZARAI TARAQIYAT Bank Limited
2-Livestock:
11 per cent of Pakistan's GDP
National herd consists of 24.2 million cattle, 26.3 million buffaloes, 24.9 million sheep, 56.7 million goats and 0.8 million camels. In addition to these there is a vibrant poultry sector in the country with more than 530 million birds produced annually.
. These animals produce 29.472 million tons of milk , 1.115 million tons of beef, 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 skins and hides.
3-Fisheries:
Fishery plays an important role in the national economy. It provides employment to about 400,000 fishermen directly. In addition, another 500,000 people are employed in ancillary industries.
The Federal Bureau of Statistics provisionally valued this sector at Rs.18,290 million in 2005 thus registering over 10% growth since 2000.
4-Foreign trade:
Pakistan is member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations.
Pakistan now is being very well recognized for producing and exporting cements in Asia and Mid-East. Starting August 2007, Pakistan will be exporting Cement to India
5-Industry:
Pakistan ranks forty-first in the world and fifty-fifth worldwide in factory output. Pakistan's 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 labour force. Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.
CNG Industry
b. As of 2010, Pakistan is one of the largest users of CNG (compressed natural gas) in the world. Presently, more than 3,000 CNG stations are operating in the country in 99 cities and towns, and 1000 more would be set up in the next two years. It has provided employment to over 50,000 people in Pakistan
In 1947, Pakistan had inherited four cement plants with a total capacity of 0.5 million tons. Some expansion took place in 1956–66 but could not keep pace with the economic development and the country had to resort to imports of cement in 1976–77 and continued to do so till 1994–95. The cement sector consisting of 27 plants is contributing above Rs 30 billion to the national exchequer in the form of taxes
Cement Industry
Pakistan’s IT industry has been rising steadily since the last three years. A marked increase in software export figures are an indication of this booming industry’s potential. The total number of IT companies increased to 1306 and the total estimated size of IT industry is $2.8 billion. In 2007, Pakistan was for the first time featured in the Global Services Location Index by A.T. Kearney and was rated as the 30th best location for offshoring. By 2009, Pakistan had improved its rank by ten places to reach 20th.
IT Industry
The Textile Industry is dominated by Punjab. 3% of United States imports regarding clothing and other form of textiles is covered by Pakistan. Textile exports in 1999 were $5.2 billion and rose to become $10.5 billion by 2007. Textile exports managed to increase at a very decent growth of 16% in 2006. In the period July 2007 – June 2008, textile exports were US$10.62 billion. Textile exports share in total export of Pakistan has declined from 67% in 1997 to 55% in 2008, as exports of other textile sectors grew.
The Textile Industry
6-Mining and quarrying:
Important minerals
Important minerals found in Pakistan are gypsum, limestone, chromites, iron ore, rock salt, silver, gold, precious stones, gems, marble, copper, coal, graphite, sulphur, 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, oil and gas reserves which have not been exploited to their full capacity. The province has significant quantities of copper, chromite 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 Baluchistan’s Rekodiq area have been discovered in early 2006.
statistics of reserves are given in the word format submitted before
7-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
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.


8-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
. Domestic petroleum production totals only about half the country's oil needs, and the need to import oil has contributed to Pakistan's trade deficits and past shortages of foreign exchange.
Pakistan is a world leader in the use of compressed natural gas (CNG) for personal automobiles.
9- 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%.
10-Imports:
Pakistan’s imports stood at $33 billion according to estimates of 2013 January.
Pakistan's single largest import category is petroleum and petroleum products. Other imports include: industrial machinery, construction machinery, trucks, automobiles, computers, computer parts, medicines, pharmaceutical products, food items, civilian aircraft, defense equipment, iron, steel, toys, electronics, and other consumer items.
Pakistan's Major Imports
Sales tax is levied at 15 percent both on imports and domestically produced products. The income withholding tax is levied at 6 percent on imports and at 3.5 percent on the sales of domestic taxpayers.
Taxes
Economic history
The only suitable manner in which a country can be evaluated is to examine its history and to look at how certain features have evolved through certain processes and the direction in which these developments have taken place. The story of development is more important than a mere comparison of numbers at the beginning with those at end.
Probably the most striking factor that is in a manifested in a view of Pakistan in 2013 as compared to 1947 is that Pakistan today is less than half of country it was in 1947.in 1947 55% of Pakistan’s population lived in what was then east Pakistan making it the majority province in terms of population. Despite its majority the eastern wing was economically discriminated against and exploited .a section of the ruling elite of the western wing of Pakistan become the oppressors and exploiters of the east Pakistani people leading to their eventual secession after a long and painful war of liberation ending in 1971.the contribution made by east Pakistan to Pakistan economy and society was huge, though never fully recognized or appreciated by west Pakistani's.
In 1947 Pakistan had every right to be called an agricultural country because at that time major share of Pakistan's gross domestic product was from agriculture which contributed around 53% compared to 7.8% from manufacturing and 11.9% from retail trade. More than 65% of Pakistani labour force worked in agriculture and almost all of Pakistani exports consisted of primary products ,essentially agricultural commodities like jute,tea,which not surprisingly originated from east Pakistan.
Pakistan is no more an agrarian country as agriculture contributes on 21% of GDP and 45% of labour force is employed in this sector now.manufacturing sector has grown as its share in GDP is now25%.services sector has dominated all other sectors and contributing more than half of the county's GDP.nature of exports has also changed as now Pakistan is exporting manufacturing products.
Laying the foundation 1947-58:
In 1947 Pakistan was indeed a predominantly agrarian ,underdeveloped ,newly independent nation ,with little industry few services,and no infrastructure.
The primary task of the government .attempts to restructure the economy and to ensure that it was on a strong footing could be undertaken only after the initial political and economic shocks had been dealt with.

The decade of development: 1958-68
1960 stands out as the decade with the best performance.many of the economists have written about Ayub khan's era and they are generally agreed that considerable economic growth and development did indeed take place.they argue that significant leaps were made in industrial and agricultural production
Observers have pointed out that this aggressive capitalist development caused serious economic, social and political tensions. they argue that there was increased disparity in income across different regions.major growth was in central Punjab and in Karachi,critics say that two regions were permitted to grow at the expense of the rest of the country.
The bad luck years: 1971-77
Bhutto's economic policies were more illiberal than those of his predecessor,and his nationalization was said to be the major cause for a huge downward trend in growth.in the 1970s GDP grew by close to 5% which indicates the need for a thorough reexamination of the economic programme of Bhutto.Bhutto was an unlucky politician in many ways and events beyond his control affected his economic programme.
The economic loss of east Pakistan was strongly felt.
the devaluation of the Pakistani rupee by120% in may 1972 brought significant devedends in terms of export growth in one year(1972/3)
The 1973 OPEC price increases played havoc with Pakistan's import bill and the balance of payments deteriorate
also ,the period after 1973 saw a serious worldwide recession affecting Pakistan's exports.recurrent domestic cotton crop failures and floods in 1973,1974
and 1976,affected Pakistan's main exports
The large nationalized units taken over but Bhutto were the most inefficient in the industrial sector, and despite this, industry experience a reasonable growth rate.

Bhutto's government also laid the foundations for future growth and development from which his successor benefited .basic industries were set up and a base for a capital goods industry which resulted in subsequent growth.the Liberal economic policies of Zulfiqar Ali Bhutto were responsible for growth not only during his own tenure but also in period after 1977.
NS Hamza Azam
The second military government 1977-88
General zia regime was more liberal in economic terms but not politically than any one of his predecessors.while the civilian military bureacracy played a prominent role in acquiring capital and in assming the role of entrepreneur and financer ,numerous individual capitilists emerged in the post-bhutto era.high rates of industrial growth were led by coming on stream of earlier investment made by public sector under bhutto,especially in heavy industries and also by rapid expansion in domestic dyUSA helped ensure that steps were taken to increase growth.remittancees from middle east and aid from abroad helped launch pakistan's second economic revoloution .By becoming the capitalist world's front line state against soviat union and specially against expansionism .in the region pakistan's government gained interms of financial aid and resources. however general zai's martial rile inflicted deep rooted damage to pakistan society.
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The era of structrual adjustment 1988-1999
The period after the death of general zia in 1988resulted in return of democracy to Pakistan, between august 1988 to august 1997, Pakistan had four general elections with both benazir bhutto and nawaz sharif being returned to power twice.since none of the elected governments was able to complete its full term there have also been more than a few caretaker governments.
Musharraf era:
Pakistan’s economy has witnessed many changes since October 1999, some for the better and others for the worse.
 There was deregulation of the banking sector, including sharply cutting loan interest rates, putting in place a regime that allowed banks to engage more liberally in giving consumer finance loans, and lifting restrictions on the number of branches that foreign banks could open in Pakistan. Easy access to low-cost consumer finance led to a sharp rise in the sale of consumer goods such as cars, motor cycles, cell phones and home appliances had been noticed.
 Country’s per capita income had risen dramatically in those years, from about $ 450 in 1999 to about $ 1,000 in 2007. In making this case, the government chose to ignore the fact that a falling dollar required that the per capita income figure be proportionately scaled down to give a more realistic picture of the actual figure.
The government also tended to gloss over the fact that it had artificially propped up the value of the dollar against the rupee by directing the State Bank of Pakistan to regularly buy dollars from the open market.
The government said it had propped up the rupee’s value to help exporters, arguing that a higher rupee-dollar exchange rate would have meant that exporters would have earned fewer dollars for their exports, thereby putting additional
pressure on the country’s balance of payments. While there was considerable merit in this argument, the downside of the State Bank’s interventionist operations in the currency market was that it made imports more expensive in rupee terms
Higher-priced capital goods, in turn, increased the cost of expanding manufacturing plants or setting up new factories, resulting in a slowing down of the industrialization process.

 Like all bubbles, the low-interest-rate bubble, too, had to burst one day. Within a few years, loan interest rates again began to rise steeply, soaring from a low of about five per cent per annum in 2002-03 to over 15 per cent today for business loans and 22 per cent for consumer finance loans.
 Higher education is a federal subject, and the Musharraf-Aziz government has to be given credit for setting up a Higher Education Commission and for significantly increasing the budget allocation for higher education,
 Foreign remittances start growing speedily in Musharraf era
The Democratic Government of Zardari:
In 2012 the nation was poorer, hungrier, and more deprived than it was in March 2008.
For the first time since independence in 1947, democratically elected legislatures completed their constitutionally mandated tenures in Pakistan. This is indeed a significant landmark in Pakistan’s democratic history.

While the Musharraf regime posted 6 per cent to 8 per cent economic growth rates, the Zardari government couldn’t muster even a 4 per cent GDP growth.
It is, however, true that the good fortune did not favour the elected governments. the Zardari government came to power in 2008 when the global economies experienced the worst economic recession since the great depression of the 30s. The demand for Pakistani goods declined and investment flows dried up, thus starving Pakistani industries.
Introduction

Pakistan’s economy is considered massive informal economy and a consumption oriented society. The Stock Exchanges, especially the Karachi Stock Exchange, have been performing well and the Equity and Real Estate sectors are showing signs of improvement.Pakistan registered 3.7 % growth in year 2011-2012. Though Pakistan is unlikely to meet the target of 4.3% in the current year yet World Bank, IMF and ADB estimates are 3.8%, 3.5% and 3.7% respectively.
Government is facing problems including unsustainable budget and balance of payment deficits, depleted foreign exchange reserves, massive domestic and foreign debt, falling domestic and foreign investment, a serious energy crisis and private sector enterprises (PSE’s). The unavoidable conclusion is that Pakistan will have to go to the IMF for a bailout package .
Current problems being faced
• Agriculture sector is facing problem of high fertilizer prices ,electricity shortfall .
• State-owned enterprises have seen little improvement. Corruption, bureaucratic influences and mismanagement is declining positive development.
• Domestic and foreign investments have snagged even more due to rising inflation,
• High costs have caused Pakistani manufactured products to lose competitiveness in the international market.
• National debt has escalated to Rs. 14.8 trillion and continues to remain a persistent problem for the country.
• Foreign debt is highly affecting foreign reserves and due to which our currency is depreciating.
Projects that can actually help Pakistan out of the economic crisis like the IP pipeline and Gwadar port have been deemed controversial because of the precarious balance we need to maintain with the West and our homeland security dilemma. But still in vulnerable stages, if pursued these projects can push us onto the path of recovery.With the exchange rate spiraling downwards, we are looking at a situation with Capital flight, inflows are drying up and external liabilities setting in.
We Consume More and Save Less.
We Import More and Export Less.
Government spends more than it earns as Revenues.
Our Share in the World Trade is shrinking.
We Badly Lag in Social Indicators.
We Face Energy and Water Shortages.
Cost of Doing Business is High.
Crisis of Governance and Implementation Weaknesses.
Uncertainty and Unpredictability due to Lack of Continuity.
Political Stability, Law and Order/Security.
Foreign remittances
Remittances have been growing at a steady rate since 9/11.The State Bank of Pakistan has projected that remittances for the fiscal year 2013 should cross $14 billion — significantly higher than the level achieved in 2012 when funds sent in by overseas Pakistanis crossed $13 billion, which was a high amount.
The main positive point about our economy is that most problems are due to
Management issues and not owing to economic imbalances.
How can we overcome these challenges and problems and improve our economy, some of the policy recommendations are given below,

A. Change in National Psyche and Mindset
b. Building up of Human Capital
Use of Technology
Young Labour Force
Governance, Devolution and Decentralization
• Huge untapped natural resources
Improved security and law & order
The planning commission is like a fuel pump
Finally, our connectivity with the global markets is still low
Any Questions
?
We have answers!!
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