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Economy grows by two percent against 4.5 percent target



New Recruit

Nov 1, 2005

ISLAMABAD (June 10 2009): Pakistan's economy grew by only 2 percent in 2008-09, against the target of 4.5 percent, due to poor performance of almost all sectors, coupled with internal and external pressures of extreme nature. Agriculture has been the only sector, which demonstrated some growth, mainly because of better weather conditions and good support price to wheat growers.

"The intensification of war on terror into settled areas, coupled with other domestic factors like political turmoil and an unstable law and order situation, acute energy shortages, supply shocks, augmented by external factors like worsening of international financial crisis feeding into shrinkage of external demand and uncertainty about global recession, tested the resilience of economic fundamentals," says the Economic Survey to be formally launched later.

The country's economic managers failed to prove their competency, as most of the targets they had set for the outgoing fiscal year were missed during the first nine months. These targets were with respect to privatisation, fiscal policy, monetary policy, inflation, poverty, overall manufacturing, large-scale manufacturing, exports, imports, and trade balance.

Only agriculture sector depicted a stellar growth of 4.7 percent, as compared to 1.1 percent witnessed last year and the target of 3.5 percent for the year. The overall FBR tax collection remained less than satisfactory and witnessed deceleration in real terms. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 percent of GDP as against the target of bringing it in the vicinity of 10 percent of GDP.

Last year, the short term acting Finance Minister, Naveed Qamar, flanked by the incumbent Minister of State for Finance, Hina Rabbani Khar, had raised his arms reflective of deep commitment, and uttered the catchphrase "our accountability will start from the federal budget 2008-09"; but today he is no longer the person who is mandated to respond to questions about the performance of his government.

This time, Advisor to Prime Minister on Finance, Shaukat Tarin, with the same lady Hina Rabbani Khar will present his rationale for failure on almost all macroeconomic fronts. According to the Economic Survey, the economy has lost significant growth momentum owing to massive contraction in the industrial sector.

In the stabilisation mode in an inhospitable domestic and international environment the economic growth of 2.0 percent, achieved during 2008-09, seems reasonable albeit it implies definite slippage against 4.1 percent growth of last year and this year's target of 4.5 percent. That it should be looked in the backdrop of global recession where positive growth is a rare exception, is the Finance Ministry's excuse.

The Finance Ministry concedes that the economic growth might not be comparable with consumption-led average growth of an average of 5.4 percent annually for the last eight years. The Survey shows that the economy moved to a higher growth trajectory during 2002-07 on the back of heavy reliance on external financing and use of sale proceeds from some public sector assets to meet growing current account deficit.

The poor resource mobilisation efforts remained the hallmark of the economic policy in this period and exacerbated vulnerabilities to external shocks. The domestic factor behind the higher growth for the Musharraf years was a consumer boom on the back of enhanced access to credit which was likely to slow down once the demand for durables reached saturation level.

The productive capacity of the economy remained alien to this higher growth and new industrial or energy capacity never received due attention. The growth of 2008-09 must be viewed in the backdrop of regional and international developments where real GDP in Pakistan's main trading partners is estimated to contract by almost 3 percent on average in 2009, depressing the external demand for Pakistan's exports.



-- Real GDP grew by 2.0 percent in 2008-09 as against 4.1 percent last year and growth target of 4.5 percent.

-- The modest growth of just 2.0 percent is shared between Commodity Producing Sector (CPS) (0.08) and services sector (1.92). Within the CPS, agriculture contributed 1.0 percentage points, or 50.1 percent, to overall GDP growth (a significant increase from its contribution of only 5.0 percent last year) while industry dragged 0.92 percentage points or 46.1 percent to neutralise positive contribution of the agriculture. In the services sector, major contributions to GDP growth came from transport, storage & communication (0.3 percentage points or 14.6 percent), wholesale & retail trade (0.7 percentage points or 27.1 percent) and social services (0.8 percentage points or 38.6 percent).


-- Agriculture sector has depicted a stellar growth of 4.7 percent as compared to 1.1 percent witnessed last year and target of 3.5 percent for the year. Major crops accounting for 33.4 percent of agricultural value-added registered an impressive growth of 7.7 percent as against a negative growth of 6.4 percent last year and a target of 4.5 percent. The livestock sector grew by 3.7 percent in 2008-09 as against 4.2 percent last year.

-- Output in the manufacturing sector contracted by 3.3 percent in 2008-09 as compared to expansion of 4.8 percent last year and overambitious target of 6.1 percent. Small and medium manufacturing sector maintained its healthy growth of last year at 7.5 percent.

-- Large-scale manufacturing depicted contraction of 7.7 percent as against expansion of 4.0 percent in the last year and 5.5 percent target for the year. The massive contraction has been because of acute energy outrages, security environment and political disruption in March 2009.


-- The services sector grew by 3.6 percent as against the target of 6.1 percent and last year's actual growth of 6.6 percent.

-- Value-added in the wholesale and retail trade sector grew at 3.1 percent as compared to 5.3 percent in last year and target for the year of 5.4 percent.

-- Finance and insurance sector witnessed a slowdown to 12.9 percent in 2007-08 but registered negative growth of 1.2 percent in 2008-09. The performance of this sector shows that Pakistan's financial sector is integrated in the world economy and is feeling the heat of the financial crisis plaguing international financial markets.

-- The Transport, Storage and Communication sub-sector depicted a sharp deceleration in growth to 2.9 percent in 2008-09 as compared to 5.7 percent of last year.


-- Pakistan's per capita real income has risen by 2.5 percent in 2008-09 as against 3.4 percent last year. Per capita income in dollar terms rose from $1042 last year to $1046 in 2008-09, thereby showing marginal increase of 0.3 percent.


-- Real private consumption rose by 5.2 percent as against negative growth of 1.3 percent attained last year. However, gross fixed capital formation could not maintain its strong growth momentum and real fixed investment growth contracted by 6.9 percent as against the expansion of 3.8 percent in the last fiscal year.


-- Total investment declined from 22.5 percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09. Fixed investment decreased to 18.1 percent of GDP from 20.4 percent last year. Private sector investment was decelerating persistently since 2004-05 and its ratio to GDP declined from 15.7 percent in 2004-05 to 13.2 percent in 2008-09. Public sector investment to GDP ratio has risen persistently from 4.0 percent in 2002-03 to 5.6 percent in 2006-07. However, it declined to 4.9 percent in 2008-09.

-- National savings rate has nose-dived to 14.4 percent of GDP in 2008-09 as against 13.5 percent of GDP last year. Domestic savings also declined substantially from 16.3 percent of GDP in 2005-06 to 11.2 percent of GDP in 2008-09.


-- The SBP kept its tight monetary policy stance in the period July 1, 2008-April 20, 2009. The policy rate was adjusted upward in November 2008 to shave off some aggregate demand from the economy and kept constant in January 2009. However, it adjusted downward by 100 bps on April 20, 2009.

-- During July 1, 2008-May 16, 2009, money supply (M2) expanded by 4.6 percent against the target expansion of 9.3 percent for the year, and last year's expansion of 15.3 percent. The reserve money grew by 2.4 percent as against expansion of 13.2 percent.

-- Net domestic assets (NDA) increased by Rs 443.8 billion as compared to increase of Rs 702.5 billion last year, thereby showing an increase of 11.0 percent in this period, whereas last year the growth in the comparable period was 22.8 percent.

-- Net foreign assets (NFA) recorded a contraction of Rs 227.3 billion against the contraction of Rs 322.8 billion in the comparable period of last year.

-- Government borrowing for budgetary support has recorded an increase of Rs 332.2 billion as compared to Rs 361.0 billion in the comparable period of last year. The SBP financing has shown a net increase of Rs 198.2 billion and financing from scheduled banks witnessed a net increase of Rs 134.0 billion during July 1, 2008-May 16, 2009.

-- Credit to private sector witnessed a net disbursement of Rs 26.8 billion as compared to Rs 369.4 billion in the comparable period of last year.

-- Weighted average lending rate witnessed a decline from 15.5 percent in October, 2008 to 14.3 percent in March, 2009. Weighted average deposit rate, on the other hand, decreased from 9.5 percent in October 2008 to 8.0 percent in March 2009, which implies increase in the spread amid intensive deposit mobilisation efforts on the part of the banks. The weighted average yields on 6 months T-bill declined by almost 250 basis points to 11.5 percent in March 2009 as against 14 percent in November 2008 but inched up to 12.4 percent in April 2009.


-- The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 22.3 percent during July-April 2008-09, as against 10.3 percent in the comparable period of last year. However, year-on-year inflation decelerated from 25.3 percent in August 2008 to 17.2 percent in April 2009.

-- The food inflation is estimated at 26.6 percent and non-food 19.0 percent against 15.0 percent and 6.8 percent in the corresponding period of last year.

-- The increase in inflation rate during the current year 2008-09 is attributable to the increase in food price inflation which has been due to increase in prices of edible oil, pulses, rice, milk, poultry, meat, wheat, wheat flour, fresh vegetables and fruits.

-- On current trends, and barring any adverse shocks, it is expected that the average inflation for the year (2008-09) as measured by CPI will be close to 21.0 percent.

-- The core inflation which represents the rate of increase in cost of goods and services excluding food and energy prices also went up from 7.5 percent to 20.3 percent.

-- The Wholesale Price Index (WPI) increased by 21.4 percent, as against 13.7 percent of last year.

-- The Sensitive Price Indicator (SPI) has recorded an increase of 26.3 percent during July-April 2008-09, as against 14.1 percent of last year.


-- The government decided in the economic stabilisation program to adhere to the fiscal deficit target reverently and, during the first nine months of the current fiscal year, the fiscal deficit hovered around 3.1 percent of the projected GDP for 2008-09 which is consistent with annual fiscal deficit target of 4.3 percent. The fiscal improvement has largely been based on reduction of oil subsidies and a cut in development spending. All meaningful efforts to expand revenues, particularly by broadening the tax base, will only work in the medium term.

-- The financing patterns of fiscal deficit remained dominated by the banking system, which financed 85 percent of the fiscal deficit and only 15 percent were financed by the non-bank sources. The government remained prudent and over-performed with respect to the SBP financing limit allowed by the Economic Stabilisation Program.

-- The overall FBR tax collection remained less than satisfactory and actually witnessed deceleration in real term. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 percent of GDP as against the target of bringing it in to the vicinity of 10 percent of GDP.

-- Tax Revenue collected by the FBR amounted to Rs 898.6 billion during the first ten months (July-April) of the current fiscal year, which is 17.7 percent higher than the net collection of Rs 763.6 billion in the corresponding period of last year.

-- The net Direct tax collection was estimated at Rs 332.5 billion against the target of Rs 496 billion which implies a growth of 16.9 percent during July-April 2008-09.

-- Indirect taxes grew by 18.2 percent during July-April 2008-09 and accounted for 62 percent of the stake in overall tax revenue. The sales tax collections grew by 22.2 percent and stood at Rs 358.9 billion as against Rs 293.6 billion in comparable period of last year. The net customs duty collection inched up from Rs 114.9 billion in 2007-08 to Rs 117.2 billion in 2008-09, thereby showing modest growth of 2.1 percent. The net collection of federal excise stood at Rs 90.0 billion during July-April 2008-09 as against Rs 70.6 billion in the corresponding period of last year, thereby showing an increase of 27.5 percent.

-- Despite a decline in fiscal deficit in the first nine months of 2008-09, the growth in domestic debt accelerated, reflecting non-availability of financing through external sources. The stock of domestic debt grew by Rs 484.4 billion during July-March 2008-09. This strong growth in the domestic debt reflects non-realisation of privatisation proceeds and reduced availability of net external financing due to increase in external debt repayments on maturing stock of foreign currency bonds. The main contribution came from 17.5 percent rise in floating debt, which increased by Rs 286 billion. The stock of permanent debt increased by Rs 44 billion. Unfunded debt witnessed a growth of 15.1 percent in July-March 2008-09 mainly because of uncertainty in the financial market and very attractive rates offered by NSS schemes.


-- Public debt burden continued to decline rather sharply over the last seven years with significant improvement in fiscal situation. However, public debt witnessed a reversal of trend amid worsening fiscal situation in the last fiscal year.

-- The public debt-to-GDP ratio, which stood at almost 55.5 percent in end June 2007, increased to 57.4 percent by the end of June 2008 mainly because of high fiscal deficit resulting in massive borrowing. However, by end-March 2009 public debt declined to 55.5 percent of the GDP for the year mainly because of better fiscal discipline displayed during 2008-09. In absolute terms, public debt grew by 23.2 percent in the first nine months (July-March 2008-09).


-- Exports were targeted at $19.0 billion, or 6.9 percent lower than last year. Exports started to face heat of global recession since January 2009 and the contraction of world demand for major exports exacerbated export contraction. The exports witnessed negative growth of 2.6 percent--declining from $16.4 billion of last year to $16.0 billion in July-April 2008-09. However, exports fell by 25.9 percent in April 2009 over April 2008 which is really worrying for the economy.

-- Imports registered a negative growth of 9.8 percent in July-April 2009. The imports stood at $26.77 billion as against $28.715 billion in the comparable period of last year. The growth in imports reflects impact of substantial fall in oil and food imports in monetary terms and these two items were responsible for 80 percent of additional import bill of last year. Import compression measures, coupled with massive fall in international oil prices, have started paying dividends and imports witnessed marked slowdown during the last two months.

-- Trade Balance The merchandise trade deficit improved by 12.3 percent and declined from $10.7 billion in July-April 2008-09 to $12.3 billion in July-April 2008-09. The substantial decrease of 9. 8 percent in imports outstripped otherwise significant decrease of 3.0 percent in export growth which caused the trade deficit to improve by 12.3 percent.

-- Workers' Remittances Workers' remittances totalled $6.4 billion in July-April 2008-09 as against $5.3 billion in the comparable period of last year, depicting an increase of 19.5 percent. Deep recession in the US economy, which constitutes close to one-third of Pakistan's remittances, started taking its toll and witnessed negative growth of 1.9 percent. The trend will be expected to continue in the months to come. However, overall outlook of remittances from other source countries is positive.

-- Current Account Balance Pakistan's current account deficit shrank by 23.5 percent during July-April 2008-09. Current account deficit shrank to $8.5 billion as against $11.2 billion last year. In the month of February 2009, the current account witnessed a surplus which is a rare development in Pakistan economy. This was first monthly surplus since June 2007. It turned to deficit in March and April 2009.

-- Foreign Exchange Reserves declined substantially in the initial months of 2008-09, dropping from $11.4 billion at end-June 2008 to a low of $6.4 billion by November 25, 2008. This depletion of reserves in the five months was lower than fall in forex reserves for the whole of 2007-08. The subsequent partial recovery in November 2008 owed essentially to the inflow of $3.1 billion from the IMF following Pakistan's entry into a macroeconomic stabilisation program. The import coverage ratio declined to an uncomfortable level of 9.1 weeks as of end-October 2008 from 16.8 weeks of imports as of end-June 2008, but it improved to 18.0 weeks of imports by end-April 2009.

-- Exchange rate after remaining stable for more than 4 years, lost significant value against the US dollar and depreciated by 21 percent during March-December 2008. Most of the depreciation of rupee against dollar was recorded post-November 2007 owing to combination of factors like political uncertainty, trade related outflows and speculative activities. With successful signing of Standby arrangement with the IMF, the rupee regained some of its lost value. With substantial import compression and revival of external inflows from abroad in the coming months of the fiscal year, the exchange rate is forecast to remain stable at around Rs 80-82 per dollar.

-- The overall foreign investment. During the first ten months (July-April) of the current fiscal year foreign investment declined by 42.7 percent and stood at $2.2 billion against $3.9 billion in the comparable period of last year.

-- Foreign direct investment (private) showed some resilience and stood at $3205.4 million during the first ten months (July-April) of the current fiscal year as against $3719.1 million in the same period of last year thereby showing a decline of 13.8 percent.

-- Private portfolio investment on the other hand showed an outflow of $451.5 million as against an inflow of $98.9 million during the comparable period of last year, showing a decline 25.7 percent.

-- The US kept its distinction of being the largest investor with 23.2 percent stake in the FDI. Other big investors originated from Mauritius (10.0 percent), Singapore (7.7 percent), UK (6.9 percent), Switzerland (6.6 percent), UAE (5.3 percent) and Hong Kong (3.9 percent).

-- The communication sector (including Telecom) spearheaded the FDI inflows by accounting for 27.3 percent stake during July-April 2008-09, followed by financial business (22.4 percent), energy including oil & gas and power (22.7 percent), and trade (4.9 percent). The current wave of uncertainty in global demand and economic activity in the country has resulted in a major backlash on FDI inflow groups namely, communication, financial business and oil & gas exploration accounted for almost 67 percent of FDI inflows in the country. The communication sector (including Telecom) spearheaded the FDI inflows by accounting for 30.4 percent stake during 2007-08, followed by financial business (22.6 percent), and energy including oil & gas and power (21.5 percent).

-- External debt and liabilities (EDL) Pakistan's total external debt increased from US $46.3 billion at end-June 2008 to US $50.1 billion by end-March 2009, an increase of US $3.8 billion or 8.2 percent. In relative terms, EDL as percentage of GDP increased from 28.2 percent at end-June 2008 to 29.8 percent by end-March 2009, an increase of 1.6 percentage points.

-- The country's debt burden is also defined as external debt and liabilities as percentage of foreign exchange earnings increased from 124.3 percent by end-June 2008 to 144.3 percent by end-March 2009.

The overall foreign investment during the first ten months (July-April) of the current fiscal year declined by 42.7 percent and stood at $2.2 billion as against $3.9 billion in the comparable period of last year. Foreign direct investment (private) has shown some resilience and stood at $3205.4 million during the first ten months (July-April) of the current fiscal year as against $3719.1 million in the same period of last year, thereby showing a decline of 13.8 percent. Private portfolio investment on the other hand showed an outflow of $451.5 million as against an inflow of $98.9 million during the comparable period of last year showing a decline of 25.7 percent.

The domestic production of fertilisers during the first nine months (July-March 2008-09) of the current fiscal year was up by 3.6 percent as compared with corresponding period of last year. On the other hand, the import of fertiliser decreased by 51 percent, and the total availability of fertiliser also decreased by 11.9 percent during the two comparable periods namely July-March 2007-08 and July-March 2008-09. Agricultural loans, amounting to Rs 151.9 billion, were disbursed during July-March, 2008-09 as against Rs 138.6 billion during the corresponding period of last year, thereby registering an increase of 9.6 percent.


-- Manufacturing sector is the second largest sector of the economy, contributing 18.4 percent to GDP. This sector has recorded its weakest growth in a decade during current fiscal year. Overall manufacturing posted a negative growth rate of 3.3 percent during the current fiscal year against the target of 6.1 percent and 4.8 percent of last year.

Large-scale manufacturing (LSM), accounting for almost 70 percent of overall manufacturing, witnessed a broad-based decline of 7.7 percent against the revised growth target of negative 5.0 percent during July-March 2008-09. Main contributors towards this broad based decline were the impact of severe energy shortages, deterioration in domestic law and order situation, sharp depreciation in rupee vis-à-vis US dollar and, most importantly, weak external demand on the back of global recession coupled with slowdown in domestic demand. The increasing trend in inflation also affected consumers to curtail expenditure on durable goods.

-- Textile sector, being an export-oriented industry of Pakistan and more prone to international demand shocks, has been under severe stress amid a global recession. However, textile production declined slightly by 0.7 percent over the same period of last year. The textile sector was badly hit by power shortages and weak external demand.

Both cotton yarn and cotton cloth industries, with the largest share of the textile sector, posted negative growth of 0.3 percent during the first nine months of current financial year.

-- The sustained growth in recent years in cement industry has been an outcome of increase in its production capacity and exploitation of export markets. The cement sector posted a growth rate of 4.71 percent during the current fiscal year. Cement exports increased by 48.8 percent.

-- Fertiliser industry also posted positive growth due to increase in production.

-- The Steel Mill is producing coke, pig iron, billets, hot rolled coils/sheets, cold rolled coils/sheets, galvanised sheets, etc. The performance of steel mill was unsatisfactory during the current fiscal year. The production value slid down from Rs 11133 million in 2007-08 to Rs 9971 million in the current financial year, witnessing a decrease of 10.44 percent.

Mineral potential of Pakistan, though recognised to be excellent, is inadequately developed as its contribution to GDP at present stands at 2.4 percent. During the current fiscal year (July-March 2008-09), the mining and quarrying sector registered almost flat growth rate ie 0.24 percent as against 3.0 percent of last year and a target of 4.5 percent for the current year.

The growth rate of this sector declined sharply due to substantial diminishing trend in the production of Magnesite (51.3percent), Sluphere (10.3percent) and Dolomite (4.6percent). During the current fiscal year, the Privatisation Commission completed the transction of Hazara Phosphate Fertiliser Limited (HPFL), fetching Rs 1340.02 million.

Smeda plays a vital role in creating market oriented economic growth, employment opportunities and reducing poverty. As many as 16 projects, amounting to Rs 1680 million, have been approved for implementation by Smeda.

FISCAL DEVELOPMENT The severity of the macroeconomic imbalances in the last fiscal year once again reinforces the importance of fiscal prudence for sustainable economic growth. The hangover from 2007-08 continued to haunt adjustment efforts. The fiscal consolidation efforts faced headwinds like deteriorating security environment, domestic political uncertainties along with the deepening of the global financial crisis and overall depressed macroeconomic environment.

The unanticipated persistence of inflationary pressures on the economy kept fiscal policy options under check. The shrinking revenues constricted government's ability to pursue counter cyclical policy.

There has been significant improvement in fiscal performance during 2008-09 due to the policy shift, with the overall fiscal deficit estimated to have dropped to 4.3 percent of annual GDP. The fiscal improvement in 2008-09 has been largely based on reduction of oil subsidies and a slash on development spending.

Going forward, Pakistan needs a substantial increase in resource base to augment its development efforts, and fiscal consolidation efforts has to come from enhanced revenue base because we have already exhausted options for expenditure cuts. Pakistan's future economic development crucially hinges upon additional resource mobilisation and, for this end, extending the tax base to unexplored sectors is very crucial.

The overall fiscal balance has recovered from a sizeable slippage of 2007-08 amid substantial decline in revenues and elimination of some subsidies like on petroleum products. However, major contribution should come from additional resource mobilisation.

Notwithstanding all lacklustre and half-hearted attempts to reform tax administration and procedures, the tax-to-GDP ratio fluctuated in a narrow band of 10 to 11 percent for almost one decade. In the current fiscal year, the potential risk exists of tax-to-GDP ratio below 10 percent of GDP for the first time in the last two decades.

On revenue side, tax-to-GDP and hence, revenue-to-GDP, ratios either remained stagnant or showed a decline, owing mainly to structural deficiencies in the tax system and administration, both at federal and provincial government levels. The expenditure of the government in relation to GDP exhibited similar pattern, with total expenditures showing an overall decline since the beginning of the 1990s.

However, in 2008-09 total revenue as percentage of GDP slightly recovered, due to a marginal improvement in non-tax revenues as percent of GDP. Total revenue is expected to reach Rs 1910 billion, as compared to Rs 1499.5 billion during the 2007-08.

The FBR revenue collection for the fiscal year 2008-09 was targeted at Rs 1,250 billion at the time of presentation of the Federal Budget 2008-09. Tax collection during the first ten months (July-April) of the current fiscal year amounted to Rs 898.6 billion, which is 17.7 percent higher than the net collection of Rs 763.6 billion in the corresponding period of last year.

The tax collection performance felt the heat of slowing economy and falling imports. Customs duty collection deviated from its recent past track record of high growth mainly because of the fact that dutiable imports underwent negative growth. Notwithstanding its meagre share even in indirect taxes, federal excise duty collections registered a vibrant growth of 27.6 percent.

The sales tax collections are also relying heavily on imports and sales tax at import stage witnessed marginal growth. On the other hand, 47 percent growth in sales tax on domestic economic activity helped it to grow overall by 22.2 percent. When viewed in the backdrop of 23 percent growth in national income, the growth of 16.9 percent in direct tax looks dismal. The overall FBR tax collection remained less than satisfactory and actually witnessed deceleration in real terms.

Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9 percent of GDP as against the target of bringing it into the vicinity of 10 percent of GDP. Apart from FBR revenue, total tax revenue growth also lagged behind the growth in nominal GDP, as it exhibited a decline in tax-to-GDP ratio from 10.3 percent in 2007-08 to around 10 percent in 2008-09.

The budgeted total expenditure for the fiscal year 2008-09 was Rs 2391 billion, which is 4.9 percent higher than last year's revised estimate. On the other hand, current expenditures were envisaged to remain more or less stagnant at Rs 1876 billion.

The stake of federal government in the current expenditure was to the extent of Rs 1359 billion and the remaining Rs 517 billion were earmarked for provincial governments. Development expenditure (after adjusting for net lending) was targeted at Rs 396 billion in 2008-09, which is up by 7 percent in comparison to last year. On the basis of revenue and expenditure projections, the overall fiscal deficit is estimated at Rs 562 billion or 4.3 percent of GDP as against 7.4 percent last year.

Interest payments surpassed their budgeted level by a significant margin. A sum of Rs 557 billion was budgeted for interest payments in 2008-09. The year is likely to end with interest payments of Rs 618 billion which are higher by Rs 61 billion over the budgeted amount.

The current expenditure overrun has become the norm because of intensification of war on terror and spike in security related expenditure in the last two years This is feeding into a significant gap between budgeted and estimates in current expenditure.

The current year has witnessed some deceleration in non-interest, non-defence expenditure. However, to follow fiscal deficit religiously, the government has to go an extra mile by development expenditure cutbacks. Notwithstanding this downturn, the growth in current expenditure remained strong. Pakistan's fiscal adjustment experience over the years suggests downward rigidity in current expenditure and much of the effort has to come from either additional revenue mobilisation or development expenditure cutbacks. In case of any eventuality of revenue shortfall the development expenditure is the prospective candidate to bear the brunt of adjustment.

MONEY & CREDIT Monetary Policy stance of the SBP has undergone considerable changes during the last eight years, gradually switching from an easy monetary policy to the current aggressive, tight monetary policy stance depending on the inflationary situation in the country.

During 2007-08, the SBP continued with tight monetary policy stance, thrice raising the discount rate and increased the Cash Reserve requirement (CRR) and Statutory Liquidity Requirement (SLR). During H1-FY08, the SBP raised the policy rate by 50bps to 10 percent effective from August 1, 2007.

Furthermore, the SBP zero rated the CRR for all deposits of one year and above maturity to encourage greater resource mobilisation of longer tenure and 7 percent CRR for other demand and time liabilities. In H2-FY08 the SBP further tightened Monetary Policy by raising discount rate by 50bps to 10.5 percent. Furthermore, the CRR was raised for deposits up to one year maturity by 100bps to 8 percent while leaving term deposits of over a year zero rated.

The objective was to give incentives to commercial banks to mobilise long-term deposits. In the light of continued inflationary build-up and increasing pressures in the foreign exchange market. The SBP announced a package of monetary measures on May 21, 2008 that included;

(i) an increase of 150 bps in discount rate to 12 percent;

(ii) an increase of 100 bps in CRR and SLR to 9 percent and 19 percent, respectively for banking institutions;

(iii) introduction of a margin requirement for the opening of letter of credit for imports (excluding food and oil) of 35 percent, and;

(iv) establishment of a floor of 5 percent on the rate of return on profit and loss sharing and saving accounts. Following a slight reversal in the mounting inflation, the SBP announced a decline of 100 bps on April 20, 2009.

SBP's tight monetary policy and rationalisation of fiscal subsidies and expenditure controls are the key factors that contributed to a reasonable progress towards macroeconomic stability. Although the fiscal and external current account deficit reduced during the last year, it still remains high along with the risk of slippages.

Improved fiscal discipline and falling international commodity prices have started to ease the domestic inflationary pressures. CPI is moderating to some extent after rising to a record high of 25.3 percent in August 2008. However, the YOY inflation at 19.1 percent in March was still significantly high. It is expected that with economic slowdown, the downturn in inflation would be steeper.

The YoY growth in broad money (M2) declined sharply to 4.59 percent as on 9th May FY09 against 8.96 percent in the corresponding period last year. The money supply was limited to Rs 215.0 billion as the NFA of the banking system recorded a decline of over Rs 227.1 billion during the first ten months of the current fiscal year to May 9.

However, NFA improved by Rs 130 billion as on 9 May, 2009 after contracting by Rs 357 billion on 6 December, 2008. This improvement mainly came towards end March 2009 as the government received $500 million each from the World Bank and the Bank of China.

The improvements in external account and hence in NFA are mainly owed to a rise in remittances, increase in external financial inflows from multilateral and bilateral sources and substantial retirement of foreign currency loans to commercial banks.

On the other hand, NDA of the banking system decelerated sharply during July-May FY09 to 10.99 percent as compared to 21.3 percent during the same period of last year. The sharp deceleration in NDA growth of banking system was mainly contributed by decrease in government borrowings and credit to non-government sector during July-May FY09.

The credit of Rs 138.4 billion to the public sector enterprise (PSEs), and government borrowings worth Rs 119.8 billion for commodity operations has significantly contributed Rs 258.2 billion in NDA during July-May FY09 compared to an expansion of Rs 105.2 billion in the same period last year. Credit to PSEs increased by Rs 138.4 billion during July-May FY09 against an increase of Rs 44.3billion in same period of last year.

The demand for credit from private sector decelerated and declined to Rs 21.8 billion during July-May FY09 compared to Rs 369.8 billion in the corresponding period of the last year. This sharp decline in private sector credit during July-May FY09 was mainly due to the exceptionally low demand for working capital that has witnessed the lowest growth in the recent past.

The slowdown in working capital requirements reflected the liquidity strains in the banking industry, which limited the lending ability of a few banks. Similarly, a sharp decline in raw material prices also lowered the working capital requirements of the corporate sector.

According to the distribution of credit to the private sector, the manufacturing sector although declined to Rs 89.4 billion, still continued to be the largest recipient of bank credit during July-March 2008-09. The overall manufacturing sector accounted for almost 85 percent of the credit to private sector business.

The structure of loan portfolio of the banks has changed significantly as by end-December 2008, 78 percent of the total bank advances were lent at the rate of 12 percent and above as compared to the 70 percent of bank advances extended at rates between 9 to 12 percent during the same month of last year. The banks have followed more strict credit criteria due to rising NPLs. Banks are focusing to finance those projects which are able to generate cash flows.

Similarly, the government's urge to raise funds from the banking system provided an avenue for banks to put these funds in T- bills. Due to the exceptionally strong credit demand and higher interest rate expectation, commercial banks were reluctant to lend to government till September 2008.

However, since October 2008 onwards, banks' participation in T- bills auctions increased significantly. Consequently, stock of Market Related Treasury Bills (MRTBs) with SBP declined to Rs 1,157.65 billion as on 30 April 2009 from Rs 1393.4 billion in November 29, 2009. One reason of higher acceptance was the change in the auction process for government papers. Instead of SBP, now the Ministry of Finance decides the cut-off rates in the primary auction.

The tight monetary policy stance of the SBP faced a major challenge during initial months of FY09, particularly due to exceptionally high pressures on rupee liquidity in the interbank market. A combination of a number of developments led to this liquidity crunch.

These included a contraction in money supply, a rise in currency in circulation, rising private and public sector credit demands, seasonal deposit withdrawals during Ramazan and Eid festival, and huge pulling out of bank deposits following rumours about the banking system. Resultantly, interest rates in the interbank market rose sharply.

However, SBP intervened in the domestic money market through several measures such as drastic reduction in reserve requirements, liquidity injections through Open Market Operations (OMOs), discounting window and others. In addition to these steps, the SBP provided on a timely basis over Rs 350 billion liquidity support to the banking sector.

The impact of tight monetary stance and liquidity management began to translate into a rise in other interest rates, with varied magnitude, at different stages of the economy. For instance, 6-months T-bills cut-off witnessed an increase of 169 basis points to 13.2 percent during July-May FY09. However, 6-month and 12-month KIBOR decreased by 26 bps and 39 bps to 13.68 percent and 13.83 percent respectively by end-May 2008 in view of a cut of 100 bps in the policy rate in April 2009.

CAPITAL MARKETS The beginning of the fiscal year 2008 appeared promising for Pakistan's capital markets regardless of the subprime crisis intensifying its grip on financial systems all over the globe. The stock markets in Pakistan posted good gains and the KSE-100 index gained 11.6 percent by middle of April 2008 and touched the highest level of 15,676 points on April 18, 2008 with a gain of 1,747 points over the index at the start of 2008.

Subsequent to this, however, the equity market saw an episode of precipitous decline: the KSE-100 index fell by over 62 percent (as on December 31, 2008) since touching its peak in April 2008.

While issues related to the macroeconomic scenario and a shaky political environment fuelled anxiety among the investor community and contributed to the fall in value, a dearth of adequate corporate governance measures aggravated the situation. Supplementing the extensive weakness was the diminishing foreign interest in the equity markets of Pakistan.

Notwithstanding this, equity investors have embarked on a fractional recovery of their fortunes with an upsurge in the KSE-100 index of a fine 22.5 percent since the commencement of the calendar year 2009, driven up chiefly by signs of returning economic stability.

A timely loan from the International Monetary Fund (IMF) approved in November 2008, and a materialisation of pledges by Friends of Democratic Pakistan are collectively expected to help out the economy sail through what could be a tumultuous era.

It goes without saying that the government's success in managing the economy has, without a doubt, served to build a soothing outcome. The stock market observed gigantic foreign outflows owing to the removal of price floor mechanism in the middle of December 2008.

The prospects of healthy foreign interest became doubly depressing by looking at the figure of foreign equity investment during the first nine months of the current fiscal year 2008-09. It stood at a negative $418.4 million till March 2009. With no fresh merger and acquisition activity in the year 2008-09, the international investors remained keen to increase their ownership share.

LSE and ISE followed the footprints of the leading stock exchange. Moreover, sectoral performance in the bourses remained dull with fuel and energy showing some positive signs.

Pakistan's debt market has witnessed an issuance of long-term government securities amounting to about Rs 49 billion and revision in deposit rates of National Savings Schemes on quarterly basis in 2008-09. Three new TFCs have been issued.

Interestingly, the non-bank market remained the principal issuer this time with no floatation related to the financial sector. Recent regulations by SECP that emphasise on increasing the minimum capital base and strict requirements for the classification of non-performing loans are anticipated to augment the strength of the NBFC sector.

Capital market reforms are an integral component of the structural reforms being supported by the government to restore macroeconomic stability and to build up the banking system, while developing a more contributing incentive regime for financial industry. Significant progress has been made on capital market reforms, including adoption of international standards and market practices and the streamlining of regulatory infrastructure to enhance surveillance and enforcement.

The government is keen to maintain the momentum to strengthen, deepen and broaden the base of capital markets. As a further step to fulfil this objective, the SECP has revived the Consultative Group on Capital Markets to act as an independent think-tank for important policy decisions in relation to the development of capital markets in Pakistan.

TRADE AND PAYMENTS The external sector developments in 2008-09 followed a rollercoaster ride patterns. It started with highest ever oil prices and unbearable commodity prices, punctuating the highs in October 2008 when current account crossed $2 billion mark on the back of soaring energy prices and uncertainties, gradually caught into the financial crisis and accentuating the lows in February 2009 with a current account surplus.

The year started with first quarter current account deficit of $3.8 billion and reached to third quarter deficit of just $0.3 billion. Notwithstanding this positive development, the external sector is still prone to some downside risk.

Overall exports recorded a negative growth of 3.0 percent during the first ten months (July-April) of the current fiscal year against positive growth of 10.2 percent in the same period of last year. In absolute terms, exports have decreased from $15,222.9 million to $14762.2 million in the period.

Imports during the first ten months (July-April) of the current fiscal year (2007-08) decline by 9.8 percent compared with the same period of last year, reaching to $28.92 billion. Import compression measures lowering domestic demand coupled with massive fall in international oil prices have started paying dividends and imports witnessed slowdown.

Beside that, depreciation of rupee had also played a significant role for lower imports during current fiscal year. Imports of the petroleum group registered declining growth of 7.6 percent and reached to $8012.7 million. The petroleum group accounts for 27.7 percent of total imports but contributed 21.0 percent in the overall growth of imports for the year.

The decline in imports of the petroleum group has been due to massive fall in oil prices in the international market as well as the substantial increase in its quantity imported. The imports of telecom declined by 54.8 percent during July-April 2008-09.

This is followed by imports of consumer durables group which exhibits negative growth of 16.4 percent. Petroleum group, raw materials and food groups witnessed a negative growth of 7.6 percent, 5.2 percent and 3.1 percent respectively. Import of machinery remained the only group which showed a nominal growth of 0.5 percent during July-April 2008-09.

Pakistan's current account deficit (CAD) moved back o $8.5 billion during July-April FY09 against US $11.2 billion in the comparable period of last year, showing a decline of 23.5 percent. In the month of February 2009, the current account witnessed a surplus of $128 million which was first monthly surplus since July 2007.

However, it turned to deficit of $457 million in April 2009. The improvement in current account completely arose during November-April 2008-09 when it declined by 74 percent over the corresponding period of last year on the back of reduction in trade deficit and improvement in invisible account. On the other hand, current account balance worsened by 100.8 percent during the first four months of the currant fiscal year 2008-09 compared with the same period of last year owing to increased import on account of higher import prices and food imports.

Trade deficit decelerated by 12.3 percent during July-April 2008-09. This improvement contributed by deceleration in import growth due to lower imports in terms of quantity in the back of import compression measures and depreciation in rupee along with massive decrease in imports prices. Increase in workers' remittance and reduction in services account deficit led to improvement of invisible account.

Services account deficit shrank by 41.3 percent during July-April FY09 to reach $3.2 billion. This deterioration was contributed by factors like receipts from logistic support, deceleration in freight related charges and sharp fall in outflows from foreign exchange companies the result of action against undocumented fund transfer.

Financial account contracted from $6,224 million to $3,476 million during July-April 2008-09 against corresponding period of last year. This decline was a result of a variety of reasons which discouraged the investment flows to Pakistan during July-April 2008-09, mainly weakening economic fundamentals, deteriorating law and order situation, slack functioning of stock market, lack of privatisation proceeds and in the presence of global financial crises the foreign investors declined to invest as expectations of the lower degree of profitability.

Pakistan witnessed pressure on ER during July-October 2008-09 when rupee depreciated by 16.3 percent. First as a result of substantial loss of foreign exchange reserves. Second massive buying by businesses seeking to avoid exchange losses on imports along with other factors like trade related outflows, political uncertainty and speculative activities.

With signing of Standby arrangement with the IMF, the rupee got back some of its lost value and with substantial import compression, improvement in overall external balance including revival of external inflows from abroad the exchange rate hovered around Rs 80.60 during April 2009.

Workers' remittances amounted to $6355.6 million in July-April 2008-09 as against $5319.1 in corresponding period of last year, thereby showing an increase of 19.5 percent. October 2008 remained only month during which the worker remittance exhibits a negative growth of 19.7 over October 2007 owing to difficult global environment and uncertainties surrounding domestic economy however, they recovered to their normal high double-digit growth since November 2008.

More than 75 percent of remittance during July-October 2008-09 routed through exchange companies whereas majority of the increase in remittances growth was contributed by higher inflows in banks during November-March 2008-09. This compositional change in remittances can be attributed to the FIA actions against the undocumented fund transfer during October 2008.

Pakistan's total liquid foreign exchange reserves amounted to $11.6 billion by the end of May, 2009. Of which, reserves held by State Bank of Pakistan stood at $8.28 billion and by banks at $3.32 billion. The trend of reserves consists of two parts during current fiscal year. Foreign exchange reserves declined to a low during the first five months of 2008-09 at $6.4 billion by 25 November, 2008 from $11.4 billion at the end of June 2008.

This depletion of reserves in the five months (July-November 2008) was much higher than fall in foreign exchange reserves for the entire fiscal year 2007-08. The subsequent recovery since November 25, 2008 onward was essentially due to the inflow of $3.1 billion from the IMF following Pakistan's entry into a macroeconomic stabilisation program than after additional capital inflows from other agencies. Pressure on reserves eased due to reduction in current account deficit along with modest recovery in capital flows thereby bringing stability in exchange rate, which further improved the position of foreign exchange reserves.

EXTERNAL AND DOMESTIC DEBTS External debt and liabilities (EDL) Pakistan's total external debt increased from US $46.3 billion at end-June 2008 to US $50.1 billion by end-March 2009, an increase of US $3.8 billion or 8.2 percent. In relative terms, EDL as percentage of GDP increased from 28.1 percent at end-June 2008 to 30.2 percent by end-March 2009, an increase of 2.1 percentage points.

The country's debt burden is also defined as external debt and liabilities as percentage of foreign exchange earnings increased from 124.3 percent by end-June 2008 to 144.3 percent by end-March 2009. International capital markets suffered one of the most turbulent years in recent history.

With the financial crisis instilling a sense of distrust amid the market access to financing has been restricted, with spreads widening for both developed and emerging economies alike. As negative sentiment prevails, the situation for Pakistan is compounded by weaker economic performance in 2008-09 and a highly volatile domestic security situation.

The spread on Pakistani sovereign bonds as given by the EMBI have gone up by 1550 bps and have a rating of B3/CCC+. Given the severity of the crisis in international markets, and hesitance with respect to investor confidence, Pakistan did not issue any new instruments in 2008-09.

Public debt increased by Rs 1367 billion in the first nine months of 2008-09, reaching a total outstanding amount of Rs 7268 billion; an increase of 23.2 percent in nominal terms. Total public debt has been growing at an average of 12 percent per year since the fiscal year 1999-2000.

The increase in total public debt is shared between rupee and foreign currency debt in the ratio of 40:60. The rise in foreign currency debt is mainly because of massive depreciation of the Pak rupee in the first quarter of the fiscal year.

In absolute terms, $3.1 billion are added to the public external debt in the period July-March 2009. However, a big chunk of Rs 624 billion has come from depreciation. Public debt as a percentage of GDP (a critical indicator of the country's debt burden) has declined by 1.9 percentage points in the nine months, down from 57.2 percent by end-June 2008 to 55.2 percent of GDP by end-March 2009.

Total domestic debt is positioned at Rs 3757.7 billion at end-March 2009 which implies net addition of Rs 540.5 billion in the nine months of the current fiscal year. In relation to GDP the domestic debt stood at 28.7 percent of GDP which is lower than end-June 2008 level at 31.3 percent. The domestic debt grew by 16.8 percent which was lower than last years' growth of 23.3 percent. The increase in domestic debt is lower than nominal GDP growth which helped reduction of 2.7 percentage points of GDP.

Interest payments on domestic debt stood at Rs 551 billion, which sums to 41.8 percent of tax revenues and 30.5 percent of total revenues estimates of 2008-09. As a percentage of total expenditure budgeted for 2008-09, interest payments are currently 23.0 percent. The interest payments on domestic debt stood at 4.3 percent of GDP for 2008-09.

EDUCATION Education is extensively regarded as a route to economic prosperity being the key to scientific and technological advancement. Hence, it plays a pivotal role in human capital formation and a necessary tool for sustainable socio-economic growth. Education also combats unemployment, confirms sound foundation of social equity, awareness, tolerance, self-esteem and spread of political socialisation and cultural vitality.

Public expenditure on education as percentage to GDP is lowest in Pakistan due to fiscal resources constraint that paved the way to synchronisation in terms of GDP allocation. The trend of investment on Education in terms of GDP has been 2.50 percent and 2.47 percent in the years 2006-07 and 2007-8 respectively whereas it is estimated to be 2.10 percent during the 2008-09.

It is on the lower side in accordance to requirement, given the importance of the sector, but seems appropriate in terms of current financial situation of the economy. The budget allocation has increased by 8.6 percent in 2008-09 as against an increase of 17 percent in 2007-08.

According to Pakistan Social and Living Measurement (PSLM) Survey data (2007-08), the overall literacy rate (age 10 years and above) is 56 percent (69 percent for male and 44 percent for female) in 2007-08 compared to 55 percent (67 percent for male and 42 percent for female) in 2006-07.

Literacy remains higher in urban areas (71 percent) than in rural areas (49 percent) and more in men (69 percent) compared to women (44 percent). When analysed provincially, literacy rate in Punjab stood at 59 percent, followed by Sindh (56 percent), NWFP (49 percent) and Balochistan at 46 percent.

The literacy rate of Punjab and Balochistan has improved considerably during 2006-07 to 2007-08. The overall school attendance (age 10 years and above) is 58 percent (71 percent for male and 46 percent for female) in 2007-08 compared to 56 percent (68 percent for male and 44 percent for female) in 2005-06.

According to the Ministry of Education, there are currently 227,243 institutions in the country. The overall enrolment is recorded at 34.49 millions with teaching staff of 1.27 million.

HEALTH & NUTRITION The government attaches a very high priority to the improvement of health facilities so as to translate the economic success into social benefits. In Pakistan, the coverage of health facilities has improved over the years. The existing network of medical services consists of 948 hospitals, 4794 dispensaries, 5310 basic health units (BHUs), 561 rural health centres (RHCs) and the availability of 103037 hospital beds.

Besides, there are 133956 doctors, 9012 dentists and 65387 nurses in the country. During the calendar year 2008, the population to medical facilities ratio in terms of doctor works out 1212 person per doctor, 18010 person per dentist, 2478 person per nurse and availability of one hospital bed for 1575 persons.

The total outlay on health during 2008-09 is estimated at Rs 74 billion which shows an increase of 23 percent over last year and works out 0.5 percent of GNP. The new health facilities added to the overall health services system during 2008-09, include the construction of 48 new facilities (35 BHUs and 13 RHCs), up-gradation of 890 existing facilities (850 BHUs and 40 RHCs), addition of 4300 hospital beds and training of 4500 doctors, 400 dentists, 3200 nurses and 5000 paramedics beside training of 96000 LHVs. To control the common diseases and to alleviate their pain and suffering, various health programmes like TB, Malaria and AIDS Control Programmes were carried out.

The caloric intake per person has been estimated as 2363 per day in 2008-09 and per capita protein availability has increased from 69.5 gram last year to 70.0 gram in the 2008-09.

The population of Pakistan stood at 164.07 in mid-2009. If the existing trend remains unchanged, it will reach 167 million by the year 2010 and 194 million by 2020 (NIPS).

The density of population per person is 185 (2003). According to 2007 province-wise demographics estimates of the planning and development division, Punjab has 55.46 percent of the total population of Pakistan.

Sindh has 22.92 percent of entire population, NWFP has 13.73 percent population. Balochistan is the least populous with population 5.15 percent, while Islamabad has 0.7 percent population and Federally Administered Tribal Areas have 2.37 percent of entire population. Total fertility rate has decreased by 58.33 percent in the past 10 years.

Crude birth rate (CBR) measures the growth and crude death rate (CDR) measures the decline of a population. These also give the birth and death rates among a population of 1000.

CBR in Pakistan is estimated at 25 while 10 years ago it was 31.7 which is a good trend. Similarly, CDR is 7.7 and about a decade ago it was 9. Both of these indicate that improvement on the population front is evident. This also shows that health statistics are gradually improving.

Life expectancy has also increased to 64.9 years from 62.3, 10 years ago. Infant mortality rate was 81.1 in 1998 while it is 70.2 per thousand live births now. The decline explains that certain diseases have been controlled and there has been greater access to health care for the people.

Pakistan has a labour force of 51.78 million people. Women labour force has increased, which stood at 10.96 million that is 0.1 million more than the previous year. The total number of people employed was 49.09 million that is 1.44 million more than the previous year.

The supply of labour force in the economy and the composition of the country's human resource is the labour force participation rate (LFPR). Crude activity rate is the currently active population expressed as a percentage of the total population in Pakistan. Crude activity has increased negligibly in 2007-08; it is 32.2 percent.

Agriculture dominates the distribution of employed persons among all major industries, leading at 44.65 percent during 2008. Trade ranks second having share of 14.62 percent, while mining and manufacturing have the third largest share of 13.11 percent.

The "Others" category have the combined distribution of employed persons in several industries of 15.17 percent. Trade, Mining & Manufacturing, and Agriculture combined employ 72.38 percent of the labour force. During the period 1999-2000 to 2005-06, 11.33 million work opportunities were created, due mainly to the strong economic growth. However, in the subsequent year ie 2007-08, an increase of 1.44 million employed persons was seen.

Various steps are being taken by the government like People's Works Programme, National Internship Programme, People's Rozgar Programme, National Bank of Pakistan. NBP will provide credit for self-employment, National Employment Scheme would be launched in the country under which employment will be provided to one person of each poor family in 50 percent districts of the country.

POVERTY AND INCOME DISTRIBUTION Although persistent growth in per capita income which determines absolute purchasing power, and minimal of inflation, which determines the net purchasing power coupled with least skewed income distribution is required for perpetual decline in poverty incidence, it varies both in terms of space and time governed by domestic and international influent factors.

In this perspective year 2008-09 has been an exceptional year. International financial crisis after translation into reduced and even negative growth rates the world over, in conjunction with soaring fuel and food prices, are at best estimated to increase poverty estimates the world over.

Headcount ratio decreased marginally from 23.94 percent in 2004-05 to 22.32 percent in 2005-06. Federal Bureau of Statistics has already furnished the results of PSLM 2007-08 to Centre for Research on Poverty & Income Distribution (CRPRID). Analysis thereof will be available in due course which will determine the direction of change in poverty incidence, the quantum of change and quintile based consumption pattern.

Selected social indicators, based on PSLM 2007-08, register an improvement in standard of living which may serve as a proxy to reduction in poverty. An efficient fiscal management is a prerequisite for a desirable distribution of fiscal burden in the society. However, social safety nets have their immediate significance as well as efficacy for targeted poverty reduction.

During year 2008-09, government took various initiatives to combat poverty which included PPAF, micro finance SME operations, Benazir Income Support programme, Peoples Works programme, Pakistan Bait-ul-Mal and Punjab Government initiatives including tractor subsidy, sasti roti and Punjab food support scheme; which will help enhance absolute per capita income, net per capita income and widen the scope to earn livelihood.

Agriculture, services and manufacturing sector each is among the largest source of employment for income generation. Although agriculture, barring livestock, is expected to grow faster in 2008-09 than in 2007-08, industry and services sector will register a declining growth rate with shifting pressure for employment to other sectors outside the organised sectors, acceptance of lower grade jobs, lower income and thus lower consumption.

Overseas migration and the resulting remittances have served dual objectives world-wide; ie, easing pressure on employment market and providing foreign exchange for balance of payments as well as budgetary support. Remittances supplement the household income, uplift life standard and thus reduce absolute poverty.

Remittances help the household to increase their consumption expenditure on food, develop expenditure on housing, skill development and establishment of small businesses thus improving the scope for higher future income. Remittances from expatriate Pakistanis are believed to have had a major impact on the reduction in the incidence of poverty.

The total remittances inflows between 2001-02 and 2007-08 amounted to $31 billion, equivalent to 18.3 percent of GDP. In 2007-08, remittances reached a record level of $6.5 billion. This massive inflow of foreign remittances, when translated into increased consumption expenditures and greater employment opportunities generated through greater investments in the construction industry, the SME sector, and other businesses contributed to the decline in poverty in the country.

The record workers remittances ($739.43 million) in March 2009, could serve as a major source of satisfaction. It is also worrisome with the apprehension that big rise in remittances may indicate that those Pakistani workers abroad who have lost work are moving their capital back home. There are downside risks to remittances in the wake of ongoing recession in the source countries.

Almost all Pakistani overseas workers' destination countries are projected to grow at lower rate in 2008-09 compared 2007-08 which will influence overseas migration of Pakistan labour and thus lower remittance. All such factors are likely to serve as a stress on poverty reduction strategy and would necessitate further pro growth strategic measures and further strengthening of social safety nets.

TRANSPORT AND COMMUNICATION Transportation network of any country is of vital importance to its development and affects all sectors through economic linkages. It ensures safe and timely travelling encourages business activities and cuts down transportation costs while granting access to producers for marketing their goods. Pakistan's economic development also depends on improvement/modernisation of its transport sector accounting for 11 percent to GDP & 16 percent to fixed investment.

Pakistan has a vast road network covering 258,350 kilometres including 176,589 km of high type roads and 81,761 km of low type roads. Total roads network which were 229,595 km in 1996-97, increased to 258,350 km by 2008-09 indicating an increase of 12.5 percent. During the out-going fiscal year, the length of the high type road network increased by 1.3 percent but the length of the low type road network declined by 2.7 percent because most of the low type roads have been converted to high type roads.

An effective railway system facilitates commerce and trade, reduces transportation cost and promotes rural development and national integration while reducing the burden on commuters. Pakistan Railway carried 63.0 million passengers and 5.4 million tons of freight during current fiscal year and its earning stood at Rs 17442 million.

The outgoing year (2008) was also exceptionally difficult for PIA, as the airline was equally affected by the unprecedented increase in fuel cost coupled with weaker Pakistani Rupee which severely hurt PIA and eventually it had to bear huge loss on its US $ loans. PIA international passenger traffic, excluding Haj traffic registered an increase of 3.5 percent (passengers despite the seat (capacity) reduction of 2.3 percent.

On domestic routes passenger traffic also registered an increase of 3.6 percent passengers, despite the seat (capacity) reduction of 7.4 percent. Hence in terms of capacity utilisation, overall Passenger Seat Factor (excluding Haj) increased to 74.5 percent during the year 2008 as compared to 70.3 in 2007 although Airline was constrained to mount less ASKs (Available Seat Kilometres) by 5.7 percent. Similarly, though Cargo capacity was also lowered by -13.8 percent during the year 2008, load factor compared to the year 2007 improved by 2.7 percent.

Karachi Port Trust (KPT) is contributing in the economic growth of the country, by its record cargo handled at KPT. During the first seven months of the current fiscal year, it posted a remarkable increase of 44.3 percent in export handled at Karachi Port Trust. During first nine months of current financial year 2008-09, Port Qasim Authority handled 18.01 million tones cargo depicting a shortfall of 9 percent over July 07-March 08 owing to global economic crisis.

Pakistan National Shipping Corporation (PNSC) lifted 5762.2 million tons of liquid cargo and 865.0 million tons of dry cargo during the current fiscal year. The consolidated revenues of the Group for the quarter ending March 31, 2009 were Rs 9503 million during the period under review as against Rs 7,471 million for the corresponding period last year showing an increase of 27 percent. The first commercial ship bringing 66000 tons of cargo was handled on Gwadar Port during March 2008.

Telecom sector of Pakistan exhibited positive but slow growth in terms of revenue, subscribers and teledensity. During the current fiscal year total teledensity reached up to 60.6 percent. However, cellular segment led the share in total teledensity by 93.7 percent, followed by Fixed Local Loop (FLL) 3.8 percent, and Wireless Local Loop (WLL) 2.5 percent.

During the first 9 months of 2008-09, cellular market added 3,422,599 subscribers with average of 0.3 million per month and total subscribers reached 91.4 million. Total fixed line subscribers in Pakistan stand at a total of 3.7 million as of March, 2009, yielding total teledensity of 2.3 percent. Total WLL subscribers stood at 2.5 million and density in the country touched 1.5 percent in March, 09. There are currently more than 12,000 cities/towns/villages covered by WLL services.

At present there are 384,187 fixed, mobile and WLL payphones available across Pakistan. There are currently 267,180 broadband subscribers showing almost 59 percent growth in the last six-month time.

ENERGY Notwithstanding output fluctuations, a higher quantity of energy is an ever-present requirement. The outgoing year has witnessed number of internal and external challenges in Pakistan's economy and shortfall in energy sector is among the major problems. During the current year, supply and consumption of energy remained lower than previous years.

The consumption of energy remained low due to overall slow down of economy, while the major cause behind the lesser energy supplies remained circular debt issue in the energy sector. Energy shortages dragged the performance of economy especially large-scale manufacturing.

The consumption of petroleum products, gas and coal during the first nine months (July-March 2008-09) of the current fiscal year decreased by 3.4 percent, 2.5 percent and 26.5 percent, respectively over the corresponding period of last year. On the other hand, supply of crude oil, petroleum products, coal, and electricity during the first nine months of the outgoing fiscal year 2008-09 decreased by 5.5 percent, 2.8 percent, 26.5 percent and 17.9 percent, respectively over the corresponding period of last year.

Production of crude oil per day decreased to 66,531 barrels per day during July-March 2008-08 from 70,165 barrels per day during the same period last year, showing a decrease of 5.2 percent. On average, the transport sector consumed 50.6 percent of the petroleum products, followed by power sector (33.1 percent), industry (10.3 percent), household (1.7 percent), other government (2.1 percent), and agriculture (1.1 percent) during last 10 years ie 1998-99 to 2007-08.

The average production of natural gas per day stood at 3,986.5 million cubic feet during July-March, 2008-09, as compared to 3,965.9 million cubic feet over the same period of last year, showing an increase of 0.52 percent. On average, the power sector consumed 29.9 percent of gas, followed by industrial sector (25.1 percent), household (18.4 percent), fertiliser (16.1 percent), Transport (7.1 percent), commercial sector (2.8 percent) and cement (0.6 percent) during last 10 years ie 1998-99 to 2007-08.

The total installed generation capacity increased to 19.754 MW during July-March 2008-09 from 19,566 MW during the same period last year, showing a marginal increase (1.0 percent). Total installed capacity of Wapda stood at 11,454 MW during July-March 2008-09 of which, hydel accounts for 57.2 percent or 6,555 MW, thermal accounts for 42.8 percent or4, 899 MW. The number of villages electrified increased to 133,463 by March 2009 as compared to 126,296 by March 2008, showing an increase of 5.7 percent.

Presently, some 2.700 CNG stations are operating in the country. By March 2009 about 2.0 million vehicles were converted to CNG as compared to 1.70 million vehicles during the same period last year, showing an increase of 17.6 percent. With these developments Pakistan has now become the largest CNG using country.

Pakistan's natural resources are increasingly under stress due to rapid population growth and environmentally unsustainable practices. Although densely settled, Pakistan's terrain is largely arid or semi-arid.

According to Asian Development Bank's Country Environment Analysis Report, 2008, pressing environmental concerns facing the country relate broadly to the management of scarce natural resources (green issues), pollution and waste management (brown) and potential vulnerabilities to natural hazards and climate change.

The Government of Pakistan has declared 2009 as the National Year of Environment. In this regard the current year was kicked off with a Regional level workshop on Climate Change, which was inaugurated by the Prime Minister of Pakistan.

A Medium Term Development Framework 2005-2010 (MTDF) adopted by the GoP in mid-2005 coincided with the approval of a new and far-reaching National Environmental Policy (NEP), with the goal to "protect, conserve and restore Pakistan's environment in order to improve the quality of life of the citizens through sustainable development", and establishing directions for water supply and management, air quality, waste management, forestry, biodiversity, energy efficiency, and agriculture.

The Government has also made a considerable increase in its funds allocation for Environmental projects in the Public Sector Development Programme (PSDP). According to Pakistan Environmental Protection Agency (EPA) and Japan International Co-operation Agency (JICA), 2006, common gases emitted by vehicles include carbon monoxide, nitrous oxides, and ozone, and are dangerous to human health beyond certain levels of concentration.

For managing the rapidly deteriorating air quality an Environmental Monitoring System (EMS) to monitor the air quality at both Federal and four Provincial Capitals has been launched by the Government. Data from World Water Forum suggests water pollution causes 60 percent of infant mortality in Pakistan and is now one of the leading causes of death in the country.

Realising the importance and role of sanitation in the improvement of environment as well as the commitment to achieve the MDG sanitation goals, the MoEnv launched the National Sanitation Policy of Pakistan before the Federal Cabinet soon after the Second South Asian Conference.

The Ministry in collaboration with UNICEF, Water & Sanitation Programme (World Bank), Water Aid, Rural Support Programme Network (RSPN) etc, launched awareness and training programmes in the year 2008, the International Year of Sanitation (IYS 2008).

Installation of water filtration plants in different areas is underway. The implementation of which is targeted to be completed within this fiscal year. The latest figures released by the MoEnv estimated that about 38 percent of Pakistan's irrigated land is waterlogged; the productivity of soil is being lost due to salinity and sodicity.

To achieve the MDGs targets of vegetation cover of 6 percent by 2015, the Planning Commission proactively interacted with the MoEnv and the Provincial Forest Departments to come up with project for afforestation/reforestation to meet the MTDF and MDGs targets. The President of Pakistan launched a Mass Afforestation Programme on December 22, 2008. This programme will be spread over a period of five years and shall largely be sponsored by private entrepreneurs for planting trees on state and other suitable lands.

Climate change is also a matter of concern for Pakistan because of the impact it will have on glaciers releasing water for crops. The receding glaciers will increase water flows in the Indus basin, followed by permanent reductions.

The main challenge is to develop an understanding of how climate change could affect Pakistan's uplands and rivers, its agro-ecological zones and subzones in the Indus Plain, and coastal lands. Pakistan's Planning Commission has recently established a task force to investigate the impact of climate change on the country's agriculture, economy and natural resources.

The Government has also recently initiated the Technical Advisory Panel (TAP) on Climate Change. TAP is expected to provide the requisite input to the government to combat the threat of climate change by an enabling policy, regulatory framework and vulnerability assessments of Climate Change. The official launch of the TAP was held on February 15, 2008.

It is encouraging to note that Pakistan is blessed with a strategic location that enhances its capacity to benefit from natural resources, provided these resources are efficiently managed and maintained.

So far the Government has taken significant initiatives in collaboration with international agencies to counter complex issues responsible for environmental degradation. A pragmatic approach towards multifarious challenges requires in depth and focused research, without which desired results will remain unachievable.



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Apr 20, 2009
Thanks for the information but my think is that first of all peoples should know that what is Economy and it's features. That's why i am giving you to knowing about Basic Macroeconomic Concepts. blinklearning.com/Cursos/c8_Basic_Macroeconomic_Concepts.php

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