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  ECONOMY WATCH

Selected by Zeeshan Ahmed Khan
Oct 10 - 16, 2005

DIRECTION OF THE ECONOMY

Status of Pakistan's economy, its direction and future prophecy are most arguable questions these days. Government, supporting its policies, finds economy moving in the rightist direction. While, there are few school of thoughts that completely reject the idea. They insist that improvement in economy is momentary and as soon as favorable circumstances withdrew, Pakistan will return to 1998 situation.

Most recently, State Bank of Pakistan has issued a comparison of present state of Pakistan's economy with October-1999. Except inflation and unemployment, almost all the indicators have shown a positive movement in the assessment.

CHANGES IN KEY MACROECONOMIC INDICATORS

 

Oct-99

Jun-05

Change in the Indicator

GDP growth rate

4.20%

8.40%

Positive

Inflation

5.70%

9.30%

Negative

Fiscal deficit/GDP

-6.10%

-3.30%

Positive

Current account/GDP

-3.20%

-1.50%

Positive

Domestic Debt/GDP

52.00%

43.40%

Positive

External Debt

$ 37 billion

$ 36 billion

Positive

Remittances

$ 88 million/month

$ 350 million/month

Positive

Exports

$ 7.8 billion

$ 14 billion

Positive

Tax Revenues

Rs.391 billion

Rs.590 billion

Positive

Rupee-Dollar Parity

Depreciating

Appreciating

Positive

Foreign Direct Investment

$ 472 million

$ 1.2 billion

Positive

Foreign Exchange Reserves

$ 1.6 billion

$ 12.6 billion

Positive

Poverty Incidence

33%

N.A.

N.A.

Poverty related expenditure

Rs.133 billion

Rs.161 billion

Positive

Unemployment

6%

7.40%

Negative

Source: State Bank of Pakistan.

I think FY2002-03 was a peak point for growth in last seven years. After 2002-03, few indicators seems to attain recessionary trend again. For example, external debts (including external liabilities) were at $37.6 billion in 1999. The amount was reduced to $35.26 billion in 2004 registering a decrease of $2.34 billion. Attaining this significant level, the external debts volume again start rising and is currently now at $36.62 billion. No matter this amount is still lower than 1999 level but the question is why debts are increasing again?

EXTERNAL DEBT AND FOREIGN EXCHANGE LIABILITIES 
($ BILLION)

Item

Jun-90

Jun-99

Jun-00

Jun-01

Jun-02

Jun-03

Jun-04

Jun-05

Total External Liabilities

21.9

37.6

37.86

37.16

36.53

35.47

35.26

36.62

There is no doubt that inflation has badly affected the economy and economy growth could have been much better if inflation has not shown such extraordinary negative trends. However, the strategy of raising interest rates would bring fruitful outcome in next one year if oil prices are controlled anyway.

INFLATION TRENDS (% Change)

2000-01

2001-02

2002-03

2003-04

2004-05

4.4

3.5

3.1

4.6

9.3

The effort to increase the tax base seems to be fruitful. CBR has collected almost Rs.200 billion more than FY2000 in FY2004-05. It is believed that there is still a lot of potential and government can increase revenue by increasing tax-net (not tax rate).

FEDERAL TAX REVENUE- TOTAL CBR (RS. BILLION)

2000-01

2001-02

2002-03

2003-04

2004-05

392.3

403.9

460.6

518.8

590

Apart from all growth the Pakistan's economy has shown, people still wonders why poverty is increasing day by day. On asking the same question, the Prime minister replied that it would take some time to shift the benefits from top to down. But we think that a lot a time has passed already and poverty is increasing day by day. An independent research report claims that now 41% of population is living beneath the poverty line. With highest ever budget for poverty reduction, some signs of improvement must be shown. The concerned authorities have to take it seriously and must inquire about usage of development funds. The global monitoring report, issued by world bank, clearly says that Pakistan will be the only SAARC member country that would fail to achieve millennium development goals.

SOCIAL SECTOR AND POVERTY RELATED EXPENDITURES 
(RS BILLION)

2001-02

2002-03

2003-04

2004-05 projected

167.25

208.84

253.96

324.55

Investment in Pakistan is still not at satisfactory level. Pakistan is the sixth most populous country of the world, but only getting around $1 billion FDI in 2004-05 (estimates). The comparison with FY1999 shows positive movement but investment amount is near to the ground. We should not remain happy that investment is showing positive trend but we have to raise it to a considerable amount.

FOREIGN DIRECT INVESTMENT (MILLION US $)

2001-02

2002-03

2003-04

2004-05 (Jul-Apr)

484.7

798.0

949.4

891.5

 

 
 

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