PAKISTAN ECONOMIC SCENARIO

 

Pakistan a frontline state has potential and prospects to make the country self-sustained in macroeconomic development

By Syed Jamil Ahmed Rizvi, FCMA
Nov 19 - 25, 2001

Government of Pakistan, Finance Division, Economic Advisor's Wing, Islamabad released Economic Survey 2000-2001 on June 16, 2001. Some of the highlights of this survey are as follows:

Pakistan's growth performance during 2000-01 was adversely affected by the worst drought in the country's history. There are 58 out of 106 districts in the country facing drought which indicates that around 55% of the area is causing havoc in agriculture sector.

GROWTH AND INVESTMENT

Growth Trends: Pakistan's GDP at constant factor cost of 1980-81 registered at a value of Rs. 666,115 million for the year 2000-01 while it was Rs. 480,413 million in the year 1991-92. This indicates cummulative increase by 38% during the last decade which indicates that Pakistan's economy had been growing at an average rate of 3.8% annually. Real GDP was targeted to grow by 4.5% in 2000-01, which grew by 2.6% as against 3.9% of last year.

Real GDP at market prices grew by 3.3% as against 4.4% last year. After adding indirect taxes and subsidies in GDP at constant factor cost of 1980-81, the GNP real per capita at constant factor costs increased by 0.1% and at current factor cost increased by 6.3%.

The growth rate of 2.6 % is amongst the second lowest growth rates since the last decade in which the lowest was 1.9% in 1996-97 while the highest rate of 7.7% was achieved in 1991-92.

TABLE A:

 GDP & GNP

At Factor Cost of 1980-81

(Rs. million)

 

1998-99

1999-00

2000-01

% Change 00

% Change
01

GDP (FC)

625233

649540

666115

3.9

2.6

GDP (MP)

669235

698902

722235

4.4

3.3

GNP (FC)

620031

641685

657044

3.5

2.4

GNP (MP)

664033

691047

713164

4.1

3.2

Population

133.01

136.01

139.08

2.3

2.3

GNP (FC) per Capita

4662

4718

4724

1.2

0.1

GNP (MP) per Capita

4992

5081

5128

1.8

0.9

GDP (FC) per Capita

4701

4776

4789

1.6

0.3

GDP (MP) per Capita

5031

5139

5193

2.1

1.1

Source: Economic Survey 2000-01 Table 1.1, Page 9 of Statistical Appendix

 


 

TABLE B:

 GROSS NATIONAL PRODUCT AT CURRENT MARKET PRICES

 

1998-99

1999-00

2000-01

% Change 00

% Change
01

GDP(MP) (Rs million)

2938379

3182822

3472149

8.4

9.1

Reduction in net factor income

. . . . .

from abroad (Rs million)

25547

44699

60816

75.0

36.0

GNP (MP) (Rs million)

2912832

3138123

3411333

7.7

8.7

Population (million)

133.01

136.01

139.08

2.3

2.3

Per Capita Income at (MP) Rs.

21899

23073

24528

5.4

6.3

Source: Economic Survey 2000-01 Table 1.5, Page 13 of Statistical Appendix

 


 

TABLE C:

 TOTAL INVESTMENTS TO GDP FOR 5 YEARS    (Rs. Billion)

.

External
Resources
(net)

National
Saving

Total
Investment

GDP at
Current
Mrkt Price

% of Total
Investment
to GDP(MP)

1996-97

149.9

285.2

435.1

2457.4

17.7%

1997-98

82.9

391.3

474.2

2677.7

17.7%

1998-99

121.5

335.9

457.4

2938.4

15.5%

1999-00

59.0

437.8

496.8

3182.8

15.6%

2000-01

69.4

439.9

509.3

3472.1

14.7%

Source: Economic Survey 2000-01 Table 1.9 A, Page 10, Table 1.8 Page 9, Table 1.5, Page 13 of Statistical Appendix

Total Investment for 2000-01 fell to 14.7% of Gross Domestic Product as compared to the investment ratio 17.7% of 1996-97.

TOTAL INVESTMENT AND GDP (MP)

AGRICULTURE

Growth target in Agriculture was 2.6% in 2000-01. Cummulative Agricultural sectoral share in total GDP at current prices for the previous 10 years (1990-91 to 1999-00) worked out to an average of 26.25%. It employs 44% of workforce. Due to shortages of irrigation water, agriculture was targeted to grow by 2.6% in 2000-01 as against a growth of 6.1% achieved in 1999-2000.

TABLE D:

 PRODUCTION OF MAJOR CROPS (000) TONNES

 

1999-2000

2000-01(Jul-Mar)

% Change

Wheat

21079

18535

(12.1)

Cotton (000 bales)

11240

10732

(4.5)

Rice

5156

4803

(6.8)

Sugarcane

46333

43608

(5.9)

Source: Economic Survey 2000-01 Table 2.4, Page 24 of Statistical Appendix % change in bracket indicates decline in production

 


 

TABLE E:

 AGRICULTURAL SECTORAL GROSS FIXED CAPITAL FORMATION (GFCF) At Current Market Prices (Rs. million)

 

1998-99

1999-00

2000-01

% Change
00

% Change
01

Total Fixed Investment in Agriculture

32442

36455

35444

12.4

(2.8)

Private Investment in Agriculture

26968

33334

28084

23.6

(15.7)

Public Investment in Agriculture

5474

3121

7360

(43.0)

135.8

Source: Economic Survey 2000-01 Table 1.7, Page 16 & 17 of Statistical Appendix

Fixed investment in agriculture sector declined by 2.8 % during 2000-01 as against an increase of 12.4 % in 1999-00. There was a sharp change in the behaviour of the private and public investment during the last two years in agricultue sector. Private investment declined sharply by 15.7 % in 2000-01 as against an increase by 23.6 % in 1999-00. Public investment increased sharply by 135.8 % in 2000-01 as against a decline by 43.0 % in 1999-00. Water availability declined by 27.2 % during 2000-01. There was a further decline of 27.6 % in credit disbursement to agriculture sector in 2000-01, as against a decline of 8.0 % last year. Yields per hectare of most of the major crops such as wheat, rice, sugarcane, gram and cotton declined during the year. The only growth was shown in maize crop where the yield per hectare increased by 4.8 % during 2000-01.

TABLE F:

 BASIC DATA ON AGRICULTURE

 

1998-99

1999-00

2000-01
(Jul-Mar)

% Change
00

% Change
01

Water Availability (MAF)

133.78

133.28

97.01

(0.37)

(27.2)

Fertilizer Off-take (000-N/T)

2583.80

2833.40

2376.91

9.7

(16.1)

Credit Disbursed (Rs. Million)

43683.65

40188.63

29101.41

(8.0)

(27.6)

Source: Economic Survey 2000-01 Table 2.1 B, Page 22 of Statistical Appendix

 


 

TABLE G:

 YIELD PER HECTARE OF MAJOR AGRICULTURAL CROPS (Kg/Hectare)

.

1998-99

1999-00

2000-01

% Change
00

% Change
01

Wheat

2170

2491

2278

14.8

(8.6)

Rice

1928

2050

2021

6.3

(1.4)

Sugarcane

47784

45883

45378

(4.0)

(1.1)

Maize

1730

1708

1790

(1.3)

4.8

Gram

648

581

512

(10.3)

(11.9)

Cotton

512

641

624

25.1

(2.7)

Source: Economic Survey 2000-01 Table 2.5, Page 25 of Statistical Appendix

MANUFACTURING

Growth target in manufacturing sector was 5.9% in 2000-01 while the achieved rate was 7.1% as against last year's revised estimates of 1.4%. The manufacturing sector has witnessed a sharp acceleration in growth during the current fiscal year mainly due to the hard fact that Pakistan industry has learned not only to survive in difficult and tense conditions but also achieve substantial growth despite the falling investment. This is a dangerous phenomena and further growth in this sector will be very difficult to maintain on permanent basis.

TABLE H:

SHARE OF LARGE SCALE & SMALL SCALE MANUFACTURING at CFC of 1980-81  (Rs million)

.

1999-00
Value at FC

2000-01
Value at FC

% Share

% change

Large Scale

75,578

81,475

70

7.8

Small Scale

32,706

34,443

30

5.3

Total

108,284

115,918

100

7.1

Source: Economic Survey 2000-01 Table 1.1, Page 9 of Statistical Annexure CFC: Constant Factor Cost

Gross Fixed Capital Formation (GFCF) in private, public and general government sectors economic activities of manufacturing sector at current market prices for the year 2000-01 was Rs. 93,359 million as against the investment of Rs. 103,548 million of previous year showing a declining trend by around 11%. As mentioned earlier that strong rebound in industrial production in the persistent conditions of structural imbalances is a dangerous phenomena likely to be followed by the condition of stagflation which appear with two simultaneous occurance of high inflation rates and high labour unemployment rate. It happens after the cost push inflation and stagnation in various macro economic sectors.

INCOME DISTRIBUTION AND POVERTY

Income distribution is directly linked to poverty alleviation. Poverty level in Pakistan was 40% in 1965 which declined to 22% in 1990. Afterwards it has gone up 30%. The reasons were slowing down of economic activities and 50% reduction in remittances from overseas Pakistanis.

In 1991 a 34% of Pakistan's population lived below the poverty line on $ 1 per day as compared to 8.4%, 17.4%, 15.5%, 18% of China, Indonesia, Malaysia and Thailand respectively.

According to the Economic Survey 1999-2000, the number of poor people that could not meet their daily requirements and fell below the poverty line, has increased from 17.8 million in 1987-88 to 43.9 million in 1998-99 depicting an increase by 146% during the last decade. It looks that incidence of poverty trends is moving out of proportion which is totally an unhealthy position.

Relationship of Head count increase of poor as compared to population increase during the last decade is as follows:

TABLE I:

 POVERTY RATE AS % OF POPULATION

Year

Total Population
(in million)

Poverty Rate as
% of Population

No. of poor people
(in million)

1990-91

109.42

22.11

24.19

1992-93

115.04

22.40

25.77

1996-97

126.90

31.00

39.34

1998-99

133.01

32.60

43.36

1999-2000

136.01

33.50

45.56

Source: Economic Survey 2000-01 Table 1.1, Page 9 of Statistical Appendix Table 4.3, Page 54 of part-I

Population increased by 26.59 million during the last decade whereas people living below the poverty line jumped by 21.37 million head count, which is 80% increase in relation with the population growth during the period with an average annual increase in population by 2.659 million people while it is 2.137 million increase in poor head counts.

FISCAL DEVELOPMENT

Fiscal deficit reduced in 2000-01 from Rs. 206.8 billion or 6.5% of GDP to Rs. 185.7 billion or 5.3% of GDP of previous year. There was a reduction by 10.2% in the overall Fiscal deficit in 2000-01. In the year 2000-01, the budget deficit was financed mostly by external sources (64.7%) whereas in 1999-00, the deficit was mostly financed by domestic resources (67.6%). External financing increased by 79.5% during 2000-01.

TABLE I:

 FISCAL DEFICIT AS % OF GDP (Rs. Billion)

.

1999-00

2000-01

Overall Fiscal Deficit

206.8

185.7

Interest (Federal)

245.1

237.0

Development Expenditure

100.6

110.9

GDP (MP)

3182.8

3472.1

% Share of deficit in GDP (MP)

6.5

5.3

External Financing (net)

66.9

120.1

% of EF in overall deficit

32.4

64.7

Domestic Financing (non-bank & bank)

139.9

65.6

% of DF in overall deficit

67.6

35.3

Source: Economic Survey 2000-01 Table 4.1 Page 43, Table 4.2, Page 45 Table 4.4 Page 49, Table 1.5 Page 13. EF: External Financing DF: Domestic Financing

MONEY AND CREDIT

Targeted expansion of Money Supply (M2) for the year 2000-01 was Rs. 147 billion financed Rs. 87 billion from domestic credit and Rs. 60 billion from net foreign assets. Actual expansion in money supply from July, 2000 to March, 2001 recorded to Rs. 68.3 billion which is 46.5% below the target.

TABLE J:

 COMPOSITION OF MONEY SUPPLY (Rs. Million)

Components

End June
1999

End March
2000

End March
2001

% in
Total

% change
in 2001

Supply of M1

. . . . .

Currency in Circulation

287717

342018

385907

26.3

12.8

Demand deposits with scheduled banks

349115

381999

347380

23.7

(9.0)

Other deposits with SBP

6212

6391

8283

0.6

29.6

Total M1

643044

730408

741570

50.6

1.5

Add:

. . . . .

Time deposits with Scheduled Banks

516586

541697

587844

40.0

8.5

Resident Foreign Currency Deposits

120917

75928

137345

9.4

80.

Total Monetary Assets (M2)

1280547

1321033

1466759

100.0

11.0

Growth Rate (%)

6.2

-

4.9

-

-

Source: Economic Survey 2000-01, Table 5.1 Page 53 of Statistical Appendix

Total Money Supply (M2) for 9 months of current year 2001 recorded to Rs. 1466.759 billion as compared to Rs. 1400.632 billion for the previous full year 2000 resulting growth of 4.9%. In 1999 the growth rate of monetary assets was 6.2%. Currency in circulation as of 31st March, 2001 being the most liquid form of money supply constituted 26.3% of money supply compared to its share of 25.9% in the corresponding period of last year (31-03-2001). M1 is a measure of the money stock that includes only currency and account balances commonly used in payments for purchases of goods and services. M2 includes M1 and liquid assets that cannot be used directly as a medium of exchange but can be converted into checkable deposits and other components of M1. The sum of M1 and certain near monies.

MARKET CAPITALIZATION

The market capitalization of ordinary shares in terms of profit and dividend payouts in the year 1992 was to the tune of Rs. 218.360 billion while it has been recorded at Rs. 391.860 billion for the year 2000 end June. The increase in this year if compared with the capitalization of nine years ago, we come to know that it increased by 79.5% cumulative signifying an average capitalization by around 9% per annum. Aggregate market capitalization from July, 2000 to March, 2001 reported at Rs. 328.240 billion as against Rs. 500.080 billion of corresponding period and Rs. 391.860 billion for the previous year 2000 end June, which indicates a decline by 16.23%. All of the major sector listed companies in the economy faced a decline in market capitalization of ordinary shares during July-Mar (2000-01) as against the corresponding period of last year.

TABLE K:

 MARKET CAPITALIZATION OF ORDINARY SHARES    (Rs. billion)

.

2000
July-Mar

2001
July-Mar

% Change
01

Cotton & Other Textiles

49.48

36.51

(26.2)

Pharmaceuticals

74.69

46.89

(37.2)

Engineering

1.61

1.58

(1.9)

Auto & Allied

10.22

7.50

(26.6)

Cables & Electric Goods

2.42

2.17

(10.3)

Sugar & Allied

4.32

4.08

(5.6)

Paper & Board

4.64

4.53

(2.4)

Cement

14.19

7.54

(46.9)

Fuel & Energy

125.92

77.99

(38.1)

Transport & Communication

129.62

70.76

(45.4)

Banks & Other Financial Institutions

47.99

35.46

(26.1)

Miscellaneous

34.98

33.22

(5.0)

Aggregate Market Capitalization

500.08

328.24

(34.4)

Source: Economic Survey 2000-01, Table 6.2, Page 75 of Statistical Appendix % changes in parentheses represents negative signs.

INFLATION

Inflation rate in Pakistan is caused primarily by procurement prices, particularly that of wheat, and administered prices of fuel, gas and electricity. In addition, an increase in indirect taxes helps aggravate the situation. Prices increased more than last year's increase in the consumer groups of food, beverages & tobacco, fuel & light and transport & communications. While the increase in the prices of other consumer groups was less than the increase in last year.

TABLE K:

 CONSUMER PRICE INDEX GROUPWISE JULY-APRIL BASE YEAR 1990-91= 100

 

JULY-APRIL CPI

% Change in CPI

Consumer Groups

1998-99

1999-00

2000-01

Year (00)

Year (01)

Food, Beverages & Tobacco

225.53

229.95

239.46

2.0

4.1

Apparel, Textile & Footwear

199.09

210.62

216.70

5.8

2.9

House Rent

207.53

216.52

223.04

4.3

3.0

Fuel & Lighting

215.83

225.49

252.73

4.5

12.1

Household Furnitures etc

198.04

204.18

209.72

3.1

2.7

Transport & Communication

194.06

209.14

235.86

7.8

12.8

Recreation Entertainment & Education

212.19

204.05

211.35

4.9

3.6

Cleaning, Laundry & Personal Appearance

215.19

224.69

229.85

5.9

2.3

Medicine

215.85

218.61

234.72

12.8

7.4

General

215.27

222.60

233.03

3.4

4.7

Source: Economic Survey 2000-01, Table 7.1, Page 79 of S.A

Average estimated inflation in prices based on the CPI of above consumer groups for the year 2000-01 has been worked out below 5%, which may be due to tight monetary policy helped by an efficient movement of commodities throughout the country.

PAKISTAN BALANCE OF TRADE COMPARED WITH BANGLADESH

TABLE L: 

IMPORTS, EXPORTS AND BALANCE OF TRADE (US $ MILLION)

YEAR

PAKISTAN

BANGLADESH

.

IMPORTS

EXPORTS

BALANCE

IMPORTS

EXPORTS

BALANCE

1995-96

11805

8707

-3098

6880

3393

-3487

1996-97

11894

8320

-3574

7152

3879

-3273

1997-98

10118

8628

-1490

7520

4486

-3034

1998-99

9432

7779

-1653

8007

4339

-3668

1999-00

10309

8569

-1740

8403

4954

-3449

Total- 5 years

53558

42003

-11555

37962

21051

-16911

Annual Average

10712

8401

-2311

7592

4210

-3382

% of Trade Bal

. .

27.5%

. .

80.3%

Source: Economic Survey 2000-01, Table 8.4, Page 91 Bangladesh Bank's monthly publication of Statistical Appendix "Economic Trends" for April, 2001

PAKISTAN'S BALANCE OF TRADE BANGLADESH'S BALANCE OF TRADE

Pakistan's Average annual imports for the last 5-years have been worked out to $ 10712 million which are 41% higher than Bangladesh. Similarly Pakistan's exports of $ 8401 million are double that of Bangladesh. Consequently there is a vast gap in respect of Balance of Trade between these two countries. Bangladesh's adverse balance of trade in term of percentage is around three times higher than Pakistan.

TABLE M:

 BALANCE OF PAYMENTS US $ MILLION

Particulars

1995-96

1996-97

1997-98

1998-99

1999-00

1999-00
Jul-Mar

2000-01
Jul-Mar

Imports (f.o.b)

12015

11241

10301

9613

9602

7230

7681

Exports (f.o.b)

8311

8096

8434

7528

8190

5770

6572

Balance of Trade
(Adverse)

-3704

-3145

-1867

-2085

-1412

-1460

-1109

Payments

-5349

-5499

-4972

-4027

-4295

-3243

-3559

Receipts

2100

1840

1708

1409

1501

1119

1120

Services (Net)

-3249

-3659

-3264

-2618

-2794

-2124

-2439

Private Unrequired Transfers (Net)

2378

2958

3210

2274

3063

2441

2876

Current Account
Balance (Adverse)

-4575

-3846

-1921

-2429

-1143

-1143

-672

% change from

-84%

16%

50%

-26%

53%

-

41%

previous year

Adv.

Fav.

Fav.

Adv.

Fav.

-

Fav.

Source: Economic Survey 2000-01, Table 8.2, Page 89 of Statistical Appendix

Despite structural imbalances, Pakistan's economy managed to reduce current account balance to $ 1143 million in 1999-00 recording a favourable reduction by 53% as compared to $ 2429 million of preceding year 1998-99. As regards nine months of current financial year 2000-01 (Jul-Mar) is concerned, a favourable trend of 41% improvement in the current account balance has been arrived at as shown above.

FOREIGN DEBTS: Pakistan's accumulated medium & long term external debt is estimated at $ 26889 million by the end of current fiscal year 2000-01 represents against the GDP at Market price equivalent to US$ 60,915 million for the year which shows that the foreign debt constitutes 44.3% of the GDP. The debt service payments of $ 1632 million estimated during the year 2000-01 which is 2.7% of GDP. The actual payments of debt services amounting to $ 1512 million was made for the previous year 1999-00.

EDUCATION: The literacy rate at present is estimated at 49.0 %. Total budget for education sector is Rs. 72.237 billion (2000-01) which is 2.06 % of GDP. There are 199703 educational institutions having enrolment of 26.125 million students with 666976 teachers at an average of 40 students.

HEALTH AND NUTRITION: The total outlay on health sector for 2000-01 is Rs. 24.3 billion which is 0.7% of GDP. In a population of 139.080 million, there are 161,768 medical and paramedical personnel. Each of them has a coverage of about 860 persons.

POPULATION, LABOUR FORCE AND EMPLOYMENT: Pakistan's total population is 139.080 million for 2000-01. The total labour force comes to 41.2 million, out of which 2.4 million people are unemployed resulting an unemployed rate of 5.9%.

CONCLUSION: The above analysis leads to the conclusion that Gross Fixed Capital Formation (GFCF) showing a declining trend by 11 % likely to travel towards dangerous conditions of stagnation. Inflation below 5 % may be due to tight monetary policy helped by an efficient movement of commodities throughout the country. Pakistan's average exports of five years are double that of Bangladesh. Bangladesh has adverse balance of trade in terms of percentage is around three times higher than Pakistan's. Despite structural imbalances, Pakistan's economy managed to reduce adverse current account balance by 53 %. However use of foreign assistance and loans could be utilized wisely, judiciously and without the element of corruption.

The author has written this comprehensive article for the students of Economics of Commerce Colleges, Universities and IBA in order to assist them quickly appreciate the modalities involved in computation of various components of Macro Economics.