Research Analyst
Nov 23 - 29, 2009

GDP is one the primary indicators used to gauge the health of an economy. It represents the value of all goods and services produced over a specific time.

GDP is the market value of all the outputs produced in a nation in a year. It focuses on where the output is produced rather than who produced it. GDP measures all, disregarding the firm's nationality.


Pakistan's GDP growth is projected to remain between 2.5 percent and 3.5 percent during 2009-10 if the manufacturing and agricultural sectors perform well. There is already some recovery in the country's industrial production as the 11-month negative growth in the Large Scale Manufacturing (LSM) sector is likely to turn positive in the first quarter (July-Sep FY10).


Pakistan 2.7 5.80 6.38 6.92
India 7.4 8.7 9.21 9.74
China 9.00 9.27 11.40 11.10
Bangladesh 4.9 5.50 5.58 6.40
Indonesia 6.1 6.08 6.31 5.51
Malaysia 4.5 7.1 6.32 5.93

However, energy shortage and unresolved issue of inter-corporate circular debts, which pulled down economic growth last year to just 2 percent, continue to pose serious challenges to the economy.

The recent cut in gas supply to many factories in northern parts of the country may lead to decline in production. Agriculture will continue to play a vital role in the growth.

Growth in the services sector, which is mainstay of the economy, has dropped to eight-year low to 3.9 percent as transport, storage, communication, and financial industry suffered from weak domestic demand.

A double-digit CPI inflation averaged at 20.8 percent throughout 2008-09, eating into the household budgets. It is projected to remain between 10 and 12 percent this year.

Last year saw all the macroeconomic indicators sliding down as a consequence of internal and external pressures. Rise in international commodity prices pulled up the import bill; suicide attacks shooed away investors; and fiscal deficits increased as the cash-strapped government tried to meet subsidy-laden expenditures through public debts.

By end of 2008, the government had no choice but to enter an IMF-sponsored macroeconomic stabilisation programme to avert the balance of payment crisis, which rose following a steep fall in the country's foreign exchange reserves. Fiscal deficit dropped to Rs 680.4 billion during fiscal 2008-09 from Rs 777.2 billion in the preceding year. That became possible because of partly removal of energy-related subsidies.

However, the government's move to cut development expenditures was not welcomed as it badly affected the construction-related industries.

For the current fiscal year, state bank of Pakistan has projected fiscal and current account deficits at 4.7 percent and 5.2 percent of GDP, respectively. Last year, they were 5.2 percent and 5.3 percent, respectively. Current account, which represents inflows and outflows of money, has improved on the back of slump in imports and substantial increase in remittances sent home by expatriates. The central bank expects the trend to continue if exports pick up and remittances continue to rise. But, resurgence in import growth and doubts over foreign exchange flows may a pose a risk.

The SBP has cautioned the government against too much reliance on western markets, devastated by the global financial crisis, for the country's exports. It insisted that regional markets should be explored. Slowdown in economy should not hinder the efforts to expand the tax base, especially when day-to-day expenditures of the government are expected to rise in the wake of the ongoing war against anti-state elements.


. 2007-08 2008-09
Industrial Sector 25.7 24.3
Mining & Quarrying 2.6 2.5
Large Scale Manufacturing 13.4 12.1
Small Scale Manufacturing 4.4 4.7
Slaughtering 1.3 1.4
Construction Sector 2.4 2.1
Electricity, Gas & Water Supply 1.6 1.5
Agriculture Sector 21.3 21.8
Major Crops 6.9 7.3
Minor Crops 2.6 2.6
Livestock 11.1 11.3
Services Sector 53 53.8
Transport & Communication 10.2 10.3
Wholesale & Retail 17.23 17.5
Finance & Insurance 6.4 6.2
Ownership & Dwelling 2.7 2.7
Public Admin & Defence 5.9 6.1
Social Community & Public Services 10.6 11.1


GDP is widely used by economists to gauge the health of an economy, as its variations are relatively quickly identified. However, its value as an indicator for the standard of living is debatable. Government has projected growth rate at 3.3 percent in current financial year (2009-10). With the continuous global recession, Pakistan economy would be exposed to some risks including further decline in exports and private capital flows. Consolidating macroeconomic stability and ensuring protection of vulnerable groups should be policy priorities since government is supposed to take care of the deprived sections of the society.