IMF PROJECTS TWO PC GROWTH
Nov 23 - 29, 2009
Conventionally, economic growth is measured in terms of real gross domestic product (GDP). Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to weaken the effect of inflation on the price of the goods and services produced.
As economic growth is measured as the annual percent change of national income it has all the advantages and drawbacks.
The real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is, therefore, often seen as indicating an increase in the average standard of living. GDP per capita does not provide any information relevant to the distribution of income in a country. GDP per capita does not take into account negative externalities from pollution consequent to economic growth. GDP per capita does not take into account positive externalities that may result from services such as education and health.
The economy of Pakistan is the 27th largest economy in the world in terms of purchasing power, and the 48th largest in absolute dollar terms. Pakistan's economy mainly encompasses textiles, chemicals, food processing, agriculture and other industries.
Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In fiscal year 2008, Pakistan GDP was $454.2 billion as per purchasing power parity, while Pakistani GDP as per official exchange rate was estimated at $160.9 billion. Pakistan's per capita income has been estimated to be approximately $2,600.
Pakistan's GDP growth is expected to be between 2.5 and 3.5 percent in the fiscal year 2009-10, from 2.0 percent in the previous year. Real GDP growth is likely to be close to the target of 3.3 percent.
The International Monetary Fund (IMF), which in November last year approved a $7.6 billion bailout package to help Pakistan avert a balance of payments crisis, has projected GDP growth at 2 percent in the 2009/10 fiscal year.
The State Bank of Pakistan projected both the fiscal deficit and current account deficit for the 2009-10 at 4.7 percent and 5.2 percent respectively. The fiscal deficit and current account deficit were previously 5.2 percent and 5.3 percent respectively.
Analysts told Page that economic condition of Pakistan was not good as it suffered from internal and external maladies including political disputes, low foreign investments, high cost of doing business and many others.
Although every sector of Pakistan's economy has made significant contributions to GDP but still a more is to be done for strengthening country's economy.
According to them, agricultural sector has contributed 20.4 percent to gross domestic product. Industrial sector has accounted for 26.6 percent of 2008 GDP while 53 percent comes from services sector.
As GST collection amounts to 3 percent of the GDP and "we are way behind other countries; it stands at 7 percent in Sri Lanka and 9.5 percent in Turkey. We are far behind in contribution of taxes to GDP due to deformities in the tax system like zero-rating and poor performance of the retail sector", they said.
The bank spread has increased from 5 percent in September 2008 to 7.4 percent in September 2009 and some businessmen are of the view that it is impeding the growth of business and economic activities.
According to them, widening gap between lending and deposit rates is creating a dampening effect on the economic growth and employment as a continuous high spread discourages both investments and savings.
The banking sector needs to change its policies and bring down spread to 3.5 percent to pay a positive rate of return to depositors and thus play a positive role towards the development of the economy.
They opined though the banks deposits increased to Rs. 4.162 trillion in September 2009 showing a growth of 10 per cent as compared to 9.15 percent of last year, these were still far below than the average growth of 18.5 per cent witnessed between 2002-07.
It shows that high banking spread has caused an overall deceleration in deposits' growth contributing to decline in GDP growth rate as well.
According to them, another drawback of low returns on deposits is that it is keeping a large chunk of money outside the documented economy showing a savings to GDP ratio of just 14.3 percent in FY09 which is on far lower side as compared to world average.
The government should increase returns on deposits to promote savings culture in the country that will enable the government to accelerate the pace of developmental works.
In 2008, fiscal deficit surpassed Islamabad's target of 4% of GDP. This was result of low tax collection and increased spending. Inflation is a great problem of Pakistan's economy. In 2007, inflation was 7.7%, which jumped up to 20.8% during 2008. This was because of increase in prices of oil and various other commodities across world in this period.
Pakistan gross domestic product was calculated to be approximately $94.80 billion during 2003-04. This amount went up to $185 billion. Any improvement in conditions would be only possible if economy growth continues at a rate of seven per cent, they said.
INDICATORS 1999 2007 2008 2009 GDP $ 75 billion $ 160 billion $ 170 billion $ 185 billion GDP Purchasing Power Parity (PPP) $ 270 billion $ 475.5 billion $ 504.3 billion $ 580.6 billion GDP per Capita Income $ 450 $ 925 $1085 $1250 Revenue Collection Rs. 305 billion Rs. 708 billion Rs. 990 billion Rs. 1.05 trillion Foreign Reserves $ 700 million $ 16.4 billion $ 10 billion $ 14 billion Exports $ 7.5 billion $ 18.5 billion $ 19.22 billion $ 18.45 billion Textile Exports $ 5.5 billion $ 11.2 billion - - Khi Stock Exchange (100-Index) $ 5 billion at 700 points $ 75 billion at 14,000 points $ 56 billion at 9,000 points - Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion $ 4.6 billion Debt Servicing 65% of GDP 26% of GDP - - Poverty Level 34% 24% - - Literacy Rate 45% 53% - - Development Programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion Rs. 880 billion
GDP growth is expected to rise to three per cent in the 2010/2011 fiscal year, the IMF said.
Pakistani growth was 5.6 per cent in the 2007/08 fiscal year but it slowed to two per cent the following year because of macroeconomic imbalances, deteriorating law and order and an uncertain political scene.
'In Pakistan, the economic slowdown began before the global crisis,' the IMF said.
According to official data, average inflation from July to September stood at 10.66 per cent compared to 24.52 per cent in the same period last year. Inflation for September was up 10.12 per cent from a year earlier compared with August inflation, which rose 10.69 per cent year-on-year.
According to former finance minister Sartaj Aziz there is always some gap in the achievements claimed by different governments and the assessment of their critics, but we have hardly ever seen such a wide gap in perceptions about the state of the economy that we see today.
An open democratic system is always more responsive to the needs and aspirations of the poor. That is why the advent of genuine democracy has rekindled the prospects for equitable and inclusive growth in the coming years. The country's economy faces manifold challenges that can only be addressed by both short term and long-term planning.
The Pakistan People's Party led government has planned a five-year maiden 'Investment Policy 2010-15í that is aimed at attracting local and foreign investment to achieve 7 to 8 percent GDP growth annually.
Investment Policy would help achieve average growth rate of 7 to 8 percent per year, generating employment needed for the increasing urban population, building a knowledge-based economy, and enhancing global competitiveness of the country's economy from the present rank 92 (out of 131 benchmark countries) to rank 50 by year 2030 in accordance with the action plan of the Competitiveness Support Fund (CSF).
The Investment Policy is proposed as a blueprint for co-operation of all stakeholders, public and private, in pursuit of the country's economic growth targets.