FLOODS, ENERGY CRISIS & SECURITY ISSUES DRAIN ON GDP
July 4 - 10, 2011
With Pakistan's economy still in a grip of acute energy shortages, heightened security challenges, persistent inflationary trends, limited capital inflows, a general slow down in the economic activity was inevitable. Resultantly, growth rate in financial year 2010-11 hovered round 2.4-percent of GDP.
The problem was exacerbated, when the country came in a grip of devastating floods in the months of July and August 2010 that resulted in an extensive loss of life and property. Massive floods took a heavy toll on agriculture and infrastructure while energy crisis coupled with decline in foreign direct investment dampened business activity during FY 2010-11.
Floods not only wiped out about two percentage points from the growth but also inflicted a colossal damage of approximately Rs860 billion on the country's economy including a loss of Rs219 billion in Punjab. As many as 20 million people were rendered homeless through out the country. The floods have also affected the GDP growth and the GDP during the fiscal year remained 2.4 percent against the target of 4.5 percent. Pakistan has missed its GDP growth target for the fiscal year 2010-11 by a wide margin and GDP growth has been recorded at 2.4 percent against the budgetary target of 4.5 percent. The decline in GDP has been attributed to the impact of devastating floods in the country, gas and power shortages, law and order situation, less than projected performance of industry and agriculture sectors.
According to the sectoral growth and targets, the productive and job creating sectors of economy, like agriculture and industry, performed below expectations. Agriculture sector failed to perform according to its potential and posted a negligible growth of 1.2 percent against the target of 3.8 percent. Wheat production estimating at 24.2 million tonnes against 25 million tonnes and cotton production recording at 11.6 million bales against the target of 14 million bales resulted in lower growth in the agriculture sector as well as major crops.
The performance of the major crops witnessed a negative growth of 4.03 percent in 2010-11 against negative 2.36 percent in the last fiscal year, 2009-10. The industrial sector, which is known as a job-creating sector, posted a negative growth of 0.07 percent in 2010-11 against the growth of 8.3 percent in the last fiscal year.
In the wake of poor growth of GDP at 2.4 per cent in 2010-11, the government's claim that the unemployment rate has declined to 5.6 percent in 2010-11 seems unrealistic. When the country achieved highest GDP growth of nine percent in 2004-05, the unemployment rate was 7.7 percent, but when the growth rate fell to 2.4 percent in 2010-11, the unemployment rate declined to mere 5.6 percent.
Experts believe that the unemployment should have declined when the real GDP grew at higher pace while it should surge when the GDP growth nosedives. The unemployment, as per official claims, declined at a time when the country is heading towards serious risk of stagflation which means that the real GDP growth is low while inflation is on the higher side, they said.
According to them, the industries were forced to close down in the wake of severe load shedding and the country's GDP nosedived to an average of 2.6 percent in last three years of PPP government.
As per the Economic Survey 2010-11, the GDP growth stood at 5.6 percent in 2005-06 while the unemployment rate was 7.6 percent. The country's GDP growth rose to 6.8 percent in 2006-07 while unemployment rate fell to 6.2 percent. But, interesting things started happening when PPP came into power. The country's GDP growth nosedived to 3.7 percent in 2007-08, but the unemployment rate showed reduced rate of 5.2 percent in the same year.
Pakistan's real GDP grew by only 1.7 percent in 2008-09, while the unemployment rate stood at 5.2 percent. The revised GDP growth stood at 3.8 percent in fiscal year 2009-10 while unemployment was just 5.5 percent.
The unemployment rate stands at 5.6 percent as total number of unemployed Pakistanis was 3.05 million, Labour Force Survey (LFS) 2009-10 results showed. The LFS 2009-10 found that the number of unemployed persons increased 2.93 million in 2008-09 to 3.05 million in 2009-10. The number of unemployed persons increased in urban Punjab and Sindh while there was decrease in urban Khyber Pakhtunkhwa.
According to the Annual Economic Review of State Bank of Pakistan for 2008-2009, the share of construction industry in GDP growth rate was 2.4 per cent. A decline of 10.8 per cent in this share was noticed in 2009 which was the highest in the last 37 years. This resulted in declining the share of construction industry in the GDP growth rate to 0.3 per cent and the growth of the industry itself came down to one per cent and its bad effects could still be felt. Major factors responsible for this downturn in the industry include exorbitant increase in the prices of raw materials, shortage of funds available for public sector projects and scarcity of finance availability.
The country could only march on the road to progress and prosperity by pushing up GDP growth rate and checking rising inflation. Things will remain stagnant, if stringent measures are not taken to improve the state of country's economy.