Agriculture is the mainstay of Pakistan's economy. Nearly twenty-two percent of total output (GDP) and 44.8 percent of total employment is generated in agriculture. It also contributes substantially to Pakistan's exports. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products.
Furthermore, 44.8 percent of country's work force is employed in agriculture, but 65.9 percent of country's population living in rural areas is directly or indirectly linked with agriculture for their livelihood. Whatever happens to agriculture is bound to affect not only the country's growth performance, but to a large segment of the country's population as well.
Over the last five years, growth in agriculture has witnessed a mixed trend. During the first two years (2000-01 and 2001-02), the country experienced the crippling drought, which badly affected its agriculture and eventually overall growth in agriculture turned negative for these two years. In the preceding years (2002-03 to 2004-05), relatively better availability of irrigation water had positive impact on overall agricultural growth and this sector exhibited a modest to strong recovery.
However, the performance of agriculture during the fiscal year 2005-06 has been weak. Against the target of 4.2 percent and last year's achievement of 6.7 percent, overall agriculture grew by 2.5 percent in 2005-06, due to a relatively poor performance of major crops and forestry, and weaker one of minor crops and fishery. At the same time, Livestock has been the sole saving grace.
Major corps, accounting for 35.2 percent of value added in agriculture, registered a decline of 3.6 percent as production of two of the four major crops, namely cotton and sugarcane has been significantly less than last year for a variety of reasons including, excessive rains at the time of sowing, high temperature at the flowering stage, late harvesting of wheat crop, a strong base effect (cotton) and lastly the incidence of frost, damaging sugarcane crop in the month of January, 2006.
The production of third major crop, namely wheat, remained more or less at last year's level at 21.7 million tons thereby registering a meager growth of 0.4 percent. The production of rice - the fourth major crop - has been the sole major crop which registered an impressive growth of 10.4 percent, but failed to turn the negative growth in major crops to a positive one.
Minor crops, accounting for 12.3 percent of agricultural value added, barely managed to register a positive growth of 1.6 percent in 2005-06 as against a growth of 3.0 percent last year.
The performance of livestock, the single largest sector accounting for almost one - half of agricultural value added, has been impressive as this sector grew by 8.0 percent on the back of substantial increase in the population of species, milk etc. The performance of fisheries has been poor as it grew by 1.9 percent only in 2005-06. Forestry has been registering negative growth for three consecutive years - registering a negative growth of 9.7 percent in 2005-06 as against a negative growth of 30.4 percent.
Pakistan's agriculture has been suffering, on and off, from a severe shortage of irrigation water in recent years. As against the normal surface water availability at canal heads of 103.5 million-acre feet (MAF), the overall (both for Kharif and Rabi) water availability has been less in the range of 5.9 percent (2003-04) to 29.4 percent (2001-02). Relatively speaking, the Rabi season faced more shortage of water than Kharif during these periods.
During the current fiscal year (2005-06), the availability of water for Kharif 2005 (for the crops such as rice, sugarcane and cotton) has been 5.5 percent more than the normal supplies and 19.8 percent more than last year's Kharif. Excessive winter rainfalls (January-March 2005) along with the melting of snow on mountains top were responsible for higher than normal availability of water during Kharif 2005. The water availability during the Rabi season (for major crop such as wheat), as on end of March, 2006 was estimated at 30.0 MAF, which was 17.3 percent less than the normal availability, and 29.8 percent more than last year's Rabi.
Amongst major crops, cotton production is estimated at 12.417 million bales for 2005-06 lower by 13 percent over the last year's production of 14.265 million bales. Wheat production is estimated at 21.7 million tons in 2005-06, as against 21.612 million tons last year, showing an increase of 0.4 percent. Rice production has increased by 10.4 percent in 2005-06 from 5.025 million tons last year to 5.547 million tons in 2005-06. Sugarcane production, however, decreased from 47.244 million tons in 2004-05 to 44.312 million tons in 2005-06, showing a decease of 6.2 percent.
As regards the minor crops, the production of chillies and onions increased by 34.8 and 29.0 percent respectively during 2005-06. The production of all the pulses, namely masoor, mung and mash are down by 13.5, 12.6 and 9.8 percent, respectively during 2005-06. Lesser production over last year is due to shortfall in area.
The production of potato also decreased by 17.9 percent on account of frost, which affected the potato crop. Agriculture credit disbursement of Rs 91.161 billion during July-March, 2005-06 is higher by 23.5 percent, as compared to Rs 73.811 billion over the corresponding period last year. The fertiliser off-take stood at 2982 thousand nutrient tons in July- March 2005-06 or higher by 6.1 percent, as compared to 2811 thousand nutrient tons for the corresponding period last year.
MANUFACTURING, MINING AND INVESTMENT POLICIES 2005-06:
The overall manufacturing sector continued to maintain its growth momentum with more vigour during the current fiscal year. Overall manufacturing recorded an impressive and broad based growth of 8.6 percent, against a target of 12.0 percent and last year's growth of 12.6 percent. Large-scale manufacturing registered an impressive growth of 9.0 percent in the current fiscal year 2005-06 against a target of 14.5 percent and last year's achievement of 15.6 percent.
The main contributors to this impressive growth of 9.0 percent in July-March 2005-06 over last year are the automobile group (29.76 percent), engineering goods group (6.46 percent), non-metallic mineral products (9.49 percent), leather products (10.91 percent), chemicals (9.08 percent), pharmaceuticals (14.83 percent) and electricals (11.78 percent).
The items that registered positive growth were cotton cloth (0.07 percent) and cotton yarn (11.16 percent) in the textile group; cooking oil (17.6 percent) in the food, beverages and tobacco groups; nitrogenous fertiliser (4.46 percent), in the chemical group, cement (9.75 percent) in the non-metallic mineral products group and Jeeps & Car (29.9 percent), LCV's (29.3 percent) and motorcycles/scooters (15.04 percent) in the automobile group. The individual items exhibiting negative growth include; sugar (2.40 percent), coke (77.39 percent), power looms (24.67 percent) and billets (47.95 percent).
The output of the mining and quarrying sector grew by 3.8 percent this year as against the rise of 9.6 percent last year. The principal minerals which have shown positive growth are: baryte (11.4 percent), limestone (9.9 percent), natural gas (4.5 percent), rock salt (13.2 percent), sulphur (5.4 percent) and gypsum (12.6 percent). While negative growth was exhibited by chromite (6.7 percent) and magnetite (10.7 percent).
Foreign direct investment has witnessed an increase of 238.7 percent in the first ten months (July-April, 2005-06), whereas, net foreign private investment stood at US $3376 million against US $1027 million last year, thereby, showing increase of $2349 million. The increase in foreign private investment is because of the inflow of portfolio investment of $355.8 million as compared to inflow of $135.5 million in the comparable period last year.
The privatisation program maintained its pace during 2005-06 and succeeded in privatising some high-ticket items despite an inhospitable global environment. By end April 2006, Pakistan had completed or approved 160 transactions at gross proceeds of Rs 985 billion. This includes 57 transactions for Rs 337.908 billion completed during October 1999 to April 2006.
POVERTY AND INCOME DISTRIBUTION:
In Pakistan, the Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. Preliminary findings of Pakistan Social and Living Standards Measurement Survey (PSLM 2004-05) on poverty status were released at the end of February 2006, which indicates that the poverty level in Pakistan has been reduced during the last four years.
A strong growth (7.5 percent on average) for three years in a row, with per capita income growing at an average rate of 5.6 percent; a large inflow of remittances (over $4.0 billion per annum) in recent years, a huge expenditure on poverty-related and social sector program, and many other interventions have made a significant dent to poverty in Pakistan.
As per HIES survey 2004-05, the percentage of the population living below the poverty line is provisionally estimated at 25.4 percent in 2005 - down from 32.1 percent in 2001.
This suggests a decline of 6.7 percentage points in poverty in the last four years. More importantly, the rural poverty has declined more than urban poverty. The provisional estimates show that rural poverty has declined from 39.0 percent in 2001 to 31.8 percent in 2005 - a decline of 7.2 percentage points. Urban poverty on the other hand is provisionally estimated to have declined from 22.7 percent in 2001 to 17.2 percent in 2005 - a decline of 5.5 percentage points.
The social sector and poverty related expenditures grew at an average rate of more than 20 percent per annum during 2001-05.
There is nearly a three-fold increase in the projected PRSP expenditure for 2006-07 when compared with the actual expenditures of base year 2001-02. Within the various categories of pro-poor expenditure, human development comes out to be the priority item of the Government with expenditures under this head constituting, on average, more than 50 percent of all PRSP related expenditures.
Further reduction in poverty, however, serves as a major challenge for the government. A clear lesson from the past four years of Pakistan and from other countries' experience is that sustained growth on a consistent basis is needed to reduce poverty.
Pakistan has gained further strength on fiscal side. Revenues are buoyant, expenditure is rationalised, fiscal deficit is at sustainable level and revenue deficit has almost been eliminated. Resultantly, Public debt is fast moving towards a sustainable level. Much progress has been made towards fiscal consolidation.
The wide-ranging tax and tariff reforms as well as reforms in tax administration have started paying dividends. Tax collection by the Central Board of Revenue (CBR) has picked up. As a result of prudent fiscal management over the last 5 years, the burden of interest payment in domestic budget has declined sharply, thereby, releasing resources for development and social sector program.
During the five years from 2000-01 to 2005-06, tax collection by the CBR increased by 81.0 percent. The Central Board of Revenue (CBR) was targeted to collect Rs 690 billion but it is most likely to collect Rs 710 billion - Rs 20 billion more than the target and 20.6 percent more than last year.
The total expenditure remains more or less stable in a narrow band of 17 to 18.8 percent of GDP during the last six years.
Substantial decline in interest payments from as high as 7.5 percent of GDP in 1998-99 to 3.1 percent of GDP in 2005-06, has provided fiscal space to reorient expenditure in favour of development expenditure. Resultantly the share of current expenditure in total expenditure declined from 89 percent of total expenditure in 1998-99 to 78 percent in 2005-06. In addition, the share of development expenditure doubled from 11 percent to 22 percent in the same period.
During the last six years the development expenditure improved from 2.2 percent of GDP in 2000-01 to 4.2 percent of GDP in 2005-06. Second largest component of the current expenditure, namely, defence spending remained stagnant at around 3.1 percent to 3.3 percent of GDP during the last six years. Government is achieving the goal of fiscal stabilisation without compromising spending on the social sector. Non-defence-non-interest expenditure has improved from 7.8 percent of GDP in 1999-2000 to 11.8 percent of GDP in 2005-06.
During the last six years the real growth in current expenditure hovered around 3 percent per annum and pace of growth has slowed down. Total expenditure grew by 3.4 percent in the first three years (2000-03) but accelerated to 5.6 percent during the last three years (2003-06). The main contribution is coming from development expenditure which grew by 7.4 percent per annum in first three years (2000-03) and by 23.8 percent in recent three years (2003-06).
Total consolidated revenues are targeted at Rs 1095.6 billion in 2005-06 compared to Rs 900.0 billion in 2004-05, an increase of 21.7 percent. This was primarily due to a rise of 22.2 percent in tax revenue on the back of increases in both federal and provincial tax revenues, which grew by 19.8 percent and 50.1 percent, respectively. Non-tax revenue increased by 19.3 percent in 2005-06 but remained stagnant at 3.8 percent of GDP.
In 2005-06, Pakistan is likely to face an overall fiscal deficit of Rs 261.6 billion or 3.4 percent of GDP excluding earthquake effect and if we include earthquake related spending worth Rs 65.8 billion, the size of the deficit stood at Rs 327.3 billion or 4.2 percent of GDP. This revenue-expenditure gap was financed through external and domestic sources.
Out of the gap of Rs 327.3 billion, financing from external sources is expected at Rs 118.4 billion. The remaining gap of Rs 208.9 billion is likely to be financed from domestic sources. Within domestic sources, financing from non-bank sources amounted to Rs 22.4 billion while Rs 96.7 billion would be contributed by the Banking sources, and Rs 90.0 billion is to be financed through privatisation proceeds.
The revenue deficit (the difference between total revenue and total current expenditure), a measure of government dis-saving, was at a deficit of 0.7 percent of GDP in 2004-05 compared to a deficit of 2.2 percent in 2000-01. It has further progressed towards almost elimination at 0.03 percent of GDP in 2005-06.
The public debt- to-GDP ratio, which stood at almost 85 percent in end June 2000, declined substantially to 61.4 percent by the end of June 2005 ¯ 23.6 percentage points decline in country's debt burden in 5 years. By end March 2006, public debt further declined to 54.7 percent of the projected GDP for the year.
Following the debt reduction strategy in which raising revenue was one of the key elements, the public debt burden in relation to total revenue has declined substantially from 562.5 percent in 1999-2000 to 448.9 percent by end-June 2005 and further to 384.9 percent by end-March 2006 to the projected revenue for the year. During the last six years, the debt servicing liabilities have declined sharply from 65.4 percent of revenue in 1999-2000 to 27.8 percent of revenue and from 53.5 percent to 27.8 percent of current expenditure in 2005-06.
The ratios of domestic debt to GDP and to tax revenue both decreased during 2005-06. The stock of domestic debt as percent of GDP declined from 35.7 percent in 2003-04 to 32.8 percent in 2004-05 and further to 29.4 percent by end March 2006.
As a result of prudent fiscal management over the last 6 years, the burden of interest payments on the domestic budget has declined sharply, thereby, releasing resources for development and social sector programs. Interest payments as a percentage of total revenue have been reduced to one-half (41 percent to 20 percent) over the last six years.
Similarly, share in total expenditure declined from 30 percent to 16 percent during the same period. Most importantly, as percentage of GDP, interest payments declined from 6 percent to 2.6 percent in the last six years.
MONEY & CREDIT:
The easy and accommodative monetary policy stance that had been pursued during the last few years by the SBP underwent considerable changes during the FY05, switching from a broadly accommodative to aggressive tightening in the second half of the last fiscal year, since April 2005.
The same tight monetary policy stance continued during the current fiscal year despite declines in both core and overall inflation. Notwithstanding the tight monetary policy stance the SBP continued to strike a balance between promoting growth and controlling inflation on the one hand and maintaining a stable exchange rate environment on the other.
Tight monetary policy stance is likely to continue until inflationary pressures are significantly eased off.
The State Bank of Pakistan has taken a number of steps in various areas to further enhance the effectiveness of the banking industry in Pakistan. Going forward, the SBP would continue to take measures aimed at expanding credit to priority sectors such as agriculture, SMEs and export sector. To further revamp the financial sector in line with the global financial system, the State Bank of Pakistan has set out a road map for the implementation of Basel-II. It is the new regulatory capital adequacy regime, which offers a series of approaches ranging from simple to more complex methodologies for capital allocation against credit and operational risk.
The credit plan for 2005-06 set the target for monetary expansion at Rs 380 billion or 12.8 percent higher than last year (FY05) on the basis of a growth target of 7.0 percent and inflation target of 8 percent. The money supply during July-April 22, 2006 of the current fiscal year expanded by Rs 294.9 billion or 9.94 percent as against an expansion of Rs 332.4 billion or 13.37 percent in the same period last year.
The pace of monetary expansion remained well within the Credit Plan target for the year (12.8 percent). Within the NDA, both net budgetary borrowings and borrowings for commodity operations remained well within the credit plan targets.
The net credit to the Government for budgetary purposes was Rs 43.3 billion compared to the annual credit plan target of Rs 98 billion and Rs 15.0 billion borrowed in the corresponding period of last year. However, credit to the private sector has exceeded the credit plan target and stood at Rs 345.1 billion as against Rs 330 billion envisaged for the year in the credit plan. Expansion in NFA stood at Rs 37.8 billion owing mainly to the receipts of privatisation proceeds and issuance of sovereign bond.
The proceeds from privatisation and sovereign bond not only helped build NFA; it also helped in containing the growth in NDA through the retirement of government debt held by the SBP.
Despite the tight monetary policy stance of the SBP, credit to the private sector was broad-based which grew by 20.2 percent (Rs 345.1 billion) during July-April 22, 2006 compared with the growth of 28.0 percent or Rs 357.4 billion during the same period of last year.
Credit to the private sector continued to exhibit strong demand, reflecting the confidence of the private sector on the continuously improving macroeconomic fundamentals of the country. The manufacturing sector continued to be the largest recipient of bank credit, amounting to Rs 130.0 billion during July- March 2005-06, -- 17.1 percent more than the comparable period of last year and accounting for almost 47.9 percent of the credit to private sector businesses. The growth in consumer loans remained robust, and their scale expanded by 27 percent to Rs 67.2 billion. The consumer loans were acquired to finance a range of products including automobiles (Rs 23.2 billion) followed by personal loans (Rs 21.5 billion), credit cards (Rs 10.4 billion) and house building (Rs 10.1 billion).
Credit disbursement to the agriculture sector, also remained consistent with the previous year trend. Scheduled banks and DFIs advances to SME sector witnessed a growth of Rs 40.6 billion during July-February FY06 compared with an expansion of Rs 59.9 billion in the same period of last year.
The scheduled banks have opened 304 offices during the period from 01-04-2005 to 31-03-2006. During July-March 2005-06, there was an increase of Rs 303.9 billion (17.3 percent) in the net advances of the scheduled banks. Their deposits increased by Rs 272.9 billion (11.5 percent) and their total investments increased by Rs 77.1 billion during the first nine months of the current fiscal year. In 2005, the banking sector produced impressive results. The year has been unprecedented in terms of profits.
Pakistan continues to be at the forefront of the Micro-Finance Sector Development Program (MSDP). Within the overall MSDP framework, Khushhali Bank (KB) is the lead micro-finance institution in Pakistan. The Bank now serves nearly 250,000 clients, with a cumulative disbursement of over Rs 6.0 billion in 75 districts of Pakistan with high poverty incidence. 60 percent of KB's clients are in the rural areas, roughly one-third being women.
During the fiscal year 2005-06, the stock market continued to maintain its strong performance and achieved new heights by creating many new records. The KSE-100 Index crossed the barrier of 12000 mark for the first time in the history of capital market and touched an all time high on April 13, 2006.
The KSE-100 index made further inroad and reached 12274 points on April 17, 2006 showing a growth of 64.7 percent over June 2005. Between December 2005 and April 2006 alone, the KSE share index increased by 25 percent. Similarly, the total market capitalisation also increased to Rs 3419.4 billion on April 17, 2006 (US $57.0 billion) from Rs 2013.2 billion ($33.7 billion) showing a growth of 70 percent over June 2005. At current levels, KSE's market capitalisation is equivalent to about 44.3 percent of estimated GDP of FY06.
The improved performance of the stock market can mainly be attributed to consistent and transparent economic policies resulting in strong economic growth; a successful privatisation process attracting foreign investors in prestigious organisation like PTCL and National Refinery; sound monetary policy of the SBP, maintenance of fiscal discipline and the capital market reforms including development measures introduced by the stock exchanges with full support of the SECP.
The government's economic policies and capital market reforms helped in promoting a fair, efficient and transparent capital market and restoring investors' confidence. The privatisation of the government entities through the bourses helped to broad base the equity ownership to a significant level.
The buying euphoria in the stock market has been spurred by a number of other favourable factors including continuation of the present policies on banking sector by the SBP, renewed interest of large number of buyers of shares, bright prospect of reaping dividends, good capital gains and presence of institutional investors in the market. The KSE saw robust activity especially during the first 4 months of 2006, with all vital indicators pointing in the right direction.
The Securities and Exchange Commission of Pakistan (SECP) has been actively pursuing a capital market reform program geared towards the development of a modern and efficient corporate sector and capital market, based on sound regulatory principles that provide impetus for high economic growth. The reforms introduced over recent years, the fields of risk management, governance and transparency have contributed significantly towards the growth and development of capital market and building investor confidence.
During July-March 2005-06, the listed capital on KSE increased from Rs 438.49 billion to Rs 486.49 billion, reflecting an increase of around 11 percent. The market capitalisation increased from Rs 2,071.18 billion to Rs 3,257.06 billion, reflecting an increase of over 57 percent in the value of shares. Similarly, the average daily turnover of shares increased from 430 million to 462 million shares. Unprecedented growth in the leading market indicators was also witnessed in Lahore and Islamabad Stock Exchanges.
During the calendar year 2004, total profit before taxation of the 12 trading groups amounted to Rs 229.5 billion, which increased to Rs 326.3 billion in 2005 recording a growth of 42.2 percent. Fuel and energy, banks and other financial institutions, transport and communications and cement were the trend setters in the stock market during the current fiscal year.
For the first ten months of the current fiscal year (July - April ) 2005-06, the inflation as measured by the Consumer Price Index (CPI), declined to 8.0 percent from 9.3 percent in the same period last year . Food price inflation averaged at 7.0 percent compared to12.8 percent for the same period last year. Non-food inflation increased to 8.8 percent versus 6.9 percent in the comparable period of last year.
Core inflation, which excludes food and energy costs from the headline CPI, also reflected a favourable trend and remained almost at last years' level of 7 percent. The larger contribution toward the overall CPI inflation come from Non-food, House rent, Energy and transport components of CPI. However, based on current trends, and barring any adverse shocks, it is expected that inflation would be within the target of 8 percent set by the government for the full year
Factor contributing to the build-up in inflationary pressures is the increase in aggregate demand in the economy, which is compounded by supply shortages of principal commodities. The supply side factors responsible for pushing the local price up, include an increase in support prices of wheat, wheat shortage resulting from inadequate production and lastly, the mis management of wheat. Other issues to consider include, the significant increase in prices of pulses and the lower production of sugarcane and sugar.
Furthermore, the high increase in International prices of sugar owing to a global shortfall in supplies, brought about by the production of ethanol in Brazil, have also led to inflationary pressures this year. The continuous surge in International oil prices, coupled with an unprecedented rise in world prices of other commodities, also impacting prices in Pakistan.
Cognisant of the impact of inflation on the economy and its disproportionate effect on the poor and fixed income groups of society, the government has responded in a multi-pronged manner to the rise in the price level. A strategy of regular monitoring of domestic stocks of key commodities and their prices was adopted, by which the government was able to respond in a timely manner to shortages by importing substantial quantities of wheat, sugar, pulses and other essential commodities.
TRADE AND PAYMENTS:
Pakistan's foreign trade sector is being affected both by structural and cyclical factors. On the domestic side, four years of strong economic growth strengthening domestic demand and triggering a consequent pick up in investment spending, have led to a massive surge in imports. On the external side, the global economy continues its strong and broad - based expansion with growth reaching close to 5 percent in 2006, with similar expansion projected for the next year - which will be the fifth successive year that the world economy has grown by more than 4.0 percent.
Export during the first nine months (July-March), of the current fiscal year, are up by 18.6 percent - rising from $10183 million to $12073 million in the same period last year. Thus, Pakistan is gradually moving towards higher value added in exports of textile manufacturers. The shares of value added exports have also increased. Pakistan doubled its exports in seven years and has increased its trade-to-GDP ratio from close to 26 percent in 1999-2000 to an estimated 34 percent in 2005-06.
Imports, on the other hand, have risen by 43.2 percent, in the first nine months (July-March) of the current fiscal year - rising from $14446 million to $20693 million in the same period last year.
Pakistan's imports continue to be pushed higher by unprecedented rise in oil prices and continued strength of non-oil imports owing to buoyant domestic demand. Major contributors to the substantial rise in food imports include wheat, sugar and pulses. Owing to domestic shortage, the government has liberalised its import regime and allowed duty free import of these three items to augment their supplies with a view to reducing food inflation in the country. Sugar alone contributed 74 percent to the rise in food imports.
At the same time, sugar also contributed 26.6 percentage points to the 35.9 percent growth in food imports. Altogether, Wheat, sugar, and pulses alone contributed 93 percent to the rise in food imports and 33.4 percentage points to the 35.9 percent growth in food imports. In fact, if sugar production had remained normal and no shortages had emerged during the year, food imports would have risen only by 9.3 percent.
The unprecedented surge in domestic demand has fuelled an exceptional increase in non-oil imports, registering a growth of 38.1 percent in the first nine months (July-March) of the current fiscal year. Non-food non-oil imports also grew by 38.3 percent, reflecting continued strong domestic demand.
Major contributors to the rise in machinery imports include power generation machine (44.8 percent), agriculture machinery (109.2 percent), construction and mining machinery (29.0 percent) and other machinery (51.7 percent). A surge in imports of machinery reflects a growth in domestic investment driven imports, thus allowing the expansion of the country's production base.
Imports of petroleum group have also played a key role in taking Pakistan's import to a new height. Emerging as the single largest item in the country's import bill, the Petroleum group import amounted to $4615.8 million, during the first nine months (July-March), of the current fiscal year, as against $2806.6 million in the same period last year. Thus an increase of 64.5 percent resulted in an increase in trade deficit to $82620.3 million, in comparison to $4263.4 million in the same period last year.
CURRENT ACCOUNT BALANCE:
Pakistan's current account balance that slipped into red in 2004-05 after posting surpluses for three consecutive years remained in deficit in 2005-06, with a widening gap due to a higher import bill. This was brought about by high global crude prices and a hefty rise in non-oil imports.
Furthermore, higher freight charges by international shipping lines as a result of sharp increase in global trade and higher fuel cost, and growth in personal travel due to the rising level of income of middle and high income groups, have also contributed to the widening of current account gap. Deceleration in the growth of net transfers is also responsible for widening of the current account deficit.
The current account deficit, excluding official transfers, stood at $4696 million in the first nine months (July-March) of the current fiscal year as $1181 million in the same period last year. As percentage of projected GDP for the year the current account deficit stood at 3.7 percent as against 1.1 percent in the same period last year.
Although trade deficit (fob) almost doubled over the last year and services balance deteriorated by 27.5 percent, the strong inflows under private transfers fuelled by rising workers' remittances and resident foreign currency accounts offset some of the negatives with current account deficit standing at $4696 million. The flow under long - term capital (net) improved markedly and risen to $3905 million from $1633 million last year.
EXTERNAL DEBT AND LIABILITIES:
Pakistan's total stock of external debt and foreign exchange liabilities grew at an average rate of 7.4 percent per annum during 1990-99 - rising from $20.5 billion in 1990 to $38.9 billion by end June 1999 but declined slightly to $37.9 billion in 1999-2000.
It exhibited a declining trend thereafter. Pakistan's external debt and liabilities have declined by $3.1 billion - down from $38.9 billion in 1998-99 to $35.834 billion by 2004-05. However, external debt and liabilities increased to $36.557 billion by end-March 2006, thus showing a rise of $0.723 billion in the first nine months of the current fiscal year. The rise is mainly on account of issuance of Sovereign bonds worth $800 million in March 2006.
External debt and foreign exchange liabilities, instead of growing at the pace of the 1990s, were in fact reduced from U.S. $38.9 billion in 1998-99 to $36.5 billion by end-March 2006 - a reduction of $2.4 billion in seven years.
Most importantly, the burden of the debt has declined substantially during the same period. For example, the external debt and liabilities as a percentage of foreign exchange earnings which stood at 335.4 percent in 1998-99, declined to 127.6 percent by end-March 2006.
The external debt and liabilities stood at 64.1 percent of GDP in end-June 1999, declined to 28.3 percent in end-March 2006. The annual debt servicing payments made during the period 1999-2000 to 2003-04 averaged just above $5 billion per annum. This amount has drastically come down to around $3 billion in 2004-05. An amount of $2.4 billion has been paid during July-March 2005-06 and the amount rolled over declined from $4.1 billion in 1999-2000 to $1.1 billion in July-March 2005-06.
On March 23, 2006, Pakistan successfully issued US $500 million new 10-year Eurobond and US $300 million new 30-year Bonds in the international debt capital markets lead managed by J. P Morgan, Citi group and Deutsche Bank.
This transaction, which represented the first international 144A bond issued by Pakistan since 1999, raised significant interest amongst international Institutional investors.
The 10-year notes were priced with a coupon of 7.125 percent, framing a spread of 240bps over the relevant 10-year US Treasury benchmark and 187bps over the US $mid-swap rate. The 30-year bonds were priced with a coupon of 7.875 percent to, framing a spread of 302bps over the relevant 30-year US Treasury benchmark and 256bps over the US $ mid-swap rate. Pakistan was able to achieve spreads on both the new 10 and 30-year bonds that were tighter than its previous 5-year issues. By issuing 10 and 30 year tranches, Pakistan completed its primary objective of establishing a full Pakistani International yield curve in record time. With over 170 accounts participating, books closed with total orders exceeding US $2bn. The issue was over 2.5 times oversubscribed.
Right to education is the basic requirement of every individual. Nations all over the world reached high levels of prosperity and human development through investing and prioritising provision of quality and equitable health and education faculties to their citizens.
East Asian economies are a recent example that, show how nations can benefit from an educated and productive labour force. Pakistan is in fact, entering into that phase of demographic transition, where in few years massive influx in the working age population (60 million) is expected. Thus, Investing in providing quality education to the upcoming working age population, is the only way to cash the demographic dividend.
Currently, the literacy rate is 53 percent which is much below the targets set to be achieved in 2005 (60 percent ESR and 58 percent in PRSP) and far away from reaching the Millennium Development Goals (MDGs) target of 80 percent literacy till 2015.
Looking at the gender disaggregated data for overall literacy, 65 percent of males and 40 percent of females were literate in the year 2004-05. District disaggregated data for adult literacy show that, in Punjab Rawalpindi with 75 percent is ranked at the top and Lohdran with 34 percent at the bottom. Karachi with 78 percent literacy is ranked at the top while Jacobabad with 43 percent is ranked at the bottom in Sindh. In NWFP, Abbotabad (65 percent) is at the top and Kohistan (25 percent) at the bottom. Finally, in Balochistan Quetta (65 percent) at the top and Jhal Magsi (20 percent) and Qilla Saifullah (20 percent) are at the bottom.
The key impediments to the progress in reaching a higher level of literacy in Pakistan are the low enrolment rates and poor quality of education provided by the public sector. In case of enrolments, Net Enrolment Rate (NER) has seen a considerable increase of 10 percentage points from 42 percent in 2001-02 to 52 percent in 2004-05. The MDG targets to reach 100 percent NER till 2015. This requires almost 50 percent increase in enrolment in next 10 years, which is a huge challenge for the policy makers.
Another factor that contributes to lower literacy rates is the high dropout rate at all levels. Major reasons behind dropout include poor quality of infrastructure, teacher's absenteeism, quality of education and the value of returns attached to sending children to schools.There exist wide gender gaps especially in the rural areas in enrolments at all levels.
In the past year, 2187 new primary schools were established, 1221 in the public sector and 881 in the private sector. This increase has occurred in both rural and urban areas. Enrolment at the primary level increased from 19.92 million in 2001-02 to 21.33 million in 2004-05, 4.28 million to 4.55 million at the middle level and 1.79 million to 1.88 million at the secondary level during 2001-02 to 2004-05. During the past four years 249 additional technical and vocational institutions were established. There is a significant increase of 35 universities during the period 2001-02 to
2004-05 including 13 new public and 22 new private universities. Government of Pakistan is currently spending 2.1 percent of its GDP on education sector which is very low as compared to other countries in the region. The share of education sector has not seen much change in the past several years, infact it has stagnated to about 2 percent from 2003-2005.
Government has launched several programs to increase coverage by increasing enrolment and to improve the overall quality of education but these initiatives need proper implementation and constant monitoring for their timely completion.
Importance of the health in the social lives of the people makes it such an important area that it cannot be considered in isolation and it is inextricably tied to other socio economic and political realities.
The Constitution of Pakistan in its article 38 titled "promotion of social and economic wellbeing of the people" ensures the provision of basic necessities of life including health and medical relief for all citizens, irrespective of sex, caste, creed or race. Government of Pakistan recognises and acknowledges the access to essential health care as a basic human right that is why the public health sector has always been a priority area of the government activities. Government of Pakistan is fully aware of its commitment to achieve Millennium Development Goals (MDGs) regarding health and initiatives have been taken to address health issues under PRSP and MTDF.
There is a considerable improvement in health care facilities over the past year as the existing vast network of health care facilities consist of 946 hospitals, 4554 dispensaries,5290 basic health units/sub health centres (BHUs/SHCs), 552 rural health centers (RHCs), 907 maternal and child health centers (MCHs) and 289 TB centres (TBCs).
Available human resource for the fiscal year 2005-06 turn out to be 118160 doctors, 6761 dentists and 33427 nurses which makes the ratio of population per doctor as 1310, population per dentist 25297 and population per nurse as4636.The new health facilities added to overall health services include construction of 56 new facilities (42 BHU and 14 RHCs ),upgrading of 59 existing facilities (18 RHCs and 41 BHUs) and addition of 3500 new doctors ,1900 nurses, and 15000 lady health workers.
The total outlay on health sector is budgeted at Rs 40 billion which shows an increase of 5.3 percent over the last year and turns out to be 0.51 percent of GDP. To reduce incidence of disease and to alleviate their suffering and pain so as to improve the health status of people, various health programmes like Lady health worker program, Malaria, Tuberculosis, HIV/AIDS control progam, the expanded program on immunisation, National Maternal and child Health Program, Prime Minister Program for prevention and Control of Hepatitis in Pakistan, Drug Abuse, Cancer Treatment program remained operative during fiscal year 2005-06.
During the fiscal year 2005-06 the caloric availability per day is likely to increase from 2271 to 2328 and protein availability from 65.5 to 66.9 grams PSLM 2004-05 reports district level data for major indicators in the health sector such as sickness/injuries, immunisation, pre and post natal consultation etc .
In the case of immunisation, the top ranked districts are Jhelum (Punjab), Hyderabad (Sindh) ,Chitral (N.W.F.P) and Gwadar (Balochistan).The districts reporting lowest immunisation are Muzaffar Garh ( Punjab), Jacobabad (Sindh), Shangla (N.W.F.P) and Qilla Saifullah (Balochistan). Government of Pakistan needs to address the problem of the adversely affected districts and focus on policies to solve the problems and initiate immediate remedial measures.
POPULATION, LABOUR FORCE & EMPLOYMENT:
Achieving a world population in balance with its environmental resources is crucial to the future of our planet and the welfare of its people. Population growth is a complex issue that directly or indirectly impacts all aspects of our lives and the conditions under which we live----from the environment and global stability to women's health and empowerment.
Pakistan being a developing country also faces the problem of over population. During the past 25 years, cultivable land has increased by 27 percent compared to 98 percent increase in population, resulting in reduced individual land holdings in Pakistan. Due to a high birth rate urban population will double in the next 20 years causing more and more forests to be cut to make way for humanity.
Even now each year, deforestation occurs at the rate of 2.5 percent. In addition, since only 60 percent of our population has sewerage facility, the remaining 40 percent churn out wastes damaging the environment and causing a lot of diseases. Rising levels of income on the one hand and easy availability of loan facility/financing on the other has lead to an increase in motorization in the country and almost 70 percent of our on-the-road vehicles have outlived their life span and emit unburnt monoxide gases.
In Pakistan, labour force participation is estimated on the basis of the Crude Activity Rate (CAR) and the Refined Activity Rate (RAR). The CAR is the percentage of the labour force in the total population while RAR is the percentage of the labour force in the population of persons 10 years of age and above.
The figures both for CAR (32.8 percent) and RAR (46.9 percent) for the first half of 2005-06 fare higher than LFS 2003-04 (30.4 percent and 43.7 percent). This phenomenon is more obvious for rural areas and women. Augmentation of the rates for the set of economic activities carried out within the house precincts also depicts the same scenario (42.8 Vs 38.5 percent).
Agriculture still accounts for the largest source of employed work force. The share of agriculture in employment has increased from 43 percent in 2003-04 to almost 45 percent by mid of 2005-06. Sector wise break up of employed labour force shows that female labour force participation is on the rise for most sectors especially agriculture, fishery and telecom sectors.
It is important to note that the employment of the rural females increased despite a considerable rise in female Labour Force Participation Rate. The increase in rural female employment was mainly in the category of unpaid family helpers, which may be due to enhanced growth rates in agriculture in recent years or due to the combined efforts of various NGO.
TRANSPORT AND COMMUNICATIONS:
A strong, efficient and affordable infrastructure is a critical element of a good investment climate and therefore, is a pre-condition to sustain the growth momentum. Transport and Communications both are important elements of infrastructure services and are essential in maintaining economic growth and competitiveness. In fact, the transport and communication sector in Pakistan account for about 11 percent of GDP, 16 percent of fixed investment, 6 percent of employment and about 15 percent of the Public Sector Development Programme.
Road transport is a backbone of Pakistan's transport system, accounting for 90 percent of national passenger traffic and 96 percent of freight movement. Over the past ten years, road traffic - both passenger and freight - has grown much faster than the country's economic growth. The 9,518 km long National Highway and Motorway network contributes about 3.7 percent of the total road network and carries 90 percent of Pakistan's total traffic.
The total length of roads in Pakistan was 258,340 Km, including 165,762 Km of high type (64 percent) and 92,578 Km of low type roads (36 percent) by the end of March, 2006. During the outgoing fiscal year, the length of high type roads has increased by 1.8 percent over the last year but the length of low type roads has declined by 2.9 percent.
The construction work on Islamabad-Peshawar Motorway (M-1) however, is still in progress.
Furthermore, the Pakistan Railways have carried 61.3 million passengers and 4.3 million tons freight, with its gross earnings stood at Rs 12.5 billion during July-March 2005-06.
In comparison, PIA carried 3.972 million passengers during July-February 2005-06 as against 3.571 million in the same period last year, showing an increase of 11.2 percent. Both passenger capacity and traffic volume also increased by 2.4 percent and 8.7 percent, respectively. in addition, Its fleet consists of 41 aircrafts of various types. In addition, there are three private airlines, operating in the country and provide both domestic and international services.
Karachi Port has also handled 24,572 thousand tons of cargo during July-March, 2005-06, compared to 21,845 thousand tons during the same period last year, showing an increase of 12.5 percent. Port Qasim has handled 16.8 million ton of cargo during July-March 2005-06 compared to16 million cargo handled during the corresponding period last year, registering a growth of 5 percent. The Gwadar Port is also being built with Chinese assistance and its first phase has almost been completed.
In 1999-2000, there were only 0.3 million cellular mobile subscribers in Pakistan which jumped to 2.4 million by 2002-03 as a result of introduction of CPP regime and addition of another mobile operator (Ufone). Mobile subscribers continued to rise at an unprecedented pace, reaching 12.8 million by 2004-05. A major turnaround was witnessed when the mobile companies started giving free mobile connections and bearing the cost of government levies themselves. In a short period of 9 months in the outgoing fiscal year, more than 16 million new subscribers have been added to the list, reaching over 29.6 million by end April 2006. In other words, a more than 131 percent increase in subscribers in just 9 months was unprecedented. Accordingly, the total teledensity (Fixed + Cellular + WLL) has jumped form 3.7 percent in 2001-02 to 23.1 percent by end March 2005-06.
For promotion of Information Technology, 2339 cities/towns/villages have been provided Internet facility, by March, 2006. Total fixed telephone lines installed by March 2006 were 5.2 million as against 5.1 million up to June 2005 last year.
Global energy consumption is expected to increase steadily over the next twenty years. According to the International Energy Outlook 2001, the actual growth of world energy consumption increased from 207 quadrillion Btu in 1970, to 382 quadrillion Btu in 1999 which is anticipated to further increase to 607 quadrillion Btu in 2020. Over this fifty-year period, the consumption of energy will likely increase by about 200 percent, from 207 quadrillion Btu in 1970, to 607 quadrillion Btu in 2020. The largest increase in energy use will occur in the developing world. From 1999 to 2020, energy consumption in the developing countries is expected to climb 122 quadrillion Btu to 264 quadrillion Btu, depicting an increase of 116 percent.
In other words, the increase in energy use in the developing world is roughly double that of all countries in the global economy. Because, firstly many developing countries are striving towards economic development and industrialisation and will thus require additional energy. Secondly, virtually all of the increase in the world's population over the next twenty years, will take place in the developing world. Population growth will add over 1 billion people to the poorer regions, thus expanding the energy requirements for these regions.
Production of crude oil per day has decreased to 65,385 barrels during July-March 2005-06 from 66,199 barrels per day during the same period last year, showing a decline of 1.2 percent.
The overall production of crude oil has decreased to 17.9 million barrels during July-March 2005-06 from 18.1 million barrels during the corresponding period last year, showing a decline of 1.1 percent. On an average, the transport sector consumes 49.7 percent of the petroleum products, followed by power sector (32.3 percent), industry (11.8 percent), household (2.5 percent), other government (2.3 percent), and agriculture (1.4 percent) during last 10 years ie 1995-96 to 2004-05.
The average production of natural gas per day stood at 3,825 million cubic feet during July-March, 2005-06, as compared to 3,663 million cubic feet over the same period last year, showing an increase of 4.4 percent. The overall production of gas has increased to 1,048,190 million cubic feet during July-March 2005-06 as compared to 1,003,189 million cubic feet daily in the same period last year, showing an increase of 4.5 percent. On average, the power sector consumes 36.6 percent of gas, followed by fertiliser (22.5 percent), industrial sector (18.8 percent), household (18.4 percent), commercial sector (2.8 percent) and cement (1.3 percent) during last 10 years ie 1995-96 to 2004-05.
Total installed capacity of electricity (WAPDA, KESC, KANUPP AND IPPs) stood at 19,439 MW during July-March 2005-06, compared to 19,389 MW during July-March 2004-05. Total installed capacity of WAPDA stood at 11,363 MW during July-March 2005-06 of which, hydel accounts for 56.9 percent or 6,463 MW, thermal accounts for 43.1 percent or 4,900 MW. During the first three quarters of current fiscal year, 63,978 GWh electricity has been generated as against 61,758 GWh were produced in the same period last year. The number of villages electrified increased to 99,595 by March 2006 from 90,467 upto 2004-05, showing an increase of 10 percent.
Presently, some 930 CNG stations are operating in the country, while 200 are under construction. By March 2006 about one million vehicles were converted to CNG as compared to 700,000 vehicles during the same period last year, showing an increase of 43 percent. With these developments Pakistan has become the leading country in Asia and the third largest user of CNG in the world after Argentina and Brazil.
ENVIRONMENT AND HOUSING:
Sustainable development remains the cornerstone of government policies, and the concern for environment, its protection, renewal and enrichment is recognised as an obligation for the betterment of all citizens. The poverty- environment nexus has been of particular interest in the recent years, as poverty in Pakistan, like in many other middle-income countries, plays an important role in increasing the vulnerability of the poor to pollution and environmental degradation.
Several policies, plans, programs and projects have been initiated for environmental protection and conservation in the sectoral areas of water and air pollution control, land use, forest management, energy efficiency, biodiversity conservation, and waste management, etc. One of the major achievements during 2005-06 was the formulation of the "National Environmental Policy 2005" which addresses the sectoral issues such as (a) water management andconservations, (b) energy efficiency and renewable, (c) agriculture and livestock, (d) forestry and plantation, (e) biodiversity and protected areas, (f) climate change, air quality and noise, and (g) pollution and waste management.
THE KEY FACTORS CONTRIBUTING TO AIR POLLUTION IN PAKISTAN ARE: a) rapidly growing energy demand; b) increasing industrial and domestic demand and c) a fast growing transport sector. In the cities, widespread use of low-quality fuel, combined with a dramatic expansion in the number of vehicles on roads, has led to significant air pollution problems. Air pollution levels in Pakistan's most populated cities are among the highest in the world, causing serious health issues in the process.
The government is promoting the use of CNG in a big way to reduce the pollution level. Presently, some 935 CNG stations are operational through out the country, while another 200 are under construction. As of April 2006, the total number of CNG vehicles stood at 950,000, compared to 700,000 vehicles in April 2005, making Pakistan's CNG fleet the largest in Asia and the third largest in the world after Argentina and Brazil.
Water availability in Pakistan continues to decrease, both in total amount of water as well as in the per capita water availability in Pakistan. In 1951, when population stood at 34 million, per capita availability of water was 5300 cubic meter, which has now decreased to 1105 cubic meter, just touching water scarcity level of 1000 cubic meter. With a present growth in population and the low rainfall, the threshold limit of water scarcity ie 1000 m3 of water per capita per year may be reached as early as the year 2010. Various mega initiatives have been planned especially under WAPDA vision 2025. The estimates show that the current water shortage of 9 million acre feet would aggravate to 25 MAF if all planned dams under Vision 2025 are not constructed by 2016.
The Government is committed to supply safe drinking water to its people and in this regard has started implementation of a "Clean Drinking Water Initiative" Project in 2005, which caters for the installation of 544 water purification plants of 2000 gallons/ hour capacity, one in each Tehsil of Pakistan. A new project on "Clean Drinking Water for All" under Khushal Pakistan Programme, has been recently approved and caters for installation of around 6035 water purification plants of different capacities (500/ 1000/ 2000 gallons/ hour), one in each union council of Pakistan.
Like many other developing countries, dry lands in Pakistan are severely affected by land degradation and desertification due to unsustainable land management practices and increasing demand of natural resources causing enormous environmental problems.
The situation is further aggravated by scarcity of water, frequent droughts and miss-management of land resources, contributing to expansion of deserts, reduced productivity and consequently increases in rural poverty. In order to address the problems of land degradation and desertification, the Ministry of Environment, Government of Pakistan has taken an initiative and designed a full-scale project on "Sustainable Land Management to Combat Desertification in Pakistan". The project aims at combating desertification and improving land management practices to eradicate poverty in arid and semi-arid regions of Pakistan.
Forestry sector plays an important role in soil conservation, water regulation for irrigation and power generation, reduction of sedimentation in water conveyances and reservoirs, employment and maintenance of ecological balance. Under the Millennium Development Goals of the Forestry Sector, Pakistan is committed to increase forest cover from existing 5 percent to 5.7 percent by the year 2011 and to 6 percent by the year 2015. This implies bringing an additional 1.051 million hectares land area under forest.
The Government of Pakistan is implementing a number of Policies and programs in the Environment Sector. National Environment Action Plan (NEAP) remains the Flagship program of the Ministry of Environment.
The main objectives of NEAP are to safeguard public health, promote sustainable livelihood and enhance quality of life for the people of Pakistan.
It focuses on clean air, clean water, solid waste management and eco-system management.
Housing is one of the basic human requirements, as every family needs a roof. Providing shelter to every family has become a major issue as a result of rapid urbanisation and higher population growth.
According to the housing census 1998, the housing backlog, which stood at 4.30 million, has been currently projected at 6.19 million. It is estimated that to address the backlog and to meet the housing shortfall in the next 20 years the overall housing production has to be increased to 500,000 housing units annually.
The present housing stock is also rapidly aging and estimates suggest that more than 50 percent stock is over 50 years old.
It is also estimated that 50 percent of the urban population now live in slums and squatter settlements. Meeting the backlog in housing, besides replacement of out-lived housing units is beyond the financial resources of the Government.
This necessitates putting in place a framework to facilitate financing in the formal private sector and mobilise non-government resources for a market based housing financed system.
The government of Pakistan is, therefore, encouraging participation of local as well foreign investors/developers and private sector companies in housing sector to build more and more housing projects to meet the demands of a vast segment of society.
Having realised the importance of the housing sector in the overall economic development of the country, the government, as an immediate measure, declared Housing and Construction as a priority industry and simultaneously formulated a pragmatic and workable National Housing Policy.
This is aimed at revitalising the housing sector, providing therein various incentives for the construction industry and the private sector builders/developers.
THE SALIENT FEATURES OF THIS POLICY INCLUDE: (i) Identify the state and other lands for housing development, (ii) To encourage the financial institution to give mortgage loans for housing at market rates. Commercial banks shall also be encouraged to advance loans for housing, by earmarking a substantial percentage of their loan portfolio (iii) The annual disbursement of HBFC loans shall be enhanced from the present Rs 1.2 billion to Rs 7.00 billion over the next 5 years. (iv) Simplification of procedures for land transactions and standardisation of mortgage documents to facilitate sale and purchase of housing. (v) Stamp duties and registration fees, which are exceptionally high as compared to other countries, shall be adequately reduced to an aggregate total of 1 percent to enhance registration, improve documentation and increase revenue receipts. (vi) Property tax on rented property shall be reduced from the current high rate of 25 percent to 5 percent. (vii) All new construction of houses on plots measuring upto 150 sq.yds. & Flats/apartments having an area of 1000 sft shall be exempt from all types of taxes for a period of 5 years. (viii) Provincial Governments shall develop packages in which prime state land within urban centers, occupied by the katchi abadies, shall be offered to the private developers for commercial use provided they arrange and finance upgradation or relocation of katchi abadies
As a result of the co-ordinated efforts of Federal and Provincial Governments and concerned private sector stakeholders, a large number of policy measures have so far been implemented resulting in the improvement of overall housing situation in the country besides availability of affordable housing finance to the extent of Rs 34 billion in the market.