Pakistan Economy Profile 2009

Pakistan Economy Profile 2009 Economy - overview Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and declining exports of manufactures. Faced with untenable budgetary deficits, high inflation, and hemorrhaging foreign exchange reserves, the government agreed to an International Monetary Fund Standby Arrangement in November 2008. Between 2004-07, GDP growth in the 6-8% range was spurred by gains in the industrial and service sectors, despite severe electricity shortfalls. Poverty levels decreased by 10% since 2001, and Islamabad steadily raised development spending in recent years. In 2008 the fiscal deficit - a result of chronically low tax collection and increased spending - exceeded Islamabad's target of 4% of GDP. Inflation remains the top concern among the public, jumping from 7.7% in 2007 to 20.8% in 2008, primarily because of rising world fuel and commodity prices. In addition, the Pakistani rupee has depreciated significantly as a result of political and economic instability.

GDP (purchasing power parity) $427.3 billion (2008 est.) $416 billion (2007 est.) $392.5 billion (2006 est.) note: data are in 2008 US dollars

GDP (official exchange rate) $167.6 billion (2008 est.)

GDP - real growth rate 2.7% (2008 est.) 6% (2007 est.) 6% (2006 est.)

GDP - per capita (PPP) $2,500 (2008 est.) $2,500 (2007 est.) $2,400 (2006 est.)

note: data are in 2008 US dollars

GDP - composition by sector Agriculture: 20.4% industry: 26.6% services: 53% (2008 est.)

Population below poverty line 24% (FY05/06 est.)

Labor force 50.58 million note: extensive export of labor, mostly to the Middle East, and use of child labor (2008 est.)

Labor force - by occupation agriculture: 43% industry: 20.3% services: 36.6% (2005 est.)

Unemployment rate 7.4% (2008 est.) 5.6% (2007 est.) note: substantial underemployment exists

Household income or consumption by percentage share lowest 10%: 3.9% highest 10%: 26.5% (2005)

Distribution of family income - Gini index 30.6 (FY07/08) 41 (FY98/99)

Investment (gross fixed) 20% of GDP (2008 est.)

Budget Revenues: $22.3 billion expenditures: $32.35 billion (2008 est.)

Public debt 49.8% of GDP (2008 est.) 71.4% of GDP (2004 est.)

Inflation rate (consumer prices) 20.3% (2008 est.) 7.6% (2007 est.)

Central bank discount rate 15% (31 December 2008) 10% (31 December 2007)

Stock of money $NA (31 December 2008) $52.76 billion (31 December 2007)

Stock of quasi money $NA (31 December 2008) $18.42 billion (31 December 2007)

Stock of domestic credit $NA (31 December 2008) $65.05 billion (31 December 2007)

Industries

textiles and apparel, food processing, pharmaceuticals, construction materials, paper products, fertilizer, shrimp

Industrial production growth rate 4.6% (2008 est.)

Electricity - production 93.26 billion KWh (2007 est.)

Electricity - production by source fossil fuel: 68.8% hydro: 28.2% nuclear: 3% other: 0% (2001)

Electricity - consumption 68.4 billion KWh (2006 est.)

Electricity - exports 0 kWh (2007 est.)

Electricity - imports 0 kWh (2007 est.)

Oil - production 68,670 bbl/day (2007 est.)

Oil - consumption 345,000 bbl/day (2006 est.)

Oil - imports

290,600 bbl/day (2005)

Oil - exports 28,060 bbl/day (2005)

Oil - proved reserves 395.6 million bbl (1 January 2008 est.)

Natural gas - production 30.8 billion cu m (2007 est.)

Natural gas - consumption 30.8 billion cu m (2007 est.)

Natural gas - exports 0 cu m (2007 est.)

Natural gas - imports 0 cu m (2007 est.)

Natural gas - proved reserves 792.8 billion cu m (1 January 2008 est.)

Current Account Balance -$14.99 billion (2008 est.) -$8.297 billion (2007 est.)

Agriculture - products cotton, wheat, rice, sugarcane, fruits, vegetables; milk, beef, mutton, eggs

Exports $21.9 billion (2008 est.) $18.12 billion (2007 est.)

Exports - commodities textiles (garments, bed linen, cotton cloth, yarn), rice, leather goods, sports goods, chemicals, manufactures, carpets and rugs

Exports - partners US 16%, UAE 11.7%, Afghanistan 8.6%, UK 4.4%, China 4.4% (2008)

Imports $38.3 billion (2008 est.) $28.76 billion (2007 est.)

Imports - commodities petroleum, petroleum products, machinery, plastics, transportation equipment, edible oils, paper and paperboard, iron and steel, tea

Imports - partners China 15.4%, Saudi Arabia 12.2%, UAE 11.3%, Kuwait 5.5%, US 4.8% (2008)

Reserves of foreign exchange and gold $8.903 billion (31 December 2008 est.) $15.69 billion (31 December 2007 est.)

Debt - external $44.15 billion (31 December 2008 est.) $38.8 billion (31 December 2007 est.)

Stock of direct foreign investment - at home

$25.44 billion (31 December 2008 est.) $20.01 billion (31 December 2007 est.)

Stock of direct foreign investment - abroad $1.032 billion (31 December 2008 est.) $982 million (31 December 2007 est.)

Market value of publicly traded shares $23.49 billion (31 December 2008) $70.26 billion (31 December 2007) $45.52 billion (31 December 2006)

Economic aid - recipient $1.666 billion (2005)

Currency (code) Pakistani rupee (PKR)

Currency (code) PKR

Exchange rates Pakistani rupees (PKR) per US dollar - 70.64 (2008 est.), 60.6295 (2007), 60.35 (2006), 59.515 (2005), 58.258 (2004)

Fiscal year 1 July - 30 June December 18, 2008

Pakistan Economy 2009 http://www.theodora.com/wfbcurrent/pakistan/pakistan_economy.html SOURCE: 2009 CIA WORLD FACTBOOK

Economy - overview: Pakistan, an impoverished and underdeveloped country, has suffered from decades of internal political disputes, low levels of foreign investment, and declining exports of manufactures. Faced with untenable budgetary deficits, high inflation, and hemorrhaging foreign exchange reserves, the government agreed to an International Monetary Fund Standby Arrangement in November 2008. Between 2004-07, GDP growth in the 6-8% range was spurred by gains in the industrial and service sectors, despite severe electricity shortfalls. Poverty levels decreased by 10% since 2001, and Islamabad steadily raised development spending in recent years. In 2008 the fiscal deficit - a result of chronically low tax collection and increased spending - exceeded Islamabad's target of 4% of GDP. Inflation remains the top concern among the public, jumping from 7.7% in 2007 to 24.4% in 2008, primarily because of rising world fuel and commodity prices. In addition, the Pakistani rupee has depreciated significantly as a result of political and economic instability. GDP (purchasing power parity): $452.7 billion (2008 est.) $427.9 billion (2007) $404.5 billion (2006) note: data are in 2008 US dollars GDP (official exchange rate): $160.9 billion (2008 est.) GDP - real growth rate: 5.8% (2008 est.) 5.8% (2007 est.) 6.4% (2006 est.) GDP - per capita: $2,600 (2008 est.) $2,500 (2007 est.) $2,400 (2006 est.) note: data are in 2008 US dollars GDP - composition by sector: agriculture: 20.4% industry: 26.6% services: 53% (2008 est.) Labor force: 50.58 million note: extensive export of labor, mostly to the Middle East, and use of child labor (2008 est.) Labor force - by occupation: agriculture: 43% industry: 20.3% services: 36.6% (2005 est.) Unemployment rate:

Economy of Pakistan From Wikipedia, the free encyclopedia Jump to: navigation, search

Economy of Pakistan

Currency

1 Pakistani Rupee (PKR) Rs. = 100 Paisas

Fiscal year

July 1–June 30

Trade

ECO, SAFTA, ASEAN, WIPO and WTO

organisations

Statistics GDP

$452.7 billion (PPP) (2008)[1]

GDP growth

2.0% (2009 est.)[2]

GDP per capita

$2,600 (PPP) (2008)

GDP by sector Inflation (CPI) Population below poverty line

agriculture: 19.6%, industry: 26.8%, services: 53.7% (2007) 11.17% (2009-2010)[3] 23% ((2007))[1]

Labour force

49.18 million (2006 est.)

Unemployment

7.5% (2007 est.) textiles, chemicals, food processing, steel, transport

Main industries

equipment, automotives, machinery, beverages, construction, materials, clothing, paper products External $17.78 billion (2008 est.) (68th[4])

Exports

textile goods (garments, bed linen, cotton cloths, and Export goods

yarn), rice, leather goods, sports goods, chemicals manufactures, carpets and rugs

Main export

United States 22.4%, UAE 8.3%,UK 6%, China

partners

5.4%, Germany 4.7% (2006 est.)

Imports

$30.99 billion f.o.b. (2007 est.) Petroleum, Petroleum products, Machinery, Plastics,

Import goods

Transportation equipment, Edible oils, Paper and paperboard, Iron and steel, Tea

Main import partners

China 14.7%, Saudi Arabia 10.1%, UAE 8.7%, Japan 6.5%, United States 5.3%, Germany 5%, Kuwait 4.9% (2006 est.) Public finances

Public debt

$45 billion (2007)

Revenues

$27.5 billion (2006 est.)

Expenses

$35 billion (2006 est.) Main data source: CIA World Fact Book All values, unless otherwise stated, are in US dollars

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. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. Due to Economic Reforms of the Year 2000 by the Musharraf government.[5] In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. [6] Pakistan's then Prime Minister Shaukat Aziz stated Pakistan grew at a rate of 8.4% making it the 2nd Fastest Growing Economy in the World, after China, in the same year. [7] Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.[8] Since the beginning of 2008, Pakistan's economic outlook has taken stagnation. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis

points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default. The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%. [9]

The Effect of Global Recession on Pakistan

In economics, the term ‘recession’ means “The reduction of a country’s Gross Domestic Product (GDP) for at least two quarters; or in normal terms, it is a period of reduced economic activity” The International Monetary Fund regards periods when global growth is less than 3% to be global recession.

recession Definition A period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if a recession continues long enough it is often then classified as a depression. There is no one obvious cause of a recession, although overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration. Causes of recession

One of the most important causes of economic recession is unrestrained capitalism. We are paying our dues for years of overproduction and rampant greed. The golden age of capitalism in the seventies and eighties is now finally taking its toll on our economy. Another one of the important causes of economic recession is falling demand for goods and services. It's not hard to understand that if we produce more than we are consuming. the demand for the excess production just won't be there, and we have a waste of resources.

High Interest Rates Cause Recession High interest rates are also a cause of recession. That's because it limits liquidity, or the amount of money available to invest. In spite of the stock market decline in March 2000, the Federal Reserve continued raising interest rates to a high of 6.25% in May 2000. The Fed didn't start lowering rates until January 2001, and lowered them about 1/2 point each month, resting at 1.75% in December 2001. This kept interest rates high when the economy needed low rates for cheap business loans and mortgages. One of the causes of the current recession was that the Fed was also slow to raise interest rates when the economy started to boom again in 2004. Low interest rates in 2004 and 2005 helped created the housing bubble. Irrational exuberance set in again as many investors took advantage of low rates to buy homes just to resell. Others bought homes they couldn't afford thanks to interest-only loans.

Recession - Causes of recessions Recessions are mostly caused by external economic shocks, or the unwinding of major imbalances in the economy. One mechanism is based substantially on the role of consumer confidence and business confidence, which are important for example for individuals and organizations to decide whether their current investment or debt levels are correct. A wave of bad news (eg job losses at a big company) may lead enough people to worry about the future, increase their saving and reduce their spending, so that further bad news is caused. What are the causes of the recession? •

1. House Construction Bust First, what started it all was the end of the building boom, which caused the unemployment of millions of construction workers and workers engaged in producing and supplying materials to the building industry, and its multiplier effects.

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2. Sub-Prime Mortgage Crisis. The end of the boom triggered the sub-prime mortgage crisis which caused the collapse world-wide of financial institutions,

defaults of millions of home-owners on their mortgages, and reduced the market value of homes. •

3. Stock Market Collapse. The collapse of the stock market wiped out the savings of millions of shareholders, created adverse expectations that ended up reducing consumption and invesment.

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4. Environmental Regulations. Production of manufactured goods was made more costly by environmental laws and regulations, which not only made it more costly to produce goods but caused a decrease in prospective profits negatively affecting investment in manufacturing and reducing our ability to compete with foreign manufacturers.

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5. Energy Policies. Foolish energy policies prevented the creation of millions of jobs by not permitting drilling for oil on public lands within the fifty states and even off-shore in the Pacific and Atlantic. And the program to reduce CO2 and other emissions over the next century will cost many trillions of dollars reducing the real incomes of American workers to the level of competing Chinese workers.

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6. Trade Deficits. The surging trade deficits of the past decade which reached $750 billion in 2006 cost the U.S. an estimated 7.5 million jobs directly and indirectly, mostly in manufacturing. More workers competing for the available jobs caused the wages of American workers to stagnate, worsened the distribution of income, contributed to the lack of savings by Americans, and made investment in the U.S. less attractive and investment abroad more attractive to American businesses.

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7. Lack of Investment Opportunities in US Manufacturing. Investment opportunities in manufacturing have become insufficient to sustain the economic health of the economy. Corporations in recent years plowed-under hundreds of billions of dollars of savings by buying back their own stock. Studies have shown that shareholders have not benefited from the practice. Many of our business leaders have evidently pursued policies that weakened their ability to survive a recession. Our policy of bailing out losers has the effect of keeping incompetent CEOs in office.

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8. Federal Reserve Mistakes. The Fed is in control of the money supply including the flow of funds from abroad. Instead of talking about “irrational exuberance” which provoked the stock market boom of 1998-1999 and its collapse in 2000, it ought to have raised margin rates to deter the bulls and taken action to neutralize the flow of funds from abroad that fed the frenzy It could likewise have prevented the irrational housing boom that started this recession. To the contrary, government policy has been to encourage foreign purchases of financial assets in this country which raised the price of share and bonds and financed the trade imbalances.

In our view, the reduction in the standard of living of the American worker as a result of the recession is likely to continue. We need policies to prevent the causes of the recession from repeating themselves. CEOs who reward themselves more than they benefit shareholders and employees should be held to account. Investment in new products or the expansion of existing plant and equipment and increasing exports are what will restore growth to the American economy. We need to regain industries lost to countries that still pursue mercantilist practices. And we need to get energy independence. The stimulus spending will create temporary jobs; we need policies that will put us back on the path to sustainable economic growth.

Recession, Its Causes & Effects It’s been a lot of time we hear of “Recession” going on in US market. Everyone is talking about recession. We cling to newspapers, television news channels, and financial reports only to discover “what next” in recession. Technically, recession means decline in GDP or Gross Domestic Product of a country for two consecutive quarters. Now, this explains recession only as a definition to remember. When we go more deep, we need to first understand the meaning of GDP. Gross Domestic Product is the value of all final goods and services produced in an economy in a given year. These final goods are those goods which are not transformed into other goods. These goods are evaluated as per their market value. It means when the value of all final goods and services produced in a given year declines for two consecutive quarters, the state is referred to as “recession”. It is visible in real GDP, real income, employment, industrial production, and wholesale-retail sales in an economy. There are various factors that flush an economy into the weird state of recession but Inflation is the main factor which contributes more towards the situation. Inflation is a condition of an economy when the prices of goods and services rise immensely over a period of time. The higher the rate of inflation, the smaller the percentage of goods and services that can be purchased with the same amount of money. This may be because of increased production costs, higher energy costs and national debt. When the prices of goods reach their ever higher stage, people tend to cut on overall spending, luxurious spending, restrict them towards basic necessities and thus save more n more. As a result, GDP declines when people begin to cut expenditures in order to cut down costs. This makes the companies to cut their costs as well and they chuck out workers which brings unemployment. Thereby, following are some of the factors that push an economy into recession…..

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Credit crunch - shortage of finance

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Falling house prices - related to shortage of mortgages and credit crunch

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Cost push inflation squeezing incomes and reducing disposable income

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Collapse in confidence of finance sector causing lower confidence amongst 'real economy'

Recession brings with itself all major consequences which create mayhem within the economy. One of the major effects of recession is Inflation. Recession comes into effect with inflation while on the other hand; it is one of the after effects of recession. This means the commodities reach their ever highest prices and people generally cut down on costs. Hence, inflation becomes the major effect left out by recession. Lower income is another effect of recession in the economy. As people cut down on costs, they tend to buy less which reduces the income and thereby fewer profits or no profits. The next consequence is the increment in mortgage rates. Lenders increase the mortgage rates in a bid to cover the losses they bear during that time. Employment opportunities are also one of the main targets when the economy is burning under recession. In order to cut down on costs, companies cut down on employment opportunities thereby leading with unemployment in the economy. So when an economy enters into recession, firms experience a decline in profitability. This is because: 1. Tendency for price wars to develop in a recession. Low sales encourage firms to cut prices 2. Falling sales will lead to lower revenues.