Prepared For

Sir Faseeh Ullah Khan

Faculty of Economics Business Administration Department Federal Urdu University of Arts Science and Technology

Prepared By

Kashif Abbas
Roll Number 38 Section A

Page |2

DEDICATION

-to All Those Praiseworthy Teachers And Devoted Students Who are Sincere and Honest with Their Responsibilities-

Page |3

ny attempt at any level cant be knowledge provoking and satisfactorily completed without the help and guidance of the learned people. Completing a report requires the support of experienced and skilled persons and isnt always a solitary efforts. There are always many hands and minds contributing to our success. Similarly I am also over-helmed in all humbleness and great fullness to acknowledge my depth to all those who have facilitated me to put these ideas well above the level of simplicity and something concrete. First of all I am highly obliged to Almighty Allah Subhana Tala for blessing me with the courage health and strength to complete this report. I shall also acknowledge my parents and all the family members for the amount of patience and tolerance they have shown throughout the entire time period of the preparation of this report. I would also like to express my gratitude towards our admirable and honorable teacher Sir Faseeh Ullah Khan (Faculty of Economics), as he had created a golden opportunity for us to utilize our skills, knowledge and abilities by making this report on a very broad scope topic Economic Development and Growth. During making this report I have learned and experienced many new things about the topic. I would also like to forward my gratitude towards Mr. Zaheer Abbas, at (who helped me a lot in gathering information, collecting data and guiding time to time during the fabrication of this report despite of his own busy schedule. He gave me the moral support in different matters regarding the topic. I would like to thanks to all my friends and other faculty members who always endured me and stood by me and without whom I could not have envisaged the completion of my report. Last but not the least I am also grateful to all search engines as they made my working simpler and saved a lot of time.

Page |4

he overriding objective of this report is to analyze Pakistan needs to bolster its economic growth and development in a sustainable fashion. The report seeks to meet its objective by pursuing three principal thrusts. It

will identify and analyze key internal and external factors that affect Pakistan's recent Economic Growth and Development performance. These include factors associated with the recent slow-down in economic activity. The report will also indentify and analyze the drivers of growth capable of enhancing the country's competitiveness. In so doing the study will inform and contribute to the debate on drivers of growth and competitiveness in Pakistan especially against the backdrop of the prevailing economic malaise. In the report some strategic competiveness interventions are discussed by which, through their impact on economic growth, aim to make the economy more productive, prosperous and sustainable.

Page |5

Table of Content

Page Number

Section A OVERVIEW: INTRODUCTION TO ECONOMICS.................................................... 7 Economics..... 7 Economic Development and Growth... 7 Fundamental Elements for the Economic Development & Growth. 8 Difference between Economic Development & Growth.. 9 Economic Factors for Development. 9 A. Natural Resources 9 B. Capital Formation. 9 C. Specialization.. 10 D. Technology 10 E. Transport and Communication 10 F. Entrepreneurship.. 10 Non-Economic Factors for Development10 A. Social Values & Attitudes 10 B. Political Stability........ 10 C. Administrative Efficiency. 10 D. Economic Freedom.. 11 E. Right of Private Property. 11 Role of Different Fields of Country in Economic Development & Growth 11 A. Natural Resources 11 B. Human Resources. 11 C. Capital Resources/Capital Formation. 11 D. Agricultural Sector 13 E. Industries Sector 13 F. Banking and Financial Sector. 13 G. Transportation and Communication Sector 14 H. Economic Planning.. 14 Section B OVERVIEW: ECONOMICS OF PAKISTAN 15 Introduction..... 15 Main Features of Mixed Economic System 16 A. Co-Existence of the Public and Private Sector.. 16 B. Role of Price System and Government Directions. 16 C. Government Regulations and Control of Private Sector.16 D. Consumers Sovereignty Protected.. 17 E. Government Protection of Labor... 17 F. Reduction of Economic Inequalities. 17 History of Economics of Pakistan. 17 Economic Resilience.. 19 Recent Economic History. 19 Structure of Pakistan's Economy.. 21 1. AGRICULTURAL SECTOR. 21 A. Livestock. 22 B. Fishery.. 23 C. Forestry 25

Page |6

Table of Content (cont.)

Page Number

2. INDUSTRY SECTOR 26 A. Fuel Extraction Industry 26 B. Mining and Quarrying 26 C. Electricity, Gas and Water Supply.. 27 3. SERVICES SECTOR 27 A. Transport, Storage and Communication 28 B. Finance and Insurance 30 C. Investment. 30 D. Foreign Trade.. 31 E. Exports.. 31 F. Imports. 31 Recent Structural Reforms.. 32 A. Privatization, Deregulation, Liberalization.. 32 B. Tax Reforms.. 33 C. Financial Sector Reforms. 34 Concluding Remarks.. A Resources.. D

Page |7

OVERVIEW: INTRODUCTION TO ECONOMICS

Before embarking the topic it is necessary to identify what we meant by Economics, Economic Development and Economic Growth? By understanding the meaning of it we may be able to understand the text more clearly.

Economics:
Economics is not a natural science, i.e. it is not concerned with studying the physical world like chemistry, biology. Social sciences are connected with the study of people in society. It is not possible to conduct laboratory experiments, nor is it possible to fully unravel the process of human decision making. But what is Economics? so here is the simple Definition of Economics;

Economics is the study of how we the people engage ourselves in production, distribution and consumption of goods and services in a society.

Economic Development And Growth:

According, to Prof. Arthur Lewis, Economic Development and Growth means increase in the output per head. Professor Michael Todaro in his book Economic Development has said that, Economic Development must be conceived of as a multi-dimensional process involving major changes in social structures, popular attitudes, national institutions, and acceleration of economic growth and reduction of inequality. And Economic Growth is a steady process by which the productive capacity of an economy increases overtime to bring about rising levels of national output and income. Economic growth is the name of more production. Growth is measured in terms of an increase in real gross national product (GNP or GDP) over time or an increase in per capita income.

Page |8

According to Prof. Kindleberger, Economic Development means increase in output of goods and services in an economy. Economic Development is more important than economic growth because economic development is wider and more comprehensive process than economic growth. Economic growth is a quantitative term because it represents quantitative increase in production of goods, services and the factors of production in an economy, whereas economic development is a qualitative terms because it indicates continuous increase in the real national income and structural changes in the economy of a country. In general, we can say that, Economic Development and Growth is a process of economic transition involving structural transformation of an economy through industrialization, raising gross national product and per capita income. In a nutshell, Economic Development & Growth means Economic expansions coupled with the structural changes in the economy for obtaining a better life. It is a process, which results in the change in supply of factors as well as in the nature of demand of goods & services. Here a question may be arises that why countries are busy in making their Economy Developed, the answer to this question is presented in the following four objectives. Increase of supply of food, clothing, health, and education facilities. Increase in standard of living of the people. Increase in leisure, political freedom & equal opportunities of life. Increase in capital formation (new buildings and industries).

Fundamental Elements for the Economic Development & Growth:

The ability of an economy to produce more goods and services is dependent on the following factors: 1) An increase in stock and quality of its capital goods. 2) An increase in quantity and quality of its labor force. 3) An increase in quantity and quality of its natural resources. 4) An efficient use of factor inputs so as to maximize their contribution to the expansion of output, through improved productivity. 5) Development and introduction of innovative techniques and new products i.e. technological progressiveness. 6) An increase in level of demand to ensure full utilization of the increased productive e capabilities of the economy.

Page |9

The achievement of a high rate of economic growth is one of the main objectives of macroeconomic policy. The significance of economic growth lies in its contribution to the general prosperity of the community. Growth is desirable because it enables the community to consume more goods and services and it also contributes to the provision of a greater quantity of social goods and services such as health and education, thereby improving real standards of living of the people. Government can stimulate growth process by increasing current spending in the economy through tax cuts by adopting fiscal policy and by increasing the money supply and reducing interest rates by monetary policy.

Difference between Economic Development & Growth:

Economic Development means increase in output of goods and services in an economy. Economic development is more important than economic growth because economic development is wider and more comprehensive process than economic growth. Economic development is a process of economic transition involving structural transformation of an economy through industrialization, raising gross national product and per capita income. Economic development is a qualitative terms because it indicates continuous increase in the real national income and structural changes in the economy of a country. Economic Growth is a quantitative term because it represents quantitative increase in production of goods and services in an economy. Economic Growth is a steady process by which the productive capacity of an economy increases overtime to bring about rising levels of national output and income. Economic growth is the name of more production. Growth is measured in terms of an increase in real gross national product (GNP or GDP) over time or an increase in per capita income.

Economic Factors for Development:

Some key factors which are required to commence Economic Development are discussed below; A. Natural Resources: Natural resources are one of the three main factors of production the other two are labor and capital. Natural resources include area of land, forests, rivers, climate and mines. If a country is rich in better quality of all natural resources, it will develop economically at a fast speed. B. Capital Formation: It is the process of adding net physical capital stock of an economy. Capital formation creates productive potential for future production. Capital formation has three stages namely (1) savings, (2) financial institutions and capital market for mobilization of savings and (3) act of investment in machinery and buildings.

P a g e | 10

C. Specialization: Output is greater as a result of specialization. Specialization enables an economy to use its scarce resources more efficiently, thereby producing a larger volume of goods and services. It increases the rate of economic development of a country. D. Technology: Inventions and innovations reduce the manufacturing and distribution costs. Technological progressiveness serves to change cost conditions in the long run; thus technological changes play an important role in economic development. E. Transport And Communication: Efficient communication facilities increase the production capacity of all the sectors of the economy. It reduces cost of production, increases mobility of goods within & outside the country. F. Entrepreneurship: If an entrepreneur is capable, skillful and trained then output of his organization will be greater. Entrepreneurship results in the introduction of new type of output, new techniques and new sources of supply of inputs for business and industry.

Non- Economic Factors for Development:

A. Social Values & Attitudes: It includes culture, religion, and life style of people of a society. Some societies are orthodox and do not like materials approach of life. Religion does not allow them to keep busy day in and day out for their material prosperity. Most societies believe in festivals and different cultural ceremonies. They do not prefer to save money; hence savings rate reduces too much. In such societies material gains are not appreciated. Prof. Myrdal in his book Asian Drama has said that Asian countries should modernize their values for rapid Economic Development and Progress in their countries. B. Political Stability: Strong and stable Governments can prepare five-year development plans, can enforce monetary and fiscal policies and change social attitudes and institutions, which may be progressive one. The frequent changes in Government setup results in the lack of concrete economic policy decisions. C. Administrative Efficiency: Educated, trained, skillful, and hardworking Government officers can push the development of a country at a very fast speed, whereas weak and untrained administration of a country retards the economic growth.

P a g e | 11

D. Economic Freedom: Private ownership of resources and maximum freedom to deploy these resources in line with profit signals create strong incentives to work hard. If everybody is allowed to participate in economic activity then due to competition the rate of economic development will increase. E. Right Of Private Property: Private ownership of the means of production results in the increase in supply of goods and services. In order to own and accumulate profit and property, people work hard, thus trade and business activity flourishes.

Role of Different Fields of A Country In Economic Development And Growth:

It is noted that every aspect of different fields of a country have some influence on Economic Development and Growth. In this section of report we will also take a look on all those fields to some extent it will help us to better understand the Economic Development and Growth of Pakistan which is discussed in the next section. So without wasting time lets have a look on them step by step; A. Natural Resources: Natural resources are backbone for the industrial development of a country. These resources play a dominant role in accelerating the pace of progress and prosperity. Thus due to the availability of Natural Resources Economic development of an economy is possible. Natural resources are divided into Minerals, Forests and Hydlepower/Energy. B. Human Resources: Human resources are second very important resource for economic development and growth of a country. If people are educated, well trained, skillful and healthy then they would be in a position to utilize the countrys natural resources in such a way that output of goods and services will enhance. There will be prosperity in the country and standard of living of masses will increase. The country will become prosperous and will be developing by leaps and bounds. The best example in this regard is Japan. In Japan, natural resources are very less but Japanese are well educated, technically highly trained and hard working. That is the reason that Japan has developed economically. Similarly Singapore is a very small country and there are no natural resources, yet it has developed the reason is that the people are very well educated, skillful and hardworking. C. Capital Resources/Capital Formation: Capital formation consists of both tangible goods like plants and machinery and intangible goods like high standards of education, health, scientific tradition and research. It is the process of adding to the net physical capital stock of an economy in an attempt to achieve greater total output. The rate of accumulation of an economys physical stock of capital is an important determinant of the rate of growth of an

P a g e | 12

economy. It creates productive potential for future production. It has three stages namely savings, existence of financial institutions and capital market for mobilization of savings and finally act of investment in capital goods. Capital formation results in increase in employment opportunities increase in output of goods and services and the use of new and most modern technology. Following is the importance of capital formation. Importance of Capital Formation: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Vicious circle of poverty is broken. Increase in productivity. Market expansion. Increase in export earnings. Technological development. Increase in employment. Decrease in general price level. Improvement in health and education facilities. Increase in the pace of industrialization. Increase in the economic growth rate.

Capital formation results in overall improvement of economy. With the increase in machine and equipment total output increases, hence national income increases. Increase in national income results improvement in per capita income. This increases purchasing power and standard of living of masses. Since output of goods and services increases, price level goes down, which in turn increases welfare of the people? Employment opportunities also increase. Due to increase in local production, foreign imports are reduced, which in turn reduces burden on foreign exchange payments, rather balance of payments is improved. Since capital formation is carried on in all sectors of economy, including health, education and technical training facilities, the work-efficiency of manpower increases. In nutshell Capital formation quickens the pace of economic growth of the country. Internal Sources of Capital Formation: 1. 2. 3. 4. 5. Voluntary savings. Taxes. Government borrowing. Use of idle resources. Deficit financing. External Sources of Capital Formation: 1. Foreign loans and credits. 2. Foreign Grant assistance. 3. Foreign Aid.

P a g e | 13

D. Agricultural Sector: Agriculture also performs a vital role in Economic Development and Growth. It provides food i.e. wheat, rice, pulses, vegetables, fruit and other items for growing population of the any country. If any country is rich by means of agriculture products than it can save much of its capital resources which can be spent on to improve Economic System of country. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products. Not only that a big portion of countrys work force is employed in agriculture. Whatever happens to agriculture is bound to affect not only countrys growth performance but to a large segment of countrys population as well. Hence its important to have field of agriculture as good as possible. Here are some main features of Agriculture; Main Features of Agriculture: 1. 2. 3. 4. 5. 6. 7. 8. Main source of food supply. Provides employment opportunities. Major source of national income. Provides raw material for industries. Good market for agricultural machinery and equipment. Market for fertilizers, pesticides and insecticides. Main source of foreign exchange earnings. Expands industrial goods market.

E. Industries Sector: Industries play a dominant role in the economic development of a country. Western countries standard of living is very high. They enjoy all comforts and luxuries of life due to higher productivity of goods and services in their countries. This is because of industrialization. In developed countries a very minor portion of population relies on agriculture for their livings; for example in Britain and America only 5% and 12 percent rely on agriculture respectively. F. Banking And Financial Sector: Banking and financial sector is a key element of macroeconomic stability. A weak financial sector can undermine efforts to achieve stability through prudent fiscal and monetary policies. A strong and well functioning financial and banking sector is also critical for sustained higher economic growth. They can provide credit to those investments that offer highest risk adjusted rates of return. For example Capital markets play crucial role in investment promotion and economic development of a country.

P a g e | 14

G. Transportation And Communication Sector: A strong, efficient and affordable infrastructure is a critical element of good growth of Economic system. Same as Transport and Communications are important elements of infrastructure services and are essential in maintaining economic growth and development. Transport includes: (1) Roads (2) Railways (3) Air transport and (4) Shipping while Communications includes: (1) Post (2) Telegraph (3) Telephone (4) Radio (5) Television and (6) Information Technology/Computer. Importance Of Transport And Communications Can Be Judged From The Following Factors: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Helps in the expansion of internal and foreign trade. Increases employment opportunities. Increases government revenues. Develops unity and brotherhood among the people. Helps in the improvement of law and order situation. Stabilizes the price level. Reduces cost of production of goods. Helps in the expansion of education. Maintains the sound defense of the country. Develops the political awareness.

H. Economic Planning: Last but not least Economic planning is the making of major economic decisionswhat and how much is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole. Planning is a technique for achieving certain self-defined and pre-determined goals laid down by a central planning authority. It is a conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well-defined objectives within a given time. It is planning alone which can guarantee quick economic growth in under-developed countries. Objectives of Economic Planning: The main objectives of economic planning are as under: 1. Increase in the rate of economic development. 2. Diversification of economy. 3. Price stability. 4. Higher standard of living. 5. Improving the balance of payments.

<END OF THE SECTION A>

P a g e | 15

OVERVIEW: ECONOMICS OF PAKISTAN

Introduction:
As we discussed in the Section A that an economy is the system of human activities related to the production, distribution, exchange, and consumption of goods and services of a country or other area. The composition of a given economy is inseparable from technological evolution, civilization's history and social organization, as well as from Earth's geography and ecology, e.g. eco-regions which represent different agricultural and resource extraction opportunities, among other factors. Economy refers also to the measure of how a country or region is progressing in terms of product. Pakistan has a Mixed Economic System in which features of Islamic Economic System, Capitalist Economic System and Socialist Economic System. Economic System of Pakistan there is both Public and Private sector are playing their role in Economic Development and Growth. Arrangement Zakat Fund (1980) was the first step towards the Islamic Economic System. In 21st century, what we find mostly are mixed economies. Mixed economy means that it is operated by both Private Enterprise and Public Enterprise. That is, private enterprise is not permitted to function freely and uncontrolled through the price mechanism. On the other hand government intervenes is to control and regulate the private enterprise in many ways. It has been realized that free functioning of private enterprise causes several types of evils. For instance, free working of private enterprise produces trade cycles, i.e. sometimes depression and sometimes unemployment and at other times booms and inflationary situations. It is also realized That in under-developed countries, like Pakistan, Economic development cannot be achieved at the desired rate of growth without any active support and guidance of government. Hence the government is such countries actively participates in economic activities in order to minimize the evils of unadulterated capitalism and to accelerate Economic Growth and Development. Thats the reason that most of the Capitalistic Economic Systems to Mix Economic System as in all economies the role of the State is significantly increased. The mixed economic system, as stated above, is the mixtures of capitalism and socialism the mixed economy tries to avoid the two extremes of pure capitalism and pure socialism and the evils associated with each. In other words mixed economic system strikes the middle path between capitalism and socialism.

P a g e | 16

Main Features of Mixed Economic System:

Having understood the meaning of mixed economy. We are now in position to bring out the main features of the mixed economy. Following are the main characteristics of a mixed economy. A. Co-Existence of The Public And Private Sector: The chief characteristics of the mixed economy are that in this economy both Public and Private Sector function together. They co-exist. The industries of the coexist economy are divided into two parts. In one part are the industries the responsibility for the development of which is entitled to the State and they are owned and managed by the state. Other industries are left under the authority and control of Private Entrepreneurs. The private sector is free to developed them and start new enterprises in this sector. Generally the heavy and basic industries like the industries manufacturing defense equipment, atomic energy like SUPARCO, heavy engineering industries like Steel Mills, etc, are dealt by public sector. On the other side of picture the consumers goods industries, textile and leather goods industries, small and cottage industries, etc, are generally assigned to the private sector. On the contrary government helps and encourages the private sector by providing them different subsidies, incentives and facilities so that these industries can be able to develop properly and play their role efficiently in the development of economy of state. B. Role of Price System And Government Directions: Another characteristic of mixed economy is that it is operated by the both price system and government directives. So far as the public sector is concerned with the economic decision relating to production, price and investment are made by the government or authorities appointed by the government. But the private sector is operated through the price-mechanism. In other words the industries in the private sector, the decisions regarding investment, production, prices etc, are made by private entrepreneurs-capitalists and industrialist-with the object of making maximum profits on the basis of the price system. It is clear in the mixed economy the allocation of productive resources is partly determined by the price system and partly by the government directives. C. Government Regulations And Control Of Private Sector: In the mixed economy government adopts necessary measures to regulate and influence the private sector, so that it may function in the interest of the nation rather than in the exclusively in the interest of entrepreneurs. For this purpose government introduced the licensing system according to which government approval or license is vital for setting up a factory. If the government consider that in the certain industry there is already heavy investments or excess capacity, no new license are issued for setting up factory in that industry. Hence licensing system is an instrument by which government regulates and controls the investments and outputs. The government can also control the private sector via Fiscal and Monetary Policies.

P a g e | 17

D. Consumers Sovereignty Protected: In the mixed economy the sovereignty protection of consumers is the first choice. Like socialism, the mixed economy does not put an end to Consumers Sovereignty. The consumers are free to buy the commodities of their choice and entrepreneurs manufactured commodities of Consumers demands or preferences, although the government has right to control and set prices in the favor of consumers. Infect, the aim to control prices is to protect consumers from exploitations by private producers and capitalist. Besides the government can fix quotas of commodities via fixed supply so that the limited available quantities can be distributed in a fair way. It is clear that in spite of some restrictions imposed by the government the consumers are free to purchase the goods they like. It is their demand which guide producers to manufactured goods. E. Government Protection Of Labor: In a mixed economy government protects the weaker section of the society especially labors. That is, it saves labor from the exploitation of the capitalists. In the developed states, in the beginning of industrial revolution, the greed and selfishness of the factory owners inflicted untold hardships to the male, female and child labor. Social Consciences roused by observing such pitiful and miserable working and living conditions of such poor labors. The government realizes their responsibility towards such labors and protected them form exploitations of industrialist and factory owners. Now several factory Acts and Labor Acts have been passed to regulates the working conditions of labors. By such acts its is decided what minimum wage should a worker will receive and working hours and conditions are fixed. Restrictions have been imposed on the employment of small children in factories. Labors are now paid compensations for the accident at work place. Now government is also controlling the disputes between labor unions and factory owners. These measures can only be set in the perfect and pure mixed economy only. F. Reduction Of Economic Inequalities: The government is also responsible for setting measures to remove inequalities between income and wealth. Extreme inequalities between income and wealth in a society in the root cause of unjust, politically undesirable and economically harmful. Extreme inequalities of income reduce social welfare and create class distinctions and causes class conflicts which finally results in the spilt of the society into two warring camps The Rich and The Poor or Haves and Have-nots. To nip that evil in the bed the government levis progressive taxations, wealth tax, death duties, gift tax, etc, on the other hand free education, free medical aid, pensions, stipends for needy students are some of the remedies that a government often utilize.

History of Economics of Pakistan:

Pakistan, a rapidly developing nation, has diverse economies that include 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

P a g e | 18

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. Pakistan has seen a growing middle class population since then and poverty levels have decreased by 10% since 2001. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. The salient features of Pakistans economic history are: Pakistan is self sufficient in most food production. Per capita incomes have expanded more than six-fold in US Dollar terms. Pakistan has emerged as one of the leading and successful producers of cotton and cotton textiles. Pakistan has developed a highly diversified base of manufactured products for domestic and world markets. Physical infrastructure network has expanded with a vast network of gas, power, roads and highways, ports and telecommunication facilities. Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947. Pakistan's average economic growth rate since independence has been higher than the average growth rate of the world economy during the period. Average annual real GDP growth rates were 6.8% in the 1960s, 4.8% in the 1970s, and 6.5% in the 1980s. Average annual growth fell to 4.6% in the 1990s with significantly lower growth in the second half of that decade. Industrial-sector growth, including manufacturing, was also above average. In the late 1960s Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progression. Later, economic mismanagement in general, and fiscally imprudent economic policies in particular, caused a large increase in the country's public debt and led to slower growth in the 1990s.However condition improved gradually after 2000.1 Figures A2 and B3

1. Calculated from World Bank, World Development Indicators 2009. 2. Pakistan Economic Survey, several issues. 3. World Development Indicators, 2009.

P a g e | 19

Economic Resilience:
Historically, Pakistan's overall economic output (GDP) has grown every year since a 1951 recession. Despite this record of sustained growth, Pakistan's economy had, until a few years ago, been characterized as unstable and highly vulnerable to external and internal shocks. However, the economy proved to be unexpectedly resilient in the face of multiple adverse events concentrated into a four-year period The Asian financial crisis; Economic sanctions-according to Colin Powell, Pakistan was "sanctioned to the eyeballs" Global recession; Severe rioting in the port city of Karachi; A severe drought-the worst in Pakistan's history, lasting four years; Heightened perceptions of risk as a result of military tensions with India with as many as a million troops on the border, and predictions of impending (potentially nuclear) war; The post-9/11 military action in neighboring Afghanistan, with a massive influx of refugees from that country; The 2005 Pakistan earthquake; Despite these adverse events, Pakistan's economy kept growing, and economic growth accelerated towards the end of this period. This resilience has led to a change in perceptions of the economy, with leading international institutions such as the IMF, World Bank, and the ADB praising Pakistan's performance in the face of adversity.

Recent Economic History:

Pakistan's economic outlook has brightened in recent years in conjunction with rapid economic growth and a dramatic improvement in its foreign exchange position as a result of its current account surplus and a consequent rapid growth in hard currency reserves. The state-owned firm in early 2002 signed agreements with five international telecom companies for terminating additional international incoming traffic to capture the grey market by using voice over Internet protocol technology from the US and Europe into Pakistan. The conditionality of the IMF program, which was suspended in July 1999 & resumed later during the administration of Government. Having improved its finances, Pakistan's government announced in 2004 that it would no longer require IMF assistance, and the assistance program ended in that year. With accelerating economic growth, economists are now emphasizing a different range of problems.

P a g e | 20

According to Ahmed Rashid, the World Bank Country Director for Pakistan, "Now Pakistan faces higher quality problemsthe problems of success. Demand has risen faster than supply. This has shown up in high inflation and a zooming trade deficit. The tight fiscal, easy money formula to get growth going needs to be tight fiscal, tight money and credit to sustain rapid growth. Idle domestic production capacity allowed the rising demand to be accommodated by rising capacity utilization in cement, steel, fertilizer, textiles, automobiles and motorcycles. Now that capacity is more than fully utilized, resulting in backlogs and imports."
2

Government economic agenda continues to include measures to widen the tax net, privatize public sector assets, and improve its balance of trade. Pakistan has made governance reforms, privatization, and deregulation the cornerstones of its economic revival. The Economic Survey of Pakistan for 2006-2007 has concluded the country's economy recorded 7.3 percent growth, Prime Minister said that Pakistan's economy should continue to grow every year at about seven percent and he also assured that many measures will be taken to give the economy a further boost. He promised privatization of companies and he also invested in the economy by allowing free education for under 16's and also came up with a scheme to pay students two hundred rupees a month as an incentive to attend school. Also in the next five years many foreign universities from different European nations have announced they will be opening campuses in Pakistan. Figures C and D4

4. Pakistan Economic Survey (2008-09: 6-7). Social and Economic Indicators, Pakistan Economic Survey (2008-09). http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf. Pakistan Economic Survey (2008-09: 11-13). Also see Pakistan Economic Survey - Statistical Appendix (2007- 08: 2). Social and Economic Indicators, Pakistan Economic Survey (2008-09). http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf

P a g e | 21

Structure of Pakistan's Economy:

From modest beginnings, Pakistani economy has moved successfully to a lowinflation high-growth trajectory since 2000. The central bank has controlled inflation at around 3% per annum in recent years - a record since 1980.Over 1,081 patent applications were filed by non-resident Pakistanis in 2004 revealing a new-found confidence. Agriculture accounted for about 53% of GDP in 1947. While per-capita agricultural output has grown since then, it has been outpaced by the growth of the non-agricultural sectors, and the share of agriculture has dropped to roughly one-fifth of Pakistan's economy. In recent years, the country has seen rapid growth in industries (such as apparel, textiles, and cement) and services (such as telecommunications, transportation, advertising, and finance).
3

1. Agricultural Sector: Agriculture is backbone and the largest sector of Pakistans economy, which plays a very important role in its development. It provides food i.e. wheat, rice, pulses, vegetables, fruit and other items for growing population of the country. Nearly 22 percent of total output i.e. GDP, and 44.8 percent of total employment is generated in agriculture. It also contributes substantially to Pakistans exports. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products. Not only that 44.8 % of countrys work force is employed in agriculture but also 65.9 percent of countrys 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 countrys growth performance but to a large segment of countrys population as well. It employs 30 percent of countrys work force. Countrys 67% population lives in villages. It contributes about 25 percent to GDP5. It provides raw material such as cotton, sugarcane, tobacco, cottonseed, edible oil seeds, citrus fruits, leather, wool, paper pulp, wood and other items for various industries. Major crops accounting for 35.2% 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 for a variety of reasons including excessive rains at the time of sowing, high temperature at flowering stage, late harvesting of wheat crop, strong effect (cotton) and incidence of frost, damaging sugarcane crop in the month of January 2006.

5. See Pakistan Economic Survey (2007-08: 184-186 and 198). Social and Economic Indicators, Pakistan Economic Survey (2008-09). http://www.finance.gov.pk/survey/survey%202008-09/Indicator.pdf.

P a g e | 22

Agricultural Product Chickpea Apricot Cotton Onion Milk Rice

Rank Second Fourth Fourth Fifth Fifth Eight

Agricultural Product
Tangerine & Clementine

Sugarcane Date Palm Oranges Mango Wheat

Rank Eight Fourth Sixth Tenth Seventh Ninth

Pakistan is one of the world's largest producers and suppliers of the following according to the 2005 Food and Agriculture Organization of The United Nations and FAOSTAT given here with ranking: Pakistan ranks fifth in the Muslim world and twentieth worldwide in farm output. It is the world's fifth largest milk producer. Pakistan's principal natural resources are arable land and water. About 25% of Pakistan's total land area is under cultivation and is watered by one of the largest irrigation systems in the world. Pakistan irrigates three times more acres than Russia. Agriculture accounts for about 23% of GDP and employs about 44% of the labor force. The most important crops are wheat, sugarcane, cotton, and rice, which together account for more than 75% of the value of total crop output. Pakistan's largest food crop is wheat. In 2005, Pakistan produced 21,591,400 metric tons of wheat, more than all of Africa (20,304,585 metric tons) and nearly as much as all of South America (24,557,784 metric tons).The economic importance of agriculture has declined since independence, when its share of GDP was around 53%. Following the poor harvest of 1993, the government introduced agriculture assistance policies, including increased support prices for many agricultural commodities and expanded availability of agricultural credit. From 1993 to 1997, real growth in the agricultural sector averaged 5.7% but has since declined to about 4%. Agricultural reforms, including increased wheat and oilseed production, play a central role in the government's economic reform package. A. Livestock: Livestock plays an important role in the economy of the country. Livestock sector contributed approximately 53.2 percent of the agriculture value added and 11.4 percent to national GDP during 2009-10. While other development sector experienced saturation and decline there has been an increase in livestock sector in 2009-10. Gross value addition of livestock at current factor cost has increased from Rs. 1304.6 billion (2008-09) to Rs. 1537.5 billion (2009-10) showing an increase of 17.8% as compared to previous year.

P a g e | 23

The population growth, increase in per capita income and export revenue is fueling the demand of livestock & livestock products. In order to speed up the pace of development in livestock sector, The Ministry of Livestock & Dairy Development was created as a part of Reform Agenda and political commitment of Government to improve service delivery, reduce poverty, achieve sustainable economic growth and expand opportunities to address the needs of livestock rural farmers and to protect the livelihood concerns of rural community. According to the Economic Survey of Pakistan, the livestock sector contributes about half of the value added in the agriculture sector, amounting to nearly 11 per cent of Pakistan's GDP, which is more than the crop sector. The leading daily newspaper Jang reports that the national herd consists of 24.2 million cattle, 26.3 million buffaloes, 24.9 million sheep, 56.7 million goats and 0.8 million camels. In addition to these there is a vibrant poultry sector in the country with more than 530 million birds produced annually. These animals produce 29.472 million tons of milk (making Pakistan the 5th largest producer of milk in the world), 1.115 million tons of beef, 0.740 million tons of mutton, 0.416 million tons of poultry meat, 8.528 billion eggs, 40.2 thousand tons of wool, 21.5 thousand tons of hair and 51.2 million skins and hides. The Food and Agriculture Organization reported in June 2006 that in Pakistan, the world's fifth largest milk producing country, government initiatives are being undertaken to modernize milk collection and to improve milk and milk product storage capacity. The Federal Bureau of Statistics provisionally valued this sector at Rs.758,470 million in 2005 thus registering over 70% growth since 2000. B. Fishery: Fishery plays an important role in Pakistans economy and is considered to be a source of livelihood for the coastal inhabitants. A part from marine fisheries, inland fisheries (based in river, lakes, ponds, dams etc.) is also very important activity throughout the country. Fisheries share in GDP although very little but it adds substantially to the national income through export earnings. During the year 200809, a total of 134,000 million tons of fish and fishery products were exported earning US$ 236 million. Government of Pakistan is taking a number of fruitful steps to improve fisheries sector which include inter alia strengthening of extension services, introduction of new fishing methodologies, increased production through aquaculture, development of value added products, enhancement of per capita consumption of fish, up-gradation of socio-economic conditions of the fishermens community. Marine Fisheries Department is executing two development projects i.e. the project Stock assessment survey programmed in EEZ of Pakistan through chartering Research vessel and capacity building of Marine Fisheries Department is aimed to charter a suitable vessel of conducting stock assessment resource surveys in the coastal and offshore waters of Pakistan, including Exclusive Economic Zone. The project is also aimed to strengthen Marine Fisheries Department by capacity building

P a g e | 24

to conduct resource survey and stock assessment on regular basis and to development management strategy for the fish exploitation and utilization. For this purposes Iranian research vessel was chartered and first trip of stock assessment survey was undertaken during 30th October to 7th November 2009. The data collected during the survey have been analyzed and cruise report has been prepared and submitted to concerned agencies. Two other projects i.e. Accreditations of quality control laboratories of Marine Fisheries Department and Establishment of Integrated National Animal and Plant Health Inspection Service (NAPHIS) (MFD component), are also being implemented to provide improved quality control services to the seafood export industry. These two projects are aimed to get the laboratories of the Marine Fisheries Department accredited with international bodies and meet the requirements of ISO 17025. It also aimed to improve the human resources capabilities of the department by inducting trained manpower and also to provide training to existing staff and officers. Microbiological and Chemical Laboratories were Accredited by the Norwegian Accreditation Agency under ISO/IEC-17025 will now be got accredited from P.N.A.C. A hatchery complex was established under the auspices of a development project entitled Established of hatchery complex for production of seeds of fish and shrimps in 2001 is being renovated from funds provided by Fisheries Development Board. The renovation work will be completed by December 2010. During the period July-March 2009-10 the total marine and inland fish production was estimated 952,735 Million tons out which 667,762 Million tons was marine production and the remaining catch come from inland waters. Whereas the Production for the July-March 2008-09 was estimated to be 914,141 Million tons in which 660,141 Million tons was for marine and the remaining was produced by inland fishery sector. There is an increase of 1.3% in the quantity compared to the last year. The major fish harbors of Pakistan are; Karachi Fisheries Harbor is being operated by Provincial Government of Sindh. Karachi Fish Harbor handles about 90% of fish and seafood catch in Pakistan and 95% of fish and seafood exports from Pakistan. Korangi Fish Harbor is being managed by Federal Ministry of Food, Agriculture and Livestock. Pasni Fish Harbor being operated by Provincial Government of Balochistan. Gwadar Fish Harbor being operated by Federal Ministry of Communication.

P a g e | 25

Recent Performance in Agricultural Growth6 Year

200304 200405 200506 200607 200708 200809 200910 Agriculture

Major Crops

Minor Crops

Livestock

Fishery

Forestry

2.4 6.5 6.3 4.1 1.0 4.0 2.0

1.7 17.7 (3.9) 7.7 (6.4) 7.3 (0.2)

3.9 1.5 0.4 (1.0) 10.9 (1.7) (1.2)

2.9 2.3 15.8 2.8 4.2 3.5 4.1

3.0 0.6 20.8 15.4 9.2 2.3 1.4

(3.2) (32.4) (1.1) (5.1) (13.0) (3.0) 2.2

N.B. Amounts in braces are negative in value

C. Forestry: Forests are crucial for the well being of humanity. They provide foundations of life on earth through technological functions, by regulating the climate and water resources and by serving as habitats for plants and animals. Forests also furnish a wide range of essential goods such as wood, food fodder and medicines in addition to opportunities for recreation, and other services. Forests are under pressure for expanding human and livestock populations with frequently leads to conversion or degradations of forests into unsustainable forms of land use. When forests are lost or severely degraded, their capacity to function as regulators of the environment is also lost, increasing floods and erosion hazards, reducing soil fertility and contributing to the loss of plant and animal life. Under Millennium Development Goals of Forestry sector, Pakistan is committed to increase forest cover from existing 5.2 percent to 5.7 percent by the year 2011 and 6 percent by the year 2015. An increase of 1 percent implies that an additional 1.051 million hectares area has to be brought under forest cover by 2015. There is shortage of forests in Pakistan. Pakistan has 4.01 million hectares covered by forests, which is about 5 percent of the total land area. Eighty-five percent of this is a public forest, which includes 40 percent coniferous and scrub forests on the northern hills and mountains. The balance is made up if irrigated plantations and River-ain forests along major rivers on Indus plains, mangrove forests on the Indus delta and trees planted on farmlands. Though the forest resources are meager, it plays an important role in Pakistans economy by employing half a million people and fulfills one-third of the nations energy needs. Forest and Rangelands support about 30 million herds of livestock. Total forests area of Punjab, NWFP, Sindh and Balochistan is 0.48, 1.33, 0.84 and 1.36 million hectares respectively.
4

6. Federal Bureau of Statistics.

P a g e | 26

The Federal Bureau of Statistics provisionally valued this sector at Rs.25,637 million in 2005 thus registering over 3% decline since 2000. Pakistan ranks forty-first in the world and fifty-fifth worldwide in factory output. Pakistans industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labor force. Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing. The government is privatizing large-scale semipublic units, and the public sector accounts for a shrinking proportion of industrial output, while growth in overall industrial output (including the private sector) has accelerated. Government policies aim to diversify the country's industrial base and bolster export industries. 2. Industry Sector: The Federal Bureau of Statistics provisionally valued this sector at Rs.18,290 million in 2005 thus registering over 10% growth since 2000. A. Fuel Extraction Industry: Pakistan's first oil field was discovered in the late 1952 in Baluchistan near a giant gas field at Sui in Balochistan. The Toot oilfield was discovered in the early 1960's the Islamabad in the Punjab. Production has steadily increased since then. Pakistan's first gas field was the giant gas field at Sui in Balochistan which was discovered in the late 1952.Pakistan is also a major producer of Bituminous coal, Subbituminous coal and Lignite. Coal mining started in the British colonial era and has continued to be used by Pakistani industries after independence in 1947. Pakistan produced about 45 tons of Uranium in 2006. B. Mining And Quarrying: Important minerals found in Pakistan are gypsum, limestone, chromites, iron ore, rock salt, silver, gold, precious stones, gems, marble, copper, coal, graphite, sulphurate, fire clay, silica. The salt range in Punjab Province has large deposits of pure salt. Balochistan province is a mineral rich area having substantial mineral, oil and gas reserves which have not been exploited to their full capacity. The province has significant quantities of copper, chromate and iron, and pockets of antimony and zinc in the south and gold in the far west. Natural gas was discovered near Sui in 1952, and the province has been gradually developing its oil and gas projects over the past fifty years. Major reserves of copper and gold in Baluchistans Rekodeck area have been discovered in early 2006. The Rekodeck mining area has proven estimated reserves of 2 billion tons of copper and 20 million ounces of gold. According to the current market price, the value of the deposits has been estimated at about $65

P a g e | 27

billion, which would generate thousands of jobs. The discovery has ranked Rekodeck among the world's top seven copper reserves. The Rekodeck project is estimated to produce 200,000 tons of copper and 400,000 ounces of gold per year, at an estimated value of $1.25 billion at current market prices. The copper and gold are currently traded at about $5,000 per ton and $600 per ounce respectively in the international market. North West Frontier Province accounts for at least 78% of the marble production in Pakistan. The Federal Bureau of Statistics provisionally valued this sector at Rs.211,851 million in 2005 thus registering over 99% growth since 2000. C. Electricity, Gas And Water Supply: Pakistan has extensive energy resources, including fairly sizable natural gas reserves, some proven oil reserves, coal (Pakistan has the fourth-largest coal reserves in the world), and a large hydropower potential. However, the exploitation of energy resources has been slow due to a shortage of capital and domestic political constraints. Domestic petroleum production totals only about half the country's oil needs, and the need to import oil has contributed to Pakistan's trade deficits and past shortages of foreign exchange. The current government has announced that privatization in the oil and gas sector is a priority, as is the substitution of indigenous gas for imported oil, especially in the production of power. Pakistan is a world leader in the use of compressed natural gas (CNG) for personal automobiles. The short-term national energy demand has expanded significantly since 2001 due to massive rise in sales of durable goods like refrigerators, washing machines, split air conditioners, et al. In 2004, Access Group International announced plans to invest $1 billion over the next 5 years in solar cell manufacture and wind farms. MOUs have been signed with Alternate Energy Development Board. In early 2005, the government approved a 25-year Energy Security Plan to boost electric capacity eightfold. The Canadian conglomerate Cathy Oil and Gas signed a memorandum of understanding in late 2006 to invest $5 billion in oil and gas exploration, development, production and commercialization in Pakistan. The World Bank estimates that it takes about 32 days only to get an electrical connection in Pakistan. The Federal Bureau of Statistics provisionally valued this sector at Rs.215,662 million in 2005 thus registering over 62% growth since 2000. 3. Services Sector: Pakistan's service sector accounts for about 53.3% of GDP. Transport, storage, communications, finance, and insurance account for 24% of this sector, and wholesale and retail trade about 30%. Pakistan is trying to promote the information industry and other modern service industries through incentives such as long-term tax holidays. The government is acutely conscious of the immense job growth opportunities in

P a g e | 28

service sector and has launched aggressive privatization of telecommunications, utilities and banking despite union unrest. A. Transport, Storage And Communication: Pakistan Telecommunication Company Ltd has emerged as a successful Forbes 2000 conglomerate with over $1 billion in sales in 2005. Cell phone market has exploded almost fourteen fold since 2000 to reach a subscriber base of over 60 million in 2007. In addition, there are over 6 million landlines in the country. As a result, Pakistan won the prestigious Government Leadership award of GSM Association in 2006.The World Bank estimates that it takes about 50 days only to get a phone connection in Pakistan. In Pakistan, following are the top mobile phone operators: Mobilink Ufone Telenor Warid Paktel (recently been acquired by China Mobile for US$ 450 million) The cellular base in Pakistan is growing at around 14% per year and already the cellular customer has outpaced the fixed line customers. Wireless revolution has swept Pakistan, and competition among the mobile operators is pulling the prices down. Its as cheap as Rs.2 to call to USA per minutes (that is 3-4 cents per minutes). Sony Ericsson, Nokia and Motorola along with Samsung and LG remain to be the popular brands among customers. Though Nokia has a strong market presence this has been somewhat taken over by Sony Ericsson, through aggressive marketing and advertisement. Pakistan is on the verge of Telecom revolution and it is by far the most attracted sector in Pakistan in terms of Foreign Direct investment coming in Pakistan. It s estimated alone that this year 2006-07, FDI attracted by Telecom will be US$ 2 Billion out of the total FDI of US$ 6 Billion, the highest in Pakistan history. Pakistan International Airlines, the flagship airline of Pakistan's civil aviation industry, has turnover exceeding $1 billion in 2005. The government announced a new shipping policy in 2006 permitting banks and financial institutions to mortgage ships. A massive rehabilitation plan worth $1 billion over 5 years for Pakistan Railways has been announced by the government in 2005. Private sector airlines in Pakistan include Airblue, Aeroasia and Shaheen Air International. Many private airlines are in pipeline including Air Mahreq, Dewan Air and Pearl Air.Airblue is using the state of the art A-320 and A-321 aircraft for flying across Pakistan and will soon commence UK operation. Airblue has recently ordered 6 New A-321 aircraft, while 2 aircraft will be taken on lease which will be added to the existing fleet of 4-5 aircraft, making it the second biggest fleet behind PIA which has 42 aircraft.

P a g e | 29

The Government of Pakistan has, over the last few years, granted numerous incentives to technology companies wishing to do business in Pakistan. A combination of decade-plus tax holidays, zero duties on computer imports, government incentives for venture capital and a variety of programs for subsidizing technical education, are intended to give impetus to the nascent Information Technology industry. This in recent years has resulted in impressive growth in that sector. Pakistan saw an increase in IT export cash inflows of 50% from 2003-4 to 2004-5, with total export cash inflows standing at $48.5 million. In 2005-6 export cash inflows increased to greater than $73 million. This year the government has set a goal of $108 million. Exports account for 11% of the total revenues of the IT sector in Pakistan. Compared to India, Pakistan's IT sector is relatively small, but recent growth has been extremely high leading economists to be optimistic about the IT industrys future prospects in Pakistan. Gartner, one of the worlds leading information technology research and advisory companies has placed Pakistan amongst the top countries of the world in terms of suitability for offshore outsourcing. Paging and mobile (cellular) telephone were adopted early and freely. Cellular phones and the Internet were adopted through a rather laissez-faire policy with a proliferation of private service providers that led to fast adoption. Both have taken off and in the last few years of the 1990s and first few years of the 2000s. With a rapid increase in the number of internet users and ISPs, and a large English-speaking population, Pakistani society has seen major changes. Pakistan has more than 20 million internet users as of 2005. The country is said to have a potential to absorb up to 50 million mobile phone Internet users in the next 5 years thus a potential of nearly 1 million connections per month. Almost all of the main government departments, organizations and institutions have their own websites. The use of search engines and instant messaging services is also booming. Pakistanis are some of the most ardent chatters on the Internet, communicating with users all over the world. Recent years have seen a huge increase in the use of online marriage services, for example, leading to a major re-alignment of the tradition of arranged marriages. As of 2007 there were 6 cell phone companies operating in the country with nearly 60 million mobile phone users in the country. Wireless local loop and the landline telephony sector has also been liberalized and private sector has entered thus increasing the teledensity rate from less than 3% to more than 10% in span of two years. The Federal Bureau of Statistics provisionally valued this sector at Rs.982,353 million in 2005 thus registering over 91% growth since 2000.

P a g e | 30

Figures E and F7

B. Finance and Insurance: A reduction in the fiscal deficit has resulted in less government borrowing in the domestic money market, lower interest rates, and an expansion in private sector lending to businesses and consumers. Foreign exchange reserves continued to reach new levels in 2003, supported by robust export growth and steady worker remittances. Credit card market continued its strong growth with sales crossing the 1 million mark in mid-2005. C. Investment: Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-onyear to US$2.22 billion and portfolio investment by 276 percent to $407.4 million during the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP) reported on April 24. During July-March 2005-06, FDI year-on-year increased to $2.224 billion from only $792.6 million and portfolio investment to $407.4 million, whereas it was $108.1 million in the corresponding period last year, according to the latest statistics released by the State Bank Pakistan has achieved FDI of almost $7 billion in the financial year 06/07, surpassing the government target of $4 billion. Pakistan is now the most investment-friendly nation in South Asia. Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most barriers to the flow of capital and international direct investment have been removed. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors (local partners must be brought in within 5 years and contribute up to 40% of the equity in the services and agriculture sectors). Unlimited remittance of profits, dividends, service fees or capital is now the rule. Business regulations are now among the most liberal in the region. This was confirmed by a World Bank report published in late 2006 ranking Pakistan (at 74th) well ahead of neighbors like China (at 93rd) and India (at 134th) based on ease of doing business.

P a g e | 31

D. Foreign Trade: Pakistan is member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations. Fluctuating world demand for its exports, domestic political uncertainty, and the impact of occasional droughts on its agricultural production have all contributed to variability in Pakistan's trade deficit. In the six months to December 2003, Pakistan recorded a current account surplus of $1.761 billion, roughly 5% of GDP. Pakistan's exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Exports grew by 19.1% in FY 2002-03. Major imports include petroleum and petroleum products, edible oil, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products. While the country has a current account surplus and both imports and exports have grown rapidly in recent years, it still has a large merchandise-trade deficit. The budget deficit in fiscal year 2004-2005 was 3.4% of GDP. The budget deficit in fiscal year 2005-06 is expected to be over 4% of GDP. Economists believe that the soaring trade deficit would have an adverse impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 Rupees March 2006) and other currencies. E. Exports: Pakistan's exports at $17.011 billion in the financial year 2006-2007, up by 3.4 percent from last year's exports of $16.451 billion. Pakistan exports rice, furniture, cotton fiber, cement, tiles, marble, textiles, clothing, leather goods, sports goods (renowned for footballs/soccer balls), surgical instruments, electrical appliances, software, carpets, and rugs, ice cream, livestock meat, chicken, powdered milk, wheat, seafood (especially shrimp/prawns), vegetables, processed food items, Pakistani assembled Suzukis (to Afghanistan and other countries), defense equipment (submarines, tanks, radars), salt, marble, onyx, engineering goods, and many other items. Pakistan now is being very well recognized for producing and exporting cements in Asia and Mid-East. Starting August 2007, Pakistan will be exporting Cement to India.
5

F. Imports: Pakistan's imports stood at $30.54 billion in the financial year 2006-2007, up by 8.22 percent from last year's imports of $28.58 billion. Pakistans single largest import category is petroleum and petroleum products. Other imports include: industrial machinery, construction machinery, trucks, automobiles, computers, computer parts, medicines, pharmaceutical products, food items, civilian aircraft, defense equipment, iron, steel, toys, electronics, and other consumer items.

7. Pakistan Economic Survey (2008-09: 11-13). Social and Economic Indicators, Pakistan Economic Survey (2008-09). http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf. Pakistan Economic Survey (2008-09: 11-13). Also see Pakistan Economic Survey - Statistical Appendix (2007-08: 2). Social and Economic Indicators, Pakistan Economic Survey (2008-09). http://www.finance.gov.pk/survey/survey percent202008-09/Indicator.pdf1 8. Pakistan Economic Survey (2008-09) and Statistical Appendix (2008-09: 2). Also see Economic Survey - Statistical Supplement. www.finance.gov.pk/finance_survey_chapter.aspx?id=20

P a g e | 32

Sales tax is levied at 15 percent both on imports and domestically produced products. The income withholding tax is levied at 6 percent on imports and at 3.5 percent on the sales of domestic taxpayers. Figures G, H8

Figures I and J

Recent Structural Reforms:

A. Privatization, Deregulation, Liberalization: The Government actively pursued an aggressive and transparent privatization plan whose thrust was sale of assets in the oil and gas industry as well as in the banking, telecommunications and energy sectors, to strategic investors, with foreign investors encouraged to participate in the privatization process. This plan was followed by the elected Government under Prime Minister.

P a g e | 33

To demonstrate the seriousness of the government in encouraging foreign investment flows in Pakistan; there has been a major and perceptible. Liberalization of foreign exchange regime. Foreign investors can now bring in and take back their capital, remit profits, dividends and fees etc., without any restrictions. Foreign Portfolio Investors (FPI) can also enter and exit the market without any restrictions or prior approvals. In the Karachi Stock Exchange with a market capitalization of US$33 billion, over 650 listed companies showed average returns of 15 per cent that were higher than those in most emerging countries. This makes Pakistan an attractive place to invest for foreign portfolio investors. As part of this liberalization, non-residents and residents are allowed to maintain and operate foreign currency deposit accounts, and a market-based exchange rate in the interbank market is at work. The financial sector too, has been restructured and opened up to competition. Foreign and domestic private banks currently operating in Pakistan have been able to increase their market share to more than 80 percent of assets and deposits. The interest rate structure has been deregulated and monetary policy uses indirect tools such as open market operations, discount rates etc. Domestic interest rates on lending have dropped to as low as 5 percent from 20 percent substantially reducing financial costs of businesses. Central to the economic reforms process has been a clear progression towards deregulation of the economy. Prices of petroleum products, gas, energy, agricultural commodities and other key inputs are determined by market. Imports and domestic marketing of petroleum products have been deregulated and opened up to the private sector. The markets do not always function effectively. Independent regulatory agencies have been set up to protect the interests of consumers and end-users of utilities and public services. B. Tax Reforms: Taxation reform has figured prominently on the government's agenda, as the is another area where the business community has innumerable grievances and dissatisfaction with the arbitrary nature of tax administration. Tax reforms are aimed at broadening the tax base, bringing in tax evaders under the tax net, minimizing personal interaction between tax payer and tax collector, eliminating the multiplicity of taxes and ultimately reducing the tax rate over time. A massive survey and documentation drive was undertaken to widen the tax base, extend incidence to all sectors of the economy and develop the data for purposes of assessment. Universal self assessment system has been introduced for tax collection whereby the returns submitted by the tax payers are taken as final settlement of their tax liabilities. Only a random sample of returns is picked up for audit. This system has been welcomed by the tax payers. The Central Board of Revenue (CBR) is being restructured to improve tax administration including tax payer facilitation.

P a g e | 34

C. Financial Sector Reforms: Financial sector has made the farthest progress by transforming itself into a market oriented, private sector dominated sector performing efficient intermediation. The regulatory and supervision functions of the State Bank of Pakistan have been significantly strengthened, and strict enforcement of prudential regulations have led to widespread recapitalization and a consequent improvement in the efficiency and profitability of banking system. More than 80 percent of banking assets are now owned and managed by the private sector. The ratio of net Non-Performing Loans (NPLs) to total advances in Pakistan has been brought down to less than 5 percent through a variety of strategic measures. An asset management company, the Corporate and Industrial Restructuring Corporation (CIRC), has taken over a large volume of non-performing loans of NCBs and DFIs at a discount and disposed them off to third party buyers. Development Financial Institutions (DFIs) have been restructured through mergers and acquisitions, closure, liquidation and reorganization. Auction of Pakistan Investment Bond (PIB) for tenures of five to ten years government paper and a burgeoning corporate bond market has begun to emerge bringing together long term institutional investors and borrowers interested in long term sources of financing. Figures K, L, M and N

P a g e | 35

The Stand-By Arrangement (SBA) with the IMF helped restore confidence. Under the current macroeconomic stabilization strategy as agreed with the IMF, the government is expected to maintain tight monetary policy, reduce import tariffs, curtail public expenditures and reduce the fiscal deficit. Key economic indicators summarized below show that stabilization is working but it needs to be consolidated to support continuous improvement in economic growth.9 Low but Positive Growth. GDP growth is expected to be between 3-3.5 percent for FY2009-1010 the agriculture sector is showing signs of healthy growth supported by good cotton crop. Large Scale Manufacturing (LSM) is also showing signs of recovery as it expanded by 7% in November 2009 compared to a 20 percent contraction March 2009. Inflation Has Moderated But Is Still Very High. Inflation declined from 25.3 percent in August 2008 to 15 percent in December 2009. SBP expects it to settle between 11 and 12 percent during FY2009-1011. Trade Balance. The trade deficit declined to US$8.4 billion during July-January of FY2009-10 compared to US$10.2 during the same period of the prior year12. Despite difficult economic conditions, exports are expected to reach US$19 billion during FY2009-10. Textile and apparel exports are expected to pick up momentum due to a good cotton harvest. Imports are estimated to decline by 3.2 percent to reach US$30.7 billion during FY2009-10 leading to a substantial commercial trade deficit. Shrinking Current Account Deficit. Strong remittances and a decline in imports contributed to a reduction in the current account deficit to US$2.5 billion during July-January of FY-2009-10 from US$8.1 billion over the same period in the prior year13. The current account deficit is expected to settle between 3.7 to 4.7 percent of GDP in FY2009-10 against 8.4 percent during FY2008-0914. During the first half of FY2009-10, workers' remittances increased by 25 percent to reach US$4.5 billion compared to US$3.6 billion in same period in FY2008-09. These trends are expected to continue throughout the current fiscal year.
6

9. Economic Review of July-February 2008-09 by Ministry of Finance revealed that recent trends in most macroeconomic variables suggest that the disciplined implementation of the macroeconomic stabilization program is paying dividends. http://www.finance.gov.pk/finance_blog/wp-content/uploads/ReviewEconomy-Jul-Feb.pdf. According to the Ministry of Finance by February 2009, early signs of improvement in economic variables such as inflation, foreign exchange reserves, import growth, and government borrowings from the SBP are evident. 10. See Dawn, 28 January, 2010, 11. The SBP commented the inflation outlook is sensitive to fiscal consolidation efforts and to world commodity prices. Already announced and planned electricity tariff increments and higher gas prices will also affect inflation. Added to these developments are the difficult-to-assess negative impacts of the security situation and power shortages. The likelihood of an uptick in inflation in the remaining months of FY10 thus seems quite plausible. (Monetary Policy Statement, January-2010: 1). 12. For details see The Nation Daily. 13-14. Ibid.

P a g e | 36

Opportunities For Investment Remain Intact. FDI declined markedly to about US$1 billion during first half of FY2009-10, down from US$2.4 billion in the same period during FY2008-09. However, a sustained global economic recovery and stability of international financial markets would help to regenerate the flow of FDI. Steady Rebuilding Of Foreign Exchange Reserves. Reserves have been replenished from US$6.4 billion in November 2008 to over US$15 billion in January 2010. This has improved the import coverage ratio to 14 weeks as compared to 9.1 in October 2008. Foreign exchange reserves are expected to exceed US$15 billion at the end FY2009-10.

Consumption Drove Growth During 2003-08.

Pakistan's brief spurt of high economic growth during this period was mainly driven by private consumption. Consumption became the principal driver of growth on the back of large foreign exchange inflows, monetary easing, the rise of consumer credit15, and the continued emergence of a large middle class. Government consumption also grew by large amounts especially during FY2005 and FY2006. Exports have generally made negative contribution to growth. Figures O and P16

15. The slowdown in growth has increased the ratio of non-performing consumer loans to total loan from 0.9 to 9.1 percent since 2004. SBP Economic Data, Non Performing Loans, http://sbp.org.pk/ecodata/index2.asp, Dec18, 2009 16. For details see Pakistan Economic Survey (2008-09: 8-10).

P a g e | 37

Savings Are Low. Low savings reduced the availability of domestic funds for investment. As a result, investment made little contribution in driving growth. Total investment (public and private) contributed on average less than one percentage point to annual GDP growth during this period. After fluctuating close to 15 percent of GDP, the domestic savings rate dropped to 11.2 percent of GDP in FY2008-09. Total savings (the sum of domestic saving and foreign saving) reached a peak of 18.2 percent of GDP before declining to 14.3 percent in 2008-09. Low domestic savings reflect high inflation and an inadequate array of accessible savings instruments17. Potential individual savers lack awareness about risk and reward in placing their savings in a bank account or other saving instruments. Pakistan lacks dynamic and diversified financial services that would provide easy accessibility to saving alternatives tailored to the needs of various niches of the market such as young savers accounts, rural dwellers, higher education saving accounts, and retirement accounts. Figures Q and R18

17. Following the crisis of 2008, the government remained committed to reducing inflation to single digit levels by pursuing a policy of fiscal and monetary restraint. However, consumer price inflation will probably remain above 11 percent in 2009-10 despite a reduction in the fiscal deficit to 4.9 percent of GDP. This points towards the role of costpush and supply side factors in fueling inflation. The government will need to devise an appropriate policy response the inflationary implications of imminent electricity tariff hikes and rebounds in world oil and commodity prices. 18. Pakistan Economic Survey, several issues.

P a g e | 38

Foreign Savings Have Been Important To Pakistan. Despite low domestic savings, foreign savings (the difference between total investment and domestic savings in Figure S) helped Pakistan increase its total investment and fixed investment to about 20 percent of GDP during the past five years. Public investment, which is critical for facilitating private investment and for providing basis for economic development and growth, has been mostly below 5 percent of GDP during the decade. Enjoying attractive incentives and opportunities, foreign investment increased to record levels during high growth period of 2003-08. However, global economic slowdown and financial crunch along with difficult domestic conditions especially concerning the security situation has taken its toll on foreign investment that has substantially declined over the last two years. Figures S, T, U and V19

19. Government of Pakistan, Pakistan Economic Survey 2008-09, Ministry of Finance: Islamabad (2009:15)

P a g e | 39

Despite Formidable Challenges, Pakistan's Has Favorable Geostrategic, Demographic And Resource-Base Fundamentals. The nine-point economic reform agenda presented in the 2009-10 government budget represents an important step in this direction. Key points of the plan aim to remove long-standing structural impediments constraining sustainable and equitable economic growth. The plan's key objectives include macroeconomic stabilization; social development and social protection; improvement in agriculture performance; enhancing industrial competitiveness; improvements in human capital; energy sector development; efficient capital markets; promoting public-private partnerships for infrastructure; and institutional/administrative reforms20. In addition to the nine-point agenda, the country needs a structured dialogue and consensus among key stakeholders to agree on a strategy to better enable the economy and firms to compete in the face of the ever-changing international economic and trading environment. In fact, the country has the potential to become a locomotive for regional economic growth. The following Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis summarizes the country's strengths and weaknesses referenced in this chapter. There are major new trade and investment opportunities related to Pakistan's strategic location between the Middle East, Central Asia, Southwest China and South Asia. There are major untapped energy sources. Greater peace and stability in Afghanistan and the border regions of Pakistan could improve business confidence and usher in a new era of growth. Special economic zones could boost employment. And Pakistan's population boom is beginning to enter its most productive years. To summarize, Pakistan faces formidable domestic constraints and international challenges to its global competitiveness which in turn is the basis for sustaining high growth in the long term. While these changes may seem daunting, even overwhelming, Pakistan also has many strengths and opportunities. The example of other high-growth Asian economies is encouraging. All of this can provide optimism that Pakistan can overcome these challenges and take advantages of newly emerging opportunities.
10

Growth and Development SWOT of Pakistan

20. Saleem (2010) noted that according to federal minister for finance Shaukat Tarin, despite many internal and external challenges national economy is showing some positive signs of development and sustainability. However global economic [difficulties], political instability, war on terror, energy shortfall, and prevailing drought in the country were increasing the burden on national fiscal framework. EDL to Cause Trouble in Long Term. Pakistan and Gulf Economist, 1-7 February, 2010.

Page I 40

Concluding Remarks:
Pakistan today meets most of the essential requirements that the foreign businesses and investors are looking for. Macroeconomic stability, deep-rooted structural reforms, high standards of economic governance, outward looking orientation, liberalized trade and investment regime, easy access to policy makers, low production costs, sophisticated financial sector and its location as a regional hub make it a highly attractive country for business and investment. Investors concerns about security, law and order are being addressed and the situation is improving gradually. But the negative perception that prevails about Pakistan abroad due to the hype created by the median can only be removed if the potential businessmen and investors visit Pakistan and make on the-spot assessment for them. It is now hoped and prayed that Pakistan will see her brighter and prospective economic future in the coming days21. This report identifies key drivers of Pakistan's Economic Growth and Development, its objective is to identify priorities. It is also intended to promote dialogue among Pakistan's leaders leading to the implementation of a comprehensive strategy for sustained high growth. The report identifies why Pakistan is falling behind other high-growth Asian economies.
11

Specific actions are proposed that will enable Pakistan to move beyond its lackluster and stop-go economic performance. The goal is to achieve sustained rates of high economic growth. This can be defined as an economic growth averaging 68% per year sustained over the next 20 years. Economic growth is essential for prosperity and it is the source of impressive advances in living standards of many emerging economies, notably those of Southeast Asia. If Pakistan can sustain growth rate of 6-8% per year, it will be able to double its GDP within a decade. From such rates of growth, economic miracles are made. High, sustained economic growth is almost universally considered a necessary condition for improving the quality of life and reducing poverty. In principle, Pakistan has embraced this view through its Poverty Reduction Strategy Paper and the recent update, which identify economic growth as a crucial determinant of poverty reduction. High and sustained economic growth is essential for Pakistan's future place in the world. Pakistan's economic growth has not kept pace in recent years with neighbors such as China and India, to say nothing of other competitors like Indonesia, Malaysia, Thailand and Vietnam. Economically, the country has become dependent on foreign transfers, both official transfers and remittances from workers abroad. If these are disrupted for any reason, the underlying economic---21. The inextricable linkage between economic growth and poverty reduction is amply documented in numerous studies. For example see DFID, Growth: Building jobs and prosperity in developing countries, 2008 Online: http://www.dfid.gov.uk/Documents/publications/policy-paper-growth.pdf. This paper documents studies estimating that a one percent increase in income would reduce poverty by 0.6 to 4.3 percent. The largest multipliers correspond to countries with relatively equal income distributions. Dani Rodrik (2007) argued that historically nothing has worked better t han economic growth in enabling societies to improve the life chances of their members, including those at the very bottom in Growth: Building Jobs and Prosperity in Developing Countries, Department for International Development.

security will be threatened. High growth and a competitive Pakistani economy are a matter of national security. It is critical to providing jobs for young Pakistanis, particularly men, who might otherwise engage in ethnic or religious conflict. Periods of high economic growth in Pakistan are associated with progress in reducing poverty. Periods of stagnation are associated with increases in poverty and conflict. The high growth in the number of people coming of working age is a great opportunity for growth (as it has been in other Asian countries), if Pakistani entrepreneurs are able to provide jobs. Recent high growth in Pakistan was not based on the underlying competitiveness of its goods and services. The report provides data showing that consumption, partially fueled by transfers from abroad, drove strong growth from 2002 to 2007. Exports and investment, which hold better potential to drive high sustainable growth, lagged far behind the growth of consumption. Since independence, Pakistan has had a number of periods of high economic growth but none of them have proven sustainable. To achieve sustainable economic growth, the agriculture, manufacturing and service sectors must be competitive. This implies a steady upgrading of the quality of the goods or services being provided. In turn, this requires close connections between technology development in agriculture as well as manufacturing and services with productive enterprises. The most important driver of growth is education and training of people. Pakistan needs to achieve universal literacy and primary education completion and high levels of secondary and tertiary education while improving educational quality and relevance at all these levels. Vocational training is also important and must be responsive to emerging technologies and to the changing needs of the private sector. Successful Asian economies, beginning with Japan and continuing with South Korea, Taiwan, Hong Kong, Singapore and China all focused on educating and training people to be highly productive. This has been the key driver of growth and will be even more important in the knowledge economy of the 21st century. Exports can be a powerful second driver of growth, as they have been for other Asian economies, if, Pakistan can provide the appropriate business environment. Exports have powerful multiplier effects. Currently, Pakistan is largely left out of global value chains, relegated to a situation of exporting relatively low-value products, and earning remittances from mostly low-skill workers who go abroad, rather than adding value at home by participating in the increasingly interconnected world service economy. Export Processing Zones ought to be the leading edge of the Pakistani export drive. If they are not playing this role, bureaucratic obstacles to their success is the likely cause. It is important to maintain a stable exchange rate conducive to such exports. Investment-led growth can also be a powerful driver of sustainable growth, but investment depends on favorable expectations of the countrys environment. The expectation of stability in government policy is crucial to private investment, whether foreign or domestic. Either creates jobs today while creating the platform for tomorrow's growth. It works through enhancing human resources, providing infrastructure and developing and adapting new technologies. Domestic savings are important for financing investment. However, the globalization of financial markets has created the conditions where investment need not be limited by local savings---

capacity. Government has a key role to play in creating an environment that attracts and mobilizes high levels of investment. In the short to medium term, foreign transfers might also be levers of growth. Foreign transfers, if invested appropriately in human and physical capital, can be levers of growth in the short to medium term. If remittances from workers abroad can be channeled not only to consumption but also to investment, it would add to the growth potential of the country. Improvements in the institutional environment for business can be a driver of growth. This includes establishing effective commercial courts, developing effective mechanisms of binding arbitration and making it easier to start, grow and disband formal business entities. Business associations, chambers of commerce, strategic working groups and industry associations can also be catalysts for change. Partnerships, especially business-academic partnerships, are crucial for designing and implementing innovations. Pakistan's leading industry clusters can be challenged to develop their strategic plans for growth and competitiveness and for repositioning themselves in world markets. The report presents a strategic framework for promoting growth and competitiveness. An action plan is presented with responsibilities for key players. This also requires a structured dialogue and consensus between key stakeholders from government, industry and academia. The action plan presented in this report can be the basis for a Pakistan Competitiveness Project implemented by the Competitiveness Support Fund. Operationally, this effort can be guided by a Pakistan Competitiveness Council that could be part of the Global Council on Competitiveness that currently includes the USA, Saudi Arabia, the United Arab Emirates, Egypt and Brazil.

Resources: Sheikh, Hafiz (2006) Towards Reorienting the Role of Government in Pakistan. The Pakistan Development Review 45:4, 537554. Zaidi, S. Akbar (2005) Issues in Pakistans Economy. Karachi: Oxford University Press Rodrik. D. (2006) Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Banks Economic Growth in the 1990s: Learning from a Decade of Reform. Journal of Economic Literature 44, 973987. Haussmann, R., D. Rodrik, and A. Velasco (2005) Growth Diagnostics. John F.Kennedy School of Government, Harvard University. <http://ksghome.harvard.edu/drodrik/barcelonafinalmarch2005.pdf> Qayyum, A. and A. R. Kemal (2006) Volatility Spillover between the Stocks Market and the Foreign Exchange Market in Pakistan. Pakistan Institute of Development Economics, Islamabad. (PIDE Working Papers No. 7.) Hussein, Ishrat (1999) Pakistan the Economy of an Elitist State. Karachi: Oxford University Press. Rahim, Sikander, February 2001. Myths of Economic Development. Lahore School of Economics, Occasional Paper No.10 The Dawn, Daily. Karachi. The News, Daily. Lahore. White, L. J. Industrial Concentration and Economic Power in Pakistan. Princeton University Press Kemal, A. R., 1999. Patterns and Growth of Pakistans Industrial Sector. Included in Khan, Shahrukh Rafi, Fifty Years of Pakistans Economy. Oxford University Press, Karachi.