Macroeconomic Indicators of Pakistan: An Academic Report
Macroeconomic Indicators of Pakistan: An Academic Report
Pakistan is a country of ethnic and linguistic diversity in its four provinces and two territories. Per capita incomes have climbed in real terms by approximately 70 percent over the last two decades, reaching about US$460 in 1995. This increase has extended to the poor–the share of the total population below the poverty line has declined from almost half the population in the mid 1980s to about one-third in the early 1990s.
Pakistan has made progress on human development from the early 1970s to the early 1990s. The total fertility rate fell by 20 percent, life expectancy at birth increased by 23 percent (by 26 percent among women), and the infant mortality rate declined by one-third. The adult literacy rate has increased by 46 percent since 1977. Enrollment ratios for primary education have increased by 19 percent (by 34 percent among girls) and for secondary education by 62 percent (by 160 percent among girls) since 1974.
But despite this progress, Pakistan still lags behind the averages for low-income countries. Growing at a rate of about 3 percent a year, the population is projected to double in the next two decades to about 260 million. Pakistan’s fertility rate is about 65 percent higher than the average for all low-income economies, its infant mortality rate is 30 percent higher, its adult literacy rate is 25 percent lower, and its gross primary and secondary school enrollment ratios are not much more than half the average for all low-income economies. Malnutrition among infants, young children, and women of childbearing age is also a major health concern.
Gender disparities are pronounced; despite some gains over the past two decades, Pakistan’s female indicators compare unfavorably with both the averages for South Asia and with low-income countries as a group. Disparities in life expectancy at birth, the under-five mortality rate, the adult literacy rate, and school enrollment ratios are wider for females than for males. Maternal mortality–at 27 per 10,000 live births–remains high.
Pakistan’s economic performance in the past two decades has been characterized by relatively fast GDP growth, propelled by agriculture and cotton-based manufacturing and an enterprising private sector. In 1988, Pakistan began to reorient its economic and social policies to strengthen public finances, promote private sector investment and growth, and improve social indicators. In 1993, Pakistan initiated an IMF- and Bank-supported reform program. Progress with structural reforms has been mixed, but the government has made significant advances in privatization, and in attracting private investment to the energy sector, based on a new policy and incentive package that is now a model for other developing countries. Among the achievements, annual price increases have brought energy prices closer to long-run marginal costs and import parity, while reducing distortions in the pricing structure.
Under this program in the financial sector, the autonomy of the State Bank of Pakistan has increased, prudential policies and regulations have been brought to international standards, the administered cap on lending rates has been removed, the scope of subsidized and directed credits has been reduced, privatization of the third of four nationalized banks has been initiated, and eleven new private banks have been established. The Social Action Program (SAP), initiated in 1992, has increased access to basic social services such as education, primary health care, family planning, and rural water and sanitation.
During 1995, Pakistan’s program of macroeconomic stabilization and structural reforms slowed. Due to lower than expected GDP growth and revenue mobilization and higher inflation in 1994/95, the government decided to slow the pace of key trade and tax reforms in 1995/96. This resulted in a cancellation of the IMF-supported Extended Structural Adjustment Facility (ESAF) Program. Subsequently, Pakistan’s reserves fell sharply in the second half of 1995, mainly due to declining exports and a surge of import growth, leading to a crisis of domestic and foreign confidence. The government’s timely response was a short-run stabilization package supported by a Standby Arrangement with the IMF in December 1995. Stabilization measures included: devaluing the rupee by 7 percent against the US dollar (on top of a 3 percent gradual depreciation since the beginning of the fiscal year); raising domestic prices of petroleum products by 7 percent; imposing a temporary regulatory duty of 10 percent on dutiable imports and 5 percent on most duty-free imports; and tightening monetary policy. These actions reversed the decline in reserves, which rose from about US$1 billion to US$1.8 billion by the end of December, and restored domestic and foreign confidence.
The stabilization effort has been accompanied by GDP growth estimated at 6 percent for fiscal 1995-1996, the best performance in recent years. This is mainly due to an improved cotton crop and a resulting improvement in textile manufacturing. Because of improved supply conditions and restrained monetary policy, the inflation rate fell to 11 percent, compared to 13 percent in the previous year. However, the actual fiscal deficit–estimated at 5.6 percent of GDP–exceeded the government’s target of 5 percent due to lower tax collection and higher than targeted expenditures. Foreign direct investment doubled from US$440 million in FY95 to US$880 million in FY96, mainly due to private investment in the energy sector. On the other hand, portfolio investment, which amounted to US$1.1 billion in FY95–primarily because of the sale of vouchers (mostly to foreign investors) equivalent to 12 percent of the equity in Pakistan Telecommunication Corporation (PTC)–fell to US$120 million in fiscal 1996. Pakistan’s export performance declined in the first half of 1995/96 due in part to the loss of price competitiveness resulting from the slow depreciation of the rupee in the face of persistent high inflation, but recovered in the second half of 1996 because of the improved cotton crop. Overall, exports increased by 9.1 percent while imports rose by 15.4 percent resulting in nearly US$1 billion deterioration in the trade deficit in comparison to the previous year.
Cotton and cotton-based manufacturing account for two-thirds of Pakistan’s exports. Diversification is occurring slowly, in response to policy changes that have improved external competitiveness. Shipment of raw cotton and low-count yarn for processing abroad has given way to export of processed cotton, textiles, garment, and other related products. Some non-traditional manufactured goods such as synthetic textiles, pharmaceuticals, chemicals, and sporting goods are among Pakistan’s more dynamic exports. The overall share of these goods in total exports has more than tripled over the last decade. This diversification, together with a strong advance in cotton-based exports to the European Union, East Asia, and the United States, have provided a boost to Pakistan’s export earnings in recent years. Pakistan is now facing intense competition from other developing countries in Asia and, as a result, the rate of export growth has declined recently due to the slow pace of trade reforms and high import tariffs relative to other developing countries.
In Pakistan, IFC will continue its strategy of (i) providing lines of credit for small and medium-sized enterprises (SMEs) through strong institutions; (ii) playing an important role in the power sector with a particular focus on transmission and distribution and transportation of fuel; and (iii) providing support to value-added activities to generate employment and diversify the Pakistan’s export base.
IFC expects to continue to play an institution-building and resource mobilization role in the financial sector through: (i) developing new instruments and initiatives (securitization, OTC or an electronic exchange for smaller companies); (ii) establishing institutions that are pioneering or novel for the private sector (including a life insurance company, a special purpose vehicle for securitization, a venture capital company); (iii) resource mobilization for both equity and debt financing (a private equity fund, micro-enterprise lending, housing credit lines) and assisting top corporations access the international capital market.
|Population size (millions)||45.9||60.4||82.1||112|
|Population growth (percent per year)||2.7||2.8||2.9||3.0|
|Population density per square km of agricultural land||200||248||324||_|
|Life expectancy at birth, both sexes (years)||43||46||50||56|
|Infant mortality rate (per 1000 births)||162||143||126||103|
|GDP per capita (1987 US$)||135||206||251||349|
|Primary school enrollment ratio
|Radios per 1000 population||6||17||67||87|
|Televisions per 1000 population||_||2||10||17|
SOURCES: World Bank 1983, 1992; United Nations 1990, 1997.
-Population – The Government of Pakistan (GOP) estimated that Pakistan’s population was 134.5 million in July 1999, equating to a population density of about 169 people per square kilometer. It further estimated that this population was 32.5 percent urban and 67.5 percent rural. This estimate does not include approximately 1.5 million Afghan refugees living in Pakistan. The census conducted in 1998 reported a population of 130,588,000. At that time, 55.6 percent of the population lived in the Punjab, 23.0 percent in Sindh, 13.4 percent in the NWFP, 5.0 percent in Baluchistan, 2.4 percent in the Federally Administered Tribal Areas (FATA), and 0.6 percent in the Northern Areas and the federal capital of Islamabad.
-Population Growth Rate – The Government has estimated that Pakistan’s current population growth rate is 2.3 percent annually.
-Religions – Pakistan’s raison d’tre was to be the homeland for Muslims living in British India. It is officially an “Islamic Republic”, and 96.7 percent of Pakistanis were Muslim at the time of the 1998 census. The majority of Muslims are Sunni, but a minority, variously estimated at 15 to 25 percent, are Shia; Ismailis, an offshoot Shia group led by Prince Karim Aga Khan, are prominent in some northern areas. Shia-Sunni tensions have increased in recent years and there have been occasional clashes, particularly at the time of the Shia holy days of the 9th and 10th of the Islamic month of Muharram.
The 3.3 percent non-Muslim minority consisted of Christians (1.6 percent of the total population), Hindus (1.5 percent), and smaller numbers of Ahmadis (a once-Muslim sect denounced as heretical by other Muslims and now declared non-Muslim by law), Parsees, Sikhs, Buddhists, and others. The largest concentration of Christians is in the northeastern Punjab; most of the Hindus live in eastern Sindh, in and around the Thar Desert.
-Government System – Pakistan is a democratic Islamic republic with a federal parliamentary system of government. The system of government is described in detail in Section III (Political System).
-Languages – There are twenty or more spoken languages in Pakistan, most of them Indo-Aryan. The Constitution designates as the official language Urdu, which is not indigenous to the area and is the native language only of the mohajirs, immigrants who came from India at the time of Partition. Urdu developed in north-central India and is linguistically very close to Hindi. General Zia’s government (1977-1988) sought to promote further the use of Urdu in education and government, but encountered resistance from ethnic groups wedded to their regional languages and from well-to-do parents seeking to educate their children in English to enhance their upward mobility. English is widely spoken among government officials and the middle and upper classes. Punjabi is the regional language with the greatest number of native speakers, followed by Sindhi, and Pushtu (also known variously as Pashtu, Pashto, and Pushto), which is spoken by tribal groups in the NWFP and parts of Baluchistan.
……… Key macroeconomic indicators — 1999-2000 estimates and 2000-01 targets
|============================================================ 1999-00 2000-01 Achievements Targets (Prov. Estimates)============================================================Growth Rates (%)GDP 4.5a 5.0Agriculture 5.5b 3.9Manufacturing 1.6 5.9Large Scale 0.04 6.2Services 4.5 5.2Investment/SavingTotal Investment (Billion Rs) 476.3 545.5Fixed Investment 424.6 489.3Public 169.0 193.8(PSDP) (101.2) (120.5)Private 255.6 295.5National Savings/Investment (%) 81.5 87.4External SectorTrade Balance (Million $) -1862 1304Exports (% increase in $ terms) 10.7 11.1Imports (% increase in $ terms) 6.1 3.6Current Account Balance (Million $) -1695 -1260(As % of GDP) (2.8) (1.9)Monetary Sector (%)Rate of Inflation (CPI) 3.4* 4.5Money Supply (M2) 4.9** 9.0============================================================* — July 1999-April 2000** — Unit 6th May, 2000a — GDP growth will be 4.9 percent in case the wheat output is 21 million tonnes.b — Agriculture growth will be 7.1 percent in case wheat production|
The Economic Survey released by the Economic Adviser’s Wing of the Finance Division on 15th June, 2000 is a kind of a repository of material on economic developments during 1999-2000.
……….The performance of the economy, according to the Survey, was mixed during the year. GDP growth rate was estimated at 4.5 percent as against 3.2 percent last year and a target of 5.0 percent fixed in the beginning of the year. Modest recovery in growth was attributable to an impressive turnaround in the agriculture sector which grew by 5.5 percent as compared to 1.9 percent last year. Bumper cotton and wheat crops and a reasonably good rice crop helped to attain a much higher level of growth in this sector. The performance of manufacturing in general and large scale in particular was weak as they grew by only 1.6 percent and 0.04 percent respectively. This was mainly due to the steep decline (-24%) in sugar production. There was, however, a slight pick-up in the services sector.
……….Money supply which was projected to grow by 9.4 percent increased by only 3.2 percent during July-March, 2000 compared to the rise of 3.5 percent in the corresponding period last year. Though there was not much difference in overall growth of liquidity during the two years, there was a reversal of roles in the contributory factors. Contrary to the previous year, government sector played a major role in expanding the monetary assets during the current year while growth in the private sector credit was much less than envisaged in the Credit Plan.
A lower expansion in liquidity coupled with larger availabilities due to higher growth in GDP and increased flow of imports softened the price pressures further. Inflation, as measured by the Consumer Price Index, declined to 3.4 percent during July, 1999 – April, 2000 as against 6.1 percent in the comparable period of last year. Another positive development was a reasonable increase in the total investment outlay from Rs. 436 billion last year to Rs. 476 billion during 1999-2000, showing an improvement of 9.3 percent. Developments in the external sector like narrowing of current account deficit, a comfortable level of foreign exchange reserves and stability in the exchange rate have also been cited as good examples of sound economic management.
Economic Survey recognises that there are some weak areas which would require serious attention in the short-to-medium term. Foremost among them is the issue of public finance which has become a major source of economic imbalance. The current size of the budget deficit estimated at 5.8 percent of GDP in 1999-2000, is not sustainable. As expenditures are more or less inflexible, major effort for fiscal adjustment has to come from revenue raising measures, with focus on taxation. Another area which would require attention is restoring investors’ confidence. The authors of the Survey feel that this is vital to achieve higher and sustainable growth. They have also given due importance this year to arrest the increasing trends in poverty, the incidence of which has increased in the 1990s.
A thorough reading of the Survey, despite its subdued tone, reveals that the economy of the country continues to be plagued by major maladies. The growth rate which was 6.0 percent in the 1980s has deteriorated to levels which are not sufficient to increase the per capita income in a significant way. Therefore, prospects of a bright future for vast majority of people are dim. The country also continues to face the twin challenges of disequilibrium in the balance of payment and budget deficit. For whatever reasons, the author of the Survey have not given due importance to the negative developments in the external sector but they are there and have to be faced. Increase in exports has been described as a major achievement but factors like increased trade deficit during the year, a substantial draw-down in foreign exchange reserves in the last few weeks and the mounting pressure on the exchange rate have been conveniently ignored. The capacity of the country to be current on its obligations would be tested to its limit after the rescheduling period is over. We could face the possibility of default and disruption in normal flow of foreign trade but the authors of the Survey seem to be overly optimistic about the future. It is time that the planners in the government think seriously about and develop options to meet the growing threat in the external sector. Contrary to the expectations, the country was unable to make a reasonable degree of progress in the breathing space provided by the international community.
The Survey rightly recognises the need to restore investors’ confidence and reduce the incidence of poverty but nothing concrete has been done in this regard. In fact, investors’ confidence has been reduced to new lows because of the continuing tussle with HUBCO, the ongoing campaign of NAB, and the escalating tensions on the borders. Poverty, measured by any standard and seen everywhere, is also on the rise and should be a cause of great concern because of economic, social and above all humanitarian considerations. Steps often proposed by the government usually prove to be of marginal help in this respect if they are not accompanied by vibrant activity in the private sector, robust overall growth and a decline in the population growth rate.
Although the government is serious about bringing down the present level of budget deficit and has taken the right initiatives but the final outcome is not yet known. Much would depend on the attitude of the government. So far, it has resisted the pressure from vested interests but the battle, by no means, is over yet. The overall fiscal deficit as a ratio to GDP was reduced by only 0.3 percentage point during 1999-2000. It is obvious that Herculean efforts are still needed to be made to attain a sustainable level of fiscal deficit.
It is encouraging to note that top most functionaries of the government are aware of the numerous difficulties and the huge agenda the country is facing at present. The Finance Minister has struck at the right chord by saying in the foreword that the “economy is facing multidimensional challenges which include restoring investors’ confidence, re-invigorating growth, restoring macro-economic stability, reducing poverty, improving social indicators and improving governance.” He also knows that there are no quick solution to these challenges. The reconstruction of the economy is indeed a daunting task but the people of the country expect the present government to at least set it on the right track during its tenure. We hope that the contents of the Economic Survey, by spreading awareness among the public and policy makers about the problems, would help prepare the ground for the implementation of tough policies which are in store for this nation. Unfortunately, economic problems have climaxed at a time when the administrative structure is in disarray, mood of the international community is not that sympathetic and people at large are becoming increasingly impatient about the present state of the economy.
The total outlay of the budget 2000-2001 is Rs 698 billion, 8.7 percent higher than the budget estimates 1999-2000 and 4.7 percent higher than the revised estimates 1999-2000.
Following are the salient features of the budget 2000-2001.
-The resource availability during 2000-2001 has been estimated at Rs 700.2 billion showing an increase of 6.8 percent and 9.7 percent over budget estimates 1999-2000 and revised estimates 1999-2000 respectively.
- Net revenue receipts for 2000-2001 have been estimated at Rs 412.1 billion, which indicate an increase of 9.3 percent over the revised estimates 1999-2000 and decrease of 2.6 percent from the budget estimates 1999-2000.
-The capital receipts (net) for 2000-2001 have been estimated at Rs 78.0 billion, which indicates an increase of 76.8 percent over budget estimates 1999-2000 and 25.8 percent over revised estimates 1999-2000 respectively.
-The receipts from external resources in 2000-2001 are estimated at Rs 178.5 billion. This shows a decrease of 3.5 percent over the budget estimates for 1999-2000.
-The overall expenditure during 2000-2001 has been estimated at Rs 698.0 billion of which the current expenditure is Rs 577.6 billion, and development expenditure Rs 120.4 billion. Current expenditure shows a growth of 2.0 percent, and development expenditure a growth of 19.0 percent in budget estimates 2000-2001 over revised estimates 1999-2000.
-The share of current expenditure in total budgetary outlay for 2000-2001 is 82.8 percent as compared to 81.9 percent in budget and 84.9 percent in revised estimates for 1999-2000.
-The expenditure on running of civil government (including Rs 26.1 billion of military pensions shifted from Defence in 2000-01† is estimated at Rs 80.2 billion indicating increase of 66.0 percent over budget estimates 1999-2000 and 67.4 percent over revised estimates 1999-2000.
- -The provinces will get Rs 182.5 billion during 2000-2001 which is 32.3 percent and 28.3 percent higher than budget estimates 1`999-2000 and revised estimates 1999-2000 respectively.
- -The size of public sector development programme for 2000-2001 is Rs 120.4 billion. This shows an increase of 3.5 percent over the budget estimates for 1999-2000 and 19.7 percent over the revised estimates 1999-2000.
-The revenue receipts in budget 2000-2001, on gross basis are estimated at Rs 594.6 billion showing an increase of 14.5 percent over the revised estimates 1999-2000. The provincial share in taxes for 2000-2001 has been estimated at Rs 182.5 billion.
- -Tax revenue (CBR) projected at Rs 4356.7 billion, in budget estimates 2000-2001 indicates an increase of 23.9 percent as compared to revised estimates 1999-2000. The surcharges which were budgeted at Rs 63.3 billion in 1999-2000 decreased by 72.5 percent in the revised estimates 1999-2000. The collection of surcharge is expected to be Rs 38 billion in the budget estimates 1999-2000. Non-tax revenues have been projected at Rs 120.9 billion in 2000-2001 budget as compared to Rs 131.1 billion in revised estimates 1999-2000.
-Net capital receipts in the budget 2000-2001 have been estimated at Rs 78.0 billion showing an increase of 76.8 percent as compared with the budget estimates of Rs 44.1 billion in 1999-2000………..
- -Self-financing of PSDP by provinces during 2000-2001 has been estimated at Rs 31.6 billion.
- -The budget estimates 2000-2001 for external resources has been projected at Rs 178.5 billion, which is almost, equal to the revised estimates 1999-2000.
-The revised estimates for 1999-2000 on account of current expenditure have increased to Rs 565.4 billion from the budget of Rs 525.9 billion. For 2000-2001, the current expenditure has been estimated at Rs 577.6 billion, showing an increase of 2.2 percent over revised estimates 1999-2000.
-Debt servicing for 2000-2001 has been estimated at Rs 305.6 billion, indicating 2.6 percent decrease over revised estimates for 1999-2000 of Rs 313.7 billion. The domestic debt servicing is estimated to decrease by 4.6 percent, foreign debt servicing to increase by 8.9 percent and foreign loan repayments will decrease by 5.1 percent against the revised estimates of 1999-2000.
-The allocation made under the head running of civil government has increased by 66 percent in 2000-2001 (Budget) from 1999-2000 (Budget), mainly due to inclusion of military pensions of Rs 26.1 billion. This expenditure has further been divided into sub-heads of general administration, law and order, community services, social services and economic services. The budget estimates 2000-2001 as compared with revised estimates 1999-2000 under these sub-heads are explained here under.
-General administration which includes the head organs of state, fiscal administration, economic regulation, foreign affairs, statistics, Defence pensions and others has been provided with Rs 48.1 billion in 2000-2001 budget which is 126.9 percent higher than the revised estimates 1999-2000 because of addition of military pensions mentioned above.
-The allocation under law and order in the budget 2000-2001 has been projected at Rs 10.1 billion. This is 11.0 percent higher than the revised estimates for 1999-2000.
- -The allocation for community services in the Budget 2000-2001 is higher by 11.1 percent as compared to the revised estimates 1999-2000. Major increase has been in work, broadcasting services, scientific research and urban planning and regulatory services.
- -Expenditure on social services has been placed at Rs 11.8 billion. Education, health, population planning and sports and recreation have increased allocations as compared with the revised estimates 1999-2000.
-Grants to provinces and local authorities have been projected at Rs 44.2 billion in budget estimates 2000-2001 as against the 1999-2000 revised estimates of Rs 41 billion.
- -The Federal Government provides different subsidies to achieve socio-economic objectives. In the budget estimates 2000-2001, the allocation for subsidies has been kept at Rs 11.8 billion as compared to Rs 14.4 billion in the revised estimates 1999-2000.
- -Total gross loans and advances, both current and development, have been placed at Rs 66.9 billion in 2000-2001 (budget).
- -The total loans under this category during 2000-2001 are estimated at Rs 5.7 billion as against Rs 4.2 billion in the revised estimates 1999-2000.
-Development loans and advances are made to provinces including government of Azad Jammu & Kashmir, financial/non-financial institutions, local bodies and others to assist them in carrying out their development efforts by meeting development financial requirements. Total loans are placed at Rs 61.2 billion in the budget 2000-2001.
- -Development loans and advances by the federal government reduced to Rs 21.0 billion in budget estimates 2000-2001 from Rs 32.8 billion in revised estimates 1999-2000, showing a decrease of 36 percent.
- -External loans reduced to Rs 40.2 billion in budget estimates 2000-2001 from Rs 49.5 billion in revised estimates 1999-2000, showing a decrease of 18.8 percent.
-Federal miscellaneous investment in 2000-2001 has decreased from last year’s budget allocations. The investment for the year 2000-2001 has been estimated at Rs 2.3 billion as compared to Rs 3.4 billion for the year 1999-2000 budget. The revised estimates have increased due to equity investment of Rs 36.4 billion in Wapda.
- -The government investment of capital account has increased significantly from the last year. The investment for the year 2000-2001 budget is estimated at Rs 4.3 billion as compared to Rs 2.4 billion for the year 1999-2000 (revised).
|………. Federal Budget 2000-01 at a glance
|================================================================================= (Rs Billion) 2000-01 2000-01 RECEIPTS BUDGET EXPENDITURE BUDGET=================================================================================1. NET REVENUE RECEIPTS 412.1 7. CURRENT EXPENDITURE 577.6A) TAX REVENUE 435.7 – Running of Civil Government 80.2- Taxes on Income and Wealth 137.5- Taxes on Commodities and – Defence 133.5 Transactions 298.2B) NON TAX REVENUE 120.9 – Subsidies 11.8- Income from Property & Enterprises 71.1- Receipts from Civil Administration – Debt Servicing 305.6 and Miscellaneous 49.8C) SURCHARGES 38.0 – GRANTS 44.2- Natural Gas 15.0- Petroleum 23.0 – Unallocable 2.3D) GROSS REVENUE RECEIPTS 594.6 8. DEVELOPMENT EXPENDITURE 120.4- Less Provincial Share in Taxes 182.5 i) Federal Government 75.7E) NET REVENUE RECEIPTS 412.1 – Federal Ministers/Divisions 39.6 – Corporations 30.5 – Special Programme 5.62. NET CAPITAL RECEIPTS (a-b) 78.0(a) Receipts 98.9(b) Disbursement 20.9 ii) Provincial Programmes 44.73. EXTERNAL RESOURCES 178.5 – Punjab 21.1i) Project Aid 41.6ii) Non Project Aid 137.0 – Sindh 8.94. SELF-FINANCING OF PSDP 31.6 – NWFP 8.8BY PROVINCES – Balochistan 5.95. CREDIT FROM BANKING SECTC -2.26. TOTAL RESOURCES (1 TO 5) 698.0 9. TOTAL EXPENDITURE (7+8) 698.0=================================================================================|
Since the late 1980s Pakistan has pursued a program of market-oriented economic adjustment, reform and development, including strong encouragement of foreign direct investment.
Supported by the international financial institutions and bilateral donors, this program has aimed at enhancing macroeconomic stability, instituting structural reforms to promote private sector-and export-led industrial development, and reversing past neglect of key social sectors such as health, education and population planning.
Pakistan has made considerable progress under this program, but the process has not been entirely even, and key challenges remain for its $60 billion economy. Specifically, governments have sought to reduce fiscal and external imbalances, reduce trade barriers, modernize the financial sector, privatize state-owned industries, reform the tax system, encourage private investment in the critical energy sector, and offer specific incentives to attract foreign investment, which is considered critical to the overall development effort. Moreover, governments from all the main political parties support these reformist, market-oriented policies. These efforts have enjoyed generous support from the IMF, in the form of an Enhanced Structural Adjustment Facility approved in January 1999.
Various problems have kept Pakistan’s progress below its potential. Floods, drought and pests hurt agricultural output in the early 1990s, and in the current fiscal year as well. Domestic political instability throughout the Bhutto administration and sporadic ethnic and sectarian violence under the caretakers and the government of Nawaz Sharif, who was elected February 3, 1997, have stunted foreign investment. And finally, policy inconsistency and weak implementation have, along with reports of improper official influence in business and economic decisions, dampened investor interest and economic growth in Pakistan.
Pakistan’s mixed economic performance reflects the interplay of these positive and negative trends. Real economic growth has been positive, but below government targets. Real GDP grew 1.3 percent in 1996-97, and 4.3 percent in 1997-98. In FY 1998-99, GDP growth is expected to improve to 3.1 percent against a target of 6.0 percent. Recent annual consumer inflation of 6-8 percent has been moderated to match historically modest single-digit rates. In 1998-99, however, consumer inflation is projected at 6.1 percent. Fiscal slippages have led to difficulties in completing the IMF programs, however, Pakistan has been able to maintain an acceptable record with foreign creditors. New investment inflows, both portfolio and direct, at an all-time high in 1995-96, have nevertheless dropped substantially this year.
Poverty remains a serious problem in Pakistan. Average per capita income was only $448 in 1998-99, and income and wealth are not equitably distributed. Given the low rate of GDP growth, per capita income will be flat or decline slightly this year. The population of 134 million is growing at almost 2.6 percent per year. While Pakistan’s economic fortunes remain closely linked to cotton and the textile products, the government has made some progress in diversifying the economy, and is committed to improving the quality of life for poorer citizens through the Social Action Program, a multi-year effort to raise education, health and sanitation standards.
There are significant possibilities for U.S. and other foreign suppliers and investors in Pakistan. However, realizing these opportunities will require sound economic policies by the government as well as actions to improve political stability and better develop human resources.
After growing at an average rate of over 6 percent per year from 1980 to 1991, real GDP growth has slowed in the 1990’s. Real GDP growth dropped to 1.3 percent in 1996-97 due to a poor cotton crop and related setbacks in the textile industry. In 1997-98 growth hit 4.3 percent against a target of 6.0 percent. Real GDP grew only by 3.1 percent in 1998-99.