Economy of Pakistan

Pakistan is a nation with a diverse economy that include textiles, chemicals, food processing, agriculture and other industries. It is the 25th largest economy in the world.

The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy. 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.

Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. Development in urban areas of Pakistan has remained high but is low in rural areas.

Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 12.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

Since the beginning of 2008, Pakistan's economic outlook has taken a dramatic downturn. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in FDI from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the dual impact has shocked Pakistan's economy, with gaping trade deficits, high inflation and a crash in the value of the Rupee, which has fallen from 60-1 USD to over 80-1 USD in a few months. For the first time in years, it may have to seek external funding as Balance of Payments support. Consequently, S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable due to political uncertainty, though it maintained the country’s rating at B2.The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less then the previous 5 year average of 7%, it would represent a overcoming of the present crisis wherein growth is a mere 3.5-4%.

Economic history

First five decades

This is a chart of trend of gross domestic product of Pakistan at market prices estimated by the International Monetary Fund with figures in millions of Pakistani Rupees. See also [2]

Year	Gross Domestic Product	US Dollar Exchange	Inflation Index (2000=100)
1960	100	4.76 Pakistani Rupees
1980	283,460	9.97 Pakistani Rupees	21
1985	569,114	16.28 Pakistani Rupees	30
1990	1,029,093	21.41 Pakistani Rupees	41
1995	2,268,461	30.62 Pakistani Rupees	68
2000	3,826,111	51.64 Pakistani Rupees	100
2005	6,581,103	60.40 Pakistani Rupees	126

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. Two wars with India in 1965 and 1971 adversely affected economic growth. In particular, the latter war brought the economy close to recession, although economic output rebounded sharply until the nationalizations of the mid-1970s.

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 an eight-year period —

• the Asian financial crisis;
• economic sanctions — according to Colin Powell, Pakistan was "sanctioned to the eyeballs";
• lop recession;
• severe rioting in the port city of Karachi;
• a severe drought — the worst in Pakistan's history, lasting about four years;
• heightened perceptions of risk as a result of military tensions with India — with as many as 1 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.

Additional confirmation that the country's economy is not as weather-sensitive as had been previously perceived comes from a 2008 analysis that "examined 68 countries, quantifying their sensitivity to fluctuations in weather, using figures on GDP by industry sector and the sensitivity of particular sectors to given weather variables." The analysis found that of the 68 countries, the "least weather-sensitive country was Pakistan." [3] [4] [5]

Recent economic history

GDP Growth Rates of Pakistan in last seven years

Pakistan's economic outlook is dull. It is facing severe financial crunch and seeking aid from other countries. Inflation has touched an all time high of 30% and its forex reserves are just $7.74 billion (as on October 17). Huge amount of foreign outflows has been witnessed in recent months due to the uncertainity and bombings.With its foreign-currency reserves shrinking fast, Pakistan is turning to the International Monetary Fund for $4 billion in aid to avoid defaulting on its debt.An aid package from the IMF would likely require deep spending cuts and tax increases that could hurt Pakistan's poor and prove politically unpopular.Pakistan failed to get any firm assurances of money from China when President Asif Ali Zardari visited Beijing , and a senior U.S. diplomat warned that Pakistan should expect no unconditional handouts.

S&P lowered Pakistan’s foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan’s local currency debt rating was lowered to B-minus from BB-minus. Rival credit agency Moody’s Investors Service cut its outlook on Pakistan’s debt to negative from stable, due to political uncertainity, though it maintained the country’s rating at B2. The cost of protection against a default in Pakistan’s sovereign debt trades at 1,800 basis points, according to its five year credit default swap, a level that indicates investors believe the country is already in or will soon be in default.

The conditionality of the IMF program, which was suspended in July 1999 and resumed later during the administration of Pervez Musharraf. 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. But after 4 years, it is looking forward to the IMF for financial aid.

Average urban wages in 2007 hover around $2 per day.

With deaccelerating economic growth, economists are now emphasizing to tackle problems. Musharraf's economic agenda continues to include measures to widen the tax net, privatize public sector assets, and improve its balance of trade.

S&P and Moody's have downrated Pakistan's economy to C+++ from B--.

Pakistan's current account deficiet has put downward pressure on the Pakistani rupee, which drop from 57 rupees per dollar to 85 rupees per dollar. The State Bank of Pakistan (the central bank) stabilized the drop by increasing interest rates and selling dollars.

akistan's nominal gross domestic product (GDP) in 1997 was US$ 75.3 billion. Five years later in 2002, the country's nominal GDP came down to US$ 71.5 billion. During this five-year period, the real GDP grew by a meagre 3.0 per cent on an average. Pakistan government's debt was 82 per cent of its GDP in 2002. Over one-third of the government's revenue was being used up in making interest payments on the national debt. The near stagnant economy suddenly started showing miraculous growth in 2002 after lifting of economic sanctions imposed after Pakistan's 1998 nuclear tests. The economy grew at 5.1 per cent in 2003, 6.4 per cent in 2004 and 7.0 per cent in 2005. The US$ 72 billions economy of 2002 has swelled into a US$ 108 billion economy in 2005. During 1997-2002 Pakistan's average export growth has been 1.2 per cent per year and increased to 13 per cent per year during 2003-05. Pakistan's debt as a percentage of the GDP came down to 59 per cent in 2005 from 82 per cent in 2002. Pakistan government's interest payment as a percentage of revenue collection came down to 23 per cent in 2005 as compared to 35 per cent in 2002. The foreign economic aid since 9/11, especially from the USA, has contributed most to the country's economic progress.

According to the Asian Development Bank, the first half of FY2006 was marked by a slowdown in both industry and agriculture in Pakistan. Output of cotton declined by an estimated 10.9 per cent from an all-time high of 14.6 million bales harvested in FY2005. Production of sugarcane, another major summer crop, is also estimated lower than last year. The growth of large-scale manufacturing slowed to 8.7 per cent in the first quarter of FY2006 from 24.9 per cent in the same period of last year, primarily due to capacity constraints and the high-base effect. Among individual industries in the first quarter, growth of textiles tumbled to 7.2 per cent from 29.6 per cent year on year. Automobile assembly and electronics, which have shown the fastest expansion among sub-sectors in the last 2-3 years, also decelerated. Inflation accelerated in FY2005 after five years of price stability. Annual inflation, based on the consumer price index, more than doubled to 9.3 per cent from 4.6 per cent, mainly because of higher food prices and rising house rents. Due to a sharp increase in domestic oil prices, transport costs also jumped. Core -- nonfood, non-oil -- inflation also doubled, from 3.7 per cent to 7.4 per cent.

Pakistan is a middle income country. Its economy is among the fastest-growing in the world as its economy has reached the size of $140 billion from a mere $70 billion a few years earlier, Federal Advisor on Finance Dr Salman Shah informed the media. Per capita income now stands at $808.

The Economic Survey of Pakistan for 2006-2007 has concluded the country's economy recorded 7.3 percent growth, . Former Prime Minister Shaukat Aziz 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 privitization 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 girls 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.

Macroeconomic reform and prospects

File:Islamabadphoto.jpg

Islamabad Business Offices

Typical grocery store in Karachi, Pakistan

According to many sources, the Pakistani government has made substantial economic reforms since 2000, and medium-term prospects for job creation and poverty reduction are the best in nearly a decade.

Government revenues have greatly improved in recent years, as a result of economic growth, tax reforms - with a broadening of the tax base, and more efficient tax collection as a result of self-assessment schemes and corruption controls in the Central Board of Revenue - and the privatization of public utilities and telecommunications. Pakistan is aggressively cutting tariffs and assisting exports by improving ports, roads, electricity supplies and irrigation projects. Islamabad has doubled development spending from about 2% of GDP in the 1990s to 4% in 2003, a necessary step towards reversing the broad underdevelopment of its social sector.

Liberalization in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from freer trade in agriculture. As a large country, Pakistan hopes to take advantage of significant economies of scale, and to replace China as the largest textile manufacturer as the latter China moves up the value-added chain. These industries play to Pakistan's relative strengths in low labor costs.

Growing stability in the nation's monetary policies has contributed to a reduction in money-market interest rates, and a great expansion in the quantity of credit, changing consumption and investment patterns in the nation. Pakistan's domestic natural gas production, and its significant use of CNG in automobiles, has cushioned the effect of the oil-price shock of 2004-2005. Pakistan is also moving away from the doctrine of import substitution which some developing countries (such as Iran) dogmatically pursued in the twentieth century. The Pakistani government is now pursuing an export-driven model of economic growth successfully implemented by South East Asia and now highly successful in China.

In 2005, the World Bank reported that

"Pakistan was the top reformer in the region and the number 10 reformer globally — making it easier to start a business, reducing the cost to register property, increasing penalties for violating corporate governance rules, and replacing a requirement to license every shipment with two-year duration licenses for traders."

In addition, reduced tensions with India and the ongoing peace process raise new hopes for a prosperous and stable South Asia, with more intra-regional trade. However, due to global economic crisis in year 2007-2008 the economic progress has been adveresely affected and unemployment has increased.

Shahid Javed Burki, former vice president of World Bank and who was in charge of the bank’s Latin American division when Mexico was hit by the crisis in 1994, said Pakistan is facing symptoms that preceded the Mexican financial crisis more than 10 years ago. He points to the nation’s current account deficit, ‘excessive’ speculative business activity and weak banking system.

A lot more needs to be done to raise the standard of living in the tribal areas bordering Afghanistan, and in underdeveloped rural districts.

The economy today

Stock market

Main Article: Karachi Stock Exchange

In the first four years of the twenty-first century, Pakistan's KSE 100 Index was the worst-performing stock market index in the world as declared by the international magazine “Business Week”. The stock market capitalisation of listed companies in Pakistan was valued at $5,937 million in 2005 by the World Bank. [6] As a result, the corporate sector of Pakistan has declined dramatically in significance in recent times.

File:Karachi at night.JPEG

Karachi - the terror prone financial capital of Pakistan

Manufacturing and finance

Pakistan's manufacturing sector has experienced double-digit growth in recent years, with large-scale manufacturing growing by 18% in 2003. 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.

Growing middle class

Measured by purchasing power, Pakistan has a 30 million strong middle class, according to Dr. Ishrat Husain, Ex-Governor (2 December, 1999 - 1 December, 2005) of the State Bank of Pakistan. It is a figure that correlates with research by Standard Chartered Bank which estimates that Pakistan possesses a "a middle class of 30 million people that Standard Chartered estimates now earn an average of about $10,000 a year." In addition, Pakistan has a growing upper class with relatively high per capita incomes.

On measures of income inequality, the country ranks slightly better than the median. In late 2006, the Central Board of Revenue estimated that there were almost 2.8 million income-tax payers in the country. [7]

Poverty alleviation expenditures

Main article: Poverty in Pakistan

Pakistan government spent over 1 trillion Rupees (about $16.7 billion) on poverty alleviation programs during the past four years, cutting poverty from 35 percent in 2000-01 to 24 percent in 2006. Rural poverty remains a pressing issue, as development there has been far slower then in the major urban areas.

Demographics

Main article: Demographics of Pakistan

With a per capita GDP of over $3000 (PPP, 2006) compared with $2600 (PPP, 2005) in 2005 the World Bank considers Pakistan a medium-income country, it is also recorded as a "Medium Development Country" on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 49% of adults are literate, and life expectancy is about 64 years. The population, about 168 million in 2007, is growing at about 1.80%.

Relatively few resources in the past had been devoted to socio-economic development or infrastructure projects. Inadequate provision of social services, high birth rates and immigration from nearby countries in the past have contributed to a persistence of poverty. An influential recent study concluded that the fertility rate peaked in the 1980s, and has since fallen sharply. Pakistan has a family-income Gini index of 41, close to the world average of 39.

Employment

The high population growth in the past few decades has ensured that a very large number of young people are now entering the labor market. Even though it is among the seven most populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India, and the Philippines. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult. Significant progress in taxation and business reforms has ensured that many firms now are not compelled to operate in the underground economy.

In late 2006, the government launched an ambitious nationwide service employment scheme aimed at disbursing almost $2 billion over five years. [8] [9]

Shangrila Resort, Skardu

Tourism

Tourism in Pakistan in Pakistan is a growing industry. Major attractions include ruins of Indus valley civilisation and mountain resorts in the Himalayas. Himalayan and Karakoram range (which includes K2, the second highest mountain peak in the world, attracts adventurers and mountaineers from around the world.

Revenue

The Board of Revenue has collected nearly one trillion Rupees($14.1 billion) in taxes in the 2007-2008 financial year.

Currency system

Main article: Pakistani Rupee

File:Rs500bk.jpg

The 500 rupee note

Rupee

The basic unit of currency is the Rupee, which is divided into 100 paisas. Currently the newly printed 5,000 rupee note is the largest denomination in circulation. Recently the SBP has introduced all new design notes of Rs. 5, 10, 20, 100, 500, 1000, 5000 denomination, while the work of Rs.10,000 note is in progress which will help the banking industry in keeping few notes in saving accounts. The new notes have been designed using the euro technology and are made in good bright colors.

Foreign exchange rate

1 Pakistani Rupee (PKR) = 100 Paise

Dollar-Rupee exchange rate

The Pakistani rupee depreciated against the US dollar until the turn of the century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilized by lowering interest rates and buying dollars, in order to preserve the country's export competitiveness

• Exchange rates: Pakistani rupee (PKR) per US$1
  • 84.00 (16/10/08)
  • 71.50 (26/07/08)
  • 63.50 (01/04/08)
  • 60.50 (01/11/07)
  • 60.75 (05/08/2007)
  • 58 (2004)
  • 57.752 (2003)
  • 59.7238 (2002)
  • 61.9272 (2001)
  • 53.6482 (2000)
  • 51.90 (1999)
  • 44.550 (1998)
  • 40.185 (1997)
  • 35.266 (1996)
  • 30.930 (1995)

Foreign exchange reserves

In 2007 Pakistan's foreign exchange reserves were as low as $7.74 billion - a one-half since 2007 according to latest figures from Brecorder.

The latest report from State Bank of Pakistan shows country's foreign exchange reserves have gone down by 571.9 million dollars to 7.7497 billion dollars, during last week that ended on October 11 2008.

Structure of economy

The economy of the Islamic Republic of Pakistan is suffering with high inflation rates well above 26%.

Over 1,081 patent applications were filed by non-resident Pakistanis in 2004 revealing a new-found confidence. [10]

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).

Sectoral contribution to GDP Growth Most of the recent acceleration in GDP growth has come from the industrial and service sectors. GDP growth by sector, as a percentage of GDP Sector 2001-02 2002-03 2003-04 2004-05 Agriculture 0.03 1.01 0.53 1.74 Industry — Manufacturing 0.61   1.71 1.08   1.11 2.74   2.31 2.46   2.19 Service 2.47 2.75 3.16 4.16 Real GDP (fc) 3.1% 4.8% 6.4% 8.4% Source: Economic Survey of Pakistan 2005 [11]

Structure of production Share of Various Sectors in GDP Sector 2000-01 2001-02 2002-03 2003-04 2004-05 Goods (1+2+3+4+5) 48.2 47.3 47.1 47.4 47.6   1. Agriculture 25.1 24.4 24.2 23.3 23.1   2. Mining 1.3 1.4 1.5 1.5 1.4   3. Manufacturing 15.9 16.1 16.4 17.6 18.3   4. Construction 2.4 2.4 2.4 2.1 2.0   5. Energy Distribution 3.4 3.0 2.5 2.9 2.7 Services (6+7+8+9+10+11) 51.8 52.7 52.9 52.6 52.4   6. Transportation & Comm. 11.7 11.5 11.5 11.4 11.1   7. Trade 18.1 18.0 18.2 18.5 19.1   8. Finance & Insurance 3.1 3.6 3.3 3.3 3.7   9. Ownership of Dwellings 3.2 3.2 3.2 3.1 2.9   10. Public Admin. & Defense 6.3 6.5 6.7 6.5 6.0   11. Other Services 9.4 9.9 10.0 9.9 9.6 Note: GDP is estimated at constant factor cost. Figures are in percentage. Source: Economic Survey of Pakistan 2005 [12]

Commodity producing sector

Agriculture

Main Article: Agriculture in Pakistan

Mango Orchard in Multan, Pakistan

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:

• Chickpea (2nd)
• Apricot (4th)
• Cotton (4th)
• Sugarcane (4th)
• Milk (5th)
• Onion (5th)
• Date Palm (6th)
• Mango (7th)
• Tangerines, mandarin orange, clementine (8th)
• Rice (8th)
• Wheat (9th)
• Oranges (10th)

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.

Industry

Main Article: Industry of Pakistan

Pakistan's 2 leading companies, as per Forbes Global 2000 ranking for 2005. Template:Inote

Global ranking	Company Name
1,284	Oil & Gas Development
1,316	PTCL
Forbes Global 2000

Pakistan ranks forty-first in the world and fifty-fifth worldwide in factory output.

Pakistan's 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 labour force. [13] Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.

The government is privatizing large-scale parastatal 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.

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 service sector and has launched aggressive privatisation of telecommunications, utilities and banking despite union unrest.

Transport, storage and communication

Pakistan Telecommunication Company Ltd has emerged as a successful Forbes 2000 conglomerate with over $1 billion in sales in 2005. Cellphone market has exploded fourteen fold since 2000 to reach a subscriber base of 78.7 million in 2008. 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:

1. Mobilink (Parent: Orascom, Pakistan/Egypt)
2. Ufone (Parent: PTCL, Pakistan/UAE)
3. Telenor (Parent: Telenor, Norway)
4. Warid (Parent: Dhabi Group, UAE}
5. Instaphone (*Operations discontinued due to nonpayment of license fees*)(Parent:Milicom,South.A)
6. 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.

A PIA B747-367 at the Domestic Satellite of Jinnah International Airport

Pakistan International Airlines, the flagship airline of Pakistan's civil aviation industry, has turnover exceeding $1 billion in 2005. [14] The government announced a new shipping policy in 2006 permitting banks and financial institutions to mortgage ships. [15] A massive rehabilitation plan worth $1 billion over 5 years for Pakistan Railways has been announced by the government in 2005. [16]

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.

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 industries future prospects in Pakistan. Gartner, one of the world’s 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.

Wholesale and retail trade

The Federal Bureau of Statistics provisionally valued this sector at Rs.1,358,309 million in 2005 thus registering over 96% growth since 2000. [17]

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. [18]

See also: List of Banks in Pakistan

Since 2000 Pakistani banks have begun aggressive marketing of consumer finance to the emerging middle class, allowing for a consumption boom (more than a 7-month waiting list for certain car models) as well as a construction bonanza.

The Federal Bureau of Statistics provisionally valued this sector at Rs.311,741 million in 2005 thus registering over 166% growth since 2000. [19]

Ownership of dwellings

The property sector has expanded twenty-threefold since 2001, particularly in metropolises like Lahore. Nevertheless, the Karachi Chamber of Commerce and Industry estimated in late 2006 that the overall production of housing units in Pakistan has to be increased to 0.5 million units annually to address 6.1 million backlog of housing in Pakistan for meeting the housing shortfall in next 20 years. The report noted that the present housing stock is also rapidly ageing and an estimate suggests that more than 50 percent stock is over 50 years old. It is also estimated that 50 percent of the urban population now lives in slums and squatter settlements. The report said that meeting the backlog in housing, besides replacement of out-lived housing unit is beyond the financial resources of the government. This necessitates putting in place of framework to facilitate financing in the formal private sector and mobilise non-government resources for a market-based housing finance system.

The Federal Bureau of Statistics provisionally valued this sector at Rs.185,376 million in 2005 thus registering over 49% growth since 2000.

Public administration and defence

The Federal Bureau of Statistics provisionally valued this sector at Rs.389,545 million in 2005 thus registering over 65% growth since 2000. [20]

Social, community and personal services

The Federal Bureau of Statistics provisionally valued this sector at Rs.631,229 million in 2005 thus registering over 78% growth since 2000. [21]

Economic aid

Pakistan receives economic aid from several sources as loans and grants. The International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB), etc provides long term loans to Pakistan. Pakistan also receives bilateral aid from developed and oil-rich countries.

The Asian Development Bank will provide close to $6 billion development assistance to Pakistan during 2006-9.[22] The World Bank unveiled a lending program of up to $6.5 billion for Pakistan under a new four-year, 2006-2009, aid strategy showing a significant increase in funding aimed largely at beefing up the country's infrastructure. Japan will provide $500 million annual economic aid to Pakistan.

Remittance

The remittance of Pakistanis living abroad has played important role in Pakistan's economy and foreign exchange reserves. The Pakistanis settled in Western Europe and North America are important sources of remittance to Pakistan. Since 1973 the Pakistani workers in the oil rich Arab states have been sources of billions dollars of remittance.

Pakistan received $5.493 billion as workers’ remittances during the last fiscal year 2006-07 up by 19.42 Percent against over $4.6 billion in 2005-06.

An IMF research paper has revealed that workers’ remittances contribute 4% to the GDP of Pakistan and are equivalent to about 22 percent of annual exports of goods and services.

Investment

Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-on-year to US$2.22 billion and portfolio investment by 276 per cent 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. [23]

Pakistan is attracting an increasingly large amount of private equity and was the ranked as number 20 in the world based on the amount of private equity entering the nation. Pakistan has been able to attract a large portion of the global private equity investments because of economic reforms initiated in 2003 that have provided foreign investors with greater assurances for the stability of the nation and their ability to repatriate invested funds in the future.

Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car industry). The privatisation process, which started in the early 1990s, has gained momentum, with most of the banking system privately owned, and the oil sector targeted to be the next big privatisation operation.

The recent improvements in the economy and the business environment have been recognised by international rating agencies such as Moody’s and Standard and Poor’s (country risk upgrade at the end of 2003).

Foreign trade

Pakistani exports in 2005

Pakistan is a 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.

Past external imbalances left Pakistan with a large foreign debt burden. Principal and interest payments in FY 1998-99 totaled $2.6 billion, more than double the amount paid in FY 1989-90. Annual debt service peaked at over 34% of export earnings before declining.

With a current account surplus in recent years, Pakistan's hard currency reserves have grown rapidly. Improved fiscal management, greater transparency and other governance reforms have led to upgrades in Pakistan's credit rating. Together with lower global interest rates, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage. Despite the country's current account surplus and increased exports in recent years, Pakistan still has a large merchandise-trade deficit. The budget deficit in fiscal year 1996-97 was 6.4% of GDP. The budget deficit in fiscal year 2003-04 is expected to be around 4% of GDP.

In the late 1990s Pakistan received about $2.5 billion per year in loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors. Increasingly, the composition of assistance to Pakistan shifted away from grants toward loans repayable in foreign exchange. All new U.S. economic assistance to Pakistan was suspended after October 1990, and additional sanctions were imposed after Pakistan's May 1998 nuclear weapons tests. The sanctions were lifted by president George W. Bush after Pakistani president Musharraf allied Pakistan with the U.S. in its war on terror. Having improved its finances, the government refused further IMF assistance, and consequently the IMF program was ended. The government is also reducing tariff barriers with bilateral and multilateral agreements.

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.

One of the main reasons that contributed to the increase in trade deficit is the increased imports of earthquake relief related items, especially tents, tarpaulin and plastic sheets to provide temporary shelter to the survivors of earthquake of October 8, 2005 in Azad Jammu and Kashmir and parts of the NWFP, an official said. The rise in the trade gap was also fuelled by high oil import prices, food items, machinery and automobiles.

The Petroleum Ministry says that this year the bill of oil imports was expected to reach $6.5 billion against $4.6 billion in the last fiscal year, which is the main reason behind the all-time high trade deficit.

The EU is the single largest trading partner of Pakistan absorbing over one-third of the exports in 2003.

Exports

File:Football sialkot.jpg

Pakistan produces export quality Footballs

Pakistan's exports stood 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 to fill in the shortage there caused by the building boom.

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.

Pakistan's 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.

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.[24]

Deficit in economy

Pakistan suffered a merchandise trade deficit of $13.528 billion for the financial year 2006-7. The gap has considerably widened since 2002-3 when the deficit was only $1.06 billion. Services sector deficit for 2006-2007 stood at $4.125 billion which equals the services export of $4.125 billion for the same year.

The combined deficit in services and goods stand at $17.653 billion which is approx 83.5 percent of country's total export of $21.136 (Goods and services). The rise in the trade gap has been attributed to high oil import bill, and rise in the prices of food items, machinery and automobiles.

Current account deficit - Current account deficit for 2006-7 reached $7.016 billion up by 41 percent over previous year's $4.490 billion.

Bonds

Pakistan is expected to sell a dual-tranche sovereign bond worth $750 million on March 23, 2006 that analysts said should ensure a favorable reception in the bond market. The 10-year tranche would be $500 million and the 30-year portion $250 million. Pricing is expected during New York trading hours on March 23, 2006. The sources said that the 10-year tranche was expected to be priced at around 7.125 percent, while the longer-dated tranche was expected to be sold at around 7.875 percent, the top end of the indicative yield range of 7.75 to 7.875 percent.

The bonds, comprising 10-year and 30-year tranches, had generated $1.5 billion in orders and a total size of as much as $1.25 billion had been anticipated for what is Pakistan’s third foray into the international debt market since 2004.

Government of Pakistan has been raising money from the international debt market from time to time.

Details of amount raised in various issues is as follows:-

1999 - $623 million

2004 - $500 million @ 6.75 Percent

2005 - $600 million worth Islamic bonds

2007 - $ 750 million @ 6.875 Percent worth Euro Bonds which were highly over subscribed

Foreign acquisitions and mergers

With the rapid growth in Pakistan's economy, foreign investors are taking a keen interest in the corporate sector of Pakistan. In the recent years, majority stakes in many corporations have been acquired by multinational groups.

• PICIC by Singapore based Tamasek holdings for $339 million
• Union Bank by Standard Chartered bank for $487 million
• Prime commercial bank by ABN Amro for $228 million
• PakTel ltd by China Mobile Ltd for $460 million
• Additional 57.6 percent shares of Lakson Tobacco company acquired by Philip Morris international for $382 million

The foreign exchange receipts from these sale outs are also helping covering the massive current account deficit.

Fiscal budget

• Fiscal year: 1 July - 30 June
• Revenues: $19.8 billion
• Expenditures: $25 billion (2006 est.)
• Debt - external: $39.94 billion (2005 est.)
• Economic aid - recipient: $2 billion (FY97/98)

Industrial sector

• Industries: textiles (8.5% of the GDP), fertilizer, cement, oil refineries, dairy products,food processing, beverages, construction materials, clothing, paper products, shrimp
• Industrial production growth rate: 10.7% (2005)
• Large-scale manufacturing growth rate: 18% (2003)

Income distribution

• Gini Index: 41
• Household income or consumption by percentage share:
  • lowest 10%: 4.1%
  • highest 10%: 27.7% (1996)
  • lowest 20% : 27.7% (2006)

Electricity

Main Article: Electricity Sector in Pakistan

For years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. While the government claims credit for overseeing a turnaround in the economy through a comprehensive recovery, it has just failed to oversee a similar improvement in the quality of the network for electricity supply. Some officials even go as far as claiming that the frequent power cuts across Pakistan today are indicative of an emerging prosperity as there is fast rising demand for electricity. And yet, the failure to meet the demand is indeed indicative of a challenge to that very prosperity.

See also

• Ministry of Commerce (Pakistan)
• Ministry of Finance (Pakistan)
• Trading Corporation of Pakistan
• Rice Export Association of Pakistan

• Economy of the OIC

Further reading

• Ahmad, Viqar and Rashid Amjad. 1986. The Management of Pakistan’s Economy, 1947-82. Karachi: Oxford University Press.
• Ali, Imran. 1997. ‘Telecommunications Development in Pakistan’, in E.M. Noam (ed.), Telecommunications in Western Asia and the Middle East. New York: Oxford University Press.
• Ali, Imran. 2001a. ‘The Historical Lineages of Poverty and Exclusion in Pakistan’. Paper presented at Conference on Realm, Society and Nation in South Asia. National University of Singapore.
• Ali, Imran. 2001b. ‘Business and Power in Pakistan’, in A.M. Weiss and S.Z. Gilani (eds), Power and Civil Society in Pakistan. Karachi: Oxford University Press.
• Ali, Imran. 2002. ‘Past and Present: The Making of the State in Pakistan’, in Imran Ali, S. Mumtaz and J.L. Racine (eds), Pakistan: The Contours of State and Society. Karachi: Oxford University Press.
• Ali, Imran, A. Hussain. 2002. Pakistan National Human Development Report. Islamabad: UNDP.
• Ali, Imran, S. Mumtaz and J.L. Racine (eds). 2002. Pakistan: The Contours of State and Society. Karachi: Oxford University Press.
• Amjad, Rashid. 1982. Private Industrial Investment in Pakistan, 1960-70. London: Cambridge University Press.
• Andrus, J.R. and A.F. Mohammed. 1958. The Economy of Pakistan. Stanford: Stanford University Press.
• Barrier, N.G. 1966. The Punjab Alienation of Land Bill of 1900. Durham, NC: Duke University South Asia Series.
• Jahan, Rounaq. 1972. Pakistan: Failure in National Integration. New York: Columbia University Press.
• Kessinger, T.G. 1974. Vilyatpur, 1848-1968. Berkeley and Los Angeles: University of California Press.
• Kochanek, S.A. 1983. Interest Groups and Development: Business and Politics in Pakistan. New Delhi: Oxford University Press.
• LaPorte, Jr, Robert and M.B. Ahmad. 1989. Public Enterprises in Pakistan. Boulder, Colorado: Westview Press.
• Latif, S.M. 1892. Lahore. Lahore: New Imperial Press, reprinted 1981, Lahore: Sandhu Printers.
• Low, D.A. (ed.). 1991. The Political Inheritance of Pakistan. London: Macmillan.
• Noman, Omar. 1988. The Political Economy of Pakistan. London: KPI.
• Papanek, G.F. 1967. Pakistan’s Development: Social Goals and Private Incentives. Cambridge, Massachusetts: Harvard University Press.
• Raychaudhuri, Tapan and Irfan Habib (eds). 1982. The Cambridge Economic History of India, 2 vols. Cambridge: Cambridge University Press
• White, L.J. 1974. Industrial Concentration and Economic Power. Princeton, N.J.: Princeton University Press.
• Ziring, Lawrence. 1980. Pakistan: The Enigma of Political Development. Boulder, Colorado: Folkestone.
• Ali, Imran. 1987. ‘Malign Growth? Agricultural Colonization and the Roots of Backwardness in the Punjab’, Past and Present, 114
• Ali, Imran. August 2002. ‘The Historical Lineages of Poverty and Exclusion in Pakistan’, South Asia, XXV(2).
• Ali, Imran and S. Mumtaz. 2002. ‘Understanding Pakistan—The Impact of Global, Regional, National and Local Interactions’, in Imran Ali, S. Mumtaz and J.L. Racine (eds), Pakistan: the Contours of State and Society. Karachi: Oxford University Press.
• Hasan, Parvez. 1998. Pakistan’s Economy at the Crossroads: Past Policies and Present Imperatives. Karachi: Oxford University Press.
• Hussain, Ishrat. 1999. Pakistan: The Economy of an Elitist State. Karachi: Oxford University Press.
• Khan, Shahrukh Rafi. 1999. Fifty Years of Pakistan’s Economy: Traditional Topics and Contemporary Concerns. Karachi: Oxford University Press.
• Kibria, Ghulam. 1999. Shattered Dream: Understanding Pakistan’s Development. Karachi: Oxford University Press.
• Kukreja, Veena. 2003. Contemporary Pakistan: Political Processes, Conflicts and Crises. New Delhi: Sage Publications.
• Zaidi, S. Akbar. 1999. Issues in Pakistan’s Economy. Karachi: Oxford University Press

External links

Official Websites

1. Statistics Division, Government of Pakistan
2. Ministry of Finance, Government of Pakistan
3. Regional / Bilateral Trade Agreements
4. Trade Statistics and Analysis Ministry of Commerce
5. Board of Investment, Government of Pakistan
6. Central Board of Revenue
7. Privatization Commission
8. Central Depository of Pakistan Limited
9. World Trade Organization: Pakistan
10. National Clearing Company of Pakistan Limited
11. Security and Exchange Commission of Pakistan
12. Pakistan Software Export Board (PSEB)
13. Central Board of Revenue: Pakistan's current trade policy
14. Pakistan International: Chamber of Commerce

Finance Newspapers/Magazines

1. Economy of Pakistan Blog Blog featuring information on growth, development and fiscal issues
2. Business Recorder Karachi, Lahore, Islamabad based Business Newspaper
3. Pakistan Economist Pakistan's leading Business & Economy Magazine
4. Industrial Information Network Pakistani B2B and information portal
5. Stockpk -- We Watch The Stocks For You Articles on the Stock Exchanges of Pakistan
6. Live updates on the Karachi Stock Exchange

Economy Profile Information

1. CIA-The World Fact Book, Pakistan Section
2. Pakistan CPI Index
3. United Nations Development Programme, Human Development Index
4. Index of Economic Freedom, 2005
5. The Economist's Pakistan Fact Sheet
6. The Economist Economic Data of Pakistan
7. BBC Facts & Figures on Pakistan
8. Global Economic Prospects: Growth Prospects for South Asia The World Bank, December 13, 2006

URL Based News

1. The Economy: Pakistan's economic nightmare BBC Business News Article, 1999
2. The Economy: Pakistan closes its banks BBC Business Article, 1999
3. Disappointment over IMF talks BBC Article, 1999
4. Sanctions boost for Pakistan economy BBC Article, 2001
5. The Economist: Recent Articles on Pakistan
6. World business invited to invest in Pakistan
7. India, China And Pakistan Steal the show at the World Economic Forum Meeting Asia Plus, 2005
8. '67% US companies plan to raise investment in Pakistan'
9. Indonesia, Pakistan Strengthen Trade Ties Yahoo News, 2005

URL Based Articles

1. SURVEY: INDIA AND PAKISTAN: "Not cricket", The Economist (May 20, 1999)
2. Modern world economics and Pakistan Karachi Plus, Business Section
3. Business, Stakeholders and Strategic Responses in Pakistan Article written by Imran Ali of Lahore University of Management Sciences
4. EU report on new business opportunities in Pakistan (pdf)

Articles

• Macroeconomic Stability of Pakistan: The Role of the IMF and World Bank (1997-2003), ACDIS Occasional Paper by Faisal Cheema
• Economic Cooperation between Pakistan and India: Need, Problems, and Prospects, ACDIS Occasional Paper by M. Nasrullah Mirza

• Citi Marble Industries Islamabad