lecture at islamabad policy research institute
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TRANSCRIPT
State of Pakistan Economy
1
Dr. Vaqar Ahmed23rd May 2014
Long term sources of
growth
Labour
Capital
Productivity
Short term drivers of growth
Energy
Water
Growth enablers
Political Governance
Institutions
Simplistic View – Pakistan Economy
19611966
19711976
19811986
19911996
20012006
20110
2
4
6
8
10
12%
Cha
nge
in R
eal G
DP
19601964
19681972
19761980
19841988
19921996
20002004
20082012
0
5
10
15
20
25
30
35
40
Pakistan South Asia
% o
f GD
P
Fixed Investment 1961 - 2012Economic Growth 1961-2012
19711974
19771980
19831986
19891992
19951998
20012004
20072010
0
5
10
15
20
25
30
35
Pakistan South Asia
% o
f GD
P
Gross Domestic Savings 1971-2011
20012002
20032004
20052006
20072008
20092010
20112012
0
5
10
15
20
25
Government RevenueGovernment Expenditure
% o
f GD
PFiscal Performance 2001-2012
Inflationary Pressures
2007 2008 2009 2010 2011 20120
5
10
15
20
25
PakistanSouth Asia
Cons
umer
Pri
ces
(% C
hang
e)
Pakistan had higher price levels in comparison to its neighbors. While South Asian economies also maintained high subsidies, however they were better targeted and prudently financed
Current Vs. Development Expenditure 2001-2012
20012003
20052007
20092011
02468
101214161820
Current ExpenditureDevelopment Expen-diture%
of G
DP
Debt servicing, defense, law & order have not allowed government’s current expenditures to come down. This also implied lesser expenditure availability for MDGs
Spending on Education & Health
20012002
20032004
20052006
20072008
20092010
20112012
0
0.5
1
1.5
2
2.5
3
Education SpendingHealth Spending
% o
f GN
P
Education and health expenditures are compromised first once current expenditures increase. The also impact longer run productivity of the economy
External Performance - I
19801983
19861989
19921995
19982001
20042007
2010
-15
-10
-5
0
5
10
15
20
25
30
Current account balanceExports of goods and servicesImports of goods and services
% o
f GD
P
External Performance - II
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16
Remittances
USD
Billi
on
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 201205
101520253035404550
External Debt Outstanding
USD
Billi
on
2007 2008 2009 2010 2011 2012-1000
0
1000
2000
3000
4000
5000
6000 Foreign Direct Investment
USD
Mill
ion
2005 2006 2007 2008 2009 2010 2011 20120
2
4
6
8
10
12
14
16 Net Forex Reserves
USD
Billi
on
Rising remittances and debt contribute to Dutch disease effect
Real Sector Outlook
Indicators 2012-13 (Provisional)
2013-14 (Projected)
Economic Growth (%)
GDP Growth 3.6 4.4
Agriculture 3.3 3.8
Manufacturing 3.5 4.5
Services 3.7 4.6
Investment and Savings (as percent of GDP) Investment 14.2 15.1
National Savings 13.5 14.0
Foreign Savings -0.7 1.1
Inflation (% Growth) 7.7 8.0
GNP Per Capita (PKR) 1368 1464
Source: Economic Survey of Pakistan and Planning Commission’s Annual Plan 2013-14
Fiscal Sector Outlook
Indicators 2012-13PKR Billion
2013 (July-Mar)PKR Billion
Total Revenue 2982 2477
Tax Revenue 2,199 1786
Total Expenditure 4,816 3289
Current Expenditure 3,660 2904
Interest 991 909
Defense 541 452
Development Exp. 1140 556
Fiscal Deficit 1834 812
Fiscal Deficit (% of GDP) 8.0 3.1
External financing 1676 -51
Domestic financing 1836 862
Source: Finance Division, Government of Pakistan
Balance of PaymentsIndicators 2012-13
USD Million2013-14 (Jul-Apr)
USD Million
Exports (fob) 24802 20550
Imports (fob) 40157 33372
Workers’ Remittances 13922 11570
Current account balance
-2496 -1574
Foreign Direct Investment
1456 862
Long term loans 2274 1833
Foreign Exchange Reserves
11,019 13132
Source: State Bank of Pakistan
2 month import bill available to provide for Letter of Credits, & imports for food,edible &crude oil
Monetary Sector Flows
Indicators 2012-13PKR Million
Up to 9th May ‘14PKR Million
Net Foreign Assets -263,300 236908
Net Domestic Assets 1,479,317 411369
Net Government Borrowing
1,479,183 199565
Credit to Private Sector -19,041 296441
Credit to Public Sector Enterprises
31,096 55093
Broad Money (M2) 1,216,017 648217
Percent Growth 15.91% 7.32%
Source: State Bank of Pakistan
• Three Year Under Extended Fund Facility (EFF), with focus
on structural reforms
• Access to 425 % of Quota; Amount $6.6 billion
IMF Program
• FDI in textile sector– Chinese example
• Critical question of energy supplies to energy
• Building value chains– Bangladesh example
Will GSP+ Deliver?
Structural ReformsShort-term
Kickstarting growth
Public investment
Taxation reforms
Private investment
Energy reforms
• Eliminating SROs and related exemptions
• Tax administration and human interference
• Debate on including new sources of income in the tax net
– Agriculture
– Services
– Capital and money markets
Taxation Reforms
• Correct energy prices
– To cover full cost of production
– To correct incentives for private sector
• Eliminate untargeted, hidden and cross subsidies
– Retain only for life line block
• Check technical losses and theft
– Transmission and distribution losses
– Kunda methods
Energy Reforms
• Restructuring liabilities and outstanding debt
• Empowering management with autonomy
– NBP and Finance Secretary [Conflict of Interest]
• Private participation in state enterprises
– Public Private Partnerships
– Privatization
Public Sector Enterprises
• Trade in goods (Afghanistan, China and India)
• Trade in services (Afghanistan and China)
• Trade in energy (Iran and India)
– Long term options (CASA-1000, TAPI)
Regional Trade
• Pakistan’s economy stabilized but structural reforms missing. The window of
opportunity may be short lived
• Growth now being financed by greater debt
• Implications of gift payments by Saudi government not known, Manage bond-related
debt, carefully spend proceeds for 3G/4G
• Improvement in the economic situation will also hinge on
o The Security Situation
o Electricity situation – as summer months peak
• If Pakistan manages to sustain reserves build up (2 month’s import cover) by June
2014 then conditions will improve in 2014-15 and beyond
• Pakistan can then start a program of economic revival and try to achieve 6 per cent
growth rate by 2016-17: Economy of Tomorrow Report
Way Forward
Long term sources of
growth
Labour
Capital
Productivity
Short term drivers of growth
Energy
Water
Growth enablers
Political Governance
Institutions
Simplistic View – Pakistan Economy