pakistan's current economic situation

7/29/2019 Pakistan's Current Economic Situation

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Pakistans Current EconomicSituation

THE TOPICS

Economic Outlook

Agriculture Sector

Large Scale Manufacturing

Services External Sector

Trade Account

Fiscal Developments

Looking Forward


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ECONOMIC OUTLOOK

ECONOMIC OUTLOOK

Moderate but fragile recovery is underway followed byimprovement in key Macroeconomic indicators.

LSM activity is gathering pace despite energyshortages and production costs.

Fluctuations in inflation, reached 13.0% by Feb 2010.

Forex reserves rose to US$ 14.8 billion by endFeb2010 from US$ 6.8 billion in Oct 2008.


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ECONOMIC OUTLOOK

Fiscal deficit increased to 2.7% H1-FY10 due to.

Strong buildup of internal and external debt.Rising military spending to counter terrorism.To suppress energy sector circular debt logjam.Weak revenue generation.Lags in the receipts of coalition support funds.

Development spending increased by 69.6% duringH1-FY10.

ECONOMIC OUTLOOK

External account balance shows improvement duringJul-Feb 2010 period.

Current account deficit dropped from 6.8 to 2.2%.

Core inflation has not decreased as much.

Remittances saw a 17.7% YoY rise.


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ECONOMIC OUTLOOK

Inflationary pressures strengthened in the economy in

recent months.

All price indices exhibited sharp rise since Oct 2009.

Increase is due toRise in oil prices.Exchange rate pass through.Relatively higher international commodity prices of sugar, tea,

pulses, rice and crude oil.


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ECONOMIC OUTLOOK

Consumer Price Index (CPI) inflation first decreased to

8.9% in Oct 2009 then increased to 13.0% in Feb 2010.

Whole Sale Price Index (WPI) inflation rose to 19.3%YoY during Feb 2010 compared with 15.0 in Feb 2009.

Sensitive Price Indicator (SPI) has shown sharpincrease after dipping to the lowest level


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AGRICULTURE


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AGRICULTURE

Growth prospects remain weak as compared to strong

growth seen last year.

Negative contribution by two major crops Rice andSugarcane in FY2010.

Expected decline in wheat harvest.

Less area is being brought under cultivation due to

power outages and realization of lower prices of majorcrops.


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LARGE SCALE MANUFACTURING

LSM sector continued its upward trend in Q2-FY10due to rise in domestic demand.

Automobiles and allied industries have sharplyincreased production despite increase in prices.

Demand for steel and cement increased asconstruction activities revived.

Resource based industries like Textile and Sugarindustry presented a mixed picture.


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Major recovery was seen in consumer vehicle sector in

Jul-Jan FY10.

Reduction in import of cars further strengthened thelocal industry during Oct-Jan FY10.

The growth in textile manufacturing emanated fromGood cotton crop.Increased export opportunities due to weaker crop in US andChina.

Recovery in textiles related sales in advanced economies.


But sugar industry suffered heavily from raw materialshortages for the consecutive second year.

Energy imbalances are a great threat to consistent LSMgrowth.

Increase in the prices of electricity and gas increased cost ofproduction and sales can be greatly effected.

Manufacturers trying to reduce cost so that the burden is notthrown to the consumers.

Fertilizer production likely to remain strong in remainingmonths of FY10 as two new plants will start working by the yearend.


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SERVICES


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SERVICES

Like manufacturing and agriculture sector, services

sector appears well geared to achieve annual target of3.9%.

Whole sale and retail trade activities are likely tobenefit from recovery seen in commodity producingsector.

Transport sector also benefited from domestic and

international trade of commodities.

SERVICES

Finance and insurance sub-sector is likely to reboundfollowing the recovery in loan demand from privatesector.

Telecom earnings increased.

PTCL showed an increase of 1% in profit.

Cellular companies benefited from increase in cellularsubscribers, 3.4% increase.


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EXTERNAL SECTOR

Improvement in overall external accounts recordedduring Q1-FY10 could not be sustained in ensuingmonths.

Current account deficit decreased but financial inflowshave reduced as well.

External account deficit reduced due to lower quantumof imports and related freight costs.


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EXTERNAL SECTORWorkers remittances shows remarkable increase of 17.7%.

Net Foreign Investment has decreasedNFI recorded 45.9% YoY fall during Jul-Feb 2010 ascompared to 33.5% last year.

Direct Foreign Investment has decreased by 52.8% duringJul-Feb 2010.

Financial inflows revived to some extent following the

availability of IMF support for Pakistans macroeconomicstabilization program in November FY09

EXTERNAL SECTORImport bill reduced to 27.6% during Nov-Feb FY09against 37.6% during Nov-Feb FY08.

Rise in remittances reduced current account deficit.

Current account deficit reduced to 13.8%

Financial inflows revived to some extent following theavailability of IMF support for Pakistans macroeconomicstabilization program in November FY09


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TRADE ACCOUNT

19.5% Trade Deficit

Recorded during Jul-Feb, FY10


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TRADE ACCOUNT

Trade account deficit decreased due to.

8.2% YoY fall in import growth. Also there is a slight improvement in exports during Jul-Feb FY10.

Exports posted a modest growth of 2.7% YoY during Jul-Feb10.

Compression in import bill is attributed to decline in POLand non-POL imports.

Import growth contracted by 8.2% during Jul-Feb Fy10 ascompared to 1.5% YoY fall during the same period lastyear.

TRADE ACCOUNT

Imports are likely to grow faster than exports in theremaining months of FY10, thus keeping trade deficitunder pressure.

External debt has increased as US$ 4.7billion werefurther added.

Total external debts stands at US$ 55.8billion by theend of H1-FY10.


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TRADE ACCOUNT

Contraction may be moderated because of weakening of

exports

Due to..

International demand (decrease )

Global Economic Recession

Domestic Problems

However some believe


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FISCAL DEVELOPMENTS

Fiscal performance in second quarter better then first quarter

but overall fiscal position in H1-FY10 is poor.

This is due to increase in expenditure in power sectorsubsidies and security related expenses.

Revenue balance deficit increased by 1% of GDP.

Primary balance as percent of GDP turned into deficit of 0.7percent in H1-FY10

from a surplus of 0.4 percent during H1-FY09.

FISCAL DEVELOPMENTS

Fiscal performance in second quarter better then first quarterbut overall fiscal position in H1-FY10 is poor.

This is due to increase in expenditure power sector subsidiesand security related expenses.

Revenue balance deficit increased by 1% of GDP.

Primary balance as percent of GDP turned into deficit of 0.7percent in H1-FY10from a surplus of 0.4 percent during H1-FY09.


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FISCAL DEVELOPMENTS

Total revenue in H1- FY10 stood at Rs 909.9 billion; with a YoYincrease of 9.0 percent compared to 33.4 percent rise in H1- FY09.

Deceleration due to fall in tax and non- tax revenue collection.

Expenditures have increased due to defense spending andpower sector subsidies.

Current expenditure increased to Rs 1058.6 billion during H1-FY10, a 15.2% increase.

Current military spending Rs166.0 billion.


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LOOKING FORWARDAnticipated decline in value addition by major crops.

Expected recovery in manufacturing, strong reboundby construction sector to sustain growth.

Services sector will show further improvement.

No ease in inflation and improvement in exchange ratein near future.

Current account deficit will further reduce due toimproved exports and remittances.

LOOKING FORWARD

Fiscal deficit to remain high due to extraordinarydefense related spending and weak revenue collection.

Prospects of real GDP growth are better relative topreceding year.

People specially women are taking on jobs thusimproving growth in labor force.


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pakistan's current economic situation

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