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1. ECONOMY OF PAKISTAN:
What Went Wrong & Why?

2. PAKISTAN’S ECONOMY
Historical Performance
Based on Key Economic Indicators

3. Macroeconomic Performance in Pakistan:
Historical Perspective
1960' 1970' 1980' 1990'
Growth (%)
s s s s
GDP 6.8 4.8 6.5 4.6
- Agriculture 5.1 2.4 5.4 4.4
- Manufacturing 9.9 5.5 8.2 4.8
- Services 6.7 6.3 6.7 4.6
Share (%) in GDP
Total Investment - 17.1 18.7 18.3
National Savings - 11.2 14.8 13.8
Total Revenue 13.1 16.8 17.3 16.9
Total Expenditure 11.6 21.5 24.9 24.1
Budget Deficit 2.1 5.3 7.1 6.9

4. Macroeconomic Performance in Pakistan:
Historical Perspective
Share (%) in GDP 1960's 1970's 1980's 1990's
Total Exports - - 9.8 13.0
Total Imports - - 18.7 17.4
Trade Deficit - - 8.9 4.4
Current Account Deficit - - 3.9 4.5
Human Resources/ Social Development
Un-employment Rate - - 1.4 5.7
Literacy Rate - - 29.5 40.7
Male - - 39.0 51.6
Female - - 18.7 28.6
Expenditure on
- - 0.8 2.3
Education
Expenditure on Health - 0.6 0.8 0.7

5. Relatively Recent
Macroeconomic Performance
Growth of GDP and Components (%)
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08
-2.0
-4.0
GDP - Agriculture - Manufacturing - Services

6. Relatively Recent Macroeconomic
Performance
Macro Imbalances relative to GDP
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08
Budget Deficit Trade Deficit Current Account Deficit

7. Relatively Recent Macroeconomic
Performance
Key Variables relative to GDP
25.0
20.0
15.0
10.0
5.0
0.0
00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08
Total Investment National Savings
Total Revenue Total Expenditure
Total Exports Total Imports

8. Economy of Pakistan: Relatively Recent Performance
Human Resources/ Social 00-01 01-02 02-03 03-04 04-05 05-06 06- 07-08
Development 07
Un-employment Rate 6.0 7.8 7.8 8.3 7.7 7.6 6.2 5.2
Literacy Rate 49.0 50.5 51.6 53.0 53.0 54.0 55.0 0.0
Male 58.0 0.0 0.0 0.0 65.0 65.0 67.0 0.0
Female 32.0 0.0 0.0 0.0 40.0 42.0 42.0 0.0
Expenditure on Education/ 1.6 1.9 1.7 2.1 1.0 1.9 2.4 2.3
GNP
Expenditure on Health/ GNP 0.7 0.7 0.7 0.6 0.6 0.5 0.6 0.6

9. Pressing Macroeconomic
Issues
• Four major concerns that haunted
the economy in 2008 were:
– Spiraling Inflation
– High (and widening) Fiscal
Deficit
• Re-emergence of Primary
Deficit
– High Trade Deficit and Rising
CAD
– Pressure on Currency and
Foreign Exchange Reserves

10. Pressing Macroeconomic
Issues
• Soaring Inflation
– Possible Causes
• Monetary Phenomenon (accommodating to generate
growth thru reduced cost of borrowing)
• Supply Constraints (sugar, wheat etc)
• Imported (POL, edible oil, other primary products)
• Adverse Expectations
– Possible Remedies
• Adopt Tight Monetary Stance – it may retard Growth
• Improve Supply Shortages; Better Storage Capacity
• Reduce Reliance on Imports – self-sufficiency,
conservation
• Transmit ‘right’ signals

11. Pressing Macroeconomic
Issues
• High Fiscal Deficit due to fiscal
indiscipline
– Expenditure over-runs leading to
abnormally high borrowings from SBP
• Huge subsidy payments for oil,
power, wheat, and fertilizer;
• Substantial increase in interest
payment on domestic debt – sheer
callousness and bad sequencing;
• Conscious policy inaction
– Shortfall in Revenue Collection

12. Pressing Macroeconomic
Issues
• High Trade Deficit and Rising CAD
– Poor export performance, paying price for
heavy reliance on textile;
– The export to import ratio declined from 56%
to 48%;
– Seven items -- POL, Edible Oil, Wheat,
Cotton, Fertilizer, Iron & Steel, and oil rigs
had additional cost of Rs. 477.4 Billion in the
overall imports of Rs. 2242.3 B till May over
last year. The rest of the import bill was just a
routine matter. Thus, the real concern and
policy action should have revolved around
these items only.

13. Pressing Macroeconomic
Issues
• Currency Depreciation and
Depletion of Foreign
Exchange Reserves
• Inability to generate external
financing due to deteriorating
rating
• Inability of SBP to intervene
• Speculators had a field day

14. Pressing Macroeconomic
Issues
• Serious Law and Order situation
on the domestic front
• Political unrest and transitional
phase of the government
• Serious energy crisis having
adverse impact on growth of
manufacturing sector
• Falling external demand due to
onset of recession in the west

15. Corrective Measures:
Natural or Otherwise
• Move towards fiscal discipline
– Reduction in Expenditure
– Withdrawal of Subsidies
– Policy Reversal in Taxation Policy
• Further tightening of Monetary Policy
• IMF Program once again
• Falling petroleum prices, Falling prices
of edible oil, other primary products
• Lots of PDL

16. Future Prospects
• Difficult period to continue for some
time to come
• Fiscal and Monetary Policies are
contractionary in nature, Growth
retarding.
• Manufacturing sector still facing high
cost of borrowing, reduced domestic
and foreign demand
• Slowdown in services sector
• Stabilization Program is mostly painful
with severe conditionalities*** End of Lec
2

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