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The economy of Pakistan
The economy of Pakistan
The economy of Pakistan
The economy of Pakistan is the 26th largest in the world in terms ofpurchasing power parity (PPP), and 42nd largest in terms of nominal Gross Domestic Product. As Pakistan has a population of over 186 million (the world's 6th-largest), thus GDP per capita is $3,149 ranking 140th in the world. Pakistan is a developing country[21][22][23] and is one of the Next Eleven, the eleven countries that, along with the BRICs, have a potential to become one of the world's large economies in the 21st century.[24] However, after decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway transportation and electric power generation had developed.[25] The economy is semi-industrialized, with centres of growth along the Indus River. Primary export commodities include textiles, leather goods, sports goods, chemicals and carpets and Rugs.Growth poles of Pakistan's economy are situated along the Indus River;[30]the diversified economies of Karachi and major urban centers in the Punjab, coexisting with lesser developed areas in other parts of the country.[27] The economy has suffered in the past from internal political disputes, a fast-growing population, mixed levels of foreign investment 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.[31] Pakistan is currently undergoing process economic liberalization with includes privatization of all government corporations, aimed to attract foreign investment and decrease budget deficit.[32] In 2014, foreign currency reserves crossed $15 billion which has led to stable outlook on the long-term rating by Standard & Poor's.Pakistan was a very poor and predominantly agricultural country when it gained independence in 1947. Pakistan's average economic growth rate in the first five decades (1947-1997) has been higher than the growth rate of the world economy during the same period. Average annual real GDP growth rates[35] 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. With a GDP growth rate of 6.8% during the 1960s, Pakistan was seen as a model of economic development around the world, and there was much praise for its economic progress. Karachi was seen as an economic role model around the world, and there was much praise for the way its economy was progressing.[citation needed] Many countries sought to emulate Pakistan's economic planning strategy and one of them, South Korea, copied the city's second "Five-Year Plan".[citation needed] 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 1970s and 1990s. The economy improved during the 1980s, with a GDP growth of 6.5%, a policy of economic deregulation, and an increased inflow of remittances fromexpatriate workers.This is a chart of trend of gross domestic product of Pakistan at market prices estimated[37] by the International Monetary Fund with figures in millions of Pakistani Rupees.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 characterised 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 a four-year (1998–2002) period —economic sanctions – according to Colin Powell, Pakistan was "sanctioned to the eyeballs";The global recession of 2001–2002;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 neighbouring Afghanistan, with a massive influx of refugees from that country;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.According to many sources, the Pakistani government has made substantial economic reforms since 2000,[39] 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 privatisation 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.Liberalisation in the international textile trade has already yielded benefits for Pakistan's exports, and the country also expects to profit from free 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 labour 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 licences for traders."The World Bank (WB) and International Finance Corporation's flagship report Ease of Doing Business Index 2010 ranked Pakistan 85 among 181 countries around the globe. Pakistan came highest in South Asia and also was ranked higher than China and Russia which were at 133. The top five countries were Singapore, New Zealand, the United States, Hong Kong and United Kingdom.The Government of Pakistan has 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 programmes for subsidising technical education, are intended there.
Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of Balance of Payment crisis. "The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to $11.3 billion from an initial $7.6 billion."During the mid-2000s, Pakistan experienced a period of tremendous growth, averaging 7% yearly GDP growth between 2003–07. Due to its large population of 186 million, it was included in 2005 by the as one of the "Next Eleven (N-11)" – a group of countries with economies that “might have the kind of potential for global impact that the BRICs projections highlighted, essentially an ability to match the G7 in size”.By October 2007, Pakistan raised back its Foreign Reserves to a handsome $16.4 billion. Exceptional policies kept Pakistan's trade deficit controlled at $13 billion, exports boomed to $18 billion, revenue generation increased to become $13 billion and attracted foreign investment of $8.4 billion.Since the beginning of 2008, Pakistan's economic outlook has stagnated. Security concerns stemming from the nation's role in the War on Terror have created great instability and led to a decline in Foreign Direct Investment from a height of approximately $8 bn to $3.5bn for the current fiscal year. Concurrently, the insurgency has forced massive capital flightfrom 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 than the previous 5 year average of 7%, it would represent an overcoming of the present crisis wherein growth is a mere 3.5-4%.[44]
In the first four years of the twenty-first century, Pakistan's KSE 100 Index was the best-performing stock market index in the world as declared by the international magazine “Business Week”.[47][citation needed] The stock market capitalisation of listed companies in Pakistan was valued at $5,937 million in 2005 by the World Bank.[48] But in 2008, after the General Elections, uncertain political environment, rising militancy along western borders of the country, and mounting inflation and current account deficits resulted in the steep decline of theKarachi Stock Exchange. As a result, the corporate sector of Pakistan has declined dramatically in recent times. However the market bounced back strongly in 2009 and the trend continues in 2011. By 2014 the stock market burst into unchartered territories as the benchmark KSE 100 Index rose 907 points (3.1%) and shot past the 30,000-point barrier to close at a new record high, this came days after Moody’s announced that it was upgrading the outlook of 5 major Pakistani banks from Negative to Stable, resulting in heavy buying in the banking sector. The rally was supported by heavy buying in the oil and gas and cement sectors.[49] An article published in The Journal of Developing Areas of Tennessee State University in USA, economist Mete Feridun investigates the exchange rate movements in the Pakistani foreign exchange market using the market micro structure approach, shedding more lights on the dynamics of the Pakistani Stock Exchange.Pakistan's manufacturing sector has experienced double-digit growth in recent years, from 2000 to 2007, with large-scale manufacturing growing from a minimal 1.5% in 1999 to a record 19.9% in 2004–05 and averaged 8.8% by end of 2007.The Federal Bureau of Statistics valued the finance and insurance sector at Rs.311,741 million in 2005 thus registering over 166% growth since 2000. A reduction in the fiscal deficit had resulted in less government borrowing in the domestic money market, lower interest rates, and an expansion in private sector lending to businesses and consumers.As of 2013, according to Macro Economic Insights, a research firm in Islamabad, the size of the Pakistani middle class is conservatively estimated at approximately 70 million, out of a total population of about 186 million. This represents 40% of the population of the country.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.[52] However, by 2013, the number of taxpayers was drastically reduced to just 768,000 out of a total population of 190 million, meaning that only 0.57% of the population pay taxes.Poverty levels have decreased by 10% since 2001[54] Foreign Companies which provide for Pakistani middle classes have been very successful. For example, demand for Unilever products have recently been so high that even after doubling production the Anglo-Dutch company struggled to meet demand and its chairman stated "Pakistanis can’t seem to have enough".Pakistan government spent over 1 trillion Rupees (about $16.7 billion) on poverty alleviation programmes during the past four years, cutting poverty from 35% in 2000–01 to 24% in 2006.[8] Rural poverty remains a pressing issue, as development there has been far slower than in the major urban areas.
With a per capita GDP of $9800 (PPP, 2013) in 2013 the World Bank considers Pakistan a Middle-income country, it is also recorded as a "Middle Development Country" on the Human Development Index 2015. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 56% 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 six most populous Asian nations. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult.[57] 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.Mean wages were $0.98 per manhour in 2009. Rate of unemployment is 15%.
High inflation and limited wage growth have drawn more women into the workforce to feed their families.[61]Faisal Mosque in the capital Islamabad.
Tourism in Pakistan has been stated as being the tourism industry's "next big thing".Pakistan, with its diverse cultures, people and landscapes has attracted 90 million tourists to the country, almost double to that of a decade ago. Due to threat of terrorism the number of foreigner tourist has gradually declined and shock of 2013 Nanga Parbat tourist shooting has terribly effected.Pakistan's tourism industry was in its heyday during the 1970s when the country received unprecedented amounts of foreign tourists, thanks to the Hippie trail. The main destinations of choice for these tourists were the Khyber Pass, Peshawar,Karachi, Lahore, Swat, Quetta, Gwadar and Rawalpindi.The tourism industry is still growing. The country's attraction range from the ruin of civilisation such as Mohenjo-daro, Harappa and Taxila, to the Himalayan hill stations, which attract those interested in winter sports. Pakistan is home to several mountain peaks over 7000 m, which attracts adventurers and mountaineers from around the world, especially K2. The north part of Pakistan has many old fortresses, ancient architecture and the Hunza and Chitral valley, home to small pre-Islamic AnimistKalasha community claiming descent from Alexander the Great. The romance of the historic Khyber Pakhtunkhwa province is timeless and legendary, Punjab province has the site of Alexander's battle on the Jhelum River and the historic city of Lahore, Pakistan's cultural capital, with many examples of Mughal architecture such as Badshahi Masjid, Shalimar Gardens, Tomb of Jahangir and the Lahore Fort. Before the Global economic crisis, Pakistan received more than 500,000 tourists annually. Karachi, Peshawar and Lahore are major attractions for authentic Pakistani food and culture.Although the country is a Federation with constitutional division of taxation powers between the Federal Government and the four provinces, the revenue department of the Federal Government, the Federal board of Revenue, collects almost 95% of the entire national revenue. The Federal Board of Revenue collected nearly two trillion rupees ($24 p .1 billion) in taxes in the 2007–2008 financial year,[63] while it collected about 1558 billion ($18.3 billion) during FY 2010–2011. The revenue collection has hovered below 1% of the GDP for the past several years. The Federal Board of Revenue mainly relies on indirect taxation, and most of the Income Tax is also collected indirectly, in the form of withholding tax.The basic unit of currency is the Rupee, ISO code PKR and abbreviated Rs, 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. 10, 20, 50, 100, 500, 1000 and 5000. The new notes have been designed using the euro technology and are made in eye-catching bright colours and bold, stylish designs.The Pakistani Rupee was pegged to the Pound sterling until 1982, when the government of General Zia-ul-Haq, changed it to managed float. As a result, the rupee devalued by 38.5% between 1982/83 many of the industries built by his predecessor suffered with a huge surge in import costs. After years of appreciation under Zulfikar Ali Bhutto and despite huge increases in foreign aid the Rupee depreciated.The Pakistani rupee depreciated against the US dollar until around the start of the 21st century, when Pakistan's large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan's central bank then stabilised by lowering interest rates and buying dollars, in order to preserve the country's export competitivenes.Pakistan maintains foreign reserves with State Bank of Pakistan. The currency of the reserves was solely US dollar incurring speculated losses after the dollar prices fell during 2005, forcing the then Governor SBP Ishrat Hussainto step down. In the same year the SBP issued an official statement proclaiming diversification of reserves in currencies including Euro and Yen, withholding ratio of diversification.Foreign exchange reserves.In October 2007, at the end of Prime Minister Shaukat Aziz’s tenure, Pakistan raised its foreign reserves back to $16.4 billion. Pakistan's trade deficit was at $13 billion, exports grew to $18 billion, revenue generation increased to become $13 billion and the country attracted foreign investment of $8.4 billion.However, following the international credit crisis and spikes in crude oil prices, Pakistan's economy could not withstand the pressure and on October 11, 2008, State Bank of Pakistan reported that the country's foreign exchange reserves had gone down by $571.9 million to $7749.7 million. The foreign exchange reserves had declined more by $10 billion to a level of $6.59 billion.In July 2011, the State Bank of Pakistan reported reserves to hit an all-time high of $18.25 billion. As of May 2014, the reserves have increased to over $12 billion. Pakistani reserves have increased 16 billion USD in March 2015, and are expected to reach 23 billion USD by the end of the year.
