Fiscal year 2005-06 proved to be a solid economic growth for Pakistan, according to its survey. This was consistent with the previous three years, despite the surging oil prices and devastating earthquake of Oct. 8, 2005, which caused extensive damages.
Pakistan’s economic growth, according to the survey, reflected a strong consumer spending and buoyant corporate sector, with per capita income rising to $847.
With a growth of 6.6 percent during the year, Pakistan’s economy grew at the rate of seven percent on aggregate during the previous four years, thus emerging as one of the fastest growing economies in the region.
The annual economic survey presents a comprehensive and balanced analysis of the country’s economy each year by covering all sectors of the economy. It analytically assesses the impact of government policies and reforms on the growth and development of the economy as well as focuses on microeconomic management and sectoral development.
Agriculture
Agriculture is the mainstay of Pakistan’s economy. Nearly 22 percent of total output (GDP) and 44.8 percent of total employment is generated in agriculture and further 45.9 percent of the country’s rural populace is directly or indirectly linked with it for their livelihood. It contributes substantially to the country’s exports. It contributes as a supplier of raw materials to industry as well as markets for industrial products.
Performance of the agriculture sector during the fiscal year has been relatively weak. Against the target of 4.2 percent and last year’s achievement of 6.7 percent, overall agriculture grew by 2.5 percent in 2005-06 due to a relatively weak performance of major crops and forestry.
Production of the two of the four major crops, cotton and sugarcane was less than the previous year due to many reasons including excessive rains at the time of sowing, high temperature at the flowering stage and inadequate availability of water. The wheat production remained more or less at the previous year’s level of 21.7 million tons with a 0.4 percent growth, failing to turn the negative growth in the major crop to a positive one. Minor crops accounting for 12.3 percent of the agriculture value added registered a growth of 1.5 percent in 2005-06.
Livestock sharing on one half of the agriculture value added registered an impressive growth of 8.8 percent on the back of a substantial increase in the population of species, milk etc. Though the production of cotton and sugarcane was estimated less, rice production registered an increase of 10.4 percent during the year.
Agriculture credit disbursement of 91.16 billion Pakistani rupees during July-March 2005 was higher by 23.5 percent. The fertilizer off-take was 6.1 percent higher as compared to the previous year.
Construction Sector
The construction sector continued a strong showing. Partly helped by activity in private housing market, spending on physical infrastructure and reconstruction activities in earthquake affected areas, it grew by 9.2 percent.
Services Sector
The service sector grew by 8.8 percent in 2005-06, which was attributable to a strong growth in finance and insurance sector, better performance of wholesale and retail trade as well as trade and communication sector. In fact services sector emerged as a new growth powerhouse. In real GDP terms, contribution of the services sector was two-third whereas one-third contribution came from agriculture and industry.
Manufacturing, Mining and Quarrying
Manufacturing sector continued to maintain its growth momentum with more vigor by recording an impressive and broad-based growth of 8.6 percent. Large scale manufacturing grew by nine percent, which included automobiles, engineering goods, leather, pharmaceuticals, electrical appliances and nonmetallic mineral products.
Investments
Domestic fixed investment grew by 30.7 percent. Private sector investment grew by 31.6 percent. Major growth private investments was in agriculture (15.3 percent), manufacturing (14.4 percent), mining and quarrying 45.5 percent, construction 9.5 percent, transport and communication 20.2 percent, wholesale and trade 424.5 percent. Public sector investment registered a massive growth of 46.7 percent. The growth in domestic sector investment was largely a public sector phenomenon in the previous year but in 2005-06 it was a public-private drive. Total investment increased to 20.2 percent of GDP, up by 1.9 percent as compared to the previous year.
Foreign direct investment (FDI) witnessed an increase of 238.7 percent in the first 10 months of the year surveyed, whereas net foreign investment stood at $3.376 billion.
Privatization
The privatization program maintained its pace during 2005-06 and succeeded in privatizing some high ticket items despite an inhospitable global environment. By the end of April 2006, Pakistan completed or approved privatization of public sector entities worth 985 billion rupees.
Poverty and Income Distribution
A poverty reduction strategy was launched by the government in 2001 in response to the rising trend of poverty in the country. Preliminary findings of the Pakistan Social and Living Standard Measurement Survey indicated that the poverty level in the country came down. As per the survey, the poverty level stood at 25.6 percent during the year as compared to 32.1 percent during the year as compared to 32.1 percent in 2001. More importantly, rural poverty declined more than its urban counterpart. The social sector and poverty related expenditure grew at an average rate of more than 20 percent per annum during 2001-05. There is nearly a threefold increase in the projected PRSP expenditure for 2006-07 when compared with actual expenditure of the base year 2001.
Fiscal Development
Pakistan gained further strength on fiscal side. Revenues were buoyant and expenditure was rationalized. Fiscal deficit remained at a sustainable level and revenue deficit had almost been eliminated. The central Board of Revenue (CBR) was targeted to collect 690 billion rupees but it was most likely to collect 710 billion rupees. Total expenditure remained more or less stable in a narrow band of 17 to 18.3 percent of GDP over the previous six years. Share of development expenditure doubled from 11 percent to 22 percent in the same period.
Total consolidated revenues were targeted at 1,095.6 billion rupees in 2005-06 compared to 900 billion rupees in 2004-05. This was primarily due to a rise in tax revenues. Size of fiscal deficit was estimated to be 4.2 percent of the GDP including the expenditure related to earthquake effects. The revenue expenditure gap was financed through external and domestic sources. Out of a gap of 327.3 billion rupees, financing from external sources was expected at 118.4 billion rupees. The remaining gap was likely to be financed from domestic sources. The public debt to GDP ratio declined to 54.7 percent of the projected GDP for the year, which stood at 61.4 percent by the end of June 2005. The ratio of domestic debt to GDP decreased during 2005-06. Interest payments as a percentage of total revenue had been reduced to 20 percent from 41 percent over the last six years, thereby releasing resources for development and social sector programs.
More importantly as percentage of GDP, interest payments declined from six percent to 2.6 percent over the previous six years. Money and the credit tight monetary policy stance by State Bank of Pakistan (SBP) was the hallmark of the year surveyed despite a drop in core and overall inflation.
Notwithstanding the tight monetary policy stance, the SBP continued to strike a balance between promoting growth and controlling inflation as well as maintaining a stable exchange rate. In order to revamp the financial sector in line with the global financial system, the SBP set out a road map for the implementation of a new regulatory capital adequacy regime, which offers a series of approaches for capital allocations against credit and operational risks.
The money supply during July-April 2006 remained well within the credit plan target for the year. Net credit to the government for budgetary purposes was 43.3 billion rupees compared to the annual target of 98 billion rupees. However, credit to the private sector exceeded the plan target and stood at 345.1 billion rupees as against 330 billion rupees envisaged for the year in the credit plan, reflecting the confidence of the private sector on the continuously improving macro economic fundamentals of the country.
Expansion in banking business can be gauged from the fact that scheduled banks opened 34 offices from April 1, 2005, to March 31, 2006. As a lead micro finance bank in the microfinance sector development program (MSDP), Khushali Bank is serving 250,000 clients with a cumulative disbursement of over 6 billion rupees in 75 districts of Pakistan.
Trade and Payments
Exports during the first nine months were up by 18.6 percent to $12.073 billion. Pakistan doubled its exports in seven years and increased its trade-GDP ratio to an estimated 34 percent in 2005-06. Our imports have risen by 43.2 percent in the first nine months to $20.693 billion primarily due to higher oil prices, rise in food imports and buoyant domestic demands of the industrial sector.
Education
Literacy rate was 53 percent, which was lower than the target set. However an encouraging aspect of the increase was in net enrollment by 10 percent during the year, which needed to be harnessed to achieve the Millennium Development Goals.
Health
Pakistan is fully committed of its commitment to achieve Millennium Development Goals, and initiatives have been taken to address health issues in PRSP. New health facilities added to overall health services during the year included construction of 56 new health facilities, upgradation of 59 existing facilities, and addition of 3,500 new doctors, 1,900 nurses and 15,000 female health workers. The total expenditure on health sector for the year was 40 billion rupees, up by 5.39 percent as compared to the previous year. In order to improve the health status of the people various programs remained operative during the year.