Monitoring Country Progress in Pakistan

Program Office

OAPA & USAID/Pakistan

U.S. Agency for International Development

Pakistan Institute for Development Economics

September, 21st, 2011

1.0

2.0

3.0

4.0

5.0

1.0 2.0 3.0 4.0 5.0

Eco

no

mic

Refo

rms

Democratic Reforms

Economic Reform vs. Democratic Reforms

Afghanistan

Bangladesh

Cambodia

China

India

Indonesia

Israel

Kazakhstan

Kyrgyz

Republic

Laos

Mongolia

Nepal

Pakistan

Philippines

Sri Lanka

Tajikistan

Thailand

East Timor

Turkmenistan Uzbekistan

Vietnam

Regional averages are estimates. World Bank, World Development Indicators (April 2011); Doing Business in 2011 (November 2010); Freedom House, Freedom in the World (2011

and earlier editions); Freedom in the Press (2010); and World Bank Institute, Governance Matters Indicators (2010).

Pakistan and its neighbors are among

the slowest reformers globally

Figure 1

Eastern Europe & Eurasia

Latin America &

Caribbean

Middle East &

North Africa

Ra

nk

of

1 t

o 1

83

World Bank, Doing Business in 2011 (November 2010).

Doing Business in Pakistan

27

61 56

78

69

102

118

139

156

28

65 67

81 85

98

126

145

155

0

20

40

60

80

100

120

140

160

180

ProtectingInvestors

Getting Credit Closing aBusiness

TradingAcrossBorders

Starting aBusiness

Dealing withConstruction

Permits

RegisteringProperty

Paying Taxes EnforcingContracts

2009 2010

Pakistan has weak tax policy and scores very poorly on

reforms that increase confidence in foreign & domestic

investment as estimated by the World Bank.

Figure 2

1.0

2.0

3.0

4.0

5.0

1.0 2.0 3.0 4.0 5.0

Ec

on

om

ic P

erf

orm

an

ce

Human Capital

Economic Performance vs. Human Capital

Afghanistan

Bangladesh

Cambodia China

India

Indonesia

Israel

Kazakhstan

Kyrgyz

Republic

Laos

Mongolia

Nepal

Pakistan

Philippines

Sri Lanka

Tajikistan

Thailand

East Timor

Turkmenistan

Uzbekistan

Vietnam

Regional averages are estimates. World Bank, World Development Indicators (April 2011); UNICEF, Save the World‟s Children (2010) and UNDP, Human Development Report.

Figure 3

Sub Saharan Africa

Eastern Europe & Eurasia Latin America &

Caribbean

Middle East &

North Africa

Size of Pakistan’s Economy

IMF, World Economic Outlook: October Update (October 2010)

0

20

40

60

80

100

120

140

160

180

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S

. D

oll

ars

Bil

lio

n

Figure 4

175

0

100

200

300

400

500

600

US$

Bill

ion

GDP

Pakistan Economic Growth G

DP

% C

ha

ng

e

IMF, World Economic Outlook (April 2011) and Economist Intelligence Unit , Pakistan Country Report (August 2011).

Figure 5

3.2

4.9

7.4

7.7

6.1

5.6

1.6

3.4

4.8

2.4

0

1

2

3

4

5

6

7

8

9

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

From 2005 to 2010, Pakistan averaged

4.9% GDP growth, proving its resilience in

the face of multiple adverse events.

Population in Pakistan (in millions)

US Census, International Database (January 2011).

Pakistan is currently the 6th most populous country

2000 – 152.4 Million

Male Female Female

2050 – 290.9 Million

Male

The population is estimated to nearly double in 50 years

Figures 6-7

Pe

rce

nt

Ch

an

ge

Inflation in Pakistan

Drought

Earthquake Flood

Inflation rose at double digit rates for over 35 consecutive months (with one exception)

Figure 8

2008 surge in global petrol prices

Inflation is driven by surging government budgetary borrowing. Government borrowing from banks

in the first seven months of the financial year 2010-11 increased 62% from the previous year.

20.8

0

5

10

15

20

25

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

IMF, World Economic Outlook (April 2011) and Economist Intelligence Unit , Pakistan Country Report (August 2011).

0

5

10

15

20

25

30

35

40

45

50

Top Remittances Receiving

Developing Countries

World Bank, World Development Indicators (April 2011); State Bank of Pakistan, FY 2010 Annual Report-Statistical Supplement (2010).

*State Bank of Pakistan reports remittances at $8.9 Billion US for FY 2010.

U.S

. D

oll

ars

Bil

lio

n

Remittances in Pakistan are estimated at 5.2% of GDP

Figure 9

Remittances in Pakistan from 2000-2011 P

erc

en

t o

f G

DP

Drought

Earthquake

Flood

Figure 10

World Bank, World Development Indicators (April 2011). Research in Pakistan shows that remittances are predominantly used to meet daily expenses such as food, clothing and health care; however, funds are also

spent on building or improving housing, buying land, cattle or durable consumer goods, the repayment of loans for migration and to fund pilgrimages to Mecca (Suleri and Savage, Remittances in Crisis: A Case Study

from Pakistan (November 2006)).

0

1

2

3

4

5

6

7

8

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1

While historically importantly to the economy, remittances

in recent years have soared; more than quadrupling since

2000 bolstering foreign exchange reserves and inflation

Remittances & Migration in Pakistan

World Bank, World Development Indicators (April 2011).

Pe

rce

nt

of

GD

P

Remittances (right axis)

Migration (left axis)

Figure 11

Ne

t M

igra

tio

n

0

1

2

3

4

5

6

-1,000,000

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0

1

2

3

4

5

6

7

3.5

3.7

3.9

4.1

4.3

4.5

4.7

4.9

5.1

5.3

5.5

2003 2004 2005 2006 2007 2008 2009

Growth in Remittances & Agriculture GDP in Pakistan

World Bank, World Development Indicators (April 2011).

Pe

rce

nt

of

GD

P

Remittances (left axis)

Agriculture GDP

Growth (right axis)

A cross-country IMF study argues that agricultural GDP is a good

indicator of economic hardship, which makes a lot of sense for

Pakistan (one-fifth of GDP). The study concludes, “when agricultural

GDP in these countries falls, workers‟ remittances tend to increase.”

Figure 12

Tax Revenue in 2009

Heritage Foundation, Index of Economic Freedom 2011 (January 2011).

Pe

rce

nt

of

GD

P

44.6

33.5

27.7

21.8

18.6

16

14.1 13.3

10.5 10.4 10.2 8.8

3

0

5

10

15

20

25

30

35

40

45

50

Figure 13

Pakistan is one of the top 20 worst tax revenue generating countries in the world.

Only 2 million or 1.1 percent of the Pakistani population pay income tax.

13.3

13.8

13.2

10.1

10.8

9.3

8

9

10

11

12

13

14

15

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Tax Revenue in Pakistan P

erc

en

t o

f G

DP

World Bank, World Development Indicators (April 2011). Note that taxes in absolute terms are increasing.

Figure 14

1999 marks the fall of Benazir Bhutto &

Nawaz Sharif‟s civilian government

Pakistan‟s low revenue collection is a burden on the already significant

budget deficit and a threat to devolution of authority to the line ministries

Exports Earnings in 2009

World Bank, World Development Indicators (December 20th, 2010) and Pakistan Federal Bureau of Statistics.

% o

f G

DP

Figures 15

In July-April 2010 Pakistan‟s Exports only accounted for 9% of GDP.

68

50

27 24

21

14 13

11

0

10

20

30

40

50

60

70

80

Thailand South Korea China Indonesia India Haiti Pakistan EthopiaEthiopia

-10

-8

-6

-4

-2

0

2

4

6

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

World Bank, World Development Indicators (April 2011) and IMF, World Economic Outlook October (April 2011).

Pe

rce

nt

of

GD

P

Current Account Balance in Pakistan

The widening trade gap could draw down foreign exchange reserves and dampen GDP growth in the medium term

Figure 16

The IMF states that a current account deficit

of greater than (3%) of GDP for three or

more years is a cause for concern. Pakistan

has run a current account deficit of greater

than 3% for the last 5 years.

Foreign Direct Investment in Pakistan

World Bank, World Development Indicators, (April 2011)

U.S

. D

oll

ars

Bil

lio

n

0

1

2

3

4

5

6

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The global recession combined with a worsening

business environment discourages FDI.

Figure 17

Surge resulting from investment in

telecom & privatization of banks

Subsidies in Pakistan

IMF, Pakistan (January 2011).

US

$ M

illio

n

132

24

79

11

210

19 13

3

0

50

100

150

200

250

Power Wheat Oil Food (non wheat)

2008/09

2009/10

Figure 18

Electricity Subsidies

Asia Development Bank, Integrated Energy Sector Recovery Report & Plan (October 2010).

PR

s/k

hw

3

4

5

6

7

8

9

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10

Cost of Service

Retail Price

The burden of energy subsidies has tripled in the

last 3 years to over 2.5 rupees per kwh as

measured by the ADB.

Energy subsidies account for 1.4% of GDP.

Figure 19

6 6 7 7 7

9 10

11 12

13 13

14

17

19 19

25 25

28

0

5

10

15

20

25

30

Energy Losses

World Bank, World Development Indicators (April 2011).

Te

ch

nic

al &

Dis

trib

uti

on

Lo

ss

es

as

% o

f n

et

sys

tem

en

erg

y

Figure 20

1/5 of energy produced in Pakistan is lost in technical and

distribution. In addition, Pakistan experiences losses due to

administrative loss (including theft) and „circular debt‟.

Energy Supply in Pakistan T

ho

us

an

ds

of

Gig

aW

att

s

9.3

-0.58

-2

0

2

4

6

8

10

0

5

10

15

20

25

30

35

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Energy Supply

% change (right axis)

Government of Pakistan, Ministry of Finance, Pakistan Economic Survey 2009-10 (2010).

ADB estimates that the energy shortfall (including load shedding)

is estimated to have reduced GDP growth by 2.0-2.5%.

Figure 21

% c

ha

ng

e in

en

erg

y s

up

ply

National Electric Power Regulatory Authority, State of the Industry Report (2009-10). This crisis is in part due to T&D losses, theft, and pricing policy that does not generate

enough revenue to cover power generation costs (GoP 2010).

Load Shedding in Pakistan (hours each customer experiences electrical power outage)

# o

f h

ou

rs,

per

cu

sto

mer,

per

year

0

500

1000

1500

2000

2500

3000

3500

4000

4500

2005/06 2006/07 2007/08 2008/09

In the past 3 years, NEPRA estimated

that customers went from experiencing

the equivalent of 2 weeks to 22 weeks

a year with no power

Figure 22

Losses in the industrial sectors are

estimated at $2.5 billion per year

because of load shedding, costing

400,000 jobs.

Water Vulnerability in Pakistan

Agriculture 69%

Industry 23%

Domestic uses 8%

Water Uses

0

1000

2000

3000

4000

5000

6000

1951 1961 1971 1981 1991 2002 2010 2020

M3

Water Availability Per Capita

Government of Pakistan, Ministry of Finance, Pakistan Economic Survey 2009-10 (2010). Estimates for agriculture consumption are as high as 90% of water resources with

potentially 60% of which is wasted due to aging and poorly maintained infrastructure and irrigation management that is largely unresponsive to the needs of the bulk of the

country’s farmers.

Agricultural dependence on a sharply declining water supply will lead

to crop competition over water and will exacerbate food insecurity

Water availability has fallen 80% in the last 50 years

Figures 23-24

0

10000

20000

30000

40000

50000

60000

70000

80000

0

1

2

3

4

5

6

7

8

Water Consumption of Major Crops in Pakistan

Woodrow Wilson International Center for Scholars, Running on Empty, Pakistan‟s Water Crisis (2009). Nearly 50% of the population was affected by food insecurity in 2009, and is likely

substantially higher after the 2010 floods.

Pakistan is the 10th-largest sugar producing nation

but sugarcane is an extremely water-intensive crop

Millio

ns o

f h

ecta

res

Wate

r m

3

Hectares (left axis) Water (right axis)

Water intensive crops driving food insecurity

Figure 25

Composition of GDP over Decades in Pakistan

46.2

36.8

29.5 26 25.9 20.8

15.6

22.3

24.9 25.2 23.3

24.3

38.2 40.8 45.6

48.8 50.7 54.9

0

10

20

30

40

50

60

70

80

90

100

1960 1970 1980 1990 2000 2009

Services

Industry

Agriculture

13.7% of total labor force

45.1% of total labor force, 23.1 Millions workers

51.07% of total labor force, 15.7 million workers

World Bank, World Development Indicators (April 2011). ADB, Key Indicators for Asia and the Pacific 2010 Country Tables (2010).

Agriculture is constrained by insufficient investment over many years, inappropriate policies, and an impending water crisis.

Perc

en

t o

f G

DP

Figure 26

50

47 46 46 46 45 44 44

43 42 41

38 37

36 35 35 34

34 33

30 30 29

28 28 27

25 25 24 24

23 22

21 20 20 20 19 18 17

16 16 15 14 14

12

0

10

20

30

40

50

Proportion of Population Under 15 %

of

Po

pu

lati

on

US Census, International Database (August 2011). 57% of the population is under 25.

Figure 27

Three million people enter the labor market every year.

Perc

en

t Labor Force Participation Rates

Brookings, Pakistan Index, Tracking Variables of Reconstruction & Security (December 8th, 2010) derived from the Government of KPK Finance Department (June 2009).

71

77

70

65

29 26

12

18

0

10

20

30

40

50

60

70

80

90

100

Punjab Sindh Balochistan KPK

Men

Women

Figure 28

Poverty Rates in 2006 (population living under 2$ a day)

Perc

en

t

Figure 29

Pakistan‟s high poverty rates are partially driven by low literacy, poor

access to basic health care services and a significant youth bulge.

World Bank, Sparing Lives, Better Reproductive Health for Poor Women in South Asia (March 2009).

41.6

68.5

73.6

80.4 84.0

0

10

20

30

40

50

60

70

80

90

100

Sri Lanka Nepal Pakistan India Bangladesh

Adult Literacy in 2007 %

of

Po

pu

lati

on

over

ag

e 1

5

UNDP, Human Development Report (2010).

97 94 94 93 93

92 91 90 90

85

66

57 57

54

50

28

20

30

40

50

60

70

80

90

100

Figure 30

Pakistan‟s low literacy rate is accentuated by weak rural

and female literacy. It is estimated that less than half of the

rural (48%) and female population are literate (44%).

Adult Literacy in Pakistan by Gender %

of

Po

pu

lati

on

over

ag

e 1

0

52

59 58

65 67

69

26

30 32

40 42

45

10

20

30

40

50

60

70

80

90

100

1995-96 1998-99 2001-02 2004-05 2006-07 2008-09

Male Female

Pakistan Federal Bureau of Statistics, Pakistan Social and Living Standards Measurement Survey 2008-09 (August 2010).

Figure 31

Primary Age Student Not in School G

ross E

nro

llm

en

t

Figure 32

42.5

37.2 35.3

38.0

33.8 33.9 33.6

0

10

20

30

40

50

60

70

80

90

100

2003 2004 2005 2006 2007 2008 2009

Pakistan‟s poor education attainment is intensified by low female

enrollment. The survival rate of females to grade 5 was only 60% in 2009.

UNESCO, Institute for Statistics (2010).

Public School Facilities P

erc

en

t o

f S

ch

oo

ls

Figure 33

Government of Pakistan, Ministry of Finance, Pakistan Economic Survey 2009-10 (2010).

60

37 34

36

7

30

66

41 39

0

10

20

30

40

50

60

70

80

90

100

No Electricity No Latrines No Drinking Water

Total

Urban

Rural

7.9 7.8

7.0

5.3

4.5 4.3

4.0 3.9

3.8 3.8

3.5 3.3 3.3

3.1 3.0

2.8 2.7 2.7 2.5 2.5 2.5

2.3 2.2

2.1 2.0

1.8 1.8 1.6 1.6 1.6 1.6 1.6

1.4 1.3 1.2 1.2

1.1 0.9 0.8

0

1

2

3

4

5

6

7

8

Public Health Expenditure in 2009

World Bank, World Development Indicators (April 2011). “The Health Budget 2006: The Policy Context” estimates that 75% of health costs are financed out-of-pocket.

% o

f G

DP

Figure 34

UNICEF estimates that annual public healthcare only amounts to $4 per person.

Bangladesh

Indonesia

Pakistan

Philippines

0

50

100

150

200

250

1980 1985 1990 1995 2000 2005 2006 2007 2008 2009

Under 5 Mortality

UNICEF, State of the World‟s Children 2011 (2011); World Bank, World Development Indicators (April 2011).

De

ath

s p

er

1,0

00

Liv

e B

irth

s

Pakistan is committed to reaching the MDG of an Under Five Mortality rate of 52 deaths per 1000 by 2015

Nearly 1 in 10 children die before the age of 5

Figure 35

5 6 12 15 21 29 31 34 38 39

55 75

160

230 250 280 280

350

460

1,600

0

200

400

600

800

1000

1200

1400

1600

Maternal Mortality Ratio (reported 2005-2009)

UNICEF, State of the World‟s Children 2010 (2010).

Death

s p

er

100,0

00 L

ive B

irth

s

Pakistan is committed to reaching the MDG of a Maternal Mortality ratio of 140 deaths by 2015

Figure 36

Afghanistan

India

Bangladesh

Indonesia

Pakistan

0

1

2

3

4

5

6

7

8

9

1975-1980 1980-1985 1985-1990 1990-1995 1995-2000 2000-2005 2005-2010 2010-2015

Total Fertility Rate

Global Replacement Rate = 2.1

United Nation Population Division, World Population Projections 2010 Revision (April 2011).

Bir

ths p

er

wo

man

Pakistan‟s fertility rate is not estimated to reach replacement rate until 2030

Figure 37

Population in Pakistan (in millions)

US Census, International Database (April 2011).

Demographic Indicators for Pakistan

1990 2010 2030

Population

Midyear population (in thousands) 118816 184405 242862

Growth rate (percent) 2.9 1.6 1.2

Fertility

Total fertility rate (births per woman) 6.5 3.3 2.1

Crude birth rate (per 1,000 population) 42 25 18

Mortality

Life expectancy at birth (years) 57 66 72

Infant mortality rate (per 1,000 births) 107 65 33

Under 5 mortality rate (per 1,000 births) 162 87 42

Crude death rate (per 1,000 population) 13 7 6

Migration

Net migration rate (per 1,000 population) -1 -2 -0

Net number of migrants (in thousands) -162 -435 -5

2010 – 184.4 Million

1990 – 118.8 Million Male Female

Male Female

Male Female

2030 – 242.9 Million

Figures 38-40