the current economic outlook of pakistan and opportunities (1)
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The Current Economic Outlook of Pakistan and opportunitiesTRANSCRIPT
Seediscussions,stats,andauthorprofilesforthispublicationat:http://www.researchgate.net/publication/275289063
TheCurrentEconomicandPoliticalOutlookofPakistan:ChallengesandProspects
RESEARCH·APRIL2015
DOI:10.13140/RG.2.1.2108.8800
1AUTHOR:
KhalidAhmed
UniversityofCambridge
13PUBLICATIONS28CITATIONS
SEEPROFILE
Availablefrom:KhalidAhmed
Retrievedon:03September2015
The Current Economic and Political Outlook
of Pakistan:
Challenges and Prospects
Dr. Khalid Ahmed
Assistant Professor (Sukkur –IBA)
Research Fellow (KIEP)
2014. 04
Contents
1. Some Macroeconomic Indicators
2. Key Benchmarks
3. Business Environment
4. Business and Trade Reforms
5. 5-Reasons to Invest in Pakistan
6. Attractive Investment Policy
7. Key Challenges
Contents
8. Opportunities
9. Political Outlook
10. Sharif ‘s Govt. and Politico-Economic Agenda
11. Pak-China Strategic Relations and Future Trade Prospects
12. Pak-India Relations and Kashmir
13. Policy Challenges
14. Conclusions
Population 179.2 mn. (2012)
GDP $574.1 bn. (PPP 2013 est.)
-Agriculture 21.2%
-Industry 25.4%
-Services 53.4%
Inflation 7.93% (CPI, as of march 2014)
Unemployment 6.6 (2013 est.)
GDP per capita $3,100 (PPP 2013 est.)
21%
26% 53%
GDP by Sector (%)
Agri
Industry
Services
The Economy of Pakistan
1. Some Macroeconomic Indicators
Labor Force 60.38 mn. (2012 est.) by occupation:
-Agriculture 43.1%
-Industry 20.3%
-Services 36.6%
(7th largest pool of scientists & engineers in the world)
Main Industries
Textile and apparel Leather Food processing Pharmaceuticals
Chemicals Construction Cement
Mining Machinery Steel
Engineering Software Hardware
Motorcycle Auto parts Electronics
Paper Fertilizer Shrimp
The Economy of Pakistan
Exports 25.5 bn. (2013 est.) Main Export Commodities Textile (Garments, apparel, bed, linen, cotton, yarn, etc), Rice, Leather Goods, Sports Goods, Chemicals, Manufactures, Carpets & Rugs and Electrical equipments etc. Top 10 Export Destinations EU (18.2%), US (13.6%), China (11.1%), UAE (8.5%), Afghanistan (7.8%), South Korea (2.8%), Saudi Arabia (2.4%), India (2.1%), Turkey (2.0%), Iran (1.8%)
The Economy of Pakistan
Imports 33.27 bn. (2013 est.) Main Import Commodities Petroleum, Petroleum Products, Machinery, Transportation equipments, Iron & steel, Edible Oil Paper and paper products, Tea Electronics- -Products, Plastics Top 10 Import Destinations China (19.7%), Saudi Arabia (12.2%), UAE (12.1%), EU (10.4%), Kuwait (6.3%), Malaysia (3.9), India (3.7), Japan (3.6), Iran (3.4%), USA (3.2%)
The Economy of Pakistan
FDI Home $24.33 bn. (31.Dec.2013) FDI Abroad $1.57 bn. (31.Dec.2013) (in early 2014 Pakistan has become China’s largest FDI destinations in South Asia)
World’s largest natural gas consumer.
4th largest Cotton producer
4th largest Apricot producer
4th largest Sugarcane producer
5th largest Mango producer
5th largest Milk producer
6th largest date palm producer
8th largest Rice producer
10th largest Oranges producer
The Economy of Pakistan
2. Key Benchmarks
Source : W.T.O, Economic Survey of Pakistan, IMF etc Source World Bank
The Economy of Pakistan
World Bank’s Ease of Doing Business Ranking 2013 (South Asia)
Country World Rank Regional Rank
Sri Lanka 85 1
Maldives 95 2
Nepal 105 3
Pakistan* 110 4
Bangladesh 130 5
India 134 6
Bhutan 141 7
*In 2010, Pakistan was 85th in world and 1st in South Asia
Source :World Bank
3. Business Environment
The Economy of Pakistan
4. Business and Trade reforms
Pakistan is one of the most trade liberalized economy.
Recently received GSP+ status from EU.
Signed Free Trade Agreement (FTA )with P.R CHINA.
Enhanced bilateral trade relations with neighboring countries
Proposed grant of MFN status to INDIA
Currently a the most Investment friendly environment
The Economy of Pakistan
5. 5-Reasons to Invest in Pakistan
5 Reasons
Geo-strategic Location
Population and Work
Force
Economic Outlook
Investment Policy
Special Economic
zone
Source: Board of Investment(BOI), Government of Pakistan. http://boi.gov.pk
The Economy of Pakistan
6. Attractive Investment Policy
Policy Parameters Manufacturing
Sector
Non-Manufacturing Sector
Agriculture Infrastructure and
social
Services including
IT & Telecom
Services
Govt. Permission Not required except 4
specified industries *
Not required except specific licenses from concerned agencies.
Remittances of profit,
dividends, etc.
Allowed Allowed
Upper Limit of foreign
equity allowed
100%
100%**
100%
100%
Customs duty on import of
PME
5%
0%
5%
0-5%
Tax relief (IDA, % of PME
cost)
25%
25%
Royalty & Technical Fee No restriction for payment of
royalty & technical fee.
Allowed as per guidelines - Initial lump-sum up to $100,000 - Max
Rate 5% of net sales - Initial period 5 years
*Arms and ammunitions ,High Explosives. Radioactive substances Security Printing, Currency and Mint. No new unit for the manufacturing of alcohol,
except, industrial alcohol ** Only for CAF (Corporate Agriculture Farming)
PME= Plant, Machinery and Equipment IDA= Initial Depreciation Allowance>
Source: Board of Investment(BOI), Government of Pakistan. http://boi.gov.pk
The Economy of Pakistan
7. Key Challenges
Challenges
Energy Shortage
Population Growth
Public & External
Debts Low Savings
Budget Deficit
Trade Deficit
The Economy of Pakistan
Energy shortage
0
5000
10000
15000
20000
25000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Meg
aw
att
s (M
W)
Demand and Supply Trend of Electricity (2003-12)
Demand
Supply
Note: In 2013 Pakistan had plant capacity of 19,588 MW but could only generate 10,000 to 15,000 MW.
Source: Private Power Infrastructure Board, www.ppib.gov.pk
The Economy of Pakistan
Population Growth
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Annual Population Growth in (1965-2012)
Population growth (annual %)
Note: Population in 1983, 88.5 mn. and in 2012 ,179.1 mn. (doubled in 30 years)
Source: Ministry of Finance, Government of Pakistan
The Economy of Pakistan
Public Debts
Source: Ministry of Finance, Government of Pakistan
Year / Billion (Rs.) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
a) Debt Payable (Rs) 1576 1728 1715 1852 1979 2152 2322 2601 3266 3852 4651 6014 7638 9521
Debt payable ($) 27.5 27.8 29.9 30.6 31.2 32.1 33.9 36.4 40.7 46.4 50.0 54.6 53.2 47.9
Exc. Rate (E.O.P) 52.5 63.4 60.1 57.7 57.9 59.7 60.2 60.4 68.3 81.4 85.5 86.0 94.5 99.1
b) Foreign Debt (Rs) 1442 1761 1795 1766 1810 1913 2041 2201 2778 3776 4270 4694 5030 4747
c) Total Debt (a + b) 3018 3489 3510 3618 3789 4065 4363 4802 6044 7629 8921 10709 12668 14268
GDP (mp) 3826 4163 4402 4823 5641 6500 7623 8673 10243 12724 14837 18063 20091 22909
Total Revenue 513 553 624 721 806 900 1095 1298 1499 1851 2078 2261 2566 2969
Total Debt as % of:
- GDP 78.9 83.8 79.8 75.0 67.2 62.5 57.2 55.4 59.0 60.0 68.1 59.3 63.0 62.3
- Revenue 588 631 563 502 470 452 398 370 403 412 429 474 494 481
The Economy of Pakistan
External Debt Trend US$ bn. (1980-2013)
Source: Ministry of Finance, Government of Pakistan
8.8
12.9
20.5 21.2
30.132 32.6 33.6
38.9 37.9 37.1 36.535.4 35.3 35.8
37.6
40.5
46.3
52.4
61.1
66.4 65.863.9
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1980-81
1987-88
1989-90
1990-91
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
External Debt
The Economy of Pakistan
Low Savings
0
5
10
15
20
25
%
GDS as % of GDP compared with Inflation
Savings
Inflation
Note: Population in 1983, 88.5 mn. and in 2012 ,179.1 mn. (doubled in 30 years)
Source: World Bank
The Economy of Pakistan
Budget Deficit (as % 0f GDP (1990-2013))
Source: Ministry of Finance, Government of Pakistan
0.0
(8.7)
(7.4)
(8.0)
(5.9)(5.6)
(6.5) (6.4)
(7.7)
(6.1)
(5.4)
(4.3) (4.3)
(3.7)
(2.4)
(3.3)
(4.2) (4.3)
(7.4)
(5.4)
(6.3)(6.6)
(8.5)(8.8)
(10.0)
(9.0)
(8.0)
(7.0)
(6.0)
(5.0)
(4.0)
(3.0)
(2.0)
(1.0)
0.0
Dat
e
19
90
-91
19
91
-92
19
92
-93
19
93
-94
19
94
-95
19
95
-96
19
96
-97
19
97
-98
19
98
-99
19
99
-00
20
00
-01
20
01
-02
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
The Economy of Pakistan
Trade Deficit
Source: World Bank
-15
-10
-5
0
5
10
15
20
25
30
1967 71 75 79 83 87 91 95 99 03 07 2012
% o
f G
DP
Pakistan's Trade Deficit 1967-12
Exports %
Imports %
Net %
The Economy of Pakistan
Net Bilateral Aid Flow in Pakistan
Source: World Bank
-500
0
500
1000
1500
2000
2500
3000
3500
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Mil
lion
US
$
Net Total and US bilateral Aid Flow in Pakistan 1960-2011
Total Aid Flow
US aid Flow
The Economy of Pakistan
Policy Challenges
Fiscal Policy Challenge (Least tax payer nation, 8.4% tax-to-GDP-ratio 2013*, only 0.4% * of
population pay taxes, high Govt. expenditures)
Monetary Policy Challenge (Mostly IMF dictated monetary policy is adopted , however, Current account BoP is mainly maintained by personal remittances received ,which is avg. 5~6% of GDP and YOY grows at 10 % and foreign aid and FDI.
Weak Disaster Management System (One of the major reasons of economic slow down in Pakistan from 2009~2012 was financial crisis of 2008 followed by two devastating floods in 2010, and 2011 respectively. Agriculture production collapsed, infrastructure heavily damaged and 1.5 million Internally Displaced People (IDP’s) borne by the economy).
-Poverty (In 2008 there were 17.3% people living below poverty line in Pakistan but in 2012 this ratio rise to 22.4%. Poverty is a common issues of whole region and it needs to be resolved collectively as a quick remedy)
Population (The population growth has been very high which has been a major concern for lower growth and higher unemployment rate.
Infrastructure (Pakistan needs to have very strong infrastructure of roads, transportation, buildings, I.T
and communication in order to compete with other developing and emerging economies and for the attainment of sustained growth rate.
The Economy of Pakistan
8. Opportunities
Pakistan has 4th largest Coal reservoirs and also posses unexplored huge oil and gas reservoirs
in Sindh and Balochistan provinces.
It has 1046 KM Coast line having fast enough winds and sunlight throughout the year , that are
the potential renewable energy sources, which are yet unutilized.
Being an agricultural country the bio-fuels can be exploited at large.
Although the agriculture productivity has declined during last two decades but country is self
sufficient in food crops, however the productivity can be increased in both cash and food crops
that can boost the GDP growth.
Pakistan has world’s 7th largest scientist and engineers pool and 60 million young labor force.
Pakistan neighbors with world’s most populous and giant economies i.e. China and India. There
are many bilateral comparative advantages that can enhance trade potential.
Pakistan lies nearest to world’s 2/3 of oil producing countries (gulf).
The Economy of Pakistan
9. Political Outlook
Political interests dominate economic interests in Pakistan even in current and
future outlook……Why?
The frequent change of regimes (democratic and military)
Geo strategic location
Unresolved Kashmir issue
Post cold war syndrome
War on terror and current policy shift
Talibanization (Internal security)
The Economy of Pakistan
10. Sharif ‘s Govt. and Politico-Economic Agenda
The swift power shift of democratic Govt. portray a sound and stabilizing political environment.
First time in the history, the military institution has shown great support for strengthening of
democratic process.
Sharif’s Govt. has always been business friendly during its past tenures and at present as well.
The recent bilateral relations with India has been the most friendly as compare to last decade.
The Govt. has taken drastic measures for investor’s security by providing fool proof security
measures with help of army and other law enforcing agencies.
The ongoing process of peace talks with Taliban has further ease to conduct business activities.
The Govt. is seeking national consensus on all the political and economic issues which is also a good
sign.
The Economy of Pakistan
11.Pak-China Strategic Relations and Future Trade Prospects
Straight of Hormuz
The Future Energy Hub
12. Pak-India Relations and Kashmir
The Economy of Pakistan
Bone of contention b/w Pak-India
Increasing water disputes
If include N.A only route to connect
with P.R China
Major drawback to economic well
being of region (i.e., SAARC)
Major hindrance to economic well
being of both countries
Root cause of overall socio-politico-
-economic disputes between two nations
13. Policy Challenges
The Economy of Pakistan
10 million Afghan refugees who never went
back
Drugs dealing
Weapon and arms spread
Illegal cross border trade
Terrorism
Extremism
Talibanization
Pakistan’s growth has been deteriorated
majorly because of the change of regime
from military to democracy and vice versa.
Every time the shift has reinitiated the
process of development and never
remained consistent.
The consistent political process and regime
is imperative for sustained growth and
economy’s development
Again this time the pleasant Civil-Military
relationships is a challenge for sustainable
political situation
Post-Cold War Syndrome Civil-Military relations
The Economy of Pakistan
14. Conclusion
The main challenges, Pakistan economy is facing are energy shortage, high population growth rate, low saving rate
, high government expenditures, consistent budget deficit, trade deficit and internal and external debts.
The main indicators which positively contribute to reduce current account deficit are inward home remittances and f
oreign aid. However, there is need of higher FDI inflow and exports volume which is still under potential.
Although Pakistan is facing severe energy and security issues but yet it possesses strong potential to overcome both
the major hurdles.
The deterioration of economic growth during 2009~12 was mainly because of global financial crisis and two consec
utive worst natural disasters of country's history.
But Pakistan still managed to secure its 4th position in world bank’s ease of doing business in South Asia, which wa
s 1st in 2010 report.
Owing to Government’s pro-active economic policies, the economy hit 5% growth rate for 1Q-FY 14, compare to o
nly 2.9% 1Q-FY 13, although the target set for FY-14 is 4.4%.
Pakistan lacks in basic and IT infrastructure i.e. Buildings, roads, communication, transportation, e-government etc.
Due to weak disaster management system, country is fragile to natural calamities and disasters.
The Economy of Pakistan
Conclusion
The deteriorated macro-economic indicators are improved within first quarter of FY14 which is good sign and it
also shows that the Pakistan economy is highly dynamic.
The new government’s economic policies are highly friendly for private sector investment and trade. As a result
Pakistan could get GSP+ status but EU, and attracted substantial FDI from China, Turkey and EU recently.
The attractive sectors for foreign investors in Pakistan are: Energy, infrastructure and construction, automotive,
agriculture, mining, retail and pharmaceuticals.
After the completion of Gwadar port and its related projects to connect it with P.R China and Central Asian states
with open new corridors of trade and business.
The political set up of Pakistan has been frequently changed and resulted inconsistency in policies. This trend
always pushed economy backward and could not finished recovery phases even.
The current political set up is quite strong and has started to reflect positive signs.
The Pak-India relations have been very pleasant recently and Pakistan has decided to grant MFN status to India
after the elections are held, however the Kashmir issues will be still core issue and until its resolution the relations
may not be sustainable.