Lecture at Islamabad Policy Research Institute.
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Lecture at Islamabad Policy Research Institute.
- 1. State of Pakistan Economy 1 Dr. Vaqar Ahmed 23rd May 2014
- 2. Long term sources of growth Labour Capital Productivity Short term drivers of growth Energy Water Growth enablers Political Governance Institutions Simplistic View – Pakistan Economy
- 3. 0 2 4 6 8 10 12 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 %ChangeinRealGDP 0 5 10 15 20 25 30 35 40 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 %ofGDP Pakistan South Asia Fixed Investment 1961 - 2012Economic Growth 1961-2012 0 5 10 15 20 25 30 35 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 %ofGDP Pakistan South Asia Gross Domestic Savings 1971-2011 0 5 10 15 20 25 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 %ofGDP Government Revenue Government Expenditure Fiscal Performance 2001-2012
- 4. Inflationary Pressures 0 5 10 15 20 25 2007 2008 2009 2010 2011 2012 ConsumerPrices(%Change) Pakistan South Asia Pakistan had higher price levels in comparison to its neighbors. While South Asian economies also maintained high subsidies, however they were better targeted and prudently financed
- 5. Current Vs. Development Expenditure 2001-2012 0 2 4 6 8 10 12 14 16 18 20 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 %ofGDP Current Expenditure Development Expenditure Debt servicing, defense, law & order have not allowed government’s current expenditures to come down. This also implied lesser expenditure availability for MDGs
- 6. Spending on Education & Health 0 0.5 1 1.5 2 2.5 3 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 %ofGNP Education Spending Health Spending Education and health expenditures are compromised first once current expenditures increase. The also impact longer run productivity of the economy
- 7. External Performance - I -15 -10 -5 0 5 10 15 20 25 30 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 %ofGDP Current account balance Exports of goods and services Imports of goods and services
- 8. External Performance - II 0 2 4 6 8 10 12 14 16 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 USDBillion Remittances 0 5 10 15 20 25 30 35 40 45 50 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 USDBillion External Debt Outstanding -1000 0 1000 2000 3000 4000 5000 6000 2007 2008 2009 2010 2011 2012 USDMillion Foreign Direct Investment 0 2 4 6 8 10 12 14 16 2005 2006 2007 2008 2009 2010 2011 2012 USDBillion Net Forex Reserves Rising remittances and debt contribute to Dutch disease effect
- 9. Real Sector Outlook Indicators 2012-13 (Provisional) 2013-14 (Projected) Economic Growth (%) GDP Growth 3.6 4.4 Agriculture 3.3 3.8 Manufacturing 3.5 4.5 Services 3.7 4.6 Investment and Savings (as percent of GDP) Investment 14.2 15.1 National Savings 13.5 14.0 Foreign Savings -0.7 1.1 Inflation (% Growth) 7.7 8.0 GNP Per Capita (PKR) 1368 1464 Source: Economic Survey of Pakistan and Planning Commission’s Annual Plan 2013-14
- 10. Fiscal Sector Outlook Indicators 2012-13 PKR Billion 2013 (July-Mar) PKR Billion Total Revenue 2982 2477 Tax Revenue 2,199 1786 Total Expenditure 4,816 3289 Current Expenditure 3,660 2904 Interest 991 909 Defense 541 452 Development Exp. 1140 556 Fiscal Deficit 1834 812 Fiscal Deficit (% of GDP) 8.0 3.1 External financing 1676 -51 Domestic financing 1836 862 Source: Finance Division, Government of Pakistan
- 11. Balance of Payments Indicators 2012-13 USD Million 2013-14 (Jul-Apr) USD Million Exports (fob) 24802 20550 Imports (fob) 40157 33372 Workers’ Remittances 13922 11570 Current account balance -2496 -1574 Foreign Direct Investment 1456 862 Long term loans 2274 1833 Foreign Exchange Reserves 11,019 13132 Source: State Bank of Pakistan 2 month import bill available to provide for Letter of Credits, & imports for food,edible &crude oil
- 12. Monetary Sector Flows Indicators 2012-13 PKR Million Up to 9th May ‘14 PKR Million Net Foreign Assets -263,300 236908 Net Domestic Assets 1,479,317 411369 Net Government Borrowing 1,479,183 199565 Credit to Private Sector -19,041 296441 Credit to Public Sector Enterprises 31,096 55093 Broad Money (M2) 1,216,017 648217 Percent Growth 15.91% 7.32% Source: State Bank of Pakistan
- 13. • Three Year Under Extended Fund Facility (EFF), with focus on structural reforms • Access to 425 % of Quota; Amount $6.6 billion IMF Program
- 14. • FDI in textile sector – Chinese example • Critical question of energy supplies to energy • Building value chains – Bangladesh example Will GSP+ Deliver?
- 17. • Eliminating SROs and related exemptions • Tax administration and human interference • Debate on including new sources of income in the tax net – Agriculture – Services – Capital and money markets Taxation Reforms
- 18. • Correct energy prices – To cover full cost of production – To correct incentives for private sector • Eliminate untargeted, hidden and cross subsidies – Retain only for life line block • Check technical losses and theft – Transmission and distribution losses – Kunda methods Energy Reforms
- 19. • Restructuring liabilities and outstanding debt • Empowering management with autonomy – NBP and Finance Secretary [Conflict of Interest] • Private participation in state enterprises – Public Private Partnerships – Privatization Public Sector Enterprises
- 20. • Trade in goods (Afghanistan, China and India) • Trade in services (Afghanistan and China) • Trade in energy (Iran and India) – Long term options (CASA-1000, TAPI) Regional Trade
- 21. • Pakistan’s economy stabilized but structural reforms missing. The window of opportunity may be short lived • Growth now being financed by greater debt • Implications of gift payments by Saudi government not known, Manage bond-related debt, carefully spend proceeds for 3G/4G • Improvement in the economic situation will also hinge on o The Security Situation o Electricity situation – as summer months peak • If Pakistan manages to sustain reserves build up (2 month’s import cover) by June 2014 then conditions will improve in 2014-15 and beyond • Pakistan can then start a program of economic revival and try to achieve 6 per cent growth rate by 2016-17: Economy of Tomorrow Report Way Forward
- 22. Long term sources of growth Labour Capital Productivity Short term drivers of growth Energy Water Growth enablers Political Governance Institutions Simplistic View – Pakistan Economy
Editor's Notes
- Prices affect short run competitiveness of the economy
- Education and health
- In 2013 compared with Pakistan’s 3.6%, India and China were 5.7% and 8% respectively.
- revise the revenue collection target from Rs 2,475 billion to Rs 2,345 billion for 2013-14
- Somehow capacity building ends up becoming a black box.
- From Dr. Hafiz A. Pasha’s presentation at the Economy of Tomorrow Seminar