Economy of Pakistan

Written by admin on May 15th, 2011

fiscal year. Concurrently, the insurgency has forced massive capital flight from 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 foreign currency debt rating to CCC-plus from B, just several notches above a level that would indicate default. Pakistan local currency debt rating was lowered to B-minus from BB-minus. Credit agency Moody Investors Service cut its outlook on Pakistan debt to negative from stable due to political uncertainty, though it maintained the country rating at B2.The cost of protection against a default in Pakistan 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 a overcoming of the present crisis wherein growth is a mere 3.5-4%.

Economic Comparison of Pakistan 1999-2008
A view of I.I.Chundrigar Road, the financial district of Karachi in Pakistan

Mainstay of the Economy – By Region, Source:

Indicator

1999

2007

2008

2009

GDP

$ 75 billion

$ 160 billion

$ 168 billion

$ 185 billion

GDP Purchasing Power Parity (PPP)

$ 245 billion

$ 445.5 billion

$ 445 billion

$ 545.6 billion

GDP per Capita Income

$ 450

$ 925

85

50

Revenue collection

Rs. 305 billion

Rs. 708 billion

Rs. 990 billion

Rs. 1.05 trillion

Foreign reserves

$ 700 million

$ 16.4 billion

$ 10 billion

$ 14 billion

Exports

$ 7.5 billion

$ 18.5 billion

$ 19.22 billion

$ 18.45 billion

Textile Exports

$ 5.5 billion

$ 11.2 billion

–

–

KHI stock exchange (100-Index)

$ 5 billion at 700 points

$ 75 billion at 14,000 points

$ 56 billion at 9,000 points

Foreign Direct Investment

$ 1 billion

$ 8.4 billion

$ 5.19 billion

$ 4.6 billion

Debt servicing

65% of GDP

26% of GDP

–

–

Poverty level

34%

24%

–

–

Literacy rate

45%

53%

–

–

Development programs

Rs. 80 billion

Rs. 520 billion

Rs. 549.7 billion

Rs. 880 billion

Economic Comparison 1999-2008

Stock market

Main article: Karachi Stock Exchange

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 usiness Week.[citation needed] The stock market capitalisation of listed companies in Pakistan was valued at ,937 million in 2005 by the World Bank. . 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 the Karachi Stock Exchange. As a result, the corporate sector of Pakistan has declined dramatically in significance in recent times.

Manufacturing and finance

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 has resulted in less government borrowing in the domestic money market, lower interest rates, and an expansion in private sector lending to businesses and consumers.

Growing middle class

Measured by purchasing power, Pakistan has a 30 million strong middle class, according to Dr. Ishrat Husain, Ex-Governor (2 December 1999 – 1 December 2005) of the State Bank of Pakistan. It is a figure that correlates with research by Standard Chartered Bank which estimates that Pakistan possesses a “a middle class of 30 million people that Standard Chartered estimates now earn an average of about ,000 a year.” Latest figures put Pakistan’s Middle Class at 35 million strong. In addition, Pakistan has a growing upper & upper middle class, estimated at 6.8 million in 2002 and projected to grow to 17 million people by the year 2010, with relatively high per capita incomes.

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.
Poverty levels have decreased by 10% since 2001 Foreign Companies which provide for Pakistani middle classes have been very successful. For example, demand for Uniliver products have recently been so high that even after doubling production the Anglo-Dutch company struggled to meet demand and it’s Chairman stated “Pakistanis can seem to have enough”.

Poverty alleviation expenditures

Main article: Poverty in Pakistan

Poverty in Pakistan

Pakistan government spent over 1 trillion Rupees (about .7 billion) on poverty alleviation programs during the past four years, cutting poverty from 35 percent in 2000-01 to 24 percent in 2006. Rural poverty remains a pressing issue, as development there has been far slower than in the major urban areas.

Demographics

Main article: Demographics of Pakistan

With a per capita GDP of over 00 (PPP, 2006) compared with 00 (PPP, 2005) in 2005 the World Bank considers Pakistan a medium-income country, it is also recorded as a “Medium Development Country” on the Human Development Index 2007. Pakistan has a large informal economy, which the government is trying to document and assess. Approximately 49% 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 seven most populous Asian nations, Pakistan has a lower population density than Bangladesh, Japan, India, and the Philippines. In the past, excessive red tape made firing from jobs, and consequently hiring, difficult. 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 billion over five years.
Tourism

Main article: Tourism in Pakistan

Tourism in Pakistan is a growing industry. Major attractions include ruins of Indus valley civilisation and mountain resorts in the Himalayas. Himalayan and Karakoram range (which includes K2, the second highest mountain peak in the world, attracts adventurers and mountaineers from around the world. Karachi and Lahore are major attractions for authentic Pakistani food and culture.

Revenue

The Board of Revenue has collected nearly one trillion Rupees(.1 billion) in taxes in the 2007-2008 financial year.

Currency system

Main article: Pakistani Rupee

The 500 rupee note

Rupee

The Pakistani Rupee was pegged to the US Dollar until 1982. When the government of General Zia-ul-Haq, changed it to managed float. This has been regarded as the best decision by Zia. As a result, the rupee devalued by 38.5% between 1982/83 and 1987/88 and the anti-export bias in the economy was reduced. 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. 5, 10, 20, 50, 100, 500, 1000, and 5000 denomination, while the design work of Rs.10,000 note is in progress which will help the banking industry in keeping few notes in saving accounts. The new notes have been designed using the euro technology and are made in eye-catching bright colours and bold, stylish designs.

Dollar-Rupee exchange rate

Foreign exchange rate

1 Pakistani Rupee (PKR) = 100 Paisa

The Pakistani rupee depreciated against the US dollar until the turn of the century, when Pakistan’s large current-account surplus pushed the value of the rupee up versus the dollar. Pakistan’s central bank then stabilized by lowering interest rates and buying dollars, in order to preserve the country’s export competitiveness

Exchange rates: Pakistani rupee (PKR) per US

PKR per US dollar 1995-2008

Year

Highest
Lowest
Date

Rate

Date

Rate

1995

PKR 30.930

1996

PKR

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