Economy of Pakistan
Written by admin on May 15th, 2011Chamber of Commerce and Industry estimated in late 2006 that the overall production of housing units in Pakistan has to be increased to 0.5 million units annually to address 6.1 million backlog of housing in Pakistan for meeting the housing shortfall in next 20 years. The report noted that the present housing stock is also rapidly aging and an estimate suggests that more than 50 percent of stock is over 50 years old. It is also estimated that 50 percent of the urban population now lives in slums and squatter settlements. The report said that meeting the backlog in housing, besides replacement of out-lived housing units, is beyond the financial resources of the government. This necessitates putting in place a framework to facilitate financing in the formal private sector and mobilise non-government resources for a market-based housing finance system.
The Federal Bureau of Statistics provisionally valued this sector at Rs.185,376 million in 2005 thus registering over 49% growth since 2000.
Public administration and defence
The Federal Bureau of Statistics provisionally valued this sector at Rs.389,545 million in 2005 thus registering over 65% growth since 2000.
Social, community and personal services
The Federal Bureau of Statistics provisionally valued this sector at Rs.631,229 million in 2005 thus registering over 78% growth since 2000.
Electricity
Main article: Electricity sector in Pakistan
For years, the matter of balancing Pakistan’s supply against the demand for electricity has remained a largely unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply of electricity. While the government claims credit for overseeing a turnaround in the economy through a comprehensive recovery, it has just failed to oversee a similar improvement in the quality of the network for electricity supply.[citation needed] Some officials even go as far as claiming that the frequent power cuts across Pakistan today are indicative of an emerging prosperity as there is fast-rising demand for electricity. And yet, the failure to meet the demand is indeed indicative of a challenge to that very prosperity.[citation needed] This is despite Pakistan having tremendous potential to generate wind power. Apart from this, most cities in Pakistan receive substantial sunlight throughout the year, which would suggest good conditions for investment in solar energy.
Recently, the minister for Water and Power Development, Raja Pervez Ashraf, has claimed that load-shedding will end by December 2009 through employing rental power generation units and that the country will be self-sufficient by the year 2011. Critics[who?] argue that this is overly optimistic.
Foreign trade, remittances, aid, and investment
Investment
Foreign direct investment (FDI) in Pakistan soared by 180.6 per cent year-on-year to US.22 billion and portfolio investment by 276 per cent to 7.4 million during the first nine months of fiscal year 2006, the State Bank of Pakistan (SBP) reported on April 24. During July-March 2005-06, FDI year-on-year increased to .224 billion from only 2.6 million and portfolio investment to 7.4 million, whereas it was 8.1 million in the corresponding period last year, according to the latest statistics released by the State Bank. Pakistan has achieved FDI of almost .4 billion in the financial year 06/07, surpassing the government target of billion.
Pakistan is now the most investment-friendly nation in South Asia. Business regulations have been profoundly overhauled along liberal lines, especially since 1999. Most barriers to the flow of capital and international direct investment have been removed. Foreign investors do not face any restrictions on the inflow of capital, and investment of up to 100% of equity participation is allowed in most sectors. Unlimited remittance of profits, dividends, service fees or capital is now the rule. Business regulations are now among the most liberal in the region. This was confirmed by the World Bank’s Ease of Doing Business Index report published in September 2009 ranking Pakistan (at 85th) well ahead of neighbours like China (at 89th) and India (at 133rd).
Pakistan is attracting an increasingly large amount of private equity and was the ranked as number 20 in the world based on the amount of private equity entering the nation. Pakistan has been able to attract a large portion of the global private equity investments because of economic reforms initiated in 2003 that have provided foreign investors with greater assurances for the stability of the nation and their ability to repatriate invested funds in the future.
Tariffs have been reduced to an average rate of 16%, with a maximum of 25% (except for the car industry). The privatisation process, which started in the early 1990s, has gained momentum, with most of the banking system privately owned, and the oil sector targeted to be the next big privatisation operation.
The recent improvements in the economy and the business environment have been recognised by international rating agencies such as Moody and Standard and Poor (country risk upgrade at the end of 2003).
Foreign acquisitions and mergers
With the rapid growth in Pakistan’s economy, foreign investors are taking a keen interest in the corporate sector of Pakistan. In recent years, majority stakes in many corporations have been acquired by multinational groups.
PICIC by Singapore based Temasek Holdings for 9 million
Union Bank by Standard Chartered Bank for 7 million
Prime Commercial Bank by ABN Amro for 8 million
PakTel by China Mobile for 0 million
PTCL by Etisalat for .8 billion
Additional 57.6% shares of Lakson Tobacco Company acquired by Philip Morris International for 2 million
The foreign exchange receipts from these sales are also helping cover the current account deficit.
Foreign trade
Pakistani exports in 2005
Pakistan is a member of the World Trade Organization, and has bilateral and multilateral trade agreements with many nations and international organizations.
Fluctuating world demand for its exports, domestic political uncertainty, and the impact of occasional droughts on its agricultural production have all contributed to variability in Pakistan’s trade deficit.
In the six months to December 2003, Pakistan recorded a current account surplus of .761 billion, roughly 5% of GDP. Pakistan’s exports continue to be dominated by cotton textiles and apparel, despite government diversification efforts. Exports grew by 19.1% in FY 2002-03. Major imports include petroleum and petroleum products, edible oil, chemicals, fertilizer, capital goods, industrial raw materials, and consumer products.
Past external imbalances left Pakistan with a large foreign debt burden. Principal and interest payments in FY 1998-99 totaled .6 billion, more than double the amount paid in FY 1989-90. Annual debt service peaked at over 34% of export earnings before declining.
With a current account surplus in recent years, Pakistan’s hard currency reserves have grown rapidly. Improved fiscal management, greater transparency and other governance reforms have led to upgrades in Pakistan’s credit rating. Together with lower global interest rates, these factors have enabled Pakistan to prepay, refinance and reschedule its debts to its advantage. Despite the country’s current account surplus and increased exports in recent years, Pakistan still has a large merchandise-trade deficit. The budget deficit in fiscal year 1996-97 was 6.4% of GDP. The budget deficit in fiscal year 2003-04 is expected to be around 4% of GDP.
In the late 1990s Pakistan received about .5 billion per year in loan/grant assistance from international financial institutions (e.g., the IMF, the World Bank, and the Asian Development Bank) and bilateral donors. Increasingly, the composition of assistance to Pakistan shifted away from grants toward loans repayable in foreign exchange. All new U.S. economic assistance to Pakistan was suspended after October 1990, and additional sanctions were imposed after Pakistan’s May 1998 nuclear weapons tests. The sanctions were lifted by president George W. Bush after Pakistani president Musharraf allied Pakistan with the U.S. in its war on terror. Having improved its finances, the government refused further IMF assistance, and consequently the IMF program was ended. The government is also reducing tariff barriers with bilateral and multilateral agreements.
While the country has a current account surplus and both imports and exports have grown rapidly in recent years, it still has a large merchandise-trade deficit. The budget deficit in fiscal year 2004-2005 was 3.4% of GDP. The budget deficit in fiscal year 2005-06 is expected to be over 4% of GDP. Economists believe that the soaring trade deficit would have an adverse impact on Pakistani rupee by depreciating its value against dollar (1 US $ = 60 Rupees (March 2006) ) and other currencies.
One of the main reasons that contributed to the increase in trade deficit is the increased imports of earthquake relief related items, especially tents, tarpaulin and plastic sheets to provide temporary shelter to the survivors of earthquake of October 8, 2005 in Azad Jammu and Kashmir and parts of the NWFP, an official said. The rise in the trade gap was also fuelled by high oil import prices, food items, machinery and automobiles.
The Petroleum Ministry says that this year the bill of oil imports was expected to reach .5 billion against .6 billion in the last fiscal year, which is the main reason behind the all-time high trade deficit.
The EU is the single largest trading partner of Pakistan absorbing over one-third of the exports in 2003.
Exports
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