PRESENTATION ON
The Present Economic Outlook
for Pakistan
By
Ministry of Finance
Government of Pakistan
April, 2006
1
Outline of Presentation
Key Macroeconomic Challenges of the 1990s
How did we address those challenges
Where Are We Now?
Where do we want to see Pakistan in the next five years
Key Macroeconomic targets for the next five years
New Challenges
How to address new challenges
Concluding remarks
2
Overcoming macroeconomic challenges
· 1990s Macroeconomic Scenario
– Macroeconomic imbalances leading to buildup of public debt,
deceleration of growth and investment, and stagnation in exports
· Challenges of the 90s
– Improve macroeconomic environment
– Bring debt situation under control
– Restore investor confidence
– Revive economic growth
– Restore financial sovereignty
· 2000-onwards: Two-pronged Strategy followed
– Policies pursued to strengthen macroeconomic environment
– Introducing wide-ranging structural reforms
6
3
Policies pursued to strengthen macroeconomic
environment
· Reducing “Twin Deficits”
· Keeping inflation low
· Building foreign exchange reserves
· Maintaining stability in exchange rate
· Maintaining consistency and continuity in policies
7
4
Strong commitment to reform agenda
Major
economic
reforms
Tax ReformsTax Reforms
Governance Governance
ReformsReforms
Capital Market Capital Market
ReformsReforms
Industry & Industry &
Investment Investment
ReformsReforms
Fiscal Fiscal
TransparencyTransparency
Agriculture Sector Agriculture Sector
ReformsReforms
Financial Sector Financial Sector
ReformsReforms
Deregulation Deregulation
& &
PrivatizationPrivatization
Fiscal Responsibility & Debt Limitation ActFiscal Responsibility & Debt Limitation Act
8
5
Improved external balance of
payments
Increased foreign exchange reserves
Exports growing at double-digit rates
Pakistan’s economy has made significant progress
during the last six years
A vibrant economy A vibrant economy
spurred by FDI and spurred by FDI and
domestic investment in domestic investment in
infrastructureinfrastructure
Transparent and predictable
economic policies
Reform policies institutionalized,
ensuring continuity
Confidence of the
private sector
restored
Inflows of
remittances surged
Fiscal and current
account deficits
lowered
Declining domestic and
external debt burden
A vibrant economy A vibrant economy
spurred by FDI and spurred by FDI and
domestic investmentdomestic investment
9
Where Are We Now ?
7
Robust Economic Growth
Real GDP growth (% yoy change)
Source: Federal Bureau of Statistics
6.
5
7.
0
8
Per Capita Income ($)
Per Capita Income Continues to Rise
Source: Federal Bureau of Statistics
9
New Jobs Created
Labour Force
Survey
Employment
(in millions)
Number of New
Employment
(in millions)
FY 00 -
FY 02
FY 04
FY 06 (Q1)
Source: Labour Force Survey, FBS
10
Reduction in Poverty
Area 2000-01 2004-05
Changes
(% Points)
Overall
Rural
Urban
Source: Center for Research on Poverty Reduction and Income Distribution (CRPRID)
11
Foreign investment
Foreign Investment (US$ million) including Privatization Proceeds
Source: SBP
12
Net Credit Flows
to the Private Sector
13
Banks
Fuel &
Energy
Non
Energy
Non
Banks
Rising Profitability Driving Growth
Source: KSE
14
Currency stabilization and buoyant stock market
reflects optimism in the Pakistan economy
Source: Bloomberg
Exchange rate (PKR/USD) Pakistan’s Karachi Stock Exchange Index - 100
25
15
Improving budgetary position
Overall fiscal deficit (% of GDP)
Source: Ministry of Finance
16
Growing Revenue Collection helps boost up
the economy
Increase Revenue Collection (Rs. Billion)
Source: Ministry of Finance & CBR
CBR Revenue
17
Overall interest payment ratios
have improved
Interest Payments (As % of Total Revenue)
Source: Ministry of Finance
18
Low inflation has provided monetary
flexibility
Source: FBS
Inflation (%) (Base year 2001 = 100)
19
Month-wise Trend in Inflation
Supply Side Actions
•Projected
20
Regional Price Comparison of Essential Commodities
Source: FBS & Ministry of Commerce
COMPARISON OF PRICES OF ESSENTIAL HOUSEHOLD BUDGET ITEMS WITH REGIONAL
COUNTRIES in Pak Rupees
S# Items Unit
Islamabad New Delhi Kabul Tehran
28/03/06 27/03/06 19/03/06 22/03/06
1 Wheat KG -
2 Wheat Flour KG -
3 Rice Basmati KG
4 Moong Pulse KG
5 Mash Pulse KG -
6 Masoor Pulse KG
7 Gram Pulse KG
8 Onion KG
9 Tomatoes KG
10 Garlic KG
11 Chicken Farm KG
12 Mutton KG
13 Sugar KG
16/03/06 10/3/2006 19/03/06 22/03/06
14 Diesel Litre
15 Petrol (Super/Octane 90) Litre
16 Kerosene Oil Litre
21
Money Supply, Inflation & Growth
M2
Nominal
GDP
Inflation
Real GDP
22
Low interest rates encouraged private
investment and fuelled growth
Weighted Average Lending Rate (% per annum)
Source: SBP
23
Exceptionally strong external liquidity
Source: SBP
Imports and Exports (US$ million)
24
As confidence in the economy builds,
remittances from abroad have risen sharply
Source: SBP
Remittances (US$ million)
25
Current account (% of GDP)
Current account deficit remains
under control
Source: SBP
26
Financial Flows (Million $) 2005-06 2004-05
Privatization Proceeds 1645 363
Grants 637 231
Capital Markets 1500 600
Project & Program Aid 2893 2044
Foreign Investment 1850 1676
Total 8525 4914
Current Account Deficit -5353 -1753
Amortization -1042 -1434
Other Payments - 416 -1500
Total -6811 -4687
Addition to Reserves 1714 227
Source: Ministry of Finance
27
...aided by a phenomenal buildup
in FX reserves
Source: SBP
Foreign exchange reserves (US$ billion)
Debt Profile of Pakistan
29
PUBLIC DEBT (As % of GDP)
( End June )( End June )
Source: Debt Office, Ministry of Finance
30
EXTERNAL DEBT AND LIABILITIES
(% of Foreign Exchange Earnings)
Significantly reducing vulnerability to external shocks
Source: Debt Office, Ministry of Finance
31
INDICATORS OF DEBT BURDEN
External Debt (As % of GDP)External Debt (As % of GDP)
Source: Debt Office, Ministry of Finance
32
INDICATORS OF DEBT BURDEN
External Debt As Multiples of FX ReservesExternal Debt As Multiples of FX Reserves
Source: Debt Office, Ministry of Finance
Pakistan’s Economy
In the Next Five Years
34
Pakistan’s Economy in the Next Five Years
Strong Economic Growth Ranging between 6 – 8% .
Stable Macroeconomic Environment
Debt Burden Reaching Sustainable Level
Lives of the Common Man Improving
Social Indicators Improving
Key Macroeconomic Targets
For The Next Five Years
36
Key Macroeconomic Targets for the Next Five Years
Sustainable Budget Deficit Ensuing Macroeconomic Stability
·· Continue to Maintain Macroeconomic StabilityContinue to Maintain Macroeconomic Stability
Source: Ministry of Finance
37
Public Debt Attaining Sustainability
·· Continue to Maintain Macroeconomic StabilityContinue to Maintain Macroeconomic Stability
Key Macroeconomic Targets for the Next Five Years
Source: Ministry of Finance
38
Country No Longer Vulnerable to External Shocks: External Debt As % of GDP
·· Continue to Maintain Macroeconomic StabilityContinue to Maintain Macroeconomic Stability
Key Macroeconomic Targets for the Next Five Years
Source: Ministry of Finance
39
Investment as % of GDP Rising
·· Rising InvestmentRising Investment
Key Macroeconomic Targets for the Next Five Years
Source: Ministry of Finance
40
Pakistan on a higher Growth Trajectory
·· Sustaining Growth MomentumSustaining Growth Momentum
Key Macroeconomic Targets for the Next Five Years
Source: Ministry of Finance
New Challenges
42
Second
generation
reforms
Second generation reforms
Improving
competitiveness of
industry
Facilitate expansion
and increased role
of private sector
Further strengthening of tax
administration
Promoting
transparency in
economic policy
making
Judicial reform,
Police Reform and
Civil Service Reform
Strengthening
institutions
32
Building robust
financial system
Further strengthening of tax
administration
43
Continuing Economic Agenda
i. Curtailing High Energy Costs
• Power Sector Reforms
• Hydel Power
• Gas Pipelines
• Reforms of Oil and Gas industry
ii. Removing Water Shortages
• Water Reservoirs
• Management of Water Resources
• Efficient Usage at the Farm Level
44
Continuing Economic Agenda
iii. Improving Logistics & Removing Supply Chain
Constraints
· National Trade Corridor
· Retail & Wholesale Markets Development
· Ports Modernization
· Modernizing Transport Fleet
iv. Unlocking the Land Bank
· NIPs (National Industrial Parks)
· Release of Government Land ( Defence, Railways,
Provincial Governments etc.)
· Computerization of Land Transactions
45
Continuing Economic Agenda
v. Removing Skills Gap & Enhancing Productivity
· NTEVTA
· 5 New Engineering Universities & HEC Initiatives
· Education Sector Reforms
vi. Boosting Agriculture Sector Development
· Livestock Sector
· Fisheries
· Horticulture & Value Added Agriculture
· Research & Extension Services
· Yield Enhancement
46
Continuing Economic Agenda
vii. Tourism & Hotel Industry Expansion
viii. SMEs & One Village One Product
ix. Sustaining Industrial Development Beyond Textiles
x. Developing Knowledge Based Industry &
Outsourcing
xi. Strengthening Growth Prospects of Service Sector
xii. Obtaining Preferential Access to Global Markets
47
Conclusions
i. Economy Continues to Grow Strongly
ii. Reduction in Unemployment
iii. Growing Profitability of Private Sector
iv. Robust Banking System
v. Strong Growth in Diversified Sectors
vi. Vibrant Telecom Sector
vii. Strong Domestic & External Demand Sustaining Economic
Growth
viii. Growing opportunities in Infrastructure
ix. Growing Role of the Private sector
