KARACHI: State Bank of Pakistan (SBP) has forecast that

economic growth could come down to 2.5 percent

from an earlier target of 4.5 percent for 2010-11. The
said forecast was made at the SBP’s central board of directors meeting held on Wednesday, which also
announced hike in policy rates by 50 basis points to 13.5 percent. Moreover, the central bank has also
forecast deceleration in aggregate private consumption countrywide as a result of the government’s
most likely measures to meet the urgent needs of the flood victims and their rehabilitation – leading to a
sharper deterioration of the fiscal accounts. It reflects substantial risks to economic stability in the near
future and puts a considerable pressure on the debt-ridden country in the medium term. Rising Non-
Performing Loans (NPLs) and relatively low private sector credit demand may incentivise the already
risk-averse banks to meet government’s borrowing requirements at the cost of private investment in the
economy. This could make the task of reviving economic growth and bringing inflation down to single
digit level much more difficult. Dependence on foreign borrowings has also increased due to continuous
decline in domestic national savings and private foreign investments in the country. The substantial
narrowing of the external current account deficit in FY10 provided some breathing space. After
registering a reduction of 2.3 percent in FY10, imports seem all set to grow significantly, especially after
the floods, and may post a double digit growth in FY11. Although growth in exports was also projected
to increase in FY11, the recent floods and the resulting disruption in productive activity could act as a
dampener if the damage to the cotton crop turns out to be extensive. Thus, the expected increase in the
external current account deficit and uncertain foreign inflows could put pressure on SBP’s foreign
exchange reserves and exchange rate in FY11. Nevertheless, the components of the economic strategy
that should be in focus despite uncertainty would include implementation of tax reforms to enhance
much needed revenues, resolution of the energy sector subsidies and circular debt to restore economic
growth, relief measures for those affected by the floods, and containment of government borrowing
from SBP to restrict inflation. Committed and credible progress on these fronts will be crucial for
restoring confidence and stability and stimulating economic growth, otherwise the burden of any
adjustment will continue to fall on the engine of growth, the private sec
GDP Growth Definition
Economic growth is the increase in value of the goods and services
produced by an economy. It is conventionally measured as the percent rate of increase in real
gross domestic product, or GDP. Growth is usually calculated in real terms, i.e. inflation-
adjusted terms, in order to net out the effect of inflation on the price of the goods and services
produced. In economics, "economic growth" or "economic growth theory" typically refers to
growth of potential output, i.e., production at "full employment," which is caused by growth in
aggregate demand or observed output.As economic growth is measured as the annual percent
change of National Income it has all the advantages and drawbacks of that level variable. But
people tend to attach a particular value to the annual percentage change, perhaps since it tells
them what happens to their pay check.

The real GDP per capita of an economy is often used as an indicator of the average standard of
living of individuals in that country, and economic growth is therefore often seen as indicating an
increase in the average standard of living.However, there are some problems in using growth in
GDP per capita to measure general well being.GDP per capita does not provide any information
relevant to the distribution of income in a country. GDP per capita does not take into account
negative externalities from pollution consequent to economic growth. Thus, the amount of
growth may be overstated once we take pollution into account. GDP per capita does not take into
account positive externalities that may result from services such as education and health. GDP
per capita excludes the value of all the activities that take place outside of the market place (such
as cost-free leisure activities like hiking).

Economists are well aware of these deficiencies in GDP, thus, it should always be viewed merely
as an indicator and not an absolute scale. Economists have developed mathematical tools to
measure inequality, such as the Gini Coefficient. There are also alternate ways of measurement
that consider the negative externalities that may result from pollution and resource depletion (see
Green Gross Domestic Product.)The flaws of GDP may be important when studying public
policy, however, for the purposes of economic growth in the long run it tends to be a very good
indicator. There is no other indicator in economics which is as universal or as widely accepted as
the GDP.Economic growth is exponential, where the exponent is determined by the PPP annual
GDP growth rate. Thus, the differences in the annual growth from country A to country B will
multiply up over the years. For example, a growth rate of 5% seems similar to 3%, but over two
decades, the first economy would have grown by 165%, the second only by 80% (source:
wikipedia).
tor.

Pakistan GDP Growth Rate

The Pakistan economy expanded 2.00 percent over the last year, as measured by the year-over-year change in
Gross Domestic Product (GDP YoY). Unlike the commonly used quarterly GDP growth rate the annual GDP
growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of
seasonal adjustment. The Pakistan Gross Domestic Product is worth 167 billion dollars or 0.27% of the world
economy, according to the World Bank. From 1998 until 2009, Pakistan's average annual GDP Growth was
4.92 percent reaching an historical high of 9.00 percent in December of 2005 and a record low of 2.00 percent
in December of 2001. This page includes: Pakistan GDP Growth Rate chart, historical data and news.

Country Interest Rate Growth Rate Inflation Rate Jobless Rate Current Account Exchange Rate
Pakistan 13.00% 2.00% 12.69% 5.50% -1548 86.1200
The devastation caused by the deluge would have been an enormous challenge for any government anywhere to
meet. In case of Pakistan, the enormity of the challenge assumes even greater proportions in view of the country’s
present predicament: the militancy, which is eating up the country’s most resources; the state of the economy, which
would have crumbled but for the International Monetary Fund (IMF) credit; a laissez-faire ‘popular’ government,
whose big bunch of ministers’ and advisors’ favourite pastime is to harp on their self-proclaimed sacrifices for
democracy; the top political leadership, which commands but does not lead and whose credibility is close to naught
both at home and abroad; the elected representatives, who are apathetic to the problems of those they represent; the
state institutions, which are in decay and decadence; the system of governance, which is rotten to the core, the rule
of law, which is trampled under the feet of the high and the mighty; the society which is becoming increasingly
insensitive and cruel (the latest and the starkest example being the public beating to death of two young men in
Sialkot); and the people, who are naïve enough to be deceived and duped by the same demagogues repeatedly.
The floods have magnified these ills of the polity, economy and society. We begin with the economy, which was in
straits even before the floods had wrought the havoc. At the close of the fiscal year ending June 30, 2010 (FY10),
the major economic indicators by and large presented a dismal picture. Fiscal deficit surpassed the 4.9 per cent
target to reach 5.6 per cent of GDP despite drastic cuts in developmental spending (the PSDP was reduced from Rs
646 billion budgetary allocation to Rs 490 billion).
Inflationary pressures persisted with average CPI inflation of 12 per cent exceeding the nine per cent target.
Investment-GDP ratio had gone down to 16.6 per cent from 19 per cent, while savings-GDP ratio had dropped to
10.1 per cent from 20.3 per cent a year ago. The unemployment rate had gone up to 5.5 per cent from 5.2 per cent
largely due to the increase in urban unemployment to 7.1 per cent from 6.3 per cent.
The only good news was that the real GDP had grown by 4.1 per cent compared with the target of 3.3 per cent.
However, that upward growth rate was made possible by a downward revised growth figure of 1.2 per cent for the
preceding fiscal year.
To be fair, the economic predicament is not the making of the present government and can be ascribed to the three
perennial constraints within which the economy of Pakistan operates: (a) the massive public debt, (b) the need to
maintain a huge military establishment, and (c) the lack of tax culture together with the absence of political will to
bring some holy cows (agriculture income for instance) within the tax net.
The first two constraints dictate that a large portion of the public expenditure is invariably allocated to debt servicing
and defence, while the third constraint ensures that the public revenue, particularly from direct taxes, lags behind
increase in government expenditure and growth of GDP. The result is not only increase in fiscal deficit but also
misallocation of resources.
Hence, as per budgetary allocation for the current fiscal year, defence and debt servicing expenditure together
account for about 66 per cent of current expenditure and 48 per cent of total expenditure. At present, the armed
forces are engaged in putting down insurgency in the northwestern part of the country and therefore it is
understandable that a sizeable part of the national pie is allocated to supporting that effort.
Scarcity of resources necessitates a trade-off among competing needs. If a country spends nearly half of its resources
on mere defence and debt servicing, it will have too little to spend on promoting human capital and infrastructure
development. Hence, not surprisingly collectively allocation for both health and education accounts for less than
three per cent of the GDP, which is well below the desired level. Poverty alleviation and employment generation are
among the basic policy objectives in a developing country like Pakistan. However, attaining this goal requires
substantial investment in human capital development.
Although during last couple of years fiscal deficit has been substantially reduced from 7.6 per cent of GDP during
FY08, the same has been done by curtailing developmental expenditure rather than by increasing tax-GDP ratio,
which is stuck at nine per cent of GDP. Pakistan in fact has one of the lowest tax-GDP ratios in the world. Two
options are available to the government to increase tax revenue: one, to broaden the tax net, for instance, by taxing
agriculture income; two, to increase the existing taxes. For reasons political, the first option has not been exercised,
with the result that those who already pay tax — the salaried class — are burdened with more taxes.
As the State Bank of Pakistan (SBP) has noted in one of its reports, a sharp cut in development spending is neither
sustainable nor desirable, because the government is required to increase spending on human capital development
and widening the social safety net as an effective antidote to extremism.
The floods will adversely affect the economy in several ways. One, to rehabilitate the victims and repair the
infrastructure, the government will have to re-appropriate budgetary allocation. Given the political economy of
Pakistan if any cuts are to be made, the same have to be on the head of development expenditure. Hence, the big
chunk of the funds allocated to development will be diverted to repair and rehabilitation efforts.
Two, due partly to the colossal loss caused to agriculture and livestock and partly to diversion of resources, the
growth of the economy will be retarded. The estimates are that at least one percentage point of the potential GDP
growth will be washed away. When economic growth shrinks, investment level goes down, jobs are lost and
incomes fall. Consequently, unemployment and poverty levels rise.
The rise in unemployment and poverty further reduces the aggregate demand, resulting into lower investment
demand and thus slower GDP growth. Increased poverty and unemployment have enormous social cost, because the
affected people can become a convenient tool in the hands of destabilising forces. This is particularly relevant to
Pakistan, which is facing an insurgency in its northwestern part.
Three, the deluge devastation will make the economy more dependent on foreign credit at a time when developed
countries are trying to recover from recession and hence official bilateral assistance is hard to come by. This makes
credit from multilateral donors indispensable. Already Pakistan is under a 25-month $11.3 billion stand-by
agreement (SBA) with the IMF effective since November 2008. Hence, the country will have to negotiate a fresh
agreement with the IMF. The Asian Development Bank and the World Bank will also provide $2 billion and $950
million in credit respectively. Four, the loss to agriculture and livestock means Pakistan may be in throes of a food
crisis in the days to come, which, inter alia, will strengthen inflationary pressures on the economy. The country will
have to import food, which, together with fall in exports due to loss of the cotton crop, will push up the current
account deficit and add to balance of payment problems.
The socio-political cost of the floods is equally, if not more, threatening. Hundreds of thousands of people have been
deprived of their land and livestock, incomes and means of livelihood. Most of them will move to urban areas in
search of work and a minimum standard of living. But urban areas, already facing large-scale unemployment and
erosion of civic amenities, can hardly accommodate them. The resultant dejection and disappointment can be a
fertile ground for anything ranging from unrest and riots to disorder and chaos.
The way the elected governments have handled the situation, the way they left the majority of the affected people to
themselves, they way embankments in some places were breached to save the property of powerful politicians will
strengthen the growing disenchantment with democracy. That Pakistan has had a sham democracy, there has never
been much doubt about that. But the perception that the people’s governments have so abjectly surrendered the
popular trust has shocked and shaken even the most vehement of their supporters.
Behind every calamity there is an opportunity and the federal finance minister believes that the havoc wrought by
the floods can provide the impetus for taking some tough decisions. Only if the people in power woke up from their
slumber, eschew narrow ethnic and political considerations, and put their heads together as to what went wrong and
what can be done to avert another such calamity, that can be the redeeming feature of the floods.