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Faraz Ali Khalid Hameed Ali Shayan Saqib Ali Kashif Zulfiqar
Economic Indicator
Forex Reserves (11th June 2011) Inflation CPI% (July-May 2011) Exports (July-May 2011) Imports (July-May 2011) Trade Balance (July-May 2011) Current Account (July-May 2011) Remittances (July-May 2011) Foreign Investment (July-May 2011) Revenue (July-May 2011) Foreign Debt (May 2011) Domestic Debt (May 2011) GDP Growth FY11 Per Capita Income FY11
Value
$17.52b 14% $22.78b $36.55b $(14.11b) $205m $10.10b $1.74b Rs 1147b $59.54b Rs 5617b 2.4% $1254
macroeconomic framework of the country. The country in the year under review also saw the unprecedented calamity of the great floods. These floods wiped out about 2 percentage points from the growth as well as inflicted a massive damage of $10 billion on countrys economic structure. Some 20 million people were displaced as more than 50,000 Sq. Km area was submerged in water. It was of the view of the some experts that the water of floods went into sea was worth of $2 Billions. The last but not the least is an unending story of corruption.
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2.0 3.1 4.7
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11P
The growth in the agriculture is estimated at 1.2 percent on the back of 3.7 percent growth in the livestock sector.
Agricultural Growth
6 4 2 0 -2 -4 -4.0 -6 -7.8 -8 1.4 1.9 2.2 4.8 4.3 3.7
2009-10
Major Crops
-2.4
Minor Crops
Livestock
Fishing
Forestry
-0.4
2010-11P
Major Crops accounting for 31.1 percent of agricultural value added registered negative growth of 4.0 percent compared to a negative growth of 2.4 percent last year and a target of 3.7 percent. Minor crops registered a growth rate of 4.8 percent compared to the target of 3.0 percent and massive negative growth of 7.8 percent last year. Livestock was also affected by floods calamity and shown growth of 3.7 percent as compare to 4.3 percent last year. Fishing recorded an increase in growth by 1.9 percent as compared to last year of 1.4 percent due to availability of water after floods.
Cotton production has decreased from 12,913 thousand bales in 2009-10 to 11,460 thousand bales in 2010-11, showing a decrease of 11.3 percent. Wheat production has increased from 23,311 thousand tons in 2009-10 to 24,214 thousand tons in 2010-11, showing an increase of 3.9 percent. Rice production has decreased from 6,883 thousand tons in 2009-10 to 4,823 thousand tons in 2010-11, showing a decrease of 29.9 percent. Sugarcane production has increased by 12 percent to 55.3 million tons in 2010-11 from 49.4 million tons last year. Gram production has increased from 562 thousand tons in 2009-10 to 523 thousand tons in 2010-11, showing a decrease of 6.9 percent. Maize production has increased from 3,262 thousand tons in 2009-10 to 3,341 thousand tons in 2010- 11, showing an increase of 2.4 percent. In minor crops, the production of potato, onion and mash increased by 18.6 percent, 11.2 percent and percent, respectively. However, the production of mung, chillies and mash decreased by 35.5 percent, 8.6 percent and 2.7 percent respectively. Agriculture credit disbursement of Rs. 168.7 billion during July-March 2010-11 is higher by 1.4 percent, as compared to Rs. 166.3 billion over the same period last year. The domestic production of fertilizers during the first nine months (July-March 2010-11) of the current fiscal year was higher by 2.7 percent as compared with corresponding period last year. On the other hand, the import of fertilizer decreased by 50.4 percent, the off-take of fertilizer also decreased by 11.3 percent during the same period last year.
Output in the manufacturing sector has witnessed expansion of 3 percent in 2010-11 as compared to expansion of 5.5 percent last year on the back of strong performance from small and medium manufacturing sector
Large-scale manufacturing grew by 0.98 percent (July-February 2010-11 incorporated in the national accounts but the growth is now 1.7 percent in July-March 2010-11) as against 4.9 percent of last year. Whereas Small-scale manufacturing shown constant growth of 7.5 percent. The services sector grew by 4.1 percent against the target of 4.7 percent and actual outcome of 2.9 percent. Within services sector: Transport, Storage and Communication grew by 3.9 percent as compared to 4.6 percent last year and the target for the year of 5.1 percent. Wholesale and retail trade sector recorded negative growth of 6.3 percent in 2010-11 as against contraction of 11.3 percent last year. Finance and insurance sector recorded growth of 1.8 percent in 2010-11 as compare to 3.5 bpercent last year. Public administration and defense posted a stellar growth of 13.2 percent as compared to 2.5 percent in last year. Social Services Sector grew by 7.1 percent which is slightly higher than the target of 5.0 percent but lower than last years actual growth of 7.8 percent.
Per capita income in dollar term rose from $ 1073 last year to $ 1254 in 2010-11, thereby showing tremendous increase of 16.9 percent. This is mainly because of stable exchange rate as well as higher growth in nominal GNP.
Investment:
Real private consumption rose by 7.0 percent as against 4.0 percent attained last year. However, gross fixed capital formation lost its strong growth momentum and real fixed investment growth contracted by 0.4 percent as against the contraction of 6.1 percent in last fiscal year.
The total investment has declined from 22.5 percent of GDP in 2006-07 to 13.4 percent of GDP in 2010-11. Fixed investment has decreased to 11.8 percent of GDP from 13.4 percent last year. The national savings rate has decreased to 13.8 percent of GDP in 2010-11 as against 15.4 percent of GDP last year. Domestic savings has also declined substantially from 16.3 percent of GDP in 2005-06 to 9.5 percent of GDP in 2010-11.
INFLATION
The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 14.1 percent during (July-April) of the current fiscal year 2010-11, as against 11.5 percent in the comparable period of last year.
The food inflation is estimated at 18.4 percent and non-food 10.4 percent, against 12.0 percent and 11.0 percent in the corresponding period of last year. The core inflation which represents non-food and non-energy prices also decreased from 11.0 percent to 9.6 percent.
The Wholesale Price Index (WPI) during July-April, 2010-11 have increased by 23.3 percent, as against 11.3 percent of last year. The Sensitive Price Indicator (SPI) has recorded an increase of 18.2 percent during July-April, 2010- 11, as against 12.4 percent of last year. The increase in inflation rate during the current year 2010-11 is attributable to the increase in food price inflation which has been mainly due to increase in prices of sugar, milk, poultry, meat, fresh vegetables and fruits owing to shortfall in production of these items and significant increase in world food stuff prices.
from all components of current account balance like trade balance of goods and services, and current transfers. Services account deficit shrank by 28.2 percent during July-April 2010-11 to reach $ 1.4 billion as compared to $1.9 billion during the same period last year. Financial account surplus deteriorated and reached to $ 412 million as compared to $ 3533 million in corresponding period last year. Exchange rate remained more or less stable as rupee depreciated by just 2.2 percent in July-April 2010-11, however, Real Effective Exchange Rate (REER) appreciated by 0.8 percent in the period. Foreign direct investment (private) stood at $1232 million during the first ten months (July-April) of the current fiscal year as against $1725 million in the same period last year thereby showing a decline of 29 percent. Foreign Exchange Reserves amounted to $ 17.1 billion by the end of April, 2011. Of which, reserves held by State Bank of Pakistan stood at $ 13.7 billion and by banks stood at $ 3.4 billion.
MONETARY DEVELOPMENTS:
The SBP has kept its tight monetary policy stance for some time. The SBP has raised the policy rate by 150 basis points (bps) since July 2010. The inflation became a challenge in the aftermath of the floods which compelled the SBP to raise the policy rate further by cumulative 100 bps points to 14 percent up to 30th November 2010. Since then the need for further adjustment in policy rate was not felt simply because the inflation had started moderating and fiscal discipline was restored, with government borrowing from SBP significantly brought down. Government borrowing for budgetary support has recorded an increase of Rs.614.2 billion as compared to Rs.397.6 billion in the comparable period of the last year. Credit to private sector witnessed a net increase of Rs.112.9 billion during July 01, 2010May 21, 2011 as compared to Rs.115.5 billion in the comparable period of last year.
FISCAL DEVELOPMENTS
Fiscal performance both revenues and expenditures have been affected by the floods and the policy adjustments in the face of global rise in prices of energy. The original estimates had to be revised in the light of these unprecedented happenings. Preliminary data suggests that the fiscal deficit is likely to remain between 4-4.5 percent of GDP in the first nine months of the current fiscal year. Part of the increase in the fiscal deficit is explainable on account of higher security related expenditures and the floods, however significant contribution to this increase came from higher subsidies, delay in adoption of tax measures, non-realization of auction of 3-G license and several petroleum related incomes which were affected due to non-resolution of circular debt problem in full. The emerging fiscal situation has reinforced the urgent need to broaden the tax base, rationalize expenditure and to better insulate the economy from shocks.
Public Debt increased by Rs 1162 billion in the first nine months of 2010-11, reaching a total outstanding amount of Rs. 1,002,0 billion; an increase of 13.1 percent in nominal terms. The primary source of increase in public debt during July-March, 2011 has been a sharp rise in local currency component that accounted for 69.7 percent of the total increase in total public debt. This was primarily due to the slower disbursement from multilateral and bilateral donors and higher than budgeted fiscal deficit. The external debt component grew by Rs 275 billion or 6.4 percent partially due to increased foreign public debt inflows and partly because of cross-currency translation effect. Public debt as percent of GDP has decreased to 55.5 percent by end-March 2011 after hovering around to 60 percent of GDP for two years. External Debt and Liabilities (EDL) stood at $ 59.5 billion by end-March 2011 up from end-June level of $55.9 billion. The major chunk originates from translation impact of weaker dollar against major currencies such as euro and yen. IMF outstanding stock stood at $8.9 billion as against $8.1 billion at end-June 2010. Similarly, Paris Club debt went up to $15.1 billion as against $14 billion, only on account of translation effect rather than fresh net disbursements. The net impact of cross-currency valuation cost net addition of $2.7 billion to the external debt stock while total addition to EDL was just $ 4 billion. This implies almost three fourth of addition to debt stock was coming from translational impact. Notwithstanding this adverse impact, EDL grew by just 6.4 percent which is the lowest ever increase in EDL stock in the last five years. Resultantly, the EDL
stock in relative terms has decreased by 3.4 percentage points from 31.6 percent of GDP by end-June 2010 to 28.2 percent by end-March 2011. The debt burden as measured by EDL as percentage of foreign exchange earnings decreased from 146.6 percent by end-June 2010 to 127.2 percent by end-March 2011.
Conclusion
Despite many challenges, the overall performance of the economy has been moderately satisfactory. The recent measures announced for fiscal correction should contribute to a faster recovery and resumption of growth. It was felt by some observers, that the budget deficit --the key indicator of economic stability--will reach unprecedented levels due to the difficult circumstances. However, due to sound economic management and fiscal discipline, the deficit has been contained and is estimated at 5.3% of GDP. To settle the circular debt and get more production out of the existing energy plants, the government has decided to pay additional Rs. 120 billion subsidies from for previous years. This will add an additional 0.6 percent to the deficit, bringing it to 5.9%. However, the outlook for the next year looks bright on this account as the year has fully accounted for the subsidies falling due during the year and substantial correction in such burdens is likely to be made in the years ahead.