BERIEF COMMENTARY ON THE CURRENT

STATE OF ECONOMY OF PAKISTAN

Researched & Compiled by
Insaf Research Team
irt@insaf.pk
Adnan F. Rehman: 03454888878
Faisal Hameed: 03314077640
Rana M. Ahmad: 03018444472
Shahbaz A. Khan:03147779222




Date: Apr 23, 2014


Insaf Research Team (IRT)

1

BERIEF COMMENTARY ON THE CURRENT STATE OF
ECONOMY OF PAKISTAN

Macroeconomic and security challenges continue to weigh on the
economy. Growth is expected to remain modest in Fiscal Year 2014, largely
reflecting fiscal consolidation to deal with high deficits that have caused
macroeconomic imbalances.

The government has embarked upon a program of fiscal and structural
reform, supported by an Extended Fund Facility Arrangement with the
International Monetary Fund, to restore macroeconomic balance, relieve energy
shortages, and guide the economy toward faster and more sustainable growth.

Economic Performance Indicators:
Moderate growth in gross domestic product (GDP) in FY2013 reflected
weak macroeconomic fundamentals in recent years.
Investment remained low as energy shortages and security concerns
continued to undermine investor confidence.


Insaf Research Team (IRT)

2

Fiscal pressures kept the budget deficit very high for the second
consecutive year.
At the same time, however, inflation fell into single digits. Stable global
commodity prices, Coalition Support Fund (CSF) inflows, and continued
growth in worker remittances reined in the current account deficit.
GDP growth slowed to 3.6% in FY2013 (ended 30 June 2013) as weak
expansion in the large service sector more than offset improved growth in
manufacturing.

Economic Performance by SBP:
The State Bank of Pakistan (SBP) projected gross domestic product (GDP)
growth between 3-4% in fiscal year 2013-14 (FY14), which is higher than
the International Monetary Funds (IMF) growth forecast of 2.5 percent to
3.0 percent.
Pakistans economy grew at 3.6 percent and inflation fell to a single-digit
in FY13, says the SBPs Annual Report on the State of Economy for FY13.
It said soft global commodity prices, downward revision in energy prices
and a relatively stable exchange rate allowed the average inflation rate
to fall to 7.4 percent in FY13, which was much lower than the 9.5 percent
target for the year.

Insaf Research Team (IRT)

3

According to the report, robust growth in construction activity and
capacity enhancement in a few sub-sectors supported the industrial
sector.
Global prices helped contain Pakistans import bill, and there was some
improvement in exports. Furthermore, higher than anticipated Coalition
Support Fund (CSF) inflows, and modest growth in workers remittances,
reduced the current account deficit to 1.0 percent of GDP in FY13.
The SBP report said that challenges in managing public sector enterprises,
the need to expand the tax net to untaxed or under-taxed areas, to
contain untargeted subsidies, to tackle theft and leakages in the energy
sector; to revitalize the private sector, and to increase documentation,
were largely unaddressed during FY13.

Economic Performance by IMF:
According to IMF, Pakistan has met nearly all of its quantitative
performance markers, that its economy is showing signs of improvement
and that its reform program remains broadly on track.
The nuclear-armed nation of 180 million people faces a host of obstacles
as it tries to restructure its economy and buoy its dangerously low foreign
currency reserves, which stand at $8.3 billion.

Insaf Research Team (IRT)

4

While trying to reel back expenditures and reorganize steep subsidy bills,
officials say it is essential that economic reforms do not hurt the millions of
Pakistanis who live in poverty on less that $2 a day.
Pakistan signed a $6.7 billion loan with the IMF in September13 to
rebuild its reserves after more than two years of depletions and support
structural changes aimed at boosting investment and growth.
The IMF loan to Pakistan came less than six years after the country's last
IMF bailout, and the driving need for the money this time was to repay
the institution nearly $5 billion that Islamabad still owes.
As part of that agreement, the IMF conducts periodic reviews in order
for its executive board to approve installments of $550 million spread
out over three years.
Pakistan has already undergone one economic review and received
two installments totaling nearly $1.1 billion.

In conclusion, on current economic prospects of Pakistan GDP growth is
projected at 3.4% for FY2014, marginally slower than in FY2013. Agriculture is
expected to be weaker due to a drop in cotton output, which partly offset the
improvement in sugarcane and rice crops. Ongoing rains, however, may benefit
the upcoming wheat crop, despite a reduction in the sowing area this year.

Insaf Research Team (IRT)

5

GDP growth is expected to be higher in FY2015, at 3.9%, as the impact of
fiscal consolidation eases somewhat, energy supplies improve, and the global
economy strengthens.

Selected Economic Indicators of Pakistan
Selected Economic Indicators (%)
Pakistan
2014 2015
GDP Growth 3.4 3.9
Inflation 9.0 9.2
Current Account Balance (share of GDP) -1.4 -1.3
Source: ADB. 2014. Asian Development.

References / Source:
1) Economy of Pakistan by ADB: http://www.adb.org/countries/pakistan/economy
2) Economy of Pakistan by SBP: http://www.sbp.org.pk/ecodata/index2.asp#monetary
3) Economy of Pakistan by IMF: https://www.imf.org/external/country/PAK/