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ArticleonPakistan-draftver- Pakistan’s Recent Macroeconomic Performance

ArticleonPakistan-draftver- Pakistan’s Recent Macroeconomic Performance

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Published by mominansari
Pakistan’s Recent Macroeconomic Performance
Pakistan’s Recent Macroeconomic Performance

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Published by: mominansari on Nov 10, 2009
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05/11/2014

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Pakistan’s Recent Macroeconomic Performance
Pakistan is bounded by India, China, Iran and Afghanistan. Its population of 153 million
1
makesit the sixth most populous country in the world. It is strategically located in the region and hasaccess to a long coastline along the Arabian Sea. With a population growth rate of approximately3%, Pakistan’s population is estimated to reach 240 million by the year 2020.
Pakistan Map
Pakistan’s macroeconomic picture has improved considerably over the past five years and theeconomy is expected to maintain its growth momentum. Pakistan’s Gross Domestic Product(“GDP”) grew by 6.6% in the fiscal year ended 30 June 2006 (“FY 2006”) and the estimates forFY 2007 are between 7.0% and 7.3%
2
.This economic growth compares favourably with regional trends. The Figure below showsPakistan’s GDP growth exceeded the regional average last year.Prior to 1999-2000, Pakistan was lagging behind regional average GDP growth. The economicreforms instituted by the Government of Pakistan in 2001 started taking effect, and Pakistanexperienced sustained economic growth from FY 2003 onwards. Beyond 2005, higher oil pricesare expected to dampen GDP growth rates of Asian economies with high oil import bills.However, Pakistan delivered a GDP growth rate substantially higher than the Asian averageforecast of 5.8%.
1
Government of Pakistan estimate. CIA World Factbook estimates 162 million
2
Asian Development Bank
 
GDP Comparative
 
0123456789PakistanAsia excl Japan
Gross Domestic Product
(% change, year on year)
      2      0      0      0      2      0      0      1      2      0      0      2      0      0      2      0      0      2      0      0      6      2      0      0      5
 Source: Economist Intelligence UnitEconomic Trends Are PositiveThe government estimates that income per capita in US Dollar (i.e. nominal) terms has beengrowing at an average rate of 13.5% per annum over the past three years as a result of theimproved macroeconomic stability in Pakistan. From US$579 in FY 2003, it grew to US$736 inFY 2005 and US$830 in FY 2006. Pakistan’s income per capita in 2006 was US$2,590 on aPurchasing Power Parity basis.Pakistan's economic outlook has brightened in recent years in conjunction with the rapideconomic growth and a dramatic improvement in its foreign exchange position. The latter resultsfrom Pakistan’s current account surplus and the consequent rapid growth in hard currencyreserves. In addition, expatriate workers’ remittances have risen 400%.The government has sought and received debt relief from international lenders, reducing itsexternal debt from US$47 billion to US$38 billion during FY 2006-07. The government is usingPakistan's surplus to prepay expensive debt and replace it with debt obtained at lower interestrates as a result of Pakistan’s improved credit rating.The government’s economic agenda includes measures to widen the tax net, privatize publicsector assets, and improve its balance of trade. Pakistan has made governance reforms,privatisation, and deregulation the cornerstones of its economic revival. As a result, it hasreceived a positive endorsement from international financial institutions such as the World Bank,the International Monetary Fund (“IMF”), and the Asian Development Bank (“ADB”), as well asimproved credit ratings from Standard & Poor’s and Moody's.Foreign Direct Investment Is RisingFurther external validation of Pakistan’s progress in returning to the international stage can beseen through foreign direct investment (“FDI”) trends. Pakistan received record FDI of US$3.5
 
billion in FY 2006 in comparison to US$1.7 billion in the previous year. According to Pakistan’sBoard of Investment (“BoI”), the communication sector was the largest recipient of investment, atUS$1.9 billion, followed by the financial sector with US$329 million and the power sector atUS$320 million. The Figure below illustrates the overall trend in total foreign investment inPakistan and provides a break-up by direct and portfolio investment. According to the Ministry of IT & Telecom, the sector alone is expected to receive investment of up to US$13 billion in thenext three to five years.
Foreign Investment in Pakistan
 
-400-200020040060080010001200140016001800
1997-98 1998-99 1999-002000-01 2001-022002-032003-042004-05
Total Foreign Investment (mn US$)Of which: Portfolio InvestmentForeign Direct Investment
Fiscal year June to June
Foreign Direct Investment Trends
 Source: Pakistan Board of Investment

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