– – – – – – – – Population : 164.7 (July 2007 est.) GDP growth rate: 7.0% GDP per capita: US$3,004 (2007) Country Rating: S&P – B+/Positive, Moody’s – Ba3 FX Reserves (2007): US$ 13.1 billion Stock Market Cap. (July 27th 2006): US$49.6bn Primary exports: textiles, leather, rice Primary imports: petroleum, machinery, chemicals
Components of FY07 GDP
Agriculture 15%


Industrial Services 60% 25%


Source: Economic Survey 2005-06


Pakistan’s economy continues to gain traction as it experiences the longest spell of its strongest growth in years. The outcomes of the outgoing fiscal year indicate that Pakistan’s upbeat economic momentum remains on track. Economic growth accelerates to 7.0 percent in 2006-07 at the back of robust growth in agriculture, manufacturing and services. Average real GDP growth during 2003-07 was the best performance since many decades, and it now seems that Pakistan has decisively broken out of the low growth rut that it was in for more than one decade. Economic growth has been notably stable and resilient

Pakistan’s economy turned in a strong performance for the FY07 with a real GDP growth of 7% which remains higher than the desired long term average of 6.6%. This was supported by growth in exports and private investments and also contributed a little to poverty reduction.

Fiscal Responsibility & Debt Limitation Act Consistency & Continuity In Policies

Tax Reforms

Fiscal Transparency

Governance Reforms

Major Economic Reforms

Capital Market Reforms

Agriculture Sector Reforms Industry & Investment Reforms Deregulation, liberalization & Privatisation

Financial Sector Reforms

The government set forward four major policy objectives on the economic front:

Stabilize the country’s debt situation Revive economic growth Arrest the rising trends in poverty and Improve governance

Pakistan's new government, which assumed office under President Musharraf in October 1999, was faced with four main challenges: •Heavy indebtedness •High fiscal deficit •Rising poverty and unemployment •Weak balance of payments

2006 GDP Growth Rate Inflation Monetary Assets M2
As a percentage of GDP

2007 7.0% 7.5% 14%

6.6% 7.9% 15.2%

Fiscal deficit Foreign Debt
In Billions of Dollars

4.2% 30%

4.0% 27.1%

Exports Imports

$16.5 billion $24.9 billion

$13.9 billion $40.4 billion

Regional Comparison - 2005-06
Population bigger than Vietnam, Egypt and Malaysia GDP bigger than Vietnam, Egypt and Malaysia

300 250 200 150 100 50 0
Ph i li p pin es


350 300 250 200 150 100 50 0
Tu rk ey si a

GDP in US$ bn (2005)

pt Ph i lip pin es

ta n

In do ne si a

M al ay sia

M al ay sia

Vi et na m

In do ne

Growth unparalleled*
8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0%
Tu rk ey ta n Pa kis

Pa k is

More fiscal space than others
GDP Grow th

100% 80% 60% 40% 20% 0%
Eg yp t

In do ne si a

In di a



pin es

Pa k is

Public Debt % of GDP

M al ay s ia

Tu rk ey

Ph i li p pin

Source : Economic Survey 2004-05, 2005-06, IMF Annual Report 2006 – Chapter 1: Prospects for world growth *Annual estimates taken from IMF Annual Report 2006

Ph i lip

In do ne si a M al ay sia

Vi et na m

Eg yp

Pa k is

ta n

Vi et na m

Eg yp t

Tu rk ey

ta n

Eg y

Year GDP Agriculture Manufacturing Services Sector

99-00 00-01 01-02 02-03 03-04 04-05 05-06

3.9 2.2 3.1 4.8 7.5 8.6 6.6

6.1 -2.7 0.1 4.1 2.2 6.7 2.5

1.5 8.2 4.5 6.9 14.0 12.6 8.6

4.2 4.7 4.8 5.2 5.9 8.0 8.8

Source: SBP annual report


   

Real GDP growth accelerated to 7.0 percent in 2006-07 as against the revised estimates of 6.6 percent last year and the 7.0 percent target for the year Agriculture enhanced its contribution to real GDP growth of 15 percent The manufacturing sector’s contribution to this year’s real GDP growth declined to 23 percent The construction and banking & insurance sectors grew by17.2 percents and 18.2 percent respectively The banking and financial sector grew at an average rate of 27 percent per annum over the last three years The electricity and gas sectors registered a negative growth of 15.2 percent


The service sector continued to perform strongly for third year in a row and grew by 8.0 percent in 2006-07 as against 9.6 percent last Services sector has grown at an average rate of 8.7 percent per annum Almost 60 percent contribution to this year’s growth has come from services sector.

      

Overall agriculture grew by 5.0 percent in 2006-07 from 1.6 percent last year The major crops witnessed strong recovery by growing at 7.6 percent against a negative growth of 4.1 percent last year Wheat production was up by 10.5 percent to 23.5 million tons Sugarcane production, likewise, Improved by 22.6 percent last year to 54.8 million tons Cotton production at 13.0 million bales remained at last year’s level Rice and maize registered negative growth rates of 2.0 percent and 4.5 percent Gram pulse exhibited an impressive growth of 75.4percent in 2006-07 to 0.842 million tons compared with 0.480 million tons last year


  

Manufacturing is the second largest sector of the economy accounting for 19.1 percent of GDP Overall manufacturing grew by 8.4 percent this year as against 10 percent last year The LSM (large scale manufacturing) sector grew by 8.8 percent against the target of 12.5 percent and last year’s achievement of 10.7 percent The relatively slower pace of expansion this year perhaps exhibits signs of moderation on account of higher capacity utilization, difficulties in the textile sector and lower than expected scale of operations of oil refineries


 

Per capita income, defined as GNP at market price in dollar terms divided by the country’s population, grew by 11 percent this year to US$925 up from US$833 last year The per capita income in dollar terms has grown at an average rate of 13 percent per annum during the last five years, rising from US$ 586 in 2002-03 to US$ 925 in 2006-07. Per capita income grew at a much slower pace of 1.4 percent per annum in the 1990s. Real per capita GDP grew by 5.2 percent in 2006-07 and 5.5 percent on average during the last four years as against 1.4 percent in decade of the nineties.


Pakistan’s economy is undergoing structural shift that are fueling rapid changes in consumer spending patterns Pakistan’s real per capita GDP has increased at an average rate of 5.5 percent per annum over the last four years, giving rise to the average income of the people As opposed to an average annual increase of 1.4 percent during 2000-03, the real private consumption expenditure has grown at an average rate of 7.4 percent per annum during the last four years.


 

 

During the fiscal year 2006-07, the real gross fixed capital formation (real investment) grew by 20.6 percent as against 17.6 percent last year Over the last three years, real fixed investment grew at an average rate of 17.3 percent As percentage of GDP, total investment reached new heights touching 23 percent in 2006-07 increasing from 21.7 percent last year Over the last four years, total investment has increased 6.4 percentage points of GDP, rising from 16.6 Percent in 2003-04 to 23 percent this year Real private investment grew by 19.6 percent this year as against 20.0 percent last year Public sector investment grew by 31.7 percent this year as against 7.3 last year

During the past few years with a pick-up in growth, inflation has also started to rise sharply. There are several internal and external factors which have contributed to the recent pick up in inflation in Pakistan. These factors include: a sharp economic recovery resulting in a rise in the rise in the levels of income with the consequential increase in domestic demand; the effect of the rise in international oil prices; and a sharp pick up in the international prices of essential commodities. Continuously upward adjustments in the administered prices, such as the prices of wheat, as well as lower than expected production of essential perishable (vegetable and fruits) and nonperishable (pulses, sugar, chilies etc) commodities also contributed to inflation. The government has been vigilant about inflation and has taken various steps to augment supplies of essential commodities by liberalizing import regime and allowing imports of several essential items with a view to increasing the supply of those items.

Recent pressure in inflation is being managed carefully to ensure monetary flexibility
10.0 9.0 8.0 7.0 % YoY 6.0 5.0 4.0 3.0 2.0 FY01 FY02 FY03 FY04 FY05 FY06

Source : Economic Survey 2004-05, 2005-06




Monetary policy stance of the SBP has undergone considerable changes over the last several years switching from an easy (2000-03) to a broadly accommodative stance (2003-04) and then from a gradual tightening (2004-05) to an aggressive tightening stance till date. During the fiscal year 2006-07, the SBP also raised the discount rate (policy rate) from 9 percent to 9.5 percent. The increase in interest rates was in conformity with the international rising trends also taken to curtail the lending ability of the commercial banks to the private sector. It aimed to curb strong domestic demand that was one of the main driving forces for fueling inflation


Pakistan’s stock market is benchmarked through the Karachi Stock Exchange 100-index (KSE-100). This index stood at 9989 points at the end of the fiscal year 2005-06. Aggregate market capitalization also increased by 35.0 percent from Rs 2801 billion in June 2006 to Rs 3781 billion ($ 62.3 billion) as of 31st May 2007. Foreign portfolio investment in Pakistan’s stock market during the first ten months of the current fiscal year amounted to $ 1.82 billion, which is the highest ever inflow of portfolio investment in Pakistan’s history, as against $ 1.011 billion in the corresponding period of last year, thereby registering an increase of 80 percent.


A sound fiscal position is an essential prerequisite for achieving macroeconomic stability which is increasingly recognized as a critical ingredient for promoting strong and sustained economic growth and lasting poverty reduction Pakistan has succeeded in reducing fiscal deficit from an average of 7 percent of GDP in the decades of 1980s and 1990s to an average of 3.5 percent during the last seven years. The associated public debt also declined sharply from over 100 percent of GDP to 53 percent by end-March 2007
During the last six years from 2000-01 to 2006-07, tax collection by the CBR increased by 112.8%.

   

The revenue deficit was at a deficit of 0.2% of GDP in 2005-06 compared to a deficit of 2.2% in 2000- 01 It has further progressed towards a targeted revenue surplus of 0.6 percent of GDP in 2006-07 The structure of taxation has undergone considerable changes since the 1990s the share of direct taxes in total taxes increased from 18% to over 38.5% (July-April 2006-07)
 

Total revenues are budgeted at Rs. 1163.1 billion in 2006-07 compared to Rs. 1087.0 billion in 2005-06, showing an increase of 7.0%. The Central Board of Revenue (CBR) is targeted to collect Rs. 835 billion in 2006-07, which is 17.1% higher than last year’s collection.

The share of indirect taxes declined from 82 percent to 61.5 percent (July-April 2006-07) The total expenditure remains more or less stable in a narrow band of 17 to 18.8 percent of GDP during the last seven years

 

Exports were targeted at $ 18.6 billion or 12.9 percent higher than last year. Exports during the first ten months (July-April) of the current fiscal year are up by 3.4 percent – rising from $ 13.46 billion to $ 13.9 billion in the same period last year. In absolute term the overall exports posted an increase of $ 452.1 million in the first ten months of the current fiscal year over the same period last year Pakistan's exports are highly concentrated in a few items namely, cotton, leather, rice, synthetic textiles and sports goods These five categories of exports account for 77.2 percent of total exports during the first nine months of 2006-07 with cotton 61.5%, followed by leather 4.5%, rice 6.6%, synthetic textiles 3.0% and sports goods 1.6% Pakistan’s exports are highly concentrated in few countries including the US, UK, Germany, Japan, Hong Kong, Dubai and Saudi Arabia


 

      

 

Imports were targeted to decline by 2.1 percent in 2006-07 to $ 28.0 billion from last year’s level of $ 28.6 billion Growth in import decelerated to 8.9 percent during the first ten months (JulyApril) of the current fiscal year as against hefty increase of 40.4 percent in the same period last year Disaggregating of total imports suggests that food imports grew by 5.3 percent - up from $ 2241.5 million to $ 2360.6 million. Imports of machinery rose by 18.6 percent – up from $ 3303 million to $ 3916 million Imports of petroleum products registered sharp increase of 38.6 percent Imports of electrical machinery & appliances registered a heavy increase of 35 percent. Imports of raw materials registered a marginal (2.4%) decline mainly on account of 49.4 percent decline in the import of fertilizer Imports of telecom (cell phone as well as equipments, towers etc.) grew by 17.3 percent Pakistan's imports are also highly concentrated in few items namely, machinery, petroleum & petroleum products, chemicals, transport equipments, edible oil, iron & steel, fertilizer and tea These eight categories of imports account for 75.5 percent of total imports during 2006-07. Over 40 percent of them continue to originate from just seven countries namely, the USA, Japan, Kuwait, Saudi Arabia, Germany, the UK and Malaysia.



The merchandise trade deficit widen to $11.1 billion in the first ten months (JulyApril) of the current fiscal year as against $9.5 billion in the same period last year. However, as percentage of GDP, trade deficit is likely to be 9.0 percent in 200607 as against 9.5 percent last year. Thus, trade deficit is expected to improve this year despite less than satisfactory performance of exports.



The external debt and liabilities as percentage of GDP which stood at around 52 percent in end-June 2000, declined to 26.3 percent in end-March 2007. The external debt and liabilities as percentage of foreign exchange earnings was reduced from 236.8% to 119.7% during the same period. Across all measures of vulnerability to external shocks, Pakistan’s debt profile has improved significantly over the last seven /eight years.

Poverty and unemployment are posing serious challenges to the policy makers. The government of Pakistan has launched a poverty alleviation strategy with the help of the IMF and the World Bank; still, 23.9 percent of the people live below the poverty line. The rising population and lack of employment opportunities create persistent unemployment problems in the country. There is a need to devise a comprehensive employment strategy to tackle this gigantic problem.

Investment Highlights: Attractive Policy & Regulatory Fundamentals
– Government Strategy – Infrastructure being brought up to international standard: power, water, telecom and transport networks being overhauled – Increasing expenditure on education: literacy rates rising with increasing enrollment in higher education – Business environment being made conducive: liberalization and deregulation policies – Access to capital: increasing focus on providing finance to SME’s – Leveraging physical location: Pakistan being converted into Asia’s trade, energy and transport corridor

GDP and Per Capita Income Growth
Pakistan’s GDP grew 6.6%YoY in FY06, while per capita income in current dollar terms grew by 14.2%YoY to US$846 in FY06

GDP Growth
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.5% 3.0% 2.0% 1.0%
Source : Economic Survey 2004-05, 2005-06

Per Capita Income*
8.6% 7.5% 6.6%

847 742 669 579 526 442 424 501 503

800 700 600 USD 500 400 300 200 100
* At current dollar prices

4.7% 4.2% 3.9% 3.1% 2.0%





















Currency Stabilization Reflects Optimism in the Pakistan Economy
Exchange Rate (PKR/USD)

65 64 63 62 61 60 59 58 57 56 55 Jul-01 Jul-03 Jul-04 Mar-01 Mar-03 Mar-04 Mar-05 Nov-02 Nov-04 Nov-05 Nov-01 Nov-03 Mar-06 Mar-02 Jul-06 Jul-02 Jul-05

Source : Economic Survey 2004-05, 2005-06

…Foreign Investment and Remittances Surging
Foreign Direct Investment (US$ million) Remittances (US$ million)
5,000 3,521 3,500 3,000 2,500 2,000 1,524 1,500 1,000 500 0 FY01 FY02 FY03 FY04 FY05 FY06 322 485 798 949 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 FY01 FY02 FY03 FY04 FY05 FY06 1,087 2,390 4,237 3,871 4,168



Source : Economic Survey 2004-05, 2005-06

“The Government has no Business to do Business”

The Government’s Role should be confined to:
 

Making Policy and providing good governance Providing a sound and effective regulatory framework, to ensure social equity and economic justice Providing an enabling environment, including physical and technical infrastructure and social services

Privatisation Policy to encourage and promote private sector as “engine of growth” to increase investment and introduce new technology, improve management and increase productivity To ensure better quality, lower cost and higher profits and increased dividends and tax revenues

Broad Based Privatisation Programme
Key Recent Privatisations Financial Institutions
 United

Bank  Habib Bank  National Bank  ICP
 Pakistan

 Strategic

Sale and IPO  Strategic Sale  IPO and Secondary Offering  Sale of management rights
 Strategic

Telecommunicatio n Oil & Gas



 Working

interest in 9 fields  National Refinery  Oil & Gas Development Co  Pakistan Petroleum  Sui Southern Gas Co
 Karachi

 Strategic

Sale  Strategic Sale  IPO  IPO  Secondary Offering
 Strategic  IPO  Strategic

Power Fertilizer

Electric Supply Corp  Kot Addu Power Co
 Pak


Saudi Fertilizer  Pak Arab Fertilizer  Pak American Fertilizer

Sale  Strategic Sale  Strategic Sale

To date the current government has realised over US$5.3bn

In the recent years there has been a considerable improvement in the macroeconomic indicators. External debt burden has been reduced as a proportion of GDP, from 52.6% to 30% from the year 1999 to 2006. The exchange rate has been stabilized, and worker remittances have been improved significantly. Pakistan has also managed to reach to a significant debt reduction in previous years. the

The manufacturing and agriculture sectors emerged as the main engines of growth, experiencing 8.6% and 2.5% growth rates respectively over the year with the services sector growth rate being 8.8%. Manufacturing growth was led by a sharp increase in cotton cloth and cotton yarn production, while the best agricultural performers were wheat and sugarcane. Pakistan’s economy is still at a takeoff stage and faces many challenges ahead.