Economic Problems and

Challenges
2016-17
 Outline
1. Introduction
2. Growth
3. Fiscal Deficit
4. Main Sectors of Economy
I. Agriculture Sector
II. Industrial Sector
III. Services Sector
5. Foreign Trade
6. Public Debt
7. Conclusion
 Fact Sheet 2016-2017
S# Name Number /%
1 Population 207.8m
2 Population Growth Rate 2.4 %
3 GDP Rate 5.28 %
4 GNP 5%
5 Per Capita Income $1,560.7
6 Inflation 4.1 %
7 Expenditure on Health as % of GDP 1.7%
8 Poverty 31%
9 Literacy Rate 57%
10 Trade Deficit 8%
11 Expenditure on Education as % of 2.2%
GDP
 1. Introduction
• During the past five years the economy faced
numerous challenges on external and internal
front on account of;
• Power Crisis,
• Persistent Inflationary Pressures,
• Low Tax To GDP Ratio,
• High Fiscal Deficit, (revenues Rs3.8 trillion,
expenditures Rs5tr).
 1. Introduction
• Mounting Public Debt,
• High Interest Payments,
• High Growth in Subsidies on Account Of
Circular Debt And
• Resource Drain Through PSEs.
• Consequently, the expenditure overrun
surpassed the revenue increases, thereby
resulted pressure on the fiscal deficit.
 1. Introduction
• Pakistan’s economic problems are structural in
nature.
• Major structural reforms which are needed
contains;
• Tax Legislation,
• Trade Reforms,
• Privatization Of State Owned Enterprises (SOEs),
• Financial Sector Reforms,
• Human Resource Development and
• Social Protection.
 1. Introduction
• Major achievements of the outgoing fiscal
year includes:
• picking up economic growth,
• price stability,
• improvement in tax collection,
• reduction in fiscal deficit,
• worker remittances touch new height, and
• foreign exchange reserves remained high
 1. Introduction
• During 2013-16, Pakistan’s economy showed
unprecedented improvement. Earlier,
1. Stagnant and low growth,
2. Rising inflation,
3. High fiscal deficit,
4. Falling revenues,
5. Rising circular debt in the energy sector,
6. Declining reserves,
7. Unstable exchange rate and
8. Declining private sector investments were the
highlights of the economy.
 1. Introduction
• A home-grown economic reforms agenda was
implemented under a three-year IMF programme and
the turnaround was impressive.
1. Growth was revived,
2. Inflation was historically low,
3. Deficit was down to nearly 4 percent from 8.2 percent,
4. Revenues grew by a cumulative 60 percent,
5. Reserves increased to a historic high of $24.5 billion
in October 2016 and
6. The exchange rate was stable.
 2. Growth
• Economy of Pakistan has continued the growth
momentum as the GDP growth reached to 5.28
percent in 2016-17 against the growth of 4.5
percent registered last year.
• The economic growth in outgoing fiscal year is
highest in the last decade, which is an indicator
that there is a strong turn around in economic
activities of the country.
 2. Growth
• Agriculture sector registered a growth of 3.46
percent against the growth of 0.27 percent last
year.
• Industrial sector witnessed the growth of 5.02
percent against 5.80 percent last year, large
scale manufacturing posted growth of 4.61
percent against 3.29 percent last year.
• Services sector recorded 5.98 percent growth
as compared to 5.55 percent last year.
 2. Growth
• After taking measures to restore
macroeconomic stability.
• The government focused on higher GDP
growth that brings better living conditions to
the people through,
• Higher increases in per capita incomes,
• More job opportunities etc.
 2. Growth
• Historical data suggests that the economy
reached a high of above 10 percent growth
level in 1954.
• Above 9 percent in 1969 and 1970.
• Likewise, it reached 7.5 percent in 2004-05
• But slowed down to 5.6 percent next year and
further dropped to 5.5 percent in 2006- 07.
• From 2007-08 to 2012-13 the economy grew
by 3.2 percent on an average.
 2. Growth
• Real GDP growth was above four percent in
2013-14.
• Has smoothly increased during the last four
years to reach 5.28 percent in 2016-17,
• Which is the highest in 10 years.
 2. Growth
• It is widely acknowledged that Pakistan has
immense economic potential.
• According to a report published by Price Water
House Coopers in 2017, Pakistan is projected to
become the world’s 20th largest economy by 2030
and 16th largest by 2050.
• Several other reputed international publications
such as Bloomberg, Economist etc, have also
acknowledged the impressive economic gains of
Pakistan in the last four years.
 2. Growth
• The economy is projected to grow by 5.3
percent in the outgoing fiscal year (FY 2017) –
the highest growth rate in recent years – the
total output needs to expand at a much faster
pace for an economic turnaround.
• For FY 2018, the target growth rate is six
percent and forecasts for next two years put the
GDP expansion at 6.5 percent and seven
percent, respectively.
 2. Growth
• Three main drivers of economic growth are:
1. Consumption,
2. Investment and
4. Export.
• Pakistani society like other developing
countries is a consumption oriented society,
having high marginal propensity to consume.
 3. Fiscal Deficit
• Overall fiscal deficit contracted by an annual
reduction of over 1 percent of GDP owing to
higher revenue receipts, rationalization of
subsidies, and stringent control on current
expenditure.
• Due to prudent expenditure management, the
budget deficit was successfully brought down
to 4.6 percent in FY2016 from 8.2 percent in
FY2013
 3. Fiscal Deficit
• The fiscal deficit has been continuously on low
trajectory.
• 8.2 percent in FY2013,
• 5.5 percent in FY2014,
• 5.3 percent in FY2015 and
• 4.6 percent in FY2016 on account of prudent
expenditure management.
 3. Fiscal Deficit
• For FY 2017 projected fiscal deficit of 4.2
percent of GDP, the target for FY 2018 is 4.1
percent.
• In the next two years, the fiscal deficit will
further be cut to four and 3.2 percent,
respectively.
• As a result, the government aims to attain
higher growth rates coupled with a lower fiscal
deficit.
 3. Fiscal Deficit
• The pace of revenue mobilization has
witnessed an upward trajectory since FY2013.
• Overall revenues increased to 15.3 percent of
GDP in FY2016, compared to 13.3 percent of
GDP recorded in FY2013.
• Among those, tax revenues increased from 9.8
percent of GDP in FY2013 to 12.6 percent of
GDP in FY2016.
 4. Main Sectors of Economy
• Agriculture 19.82 % in GDP

• Industrial 21.20 % in GDP

• Services 59.16 % in GDP

 Agriculture Sector - I
• The agriculture sector accounts for 19.82 percent
of GDP and 42.3 percent of employment with
strong backward and forward linkages.
• It has four sub-sectors including:
• crops,
• livestock,
• fisheries and
• forestry.
 Agriculture Sector - I
• The agriculture sector met its growth target of
3.5 percent, helped by government supportive
policies and by increased agriculture credit
disbursements. Last year growth was 0.19%
• These developments, along with PM’s
Agriculture Kissan Package together with
other relief measures have started yielding
positive results.
 Agriculture Sector - I
• Major crops are cotton, wheat, rice, sugarcane,
maize, gram and other crops potatoes, moong,
onions and chillies mash and masoor (Lentil).
• Improved seeds of various Kharif/Rabi crops.
• Banks disbursements, availability of water and
DAP.
• During 2015-16, credit disbursement was Rs
600b while during 2016-17, it was Rs 700 b.
 Agriculture Sector – I (Problems)
• Under Utilization of Land – 90 Million Acres is
cultivable, 40 Million under cultivation, 60%
wastage.
• Under Utilization of Manpower- in rural sector
15% are paid workers and the rest are self
employed. An estimated 2(m) are unemployed.
• Uneconomic Holding – cultivating units are
small. Input-output ratio is low compared to
bigger farms. Almost half of farmers own only 3
acres or less of land. Main cause Islamic law of
Inheritance and lack of alternative occupation.
 Agriculture Sector – I (Problems)
• Water–Logging and Salinity – Due to leakage of
water from the canals, the water table has come
closer to the surface of soil and the plants are
unable to get air and grow. This is called Water-
logging.
• When this water evaporates the salts contained in
the water spread on the surface. This makes the
surface hot and destroys the plants. This is known
as salinity. An estimated 15 Lakh acres have been
unfit for cultivation due to this.
 Agriculture Sector – I (Problems)
• Lake of Water Supply – Water supply is required
at different stages of cultivation. Inadequate water
damage the crop and its yield. Water supply is
either delayed or less than the requirment.
• Low Per Acre Yield-It is lowest in the world. It is
one third of what is produced in other countries.
Japan and Egypt produce 3 times more rice than
in Pakistan. Same is true about sugercane, cotton
and wheat.
 Agriculture Sector – I (Problems)
• Inadequate use of inputs – which include
chemical fertilizers, improved seeds, plant
protection and mechanization. Seeds defective
and inferior quality.
• Inadequate Rural Infrastructure: Roads and
storage facilities are non-Existing.
• Lack of Extension Services: reach of
agricultural facilities in far-flang areas.
 Agriculture Sector – I (Solutions)
• Increase in irrigation facilities
• Farm Mechanization
• Agriculture Research
• Reclamation program
• Agricultural Price Policy
• Land Reforms
• Credit Policy
• Cooperative Movement
 Industrial Sector - II
• The industrial sector contributes 21.02 percent
in GDP; it is also a major source of tax
revenues for the government and also
contributes significantly in the provision of job
opportunities to the labour force.
• Government planned and implemented
comprehensive policy measures on fast track
to revive the economy.
 Industrial Sector - II
• This sector mainly consist of
• Manufacturing: 65.4 % in industrial sector
• Construction: 12 %
• Mining and Quarrying :14.4 %
• Electricity generation & distribution and
Gas distribution: 8.2%
 Industrial Sector - II
• The manufacturing is the most important sub-
sector of the industrial sector containing 64.71
percent share in the overall industrial sector.
• Growth of manufacturing is registered at 5.00
percent compared to 3.90 percent last year.
 Industrial Sector - II
• Manufacturing has three components;
• Large-Scale Manufacturing (LSM): 80.11%
• Small Scale Manufacturing (SSM):13.12%
• Slaughtering: 6.77%
 Industrial Sector - II
• The LSM growth stood at 5.06 % during FY 2017
compared to 4.6 % last year.
• LSM include Wood Product, Engineering
Products, Paper and Board, Food Beverage and
Tobacco, Rubber products, Iron and Steel
Products, Automobiles, Leather Products,
Electronics, Pharmaceuticals, Chemicals, Non
Metallic mineral, Coke & Petroleum Products,
Fertilizers, Textile.
• Automobile sector such as trucks, tractors, cars &
jeeps and LCVs.
 Industrial Sector - II
• Small scale manufacturing witnessed growth at
8.21 percent against the growth of 8.22 percent
last year and
• slaughtering growth is recorded at 3.63 percent
as compared to 3.35 percent last year.
 Industrial Sector - II
• The share of construction in industrial sector
is 12.29 percent and is one of the potential
components of industries. The construction
sector has registered a growth of 13.10 percent
against the growth of 6.24 percent of last year.
 Industrial Sector - II
• Mining and quarrying sub-sector contains
14.19 percent share of the industrial sector.
This subsector witnessed a growth of 6.80
percent as compared to 4.81 percent last year.
• Soap stone, Crude oil, Gypsum, Coal and Lime
Stone post, Phosphate, Dolomite, Sulphur,
Bauxite, Magnesite.
 Industrial Sector - II
• Electricity generation & distribution and
Gas Distribution is the most essential
component of industrial sector. This sub-sector
has registered growth at 12.18 percent as
compared to 11.98 percent last year.
 Industrial Sector – II (Problems)
• Controversial Industrial Strategy
i. Sectorial Balance between Agri and industry
ii. Balance Regional Development
iii. Growth verses distribution strategy
iv. Small scale verses large scale
v. Capital intensive versus labour intensive
vi. Public sector verses private sector
vii. Rural verses urban
viii. Nationalization versus Privatization
ix. Import substitution versus export promotion
 Industrial Sector – II (Problems)
• Lack of capital
• Limited Market
• Lack of Technical Know how
• Lack of infrastructure
• Lack of industrial research
• Unbalanced industrial structure
• Labour unrest
• Nationalization
• Lack of specialization
 Industrial Sector – II (Solutions)
• Clear strategy for industrial sectors
• Provision of industrial finance
• Provision of infrastructure
• Development of Capital Goods industry
• Industrial Research
• Fiscal Incentive
• Technical Education and Training
 Services Sector - III
• The share of the services sector in GDP has
reached to 59.16 percent in FY 2016.
• Services sector contains six sub-sectors including:
1. Transport, Storage and Communication;
2. Wholesale and Retail Trade;
3. Finance and Insurance;
4. Housing Services (Ownership of Dwellings);
5. General Government Services (Public
Administration and Defense); and
6. Other Private Services (Social Services).
 Services Sector – III (16-17)
• The services sector recorded a growth of 5.98%
and surpassed its target which was set at 5.70%.
• Wholesale and retail trade sector: 6.82 %.
• The Transport, Storage &Communication: 3.94%
• Finance and insurance: 10.77%, mainly because
of rapid expansion of deposit formation (15
percent) and demand for loans (11 percent).
• General government services grew by 6.91%
 Services Sector – III (15-16)
• The Services sector has witnessed a growth of 5.71
percent as compared to 4.31 percent last year.
• The growth performance in services sector is broad
based, all components contributed positively,
• Finance and Insurance at 7.84 percent,
• General Government Services at 11.13 percent,
• Housing Services at 3.99 percent,
• Other Private Services at 6.64 percent,
• Transport, Storage and Communication at 4.06 percent
and
• Wholesale and Retail Trade at 4.57 percent.
 5. Foreign Trade
• Total trade as a percentage of GDP for
Pakistan was reported at 24.5%,
• Compared to an average of 39% for South
Asian countries.
• As total trade includes both exports and
imports, the comparison suggests that Pakistan
is less open to trade, in terms of its GDP,
relative to the other South Asian countries.
 5. Foreign Trade - Exports
• Pakistan’s exports have been facing headwinds
for the past 2 years mostly due to weak global
demand and lower commodity prices.
• The analysis of data on exports shows that for
many product categories, Pakistan exported
higher quantities, but lower international prices
meant that the country was unable to realize
adequate FX receipts.
 5. Foreign Trade - Exports
• According to the World Development
Indicators by the World Bank, exports as a
percentage of GDP for Pakistan were 8.7% in
2016,
• compared to the global average of 29.4% (in
2015) and
• 18% for the South Asian countries.
• Pakistan reported its lowest level since 1971 in
2016.
 5. Foreign Trade - Imports
• The rise in overall import payments was
mainly driven by higher purchases of fuel and
capital equipment.
• This is understandable, given that Pakistan is
transitioning from a low growth to higher
growth economy, and is therefore faced with
supply-side bottlenecks in energy and
infrastructure.
 5. Foreign Trade - Imports
• The Power generating machinery imports
increased by 76.5%
• Textile 20.8 %,
• Construction 66.8 %,
• Agriculture 35.8,
• Other machinery 53.1 percent,
• signaling increasing productivity in the
industrial sector.
 5. Foreign Trade-Problems
• Imports are more than the exports.
• In 2015-16 this gap was of $14 B. (Exports
$20 Billion , Imports $34 Billion).
• Our export base is very narrow . There are five
export oriented sectors leather, sports, surgical,
textile and carpets.
• Our major imports are machinery, petroleum
products
 5. Foreign Trade-Problems
• The decline in exports from Pakistan is likely a
result of
• poor trade facilitation,
• lack of export diversification and
• protectionist and discretionary trade policies
adopted by the government.
 5. Foreign Trade-Solutions
• Expansion of base.
• Exploring more markets
• Trade Related exhibitions
• Resolving regional disputes
• Following international Trading standards
• Product specialization
 6. Public Debt
• Public Debt is a combination of domestic and
foreign debt largely due to fiscal deficit.
• Our foreign debt has risen to $75 Billion.
• Domestic debt is Rs 22 Trillions.
• Getting debt is not bad but its proper
utilization is essential. Examples of Japan and
Germany.
• Our debt is mainly due to security and
economic issues.
 6. Public Debt- June 2016
• Gross public debt was Rs19.68 trillion.
• Net public debt stock was Rs17.83 trillion,
• The net domestic component was Rs11.78 trillion
• The external component was Rs 6.05 trillion.
• Net domestic debt constituted around 66%.
• While the remaining 34% was external debt.
• (Pakistan’s debt: putting the record straight)
Ishaq Dar Published: January 31, 2017)
 6. Foreign Aid
• According to official data prepared by the
Economic Affairs Division, during the last 17
years, the total disbursement of foreign
economic assistance (FEA) to Pakistan,
including all loans and grants from all
creditors stood at $67 billion.
• http://tns.thenews.com.pk/chinese-connection
/#.Wb4cs7IjGpo
 6. Public Debt
• Was the debt a result of our non-
competitiveness internationally and non-
compliance to tax laws domestically?
• Internal debt was largely contracted to fill the
gap between taxes and the FBR’s collection,
• And the external debt to fill the gap between
our foreign currency payments to and from the
world on account of the products and services
we used as individuals, society and a country.
 6. Public Debt
• Governments cannot entirely be excused
though.
• At the heart of the problem also lies the lack of
government policies to build international
competitiveness;
• governmental inefficiency regarding tax
collection is also a factor.
• The former contributing to the growth of
external debt and the latter to that of internal
debt.
 6. Public Debt
• While analyzing debt it’s not prudent to
measure public debt in yards or kilograms as
we often see being done on social media.
• That sort of analysis is misleading. Nor is it
beneficial to quote the debt burden just in
nominal terms or increases, as the opposition
here does.
 6. Public Debt
• A Rs10,000 debt taken by a person with a
Rs10,000 per month salary is not comparable
to the same debt taken by a person earning
Rs100,000. The same principle applies to
national debt.
• Public debt/GDP and external debt/foreign
exchange reserves are the ratios that matter,
not how many billions of dollars of standalone
debt we have.
 6. Public Debt
• In the ultimate analysis it is the external
debt/GDP ratio that is more critical.
• Since theoretically it is in the control of the
government to pay off domestic debt at any
time it wants to by printing more local
currency – although that would have serious
consequences.
 6. Public Debt
• An international comparison of the public
debt/GDP ratios of other countries gives us the
right perspective.
• Our solvency measure, external debt/GDP (the
lower the better) ratio, was 10 percent in 1960
and 31.2 percent in 1969 – a three-times
increase during the first martial law.
 6. Public Debt
• It was at 42 percent in 1977 and 49.5 percent
in 1990 – a 25 percent increase in the third
martial law.
• It was, however, drastically brought down
during the fourth martial law and was 28.5
percent in 2008.
• And even today is at 26 percent while touching
its lowest – 22.85 percent – in 2015. Nothing
disastrous there.
 6. Public Debt
• Our liquidity measure, external debt/foreign
exchange reserves (the smaller the better)
ratio, was 4.4 in 2013 and is 2.7 in 2017.
• Nothing unmanageable there either.
• Similarly, despite a large ($17bn) trade deficit,
thanks to remittances, our overall CA (current
account: the smaller the better) is reduced to
only 1.2 percent of GDP, much improved from
4.8 percent in 2007 and 8.5 percent in 2008.
 6. Public Debt
• True that, since 2013, this government has
borrowed $11.8bn net externally and about
Rs5 trillion ($50bn) domestically to,
respectively, finance the trade and the
budgetary deficit.
• These absolute figures, however, have to be
seen in the context of the rising GDP that was
at $231bn in 2013 and is at $305bn now.
 6. Public Debt
• Our total debt-to-GDP ratio (the lower the
better) has risen from a low of 56.4 percent in
2007 to the current 66.3 percent has come
down from a high of 87.9 percent in 2001 and
has ever since hovered between 56 and 66
percent.
• Before reaching a conclusion, a look at the
total debt-to-GDP ratio of other countries
could help bring in some perspective.
 6. Public Debt
Name of the country Debt-to-GDP Ratio

Pakistan 66.3%

India 69.5%

Sri Lanka 79.3%

Singapore 112%

Malaysia 53.2%

UK 89.2%

Germany 68.3%

USA 106%

Bangladesh 27.2%
 6. Public Debt
• So, while our debt and debt-to-GDP ratio can
and should be brought down severely,
• It’s nowhere near disastrous levels as the
opposition would like us to believe by quoting
absolute numbers rather than percentages.
 6. Public Debt
• Two, if we really want to avoid increases in
our national indebtedness we should become
better taxpayers and
• At the same time make our businesses
internationally competitive rather than hiding
behind protectionism – Bangladesh being the
most pertinent example for us.
 6. Public Debt – Solution
• Self reliance
• Proper utilization of resources.
• Accountability
• Increasing domestic resources
• Proper planning for future
• Good Governance
• Visionary leadership
 Conclusion
• It is concluded that Pakistan is facing
multifarious economic problems and can be
resolved through good governance, proper
utilization of resources, self reliance,
increasing export base, overcoming energy
crises and maintaining law and order situation.