GDP Growth Rate of

Pakistan
Presented by:
Aiza Khalid
Haiqa Shafiq
Shahzaib Raza Mir
Qadir
The Economy’s Income and Expenditure

• We judge the economic well-being of a nation through the income

it is earning
• If every individual is earning well and above average then the
nation is doing economically well or as poorly
• For an economy it is essential that the income a nation is earning
should be equal to its expenditures because
All the transactions held in a market include a buyer and a seller
Every dollar that is spent by the buyer on a purchase is the same dollar
earnt by the seller
 What is GDP?

• Gross Domestic Product is a monetary measure of value of all the

final goods and services produced in a country (defined
boundaries) over a period of time. (quarterly or yearly)

• Nominal GDP estimates are made commonly to compare and

determine the economic performance of a country or a region.

• GDP helps us to compare the economic activities on an

international level.
 Components of GDP
GDP GOVERNMENT SPENDING’S

Y= C + I + G + (X-M)
EXPORTS
INVESTMEN
CONSUMPTION IMPORTS
T
Consumption
• It includes final consumption expenditure made by a household
• Purchase of goods like
Durable Goods
Non-Durable Goods
Services
• Eg. Food, medical expenses, rent, jewelry
• Largest GDP component
• Consumer’s spending
Investment
• Capital expenditures
• Private domestic investment
• Businesses invest to purchase equipment
• It includes
Construction of new mine
Purchase of technological instruments
Buying goods and services
Expenditure on new house
• Investment on financial products is not included
Buying financial product is saving
• Exchange of existing assets is not included
Government Expenditure
• Government consumption expenditure
• It includes
Investment expenditure by government
Military weapons purchased
Salaries and pensions of Public Servants
• Transfer payments made by government are not considered
• These payments do not reflect the government purchase
• They are part of consumption and are included in “C” of GDP
Net Exports (X-M)
• Gross Exports (X)
Goods and services produced for the consumption of overseas people
GDP includes goods and services produced so exports included as
manufactured in the boundary of a country but for the consumption of
other nations
• Gross Imports (M)
Subtracted from all components so this foreign purchase is not counted
while calculating nation’s GDP
Imports purchased by domestic consumers
Circular Flow Diagram
Calculating GDP
1.Income Approach
• Final income in a country
• Non-income adjustments made to these values
Indirect taxes minus subsidies are added to get market prices.
Depreciation is added to get gross domestic product.

2. Expenditure Approach
• Sum of the total amount of money spent in a country
• Four main components
C=Consumer spending on goods and services
I=Investor spending on business capital goods
G=Government spending on public goods and services
X-M=net exports
Real vs Nominal GDP
Real GDP
• Total value of all of the final
goods and services
• Calculated yearly
• Accounts for inflation
• Reflects changes in real
production
Nominal GDP
• Market value of all final goods
produced within a geographical
boundary
• Measured yearly
• Not adjusted for inflation
• Changes with prices
Real vs Nominal GDP
GDP Deflator
• Measures inflation or deflation
• Calculates ratio of nominal GDP to real GDP
• Compares the levels of real economic activity from one year to another.
• Comprehensive inflation measure
GDP and Economic Well-Being
• Economic well-being
Ability to make economic choices
Absorb financial shocks
Fulfill basic necessities
Build financial assets
Have an adequate income
• GDP is used to compare living standards in different countries.
• GDP is an indicator of overall economic performance.
• High GDP per person indicates high standard of living
Limitation of GDP in Pakistan
• Leisure Preference
Leisure available increased
Not priced in markets and therefore not apparent
in GDP
• Non-Marketed Activities
Not included in calculation of GDP
Unpaid housekeeping services and volunteer work
Can’t assess their market value
• Underground Economy
Includes legal ad illegal activities
Transactions unnoticed by tax authorities
House cleaners, plumbers and nursing
Limitation of GDP in Pakistan
• Quality of life
Not all indicators of good life have monetary value
Low crime rate and active civil organizations
• Poverty and Economic Inequality
GDP doesn’t measure distribution of income
Economic welfare unknown
• Environmental Quality and Resources Depletion
Explanation of finite natural resources
Cannot be measured in terms of money
 Factors Affecting GDP

Aggregate Supply
• Aggregate supply is the total quantity of
output firms are willing and able to produce.
• As price level rises, aggregate supply
increases and thus GDP rises.
Factors Affecting GDP

Aggregate Demand
• Total amount of demand for all finished goods
and services produced in an economy
• Low level of prices increases demand as
consumers purchasing power increases.
• A shift in the demand curve increases GDP
Aggregate Demand/Supply Equilibrium

• The point of intersection of the AS

and AD curve determine the
equilibrium level of the economy.
• The equilibrium indicates that the
economy is at the full employment
level.
• The GDP at is point is equal to the
total expenditure
Growth Rate of GDP
• This rate measures how fast the economy of a nation is growing
• It compares the GDP (economic output) of a country from one year
to the next
• Use real GDP to eliminate the effect of inflation
• Growth rate reported quarterly but calculated yearly to diminish
effect of seasonal growth
• GDP growth rate is affected by its four components
Growth Rate of GDP
• GDP growth is primarily driven by increased personal consumption
and increase in retail sales
• The rate also accelerates due to the investments made by businesses
in order to purchase more capital and this boosts the economy’s GDP
• This may include construction or inventory
• Increased government’s spending helps drag an economy out of
recession
• Exports also drive the growth of GDP but the imports slow it down
and have a negative effect
 Growth Rate
of GDP

The growth rate of GDP in

Pakistan is predicted to
drop from current 5.5% to
even below 3.8% which
will be a decline from the
prior years due to the
recession witnessed as a
result of the global
pandemic that has
affected world economy
greatly.
Per Capita GDP
• It is the economic output of a country per person
• GDP/ Population of country
• Global measure for assessing a nation’s prosperity and economic
growth
• Economic production value attributed to each individual
• Small, rich and industrially developed countries have higher GDP
per capita
• IMF considers GDP per capita for global economy analysis
 Economic Growth
• It is the percentage change in the value of goods and services produced
from one year to the next
• Use real GDP to calculate economic growth rate
• It helps in making
International
Economic Welfare Business Cycle Forecast
Comparisons
Comparisons
Real GD helps in
Real GDP helps us to
This measures the measuring the business
compare the economic
nation’s overall state of cycle fluctuations and
welfare of country with
economic well being predicting a pattern.
the other. (using PPP)
Economic Development
Process by which a nation improves its standards of living
Problems of Pakistan’s Economy
• Our consumption is more than our
savings
• Our net exports are negative
(imports> exports)
• The Government spends more than
it earns as revenue
• Pakistan’s share in the world trade
is decreasing
• Lack of foreign investment
• Aggravating energy crisis and
water shortages
• Unstable political situations
• Weak Government implementation
of Law and Order
• Cost of running a business is
considerably high
• Ignore social indicators; literacy
rates, infant mortality etc.
What needs to be done?
• Educate people and change
their mindset
• Build up human capital
• Extend use of technology
• Utilize the young labor force
and create job opportunities
• Good governance
• Decentralization and devolution
• Maximum utilization of
resources
• Attract foreign investment by
providing incentives
• Increase level of productivity
• Attract foreign cargo Airlines
• Decrease interest rates
• Microcredit (extension of small
loans to unemployed people)
Recent Developments
• Pakistan’s foreign reserves boosted to USD 18 billion due to financial
assistance from UAE and Saudi Arab
• IMF approved loans under Extended Fund Facility
• Imports were stable in the last year
• Current account deficit falling to 5% and is estimated to be 2% by end of
2021
• Poverty rate has declined significantly
• Unemployment rate has decreased over the years and is predicted to
have less fluctuations due to Covid-19.