Macroeconomic Management in Pakistan
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Transcript of Macroeconomic Management in Pakistan
111
Dr. Vaqar AhmedPlanning Commission
Pakistan Planning and Management Institute24 December 2009
Current Issues in Macroeconomic Management
Contents• Past Economic Trends
• Economic Shocks
• IMF Programme
• Consultations with FoDP
• Current Challenges
• Way Forward2
Past Economic Trends
3
0
1
2
3
4
5
6
7
8
9
10
2001 2002 2003 2004 2005 2006 2007 2008
% G
row
th
Real GDP Growth
Economic Growth 2001-08
0
1
2
3
4
5
6
7
8
1960s 1970s 1980s 1990s 2000-07
Perc
enta
ge G
row
th
Economic Growth 1960 - 2007
16
16.5
17
17.5
18
18.5
19
1970s 1980s 1990s 2000-07
Perc
enta
ge
Investment to GDP ratio
Investment Performance 1970 - 2007
Share in Exports
0
10
20
30
40
50
60
70
80
90
1970s 1980s 1990s 2000-07
Perc
enta
ge
Primary Commodities Semi-Manufactured Goods Manufactured Goods
0
2
4
6
8
10
12
14
16
18
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
$ B
illio
n
Textile Exports Cotton Exports
Textile/Cotton Exports 1997 - 2007
0
2
4
6
8
10
12
14
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Perc
enta
ge S
hare
Pakistan's Share in World Export of Cotton Cloth
Pakistan’s Share in World Export of Cotton Cloth
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Rs.
Mill
ion
Leather Exports
Leather Exports 1971 - 2005
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
Rs
Mill
ion
Rice Exports
Rice Exports 1971 - 2005
0
50
100
150
200
250
300
350
2002 2003 2004 2005 2006
Mill
ion
Dol
lars
Export of Engineering Goods
Engineering Exports 2002 - 2006
Design DistributionAssembly &
Production
Plus PlusManufacturing
Manufacturing Sector Thrust3
R&D Product Marketing
0 10 20 30 40 50 60 70
Cotton Manufacturers
Leather
Rice
Synthetic Textiles
Sports Goods
Percentage Share in Exports (2007)
Product Diversification
0 5 10 15 20 25 30
USA
Dubai
UK
Germany
Hong Kong
Saudi Arabia
Japan
Major Export Markets (% Share 2007)
Regional Diversification
Economic Shocks
16
17
Economic Shocks & Political Change: 2007-08
• Oil and food price shock
• Severe macroeconomic imbalances• Fiscal deficit• BOP deficit• High inflation
• Structural / infrastructure imbalances• Food shortages• Energy shortages• Circular debt
• Political Change• New Government in March 2008
Unit Values of Imports - Pakistan ( 1990-91=100 )
18
0
100
200
300
400
500
600
700
800
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09*
Overall Food
Food Import Payment (US $ Million)
19
0
100,000
200,000
300,000
400,000
500,000
600,000Ju
l-03
Oct
-03
Jan-
04
Apr
-04
Jul-0
4
Oct
-04
Jan-
05
Apr
-05
Jul-0
5
Oct
-05
Jan-
06
Apr
-06
Jul-0
6
Oct
-06
Jan-
07
Apr
-07
Jul-0
7
Oct
-07
Jan-
08
Apr
-08
Jul-0
8
Oct
-08
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Overall Food Wheat Sugar
Increase in Consumer Price Index (%)
20
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Food Overall
Subsidies and Bank Financing of Deficit (Rs billion)
21
-100
0
100
200
300
400
500
600
2001 2002 2003 2004 2005 2006 2007 2008 2009
Current Subsidies Deficit Financing (Bank)
The State Bank of Pakistan (SBP), in itsMonetary Policy Statement for July-December 2008, estimated that aboutone-third of inflation came from directand indirect impacts of highercommodity prices in 2008. To helpprotect consumers from the impact ofrising inflation, ADO Update observed,Pakistan Government provided largesubsidies for oil products, electricity,imported wheat, and fertiliser.
Export Receipts (US $ Million)
22
0
500000
1000000
1500000
2000000
2500000
Jul-0
3Se
p-03
Nov
-03
Jan-
04M
ar-0
4M
ay-0
4Ju
l-04
Sep-
04N
ov-0
4Ja
n-05
Mar
-05
May
-05
Jul-0
5Se
p-05
Nov
-05
Jan-
06M
ar-0
6M
ay-0
6Ju
l-06
Sep-
06N
ov-0
6Ja
n-07
Mar
-07
May
-07
Jul-0
7Se
p-07
Nov
-07
Jan-
08M
ar-0
8M
ay-0
8Ju
l-08
Sep-
08N
ov-0
8Ja
n-09
Mar
-09
May
-09
Jul-0
9Se
p-09
Total Food Textile
Net Inflow of Foreign Investment (US $ Million)
23
0
1000
2000
3000
4000
5000
6000
7000
8000
2002 2003 2004 2005 2006 2007 2008 2009
Total FDI
Remittances from Abroad (US $ Million)
24
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2001 2002 2003 2004 2005 2006 2007 2008 2009
Overall Saudi Arabia USA Dubai
Despite high economic stress banking system and its policies were sound1
• Banking System was well capitalized– Capital adequacy ratio between 12 to 13 % around 2006-07
was well above the minimum threshold
• Asset quality was good– NPLs to loans ratio (net) was at 1.9% as of end September
2008
• Risk absorption capacity of the banking system remained strong
25
26
Short-term Strategy
• Restore and maintain macroeconomic stability
• Attend to the urgent needs of the poorest and vulnerablegroups (BISP), including for those living in terror-strickenareas (IDPs).
• Overcome energy and water shortages
• Focus on agriculture as leading sector
• Revival of industrial sector
• Accelerated development in less developed regions
• Bolster civilian forces to address security challenges
27
9-Point Program for Economic Reform and Sustainable Development
• Achieve Macroeconomic Stabilization• Establish Social Safety Net• Develop and mobilize human resources (HRD)• Expand agriculture production and galvanize Agro-Business
potential• Galvanize industrial competitiveness with supporting strategies• Integrated planning for Energy Development• Deepen and diversify domestic Capital Markets• Establish Public-Private Partnership as major method for
infrastructure development• Administrative Reform: Consolidation, Specialization and
Devolution
Points to Ponder
• Look at other war economies and their economic plans
• Financing of plan…need for foreign financing
IMF Programme
29
IMF Standby Arrangement
• Programme initiated on November 24, 2008
• Programme facility: $7.6 billion
• Interest rate of 3.5 to 4.5 percent
• Average tenor of facility is 3.5 – 5 years
30
Major IMF Conditionalities
• Reduce Fiscal Deficit to 4.2% of GDP by June, 2009
• Tax Revenue to increase by 13.5% of GDP during program period
• Elimination of subsidies (oil & electricity)
• Limit SBP financing of budget deficit
31
Friends of Democratic Pakistan
Friends of Democratic Pakistan4
• Focus Areas for Financing:
– Food security
– Reducing cost of doing business
– Poverty alleviation and employment
– Security challenges
34
Food Security
• Focus on availability of water
• Increasing fragmentation of farms
• Addressing low productivity
• Investment in agriculture research
• Promote value and supply chains
• Ensure quality and compliance
A thriving agriculture sector that ensures food security, poverty reduction, employment generation and export growth
35
Reducing cost of doing business• Addressing supply side lapses
• Institutional reform and capacity building
• Modernization of transport system
• Bridging productivity gap
• Trade facilitation
• Security of assets and profits for building
investor’s confidence
Rapid reduction in transaction costs and a comprehensive program to revamp quality and efficiency of transport and communication sectors
36
Poverty alleviation and employment
• Aligning development priorities in line with MDGs
• Skill-based human resource development
• Eliminate gender and regional disparities
• Improve Institutional capacity in education and health
• Sustained help to those living in terror stricken areas
• Direct intervention to protect the most vulnerable
Enhancing livelihood opportunities through pro-poor investment, building up human resources, reforming health and education, and social protection for
vulnerable
37
Security
• Mass displacement of civilian population in
NWFP and FATA
• Wave of militancy threatening human life
• Geo-strategic location posses complex issues
• Cost of fighting terrorism escalating as time
passes
An environment of security, peace and rule of law that will permit progress towards the social and economic well-being of all citizens and allow displaced
persons to return to their homes
Current Challenges
Current Challenges
• Consolidating macroeconomic stability
• Reforms in energy sector
• Dealing with impact of global financial crisis on exports
• Tax administrative reforms
• Donor support for development objectives
• Social policy support to IDPs and targeted poor
• Vigilant monetary policy
Way Forward
Water for agriculture
Energy for industry
References
• 1 Presentation by Dr. Shamshad Akhtar, Governor, State Bank of Pakistan on the “State of Pakistan Economy” to the Senate Committee on Finance, Revenue, Economic Affairs and Statistics (1st December 2008)
• 2Economic Survey of Pakistan 2008-09
• 3Presentation on Medium Term Development Framework by Dr. Akram Shiekh, Deputy Chairman, Planning Commission 2005-06.
• 4 Presentation by Secretary, Planning & Development Division 2009.
43