Economy grows by two per cent

ISLAMABAD - Growing by 4.7 per cent agriculture alone saved Pakistans economy from negative zone and
countrys GDP growth rate, according to Economic Released here on Thursday, stood at 2 per cent despite
substantive contraction in industrial sector.
In the Survey, the government underlined massive power outage, weak security environment, and political
disruption in March 2009, as major factors causing decline of 7.7 per cent in large scale manufacturing sector
during first ten months of the outgoing financial year.
Launching the annual official economic document covering July 2008-April 2009, Advisor to Prime Minister on
Finance, Shaukat Tarin and Minister of State for Finance, Hina Rabbani Khar explained that economic growth of
2.0 percent seems reasonable in the wake of global recession and indigenous economic melt down. As a
matter of fact, Pakistans economic growth rate not only missed this years target of 4.5 percent but also fell way
short of 4.1 per cent last year. Looking in the backdrop of global economic recession Tarin termed positive
growth as rare exception.
Described the 2008-09 as 'year of consolidation for the revival of economy, he reiterated that the current
government inherited economic setbacks from the previous government.
According to the Survey, the agriculture sector depicted a stellar growth of 4.7 per cent, as compared to 1.1 per
cent last year and the target of 3.5 percent for the year. Meanwhile the Advisor described Federal Board of
Revenue performance as not satisfactory. Consequently tax to GDP ratio came down to 9 per cent as against
the target of 10 per cent.
Manufacturing sector contracting by 3.3 per cent in 2008-09 compared to expansion of 4.8 percent last year and
target of 6.1 percent, the sector put major pressure on the economy. Small and medium manufacturing sector
maintained its healthy growth of last year at 7.5 percent. Thus the mail ill of the manufacturing sector was the
large-scale manufacturing that came down by 7.7 percent as against growth of 4 per cent last year and 5.5
percent target for the current year.
According to the Survey, the services sector grew by 3.6 per cent almost half the target of 6.1 per cent and in
comparison with last years growth of 6.6 percent. Value-added in the wholesale and retail trade sectors grew at
the rate of 3.1 percent again less than 5.4 per cent target for the current year and compared to 5.3 per cent in
last year.
Others that also showed negative growth were finance and insurance sectors at the rate 1.2 percent in 2008-09.
The Advisor explaining this phenomenon said that it shows that Pakistans financial sector was integrated in the
world economy and is feeling the heat of the crisis plaguing international financial markets.
Transport sector and communication sub-sector depicted a sharp deceleration in growth to 2.9 percent in
2008-09 as compared to 5.7 percent of last year.
Per capita real income also faced the wrath of international economic slow down as it could rise by 2.5 per cent
in 2008-09 as against 3.4 per cent last year. This nominal growth in per capita income could be translated in
dollar terms rising from $1042 last year to $1046 in 2008-09 marginally up by 0.3 per cent.
Total investment declined from 22.5 per cent of GDP in preceding year to 19.7 per cent in 2008-09, according to
the Survey. Fixed investment decreased to 18.1 percent of GDP from 20.4 percent last year adding that private
sector investment was decelerating persistently since 2004-05 and its ratio to GDP declined from 15.7 percent
in 2004-05 to 13.2 percent in 2008-09.
Public sector investment to GDP ratio has risen persistently from 4 per cent in 2002-03 to 5.6 percent in
2006-07. However, it declined to 4.9 percent in 2008-09.
National savings rate surprisingly improved to 14.4 per cent of GDP in 2008-09 as against 13.5 per cent last
year. However, domestic savings declined substantially from 16.3 percent of GDP in 2005-06 to 11.2 percent of
GDP in 2008-09.
The overall foreign investment during the first ten months has declined by 42.7 per cent and stood at $2.2 billion
as against $3.9 billion in the comparable period of last year. Foreign direct investment (FDI) showed some
resilience and stood at $3205.4 million during July-April (2008-09) as against $3719.1 million in the
corresponding period of last year, thereby showing a decline of 13.8 percent. Private portfolio investment on the
other hand showed a net outflow of $451.5 million as against net flow of $98.9 million during the same period of
last year.
During 2007-08, the SBP continue with tight monetary policy stance thrice raising the discount rate and
increased the cash reserves requirements and statutory liquidity requirements. During July-May 2008-09 money
supply (M2) declined 4.59 percent against 8.96 percent last year.
Net domestic assets (NDA) were limited to just Rs 442.1 billion as compared to Rs.655.4 billion in the
preceding year. During the 2008-09, the slow expansion in private sector credit has led to slow growth NDA of
the banking system. This is shared both by NDA of SBP and Scheduled Banks. Net foreign assets of the
banking system also recorded a decline of over Rs.227.1 billion during the first ten months of the current fiscal
year to May 9.
According to the Advisor, the governments budgetary borrowing from the banking system decreased by
Rs.339.9 billion during July-May 2008-09 against an increase of Rs.360.4 billion in the same period of last
financial year.
The Survey described the inflation rate at 22.3 percent during July-April 2008-09, as against 10.3 percent in the
comparable period of last year. The food inflation is estimated at 26.6 percent and non-food 19.0 percent
against 15.0 percent and 6.8 percent in the corresponding period of last year. The Sensitive Price Indicator has
recorded increase of 26.3 percent during July-April 2008-09 against 14.1 percent of last year. According to the
estimates, the average inflation for the year (2008-09) as measured by CPI would be close to 21.0 percent.
Overall exports recorded a negative growth of 3.0 percent during July-April 2088-09 against the positive growth
of 10.2 percent in the corresponding period of last year. Imports registered a negative growth of 9.8 percent in
July-April 2009 as compared to the same period of last year, he added.
Workers Remittances were among the rare sector maintaining positive growth as they soared to $6355.6
million in July-April 2008-09 as against $5319.1 million in the comparable period of last year, depicting an
increase of 19.5 percent.
According to the Advisor, Foreign Exchange Reserves amounted $11.6 by the end of May 2009. As per the
breakup, the State Bank of Pakistan held reserves stood at $8.28 billion and reserves with banks stood at $3.32
billion.
Tarin informed the media that the government has initiated survey on poverty, which would be completed in next
three months.
Rather than just relying on the foreign assistance, the government would allocate considerable allocations for the
internally displaced persons, said Tarin. He said that the government expects Rs.180 billion from Friends of
Democratic Pakistan in the forthcoming budget adding that IMF would also provide next tranche of loan by June
end.