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PAKISTAN ECONOMY

UNEMPLOYMENT
Unemployment is one of the major problems of Pakistan. It is the root cause
of several other problems. High unemployment results in wastage of
resources and depression of income. And most certainly it also effects the
social and emotional life of a person.
It is very unfortunate but true that searching for statistics regarding the
unemployment rate of Pakistan, it is nearly impossible to find relevant figures
due to a lack of base data and massive governmental tempering of statistics.
In 1955, there was a survey held which tried to give the false impression but
later proved fake. In 1965 a survey was held and it was found that the
economy of Pakistan was most stagnant in the region and a 50% ratio of un-
and underemployed labor to the total working force could be taken as nearer
to reality.
According to labor force survey 2001-02, Pakistan labor force stands at 43.17
million and 3.6 million people were of active labor market, looking for a job.
Recent trend indicates that unemployment rate increased from 7.8% in 2000
to 8.3% in 20002.
However it again fell to 7.7% in 2004.

The main reasons for the decline in unemployment is “inefficient utilization of

factors of production that was a characteristic of public sector dominated
economy has been minimized as a result of structural reforms in tariffs,
taxation, financial markets and privatization. The demand for labor inputs per
unit of output has consequently been reduced due to this compositional shift
from the public to private sector employment. At the same time labor force
participation rate is on an upward incline because of the entry of large
number of females. High unemployment rates under these conditions of
productivity and efficiency gains.”
Urban unemployment rate (9.8 %) was higher than the rural one (7.5 %). This
also includes the disguised unemployment in agriculture sector in the form of
unpaid family helpers.
According to an article by Dr Ishrat Hussain, the unemployment rate of
Pakistan was 6% in October 1999, and it rose to 8% in October 2004.
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Reason
There are a number of reasons for unemployment in Pakistan, firstly, there is
a serious mismatch between the jobs demanded by the emerging needs of
the economy and the supply of skills and trained manpower in the country.
While the economy is moving towards sophisticated sectors such as
telecommunications, information technology, oil and gas, financial services,
engineering goods the universities and colleges are turning out hundreds of
thousands of graduates in Arts, Humanities and languages. This mismatch
has created waste and misallocation of resources on one hand and the
shortages of essential skills required to keep the wheels of the economy
moving. There is also a lack of technical and vocational training to fill out the
gaps between the demand if skills and their availability, and so there large
number of experienced technicians and professionals who have migrated to
the Middle East and elsewhere.

Graphically

Solution
Some major important steps which should be taken by government to
overcome unemployment are as follows:

1. Economic Growth

Make efforts to push economic growth process. For this purpose

Economic Revival Package should announce for the revival of industries
sector, to stimulate production and investment.
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2. Exports

Should seriously try to boost exports through broadening the tax base
and lowering tariffs.

3. Agriculture Sector

Announce a package for the development of agriculture sector .

4. Fiscal and Monitory Policies

Number of fiscal and monetary measures should take to attract

industrialists and particularly foreign investment.

5. Technical Training

More technical and vocational training facilities should be provided. In

this way unemployed people will get the chance to enhance their skills
and become able to earn reasonable income.

6. Self-Employment Schemes

With a view to reduce educate unemployment; self-employment

scheme should be encouraged in true manners.

INFLATION
Increasing cost of living is called Inflation. Or The
general rise in prices across the economy over a year. Inflation is a
key indicator of a country and provides important insight on the state of the
economy and the sound macroeconomic policies that govern it. A stable
Inflation not only gives a nurturing environment for economic growth, but
also uplifts the poor and fixed income citizens who are the most vulnerable in
society.

Inflation rates from 1991 to 1995 have ranged between 9.25 % to 12.9 %.
Due to high rates of monetary expansion, low rate of economic growth in
three out of the five years and adjustment in administered prices contributed
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to the relatively high rates of inflation. In 1995 when price of tradable (in
rupee terms) increased by 19% . Substantial depreciation of the exchange
rate in 1990 and in 1994 also resulted in a relatively sharp increase in the
price of tradable (in rupee terms) in these two years.

The pressure on the exchange rate caused by fiscal and monetary

indiscipline during 1991-1993, marked as major thrust in Economic
Liberalization. Since the growth rate had flattered in 1989-1990 and
recovered in next to years, but this recovery was short lived and plummeted
in 1993 to its lowest level in over two decades.
The rate of monetary growth which had been brought down to 4.6 % in 1989
climbed up to12.6 % in 1990 and since then has been in the region of 16 to
18 % except in 1992 when it reached an unprecedented 30 percent. High
budget deficits during these years contributed to the monetary expansion. In
1994 the rate of monetary growth was 16 percent, although budget deficit
was brought down to 5.8 percent of the GDP. The growth in money supply in
1994 was mainly on account of accumulation of net foreign assets rather
than domestic credit creation. As mentioned above, the buildup of foreign
reserves had become necessary because of a drawdown of reserves in the
previous years. Pakistan has experienced sustained inflation hovering
between 10.0 to 13.0 percent range during the first eight years of the 1990s.
The persistence of a double-digit inflation along with large fiscal deficit (7.0%
of GDP) have been the major source of macroeconomic imbalances in the
1990s. There has been a general agreement that the excessive growth in
money supply, the supply side bottlenecks, the adjustment in government –
administered prices, the imported inflation (pass through of exchange rate
adjustment), escalations in indirect taxes, and inflationary expectations has
the major factors responsible for the persistence of a double-digit inflation
during most periods of the 1990s. Food and non-food inflation averaged 11.6
percent and 10.3 percent, respectively during the eight years of the 1990s.
During Fiscal / Financial Year 2002 (FY02) despite the aftermath of events of
September 11 and continuation of a drought-like situation in the country.
Better availability of essential commodities, due to improved production of
food and non-food items as well as the food stocks for prior periods, had a
moderating influence on inflation.
Inflation during the first ten months July-April of the current fiscal year is
estimated at 8.0 percent as against 9.3 percent in the same period last year
in Price pressure which indicated steady deceleration in inflation.
April 2005 (last-time it was at 15.7 percent in May 1994), yielded handsome
dividend in the shape of overall inflation decelerating to 6.2 percent and food
inflation to 3.6 percent in April 2006. Inflation remains the biggest threat to
the economy, jumping to more than 9% in 2005 before easing to 7.9% in
2006. In 2008, following the surge in global petrol prices inflation in Pakistan
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has reached as high as 25.0%. The central bank is pursuing tighter monetary
policy while trying to preserve growth.

Graphically

Reason
Economic growth has given rise to the income levels of various segments of
the society. The rising level of income have strengthened domestic demand
and put upward pressure on prices. Supply side pressure emanated from a
variety of factors specially:
• Increase in support price of wheat for three years in a row.

• Inter-provincial ban on the movement of wheat resulting in sharp

increases in prices of wheat and wheat flour.
• Lower production of sugarcane and a sharp increase in the
international prices of sugar brought about by a significant diversion.
etc
Which also contributed in building inflationary pressure in Pakistan.

Solution
Inflation is one of the obstacles on the way of development. In Pakistan, it
has squeezed the major part of the population. It needs to be controlled by
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strategic planning. Domestic production should be encouraged instead of

imports; investment should be given preference in consumer goods instead
of luxuries, Agriculture sector should be given subsidies, foreign investment
should be attracted, and developed countries should be requested for
financial and managerial assistance. And lastly a strong monitoring system
should be established on different levels in order to have a sound evaluation
of the process at every stage.

Trade Related to GDP

In the early 1990s, Pakistan's balance of trade remained particularly
vulnerable to changes in the world economy and bad weather. Sharp
increases in crude oil prices, such as those of 1979-81 and 1990, raised the
nation's import bill significantly. Total exports, on the other hand, are more
sensitive to agricultural production. The decline in cotton production in FY
1993, for instance, seriously affected the export level.

Sources for imports and markets for exports are widely scattered, and they
fluctuate from year to year. In the early 1990s, the United States and Japan
were Pakistan's most important trading partners. In FY 1993, the United
States accounted for 13.7 percent of Pakistan's exports and 11.2 percent of
its imports. Japan accounted for 6.6 percent of exports and 14.2 percent of
imports. Germany, Britain, and Saudi Arabia are also important trading
partners. Hong Kong is an important export market and China a significant
supplier of imports. Trade with the Republic of Korea (South Korea) and
Malaysia is small but not unimportant. Trade with India is negligible.

SAARC was founded in the mid-1980s primarily as a vehicle to increase trade

within South Asia by delinking the region's political conflicts from economic
cooperation. Its seven member states--Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, and Sri Lanka--adopted the principle of unanimity in
selecting multilateral questions for debate. Despite frequent consultative
committee meetings, progress toward increased trade remained limited in
1994. Pakistan's trade with India, for instance, is extremely limited. At the
annual SAARC summit in April 1993, members agreed to negotiate a South
Asian Preferential Trade Agreement by 1996 that would lower or abolish
tariffs among members.
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In 1991 and 1992, the government announced various measures to liberalize

trade. Import licensing was ended for most goods, many products were
removed from the lists of restricted imports, and import duties were cut. In
addition, foreign companies were allowed into the export trade. The
government also promised to convert the remaining nontariff barriers into
tariffs, incorporate various ad hoc import taxes into customs duties, and
reduce the numerous exemptions and concessions on duties.

Years Exports Imports

1988-89 4,661 7,034
1989-90 4,954 4,954 6,935
1990-91 6,131 7,619
1991-92 6,904 9,252
1992-93 6,813 9,941
1993-94 6,803 8,564
1994-95 8,137 10,394
1995-96 8,707 11,805
1996-97 8,320 11,894
1997-98 8,628 10,118
1998-99 7,779 9,432
1999-2000 8,569 10,309
2000-2001 9,202 10,729
2001-2002 9,135 10,340
2002-2003 11,160 12,220
2003-2004 12,313 15,592
2004-2005 14,391 20,598
2005-2006 16,451 28,581
2006-2007 16,976 30,540
2007-2008 19,052 39,966

Consumption
Pakistan’s economy is undergoing structural shift that are fueling rapid
changes in
consumer spending patterns. In particular, the middle class is becoming an
increasingly dominant force.
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Pakistan’s real per capita GDP has increased at an average rate of 5.5
percent per annum over the last four years i.e. (5.5% in 2003-04, 6.7% in
2004-05, 4.7% in 2005-06 and 5.5% in 2006-2007), giving rise to the average
income of the people. Such increases of this magnitude in real per capita
income have led to a sharp increase in consumer spending during the last
four years. 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 i.e.(11.5% in
2003/04, 13.1% in 2004/05, and 8.1% in 2005-06).

Reason
The extra-ordinary strengthening of domestic demand during the last four
years points to several factors.
• The higher consumer spending feeding back into economic activity is
supporting the ongoing growth momentum.
• It suggests the emergence of a strong middle class with growing
purchasing power supporting domestic demand thus expanding
domestic markets. Together with investment demand it is emerging
as a critical driver of economic growth.
• Pakistan is currently witnessing changes in its demographic structure
as the share of working age population has increased and the share
of dependent population has declined, thus increasing disposable
incomes and current consumption.
• Extra-ordinary rise in consumer spending over the last three years
appears to have contributed, in part to building inflationary
expectations
in Pakistan.

Accordingly, the contribution of private sector consumption in real GDP

growth, on average, has been 75 percent over the last four years. However,
this year the contribution of private consumption expenditure has declined to
47 percent partly as a result of the tight monetary policy being pursued by
State Bank of Pakistan to shave off excess demand.
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Graphically

Savings
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The contribution of national savings to the domestic investment is indirectly

the mirror image of foreign savings required to meet investment demand.
The equirement for foreign savings simply reflects the current account deficit
in the balance of payments.
Total Savings outlay in 1996-97 is estimated at Rs 455.5 billion against Rs
404.3 billion during last year which shows an increase of 12.7%. Fixed
investment increased by 12.9% from Rs 369.1billion in 1995-96 to Rs 416.7
billion in 1996-97. This share of total investment in GNP (market prices)
comes to 18.4% during 1996-97 compared with 18.7% shared during last
year. National savings are estimated to finance 61.8% of total investment
and 38.2% is by foreign savings. National savings have shown a 12.2%
increase while form savings have increased by 13.4% during 1996-19997.
National savings were not able to finance the demand for the growing
economy and the recourse to foreign savings to the extent of 3.7 percent of
GDP reflects the saving investment gap. National savings as percentage of
GDP stood at 16.4 percent in 2005-06 fractionally lower than last year’s
(2004-2005) level of 16.5 percent.
The Central directorate of National Savings (CDNS) is an attached
department of the Finance Division and performs deposit bank functions by
selling government securities through a network of 367 savings centers,
spread all over the country. There are about 6 million investors in national
Saving Schemes (NSS). Presently, Defense Saving Certificates, Regular
Income Certificates, Special Savings Certificates/ Accounts, Bahbood Saving
Certificates, Savings Account, Pensioners’ Benefit Account and prize Bonds
are in operation. Some of the popular schemes are discussed below:

Defense Savings Certificates

Bahbood Saving Certificates
Pensioners’ Benefit Account

Two newly launched schemes namely Pensioners’ Benefit Accounts and

Bahbood Saving Certificates remained very popular with their combined net
accruals of Rs 64.1 billion during July-March 2005-06 as compared to their
net accrual of Rs 64.9 billion in the same period last year. The Pensioners’
Benefit Account has been launched exclusively for retired government/semi
government employees, whereas, the Bahbood Savings Certificates have
been launched for widows and senior citizens (above the age of 60 years).
Moreover, keeping in view the hardship faced by pensioners, senior citizens
and widows; the Federal Government has allowed exemption from the
deduction of withholding tax on both the schemes with effect from 1st July
2004. In order to provide small savers, an access to the stock market, the
Government plans to give maximum administrative and operational
autonomy to the CDNS enabling it to launch mutual funds on more
professional lines. The accounts of the Directorate are being computerized
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and National Savings Centers are being shifted to better and specious places.
The aforesaid measures will help to further improve the customer services.
Structure of Savings and Investment (As Percent of GDP)
Description 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Total Investment 17.2 16.8 16.9 16.6 18.1 20.0
Changes in Stock 1.4 1.3 1.7 1.6 1.6 1.6
Gross Fixed 15.8 15.5 15.3 15.0 16.5 18.4
Investment
Public Investment 5.7 4.2 4.0 4.0 4.4 4.8
Private Investment 10.2 11.3 11.3 10.9 12.1 13.6
Foreign Savings 0.7 -1.9 -3.8 -1.3 1.6 3.7
National Savings 16.5 18.6 20.8 17.9 16.5 16.4
Domestic Savings 17.8 18.1 17.6 15.7 14.5 14.4

Solution

National Savings has launched its software development project, the project
of uplifting and upgrading the facilities at the offices of the National Savings,
data entry project, and the establishment of main IT center and installation of
hardware at pilot sites. The processing and selection of all the firms for four
projects have already been made by the CDNS.

Economic Progress
At partition in 1947, the new government lacked the personnel, institutions,
and resources to play a large role in developing the economy. To rise from
such a state surely is a great task, especially when one’s borders are also
insecure. Since then Pakistani officials have sought a high rate of economic
growth in an effort to lift the population out of poverty. Rapid industrialization
was viewed as a basic necessity and as a vehicle for economic growth. For
more than two decades, economic expansion was substantial, and growth of
industrial output was striking. In the 1960s, the country was considered a
model for other developing countries. Rapid expansion of the economy,
however, did not alleviate widespread poverty. In the 1970s and 1980s,
although a high rate of growth was sought; greater attention was given to
income distribution. In the early 1990s, a more equitable distribution of
income remained an important but elusive goal of government policy.
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CONCLUSION
Pakistan has achieved macroeconomic stability, introduced structural
reforms, improved economic governance and resumed the path for high
growth rates. But there is no room for complacency as we are confronted
with challenges of poverty reduction, employment generation, balanced
regional growth, upgrading social indicators and containing inflation.
The second generation reforms aimed at strengthening the country’s
institutions and their capacity to deliver basic services along with the
continuation of sound and consistent economic policy and investment in
human development and infrastructure will be able to steer the country on
the right course. There is a need to understand that “development is more of
an integrated process, it's not just a list of projects”. (Dr. Kaiser Bengali).