INFLATION

PAKISTAN INFLATION RATE The inflation rate in Pakistan was last reported at 10.8 percent in March of 2012. From 2003 until 2010, the average inflation rate in Pakistan was 10.15 percent reaching an historical high of 25.33 percent in August of 2008 and a record low of 1.41 percent in July of 2003. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy. This page includes: Pakistan Inflation Rate chart, historical data and news.

ISLAMABAD Inflation to remain above govt target: Survey

By: Imran Ali Kundi | August 04, 2011 | o The Pakistan Institute of Development Economics (PIDE) in its latest survey report revealed that inflation would remain far above then the estimated target of 12 per cent during the ongoing financial year 2011-2012 mainly due to the governments borrowing from central bank, continuously rising energy and food prices. About 95.5 per cent of the respondents of the survey are of the view that in current year (2011-12) inflation will be higher than the target rate (12 per cent) and 4.4 per cent of the respondents are of the view that it will remain the same i.e. 12 per cent, said the PIDE-inflation expectation survey released on Wednesday. The results of the survey indicated that inflation would remain about 15 per cent for the current financial year 2011-2012. In Pakistan, the governments borrowing from State Bank of Pakistan (SBP) to finance budget deficit, continuously rising energy and food prices and low policy credibility have contributed to push up inflation for last several months. In the first half of the year 2011, there has been strong upward pressure on inflation in the country, Consumer Price Indicator (CPI) based inflation was 14.2 per cent in January 2011, 13.2 per cent in March 2011 and 13.2 per cent in May 2011. However, food inflation decline from 20.4 per cent in January 2011 to 15.9 per cent in May 2011. Both general CPI inflation and food inflation fell down as compared to the previous months, which are showing a positive indicator to form expectations for future inflation. Despite this decline in inflation, public is still expecting higher inflation. The best policy rate to control inflation according to 41.3 percent respondents is the lower policy rate. While 39.1 percent think that no change is required and only 19.6 percent say it should be higher than the current policy rate (14 percent). Pak rupee (Rs) is continuously under pressure since last several months. According to the results of survey 75.6 percent of the respondents are expecting that rupee (Rs) will depreciate in the next six months. About 15.6 percent of the respondents are expecting that exchange rate will appreciate, while remaining are of the view that there will be no change in it in the next six months. Survey results indicate that experts are optimistic about growth rate in the next six months. About 41.3 percent of the respondents are of the view that growth rate will remain the same in the next six months, whereas 34.8 percent are expecting higher growth in the coming months and 23.9 percent are expecting lower growth. Majority of the respondents (58.7 percent) considered that current economic policies are not useful to enhance the growth and 32.6 percent of the

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respondents are not clear. A vast majority (69.6 percent) of the respondents are expecting high unemployment in the next six months.

GDP GROWTH
PAKISTAN GDP GROWTH RATE The Gross Domestic Product (GDP) in Pakistan expanded 2.4 percent in fiscal year 2010/11, ending in June 2011. Historically, from 1952 until 2011, Pakistan's average quarterly GDP Growth was 5.00 percent reaching an historical high of 10.22 percent in June of 1954 and a record low of -1.80 percent in June of 1952. Pakistan's economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery during the last decade. This page includes: Pakistan GDP Growth Rate chart, historical data, forecasts and news. Data is also available for Pakistan GDP Annual Growth Rate, which measures growth over a full economic year.

Pakistan to set GDP growth target at 4.2pc`

Mehtab Haider Tuesday, May 31, 2011 ISLAMABAD: Pakistan has planned to set real GDP growth target at 4.2 percent with contribution of agriculture, manufacturing and services sectors envisaged at 3.8 percent, 3.1 percent and 5 percent, respectively, in 2011-12.

The Annual Plan 2011-12 approved by the government states that the economy is still fragile and next years growth will depend on economic reforms and introduction of New Growth Strategy recently devised by the Planning Commission. The inflation target has been envisaged at 13 percent against expected 15 percent for the outgoing fiscal year. Growth will depend primarily on revival of the industrial sector by curtailing energy shortages and high interest rates that discourage private sector investment. Increase in development expenditure, the Annual Plan states, will depend on resource mobilization and taxation reforms, particularly in the form of reformed general sales tax. Nominal GDP will increase by 17.2 percent and GNP per capita would be around Rs121, 591. The target set for agriculture growth for fiscal year 2011-12 is 3.8 percent with contribution of major crops at three percent, minor crops at five percent, livestock at 4.1 percent, fisheries at two percent and forestry at one percent.

The growth target has been set higher considering the recent trend of post-flood revival seen in agriculture production and surge in international commodity prices. The Annual Plan states that the industrial sector has not performed well this year, but is expected to grow 3.1 percent in 2011-12 with projected contributions of mining and quarrying at one percent, manufacturing at 3.7 percent, construction at 2.5 percent and electricity, gas and water supply at 0.2 percent, respectively. The anticipated growth is envisaged in the backdrop of revival seen in the industrial sector in the second half of the fiscal year. Services sector is projected to grow by 5 percent in 2011-12 with contribution of transport, storage and communication at 4.5 percent, wholesale and retail trade at 5.1 percent and finance and insurance at 0.2 percent. The revival in the commodity producing sector will support growth in the services sector via rejuvenation of transport and finance sub sectors, especially after the floods. The projected investment-to-GDP ratio is 13.7 percent with total fixed investment at 12.1 percent, whereas the national savings is projected to be 13 percent of GDP with the national investment and savings gap at 0.7 percent.

BUSINESS ENVIRONMENT
o Pakistans overall Doing Business 2011 ranking is 83, recording a decline of 8 positions from last year. Indeed, Pakistan made registering property more expensive by doubling the capital value tax to 4%, and Pakistan reduced the time to export by improving electronic communication between the Karachi Port authorities and the private terminals, which have also boosted efficiency by introducing new equipment. According to the latest Enterprise Surveys (2007), Electricity and Corruption represent the main constraints to firm investment in Pakistan. As regards to Lack of Electricity, Pakistani firms reported an average of 33.90 electrical outages in a typical month, compared to 42.18 for the region. Pakistans economic freedom score is 55.1, making its economy the 123rd freest out of 183 countries in the 2011 Index. Its score is 0.1 point lower than last year, with declines in freedom from corruption and labor freedom offsetting a gain in investment freedom. Pakistan is ranked 24th out of 41 countries in the AsiaPacific region, and its overall score is below the world and regional averages. Pakistan has pursued reforms to improve its entrepreneurial environment and facilitate private-sector development. The financial sector has undergone modernization and restructuring and has weathered the global financial crisis relatively well. However, progress lags significantly behind other countries in the region. Doing Business in Pakistan 2010 compares the regulatory environment for business in 13 Pakistani cities. if it focuses on 6 stages of the life of a small to medium-size domestic enterprise: starting a business, dealing with construction permits, registering property, paying taxes, enforcing contracts, and trading across borders. Doing Business in Pakistan 2010, the first subnational Doing Business report on Pakistan, found that provincial and municipal level reforms of business regulation in Pakistan complement nationwide reforms. Consistent reformers outperformed others, but no single city did well on all the indicators measured. If a city in Pakistan adopted all existing best practices in the 6 areas covered by the report, it would rank 69th out of 183 economies16 places ahead of Pakistans position in Doing Business 2010. l Overall, business is easiest in Faisalabad. Meanwhile, Islamabad and Peshawar were first and second, respectively, on starting a business, while Sukkur stood first in terms of enforcing contracts.

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Doing Business: Country Rankings

Ease of... Doing Business (Overall Ranking) Starting a Business Dealing with Construction Permits Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders Enforcing Contracts Resolving Insolvency DB 2012 rank 105 90 104 125 67 29 158 75 154 74 DB 2011 rank 96 86 100 125 64 28 116 75 155 71 Change in rank -9 -4 -4 0 -3 -1 -42 0 1 -3

SECTOR WISE GROWTH IN PAKISTAN

Economic growth commonly measured by an increase in the real income per capita of a country is a complex phenomenon. Its complexity stems from its multiple dimensions related to multifarious determinants, diverse sources and numerous uses. Different countries have achieved different growth rates in different time periods using different growth strategies. Thus the diagnosis of cross-country and time-related differences in economic performance involves the study of growth strategies adopted by various countries over time. In other words, how much growth is achieved by a country for how long, using which strategies, emerging from which sectors and is shared by whom? - are all inter-related questions which have to be studied simultaneously for diagnosing the nature and structure of economic growth.

Taking the criterion of sustainability, at the first instance, economic growth experienced by different countries can be classified into two categories-the sustainable and the unsustainable. The former can be identified as the one which is self-sustaining; it is environment-friendly and is based on 'normal' use of natural and mineral resources of a country. The unsustainable growth, on the other hand is not only erratic; it is environmentally degrading and is associated with 'abnormal' exploitation of natural wealth such as forests, rivers and minerals as well as the man-made infrastructure. When applied to the economic growth of Pakistan, it does not meet the sustainability criteria as Pakistan's growth is accompanied with unsustainable pressures of population growth, urbanization, rapid deforestation and depreciation of infrastructure as well as the increasing pollution in the areas.

In case of Pakistan, both the public and the private sectors have played a sub-optimal role in economic development of the country and have commonly failed to help realize the full potential of the society. Whereas the public sector has been constrained by insufficient resources, inefficiencies, wastage and corruption, the private sector has suffered from inertia, lack of Keynesian "animal spirits" and excessive propensity for profiteering. At the same time, a lack of vision and foresight has afflicted both the sectors for many decades with serious consequences for the process of economic growth. The criterion of equity, the fourth in our analysis, focuses on the distributional and welfare aspects of growth. If economic growth leads to greater skewness in income and wealth distribution and a large portion of the population finds it further down in the scale of living standards, such growth would be classified as anti-poor. The objective of economic growth should not be the "immiserisation" of the masses rather an increase in their levels of sustenance should be the primary goal of development. For that reason, there has been widespread disillusionment with the "trickle-down" theory which stipulates that benefits of economic growth will automatically filter down to the poorest of the society. Even the "trickle-down" effect of economic growth would be neutralized if the taxation system in place is regressive with the major share of the tax revenues being contributed by indirect taxes. Furthermore, if economic growth synchronizes with lax monetary policy and high inflationary pressures, the poor sections of the society would suffer the most. Hence the analysis of economic growth needs an integrated approach which takes into account the impact of fiscal, monetary and trade policies for assessing the overall implications of economic growth. For evaluating the long-run growth of a country, the fifth criterion i.e. the criterion of self-sufficiency is extremely relevant. Self-sufficiency in the present context refers to the level of domestic resource mobilization to finance the gross investment in the country which is the main determinant of economic growth. If a country continues to finance its private and public investment from the domestic and foreign loans, the resultant growth could be identified as the "borrowed growth". A large number of developing countries for the last half a century have resorted to heavy dependence on external "aid" and are now badly caught in the "debt trap". Under such a predicament, these countries need to borrow more to service their earlier debts. At the same time, external borrowing brings into the country the 'borrowed technologies' and 'borrowed strategies'. As a consequence, the country quite often loses its autonomy in policy making. The sixth criterion for assessing the growth process of a country is labeled as criterion of diversification. In a large number of developing countries in Asia and Africa, growth is critically dependent upon the production of one or two raw products such as rubber, cotton, jute, cocoa, coffee, tea etc. In these cases, deterioration of barter and income terms of trade is universal and these countries fail to mobilize sufficient resources for long-term development. Interpreted in terms of Prebisch's centre-periphery topology, these mono-crop economies only serve as the source of raw materials for the industrial countries which form the 'centre' of the global economy. Despite registering a growth rate of about 5.0 per cent per annum on an average basis during the last 60 years, Pakistan's economy is not sufficiently diversified and the dictum that the cotton output has cradled Pakistan's GDP growth, as one World Bank economist put it, holds even today. Without diversification, Pakistan economy would be confronted with serious challenges of globalization which have emerged with the signing of Uruguay Round Agreements (URA) and are being implemented by World Trade Organization (WTO) as a successor body to GATT 1947. The Uruguay Round consists of 14 agreements, 27 decisions and declarations, 8 understandings and one special arrangement namely the Trade Policy Review Mechanism (TPRM). The Uruguay Round is affecting all sectors of the economy such as agriculture, manufacturing and services and only the diversified and technologically strong economies would be able to withstand the growing pressures of competition and liberalization under the WTO. The seventh criterion for analyzing the structure of economic growth is labeled as the criterion of "externality". Under this criterion, the possible implications of economic growth on the external sector of the country concerned are diagnosed, which include the sub-components of balance of payments such as exports, imports, invisibles, amortization etc. If growth in the real GDP leads to widening of trade deficit or the current account deficit, ultimately it puts pressures on the foreign exchange reserves of the country. In this case, assets may be created through the process of economic growth but at the same the creation of external sector liabilities due to say excessive imports could drastically reduce the benefits of economic growth. The eighth criterion of growth assessment is that of efficiency. According to this criterion, different countries achieve different levels of output with the same level of factor inputs. The efficiency factor is commonly measured by the parameters of Incremental Capital Output Ratio (ICOR) which indicates the additional investment required to generate one unit of output and labour-output ratio i.e. additional labour needed to create one unit of output. A lower value of these parameters indicates the relative

efficiency of factor use. The efficiencies of capital and labour can be estimated by using the well-known Cobb-Douglas type of production function. The main determinants of efficiency are the capacity utilization, skills and training of the work force, the management techniques and the nature of technology. Even though all these factors are important for enhancing efficiency of factors of production, the role of technology in augmenting the factor productivity is now considered as the most critical. In his well-known "Model of Exogenous Growth", Robert Solow has assigned a key role to technology as a determinant of efficiency, labour productivity and the rate of savings in an economy. Dani Rodrik, Professor of International Political Economy at John F. Kennedy School of Government of Harvard University, in his recent research studies covering 140 countries has measured the relative shares of capital, labour and total factor productivity or (TFP) which is an indicator of the technology factor, and found out that in the industrial countries, a major contribution to economic growth comes from TFP rather than factor accumulation. In countries like Germany, UK, France, Japan, Brazil, the contribution of TFP has varied from 25 per cent to 50 per cent. In case of Pakistan, the share of TFP has been almost negligible which suggests that Pakistan's growth performance has not synchronized with any technological advancement. The future growth strategies therefore must incorporate specific policy measures to increase the technology contents in growth and exports. If the economic growth is volatile and excessively fluctuating, it renders policy making extremely difficult. Therefore, the criteria of stability the ninth in our analysis can be applied to assess the inherent variability of economic growth and its potential effects at the microeconomic and macroeconomic levels. Another aspect of stability is the relative fluctuations occurring in the price level and exchange rate levels in the wake of an economy which is growing at a variable rate. In other words, if high growth rates occur along with high inflation rates or large depreciation of the domestic currency, the growth benefits could be neutralized. The tenth criterion for evaluating the quality of economic growth can be identified as the criterion of structuralism. The dynamic of economic growth requires that the structure of economies should be changing with lower shares for agriculture and with rising shares of the industrial sectors as well as services sector. It has been historically experienced across the globe that as the countries move from the Traditional Stage to the Transitional Stage, Take-off, and drive to maturity and to mass consumption as defined by W.W. Rostow, the economies undergo some structural changes reflected in a higher share of manufacturing and higher level of productivity etc. Therefore it is vital that economic growth should be followed by structural transformation because without such a transformation, the economy remains week and vulnerable to external shocks. The conclusion of the discussion is that economic growth can be diagnosed in terms of quantitative as well as qualitative criteria. When evaluated against these criteria, Pakistan's historical growth experience does not appear to be favorable. Despite reasonable growth rate achieved in the last six decades, the country continues to suffer from numerous gaps such as the poverty gap, human development gap, trade gap, saving-investment gap, technology gap and so on. It appears that it will still take years for Pakistan to enter the take-off stage.