Pakistan
Date: 5 May 2011
The event will be held in Islamabad, Pakistan, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Ashfaque H. Khan
Director General & Dean
NUST Business School
Pakistan
Rashid Amjad
Vice Chancellor
Pakistan Institute of Development Economics (PIDE)
Pakistan
Kazuo Tase
Director
United Nations Information Centre
Pakistan
Country briefing note <download pdf file>
Growth improves strongly in fiscal 2010 but expected to slowdown in current year
In Pakistan , despite challenging security conditions and severe energy shortages, domestic economic activity rebounded to some extent in fiscal year 2010, with economic growth accelerating to 4.1% from 1.2% in 2009. Severe floods across the country from August to October 2010, however, added to the existing difficulties of the economy. More than 20 million people (or more than 10% of the population) were affected by the floods, which also severely damaged housing, businesses, agricultural crops and physical infrastructure. Private and public losses due to floods are estimated at $9.7 billion.
Indeed, the impact of the floods on the economy will continue to be felt in the coming years as damaged infrastructure will not only need to be repaired but also upgraded to meet the needs of a modern economy. Devastation caused by severe floods in Pakistan has dampened its immediate growth prospects and G DP gro wth is expected to fall to 2.8% in 2011.
High inflation is a major challenge as food prices rise rapidly
Pakistan has been experiencing double-digit inflation over the past three years. In 2010, inflation stood at 11.7%, having decelerated from 20.8% in 2009. Increases in electricity and natural gas charges and upward revisions in petroleum prices influenced production and transport costs, causing prices of other consumer price index items to rise, as well. Inflationary pressures increased further due to the devastation caused by the floods. Further increases in electricity and natural gas charges and reforms in the generalized sales tax will automatically contribute to keeping inflation high, at least over the medium term.
Budget deficit remains high and there is urgent need for fiscal consolidation
In Pakistan , lower revenue generation and higher current expenditures are the underlying reasons for the stressed fiscal position. Without substantially increasing the resource envelope, it would be difficult to sustain the fiscal deficit at manageable levels. Similarly, the Government must carefully scrutinize and reprioritize spending to create room for public investment to support growth. The budget deficit, at 6.3% of GDP in 2010, will face further pressure in 2011 as a result of the devastation wreaked on the economy by the severe floods and the consequential need for rehabilitation and reconstruction activities.
Exports revive but imports grow more rapidly
In Pakistan , the external current account deficit came down to 2.0% of GDP in 2010 from 5.7% of GDP in 2009. The improved performance in 2010 was helped by the relatively strong recovery of exports, which grew at 9.4% in 2010, while imports continued to contract, although at the much smaller rate of 0.3%. Overseas worker remittances grew by 14% and reached close to $9 billion in 2010, helping to reduce the current account deficit. With the overall balance of payments in surplus, foreign exchange reserves reached an all-time high of about $17 billion by the end of fiscal year 2010.
Some major policy challenges
High inflation rates in South Asia can compromise the achievement of sustained high growth rates. Containing inflationary pressures should therefore be a priority in the policy agendas of governments. Both demand- and supply-side factors have contributed to inflationary pressures. High budget deficits in most countries have been instrumental in increasing liquidity and have generated price pressures in the face of supply constraints. There is an urgent need to bring budget deficits down to a more sustainable level. Some countries have been tightening monetary policy to alleviate pressures on inflation from the demand side but a combination of monetary, fiscal and other measures is needed to reduce price pressures. Repeated supply shocks pose a constant challenge to sustaining a low inflation regime. A more medium-term approach is needed in order to augment the supply of items of mass consumption by addressing structural supply constraints.
Strong and sustained growth momentum is needed in South Asia to tackle the long-term problem of widespread poverty. Over the past few years, most countries have made progress in reducing poverty. Even today, however, at least one in every three persons in South Asia is classified as poor. The fight against poverty therefore must continue. Countries need to continue pursuing economic reforms to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect the more vulnerable segments of the population.
On the physical infrastructure side, o ne of the biggest challenges being faced by several countries is improving the electricity supply. Electricity supply disruptions are common in Bangladesh , Nepal and Pakistan . Both short-term and long-term measures are needed to tackle the electricity problem. To boost electricity supply in the short term, In the subregion, transmission and distribution losses vary from 20% to 40% in different countries and theft of electricity is a major problem. There is therefore a need for greater efficiency on both the generation and distribution sides. The promotion of regional cooperation in the energy sector can benefit the participating countries enormously.
Concerning electricity pricing, s ome countries have been providing substantial subsidies, but they are being withdrawn. This process has been raising the cost of living, though, and there is a need to provide some form of protection to the poor. Tariff rates somehow need to be kept affordable for small consumers. It is also worth considering a more targeted approach to providing subsidies following the pattern of food stamps, where electricity stamps or coupons can be given to the poor to pay their electricity bills.