pakistan economics survey 2003-04

Economic Survey of Pakistan 2003-04

An online publication by

Chapter 1. Growth and Investment

11.. GGrroowwtthh aanndd IInnvveessttmmeennttA modest pickup of growth in an

environment of extreme uncertainty caused byvarious external shocks is one of the majorachievements of the outgoing fiscal year 2001-02.Global economic downturn further aggravated bythe events of September 11, the prolongation ofcatastrophic drought conditions, and heightenedtension with India after the events of December 13are some of the major shocks which haveprevented Pakistan achieving higher economicgrowth in fiscal year 2001-02.

The outgoing fiscal year has been themost difficult and challenging year for the worldeconomy in general and Pakistan in particular.This year has seen many epoch-making eventsunfolding on the international scene with seriouseconomic consequences. It is well-known that theworld economy was already witnessing asynchronized slow down along with decelerationin trade growth and falling commodity pricessince late 2000. To a considerable extent, thissynchronicity was the result of common shocks,including the increase in oil prices and thebursting of the information technology (IT)bubble, both of which had a worldwide impact.For the first time since 1974-75, the world’s majoreconomies were decelerating in tandem.

The tragic events of September 11 andtheir aftermath further exacerbated the difficultsituation and hastened the global downturn. Bythe end of 2001, the world economy had slippedinto recession. Both developed and developingcountries have seen their economic growthplunge. The United States, the European Union,and Japan being the major growth poles of theworld economy, witnessed sharp deceleration in

their economic growth. International trade playeda major role in transmitting the slowdown inthese economies to developing countries. Table1.1 presents the growth performance of selectedregions/countries for the period 2000-2002. Asshown in Table 1.1, the deceleration in growthwas witnessed across the board. Pakistan, being apart of the global economy, had to face anincreasing difficult global environmentthroughout 2001-02.

Pakistan’s growth performance duringthe fiscal year 2001-02 was also adversely affectedby the prolongation of catastrophic droughtconditions. The acute shortage of irrigation waterand substantially lower than normal rainfall haveadversely affected the performance of majorcrops, preventing agriculture to contribute its dueshare to the overall economic growth of thecountry. Heightened tension with India after theincident of December 13 are yet another factorwhich has clouded the growth environment inPakistan during the outgoing fiscal year.

The easing of macroeconomic policies inadvanced countries, notably in the United Statesand in a number of emerging market economies,particularly in Asia, to combat the aftermath ofSeptember 11 are paying off. There is a generalconsensus that the global slow down hasbottomed out and that the recovery would besooner than expected. The growth outlook for2002 appears relatively brighter. The developingcountries will benefit from the pickup of growthin advanced industrial countries. Pakistan, being adeveloping country, is also likely to benefit fromimprovement in external demand.


Table 1.1Regional Growth Performance

Real GDP Growth (%)

Region/Country 2000 2001 2002

(Projection)World GDP 4.7 2.5 2.8European Union 3.4 1.7 1.5United States 4.1 1.2 2.3Japan 2.2 -0.4 -1.0Germany 3.0 0.6 0.9Canada 4.4 1.5 2.5Developing Countries 5.7 4.0 4.3China 8.0 7.3 7.0Newly Industrialized Asian Economics 8.5 0.8 3.6Hong Kong SAR 10.5 0.1 1.5Korea 9.3 3.0 5.0Singapore 10.3 -2.1 3.2

ASEANIndonesia 4.8 3.3 2.5Malaysia 8.3 0.4 3.0Thailand 4.6 1.8 2.7Philippines 4.0 3.4 4.0

South AsiaIndia 5.4 4.3 5.5Bangladesh 5.5 4.5 3.9Sri Lanka 6.0 0.4 -Pakistan 2.5 3.6 4.5

Source: World Economic Outlook (IMF), April 2002,

Notwithstanding an increasingly difficult

external environment, heightened tension with

India, and continuing drought, Pakistan’s

economic growth not only remained relatively

resilient but improved over last year. The pickup

of growth was mainly contributed by

manufacturing and services.

The real GDP was originally targeted to

grow by 4.0 percent in 2001-02, with agriculture

and manufacturing growing by 2.0 percent and

6.2 percent respectively. While fixing the growth

target the continuation of drought like situation

with lesser degree and some slowdown in global

economy were anticipated. However, the

persistence of acute shortage of water for

irrigation purpose on the one hand and the events

of September 11 and their aftermath on the other,

compelled to revise the real GDP growth target to

3.3 percent, with agriculture growing by 1.9

percent and manufacturing by 3.8 percent.

Despite many difficulties, as enunciated

above, the real GDP growth staged a modest

recovery to 3.6 percent in 2001-02 as against the

revised target of 3.3 percent and last year's

achievement of 2.5 percent. This growth is

supported by a 1.4 percent, 4.4 percent and 5.2

percent growth in agriculture, manufacturing and

services, respectively. Two points need to be noted

as far as Pakistan's growth performance is

concerned. Firstly, when compared with major

economies of different parts of the world, Pakistan's

growth performance has been reasonably good (see

Table 1.1). Secondly, when growth decelerated all

around, it staged a modest recovery in Pakistan.

The persistence of drought has prevented Pakistan

achieving even higher economic growth. Drought


not only affected major and minor crops but

livestock as well. Drought also affected the

performance of electricity & gas distribution

because hydel electricity generation declined,

forcing WAPDA to purchase expensive electricity

from the IPPs. Thus the value addition in electricity

and gas distribution registered a decline of 2.8

percent in 2001-02. For three years in a row, the

value addition in electricity and gas distribution has

registered negative growth.

To gauge the impact of drought on

Pakistan’s growth performance, it is imperative to

examine the performance of non-agricultural GDP.

Such information is given in Table 1.2:

Table 1.2Real GDP Growth With and Without Drought

(Percent)

Sector 1999-2000 2000-01 2001-02

Real GDP 3.9 2.5 3.6Non-Agricultural GDP 3.1 4.2 4.3Real GDP Growth Adjusted For DroughtImpact*

4.0 5.2 4.7

* The Real GDP growth is calculated by excluding value added in agriculture and electricity & gas distribution

It can be seen from the Table that Pakistan’s

non-agricultural GDP growth remained stable at

around 4.3 percent during the last two years.

Furthermore, when adjusted for drought impact

(excluding value addition of agriculture and

electricity & gas distribution), the real GDP is

provisionally estimated to grow by 4.7 percent as

against 5.2 percent of last year. What is important to

note is that, the slower growth in real GDP over the

last two years has been caused by catastrophic

drought. Had there been no drought, Pakistan’s

economic growth would have been around 5

percent.

The real GNP grew by 5.4 percent in 2001-

02 as against 2.5 percent last year, mainly because of

148.8 percent increase in net factor income from

abroad, which, in turn, is the result of a sharp

increase in the inflow of workers remittances. With

population growing by 2.2 percent, the real per

capita GNP at factor cost increases by 3.2 percent in

2001-02 as against a marginal increase of 0.2 percent

last year.

Notwithstanding the pick-up of growth to

3.6 percent in 2001-02 from 2.5 percent last year,

the fact remains that Pakistan’s economic growth

has slowed over the last one decade for a variety

of reasons, including worsening of

macroeconomic environment, serious lapses in

implementation of stabilization policies and

structural reforms, adverse law and order

situation, inconsistent policies, and poor

governance. As against an average growth rate of

6.1 percent in the 1980s, the real GDP growth

slowed to an average of 4.9 percent in the first half

and 4.0 percent in the second half of the 1990s.

The large-scale manufacturing and services

sectors contributed largely to the deceleration of

growth in the 1990s. The former grew by an

average annual rate of 8.2 percent in the 1980s,

slowed to an average of 4.7 percent in the first half

and further to 2.4 percent in the second half of the

1990s. In fact, over the last decade, the large-scale

manufacturing lost almost three-fourth of its

growth momentum. The services sector also

slowed from an average growth of 6.6 percent in

the 1980s to 5.1 percent in the first half and further


to 4.0 percent in the second half of the 1990s,

losing one-third of its growth momentum during

the last one decade [See Table 1.3 and Figure-1].

Table 1.3Growth Performance of Real Sector

Item Unit 1980’s 1990-95 1995-2000 2000-01 2001-02A. GDP GROWTH RATE % 6.1 4.9 4.0 2.5 3.6a. Agriculture % 4.1 4.2 4.9 -2.6 1.4b. Manufacturing % 8.2 4.8 3.2 7.6 4.4

c. Large-scale Manufacturing % 8.2 4.7 2.4 8.6 4.0d. Services % 6.6 5.1 4.0 4.8 5.1

B. TOTAL INVESTMENT As %of GDP 18.6 19.5 17.1 15.9 13.9

a. Fixed Investment 16.8 18.0 15.3 14.3 12.3b. Public Investment 9.1 8.6 6.4 6.3 4.7c. Private Investment 7.8 9.4 8.9 8.0 7.6

C. NATIONAL SAVING As %of GDP

14.7 14.9 12.7 15.1 15.4

a. Domestic Saving 7.7 13.9 13.8 16.5 14.7Source: Federal Bureau of Statistics

Growth decelerated in the 1990s because

both total and fixed investment as percentage of

GDP declined in the same period. Total

investment and fixed investment averaged 18.6

percent and 16.8 percent of the GDP, respectively

in the 1980s; declined to 17.1 percent and 15.3

percent respectively in the second half of the

1990s. The decline mainly emanated from public

investment which averaged 9.1 percent of GDP in

1980s but declined to 6.4 percent of GDP in the

second half of the 1990s. The public sector

investment has significant importance as a growth

stimulus in developing countries. As it is well-

known, a stable macroeconomic environment is

conducive to investment and therefore to growth.

Persistence of large fiscal and current account

deficits during most of the 1990s have been the

underlying cause of macroeconomic instability,

which in turn affected investment and impeded

growth.

6.1

4.94

2.5

3.6

0

1

2

3

4

5

6

7

% G

row

th

1980's 1990-I 1990-II 2000-01 2001-02

Fig-1: Real GDP Growth


National saving rate also witnessed a

decline from an average of 14.7 percent in the

1980s to 14.9 percent in the first and 12.7 percent

in the second half of the 1990s. [See Table-1.3].

National savings rate has picked up during the

last two years because of the significant

improvements in the current account balance. For

an investment friendly environment and

sustainable growth, a stable macroeconomic

environment is the key and its core elements

include low inflation, sustainable budget deficit,

realistic exchange rates, appropriate real interest

rates, and consistent policy.

Having discussed the overall growth and

investment relationship in the context of the 1990’s,

it is now appropriate to have a detailed discussion

on the growth performance of the components of

gross national product for the outgoing fiscal year

2001-02. The performance of the components of

national accounts over the last two decades along

with most recent three years, are documented in

Table 1.4.

Commodity Producing Sector

The growth performance of the

commodity-producing sector has improved during

2001-02 over last year. As against an almost flat

growth of last year, the commodity producing

sector grew by 2.1 percent in 2001-02. The

improvement has mainly come from agriculture,

which has registered positive growth as opposed to

negative growth of last year. [See Table 1.4]

Table 1.4Growth Performance of Components of Gross National Product

(% Growth At Constant Factor Cost)1980’s 1990’s 1999-2000 2000-01 2001-02

Commodity Producing Sector 6.5 4.6 3.0 0.2 2.11. Agriculture 5.4 4.4 6.1 -2.6 1.4

- Major Crops 3.4 3.5 15.1 -9.8 -0.5- Minor Crops 4.1 4.6 -9.1 0.1 1.0- Livestock 5.3 6.4 2.4 4.9 3.4- Fishing 7.3 3.6 9.7 -3.7 4.0- Forestry 6.4 -5.2 113.0 9.9 1.1

2. Mining & Quarrying 9.5 2.7 6.2 4.3 3.83. Manufacturing 8.2 4.8 1.4 7.6 4.4

- Large Scale 8.2 3.6 -0.2 8.6 4.0- Small Scale 8.4 7.8 5.3 5.3 5.3

4. Construction 4.7 2.6 5.2 -0.4 0.95. Electricity & Gas Distribution 10.1 7.4 -9.8 -11.0 -2.8

Services Sector 6.6 4.6 4.8 4.8 5.16. Transport, Storage and

Communications 6.2 5.1 3.6 5.0 0.17. Wholesale & Retail Trade 7.2 3.7 2.9 5.2 2.28. Finance & Insurance 6.0 5.8 8.2 2.8 3.89. Ownership of Dwellings 7.9 5.3 5.3 5.3 5.310.Public Administration & Defence 5.4 2.8 7.0 1.2 18.211.Services 6.5 6.5 6.5 6.5 6.512.GDP (Constant Factor Cost) 6.1 4.6 3.9 2.5 3.613.GNP (Constant Factor Cost) 5.5 4.0 3.5 2.5 5.4

Source: Federal Bureau of Statistics and Economic Adviser’s Wing.


Agriculture

Agriculture growth had suffered a severesetback last year as a result of the catastrophicdrought. While major crops registered a negativegrowth of almost 10 percent, the overall agriculturerecorded a negative growth of 2.6 percent last year.While fixing the growth target for 2001-02, someshortage of irrigation water was anticipated.Accordingly, the overall agriculture was targeted togrow by 2.0 percent and major crops were projectedto register a negative growth of 0.2 percent.

The drought conditions persisted all alongduring 2001-02, resulting in water shortage of up to51 percent of normal supplies as against 40 percentof last year. The total flows of water in major riversalso declined to 91.15 million acre feet (MAF)against an average of 131.69 MAF. Rainfall has alsobeen below normal. The canal head withdrawals inKharif 2001 and Rabi 2001-02 seasons have alsowitnessed significant decline. Thus theunprecedented drought that engulfed the entirecountry last year continued to have crippling effectson Pakistan's agriculture during 2001-02 as well.

Notwithstanding severe water shortagesthe farmers in Pakistan undertook variousmeasures to minimize its adverse effects. Theseinclude judicious use of water, exploitation of underground water, purchase of water from tube wells,improvements in cultural practices, and betteroverall management. As a result, overall agricultureregistered a positive growth of 1.4 percent in 2001-02 as against a decline of 2.6 percent last year andthe current year's revised target of 1.9 percent.

Major crops, though registered a negativegrowth of 0.5 percent in 2001-02 as against thetarget of a decline of 0.2 percent, have performedrelatively well when compared with a decline ofalmost 10 percent last year. Major crops includingwheat, cotton and rice witnessed decline inproduction by 2.9 percent, 1.1 percent, and 19.2percent, respectively. However, the production ofsugarcane witnessed substantial increase of 10.2percent during 2001-02. [See Chapter-2 for details]

Minor crops have grown slightly by 1.0percent in 2001-02 as against the growth target of5.0 percent growth and marginal increase of 0.1percent last year. The performance of minor cropsis also affected by the prevalent long dry spell.The minor crops include cereals, vegetables,fruits, condiments, oil seeds, fodder and others.

Livestock sub-sector has witnessed amodest growth of 3.4 percent in 2001-02 ascompared with the target of 2.8 percent and actualachievement of 4.9 percent in 2000-01. Theproduction of milk, egg and mutton are estimatedto have gone up by 2.9, 2.3 and 2.6 percent,respectively. The fisheries sector witnessed agrowth of 4.0 percent as against a decline of 3.7percent last year. Components of fisheries such asmarine fishing (4.2 percent) and inland fishing(3.7 percent), contributed to overall increase invalue added in the fisheries sub-sector. The valueadded estimates of the forestry sub-sectorindicates slight improvement of 1.1 percent ascompared to 9.9 percent growth of last year. Theproduction of timber went up by 4.6 percentwhereas that of firewood declined by 0.8 percent.

Mining & Quarrying

The output in the mining and quarryingsector has surpassed the target of 2.5 percent andgrew by 3.8 percent in 2001-02 as against 4.3percent of last year. The production activity in thesector is mainly concentrated in crude oil, naturalgas and coal, the collective weight of these three isthree-fourth of the value addition. The valueadded in crude oil increased by 10.2 percentfollowed by coal (2.5 percent) and natural gas (5.6percent). The production activity in agric lay (-0.4percent), barites (-4.8 percent), rock salt (-3.4percent), china clay (-4.2 percent) and magnisite (-16.5 percent) remained depressed.

Manufacturing

One of the most important developmentsof 2000-01 was the sharp rebound inmanufacturing, which grew by 7.6 percent. Whilefixing the current year’s target some slow down in


global economy was anticipated. Accordingly,manufacturing was targeted to grow by 6.2 percent.However, as a result of the events of September 11and December 13 and consequent developmentsthereafter, the target for manufacturing was reviseddownward to 3.8 percent. Against the revised targetof 3.8 percent, manufacturing grew by 4.4 percent infiscal year 2001-02.

Large-scale manufacturing accounts for 70percent of overall manufacturing. Against animpressive recovery of 8.6 percent last year, large-scale manufacturing was targeted to grow by 6.5percent in 2001-02. The events of September 11 andtheir aftermath and heightened tensions with Indiaafter the incident of December 13 seriously affectedindustrial production. Accordingly, the target forlarge-scale manufacturing was revised downwardto 3.2 percent for the year 2001-02.

Large-scale manufacturing registered agrowth of 4.0 percent during the first nine months(July-March 2001-02) of the outgoing fiscal year asagainst the revised target of 3.2 percent and lastyear’s impressive growth of 8.6 percent. Given thedifficult regional and global economicenvironment, the performance of large-scalemanufacturing sector has been satisfactory. Themajor industries that registered positive growthinclude sugar (9.2 percent), petroleum products(18.7 percent), cooking oil (12.9 percent), jeeps &cars (3.7 percent), LCV’s (15.0 percent), cottoncloth (15.2 percent), paper & board (2.8 percent),tea blended (1.3 percent), cotton yarn (4.8percent), flakes & detergent (29.5 percent),nitrogenous fertilizer (5.6 percent) and beverages(11.3 percent). Seven out of 11 major industrialgroups posted positive growth while fourregistered negative growth. The individualindustries that depicted negative growth include:cosmetics (32.9 percent), phosphatic fertilizer (49.5percent), paints & varnishes (14.5 percent), billets(6.4 percent), cigarettes (3.1 percent), vegetableghee (6.1 percent), soda ash (2.4 percent), tractors(26.2 percent), glass plates & sheets (17.2 percent),TV sets (27.3 percent), buses (23.1 percent) andcotton ginned (1.1 percent). Small-scalemanufacturing on the other hand continued to

grow by 5.3 percent in 2001-02.

Construction sector has improved itsgrowth performance by increasing marginally by0.9 percent in 2001-02 as against previous year’snegative growth of 0.4 percent. Electricity and gasdistribution sector continued to post negativegrowth for the last three years. Consequently, thevalue addition in electricity and gas distributionregistered a negative growth of 2.8 percent in2001-02 as against a negative growth of 11 percentlast year. The continued drought has severelyaffected WAPDA’s hydel electricity generationcapacity forcing it to purchase expensiveelectricity from the IPPs. This has resulted in thedecline in the value addition of WAPDA by 40.4percent over last year.

Services Sector

The Services Sector has been growing at afaster rate than commodity producing sector ofthe economy for quite sometime. It hasmaintained the same trend in 2001-02. Servicessector grew by 5.1 percent as against 4.8 percentof last year. Within this sector, the wholesale &retail trade grew by 2.2 percent as against 5.2percent of last year.

Finance and insurance sub-sector showedslightly better performance as it grew by 3.8percent during 2001-02 as against the target of 5.0percent and last year’s achievement of 2.8 percent.Transport & communication sub-sector registereda marginal growth of 0.1 percent as compared to5.0 percent of last year and against the target of4.2 percent for the current year. Publicadministration and defence has registered agrowth of 18.2 percent as against 1.2 percent lastyear. Two minor sectors that is, ownership ofdwellings and social services, have maintained theestimated growth of 5.3 percent and 6.5 percent,respectively.

Sectoral Contribution to GDP Growth

Larger contribution to growth has beenoriginating from services sector for quite


sometime. Table 1.5 depicts contributions frommajor components of GDP to overall economicgrowth. Almost 70 percent contribution to growth(2.5 percentage point out of 3.6 percent of realGDP growth) has come from services sectorfollowed by manufacturing sector (21 percent)and agriculture (9 percent). The contributiontowards growth is summarized in Table-1.5:

Table-1.5Sectoral Contribution to the GDP growth

(Percentage Points)Sector 2000-01 2001-02Agricultue -0.65 0.33Manufacturing 1.18 0.75Services 1.92 2.53Real GDP (Fc) 2.45 3.61

Source: Federal Bureau of Statistics.

Sectoral Shares in GDP

The composition of the Gross DomesticProduct has undergone drastic changes over the

last three decades. The share of commodity-producing sectors declined from 61.6 percent in1969-70 to 49.1 percent in 2001-02 while the shareof services sector increased from 38.4 percent to50.9 percent during the same period. Furtherdisaggregation of the commodity-producingsector shows that the share of agriculture hasdeclined substantially from 38.9 percent in 1969-70 to 24.1 percent—a decline of almost 15percentage points in three decades but on theother hand the share of manufacturing hasremained more or less stagnant over the last threedecades. This implies that the services sector hasgained at the expense of the ground lost by theagricultural sector. [See Table 1.6] Within Servicessector the pattern has remained more or less thesame for the last three decades with the exceptionof changes in the share of transport, storage andcommunication which expanded from 6.3 percentof GDP in 1969-70 to 10.1 percent in 2001-02. Thedetails are given in Table 1.6:

Table 1.6Sectoral Share of Various Sectors in Gross Domestic Product

(At Constant Factor Cost)(Percent)

(P) Stands for provisional. Source: Economic Adviser’s Wing, Finance Division

1969-70 1998-99 1999-2000 2000-01 2001-02(P)Commodity Producing Sector 61.6 51.1 50.9 49.8 49.1

1. Agriculture 38.9 25.4 25.9 24.6 24.1- Major Crops 23.4 10.3 11.5 10.1 9.7- Minor Crops 4.2 4.9 4.2 4.1 4.0- Livestock 10.6 9.3 9.1 9.3 9.3- Fishing 0.5 0.9 0.9 0.9 0.9- Forestry 0.1 0.1 0.1 0.3 0.3

2. Mining & Quarrying 0.5 0.5 0.5 0.5 0.53. Manufacturing 16.0 17.1 16.7 17.5 17.7

- Large Scale 12.5 12.1 11.7 12.4 12.4- Small Scale 3.5 5.0 5.0 5.2 5.3

4. Construction 4.2 3.4 3.5 3.4 3.35. Electricity & Gas Distribution 2.0 4.7 4.4 3.8 3.6

Services Sector 38.4 48.9 49.1 50.2 50.96. Transport, Storage and Communication

6.3 10.3 10.2 10.5 10.1

7. Wholesale and Retail Trade 13.8 15.2 14.9 15.3 15.18. Finance and Insurance 1.8 2.5 2.3 2.3 2.39. Ownership of Dwellings 3.4 5.9 5.9 6.1 6.210.Public Administration and Defence 6.4 6.1 6.5 6.4 7.311.Other Services 6.7 9.1 9.3 9.7 9.912.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0


Per Capita Income

Due to relatively slower growth in realGDP in the 1990s, the per capita income grew atan average rate of 1.4 percent per annum. Thefiscal year 2001-02 witnessed a real increase of 3.2

percent in per capita income, which is the highestgrowth since 1995-96. At current prices, per capitaincome grew by 9.2 percent in 2001-02 as againstthe average growth of 6.3 percent during the lastfour years (1997/98-2000/01) The developmentsin per capita income are summarized in Table 1.7.

Table 1.7Growth in Per capita Income

Per CapitaIncome at 1980-

81 prices(Rs)

%Growth

Per CapitaIncome at

current MP(Rs)

% Growth

1991-92 4326 3.9 10853 14.31992-93 4303 -0.5 11672 7.51993-94 4367 1.5 13271 13.71994-95 4505 3.2 15552 17.31995-96 4644 3.1 17059 9.71996-97 4601 -1.0 18983 11.31997-98 4575 -0.6 20415 7.51998-99 4662 1.9 21899 7.31999-2000 4719 1.2 22811 4.22000-2001 4730 0.2 24198 6.12001-02 4881 3.2 26413 9.2

Note: FC means factor cost and MP represents market prices. Source:1) Federal Bureau of Statistics 2) Economic Adviser Wing

Savings and Investment

Total investment stood at around 16percent of GDP last year and there were indicationsthat with further improvement in investmentclimate, the overall investment will rise furtherduring the outgoing fiscal year. However, theevents of September 11 and December 13 and theiraftermath greatly clouded the investment climateand affected investor sentiment. As a result, totaland fixed investment declined to 13.9 percent and

12.3 percent of GDP, respectively in 2001-02. Publicsector investment declined to 4.7 percent in 2001-02from last year’s level of 6.3 percent. This was in linewith government's conscious policy decision tocreate greater space for the private sector. Privatesector’s fixed investment also declined, thoughmarginally, from 8.0 percent to 7.6 percent of GDP.Had there been no extraordinary events during theyear, private sector investment would have surged.Tables-1.8 reflects changing patterns of saving andinvestment during last five years.

Table 1.8Structure of Savings and Investment

(As Percent of GDP)Description 1997-98 1998-99 1999-2000 2000-01 2001-02 (P)Total Investment 17.3 15.6 16.0 15.9 13.9Changes in Stock 2.6 1.6 1.6 1.6 1.6Gross Fixed Investment 14.7 13.9 14.4 14.3 12.3 - Public Investment 5.2 6.0 6.0 6.3 4.7 - Private Investment 9.5 7.9 8.4 8.0 7.6Foreign Savings 3.0 4.1 1.9 0.9 -1.5*National Savings 14.3 11.4 14.1 15.0 15.4Domestic Savings 15.2 12.3 15.6 15.9 15.2Note: (P) stands for provisional Source: Economic Adviser’s Wing*: The current account balance numbers (both including and excluding official transfers) are not comparable with the onepresented by IMF because of different treatment accorded to outright purchases from the Kerb market.


While investment has declined, the

national savings as percentage of GDP has

increased from 15.0 percent last year to 15.4 percent

in 2001-02, mainly on account of a significant

improvement in the current account balance which

eliminated the need for recourse to foreign savings

to finance domestic investment.

It may be noted that national saving rate

has increased by 3.7 percentage points since 1998-

99. National savings, when adjusted for net income

from abroad, gives us domestic savings which

stood at 14.7 percent of GDP in 2001-02.

Chapter 2. Agriculture

2. Agriculture

Agriculture is the mainstay of Pakistan’s

economy. Nearly one-fourth of total output (GDP)

and 44 percent of total employment is generated in

agriculture. It also contributes substantially to

Pakistan’s exports. Agriculture also contributes to

growth as a supplier of raw materials to industry as

well as market for industrial products. Not only that

44 percent of country’s work force are employed in

agriculture but 67.5 percent of country’s population

living in rural areas are directly or indirectly linked

with agriculture for their livelihood. Whatever

happens to agriculture is bound to affect not only

the country’s growth performance but to a large

segment of the country’s population as well. Like in

South Asia, poverty in Pakistan is largely a rural

phenomena and agriculture will have to play a

critical role in the fight against poverty in the

country. It is because of

its central importance in reviving economic growth

and reducing poverty that the Government has

identified agriculture as one of the four major

drivers of growth (oil + gas, SMEs, and information

technology are the three other drivers of growth).

Agriculture has grown at an average rate of

3.5 percent per annum since 1991-92 (See Table 2.1)

with wild fluctuations – rising by 11.7 percent and

falling by 5.3 percent. The fluctuation in agricultural

growth has largely stemmed from fluctuation in

major crops which, in turn, is the result of the

behaviour of mother nature, pest attacks on crops,

adulterated pesticides, and relatively lesser attention

given to its sub-sectors other than crop farming. The

trends in agriculture growth since 1991-92 are

reported in Table 2.1.

Table 2.1Agriculture Growth

(Percent)

Year Agriculture Major Crops Minor Crops1991-92 9.5 15.5 2.41992-931993-941994-951995-961996-971997-981998-991999-002000-012001-02 (P)

-5.35.26.611.70.13.82.06.1-2.61.4

-15.61.28.76.0-4.38.3

-0.0215.1-9.8-0.5

3.612.66.94.90.93.34.2-9.10.11.0

P= Provisional.


The catastrophic drought that hit the agriculture last year not only continued with severity butresulted in water shortages of up to 51 percent ofnormal supplies during the outgoing fiscal year. Last year, agriculture faced water shortages of up to40 percent of normal supplies. The total flows ofwater in major rivers have declined to 91.15 millionacre feet (M.A.F) against an average flows of 131.69million. Rainfall has also been below normal. Thecanal head withdrawals in Kharif 2001 and Rabi2001-02 seasons have also witnessed significantdecline. Thus the unprecedented drought whichcaused serious damage to agriculture last year hashad crippling effect on agricultural production thisyear as well.

Notwithstanding severe watershortages, the value added in agriculture grew by1.4 percent in 2001-02 as against a decline of 2.6percent last year. Major crops, accounting for 40percent of agricultural value added, registerednegative growth second year in a row. As againsta decline of 9.8 percent last year, value added inmajor crops recorded a negative growth of 0.5percent. Minor crops contributing 19 percent toagricultural value added, managed to register apositive growth of 1.0 percent as against almostzero growth last year. Livestock is the secondlargest (contributing 37% percent) contributor tooverall agricultural value added. Its growth

slowed to 3.4 percent as against 4.9 percent lastyear. Fisheries expanded by 4 percent as against anegative growth of 3.7 percent and forestrydepicted a growth of 1.0 percent as against 9.9percent of last year. The situation of major cropsfor the last five years is presented in Table 2.2

I. Crop Situation

There are two principal crop seasons inPakistan, namely the "Kharif" the sowing season ofwhich begins in April-June and harvesting duringOctober-December, and the "Rabi", which begins inOctober-December and ends in April-May. Rice,sugarcane, cotton, maize, bajra and jowar are“Kharif" crops while wheat, gram, tobacco,rapeseed, barley and mustard are "Rabi" crops.Major crops, such as, wheat, rice, cotton andsugarcane account for 90 percent of value added inmajor crops. The value added in major cropsaccounts for 41 percent of value added in overallagriculture. Thus, the four major crops (wheat, rice,cotton, and sugarcane), on average, contribute 36.5percent to value added in agriculture. The minorcrops consisting of pulses, potatoes, onions, chilies,garlic etc. account for 10 percent of value added.The performance of the "Kharif" and "Rabi" crops isdiscussed in the ensuing pages.

Fig-1: AGRICULTURE GROWTH

-20

-15

-10

-5

0

5

10

15

20

91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 '01-02

Agri Major Crops Minor Crops

Chapter 2. AgricultureTable 2.2

Production of Major Crops(000 Tonnes)

Year Cotton(000 bales) Sugarcane Rice Maize Wheat

1997-98

1998-99

1999-2000

2000-01

2001-02 (P)

9184(-2.0)

8790(-4.3)

11240(27.9)

10732(-4.5)

10613(-1.1)

53104(26.4)

55191(3.9)

46333(-16.0)

43606(-5.9)

48042(10.2)

4333(0.7)

4674(7.9)

5156(10.3)

4803(-6.8)

3882(-19.2)

1517(1.7)

1665(9.8)

1652(-0.8)

1643(-0.5)

1665(1.3)

18694(12.3)

17856(-4.5)

21079(18.0)

19024(-9.7)

18475(-2.9)

P: Provisional.(July-March) Source: Ministry of Food, Agriculture and Livestock.*: Figures in parentheses are growth rates Federal Bureau of Statistics.

a) Main Kharif Crops:

i) Cotton:

Cotton is the important non-food cash cropand a significant source of foreign exchange earning.It accounts for 11.5 percent of value added inagriculture and about 2.7 percent of GDP. Inaddition to providing raw material to the localtextile industry, the lint cotton is a major exportitem. Production of cotton is provisionally

estimated at 10.6 million bales for 2001-02, which is1.1 percent lower than last year. The shortage ofirrigation water is mainly responsible for lowerproduction. Cotton was cultivated on an area of3116 thousand hectares, which was 6.5 percenthigher than last year (2927 thousand hectares). Thecrop however suffered from pest attack in some ofthe cotton growing areas and as such its yield perhectare declined by 8.6 percent. Area, productionand yield of cotton for the last five years are given inTable 2.3.

Table 2.3Cotton, Area, Production and Yield

Area Production Yield

Year (000

Hectare)%

Change (000 Bales)%

Change (Kgs/Hec) %Change

1997-981998-991999-20002000-012001-02(P)

29602923298329273116

-6.0-1.22.0-1.96.5

91848790112401073210613

-2.0-4.327.9-4.5-1.1

528512641624570

4.3-3.025.2-2.7-8.6

P=Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock Federal Bureau of Statistics.


ii) Rice:

Rice is a highly valued cash crop and is alsoa major export item. It accounts for 6.7 percent invalue added in agriculture and 1.6 percent in GDP.Production of rice during 2001-02 is provisionallyestimated at 3882 thousand tonnes, which is 19.2percent lower than last year. The

shortfall is attributed to the shortage of water whichresulted in delayed plantation, as well as shift inarea from irri to basmati rice – a relatively highvalued cash crop. Rice was cultivated on an area of2114 thousand hectares, which was 11.1 percentlower than last year. The yield per hectare is alsolower by 9.1 percent. Area, production and yield ofrice for the last five years are given in Table 2.4.

Table 2.4Area, Production and Yield of Rice

Area Production YieldYear

(000Hectare)

%

Change

(000Tonnes)

%

Change(Kgs/Hec) % Changes

1997-98

1998-99

1999-2000

2000-01

2001-02(P)

2317

2424

2515

2377

2114

2.9

4.6

3.8

-5.5

-11.1

4333

4674

5156

4803

3882

0.7

7.9

10.3

-6.8

-19.2

1870

1928

2050

2021

1836

-2.2

3.1

6.3

-1.4

-9.1

P: Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock.

Federal Bureau of Statistics.

iii) Sugarcane:

Sugarcane crop is highly water intensive

cash crop and serves as a major raw material for

production of white sugar and gur. Sugarcane tops

and molasses are valued as livestock fodder while

baggase is useful as fuel and as an input to the paper

industry. Its shares in value added in agriculture

and GDP are 6.3 percent and 1.5 percent,

respectively. Sugarcane was cultivated on an area of

1000 thousand hectares during the current fiscal

year, showing an increase of 4.1 percent over the

Fig-2: Cotton production (000 bales)

5000

6000

7000

8000

9000

10000

11000

12000

13000

14000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

Fig-3: Rice production (000 Tonnes)

2000

2500

3000

3500

4000

4500

5000

5500

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

Chapter 2. Agriculturelast year. The size of the sugarcane crop is

provisionally estimated at 48042 thousand tonnes

which are higher by 10.2 percent, as compared with

last year. The yield per hectare has also increased by

5.9 percent. The increased production is the result of

judicious application of fertilizer and water,

improvement in cultural practices and better

management.

The area, production and yield per hectare

for the last five years are given in Table 2.5.

Table 2.5Area, Production and Yield of Sugarcane

Area Production YieldYear(000 Hectare %

Change(000 Tonnes) %

Change(Kgs/Hec.) %

Change1997-981998-991999-20002000-012001-02(P)

1056115510109611000

9.49.4

-12.6-4.94.1

5310455191463334360648042

26.43.9

-16.0-5.910.2

5028847784459044537648042

15.5-5.0-3.9-1.15.9

P: Provisional. (July-March) Source: Ministry of Food, Agriculture and Livestock.

Federal Bureau of Statistics.

b) Main Rabi CropWheat:

Wheat is the leading food grain of Pakistan,and being the staple diet of the people it occupies acentral position in agricultural policies. It contributes12.5 percent to the value added in agriculture and2.9 percent to GDP. Wheat was cultivated on anarea of 7983 thousand hectares -

2.4 percent lower than last year. The size of thewheat crop is provisionally estimated at 18475thousand tonnes which is 2.9 percent lower than lastyear. The long dry spell affected the crop both inbarani and irrigated area. The yield per hectare alsodecreased by 0.5 percent. The area, production andyield for the last five years are given in Table 2.6.

Table 2.6Area, Production and Yield of Wheat

Area Production YieldYear (000

hectares)%

Change(000

tonnes)%

Change(Kgs/Hec.) % Changes

1997-981998-991999-20002000-012001-02(P)

83558230846381817983

3.0-1.52.8-3.3-2.4

1869417858210791902418475

12.3-4.518.0-9.7-2.9

22382170249123252314

9.0-3.014.8-6.7-0.5

P= Provisional.(July-March). Source: Ministry of Food, Agriculture and Livestock.

Fig-4: Sugarcane production (000 Tonnes)

30000

35000

40000

45000

50000

55000

60000

90

-91

91

-92

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

00

-01

01

-02

Chapter 2. Agriculture Federal Bureau of Statistics.

c) Other Major Crops

Barring barley, all the other major cropshave registered increases over the last year’sproduction. The production of maize during thecurrent year is provisionally estimated at 1665thousand tonnes, showing an increase of 1.3percent. The production of bajra and jowar of Kharifcrop registered an increase of 9 percent and 1.8percent, respectively. The production of gram andrapeseed & mustard, grew by 2.3 percent and 12.6percent, respectively. While production of tobaccoremained flat, production of barley declined by 7.1percent. The details are given in Table 2.7.

Table 2.7Production of Other Major Kharif and Rabi Crops

(Production 000 tonnes)

Crops2000-01

(Actual)

2001-02

(P)

% Change in

2001-02 over 2000-01

KHARIF:

Maize

Bajra

Jowar

RABI:

Gram

Barley

Rapeseed & Mustard

Tobacco

1643

199

219

397

99

230

85.1

1665

217

223

406

92

259

85.2

1.3

9.0

1.8

2.3

-7.1

12.6

0.1

P= Provisional(July-March). Source: Ministry of Food, Agriculture and Livestock. Federal Bureau of Statistics.

d) Minor Crops

i) Oil Seeds:

The major oilseed crops include:

cottonseed, rapeseed, sunflower, soybean and

safflower. Total consumption of edible oils in 2000-

01 was 1.95 million tonnes. Local production

accounted for 28.8 percent of the domestic

requirement while the remaining 71.2 percent of the

country’s requirement was met through imports.

During 2001-02, the total consumption is estimated

at 2.0 million tonnes and the local production is

estimated at 0.582 million tonnes to meet 29 percent

of the domestic consumption requirement while the

remaining 71 percent would be met through

imports. The edible oils are either imported

directly or obtained by crushing the imported

oilseeds in the country. The imported oilseeds are

mainly canola and sunflower. Production of oilseed

Fig-5: Wheat production (000 Tonnes)

10000

12000

14000

16000

18000

20000

22000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

01-0

2

Chapter 2. Agriculturecrops during 2000-01 and 2001-02 is given in Table

2.8.

Table 2.8Area and Production of Major Oilseed Crops

2000-01 2001-02 (P)Area Production Area Production

(000 Acres)

Oilseed(000

Tonnes)

Oil(000

Tonnes)(000 Acres)

Oilseed(000

Tonnes)

Oil(000

Tonnes)CottonseedRapeseed/MustardSunflowerCanolaOthers* Total Oil

7267645

15483-

3606220

10842-

43370

381506562

7722531

262118

-

3612185

18459

43359

642105582

*: Corn, Soybean, and Safflower. Source: Pakistan Oilseed Development Board.P= Provisional

ii) Other Minor Crops:

The production of all the three major pulseshave increased this year. Production of Mungincreased by 10.5 percent, followed by Mash (7.4percent) and Masoor (2.2 percent) during 2001-02.Production of potato increased by 0.7 percentwhile that of onion estimated to decrease by 11.2

percent. The production of chilies is estimated tohave decreased by 46.6 percent in 2001-02 over thelast year because a bumper crop during 2000-01,resulted in marketing problem and prices of chillieswent down by 50 percent. The farmers did notreceive reasonable return. The area, therefore,decreased by 42.2 percent during 2001-02. Detailsare given in Table 2.9.

Table 2.9Area and Production of Other Minor Crops

2000-01 2001-02(P)Crops Area

(000 hectares)Production(000 tonnes)

Area(000 hectares)

Production(000 tonnes)

%Changein

production

MasoorMungMashPotatoesOnionChillies

46.1219.245.7

101.5105.684.5

27.0104.525.7

1666.11563.3174.6

47.2240.455.1

103.2104.548.8

27.6115.527.6

1678.51387.4

93.3

2.210.57.40.7

-11.2-46.6

P= Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock. Federal Bureau of Statistics.

II. Farm Inputsi) Fertilizer: Fertilizer is the major farm input in

Chapter 2. Agricultureagricultural production. Domestic production offertilizer during the first nine months (July-March2001-02) of the current fiscal year has depicted anominal increase of 0.7 percent. On the other hand,the import of fertilizer declined by 13.6 percent, thusthe total availability of fertilizer declined by 2.9percent in the current year. The offtake of fertilizerwas also lower by 9.1 percent. The reduction inofftake is mainly attributed to the

shortages of irrigation water. The details are givenin Table 2.10.

Table 2.10Production and Off-take of Fertilizer

('000' N/tonnes)

YearDomestic

Production

%

ChangeImport

%

ChangeTotal

%

ChangeOfftake

%

Change

1997-98

1998-99

1999-2000

2000-2001

2000-2001 (P)

2001-2002 (P)

1728.0

1886.0

2263.0

2298.0

1704.0

1716.1

-2.1

9.1

20.0

1.6

-

0.7

713.7

860.0

662.8

579.0

579.0

500.0

-18.7

20.5

-22.9

-7.0

-

-13.6

2441.7

2746.0

2925.8

2877.0

2283.0

2216.1

-7.5

12.5

6.5

-1.7

-

-2.9

2646.0

2583.8

2833.4

2966.0

2415.0

2196.4

9.7

-2.3

9.7

4.7

-

-9.1

P= Provisional (July-March).. Source: National Fertilizer Development Centre.

ii) Improved Seed:

Improved seed has unique position amongthe various agricultural inputs because theeffectiveness of all other inputs is mainly dependenton the quality of seed used. The critical importance toproductivity is the authentic purity during the flowof seed from plant breeders to farmers. During 2001-02 (July-March), 184.5 thousand tonnes of improvedseed was procured while 131.9 thousand tonnes ofimproved seed was distributed, which was 19percent lower than the same period of 2000-01because distribution of improved seed for paddyand cotton had not been started until March, 2002.

The Federal Seed Certificate & RegistrationDepartment regulates the quality of seed right frombreeder’s seed to certified seed. To achieve this task,the department registers crop varieties for certifiedseed production and inspects the standing crop inorder to assess the genetic purity, off-types plants,

weeds, other crop plants, and diseases in the field.The seed from the inspected fields is also subject tothorough investigation in the laboratory todetermine the analytical purity, germination, vigorand moisture contents etc. There are about 360 seedcompanies, including 5 multinational companies,doing seed production and marketing in thecountry. A total of 143 seed processing plants/unitsare working in the country. It has enhanced theseed processing capacity from 12.2 percent to 35.4percent.

iii) Mechanization:

Agricultural mechanization has played animportant role in increasing agricultural production.Mechanization of agriculture is crucial for achievingself-sufficiency and surpluses in food productionthrough increasing productivity and reducing preand post harvest losses. Pakistan is making efforts tomodernize its agriculture and make its allied fields

Chapter 2. Agriculturemore efficient and productive.

The prolong dry spell has affected the useof tractors and despite stagnant prices, the sale oftractors has declined from 24651 last year to 18235during July-April 2001-02 – a decline of 26 percent.The Agricultural Development Bank of Pakistan(ADBP) has stepped up its efforts to mechanizePakistan’s agriculture. In this connection, the ADBPis providing major portion of development loans forpurchase of tractors/attachments and installation oftube wells, laser leveling, drip/sprinkler irrigation,fodder cutter and bed sowing in order to bridge themechanized farm power gap in the country. TheBank, over the years has disbursed a total amount ofRs.68412 million for the purchase of 430864 tractorsup to March 31, 2002. The gradual increase in theavailability of farm power has enabled timelydisposal of crops while facilitating increasedcropping intensity resulting in increased agricultureproductivity. The

ADBP has allocated funds to the tune of Rs.6734million for financial year 2001-02 for tractorfinancing. The Bank has so far disbursed loansamounting Rs.1998 million for purchase of tractorsof various makes up to 31st March, 2002. Prices ofvarious tractors are given in Table 2.11.

Table 2.11Price of Locally Manufactured Tractors

(In Rupees)

Tractor Model 2000-01 2001-02 % Change

MF-240 (50-H.P)

MF-260 (60 H.P)

MF-375E(75 H.P)

MF-385(85 H.P)

FIAT-480 (55-H.P)

FIAT-640 (65-H.P)

KOREAN LT-400D

UNIVERSAL U-640(65 HP)

UNIVERSAL U-530 (53-H.P)

313,000

-

-

585,000

320,000

459,000

-

-

320,000

313,000

375,000

490,000

585,000

320,000

459,000

435,000

439,000

320,000

-

-

-

-

-

-

-

-

-

Source: Ministry of Food, Agriculture and Livestock.

iv) Plant Protection:

The plant protection is an important factoramongst the agricultural inputs. Though it cannotinduce higher yields on its own but withouteffective protection against the attack of pests anddiseases, the beneficial outcome of other inputs maynot be realized either. In this connection, public

sector provides facilities, such as, pest scouting,advisory services and aerial spray to the farmerswhile private sector is responsible for carrying outplant protection measures including ground sprays.During July-March 2001-02, 20.1 and 15.3 thousandtonnes of agricultural pesticides were imported andlocally formulated, respectively by the privatesector.


v) Irrigation:

It is well-known that an efficient irrigationsystem is a pre-requisite for increasing agriculturalproduction. Despite the existence of good irrigationcanal net work in the world, Pakistan still suffersfrom wastage of a large amount of water in theirrigation process. The continuation of theunprecedented drought has worsened theavailability of irrigation water. The current fiscalyear has experienced overall water shortage to theextent of 51 percent from the normal availability asagainst 40 percent shortage of last year.

The total inflow of water (Indus at Tarbela,Kabul, Jhelum at Mangla and Chenab at Marala)averaged at 131.69 million acre feet (M.A.F.) duringthe last 24 years (1977-78 to 2001-02). Against thislevel of average inflow, the flows in major rivershave declined to 91.15 MAF in 2001-02 or areduction of 30.8 percent. The canal headwithdrawals averaged at 99.12 MAF during 1977-78to 2001-02, but it declined to 73.09 MAF in 2001-02,thus registering a decline of 26.3 percent. Rainfallhas also been below normal. During the monsoonseason (July-September), the average rainfall hasbeen 126.4 mm historically but during the monsoonseason of 2001, the rainfall averaged 115.3 mm,suggesting a decline of 8.8 percent.

During winter (January to March 2002), the lowaverage rainfall not only affected the crop in baraniarea but also reduced the inflow in the major riversfor irrigated area. The details are in Table 2.12 (a&b).

Table 2.12 (a)Irrigation Water Situation

Million Acre Feet

Average1977-78 to 2001-02

2001-02 Shortage % Shortage

InflowCanal withdrawals

131.6999.12

91.1573.09

40.5426.03

30.8%26.3%

Source: Indus River System Authority.

Chapter 2. AgricultureTable 2.12 (b)

Rainfall Recorded During 2001-02(In Millimeter)

Monsoon Rainfall (Jul-September)

Winter Rainfall(January-March)

Average 126.4 66.5Actual 115.3 37.8Shortage 11.1 28.7% Shortage 8.8 43.2

Source: Pakistan Meteorological Department

The canal head withdrawals in kharif 2001 (April-September) has decreased by 8.4 percent and stoodat 54.7 million acre feet (MAF), as compared to 59.7MAF during the same period last year. During theRabi season 2001-02 (Oct-March), the canal head

withdrawals decreased by 13.9 percent, as it wentdown to 18.4 MAF compared to 21.4 MAF duringthe same period last year, due to long dry spell andlesser water flow in the rivers, as per province-wisedetails given in Table 2.13.

Table 2.13Canal Head Withdrawals (Below Rim Station)

(Million Acre Feet (MAF)

Provinces

Kharif

(Apr-Sep)

2000

Kharif

(Apr -Sep)

2001

% Change inKharif 2001

over 2000

Rabi

(Oct-Mar)

2000-2001

Rabi

(Oct -Mar)

2001-02

% Change inRabi 2001-02over 2000-01

Punjab

Sindh

Baluchistan

NWFP (CRBC)

Total

31.49

25.56

1.81

0.81

59.67

27.24

24.47

2.11

0.84

54.66

-13.49

-4.26

16.57

3.70

-8.39

11.36

8.50

0.92

0.62

21.40

9.81

7.10

0.91

0.61

18.43

-13.64

-16.47

-1.09

-1.61

-13.88

Source: Indus River System Authority.

vi) Agricultural Credit:

Agricultural Credit plays a key role inenhancing the agricultural production by providingfinancial resources to the farming community. Thefarmers can thus purchase primary inputs, e.g, seed, fertilizer, pesticides and agriculturalmachinery in time. Agricultural loans extended tofarming community during July-March, 2001-02 isdiscussed briefly as under:-

a) Production and Development Loans

Agricultural loans amounting to Rs.32.6billion were disbursed during July-March, 2001-02,as against Rs.29.1 billion during the corresponding

period last year, thereby registering an increase of 12percent. Supply of agricultural credit by variousinstitutions since 1996-97 to 2001–02 (July-March) isgiven in Table 2.14

b) Loan to Small Farmers

According to Agricultural census 1990,there are 5.1 million farms in the country and 93percent of these are small farms (upto 10 hectares),accounting for 60 percent of total cultivated area.The large farms are only 7 percent of total farms butaccount for 40 percent of total cultivated area.

The Agricultural Development Bank ofPakistan (ADBP), disbursed Rs.17.7 billion to small

Chapter 2. Agriculturefarmers, including landless during the first ninemonths of the FY 2001-02. Availability of credit tothis category now constitutes 88 percent of totalagricultural credit provided by the bank.

c) Loans for Newly Identified Priority Items

In line with the government’s effortstowards strengthening agriculture sector, the bankhas earmarked Rs.4 billion exclusively for newlyidentified priority items. These items include watermanagement, land development, soil improvement,storages, farm mechanization, import substitutionand export based commodities.

Innovative cost effective technology forachieving optimal production on least cost basis isbeing transferred to farmers through the fieldfunctionaries of the bank. In this regard, for teaplantation at Shinkiari and palm oil at Thatta, thebank financed for cultivation of tea on 450 acres and477 acres respectively.

d) One Window Operations

A new concept of credit delivery has beenintroduced in the country for the expeditiousdelivery of credit to farmers with special referenceto subsistence and small farmers. Under thisscheme, all concerned officials are made available atone place on each Monday and Thursday.

The ADBP officers, representatives of theBoard of Revenue/Patwari (alongwith all the landrecord) and representatives of the Post Offices(alongwith blank pass-books and other relevantdocuments) remain present on these days at oneplace to facilitate farmers in obtaining input loans upto Rs.50,000/-.

Table 2.14Supply of Agricultural Credit by Institutions

(Rs. in million)

TotalYear ADBP Commercial

Banks CooperativesRs.Million %Change

1996-971997-981998-991999-20002000-20012000-2001 (July-March)2001-2002 (July-March)

11687.122363.030176.024423.927610.218858.720161.7

4410.75653.27236.09813.5

13001.87048.7

11729.1

4919.84722.95440.05951.24369.23194.0708.8

21017.632739.142852.040188.644981.229101.432599.6

-30.9-6.211.9

-12.0

Source: Ministry of Food, Agriculture and Livestock. State Bank of Pakistan.


III. Forestry

Pakistan is a forest deficit country with 4.2

million ha. (4.8%) of forest area out of 87.98 million

ha. of the total landmass. Total forests area of

Punjab, NWFP, Sindh, Baluchistan, Azad Kashmir

and Northern areas is 0.69, 1.21, 0.92, 0.33, 0.42, and

0.66 million hectares, respectively. Though the

forest resource is meager, it plays an important role

in Pakistan’s economy by employing half a million

people, providing 3.5 million cubic meters (mm3) of

wood and one-third of the nation’s energy needs.

Forests and rangelands support about 30 million

herds of livestock, which contributes more than US$

400 million to Pakistan’s annual export earnings.

Forestry sector plays an important role in soil

conservation, regulated flow of water for irrigation

and power generation, reduction of sedimentation

in water conveyances and reservoirs, employment

and maintenance of ecological balance. During the

year 2001-02, forests have contributed 270.7

thousand cubic meters of timber and 473.5 thousand

cubic meters of firewood as compared to 258.9

thousand cubic meters timber and 477.4 thousand

cubic meters firewood in 2000-01, respectively.

During 2000-01, Pakistan earned Rs.1.09

billion by export of various value added wood

products including the export earning of sports

good (Rs.356.5 million) as compared to Rs.1.5 billion

during the year 1999-2000. During the year 2000-01,

Pakistan spent an estimated amount of Rs.10.5

billion on imports of raw wood and wood products

from different countries of the world as compared

to Rs.7.056 billion during the year 1999-2000.

In order to overcome inadequacy of forest

cover, the Government of Pakistan has prepared

Forestry Sector Master Plan (FSMP) in 1992-93 for 25

years. This national document has identified

different strategies and programs and fixed the

physical and financial targets for each and every

category/group of program. The FSMP focuses on

eco-system management approach for the

conservation of renewable natural resources

through the active participation of all the

stakeholders especially local community at all levels

of planning and implementation of the master plan.

The Ministry of Environment, Local Government

and Rural Development organizes tree planting

campaigns twice a year at the beginning of spring

and monsoon seasons.

During spring and monsoon seasons of

year 2001, 131.62 million saplings (Spring 84.503 and

Monsoon 47.114 million) were planted as against

the target of 156.20 million sapling (Spring 101.244

million and Monsoon 54.955 million). Shortfall of

24.58 million saplings has been attributed to reduce

allocation of funds, lack of adequate nursery stock

and adverse climatic factors.

IV. Livestock and Poultry

a) Livestock

Livestock is an important sector of

agriculture in Pakistan, which accounts for nearly

37.5 percent of agricultural value added and about

9.4 percent of the GDP. Its net foreign exchange

earnings were to the tune of Rs.53.0 billion in 2000-

01, which is almost 12.34 percent of the overall

export earnings of the country. The role of livestock

in rural economy may be realized from the fact that

30-35 million rural population is engaged in

livestock raising, having household holdings of 2-3

cattle/buffalo and 5-6 sheep/goat per family

deriving 30-40 percent of their income from it. The

livestock include: cattle, buffalos, sheep, goats,

camels, horses, asses and mules. Population of

livestock for the last five years is given in Table 2.15.

Chapter 2. AgricultureTable 2.15

Livestock Population (Million No’s.)

Species 1997-98 1998-99 1999-2000 2000-2001 2001-2002 (E)CattleBuffaloSheepGoatCamelsHorsesDonkeys

21.221.423.844.20.80.33.7

21.622.023.945.80.80.33.8

22.022.724.147.40.80.33.8

22.423.324.249.20.80.33.9

22.824.024.450.90.80.33.9

E: Estimated. Source: Ministry of Food, Agriculture and Livestock (Livestock Wing)

Production from livestock sector includes: milk,beef, mutton, poultry meat, wool, hair, bones, fats,

blood, eggs, hides and skins and their productionfor the last five years are shown in Table 2.16.

Table 2.16Livestock Products

Products Units 1997-98 1998-99 1999-2000 2000-2001 2001-2002(E)MilkBeefMuttonPoultry MeatWoolHairBonesFatsBloodEggsHidesSkins

(000 Tonnes)""""""""

Million Nos.""

24215.0940.0617.0284.038.516.7

309.2115.233.6

6015.07.3

35.3

24877.0963.0633.0310.038.717.3

316.3117.834.4.08261.0

7.536.3

25566.0986.0649.0327.138.917.9

324.0120.640.9

7321.07.6

37.2

26284.01010.0666.0339.039.218.6

331.4123.541.8

7505.07.8

38.2

27031.01034.0683.0355.039.419.3

339.4126.542.9

7679.07.9

39.2

E= Estimated Source: Ministry of Food, Agriculture & Livestock (Livestock Wing).

b)Poultry

Poultry production has emerged as a goodsubstitute of beef and mutton. Its importance can bejudged from the fact that almost every family inrural areas and every fifth family in urban areas are

associated with poultry production activities in oneway or the other. Government is providing allpossible incentives to develop it at an acceleratedpace. The production of commercial and ruralpoultry is given in Table 2.17.

Table 2.17Production of Commercial Poultry and Poultry Products

Production Units 2000-2001 2001-2002(E)Day Old ChickLayersBroilersBreeding StockPoultry MeatEggs

Million No's"""

000 TonnesMillion No's

319.7 18.1253.3 6.2 256.14348.0

334.3 18.4264.4 6.2 266.84423.0

E: Estimated Source: Ministry of Food, Agriculture & Livestock (Livestock Wing).

Chapter 2. Agriculture The production of rural poultry products for 2000-01 and 2001-02 are given in Table 2.18.

Table 2.18Rural Poultry

(Million Nos.)

Production 2000-2001 2001-2002 (E)

Day Old Chick

Cocks & Cockribs

Layers

31.0

7.0

31.0

32.0

9.0

32.0

E: Estimated Source: Ministry of Food,Agricul- ture & Livestock ( Livestock Wing).

For promotion of livestock and poultry, thegovernment has provided the following incentivesin the agricultural package:

- Imported plant and equipment notmanufactured locally shall be subject tocustom duty of 10 percent, with completeexemption from sales tax.

- Capital structure of projects in agro-foodindustry will be entitled to debt-equity ratioof 70:30.

- Projects will be entitled to financing from allbanks and development financeinstitutions.

- Expatriate personnel of the Units will beallowed to import food items and otherconsumable without any duty/taxes,subject to maximum limit of $2,000 perperson per year.

- Import of breeding stock will be allowedsubject to the import duty of 10 percent.

- Locally manufactured machinery will beprovided credit.

- Parts and Components upto 5 percent ofinitial C&F value of imported plant and

equipment shall be imported at 10 percentduty, if imported together with the plant.The export of livestock & livestock productshas been allowed.

- The imported plant and equipment notmanufactured locally, shall be subject tocustom duty of 10 percent with completeexemption from sales tax.

Following measures have also been taken tomeet Sanitary and Phytosanitary (SPS) requirementsunder WTO for quality assurance and to improveexports of livestock and livestock products:

- Establishment of abattoirs are encouragedin the private sector;

- The National Veterinary Laboratory isunder construction for drug residue testingin the livestock products. This will ensurequality in exported products;

- Steps have been taken to improve sanitaryand hygiene conditions of animal casingprocessing units in the country.

V. Fisheries

Fishery plays an important role inPakistan's economy and is considered to be animportant source of livelihood for the coastalinhabitants. Apart from marine fisheries, inlandfisheries (comprising of rivers, lakes, ponds, damsetc) are also very important source of animalprotein. Fisheries' share in GDP, though very little, itcontributes substantially to the national incomethrough export earnings. During the period July-March 2001-02, 63.129 m. tonnes valued at Rs.5.9billion fish and fishery products were estimated tobe exported. During the same period, the total fishproduction is estimated at 654500 m. tonnes. Ofwhich, share of marine sector is 473000 m. tonnesand inland contribution is 181500 m. tonnes.

Pakistan also exports a reasonable quantity

Chapter 2. Agricultureof shrimp and fish and earns a substantial amountof foreign exchange. Thus, during July-March 2001-02, 63129 m. tonnes of fishery products wereexported to Japan, USA, UK, Germany, Middle Eastand other countries.

The Government is taking a number ofsteps to improve fisheries sector. Further, number ofinitiatives are being taken by the Federal andProvincial Fisheries Departments which, inter-alia,include strengthening of extension services,introduction of aquaculture techniques,diversification of fishing efforts, improvement inpost harvest techniques, development of valueadded products, enhancement of per capita

consumption and up-gradation of socio-economiccondition of the fishermen's community. MarineFisheries Department is also executing a project,namely, "Establishment of a Hatchery Complex forProduction of Fish/Shrimp Seeds" which will play avital role for the development of fish/ shrimpfarming.

The total number of persons engaged infisheries sector during 2001-02 is estimated at361000. Out of which, 137000 persons (37.9 percent)were engaged in marine sector and 224000 persons(62.1 percent) in inland fisheries, whereas thepersons engaged in fisheries sector in 2000-01 were

272240 persons−127181 (46.7 percent) in marine and145059 (53.3 percent) in inland fisheries.

_____________________________

Chapter 3. Manufacturing Mining and Investment Policies

3.Manufacturing, Mining and Investment Policies

Fiscal year 2000-01 has been the bestperforming year for manufacturing sector indecade. This year had seen manufacturingregistering a stellar growth of 7.6 percent withmajor contribution coming from large-scalemanufacturing which recorded 8.6 percentgrowth. The challenge before us has been tosustain this growth during the outgoing fiscalyear 2001-02. However, while fixing the growthtarget of large-scale manufacturing, some slowdown was anticipated for two reasons. Firstly, asa result of 8.6 percent growth in 2000-01, the basefor large-scale manufacturing was already high.Secondly, the impact of possible slow down inglobal economy in general and the US economy inparticular was also taken into account.Accordingly, the large-scale manufacturing wasoriginally targeted to grow by 6.5 percent in 2001-02.

The events of September 11 andconsequent development thereafter adverselyaffected the performance of this sector. Seriousdifficulties caused by the events of September 11notwithstanding, Pakistan’s overallmanufacturing sector registered a growth of 4.4percent and large-scale manufacturing grew by4.0 percent during the outgoing fiscal year. Whenviewed at the backdrop of development that havetaken place in many developing and transitioneconomies after the events of September 11, theperformance of large-scale manufacturing inPakistan appears more than satisfactory.

The large-scale manufacturing (LSM ) wastargeted at 6.5 percent in 2001-02. As a result ofthe events of September 11 and consequentdevelopment thereafter the target was reviseddownward to 3.2 percent. The fiscal year 2001-02

however began with a positive note as large-scalemanufacturing continued to exhibit a rising trenduntil September 2001(see Table 3.1 and fig.1).Large-scale manufacturing grew by 5.3 percent inthe first quarter (July –September) of the outgoingfiscal year. The events of September 11 and theiraftermath adversely affected the performance ofthis sector. As shown in table 3.1, the growth oflarge-scale manufacturing slowed to 0.6 percent inOctober and turned negative to the extent of 5.7percent in November 2001, that is, during thepeak of Afghan War. Once the war ended, thelarge-scale manufacturing staged an impressiverecovery during the month of December andJanuary when it grew by 6.8 percent and 16.3percent, respectively (see Table 3.1 and fig.1).

Resultantly, the cumulative growth ofLSM reached 5.2 percent in the first seven months(July-January) of the current fiscal year. Large andpositive growth in two successive monthssuggested that the worst was over as far asindustrial production is concerned.

Table 3.1Month-Wise Industrial Growth

(July-March) ( percent)

Month 2000-01 2001-02July 6.4 3.6August 10.3 4.1September 7.9 8.2October 11.1 0.6November 0.3 -5.7December -13.5 6.8January 9.6 16.3February 21.2 -10.3March 22.9 6.4Jul-March(Cumulative)

7.6 4.0



The month of February 2002 turned out tobe a “black month” for industrial productionbecause all major industrial groups registeredsubstantial negative growth with the exceptionsof textile and apparel. Several non-economicfactors were responsible for the poorperformance of industrial production in themonth of February 2002. Firstly, the workingdays in the month of February 2002 were reducedto 18-19 days because of the Eid and otherholidays. Secondly, the performance of February2002 was measured against an extraordinarilyhigh base (21.2 percent growth in February 2001).Thirdly, automobile production declined by 21percent because car manufacturers createdartificial shortage by cutting their production.Such behavior is tantamount to restraining thecountry’s economic growth, especially whenautomobile sector is the most protected industryin Pakistan. Given the persistence of excessdemand, car manufacturers have never attemptedto match the demand by increasing capacityutilization. Finally, the production of Phosphaticfertilizer was 5.6 percent and Nitrogenousfertilizer declined by almost 49.5 percent becausefertilizer industries were carrying excess stockand wanted to export 200,000 tons. However,exports could not be materialized, therefore the

industry had to cut fertilizer production. Excesscarry-over stock of fertilizer was due to thedecline in off-take which was mainly caused bythe prevalent drought situation. As a result,industrial production declined by 10.3 percent inFebruary 2002.

Large-scale manufacturing bounced backin March and registered a growth of 6.4 percentover March 2001. This is an impressive recoveryconsidering the fact that large-scalemanufacturing had grown by almost 23 percent inMarch 2001. In other words the performance ofMarch 2002 must be viewed against an extra-ordinary high base of March 2001. The growthsurged upward to 4.0 percent on cumulative basisduring the first nine months (July-March) of thecurrent fiscal year. Whereas the cumulativeposition for the seven month (July-Jan) had been5.2 percent. If we exclude the index for the monthof February which shows abnormal behavior fromoverall quantum index of July-March 2000-01 and2001-02 for the sake of comparison, the growth isas high as 5.4 percent for the current year asagainst 4.7 percent last year. This shows thegravity of the damage, the month of February hasinflicted on the growth figures of July-March,2001-02.

Source: Economic Adviser’s Wing, Finance Division.

Table 3.2 Group-wise and Month-wise Industrial Growth

(July-March, 2001-02)(Percent)

Group Jul Aug Sep Oct Nov Dec Jan Feb Mar

a. Food, Beverages & Tobacco -1.0 1.5 16.5 5.7 -32.4 6.2 31.4 -11.8 13.0

b. Textile & Apparel 2.5 0.3 3.9 3.5 4.8 4.4 5.2 7.0 7.8

c. Leather Products -6.2 4.1 2.0 3.4 -1.7 -5.3 -6.4 -14.0 -6.7

d. Paper & Paper Board 7.5 -0.2 3.4 0.1 7.4 21.6 0.9 -10.9 -2.6

e. Chemicals, Rubber & Plastic 2.8 0.0 0.9 3.6 1.2 2.9 17.3 -21.1 -8.5

f. Petroleum Products 31.1 30.2 30.1 3.2 43.6 19.7 39.0 -10.9 2.4

g. Tyres & Tubes 2.7 100.1 18.6 25.6 12.7 0.6 -19.0 -29.4 -12.1

h. Non-Metallic Mineral Prod. 10.5 2.3 15.6 -9.2 -20.4 -8.9 -12.5 -21.5 46.4

i. Basic Metal Industries -17.5 -2.1 9.7 -3.2 -16.9 2.2 0.6 -20.3 -2.7

j. Metal Products & Machinery -1.9 20.3 6.0 -10.1 -15.8 6.1 9.4 -17.3 9.8

k. Automobile 5.7 13.5 22.7 -24.8 -22.7 41.9 -13.4 -21.0 26.7

Overall Growth 3.6 4.1 8.2 0.6 -5.7 6.8 16.3 -10.3 6.4


-15

-12

-9

-6

-3

0

3

6

9

12

15

18

July

August

September

October

November

December

January

February

March

Fig-1: Month-Wise Growth in LSM (2001-02)

There are indications that industrialproduction would accelerate during theremaining three months. For example, the figuresavailable for the month of April for majorindustries like cement, sugar and automobileshowed tremendous growth and analysts arehopeful for continuation of a similar positivetrend in the remaining months of the fiscal year.Sugar production stood at 3.0 million tons, whichis 9.2 percent higher than the corresponding

period of last year. Automobile production alsoincreased significantly in March and is likely toaccelerate further during the remaining monthsof the current fiscal year. Cement production hasalso picked up and registered a growth of almost50 percent in March 2002 as against thecorresponding month of last year. There are signsthat industrial productions would accelerate inthe remaining months.

Table 3.3Group-Wise Growth Performance

(July-March)(Percent)

Group 2000-01 2001-02Food, Beverages & Tobacco 9.1 6.1(Sugar) (14.8) (9.2)Textile and Apparel 2.7 4.4Leather Products 9.3 -3.5Paper Printing & Publishing 24.9 2.8Chemicals, Rubber & Plastics 8.1 0.1Petroleum Group 16.6 18.7Tyres & Tubes 1.0 5.9Non-Metallic Mineral Products 1.8 1.2Basic Metal Industries 6.7 -4.7Metal Products, Machinery & Equipment 0.1 3.3Automobile 23.2 2.8Overall Growth 7.6 4.0Note: Figures for sugar, automobile and cement are Source: Economic Adviser Wing, Finance Division taken for 12 months while for fertilizer, steel products and soda for 10 months


The main contributors to the modestgrowth of 4.0 percent in July- March, 2001-2002over the corresponding period of previous yearare petroleum group (18.7 percent), food,beverage & tobacco group( 6.1 percent) textiles &apparel group ( 4.4 percent) and tyres & tubes(5.9 percent). Nine out of eleven groups registeredpositive growth while the remaining tworecorded negative growth [See Table 3.3]. Theindividual items that registered positive growthare cotton cloth (15.2 percent), cotton yarn (4.8

percent) in textiles group; cooking oil (12.9percent) and sugar (9.2 percent) in food,beverages and tobacco groups; flakes &detergents (29.5 percent) in chemical &pharmaceutical group, and LCV’s (13.0 percent).The individual industries which show negativegrowth include air conditioners (76.9 percent),bicycles (7.6 percent), tractors (9.6 percent),phosphatic fertilizer (49.5 percent) and cosmetics(32.9 percent). The production performance ofselected items is given in Table 3.4..

Table 3.4Production of Selected Industrial Items of Large-scale

(July-Mar)Item Units 1999-2000 2000-01 2000-01 2001-02 % ChangeCotton Yarn 000 tonnes 1669.9 1721.0 1286.2 1347.7 4.8Cotton Cloth Mln. Sq. Mtr 437.2 490.2 358.0 412.3 15.2Sugar 000 tonnes 2429.3 2789.1 2789.1 3044.7 9.2NitrogenousFertilizer

000 N. tonne 1901.7 2004.7 1642.0 1733.6 5.6

Phosphatic Fertilizer 000 N .tonne 166.5 292.2 242.6 122.6 -49.5

Vegetable Ghee 000 tonnes 698.1 834.8 631.5 592.7 -6.1Cooking Oil 000 tonnes 92.0 106.8 81.2 91.7 12.9Cement 000 tonnes 9314 9674 9674 9852 1.8

Cigarettes Billion Nos. 47.0 58.2 41.1 39.8 -3.1Jeep& Cars Nos. 32841 40032 40032 41324 3.2Tractors Nos. 35038 32413 32553 29440 -9.6L.C.V Nos. 6656 6965 6965 7871 13.0Motorcycles/Scooters Nos. 94881 117858 89299 94108 5.4Bicycles 000 Nos. 534.1 569.6 426.0 393.6 -7.6Paper & Paper Board 000 tonnes. 434.6 531.1 389.2 400.2 2.8Flakes & Detergents 000 tonnes 52.3 64.0 45.9 59.5 29.4Cosmetics 000 Cont. 283.5 384.7 286.7 192.4 -32.9Toilet Soap 000 tonnes 83.3 70.7 54.3 55.5 2.2Refrigerators 000 Nos. 211.5 272.3 176.7 201.2 13.8Air conditioners 000 Nos. 4.8 7.1 5.2 1.2 -76.9

Source: Federal Bureau of Statistics

EVALUATION OF SELECTED INDUSTRIES OFLSM.

Textile Industry

Inspite of drastic changes occurred in the

production patterns over the year, the textile

sector remained the backbone of the economy and

still contributing around 60 percent to export

earning and acting as major employer of

industrial labour force. The textile sector depends

on agriculture for supply of raw material,

therefore whatever happens to cotton crop is


likely to affect the performance of textile sector.

During the current fiscal year the textile sector

showed greater resilience to lower cotton crop

and performed well as far as production is

concerned. After suffering stagnation for last 5

year, textile exports started improving, especially

the value added product performed well in export

markets inspite of lower demand and depressed

prices in the international market. Foreign direct

investment (FDI) in the textile sector also

doubled from last year rising from US $ 4.6

million to $ 10.5 million in July–March, 2001-02.

The profiles of various components of

textile industry are given in the Table 3.5 below:-

Table 3.5Installed Capacity of Textile Industry

July-March2000-01 2001-02

% Change

Number of Mills 356.0 355.0 -0.28Installed Capacity (000 Number)

- Spindles 8601.0 8680.0 0.92- Rotors 145.0 145.0 0.00- Looms 9.9 10.1 2.02

Working Capacity (000 Numbers)- Spindles 6913.0 7101.0 2.80- Rotors 69.0 63.0 8.70- Looms 4.2 4.4 4.80

Source: Textile Commissioner Organization,Federal Bureau of Statistics

Performance of Ancillary Textile Industry

The performance of various ancillary

textile industries is evaluated as under:-

A. Cotton Spinning Sector.

The spinning sector of textile is one of the

most important sectors. At present, it is comprised

of 445 textile mills (50 composite units and 395

spinning units) with 7.2 Million spindles and 64

thousand rotors in operation. The capacity

utilization stagnated at 87 percent in spindles and

45 percent in rotors, during July- March, 2001-02.

The production of cotton yarn increased

to 1347.7 thousand tones in July-March 2001-02 as

against 1286.2 thousand tones in the comparable

period of last year, thereby, registering a growth

of 4.8 percent, (The export of cotton yarn

remained more or less of last year’s level during

July-March 2001-02). The value of yarn export

however declined by 12.4 percent because of the

depressed international price of yarn. The decline

in yarn exports was compensated by the exports

of high value added products. This implies that a

shift is taking place from lower to higher value

added export products.

B. Weaving & Made-up Sector.

The weaving and made-up sector

comprising of hosiery, garments, towels, canvas,

and bedwear have three different sub-sectors in

weaving viz. integrated, independent weaving

units, and power looms units. The installed and

effective capacities in the sector are given in the

Table 3.6.


Table 3.6Installed and Capacity Worked in Weaving

Sector (Nos.)

CategoryInstalledCapacity

Effective/CapacityWorked

a) IntegratedTextile Units 10134 4500

b) IndependentWeaving Units 17500 16500

c) Power LoomSector

225258 190000

Total 252892 211000

Source: Textile Commissioner Organization.

The government is emphasizing more on

providing credit and other facilitative support to

diversify the products, especially to cater the

needs of the high value added sector like garment

industry. Last year, the textile industry invested

substantially in BMR for improving production

quality and moving towards more value addition.

The textile industry needs around $ 1.5 billion

worth of annual investment for BMR and

expansion over the next three years to meet the

challenges of the post-quota regime beginning

from January 2005.

C. Cotton Cloth

The production of cotton cloth in the mill

sector has increased by 15.2 percent during July-

March 2001-02 while non-mill sector registered a

growth of 9.0 percent in the same period. The

export of cotton cloth is also increased by 9.3

percent during July-March 2001-02 in quantitative

terms, however, both production and export of

cloth has increased in dollar term by 6.7 percent.

The performance of the sub-sectors is evaluated

below:

a) Hosiery Industry: - There are about 10,000

knitting machines working in the country

with approximately 60 percent capacity

utilization. The sector is not only catering

for domestic demand, but also has export

potential and earns much needed foreign

exchange. Exports from this sector have

provided $ 598 million in the form of

foreign exchange for knitwear during

July-March 2001-02 as compared to $ 668

million during the same period of last

year, thereby, showing a decline of 10.5

percent.

b) Readymade Garments. The garment

industry provides highest value addition

in the textile sector. This sector is

distributed in small, medium and large-

scale units, most of them, having 50

machines and below. This sector is

attracting considerable investment and

many new units are coming up in the

organized sector every year. This sub-

sector is facing multi-dimensional

problems like high value addition in

competing countries and inelasticity of

the sector in shifting the burden of

increased or decreased prices of yarn,

cotton cloth or other inputs to the end

user. Against all these odds, the sub-

sector has witnessed substantial growth

(22.4 percent) in terms of quantity

exported. However, due to 13.8 percent

fall in the unit value, the dollar value of

exports increased by merely 5.6 percent

during July-March 2001-02 over the

comparable period of last year, by

moving to $ 640.1 million this year as

against $ 606.3 million last year.

c) Towel industry. This industry is

comprised of about 6500 towel looms in

the country in both organized and

unorganized sector. It is mainly an


export-based industry with low demand

in the country. Its growth primarily

depends on export outlets, as such its

exports increased by 16.7 percent in

quantity terms and by 11.3 percent in

value terms, during July-March 2001-02.

d) Tarpaulin & Canvas. The production

capacity of this highest raw cotton-

consuming sector is 100 million sq.

meters. This is a low value added sub-

sector. The sector recorded 6.0 percent

increase in value of exports and 4.4

percent increase in quantity terms which

imply slight upward adjustment in the

unit value of exports. This sector is

mainly export based and 90 percent of its

production is exported.

D. Filament Yarn Manufacturing Industry

There are 25 units engaged in

manufacturing of three kinds of filament yarn,

namely acetate rayon yarn (one unit with capacity

to manufacture 3 thousand tones), nylon filament

yarn (3 units with installed capacity of 2 thousand

tones) and polyester filament yarn (21 units with

installed capacity of 95 thousand tones). The total

installed capacity of all these units is 100

thousand tones, against which it produced

approximately 78 thousand tones per annum.

Recently, hosiery sector has started consuming

synthetic Yarn for export of knitted garments

which are contributing in high value addition as

well as diversification in exportable products.

E. Art Silk and Synthetic Wearing Industry

The art silk and synthetic weaving

industry is mostly concentrated in the informal

sector and generally it is operated as family

owned power loom units comprising of 8 to 10

looms. There are approximately 90,000 power

looms in operation to prepare synthetic yarn in

the country. About 30,000 looms are engaged in

production of blended yarn and 60,000 looms are

producing filament yarn. The export of synthetic

textile decreased by 23.5 percent in terms of

quantity and 27.1 percent in terms of value during

July-March 2001-02 over the comparable period of

last year. This industry, like others in textile sector

has also experienced decline in unit value of

exports by 4.7 percent. The importance accorded

to SMEs by the government would go a long way

in promoting this sort of industry.

F. The Fertilizer Industry

Fertilizer is one of the key inputs used in

agricultural production. There are 10 fertilizer

units operating in the country (Five units are in

Punjab, three in Sindh and two in NWFP) with an

installed capacity of 5.6 million tones, out of

which nitrogenous fertilizer has a capacity of 4.9

million tons and phosphatic fertilizer has

production capacity of 0.7 million tons. Out of

these 10 units, five are in private sector with an

installed capacity of 3.7 million tons and five are

in public sector with capacity of 1.9 million tons.

The production of fertilizer has decreased by 0.5

percent and stood at 3793 thousand tones during

July-March 2001-02 (due to excess carry-over

stock and decline in fertilizer off-take owing to

severe drought conditions prevalent in the

country) as against 3813 thousand tones in the

corresponding period of previous year. The

production of fertilizer like urea, nitro phosphate

and supper phosphate increased by 5.6 percent,

6.9 percent and 11.26 percent respectively while

the production of ammonium nitrate and di-

ammonium phosphate declined by 15.7 percent

and 71.8 percent, respectively, during July March

2001-02 over the corresponding period of last

year.


G. Vegetable Ghee

The ghee and cooking oil production is

mainly concentrated in the private sector

comprising of nearly 150 units both in organized

and unorganized sectors. The overall installed

capacity of the ghee and cooking oil industry is

estimated at 2.7 million tones. The ghee

production is estimated at 0.59 million tones

during July- March 2001-02 as against 0.63 million

tones produced in the comparable period of last

year, which implies a decline of 6.1 percent.

However, the production of cooking oil witnessed

12.9 percent rise and stood at 0.092 million tones

in first nine months as against 0.081 million tones

in the comparable period of last year. This

production is meant for combined national

requirement of about 1.7 million tones for ghee

and cooking oil consumption. This also implies a

shift in consumption pattern from ghee to cooking

oil.

H. Sugar Industry

The sugar industry, having grown from

only 2 mills producing 10, 000 tones of Sugar in

1947 to 77 mills with ability to produce 5.5 million

tones. Out of the 77 mills, 38 are located in

Punjab, 32 in Sindh 6 in NWFP, and one in AJK.

In the past decade, 25 new mills have been setup,

and some of them are already in operation. As a

result, the production capacity has almost

doubled against the annual sugar requirement for

consumption. The industry is confronted with

inefficiency in production, partly contributed by

the quality and quantity of sugarcane availability.

The sugar season is over in May and the latest

estimates showed production of 3.04 million tones

as against 2.79 million tones in the last year,

thereby showing an increase of 9.2 percent. There

is a need to increase sugarcane yield at farms and

improve sugar recovery rate by adopting most

modern techniques for cultivation of sugarcane.

I. Cement Industry

There are 24 cement units in the country

with total installed capacity of 16300 thousand

tones. Out of these 24 units, 4 units with installed

capacity of 1831 thousand tonnes are in the public

sector and 20 units having capacity of 14,440

thousand tonnes are in the private sector. The total

production of cement is recorded at 9.8 million

tonnes during July-March 2001-02 as compared to

9.7 million tonnes in the same period of last year,

showing an increase of 1.8 percent. The sharp

fluctuation in cement prices and relatively lesser

demand for cement have been responsible for the

decline in cement production in the current fiscal

year. Cement production has however increased by

50 percent in the month of March 2002 and is likely

to increase further in April to June.

J. Automobile Industry

The performance of automobile industry

has been lackluster at best over the last five years.

During the current fiscal year the automobile

industry has registered mixed trend and the

production of LCVs, motorcycles, trucks and, jeeps

and cars increased by 15.0 percent, 5.4 percent, 5.7

percent and 3.6 percent, respectively during July-

April 2001-02. However, the production of tractors

declined by 26.2 percent, and the declining trend is

followed by buses 23.1 percent. The automobile

group as a whole registered an improvement of 1.9

percent in the first ten months of the current fiscal

year as against 23.3 percent growth in the

comparable period of last year. The installed

capacity of the major components of automobile

sector and production is given in Table 3.7.


Table 3.7Installed and Operational Capacity of Automobile Industry

(Numbers)

Inst. Capacity July-AprilAuto Vehicles (Single Shift )

2000-012000-01 2001-02

Cars 106000 39573 31406 32552

Trucks 12500 952 749 792

Buses 1900 1337 1163 894

LCV’s 28000 7424 5490 6315

Tractors 33000 32554 25347 18708

Motorcycles 340000 117858 89299 94108


The automobile industry enjoys the status

of the most protected industry in Pakistan where

the effective protection rate (EPR) ranges between

701 percent to over 5000 percent. The local car

assemblers are fighting for the share of market

through non-price factors like advertisement and

alliance with leasing companies. Against estimated

national demand for 100 thousand cars, the local car

industry has never produced over 40 thousand cars.

REVIVAL OF SICK UNITS

The sick units are inimical to development

of financial institutions . To reinvigorate these units

and lessen the burden of financial institutions, the

government has formed Corporate Industrial

Restructuring Corporation (CIRC) with a mandate

to sell 868 such units through open public auction

and complete the work within a year. These units in

the private sector were identified by the CIRC in

consultation with the concerned banks as these

units were closed for many years and owed over

Rs. 107 billion to the nationalized commercial banks

(NCB’s) and DFI’s. The CIRC will take over these

assets from the government owned banks and

financial institutions at their book value and in

return, the government will issue bonds to these

banks at the time of privatization of the unit or after

three years of take-over, whichever is earlier. The

CIRC had selected 101 cases for the process from six

banks and financial institutions. The CIRC became

operational after promulgation of two ordinances in

September and November 2000. The original

borrowers are given the chance to settle their dues

within 30 days or otherwise the CIRC starts

executing cases through the courts.

The strategy to auction the irretrievable sick

industrial units, is the last ditch attempt by the

government to solve the twin problems of sick

industries and non- performing loans of the

NCBs/ DFIs. The CIRC has so far acquired 120

units involving Rs.16.1 billion and auctioned 48

units involving Rs.6.4 billion of the NCBs/ DFI’s.

PUBLIC SECTOR INDUSTRIES.

The Public Sector Industries had provided

nucleus for large scale capital goods producing

industries in the Seventies. But the government

started reducing its direct role in managing

industries by resorting to the policies of

deregulation and privatization. Before the start of

Privatization in 1990-91, there were twelve

holding corporations with 116 manufacturing

units. As a result of massive privatization/

transfer of ownership, this number of units under

administrative control shrank to 38 in 2002.

During the period under review, the

public sector industries under the administrative


control of the Ministry of Industries & Production

continued to operate within the general economic

policy framework of focusing on optimal

utilization of existing capacities and adhering to

cost efficiency. Key performance indicators

present the following picture of performance

during July-June, 2001-2002 ( 8 months actual & 4

months projected) in comparison to the same

period last year.

Table 3.8Performance of Public Sector Industries

(Excluding Pak Steel)(Rs. In Million)

Item 2000-2001 2001-2002 ** % Change

Production Value* 6,500 6,282 -3.36Net Sales 14,774 15,233 3.11Pre-Tax Profit 754 879 16.57Taxes and Duties 3,595 3,613 0.50No. of Employees 11,140 8,355 -25.00

* At constant prices of 1987-88. Source: Expert Advisory Cell, Ministry of Industry & Production

** Actual for 8 months (July- Feb) and expected for 4 months (Mar- June)

Production Value

Production value (at constant prices of

1987-88) of all operational units (excluding

Pakistan Steel) is expected to decline by 3.4

percent over last year. Production value of

National Fertilizer Corporation (NFC) projected to

decline by 1.0 percent, followed by the State

Cement Corporation (SCCP) (1.1 percent). The

remaining two corporations namely, the State

Engineering Corporation (SEC) and the Pakistan

Automobile Corporation (PACO) have projected a

decline in their production value by 6.3 percent

and 28 percent, respectively. The Federal

Chemical & Ceramics Corporation (FCCCL) and

the State Petroleum Refining & Petro-chemical

Corporation (PERAC) have reported nil

production because of transfer of Ravi Rayon Ltd.

under FCCCL to Atomic Energy Commission

and National Refinery Ltd (NRL) under PERAC

to the Ministry of Petroleum & Natural Resources.

Net Sales

Net sales (excluding Pakistan Steel) of all

operational units are estimated at Rs. 15.2 billion

for July-June 2001-2002 as against Rs. 14.8 billion

for the same period during last year, showing an

increase of 3.1 percent. While NFC has reported

an increase in its sales value from Rs.10.6 billion

to Rs.11.2 billion, rising by 5.7 percent. The net

sales of SCCP units increased by 15.4 percent

(from Rs. 1.1 billion to Rs 1.3 billion). The net sale

value of PACO registered a decline of 21.0

percent - declining from Rs. 881.0 million to Rs.

696.4 million and in the case of SEC, the net sales

value fell by 6.5 percent (from Rs.2.1 billion to Rs

2.0 billion).

Pre- Tax Profit/ (Loss)

During 2001-02, an aggregate profit of

Rs.878.6 million (excluding Pakistan Steel) is

expected as against an aggregate profit of Rs.753.7

million reported last year. Only two corporations

namely, NFC & PACO have projected profit

during the current year, whereas SEC & SCCP are

estimated to have suffered losses in the current

financial year. The SCCP and SEP have

nevertheless shown signs of improvement in their


performance by reducing the size of their losses

by Rs. 127.5 million and Rs. 93.0 million

respectively. The NFC, though projected profit

but the size of the profit is marginally lower than

last year ( Rs. 1.3 billion as against Rs. 1.4 billion ).

This decrease in the profits of NFC’s units is

mainly because of the increase in prices of inputs

i.e. natural gas, low sale price available in the

market and heavy losses incurred by Pak

American Fertilizer (New Plant) by Rs.534.7

million as against last year’s loss of Rs 686.7

million which is mainly on account of high

depreciation and financial charges. The PACO has

also projected decline in the profit from Rs.90.8

million (last year) to Rs.65.6 million in the current

year.

Employment

Total number of employees enrolled with

public sector corporations units (excluding Pak

Steel), by end June, 2002 is estimated at 8,355 as

compared to 11,140 on end June 2001. The number

of employees has dropped in SEC, SCCP and

PACO. In NFC, the number of employees has

increased by 35.

Overall Performance of Public SectorIndustries (Including Pakistan Steel)

Overall performance of public sector

industries (including Pakistan Steel) remained

bleak as summarized in Table 3.9.

Table 3.9Performance of Public Sector Industries

(Overall)Rs. In Million)

Description 2000-01 2001-02** % Change

Production Value* 12,212 11,747 -3.8Net Sales 33,594 28,478 -15.2Pre-Tax Profit 1,334 289 -97.1Taxes and Duties 7,245 6,100 -15.8No. of Employees 27,721 21,975 -20.7

* At constant prices of 1987-88. Source: Expert Advisory Cell,

** Actual for 8 months (July- Feb.) and estimated for 4 months (Mar-June)

Performance Of Pakistan Steel

Pakistan Steel was established with the

objective of enhancing domestic availability of

basic raw material for engineering and

construction industries. It facilitated

establishment of downstream steel industries in

the country. The production capacity of Pakistan

Steel is 1.1 million tons of raw steel per annum

with built-in potential to expand its capacity to

over 3 million tones per annum. The Steel Mill is

producing coke, pig iron, billets, hot rolled

coils/sheets, cold rolled coils/sheets, formed

sections like channels, angles, galvanized sheets

etc. The performance of Pakistan Steel (based on

major performance indictors) during the period

July-June is summarized in the Table 3.10:


Table 3.10Performance of Pakistan Steel

(Rs. in Million

2001-2002 Item 2000-01 ( Projected) % Change

Production Value * 5,712 5,465 - 4.3Net Sales 18,820 13,245 -29.6Pre-tax profit 580 - 850 -247.0Taxes & duties 3,850 2,488 - 35.0No. of employees 16,581 13,620 -17. 8

*At constant prices of 1987-88. Source: Expert Advisory Cell, M/o Ind. & Prod.

The industrial estate of Pakistan steel

spread over an area of 1420 acres within its

periphery for the benefit of entrepreneurs,

attracted 22 downstream units so far along with

21 located in different parts of the country. The

downstream industries are basically producing

value added engineering goods such as steel

pipes (small, medium and large diameter),

seamless pipes, wire rod and baling hoops, small

sections, reinforcement bars, slag cement, slag

wool, automotive parts etc.

SMALL AND MEDIUM ENTERPRISES (SMES)

The government has declared SME sector

as one of the four major drivers of growth. There

has been a consensus among economists and

policy- makers that the foundation of

industrialization could not be established without

efficient network of the SMEs. It fosters

entrepreneurial culture and provides resilience in

the economy against global economic

fluctuations. The SMEs are confronted with

structural problems like weaknesses in the

financial, technological and management systems

beside lack of skills and marketing techniques. To

provide assistance in these areas the government

has established Small and Medium Enterprise

Development Authority (SMEDA). The SMEs

constitute over 90 percent of businesses in

Pakistan, and majority of them operate in the

undocumented informal sector. They represent a

significant component of Pakistan’s economy in

terms of both value addition and employment

generation. As they predominantly provide

employment to low-income groups, they are also

considered an important vehicle for poverty

reduction. The SMEs in particular, play a key role

in the manufacturing sector; providing 80% of

the total employment, contributing over 30% to

GDP, and generating one-fourth of the sector’s

export earnings

A sectoral analysis of the SMEs reveals

that the most significant areas of activity are

depicted in Fig-2. As evident from the figure

approximately, half of the total SMEs activity is

concentrated in five sub-sectors; grain milling,

cotton weaving, wood and furniture, metal

products and art silk. For the past three decades,

the fastest-growing export industries have been

dominated by the SMEs. Export contribution from

SMES emanates from sub-sectors, cotton weaving

and other textiles and, surgical equipment.


Fig-2: Share of Key Sub-sectors in SMEs

Metal Products7%

Carpets4%Art Silk

5%

Others35%

Wood & Furniture10% Jewelery

4%Grain Milling

16%

Cotton Weaving13%

Other Textiles6%

The SMEs exports, however, have largely

tended to dominate low value added sectors that

rely on traditional technologies. The SMEs sector

also suffers from low productivity. Despite their

numerical dominance, SMEs account for a

relatively small, albeit increasing, proportion of

value added among the organized sectors. The

fact that this sector employs 80 percent of workers

and produces only 30 percent of value added

indicates that, on average, the productivity in this

sector is low . While some of the units survive

due to efficiency in the resource use and linkages,

others survive despite being inefficient, merely by

evading taxes and circumventing state

regulations.

FOREIGN INVESTMENT

Pakistan attaches highest importance to

the inflow of foreign investment. Foreign direct

investment (FDI) being the single largest

component of private capital flows has

contributed to investment and growth in

developing countries, leading to the reduction in

poverty and improvement in the living standards.

The distribution of these flows has, however ,

remained uneven. The countries that have

received the lion share of the surge in FDI flows

during 1990s are the ones that followed open

trade and investment regime, maintained

macroeconomic stability, had large markets, a

predictable institutional environment without

excessive red- tapism has remained firm in place,

and possessed reasonably improved physical and

human infrastructure. The countries that lagged

behind in attracting FDI are the ones that faced

macroeconomic instability, pursued inconsistent

economic policies, had relatively poor physical

and human infrastructure, and bureaucracy not

responding to the initiatives with conviction.

Where does Pakistan stand today ?

Pakistan has succeeded, to a larger extent , in

restoring macroeconomic stability, it is following

consistent policies, its trade regime is liberal and

open, it is directing resources towards improving

human capital and physical infrastructure,

governance reform is top of the reform

programme, and making concerted efforts in

removing various irritants which affect business

climate.

The inflow of foreign investment in

Pakistan has been declining since 1995-96 for a

variety of reasons including : the saturation of

investment in power sector; the East Asian

financial crises of 1997; economic sanctions and

freezing of foreign currency accounts of May


1998; the IPP and the HUBCO issues, particularly

the way it was handled in the past; low levels of

foreign exchange reserves and threat of default on

external payments obligations; and disarrayed

relations with the International Financial

Institutions(IFIs). Over the last two and a half

years the government has succeeded in removing

the above listed constraints . For example , all the

IPP issues including the HUBCO one have been

resolved; foreign exchange reserves have reached

at a comfortable position; economic fundamentals

have improved; all economic sanctions have been

lifted ; Pakistan has acquired high credibility for

its reform programme from the international

financial institutions ; and stability in the

exchange rate has been restored. Investment

climate has further improved because of

Pakistan’s enhanced stature in the global order.

Table 3.11Inflow of Net Foreign Private Investment (FPI)

(Million US $)

July – AprilCountry 2000-01

2000-01 2001-02

DirectPortfolio

Total Direct Portfolio Total Direct Portfolio Total

USA 92.7 -37.8 54.9 68.3 -36.3 32.0 179.9 -8.0 171.9UK 90.5 -33.8 56.7 82.7 -31.4 51.3 24.1 -21.2 2.9UAE 5.2 -10.9 -5.7 4.2 -10.0 -5.8 17.8 1.0 18.8Germany 15.5 0 15.5 12.0 - 12.0 9.4 - 9.4France 0.7 0 0.7 0.7 - 0.7 -7.6 0.3 -7.3Hong Kong 3.6 16.3 -12.7 3.0 -9.7 -6.7 2.4 19.2 21.6Italy 1.3 0 1.3 1.3 - 1.3 - - -Japan 9.1 0 9.1 8.3 - 8.3 4.8 0.2 5.0SaudiArabia

56.6 -1.7 54.9 45.6 -1.9 43.7 2.2 0.1 2.3

Canada 0.1 0.5 0.6 0.1 - 0.1 3.1 2.7 5.8Netherland 4.8 -1.3 6.1 3.2 -1.5 1.7 -5.7 -0.8 -6.5Korea 3.7 0 3.5 3.7 - 3.7 0.3 - 0.3Singapore 3.7 1.2 4.9 3.1 0.8 3.9 3.3 -17.2 -13.9China 0.1 0 0.1 0.1 - 0.1 - - -Australia 1.5 0 1.5 1.5 - 1.5 0.4 - 0.4Switzerland 3.6 -36.9 -33.3 3.0 -37.0 -34.0 6.8 22.4 29.2Others 29.7 -3.4 26.3 18.2 -3.2 15.0 66.4 -0.3 66.1Total 322.4 -140.4 182.0 259.0 -130.2 128.8 307.6 -1.6 306.0

Source: State Bank of Pakistan

Foreign direct investment was targeted at

$ 600 million in the outgoing fiscal year. However,

the events of September 11 and their aftermath

created temporary difficulties. During the first

ten months (July-April, 2001-02), the net foreign

investment stood at US $ 306.0 million as against

US $ 128.8 million, thereby, showing an increase

of 137.6 percent. This massive increase mainly

emanates from decline in outflow of portfolio

investment from $130.2 million in July-April 2000-

01 to only $1.6 million in the same period of last

year (see Table 3.11 )


Table 3.12Inflow of (FDI) Foreign Direct Investment

(In Main Economic Group) (Million US $)

July–AprilEconomic Group 1998-99 1999-2000 2000-012000-01 2001-02

1. Power 131.4 67.4 40.3 25.4 33.62. Chemical, Pharmaceutical & Fertilizer 54.1 119.9 26.3 22.0 15.33. Construction 13.9 21.1 12.5 9.0 10.44. Mining & Quarrying, Oil and Gas 112.8 79.7 84.7 66.9 134.65.Food, Beverages & Tobacco 7.4 49.9 45.1 44.6 6.46. Textile 1.7 4.4 4.6 4.2 11.77. Trade, Transport, Storage & Comm. 38.8 38.6 96.5 79.4 65.58. Machinery other than electrical 14.6 4.6 2.5 0.2 8.79. Electronic 1.2 2.3 2.8 2.5 15.210. Financial Business 24.4 29.6 -34.9 -33.5 4.311.Petro-Chemical & Refining 38.8 12.0 8.7 7.8 2.611. Cement 2.0 0.1 15.2 15.2 0.412. Others 31.2 40.3 18.1 18.2 32.5Total 472.3 469.9 322.4 259.0 307.6


Foreign Direct Investment (FDI) increased by 18.8

percent and stood at US $ 307.6 million during

July-April, 2001-02 as against US $ 259.0 million

for the same period in the previous year. The

United States accounts for 58.5 percent of FDI

inflows, followed by U.K (7.8 percent) and U.A.E

(5.8 percent). The remaining amount of inflow is

unevenly distributed among various countries.

The group-wise break-up shows that 54.7 percent

of FDI has come in oil and gas and power sector

followed by trade, transport, storage &

communication (21.3 percent), chemical,

pharmaceutical and fertilizer (5.0 percent)and

electronics (4.9 percent).[See Table-3.12]

THE PRIVATIZATION PROGRAMME

Privatization has been an important

vehicle to attract FDI in developing countries.

Privatization proceeds accounted for 15 percent of

total FDI, and almost 50 percent of merger and

acquisition sales in developing countries.

Pakistan’s privatization programme during the

outgoing fiscal year was interrupted by the events

of September 11. It is, however now back on

track. High ticket items like banking and finance,

telecommunication, power and, oil and gas are on

strategic sale.

Privatization Commission Ordinance 2000

has been promulgated since September 2000 to

provide comfort to investors, assure transparency

in the sale process and increase the accountability

of the Privatization Commission. Between 1991–94,

66 units were privatized. By the end of 1997, the

total number of units privatized increased to 92

and by the end of 2000, number the privatized

units stood at 106. Gross privatization proceeds

stood at about Rs. 61 billion or US $ 1.8 billion.

Almost three-quarter of the proceeds came from

three units: Telecommunication (PTCL), KAPCO,

and Habib Credit & Exchange Bank. The status of

upcoming transactions are summarized in Table-

3.13.


Table 3.13Upcoming Privatization Progamme

Company Type of Sale envisaged Targeted biddingDate

Oil & GasOil & Gas Dev. Corp Ltd. (OGDCL) 51% shares 4th Quarter 2002.

Pakistan State Oil (PSO) 51% Shares 3rd Quarter 2002.

Pakistan Petroleum Ltd. (PPL) 51% Shares 1st Quarter 2003.

Sui Northern Gas Pipelines Ltd. (SNGPL) 51% Shares 2003.

Sui Southern Gas Corporation Ltd.

(SSGCL)

51% Shares 2003

Power & TelecommunicationPakistan Telecom Co. Ltd (PTCL) 26 % Strategic Sale with

management control.

3rd Quarter 2002.

Karachi Electrical Supply Corp. (KESC) 74% Shares 3rd Quarter 2002.

Faisalabad Electric Supply Corp (FESCO) 26-51% Strategic Sale 4th Quarter 2002.

Genco (Jamshoro) 26-51 % Strategic Sale 2nd Quarter 2003.

Banking & Capital MarketsUnited Bank Limited (UBL) 51 % Strategic Sale June 2002

Allied Bank Limited (ABL) 49% block sale 3rd Quarter 2002.

Habib Bank Limited (HBL) 5-10% IPO 4th Quarter 2002.

Habib Bank Limited (HBL) 51 % Strategic Sale 4th Quarter 2003.

Investment Corporation of Pakistan (ICP) Right to manage close-ended

funds

July 2002.

MINING & QUARRYING.

The Minerals play a vital role in economic

development by providing raw material to key

industries. Pakistan has great potential in mineral

development. Various regional geological

surveys, conducted in the recent past, have

confirmed the potential in the metallic minerals of

copper , gold, silver, platinum, chromites, iron,

lead and zinc. As regards industrial minerals,

there is a vast potential of multi-coloured granite,

marble and other dimensional stones of high

quality for export purpose. Presently about 50

minerals are under exploitation. Major mineral

products are coal, rock salt, other industrial and

construction minerals.

The mining & quarrying sector grew by

3.8 percent during July-March 2001-02 as against

4.3 percent growth achieved last year. Main

contributions came from coal and natural gas

which grew by 2.5 percent and 5.6 percent,

respectively. The extraction of some important

minerals is given in Table-3.14:


Table 3.14Extraction of Principal Minerals

July-March

Minerals Units of thequantity 1999-2000 2000-01 2000-01 2001-02 % Change

Coal Million tones 3.2 3.3 2.4 2.5 2.5Natural Gas 000 M.CU.MET. 23.2 24.8 18.4 19.5 5.6Crude Oil Mln. Barrels 20.4 21.1 15.6 17.2 10.2Chromite 000 tonnes 26.0 16.0 14.0 9.0 -35.7Dolomite 000 tonnes 347.6 352.7 293.6 211.8 -27.8Gypsum 000 tonnes 355 364 290.0 472.0 62.7Limestone 000 tonnes 9.6 10.9 8.0 7.3 -8.7Magnesite 000 tonnes 4.5 4.6 4.4 1.5 -65.9Rock Salt 000 tonnes 1358 1394 1034.0 987.0 -4.5Sulphur 000 tonnes 22.8 17.4 12.0 13.6 13.3Baryte 000 tonnes 26.0 28.0 21.0 19.0 -9.5


At present, the value addition is concentrated in

four principal minerals like gypsum, sulpher,

crude oil, and natural gas. These minerals

account for most of the overall value addition of

the mineral sector. The value addition in the

sectors of gypsum has notably gone up by 63%,

while in case of Sulpher this increase is 13%,

crude oil and the natural gas extraction have

increased by 10% and 6 % , respectively in

financial year 2001-02.

Table 3.15FDI Inflow in Mining and Quarrying

Year US $ million % Share FDI1997-1998 99.1 16.51998-1999 112.8 23.91999-2000 79.7 17.02000-2001 84.7 26.32001-2002* 121.7 42.3

* (July - March,) Source: Economic Advisor Wing

The Foreign Direct Investment (FDI ) in

the Mining and Quarrying sectors was 17.0

percent in 1999-2000, but continues to increase

thereafter. Its share in total FDI has increased to

42.3 percent in July – March, 2002, as against 26.3

percent in the last year. Nevertheless, it has

emerged as the largest recipient of FDI. The FDI

in Mining and Quarrying Sector is given in the

Table 3.15.

Two Australian mining companies, BHP

Minerals and Tethyan Copper Company (TCC)

are engaged in the exploration of copper, gold

and other base metals in District Chagai,

Baluchistan and they have proved a rich deposit

of copper at Reko Diq and the M/s TCC is going

to develop the Mines, initially at a cost of about

US $ 170 million. Similarly a Chinese Company

M/s MCC has entered into a lease agreement

with GOP for the operation of Saindak Copper-

Gold Project in Baluchistan . Two Chinese

companies M/s Shenhua Group and CMC have

also shown their interest for the establishment of

coal-fired power plants based on Thar and

Sonda/Jherruck coal fields in Sindh. MCC China

has also entered into a joint venture agreement

with PMDC for the development and exploitation

of Duddar Lead-Zinc deposits in Baluchistan at a

cost of about US $ 80 million.

__________________

Chapter 4. Income Distribution and Poverty

4. Income Distribution and PovertyI. Assessing Global Poverty

The existence of widespread poverty in

the midst of global prosperity is undeniably the

most serious challenge confronting the world

today. It is an inescapable fact that, at the start of

the 21st Century, almost one – fifth of humanity

or 1.2 billion people subsist on less than $ 1 a day.

The problem of poverty has proved intractable as

the number of countries classified by the United

Nations as “least developed” have risen from 24

in 1971 to 49 in 2001. Of this heterogeneous group,

34 are in Africa, nine in Asia, five in the Pacific

and one in the Caribbean. It is a fact that the gap

between the rich and the poor has widened over

the years. Eighty percent of global GDP of $ 30

trillion accrues to only 20 percent of the world’s

population (living in OECD countries) and the

remaining 80 percent of the people only have a 20

percent share of the world income. The average

income in the richest twenty countries is 37 times

the average of the poorest twenty.

Poverty is a complex and multi-

dimensional phenomenon, which goes beyond the

notion of income, and encompasses social,

economic, and political deprivations. Lack of such

opportunities limits the abilities of the poor to

secure gainful employment and bring about an

improvement in their lives. Since poverty is a

multidimensional problem, solutions to poverty

can not be based exclusively on economic policies,

but require a comprehensive set of well-

coordinated measures. A new way of thinking

about development, the cornerstone of any

poverty reduction effort, is emerging. There is a

growing realization that a world where a few live

in comfort and plenty, while many live in abject

poverty is neither just, nor acceptable. At the

backdrop of this growing realization leaders of

149 states met at the Millennium Summit of the

UN and adopted the Millennium Development

Goals (MDGs) which set the target of reducing

poverty by on-half by the year 2015. Achieving

the target will not be easy. It will take

commitment and concerted efforts by citizens,

governments, and international agencies to turn

pledges in to reality.

The world is witnessing the change in

hearts and minds of the industrialized countries.

The development partners have shown their

strong willingness to enhance their development

assistance. Both the European Union and the

Untied States have committed themselves in

Monterrey, Mexico in March 2002 to enhance their

levels of development assistance in a phased

manner. This is a major development at the global

level to fight poverty and human deprivation and

must be welcomed by all the stakeholders.

However, given the extent and nature of poverty

in developing countries, much more needs to be

done to alleviate the sufferings of the people,

which in many cases exist because of lack of

adequate and timely flows of economic assistance.

At the same time, the effectiveness of economic

assistance should be measured by outcomes and

not necessarily by levels.

The consensus that emerged from the

Monterrey Conference is that each developing

country is primarily responsible for generating


growth and reducing poverty through sound

macroeconomic policies and good governance.

However, it is equally true that no developing

country can really succeed in the task of poverty

reduction through its own efforts alone. In a

world of increasing economic integration the

success of the poverty reduction programs of

developing countries depend critically on

economic and financial policies of industrialized

countries. An enabling international environment

is required to foster growth in developing

countries. To achieve the MDGs, a three-pronged

strategy for external support has been advocated

which includes: enhancing the quantum of

economic assistance and its effectiveness,

improving market access and providing

meaningful debt relief.

Official Development Assistance

Official Development Assistance (ODA)

remains an essential supplement to domestic

resource mobilization of low-income countries.

The last fifteen years have witnessed a substantial

decline in ODA to developing countries. Net

ODA to developing countries has declined from $

58.3 billion in 1994 to 48.5 billion in 1999. This

decline has occurred at a time when ODA should

have increased, taking into account the focus on

poverty reduction at a number of UN conferences.

The present level of ODA is insufficient to fight

global poverty. Furthermore, not only have ODA

flows declined over the years, the transaction

costs of aid delivery have tended to rise

increasably, thereby eroding the effectiveness of

aid. Recent initiatives by the EU and US at the

Monterrey Conference have given hope that, at

least, the downward slide of ODA would be

halted.

It is equally important to note that

developing countries should not use ODA as a

permanent crutch but must treat this as a means

to stand on their own feet. Raising the

effectiveness of aid by creating a sound

environment, an appropriate framework for

investment, initiating structural reforms, ensuring

good governance, achieving high standards of

transparency, eliminating corruption, and

involving civil society is undoubtedly the prime

responsibility of developing countries.

Market Access

Trade is an important source of growth,

employment, and poverty reduction. It is also the

single most important external source of financing

development. Active promotion of trade in

developing countries could boost economic

growth, generate employment, and reduce

poverty. Increased market access is an effective

way for developing countries to attain economic

stability. Developing countries need a level

playing field with other market players thus

encouraging market based competition and

helping producers and consumers alike. Every

extra dollar of exports from a developing country

feeds a poor family and builds a better future for

them.

Debt Relief

Debt relief is an integral part of a

comprehensive concept of poverty reduction. It

has a critical role to play in helping poor countries

attain sustainable growth and development.

While the significant progress achieved so far in

implementing the enhanced HIPC initiative is a

significant development, it is equally essential to

evolve an effective mechanism for managing debt

overhang of heavily indebted non-HIPC countries

that are willing to redirect savings on account of

debt service payment for human capital

development, improving social indicators and

governance. Countries who are currently making

efforts to reform their economies but are


burdened with huge debt overhang need

substantial debt relief to finance credible and

home grown reform programs. Meaningful and

substantial debt relief will, therefore, go a long

way in helping countries who are trying to help

themselves.

Good Governance

The promotion of good governance at

home and abroad is an essential prerequisite if

corruption is to be tackled and poverty to be

reduced in developing countries. Fighting

corruption at the global level is high on the

agenda of the international community. In many

countries higher incidence of poverty and poor

governance is linked to high levels of corruption.

The war against corruption needs to be globally

coordinated and black money should not find a

safe heaven anywhere. More concrete global

action is needed to curb money laundering, flight

of capital, tax evasion and illegal payments of

bidders on Government contracts.

The journey at the Millennium Summit to

fight poverty and build a partnership for

sustainable development received further impetus

at the Monterrey Conference. What is required

now is a follow up and serious implementation on

part of all the stakeholders. The follow up is

believed to be taking place in Johannesburg in

August 2002 where the world leaders will

assemble to discuss the issue of poverty

alleviation and sustainable development once

again.

Poverty is a war that must be fought

collectively because it is morally and ethically

repugnant. Pakistan is ready to play its role as a

responsible member of the international

community to create a world free of poverty,

inequality and deprivation___ a world which

offers hope, and a world we will be proud to

bequeath to our future generations.

II. Poverty and Inequality in Pakistan

The poor in Pakistan are not only

deprived of financial resources, but also lack

access to basic needs such as education, health,

clean drinking water, and proper sanitation.

Limited access to education, health, and nutrition,

undermines their capabilities, limits their ability

to secure gainful employment, and results in

income poverty and social exclusion; while also

making them vulnerable to exogenous shocks.

There are different approaches for

measuring poverty. Some only take into account

the income-dimension alone, while others go

beyond nominal earnings and measure well-being

through a holistic approach including

consumption, calorie intake, basic-needs etc.

There has been considerable debate on the

consistency, definition, and measurement

methodology of poverty in Pakistan however

there is general agreement that poverty afflicts

around one-third of the population.

Notwithstanding the debate on the actual level of

poverty the government has finalized the

methodology for determining the official poverty

line that can provide a consistent basis for

comparing poverty trends across the country.

The most commonly used measure of

poverty is the Head Count Ratio (HCR), which is

measured as a percentage of population whose

income or consumption level falls below the

poverty line. Based on the requirements of 2150

calories the government has adopted the official

poverty line in 1998-99 as Rs.650 per capita per

month. The poverty line assesses the limit beyond

which people are considered to be poor. It only

indicates the average consumption expenditure

necessary to satisfy some basic requirements.

Accordingly, Pakistan’s official poverty line


signifies a person as poor if he or she falls below

the bracket of Rs. 650 per capita per month.

The decade–wise analysis indicates

improvement in income distribution during the

1960s. During this period the Gini Coefficient

declined from 0.386 in 1963-64 to 0.336 in 1969-70,

however inequality worsened during the 1970s as

the Gini Coefficient increased from 0.33 in 1970-71

to 0.373 in 1979 (See table 4.1). The trend again

reversed during the 1980s when large inflow of

workers remittances improved the income

distribution and lowered the incidence of poverty.

In recent years, trends in income

inequality have broadly followed the growth

performance of the economy. During the period

1984-88, Pakistan witnessed a high growth rate

(6.8 % average) that was accompanied by an

improvement in income inequality. While the

relatively slower growth rates during 1990-91 and

1992-93 were accompanied by rising income

inequality; with the Gini Coefficient rising from

0.407 to 0.41. However, when there was a decrease

in growth from 4.5% in 1993-94 to 1.9% in 1996-97,

it did not affect income inequality. During 1998-99

GDP increased by 4.2 percent but this increase in

GDP could not contribute towards decreasing

income inequality. Table 4.1 reflects the behaviour

of the Gini Coefficient and growth rates of real

GDP from 1963-64 to 1998-99.

Table 4.1Household Income Distribution in Pakistan

Percentage Share of Income

Year HouseholdGiniCoefficient

Lowest20%

Middle60%

Highest20%

Ratio ofHighest 20% toLowest 20%

GDPGrowthRates

1963-641966-671968-691969-701970-711971-7219791984-851985-861986-871987-881990-911992-931993-941996-971998-99

0.3860.3550.3360.3360.3300.3450.3730.3690.3550.3460.3480.4070.4100.4000.4000.410*

6.47.68.28.08.47.97.47.37.67.98.05.76.26.57.06.2

48.349.049.850.250.149.147.647.748.448.545.345.045.646.343.644.1

45.343.442.041.841.543.045.045.044.043.643.749.348.247.249.449.7

7.15.75.15.24.95.46.16.25.85.55.58.67.87.37.18.0

6.53.16.59.81.22.35.58.76.45.86.45.62.34.51.94.2

*: Economic Adviser’s Wing Source: Federal Bureau of Statistics.

The share of the lowest 20 percent and

highest 20 percent of households in income is

another indicator of income inequality. Table 4.1

indicates that the share of the lowest 20 percent

increased during the 1960s, followed by a decline

during the 1970s, again followed by an increasing

trend during the 1980s. During the 1990s the share

of the lowest 20 percent households in income

again declined and reached 6.2 % during 1998-99

compared to 49.7 percent of the highest 20%. The


behaviour of the income distribution for 1987-88

to 1998-99 is also depicted by Lorenz curve at

Fig. I. Another way to get an insight into the

structure of income inequality is to analyze inter-

sectoral disparity on rural-urban basis. As

indicated in Table 4.2, the lowest 20 percent of

rural areas received only 8.3 percent of the total

income during 1979 while share of the highest 20

percent was 41.3 percent during the same year.

The share of the lowest 20 percent in rural areas

had declined to 6.9 percent in 1998-99 while the

share of the highest 20 percent in rural areas had

increased from 41.3 percent in 1979 to 46.8 percent

in 1998-99. As opposed to rural areas, the share of

the lowest 20 percent households in urban areas

increased from 6.9 percent in 1979 to 7.6 percent

in 1996-97 but decreased to 6.0 percent during

1998-99. On the other hand, the share of the

highest 20 percent in urban areas increased from

48.0 percent in 1979 to 50.0 percent in 1998-99.

Table 4.2Household Income Distribution Rural-Urban

Rural Share Urban Share

Year Lowest20%

Highest20%

Gini-Co-efficient

Lowest20%

Highest20%

Gini-Co-efficient

19791984-851985-861986-871987-881990-911992-931993-941996-971998-99

8.37.97.98.08.86.07.07.47.36.9

41.342.840.039.040.047.444.843.149.346.8

0.320.340.330.320.310.410.370.400.41

0.401*

6.97.07.57.96.45.76.16.77.66.0

48.047.745.044.048.150.548.947.147.050.0

0.400.380.350.360.370.390.420.350.380.33*

*: Economic Adviser’s Wing Source: Calculated on the basis of FBS's HIES Data for selected years.

The Gini Coefficient of the rural areas has

increased from 0.32 in 1979 to 0.41 in 1990-91 but

decreased to 0.37 in 1992-93. It again increased to

0.41 in 1996-97 but declined to 0.401 in 1998-99,

suggesting an improvement in income

distribution in rural areas. The Gini Coefficient of

urban areas also showed this improvement

during the latter half of the 1990s.

According to the caloric-based poverty

definition (headcount ratio), the incidence of

poverty declined sharply from 46.5 percent in

1969-70 to 17.3 percent in 1987-88. However, the

momentum gained in the fight against poverty up

Fig:1 Lorenz Curve (1987-88 and 1998-99)

0

10

20

30

40

50

60

70

80

90

100

0 10 20 30 40 50 60 70 80 90 100

Households(%)

Inco

me

(%)

1987-88 1998-99 Perfect Equality

.

Perfect Equality

1998-99

1987-88


till the 1980s was lost during the 1990s when

poverty leveled off; while it rose again at the end

of the decade when per capita GDP growth

became negligible. Poverty remained around 22

percent in 1992-93, decreased to 21.8 percent in

1996-97, and according to latest estimates

increased to 28.2 in 1998-99 (Table 4.3).

Table 4.3Poverty: Head Counts

Percent

Source: Federal bureau of Statistics

Planning & development Division

III. Relationship between Agriculture andRural Poverty

The incidence of poverty in rural areas,

where dependency on agriculture is well

established, has consistently remained higher

than that in urban areas. The volatility of

agriculture thus has immense bearings on the

incidence of poverty in Pakistan. Crop failures in

one year translate into higher poverty with a lag;

while higher agriculture growth contributes

Year Total Rural Urban

1963-641966-671969-7019791984-851987-881990-911992-931993-941996-971998-99

40.2444.5046.5330.6824.5717.3222.1122.225.021.828.2

38.9445.6249.1132.5125.8718.3223.5923.9129.7225.9831.95

44.5340.9638.7625.9421.1714.9918.6417.7113.5812.4419.13

0

5

10

15

20

25

30

35

40

45

50

% o

f P

op

ula

tio

n

63-64 66-67 69-70 79 84-85 87-88 90-91 92-93 93-94 96-97 98-99

Fig-2: Pakistan Head Count Ratio Trend

Total Rural Urban


towards poverty reduction, also with a lag.

During the period 1985-1999 the correlation

between agriculture growth and poverty

headcount ratio remained negative, and the

coefficient of correlation is estimated at negative

0.32. For example a negative growth of 4.8 percent

of agriculture in 1983-84 led to an increase in the

incidence of poverty during 1984-85 as the

incidence of rural poverty increased. During 1986-

87 the agriculture sector grew by 3.25 percent and

consequently the incidence of poverty came down

to 17.32 in 1987-88. Similarly, poor harvest of

1992-93 resulted in negative agricultural growth

of 5.3 percent and thus a higher poverty incidence

in 1993-94. The severe drought in 1997-98, which

has affected the agriculture sector has also

impacted poverty (See.Fig-3). From this analysis

one can easily infer that higher agriculture growth

may lead to a reduction in poverty with a lag.

-10

-5

0

5

10

15

20

25

30

35

84-85 87-88 90-91 92-93 93-94 96-97 98-99

Fig-3 :Relationship between agricultural growth and poverty

Agricultural growth Poverty Head Rural

83-84

86-87

89-90

91-92

92-93

95-96

97-98

IV. Stylized Facts of Poverty

An analysis of poverty by socio-economicgroups, focusing on key demographic andeconomic characteristics, reveals the followingstylized facts of poverty in Pakistan:

• Poverty increases with the size of thehousehold. Large households are morelikely to be poor in urban areas, ascompared to rural areas.

• Female heads approximately 7 percent ofall households. Poverty incidence among

this group is marginally higher than thatamong the male-headed households.

• Households whose heads have no formaleducation have the highest poverty ratewhich 36 percent poverty falls as theeducation attainment of the familyheaded increases. The percentage ofliterate household heads in non-poorhouseholds is 52 % against only a 27 % inpoor households.

• The head of household engaged inunskilled agriculture and services


occupation are the poorest. While thoseemployed in trade, social services andutilities are affected relatively less bypoverty.

• Incidence of rural poverty for thosehouseholds whose heads areagriculturists is lower than all otheroccupations except for those inprofessional, management, or clericalpositions.

V. Poverty Reduction Strategy 1

Pakistan is faced with the twin challengesof reviving growth and reducing poverty. Thisrequires rapid economic growth, which isequitable in nature and broad based in its reach.Keeping in view the factors responsible forslowing growth and rising poverty thegovernment has formulated a comprehensiveeconomic revival program aimed at revivingeconomic growth and social development. In thesame vein the government has adopted a multi-pronged approach to promote pro-poor economicgrowth and reduce poverty, which has beenarticulated in the Interim-Poverty ReductionStrategy (I-PRSP). The core principles of thestrategy include (A) engendering growth, (B)implementing broad based governance reforms,(C) improving income-generating opportunities,(D) improving social sector outcomes, and (E)reducing vulnerability to shocks.

A. Engendering growth

Engendering growth by correctingmacroeconomic imbalances and stabilizing theeconomy has been made the central pillar of thegovernment’s economic revival program asannounced by the Chief Executive in his addressto the nation on December 15, 1999. Thegovernment has adopted a sound macroeconomicframework aimed at both stabilizing the economy

1 Interim-Poverty Reduction Strategy Paper, 2001

and stimulating growth. It comprises fivebuilding blocks, namely tax reforms, expendituremanagement, prudent monetary policy, externaladjustment, and debt management.B. Broad Based governance reforms

Implementing broad based governancereforms are essential ingredients of thegovernment’s poverty reduction strategy.Without governance reforms the enormous task ofreviving growth and reducing poverty cannot beaddressed. Sagging growth and rising poverty arein part a reflection of the failure of governanceinstitutions in Pakistan. In fact, poverty inPakistan is not merely an outcome of economicills but a result of mis-governance over past years.Poverty redressal is only possible when economic,political, and social dimensions of governance areaddressed by forging a partnership between thegovernment, the private sector, and the civilsociety.

The Chief Executive’s Seven PointAgenda, as highlighted by the nationalreconstruction program, aims at introducingseveral cross cutting governance reforms that willnot only improve transparency and accountabilitybut will also result in more efficient delivery ofservices and consequently a better life for thepoor. The main elements of the governanceagenda include devolution of power, civil servicesreforms, access to justice, and fiscal and financialtransparency.

C. Improving income generatingopportunities

The core principles of Pakistan’s povertyreduction strategy is to empower the people andcreate greater opportunities for increasing realincomes by improving access to productive assets,mainly housing, land, and credit.

Housing is a fundamental human need asit provides physical, economic, and social security


to the poor. However, depressed economicgrowth, rising population, and rapid urbanizationhas resulted in an increased demand for housinginfrastructure. The present backlog of housingunits is more than 4 million in the country withthe result millions are forced to live in KatchiAbadis or under-serviced slum settlements.Estimates for urban population living in KatchiAbadis range from 35-50%.

Government policy regarding katchiAbadis aims at regularization these settlementsthrough the provision of basic services. In thisconnection, the framework announced by thegovernment, calls for the granting of proprietaryrights to residents of Katchi Abadis, which werein occupation up to 23rd March 1985. New KatchiAbadis established after 1985 would beregularized on a case-by-case basis by districtgovernments. Occupants of Katchi Abadis inurban areas making full payment of developmentcharges in lump sum within a period of threemonths would get 50% concession on the saidcharges; while no charges will be recovered inrespect of the land in Katchi Abadis under theoccupation of widows, orphans and disabledpersons.

The government is further developing asystematic and comprehensive strategy basedupon the principles of human dignity and respectfor improving service delivery systems in existing

Katchi Abadis, low/under-serviced settlements,and areas requiring urban renewal andupgrading.

Access to cultivable land has a positiveimpact on the food and nutritional requirementsof poor households. Though significant tracts ofland were distributed as a result of land reformsduring 1959, 1972, and 1977, however in theabsence of follow-up support systems in terms ofinfrastructure (link roads, irrigation), micro creditfacilities, and other institutional support, thesereforms failed to bring about significantimprovements in the living conditions of farmerswho benefited from this redistribution.

Pakistan’s Poverty Reduction Strategyproposes fundamental changes in rural landholdings to address the issue of rural povertythrough the accelerated distribution of stateowned land to small farmers. For this purpose thedistribution of about three million acres ofavailable land will be fully supported with theprovision of infrastructure, technical packages forgrains and other crops, and effective applicationof fertilizer and other inputs (Table 4.4). Microcredit windows will be provided fromAgricultural Development Bank of Pakistan,Khushali Bank, and other institutions. In thisrespect priority will be given to women so thatthey can equally benefit from distribution of stateland and supportive packages.

Table 4.4 Distribution of state land

Province Total Land allottedB/w 01.07.2001-

31.03.2002(Acres)

Total No. ofbeneficiaries

Land available forallotment

As of 31.03.2002(Acres)

Punjab 12663 958 55609Sindh 8075 972 740598

NWFP 17578 N/a 526930Balochistan 5089 157 1416761

TOTAL 43405 2087 2739898

Source: Federal Land Commission


During 2001-02, 43,405 acres of land

were distributed among 2,087 beneficiaries. This

process will be further extended to ensure proper

cultivation of such land and the ADBP will be co-

opted to design special package for providing

credit to these farmers. Work has also been

initiated on proposed amendments of the land

reforms law in light of the Supreme Appellate

Bench judgment announced in 1989, to make it

compatible with Islamic injunctions.

Access to credit is the surest way of

empowering the poor and improving their

income generating opportunities. However, due

to the lack of collateral and weak asset base it is

very difficult for the poor to get credit from public

and private financial institutions, in spite of the

fact that small borrowers exhibit a lower credit

risk than larger borrowers. The already

mentioned asset creating interventions would

improve the economic profile of the poor and

make them more credit worthy on account of

increased collateral availability. However,

international experience has shown that micro-

credit can be an important instrument in

improving the income generating capabilities of

the poor. The Pakistan Poverty Alleviation Fund

(PPAF), Agricultural Development Bank of

Pakistan (ADBP), First Women Bank (FWB), the

National Rural Support Program (NRSP), and the

government are involved in credit allocation to

small enterprises.

PPAF was set-up with an endowment of

$100 million, as a wholesale lender to NGOs

engaged in providing micro financing. Between

July 2001 and March 2002, it had disbursed micro-

credit financing amounting to Rs. 365 million, in

35 districts of the country, to NGOs in all parts of

the country for onward lending to the poor. Based

on its experience it is expected that the total credit

component of the fund (US$ 45 million) would be

fully utilized by the end of 2003. Additionally,

PPAF has made disbursements towards

community physical infrastructure (CPI) projects,

mostly for clean drinking water supply and

irrigation purposes, which are community

identified, locally managed and locally run. PPAF

has maintained its focus on severely affected

drought areas, while maintaining equity in

provincial distribution of funds.

To supplement their work the

Government has now established the ‘Khushali

Bank’ or ‘Micro Finance Bank’ for the provision of

micro credit to poor communities. In this regard

Khushali Bank is already supporting the activities

of NGOs and Rural Support Programs (RSPs),

which are already dealing with micro-credit. The

Bank commenced its business from a remote

village of D.G. Khan, where the community had

taken the lead in identifying credit need, and is

now present in all the four provinces. Capital of

the bank has been contributed by a number of

banks, both public and private including foreign

banks. By end-March 2002, the bank had

established branches in 26 districts of the country

and had disbursed 28,495 loans amounting to

more than Rs. 277 million.

D. Improving social sector outcomes

The affects of sluggish economic growth

are clearly reflected in Pakistan’s performance in

the social sectors. A weakened social profile is

detrimental for growth as human development is

essential for attracting investment and generating

the capacity for future sustainable growth.

However, Pakistan’s progress on almost every

social indicator e.g. education, health, and

nutrition compares poorly with that of other

developing countries. Illustrative of the state of

social sectors in Pakistan is a weak adult literacy

profile, a low life expectancy, and a high maternal


mortality rate. Moreover, access to clean drinking

water and sanitation is limited.

In order to address this situation the

government has prepared comprehensive human

development strategies aimed at the effective

utilization of available resources through

improved institutional mechanisms. In devising

these strategies the government has given

particular attention to three factors. First, these

policies have been developed through a

comprehensive bottom up consultative dialogue,

which ensures that they are demand driven and

locally owned. Second, instead of going for

additionalities the government’s human

development priorities are focused on building on

what is already on the ground. Third, all of these

strategies put special emphasis on cultivating

public private partnerships for improving human

development outcomes. These factors were

missing in the context of Social Action Program

(SAP), which was based on piecemeal supply

driven approaches that suffered, both, from over

design and lack of local ownership.

E. Reducing vulnerability to shocks

The government’s key social safety net for

reducing vulnerability to exogenous shocks is the

revamped system of Zakat and Ushr. The Zakat

and Ushr Ordinance (1980) mandates that 2.5 per

cent of the value of all declared, fixed financial

assets (i.e. savings accounts/certificates and

financial assets for fixed term) for those

possessing nisaab (the specified limit) are to be

automatically deducted at source at the beginning

of the month of Ramadan. The system of

collection and disbursement of Zakat, overseen by

respective Zakat Committees, has been recently

reorganized to improve their efficacy. While the

institutional framework for implementation,

monitoring, and evaluation of this social

intervention is being strengthened, relief to

beneficiaries in the form of subsistence grants

were raised to Rs. 500.

Zakat has thus emerged as the

government’s central program or social safety

instrument. However, its potential and scope in

fighting poverty is yet to be fully realized. At

present, annual Zakat collection is around Rs.4

billion. About 2 million beneficiaries received

assistance from the Zakat fund. The Zakat Fund,

which is made up of a portion of savings achieved

each year has risen to over Rs.24 billion. It is

envisaged that an additional 1.5 million

beneficiaries will be added to the list of Zakat

recipients.

Contrary to previous dedicated emphasis

on grants and stipends, the revitalized Zakat

system will provide funds to Mustahiqeen

(beneficiaries) not only to fulfill basic needs but

also to permanently rehabilitate them, by assisting

them in the establishment of small-scale

commercial projects or other means of living

suitable to their qualifications, skills profile, and

local conditions, thereby allowing them to achieve

self-reliance. Rehabilitation schemes have been

prepared which are aimed at about 1.5 million

new beneficiaries, who will be provided Rs.

10,000 to Rs. 50,000 each for starting up small

businesses/trades.

The Food Support Program is another

social safety instrument of the government for the

poorest sections of the population has also been

revitalized and funds for the program have been

set aside. The program is designed to mitigate the

impact of increase in wheat prices. Its coverage

extends to 1.2 million poorest households with

monthly income of up to Rs. 2000. Cash support

of Rs. 2000 is provided to them through biannual

installments. Rs.2.9 billion were spent on this

program from the federal budget during 2001-02.

The program was implemented at the district


level through the help of district officials. A

system of means testing at the local level has been

adopted for identification of beneficiaries by

linking the program with the Zakat system where

records of Mustahiqeen are developed through

extensive participation.

Khushal Pakistan Program is the

government’s a principal social intervention

aimed at generating temporary employment and

economic activity through public works in the

country. A sum of Rs.15 billion has been released

under the Khushal Pakistan Program (Poverty

Alleviation Program), during 2001-02, by the

federal government to the districts through

provincial governments; while the schemes under

the program have been identified and selected at

the district level through active community

participation. This program has created more than

3 million temporary jobs, since inception, and is

providing essential infrastructure in rural and

low-income urban areas. The program has

generated considerable economic activity

including employment opportunities. With the

functioning of district governments under the

devolution program, the Khushal Pakistan

Program has gained considerable importance and

local ownership.

The cost of the schemes selected under

Khushal Pakistan Program has been kept between

Rs 0.05 million to Rs 5.00 million per scheme, in

rural areas and Rs 0.05 million and Rs 8.00 million

in urban areas. The following criteria have been

followed while identifying and analyzing projects

for the program:

• The project should be capable of

integration with earlier infrastructure, for

instance trunk sewers, roads etc.

• The management and implementation of

the projects will be in partnership with

the communities. In case of rural roads

local councils will take over the projects

on completion.

• In each district the local Deputy

Commissioner (DC) will select 25 per cent

of the projects in marginalized areas. He

will identify areas, in consultation with

local NGOs and civil society, where there

is a lack of sufficient basic infrastructure

and majority of inhabitants belong to low-

income groups.

• In cases where existing schemes require

major expenditures for rehabilitation,

work may be undertaken under the

program, provided that the total cost of

such rehabilitation work will not be more

than 25 per cent of the allocation for a

district.

• The projects will not be of a cost of less

than Rs 1 million to prevent a thin spread

of funds except in the case of

rehabilitation of drinking water supply.

• Khushal Pakistan program will be

utilized for productive purposes and will

not be provided for administrative

expenditures.

VI. Institutional Mechanisms for PovertyMonitoring

In order to oversee the implementation of

the I-PRSP, the government has constituted a

high-level National PRSP Implementation

Committee headed by the Secretary General of

Finance and comprising secretaries of federal and

provincial PRSP partner government agencies2.

The PRSP Implementation Committee is

2 Planning Commission, Controller General of Accounts,Federal Bureau of Statistics - FBS, Ministry of Education,Ministry of Health, Ministry of Population Welfare, Ministry ofLocal Government and Rural Development, Pakistan Bait-ul-Maal, Pakistan Poverty Alleviation Fund - PPAF, KhushaliBank, National Commission on Human Development, andMinistry of Zakat, Ushr, and Religious Affairs.


responsible for the implementation of the PRSP

policy reforms, evaluation of their impact, and

appropriate adjustments (if required) in the policy

regime.

The PRSP Implementation Committee

will also develop and build consensus on the

comprehensive national anti-poverty strategy (full

PRSP). For this purpose the government has

established a PRSP Secretariat, in Finance

Division, which has been mandated with the

overall lead in coordinating, monitoring,

evaluating, and tracking the implementation of

the PRSP; and reporting progress on anti-poverty

public expenditures, intermediate social

indicators, and final outcomes.

A critical input in achieving the targets set

out in the I-PRSP is the effective utilization of the

anti-poverty public expenditures. For this

purpose the PRSP Secretariat has institutionalized

a mechanism with the Controller General of

Accounts (CGA) for the quarterly tracking of anti-

poverty expenditures. A list of anti-poverty

expenditures along with their functional

classifications has also been developed with

provincial consultations and reports for the first

half of FY 2002 have already been published on

Finance Division's website.

The government has extended the

practice of tracking budgetary expenditures to

include all anti-poverty public outlays, budgetary

expenditures as well as non-budgetary social

safety transfers. By regularly tracking the flow of

all anti-poverty public outlays the government

seeks to improve the allocative efficiency of scarce

resources and redirect public resources to the

poor. For this purpose the government has

developed a mechanism for tracking social safety

transfers. However, due to the spread of this

information over federal, provincial, and district

governments across several ministries and

departments, the reporting frequency at this stage

has been set on a biannual basis. As district level

reporting systems are streamlined social safety

transfers could also be published on a quarterly

basis along with the PRSP quarterly expenditure

reports.

The policies outlined in the I-PRSP have

been linked with the achievement of key social

and human development goals. However, there

are many statistical issues involved with social

indicators which result in a considerable gap in

the information/ data available from different

sources especially in the education and health

sectors, e.g. National Education Management

Information System-- NEMIS-- and Federal

Bureau of Statistics-FBS-data on Gross Primary

Enrolment Rate; FBS and NIPS data on

Immunization coverage etc. In order to finalize

the definitions, measurement methodologies, and

sources for the selected indicators the PRSP

Secretariat organized a workshop on education

and health sector PRSP intermediate indicators in

Islamabad during March 2002. Consensus was

reached on a number of issues and a final report

on the recommendations emanating from the

workshop is being prepared. On the basis this

report the PRSP Secretariat will develop baseline

information/ data on education and health sector

PRSP intermediate indicators in consultation with

the federal and provincial line departments.

Preparation of Full PRSP

The preparation of the I-PRSP is only the

first step in the direction of preparing a

comprehensive national anti-poverty strategy,

which would encompass the economic, structural,

and social initiatives undertaken by the federal,

provincial, and district governments for targeting

the multidimensional nature of poverty and

human deprivation in Pakistan. Pakistan's full

PRSP is to be completed by December 2002.


In order to make the full PRSP a truly

participatory anti-poverty strategy, that is

reflective of the diversity of all the federating

units, it will be based on the provincial PRSPs

prepared by the provincial governments

themselves, in consultations with the newly

elected district governments. The provincial

PRSPs would include detailed costing of the

programs and projects that these governments

intend to undertake over the medium-term. The

provincial PRSPs would be based on the medium-

term framework of each province that would

develop a holistic picture of provincial

requirements and resource availability. This will

identify the additional resources required to

support the PRSP program and meet its

objectives/ targets. The provincial governments

have been assured of the federal government's

assistance in preparing the provincial PRSPs.

_____________________

Chapter 5. Fiscal Development

5. Fiscal DevelopmentINTRODUCTION

A predictable and sound fiscal policy is

essential for preventing macroeconomic

imbalances and realizing the full growth

potential. A general deterioration in public

finances in many developing countries during the

1980s and 1990s has caused serious

macroeconomic imbalances and subsequent rise

in public debt. Faced with widening fiscal

imbalances, a number of countries launched

medium-term fiscal adjustment plans the results

of which were not so successful. A critical

ingredient to successful adjustment is prolonged

commitment to fiscal discipline.

There is a general consensus that

prolonged commitment to fiscal discipline can

only come from a rule-based fiscal policy. The

rising fiscal deficits, the so-called deficit bias,

prompted many developing countries to

formulate fiscal policy rules, enshrined in a fiscal

responsibility law, as a means of exercising fiscal

restraint. A rule- based fiscal policy is essential for

achieving long-run fiscal sustainability,

maintaining fiscal discipline, and preventing

potential future increases in public indebtedness.

It is an instrument that can be used for

consolidating gains from discretionary adjustment

and ensuring the credibility of government policy

over time. This is especially true for countries

with a track record characterized by wide swing;

periods of poor fiscal performance with serious

fiscal adjustment followed by unsustainable

deficit spending. In short, a rule-based fiscal

policy can help reduce or remove the influence of

short-run political expediency that leads to deficit

bias. Essentially the rule represents the constraints

and prevents government taking fiscally

irresponsible route. International experience

suggests that countries that have adopted well

designed fiscal rules and implemented effective

operational mechanism for enforcing them have

made important credibility gains, reflected by

cheaper access to financial markets and greater

electoral support.

Fiscal policy rules are of several types,

however, they are broadly defined as rules that

impose a permanent constraint on fiscal deficits or

borrowing or debt or a combination of all three

indicators of fiscal performance. The rational for

fiscal policy rules mainly rests on the need for

achieving objectives of macroeconomic stability,

longer-term sustainability, support for other

policies, and overall policy transparency and

credibility. In theory, most of these objectives can

be met with discretionary fiscal measures within

the ambit of a medium-term budgetary

framework. However, many fiscal consolidation

plans undertaken to correct persistent budget

deficits, over the past two decades, have not been

successful; suggesting that well designed fiscal

policy rules may offer a useful second best

solution to counter pressures on fiscal policy

making.

Though, discretionary fiscal policy can

achieve the same outcomes as fiscal rules and

should in theory be superior because it allows

greater flexibility. However, that is not always the

case in practice as discretionary fiscal policy has


an inherent deficit bias. This is because benefits of

a profligate fiscal stance accrue, entirely, today

and that too only to the targeted group; while its

costs show up after a lag and are borne by

everyone in terms of higher taxes and lower

spending.

Additionally, excessive borrowing of the

past curtails the government's ability in the future

to invest in important development programs

relating to health, education, population planning,

nutrition, and employment creation. However, it

has been observed that fiscal adjustment only

comes when the cost of accruing more debt

becomes inordinately high and there is no option

but to make an adjustment. A fiscal policy rule

can therefore be used as an instrument to get

round this bias and encourage fiscal sustainability

and macroeconomic stability, while leaving room

for maneuverability in times of exigencies

through the provision of safeguards or escape

clauses.

In the case of Pakistan the persistence of

large fiscal deficits, among other reasons, is one of

the primary causes for the rise in public debt and

the major source of macroeconomic imbalances

over the last two decades. Failures in enhancing

tax revenues consistent with the growing

expenditure requirements, on the one hand, and

the inability to balance productive and non-

productive expenditures on the other, exacerbated

fiscal imbalances over this period. As a result,

while the government's current expenditures

continued to rise, there wasn't a commensurate

rise in the government's ability to meet these

expenditures from its revenues.

In fact, the government had to resort to

borrowing to meet even its current expenditure

requirements and thus faced high government

dis-saving (borrowing for consumption) that

prevailed throughout the 1990s. Therefore, during

this period, as the fiscal deficit averaged around 7

percent of GDP, the public debt burden continued

to increase and rose from 66 percent of GDP in

1980 to almost 100 percent by mid-2000.

Considerable progress has been made

over the last two years to bring the fiscal deficit to

a sustainable path. However, a rule-based fiscal

policy would encourage responsible and

accountable fiscal management by the

government and ensures more informed public

debate about fiscal policy. It will require the

government to be transparent about its short and

long term fiscal intensions and impose high

standards of fiscal disclosure. Given the difficult

past that Pakistan's macroeconomic environment

had reached by the end of the last decade, a rule-

based fiscal policy would be highly desirable for

restoring macroeconomic stability and promoting

growth on a sustainable basis.

FISCAL PERFORMANCE IN THE 1990’s

The decade of the 1990s has witnessed

serious macroeconomic imbalances in Pakistan

caused primarily by the persistence of large fiscal

deficit. During the 1990s, fiscal deficit averaged

almost 7.0 percent of GDP despite cuts in

development spending by almost 3.5 percentage

points of GDP, causing public debt to reach

unsustainable level by the end of the 1990s. The

growing burden of debt servicing over the years

not only made fiscal adjustment more difficult but

crowded out private investment on the one hand

and forced public sector investment to decline.

Consequently, the overall investment declined by

3.0 percentage points of GDP in the 1990s.

Declining investment caused growth to decelerate

–almost one-third growth was lost in the 1990s.

The growth slowdown may also be reflecting the

effects of infrastructural bottlenecks and poor

social indicators.


The burgeoning revenue deficit [total

revenue minus current expenditure] or public dis-

saving is another indication of fiscal imbalances.

Revenue deficit continued to deteriorate in the

1990s. It increased from less than one percent of

the GDP in the 1980s to 1.4 percent in the first half

and to 3.0 percent in the second half of the 1990s.

Large revenue deficit reduces national savings via

reduction in public savings. The dis-saving of

public sector to the extent of 3.0 percent of GDP

reduced national savings which forced Pakistan to

run large current account deficits to maintain a

given level of investment. Excessive reliance on

foreign savings unduly exposes the economy to

volatile international capital flows.

Table 5.1Fiscal Indicators as Percent of GDP (MP)

Expenditure Revenue

YearGDPReal

Growth

OverallFiscalDeficit

Total Current PSDP*TotalRev.

TotalTax

DirectTax

IndirectTax

Non **Tax

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01

5.47.62.14.45.16.61.73.54.23.92.4

8.87.58.15.95.66.56.47.76.16.55.3

25.726.726.223.422.924.422.323.722.023.621.3

19.319.120.518.818.520.018.819.818.620.419.0

6.47.65.74.64.44.43.53.93.43.02.7

16.919.218.117.517.317.915.816.015.917.116.0

12.713.713.413.413.814.413.413.213.312.913.0

2.02.52.82.93.43.83.63.93.63.63.9

10.711.210.610.510.410.6

9.89.39.79.3

10.9

4.25.54.74.13.53.52.52.82.74.23.0

2001-02(M.B.E)

3.6 5.7 22.5 18.9 3.4 16.8 13.0 4.3 11.3 3.7

* PSDP: Public Sector Development Program. Source: Finance Division, (Budget Wing)** Figures up to 95-96 include surplus of autonomous bodies.M.B.E: Modified Budget Estimates.

Fig-1: Revenue-Expenditure Gap (As % of GDP)

0

5

10

15

20

25

30

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

Revenue Expenditure


Primary balance [Total revenue minus non-

interest total expenditure] is yet another indicator

of the fiscal health of the country. It was in deficit

in 17 years out of two decades despite numerous

budgetary and post-budgetary measures taken

every year. Primary deficit which averaged 3.3

percent of GDP in the 1980s, declined to 1.8

percent in the first half of the 1990s and turned

surplus to the extent of 0.6 percent of the GDP in

the second half of the 1990s. It suggests that

Pakistan’s fiscal deficits were interest payment

driven during the second half of the 1990s. It also

suggests that total revenue was more than

sufficient to finance non-interest total

expenditure. For fiscal consolidation and reducing

the debt burden, it is essential that Pakistan

continue to maintain a primary surplus of 2.5 to

3.0 percent of GDP in the medium-to-long-run.

STRUCTURE OF TAXES

Tax administration plays a vital role in

the success or failure of any attempt to reform

taxation. Many attempts to reform taxation have

failed because tax administration have been

influenced by the structure of tax system in

developing countries. In fact, tax structure and tax

administration are interdependent and should be

considered as such. The additional resource

mobilization through improvements in tax

structure and administration fell short of

expectations in Pakistan because its tax structure

has inherent weaknesses which include; i) narrow

and punctured tax base because of wide ranging

exemptions and concessions and, rampant tax

evasion, ii) as a result of this, tax rates have been

pitched at high levels which created a vicious

circle of tax base erosion and higher tax rates, iii)

over dependence on indirect taxes, which until

the end of the 1990s, accounted for around 68

percent of tax revenues, and as such increased

regressivity of the tax system and imposed a

higher burden of taxes, iv) within indirect tax,

there has been over reliance on taxes on

international trade which has promoted

inefficiencies, distorted the allocation of resources

and encouraged smuggling, v) tax system has

been complex and tedious which along with high

rates of taxes, has breaded corruption and

encouraged tax evasion.

The combined result of such

characteristics has been the low and stagnant tax-

to-GDP ratio at the one hand and low tax

elasticity on the other. The tax-to-GDP ratio which

represents country’s fiscal effort, has remained

stagnant in the neighbourhood of 12 to 14 percent

over the last two decades. Such tax structure has

severely hampered resource mobilization effort,

despite a series of discretionary measures taken in

every budget to reduce the widening gap between

revenue and expenditure. Consequently, fiscal

deficit has averaged 7 percent of GDP over the

last two decades and emerged as one of the most

serious problem of macroeconomic management

in Pakistan.

Although successive governments in the

past have made attempts to narrow the revenue-

expenditure gap by taking new budgetary and

post-budgetary measures, tax revenue in relation to

GDP has remained stagnant at 12-14 percent of

GDP over the last two decades. Pakistan’s fiscal

problem is structural in nature and limited efforts


were made in the past to undertake wide-ranging

structural reforms in tax and expenditure sides.

Successive governments since the

beginning of the 1990s have been implementing

tax and tariff reforms. The composition of tax

revenue has changed drastically in last few years.

The share of direct taxes has doubled from 18

percent in 1990 to 35 percent in 2002, and the

share of indirect taxes has correspondingly

declined from 82 percent to 65 percent. Within

indirect taxes the share of custom duty has

declined from 55 percent in 1990 to 19 percent in

2002; that of sales tax (which is tax on

consumption) increased from 18 percent to 63.5

percent, and that of central excise decreased from

28 percent to 18 percent during the same period

[See Table 5.2 and Fig-2].

Note:Figures in square brackets [ ] are shares in total taxes while the figures in Source: Central Board of Revenue

parentheses ( ) are shares of the individual taxes in indirect taxes.

Table 5.2Structure of Federal Tax Revenue

(Rs. Billion)Tax Revenue Break-up of Indirect Taxes

Year Total

(CBR)

As % of

GDP

Direct

Taxes

Indirect

TaxesCustom Sales

Central

Excise

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-01

2001-02 (M.B.E)

111.0

142.0

153.2

172.5

226.0

268.0

282.0

293.7

308.5

346.6

393.9

414.3

11.0

12.0

11.0

11.0

12.0

13.0

12.0

11.0

10.0

11.0

11.3

10.9

20.0

[18.0]

29.0

[20.4]

36.7

[24.0]

43.4

[25.1]

62.0

[27.4]

78.0

[29.1]

85.0

[30.1]

103.3

[35.0]

110.4

[35.8]

112.6

[32.5]

127.4

[32.3]

146.5

[35.4 ]

91.0

[82.0]

113.0

[79.6]

116.5

[76.0]

129.1

[74.9]

164.0

[72.6]

190.0

[70.9]

197.0

[69.9]

190.4

[65.0]

198.1

[64.2]

234.0

[67.5]

266.5

[67.7]

267.8

[64.6]

50.0

(54.9)

62.0

(54.9)

61.5

(52.7)

64.2

(49.7)

77.0

(47.0)

89.0

(46.8)

86.0

(43.7)

74.5

(39.1)

65.3

(33.0)

61.6

(26.4)

64.5

(24.2)

50.5

(18.9)

16.0

(17.6)

21.0

(18.6)

23.5

(20.2)

30.4

(23.5)

43.0

(26.2)

50.0

(26.3)

56.0

(28.4)

53.9

(28.3)

72.0

(36.3)

116.7

(49.9)

152.8

(57.3)

170.1

(63.5)

25.0

(27.5)

30.0

(26.5)

31.5

(27.1)

34.5

(26.9)

44.0

(26.8)

51.0

(26.9)

55.0

(27.9)

62.0

(32.6)

60.8

(30.7)

55.6

(23.7)

49.2

(18.5)

47.1

(17.6)


1 9 9 0 - 9 1

S a le s T a x

1 5 . 1 %

C u s t o m4 5 . 1 %

D ir e c t T a x

1 7 . 7 %

C . E x c is e2 2 . 0 %

.

2 0 0 1 - 0 2

S a le s T a x4 1 . 1 %

C u s t o m1 2 . 2 %

D ir e c t T a x3 5 . 4 %

C . E x c is e1 1 . 4 %

.

Fig-2: Federal Tax Collection (1990-91 & 2001-02)(% Share)

Notwithstanding the changes in thecomposition of taxes, the tax revenue in relationto GDP remained remarkably stagnant at 12-14percent in the 1990s. What is required is a second-generation reform in tax system with focus onbetter tax enforcement, bringing more taxpayersinto the tax net, reducing the number of taxes andcontributions in provinces, strengthening of taxadministration, and streamlining of tax laws tomake it taxpayer friendly.

FISCAL REFORMS OF THE PRESENTGOVERNMENT

Fiscal reforms lies at the heart ofstructural reform program launched some twoand a half years ago. Although the immediate aimof such reform is to reduce fiscal imbalances toachieve macroeconomic stability, the medium-to-long -term goal is to secure more durableimprovements in fiscal performance. To makerevenue mobilization more efficient, requiresreforming the tax and tariff systems and theiradministration while, on the expenditure side,fiscal consolidation calls for reorienting publicspending towards growth promoting investmentin physical infrastructure and in social and humancapital.

Tax reforms have been initiated over thelast two and a half years with a view tobroadening the tax bases, improving taxcompliance, minimizing the level of corruption,streamlining the tax laws, and strengthening thetax administration. The launching of a tax surveyand documentation of the economy drive hasbeen the most important elements of the taxreform. The impact of tax survey on direct taxcollection is quite visible. The collection of incomeand corporate taxes through voluntary paymentshas registered an increase of 44 percent during thefirst nine months (July-March) of the current fiscalyear as compared with the some period of lastyear. Similarly, both individual income tax payersand corporate taxpayers have increased by 15.9percent and 10.5 percent, respectively during thisperiod. Collection on demand category of incometax has gone up by almost 20 percent during July-March 2001-02 as compared with the same periodlast year.

Tax administration plays a vital role inthe success or failure of any attempt to reformtaxation. It is in this view that a serious attempthas now been made to redesign taxadministration on modern lines. Experts from theprivate sector have been inducted in the CentralBoard of Revenue (CBR) at the top management


level. A time-bound reform agenda of the CBR islikely to be announced in August 2002.

A new income tax Ordinance has placedincome tax on a universal self assessment basiswith system selected audits, minimal exemptions,and more equitable rates, and established uniformtax rates for all companies. The self-assessmentscheme will be effective from July 1, 2002. Largetaxpayers units are being established in majorcities of Pakistan to facilitate payments of taxes forthe large taxpayer.

Pakistan has made substantial progress infiscal transparency and accountability. FiscalMonitoring Committees (FMCs) have beenestablished at federal and provincial levels tomonitor fiscal reporting and improve thereconciliation of accounts and quality of fiscaldata.

The separation of audit and accounts, thetransfer of the Controller General of Accounts(CGA) office to the executive branch ofgovernment, re-establishment of Public AccountsCommittees (PCAs), publication of quarterlyfiscal reports on the website of the Ministry ofFinance and publication of report on contingentliabilities and tax expenditures for the first time inEconomic Survey are some of the measures thathave brought tangible improvements in thequality and timeliness of fiscal data, and greaterpublic access to Pakistan’s fiscal developments.To further consolidate these reforms and meetnew challenges arising particularly fromdevolution of power at the gross-root level, thegovernment is in the process of adopting anAccountable Fiscal Management Framework(AFMF) that specifies assurances of accountabilityand transparency of fiscal management.

A rule-based fiscal policy is consideredessential for achieving long-run fiscalsustainability, maintaining fiscal discipline, andpreventing potential future increases in publicindebtedness. To this end, a Fiscal Responsibility

Law is at the fairly advance stage of finalization.This Law will be enacted soon.

On the expenditure side, reorientation ofpublic spending is taking place. The share ofcurrent expenditure is declining while that ofdevelopment spending is increasing. Moreimportantly, the shares of spending on physicalinfrastructure and social and human capital areincreasing. Thus, a shift is taking place away fromexpenditure on consumption to growthpromoting expenditure.

CONSOLIDATED BUDGETS (FEDERAL &PROVINCIAL) IN 2001-02

Large fiscal deficit has been the majorsource macroeconomic imbalance in Pakistan. It isin this background that the reduction of fiscaldeficit from 6.5 percent in 1999-2000 to 5.3 percentof GDP in 2000-01 is seen as a major achievement.Further fiscal consolidation was envisaged infiscal year 2001-02 with a fiscal deficit target of 4.9percent of GDP. Prudent fiscal management,better tax enforcement and wide-ranging taxreforms including Tax Survey, initiated by thegovernment, had set the stage for further deficitreduction. The events of September 11 andDecember 13 and aftermath, seriouslyundermined government’s effort to further reducefiscal deficit. The events of September 11adversely affected the performance of keyeconomic aggregates, prominent among those areimports and industrial production. At the sametime, exchange rate instead of depreciating has infact appreciated to the extent of 7.0 percent andinflation remained far below the target. Since,almost 40 percent of the CBR revenue originatesfrom imports, sharp reduction in the volume ofimports along with the appreciation of exchangerate severely contracted the tax base. While theevents of September 11 were mainly responsiblefor the revenue slippages, the events of December13 leading to the military stand-off causedslippages on the expenditure side. Accordingly,


the fiscal deficit for the outgoing fiscal year isestimated at 5.7 percent of the GDP [See Table-5.3]. It may, however, be pointed out that theunderlying fiscal deficit is 4.9 percent of GDP for

the fiscal year 2001-02 because these slippages aretreated as one-off element. For fixing fiscal deficittarget for 2002-03, 4.9 percent instead of 5.7percent of GDP, would be treated as base.

Table 5.3Consolidated Budget (Federal and Provincial)

(Rs. Billion)1999-2000 2000-01 (P.A) 2001-02

(M.B.E)% Change/

2000-01A. Total Revenue 536.8 546.4 625.4 14.5 a) Tax Revenue 405.8 444.8 486.0 9.3 Federal 387.1 425.4 464.6 9.2 CBR 346.6 393.9 414.3 5.2 Surcharges 38.9 30.5 49.0 60.7 Other 1.5 1.0 1.3 30.0 Provincial 18.8 19.4 21.4 10.3 b) Non-Tax Revenue 131.0 101.6 139.4 37.2B. Total Expenditure 743.6 726.9 837.6 15.2 a) Current Expenditure 655.0 650.7 705.5 8.4 i) Federal 492.7 500.8 535.4 6.9 Interest 252.0 234.7 257.0 9.5 Defence 152.8 131.2 149.6 14.0 Civil Govt. 28.6 45.9 52.0 13.3 All Others 59.3 89.1 72.0 -19.2 ii) Provincial 157.4 149.9 170.1 13.5 b) Development Expenditure 100.7 76.2 132.1 73.4 PSDP** 95.6 92.5 127.0 37.3C. Overall Fiscal Deficit 206.8 180.5 212.2 17.6 Financing i) External 66.9 118.8 148.0 24.6 ii) Domestic 139.9 61.6 64.2 113.5 Bank 39.9 -32.3 -7.0 -78.3 Non-Bank 100.0 93.9 64.7 -31.1

As % of GDP (mp) Total Revenue 17.1 16.0 16.8 - Tax Revenue 12.9 13.0 13.0 - Non-Tax Revenue 4.2 3.0 3.8 - Total Expenditure 23.6 21.3 22.5 - Current Expenditure 20.3 19.0 18.9 - Interest Payment 8.2 7.3 7.3 - Defence 4.9 3.8 4.0 - PSDP 3.0 2.7 3.4 -C. Overall Fiscal Deficit -6.5 -5.3 -5.7 - Financing External 2.1 1.8 4.0 - Domestic 4.4 3.5 1.7 -GDP at Market Price (Rs Bln) 3147.2 3416.3 3726.6 9.1

P.A: Provisional Actual Source: Finance Division, (Budget Wing)M.B.E: Modified Budget Estimates* Include general admn, law & order and socioeconomic/community services etc.** The difference between development expenditure and Public Sector Development Program (PSDP) is the net lending to PSEs.


Total revenue is estimated at Rs.625.4

billion or 16.8 percent of GDP in 2001-02 as

against Rs.546.4 billion or 16.0 percent of GDP last

year, thereby, registering an increase of 14.5

percent. This increase mainly emanates from

substantial increase in surcharges on petrol and

gas which made federal tax revenue to grow by

9.3 percent. The consolidated (federal and

provincial) tax revenue constitutes 77.7 percent of

the total revenues and non-tax revenues account

for 22.3 percent. The tax revenue receipts of

federal and provincial governments, showing an

increase of 9.3 percent over 2000-01, is more or

less equal to the increase in nominal GDP by 9.1

percent. The federal tax receipts consist of

revenue collected by the Central Board of

Revenue (CBR), surcharges (gas and petroleum),

and some other minor collections.

CBR Revenue

As stated earlier, CBR tax revenue has

been the major victim of the events of September

11. It was originally targeted at Rs 457 billion for

the fiscal year 2001-02 under the assumption that

revenue collection for the fiscal year 2000-01

would by Rs 406 billion. However, revenue

collection stood at Rs.393.9 billion for FY 2000-01

and accordingly the revenue target for the

outgoing fiscal year was revised downward to Rs

443.7 billion. As a result of September 11 events

and their aftermath, the target was lowered to

Rs.429.9 billion and further to Rs 414 billion which

is still 5.1 percent higher than last year.

As shown in Table-5.4, the net collection

stood at Rs 306.1 billion during the first ten

months (July-April) of the current fiscal year

which is marginally lower than the corresponding

period of last year (Rs 307.7 billion). The decline

in net collection is mainly on account of 34.2

percent more refund/rebate given in this period.

In fact, refund/rebate as percentage of gross

collection jumped from 14.4 percent to 18.5

percent—an increase of 4 percentage points. As

against a refund/rebate of Rs 51.7 billion, the CBR

disbursed Rs 69.4 billion—Rs 17.7 billion or 0.5

percent of GDP more than last year. The

government accelerated payments of outstanding

sales tax and customs refunds at a faster pace, so

as to help exporters cope with the negative impact

of September 11.

Table 5.4Net Vs Gross Tax Collection

(Rs. Billion)

July-April

July-April

%Cha-ng e

2000-01 2001-02

A. Direct Tax

Gross 106.842 118.477 10.9

Refund/Rebate 8.885 9.993 12.5

Net 97.957 108.484 10.7

B. Indirect Tax

Gross 252.582 257.051 1.8

Refund/Rebate 42.829 59.405 38.7

Net 209.753 197.646 -5.8

B.1 Sales Tax

Gross 146.303 162.025 10.7

Refund/Rebate 26.551 33.515 26.2

Net 119.752 128.510 7.3

B.2 Central Excise

Gross 39.315 35.907 -8.7

Refund/Rebate 0.109 0.018 -83.5

Net 39.206 35.889 -8.5

B.3 Customs

Gross 66.964 59.119 -11.7

Refund/Rebate 16.169 25.872 60.0

Net 50.795 33.247 -34.5Total TaxCollection

Gross 359.424 375.528 4.5

Refund/Rebate 51.714 69.398 34.2

Net 307.710 306.130 -0.5

Source: Central Board of Revenue


Further breakdown of tax collection

provides interesting information. Despite serious

difficulties as stated above, the direct tax

increased by 10.7 percent during the first ten

months of the current fiscal year.– rising from Rs

97.9 billion to Rs 108.5 billion in net term, during

the first ten months of the current fiscal year while

gross collection improved by 11.0 percent.

Refund/rebate was 12.5 percent higher than last

year.

The performance of indirect tax has been

far from satisfactory. Gross collection was higher

by only 1.8 percent but net collection registered a

decline of 5.8 percent on account of 38.7 percent

more refund/rebate. Within indirect tax, the

performance of sales tax has been satisfactory on

gross term but because of the substantial increase

in refund/rebate, its performance on net basis

weakened considerably. Sales tax on gross basis

stood at Rs 162.0 billion as against Rs 146.3 billion

– thus showing an increase of 10.7 percent. On net

basis, sales tax registered an increase of 7.3

percent – rising from Rs 119.8 billion to Rs 128.5

billion. Refund/rebate on sales tax increased from

Rs 26.6 billion to Rs 33.5 billion – an increase of

26.2 percent. Interestingly, refund/rebate as

percentage of gross collection jumped from 18.2

percent to 20.7 percent.

Custom collection has been the main

victim of the events of September 11. Custom

revenue declined substantially both in gross and

net basis for a variety of reasons including the

decline in volume of imports, appreciation of

exchange rate, and decline in unit values. These

factors eroded the tax base and along with the

general reduction in tariffs, the overall collection

from customs declined substantially. During the

first ten months, custom collection stood at Rs

59.1 billion gross term as against Rs 67.0 billion in

the same period last year, thereby registering a

decline of 11.7 percent. On net basis, custom

collection stood at Rs 33.2 billion as against Rs

50.8 billion, registering a hefty decline of 34.5

percent. The significant decline in custom

collection is the result of an extra-ordinary

generous refund/rebate policy pursued by the

government to ensure that exporters do not face

liquidity problem. As against a refund of Rs 16.2

billion, the CBR has given Rs 25.9 billion in the ten

months—60.0 percent higher than the

corresponding period of last year. Refund/rebate

as percentage of gross collection jumped from 24.1

percent to 43.8 percent —almost 20 percentage

points or Rs 9.7 billion more in this period [See

Table 5.4].

Central excise registered a decline of 8.7

percent and 8.5 percent, respectively in gross and

net basis mainly on account of shifting of its tax

base in favour of sales tax. As a result of the on

going tax reform the share of central excise in total

tax revenue will continue to shrink [See Table 5.2].

The performance of monthly tax

collection reveals that the impact of September 11

was more pronounced during the period of

October-February. The indirect taxes were the

main victim of the September 11 events. Indirect

taxes were declining during the first quarter of the

current fiscal year, however, this decline sharply

accelerated during the months of October-

February. Indirect taxes declined by 5.1 percent in

July-September and further to 11.6 percent during

October-February. With the impact of September

11 subsiding, the collection of indirect taxes

improved considerably during the months of

March-April when it grew by 9.9 percent [See

Tables 5.5 and 5.6].


Table 5.5Month-Wise Tax Collection, 2001-02

(Rs. Billion)

Indirect Taxes Total TaxCollection

Months DirectTax

SalesCentralExcise Custom Total 2000-01 2001-02

%Change

OverLastYear

JulyAugSep.Oct.NovDec.Jan.Feb.MarchAprilJuly-April

4.37.1

10.712.27.9

20.613.47.5

12.512.3

108.5

10.112.412.013.412.013.612.613.214.115.1

128.5

2.53.53.93.73.23.33.43.73.94.7

35.9

2.83.84.34.11.81.43.43.24.44.2

33.2

15.419.420.321.116.918.319.420.122.424.0

197.6

21.126.433.233.028.640.431.130.832.931.0

307.7

19.726.831.033.224.939.032.827.634.936.3

306.1

-6.71.6

-6.80.6

-12.9-3.65.5

-10.46.1

17.1-0.5

Note: Target for the year, 2001-01 = 414.4 Source: Central board of Revenue% Achievement of Annual Target = 73.9

Sales tax accounted for 65.2 percent of

indirect taxes during the first ten months of the

current fiscal year. It grew on gross basis by 19.4

percent and on net basis by 9.9 percent during July-

September. Sales tax collection slowed to 4.0

percent on gross term but turned negative on net

basis during October-February. It has picked-up

and grown by almost 27 percent during March-

April. Customs collection on the other hand

continued its downward slide throughout the year,

of course at a much higher rate (44.4 percent)

during October-February. Overall tax collection also

showed the similar patterns—down by 3.2 percent

on net basis during July-September and around 3.0

percent during October-February. However, overall

tax collection improved substantially during

March-April when it registered an increase of 11.4

percent on net basis. While direct tax collection

continued to exhibit rising trend viz. last year,

indirect taxes, particularly customs and sales tax,

and withholding tax on import stage have

been adversely affected by the events of Sept-

ember 11.

Total Expenditure

Total expenditure is estimated at Rs.837.6

billion which is 15.2 percent higher than last year,

implying inordinate increase but in given geo-

political situation, the increase was inevitable. Out

of the consolidated expenditure of Rs.837.6 billion

for 2001-02, the current expenditure is estimated at

Rs.705.5 billion (84.2 percent of total expenditure)

while development expenditure (PSDP)

amounted to Rs.127.0 billion (15.8 percent of total

outlay). As shown in Table-5.3, the current

expenditure as percentage of GDP has remained

at 19.0 percent during the last two years. There

are three major components of current

expenditure, namely, interest payments, defense,

and expenditure on civil administration.


Table 5.6Trends in Gross and Net Tax Collection by CBR

(Rs. Billion)

Jul-Sep00-01 01-02

%Change

Oct-Feb00-01 01-02

%Change

Mar-April00-01 01-02

%Change

Direct Tax - Gross - Refund - Net

24.02.421.6

24.72.7

22.1

2.911.72.0

57.43.8

53.6

67.15.5

61.6

16.944.115.0

24.42.721.7

26.71.924.8

9.4-30.714.4

Indirect Tax - Gross - Refund - Net

71.613.358.4

73.818.455.4

3.138.9-5.1

129.921.5108.4

127.331.595.9

-2.046.3-11.6

50.28.042.2

55.99.546.4

11.418.99.9

a. Sales Tax - Gross - Refund - Net

38.97.431.5

46.511.834.6

19.459.79.9

77.812.964.9

80.916.264.7

4.026.0-0.4

29.36.323.0

34.75.429.2

18.4-12.926.9

b.Customs Duty - Gross - Refund - Net

19.95.814.1

17.46.6

10.8

-12.612.5-23.0

33.48.6

24.8

29.015.213.8

-13.277.1-44.4

13.31.711.6

12.74.18.6

-4.7135.8-25.6

c. Central Excise - Gross - Refund - Net

12.80

12.8

9.90.09.9

-22.30.0

-22.3

18.70.0

18.7

17.40.0

17.4

-7.00.0-7.0

7.60.07.6

8.60.08.6

12.40.0

12.8Total Tax Collection - Gross - Refund - Net

95.615.780.0

98.521.177.5

3.034.7-3.2

187.325.3162.0

194.436.9157.5

3.846.0-2.8

74.610.763.9

82.611.471.2

10.76.4

11.4

Source: Central Board of Revenue

Interest payment is the single largest item

of total as well as current expenditures. Its share

in total expenditure declined from 32.3 percent in

2000-01 to 30.7 percent in 2001-02. However, its

share in current expenditure remained stagnant

during the last two years at 36 percent. In absolute

term, interest payment is likely to be Rs.257.0

billion in 2001-02 as against to Rs.234.7 billion in

the previous year, thereby registering an increase

of 9.5 percent as against decline of 6.7 percent last

year. [See Table 5.3]. This increase should be seen

in the context of an average increase of almost 15

percent per annum during the second half of the

1990s.

Defense expenditure in 2001-02 was

budgeted at Rs.131.6 billion with no growth even

in nominal terms. It was budget to decline in

terms of percentage of GDP from 3.8 percent to

3.5 percent. It may be pointed out that defence

spending has been continuously declining over

the last one decade. Defense expenditure was 6.3

percent of GDP in 1990-91 and was targeted to

decline to 3.5 percent in 2001-02. Similarly,

defense expenditure was 25 percent and 32

percent of total and current expenditures,

respectively in the beginning of the 1990s but was

targeted to decline to 15.6 percent and 18.4

percent of total and current expenditures,

respectively by 2001-02. The incident of December

13 leading to the unprecedented massing of


troops by India at the border compelled Pakistan

to mobilize its troops to defend its territory.

Consequently, the spending target was revised

upward to Rs.149.6 billion.

The third major component of current

expenditure is expenditure on civiladministration. Expenditure under this item

stands at Rs.102.7 billion which is 9.1 percent

higher than last year. It has accounted, on

average, 9.4 percent of federal current

expenditure and averaged 1.4 percent of GDP

during 2001-02 as against 8.9 percent of current

expenditure and 1.3 percent of GDP last year.

Provincial current expenditure grew by

13.5 percent in 2001-02—increasing from Rs.149.9

billion to Rs.170.1 billion. Provincial current

expenditure as percentage of total current

expenditure has been rising during the last three

years—rising from 22.4 percent in 1998-99 to 26.0

percent in 2000-01. As percentage of GDP,

provincial current expenditure has increased from

4.2 percent in 1998-99 to 5.1 percent in 1999-2000

but declined to 4.4 percent in 2000-01. It is

projected to remain at last year’s level in 2001-02.

The size of the Public SectorDevelopment Programme (PSDP) is projected to

increase by 37.3 percent over last year. The size of

the current year’s PSDP is projected at Rs.127.0

billion as against Rs.92.5 billion of last year's. As

percentage of GDP, it has improved substantially

from 2.7 percent last year to 3.4 percent this year.

This is because of better allocations from the

government for social sector and poverty

alleviation programs. As a result, these

expenditures now account for 15.2 percent of total

expenditure as against an average of 11.0 percent

in the previous three years.

The developments in revenue and

expenditure sides, as described above, led to an

overall fiscal deficit of Rs.212.2 billion or 5.7

percent of GDP. This revenue- expenditure gap is

financed through external and domestic sources.

Out of the gap of Rs.212.2 billion, financing from

external sources amounted to Rs.148.0 billion or

69.7 percent. The remaining gap of Rs.57.2 billion

or 30.3 percent is financed from domestic sources.

Within domestic sources, financing from non-

bank sources amounted to Rs.57.7 billion while

Rs.7.0 billion is the retirement to banking system,

and Rs. 6.5 billion would be amassed through

privatisation proceeds.

FEDERAL BUDGET, 2001-02

The budgeted federal gross revenue

receipts of Rs.611.5 billion for 2001-02 are 13.9

percent higher than revised estimates of Rs.536.7

billion in 2000-01. These revenue receipts

comprise tax revenues (Rs.464.6 billion) and non-

tax revenue (Rs.146.9 billion). The tax revenue

increased by 9.2 percent mainly because of 60.7

percent growth in surcharges. The CBR revenue is

estimated to grow by 5.2 percent on net basis.

After paying Rs.173.6 billion as provincial share,

the net federal tax revenue receipts are estimated

at Rs.291.0 billion. The provincial share in tax

revenue increased by 6.4 percent. Total

expenditure of Rs.661.0 billion is estimated to be

higher by 13.8 percent than last year. The net

development expenditure [PSDP-Net Lending] is

estimated to grow by 73.4 percent including 37.3

percent rise in PSDP. After adjusting with net

capital receipts, self-financing of PSDP by

provinces and external financing on the resource

side and provincial deficit/ surplus on the

expenditure side, the overall deficit stood at Rs.

223.2 billion in 2001-02 as against Rs.207.0 billion

last year. A comparison of the Federal Budget,

2000-01 (Revised estimates) and 2001-02 (modified

budget estimates) is given in Table5.7:


Table 5.7Federal Government Budget 2000-01 and 2001-02

2000-01 (R.E) 2001-02 (M.B.E)Item

Rs. Billion % Share Rs. Billion % Share

% Change2001-02/2000-01

A. Tax Revenue 425.4 79.3 464.6 76.0 9.2 - CBR Revenue 393.9 73.4 414.3 67.8 5.2

- Surcharges 30.5 5.7 49.0 8.0 60.7

Transfer to Provinces 163.1 30.4 173.6 28.4 6.4

Tax Revenue (Net) 262.3 48.9 291.0 47.6 10.9

B. Non-Tax Revenue 111.3 20.7 146.9 24.0 32.0

Total Revenue (A+B) 536.7 100.0 611.5 100.0 13.9

C. Net Revenue Receipts 373.6 437.9 17.2

D. Current Expenditure 518.2 89.3 555.9 84.1 7.3

- Interest Payments 234.7 40.4 257.0 38.9 9.5

- Defence 131.2 22.6 149.6 22.6 14.0

- Civil Administration 45.9 7.9 52.1 7.9 13.5

E. Development Expenditure 62.4 10.7 105.1 15.9 68.4

- PSDP 69.6 12.0 97.0 14.7 39.4

- Net Lending -7.2 -1.2 8.1 1.2 105.7

F. Total Expenditure (D+E) 580.6 100.0 661.0 100.0 13.8

Overall Balance (C-F) -207.0 -223.2 7.8

R.E: Revised Estimates Source: Finance Division, (Budget Wing)M.B.E: Modified Budget Estimates.

PROVINCIAL BUDGETS

The total outlay of four provincial

budgets for 2001-02 stood at Rs. 281.4 billion,

which is 12.1 percent higher than the outlay of last

year. The N.W.F.P witnessed highest increase of

38 percent in budget outlay over last year,

followed by Punjab (10.3 percent) and Sindh (8.4

percent). However, budget outlay of Baluchistan

declined marginally by 1.5 percent. The overall

provincial revenue receipts for 2001-02 are

estimated at Rs. 261.8 billion, which are 14.8

percent higher than last year. Tax revenue

accounted for 95.6 percent of overall revenue

receipts and amounted to Rs.250.2 billion which is

higher by 15.3 percent and non-tax revenue is

estimated at Rs.11.6 billion which is 4.5 percent

higher than last year. Out of total budget outlay of

Rs. 281.4 billion, 89.2 percent went to current

expenditure and 10.8 percent to development

expenditure. Inspite of declining share of

development expenditure in total expenditure, the

allocations for development expenditure are

higher by 16.9 percent over last year while current

expenditure is to grew by 11.2 percent. The main

components of the Provincial budgets, 2000-01

and 2001-02 are presented in Table 5.8


Table.5.8Provincial Budgets At a Glance

(Rs. billion)

Punjab Sindh N.W.F.P Baluchistan Total

Item 2000-

01

(R.E)

2001-

02

(B.E)

2000-

01

(R.E)

2001-

02

(B.E)

2000-

01

(R.E)

2001-

02

(B.E)

2000-

01

(R.E)

2001-

02

(B.E)

2000-

01

(R.E)

2001-

02

(BE)

Provincial Taxes

Share in Federal Taxes

All Others

Total Tax Revenues

Non-Tax Revenues

Total Revenues

a) Current Exp.

b) Development Exp.

i) Dev.Rev.Account

ii) Dev.Cap.Account

Total Exp. (a+b)

11.1

81.1

8.6

101.0

6.0

107.0

98.6

17.0

8.1

8.9

115.6

11.8

91.7

13.3

116.8

6.2

123.0

108.1

19.5

10.4

9.1

127.6

7.2

32.6

22.8

62.6

2.2

64.8

67.7

8.0

0.0

8.0

75.7

8.0

36.9

22.0

66.9

2.5

69.4

71.7

10.4

1.4

9.0

82.1

1.4

19.0

10.1

30.5

2.2

32.7

25.6

7.3

3.0

4.3

32.9

1.6

21.5

18.9

42.0

2.1

44.1

35.4

10.0

2.6

7.4

45.4

0.5

7.4

15.0

22.9

0.7

23.6

18.1

8.6

0.1

8.4

26.7

0.5

8.4

15.6

24.5

0.8

25.3

18.4

7.9

0.1

7.8

26.3

20.4

140.0

56.5

217.0

11.1

228.1

210.0

40.0

11.2

29.6

250.9

21.9

158.5

69.8

250.2

11.6

261.8

233.6

47.8

14.5

33.3

281.4

Source: Finance Division, (PF Wing)

PUBLIC DEBT

Pakistan public debt has grown by an

average rate of 18 percent and 15 percent per

annum in the 1980s and 1990s. As percentage of

the GDP, public debt was 55.9 percent in 1980,

increased to 92 percent in 1990, and crossed 100

percent by mid-2000. By any standard, Pakistan

public debt became unsustainable and the

growing debt servicing liability made fiscal

adjustment more difficult. Public debt consists of

debt payable in rupee and debt payable in foreign

exchange. Over the last two decades, the share of

public debt in rupee increased from 38.5 percent

to almost 49 percent by mid-2000. On the other

hand, public debt payable in foreign exchange

declined from 61.5 percent to 51.4 percent during

the same period. Although, almost one half of

public debt is external in nature, it is nevertheless

a charge on the budget and must be serviced in

rupee from government revenues and/or through

additional borrowing [See Table 5.9].

Public debt payable in rupee increasedfrom Rs 60 billion in 1980 to almost Rs 374 billionin 1990, and further to almost Rs 1.6 trillion by theend of the 1990s. As percentage of the GDP,public debt in rupee was only 22 percent in 1980but doubled in the 1990, and reached 50 percentby 2000. Fiscal consolidation taken place over thelast two years has started paying dividends.Public debt payable in rupee has declined inabsolute term from Rs 1.7 trillion last year to Rs1.6 trillion during the outgoing fiscal year—adecline of almost 5 percent. As percentage of theGDP, it has declined from 50 percent to 44percent—a decline of 6 percentage point in oneyear is unprecedented in the country’s history.

Debt payable in foreign exchange stood atRs 96 billion in 1980, increased to Rs 428 billion in1990 and shoot-up to almost Rs 1.7 trillion 2000.As percentage of the GDP, debt payable in rupeestood at 34 percent in 1980, increased to 49percent in 1990, and further to 53 percent by 2000.As a result of sharp depreciation of exchange rate(17%) in 2000-01, debt payable in foreign


exchange in rupee term jumped from Rs 1.7trillion or 53 percent of the GDP to Rs 2 trillion oralmost 61 percent of GDP. During the outgoingfiscal year 2001-02, the government has not onlysucceeded in arresting the rising trend in externaldebt but exchange rate appreciation to the extentof 7 percent has also helped in reducing debtpayable in foreign exchange by more than Rs 100billion. It stood at Rs 1.97 trillion or 52.8 percent ofGDP in 2001-02, thus registering a decline of morethan 7 percentage point of the GDP in one year.

Persistence of large fiscal deficit (7percent of GDP) for over 2 decades and steadydepreciation of exchange rate over the sameperiod have contributed to the rise in public debt.Rising real cost of borrowing, ineffective use ofborrowed resources, and stagnation in the debtcarrying capacity represented by the level ofgovernment revenues, are other factorsresponsible for such a sharp acceleration in publicdebt. Public debt also grew because governmentborrowed from outside the budget to either meetits contingent liabilities or to finance governmentinvestment. Since public debt is to be serviced inrupee, its relation with government revenues is animportant indicator of debt burden. Public debtwas 317 percent of total revenues in 1980,

increased to 505 percent by 1990, and was 694percent in 2001. It has now been reduced to 577percent in 2001-02 [See Table 5.9].

As stated earlier, Pakistan public debtburden is much higher than many developed anddeveloping countries, e.g. Pakistan public debt aspercentage of total revenues stood at more than600 percent in 1999 as compared to 385 percent inIndia, 291 percent in Malaysia, 286 percent inPhilippines, 377 percent in Nigeria, 273 percent inMorocco, 94 percent in Thailand, and 22 percentin Mexico. The most worrisome aspect ofPakistan’s growing debt burden is that its debtservicing consumes almost 60 percent ofgovernment’s total revenues and constrainedgovernment’s ability to devote its resources togrowth enhancing investment, such asinfrastructure and social and human capital.

A beginning has already been madeduring the outgoing fiscal year as country’s debtburden has substantially been reduced. This effortmust continue on a sustainable basis so as toattain debt sustainability in the medium-to-longrun. The key element of the strategy must includethe continuation of fiscal consolidation andreduction in real cost of borrowing.

Table 5.9 Public Debt (Rs billion)

End June1980 1990 1999 2000 2001 2002*

Debt Payable in Rupees@As % of i) Public Debt ii) GDP

59.8(38.5)[21.5]

373.6(46.6)[42.8]

1389.3(47.5)[47.3]

1575.9(48.6)[50.1]

1722.9(45.4)[50.4]

1638.6(45.4)[44.0]

Debt Payable in ForeignExchange As % of i) PublicDebt ii) GDP

95.6(61.5)[34.4]

427.6(53.4)[48.9]

1534.7(52.5)[52.2]

1669.2(51.4)[53.0]

2070.1(54.6)[60.6]

1968.5(54.6)[52.8]

Total Public Debt 155.4 801.2 2924.1 3245.1 3793.0 3607.2GDP (MP) 278.2 873.8 2938.4 3147.2 3416.3 3726.6Total Revenue 49.0 158.8 468.6 536.8 546.4 625.4Public Debt As % of (i) GDP (MP) 55.9 91.7 99.5 103.1 111.0 96.8 (ii) Total Revenue 317.1 504.6 604.5 604.5 694.2 576.8

* End March Source: Debt Reduction and Management Committee Report and D.M Wing Finance Division.@ Excluding FEBC, FCBC, US dollar bearer certificates and Special US dollar bonds.


DOMESTIC DEBT

Domestic debt in Pakistan is categorized

into permanent debt (medium and long-term),

floating debt (short-term) and unfunded debt

(mostly national saving scheme-related).

Persistence of large fiscal deficit in the 1990s has

caused domestic debt to grow at an astronomical

rate. During the first nine years of the 1990s (1990-

99), domestic debt grew by more than 16 percent

per annum. Considerable improvement on fiscal

side during the last three years has succeeded in

not only arresting the rising trend in domestic

debt but it has actually declined by Rs 147.2

billion in 2001-02 —a decline of 8.2 percent,

unprecedented in the country’s history. As

percentage of GDP, it has declined from 52.7

percent last year to 44.3 percent in 2001-02. Its

beneficial effects would be realized in terms of

lower interest payment in years to come.

The trend in domestic debt over the last

six years is summarized in Table-5.10:

Table 5.10Domestic Debt

(Rs billion)

1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02(R.E)

Total Domestic Debt 1056.1 1199.7 1452.9 1641.4 1799.2 1652.1

- Permanent @ 289.3

(27.4)

286.6

(23.9)

317.4

(21.8)

324.6

(19.8)

349.4

(19.4)

380.6

(23.0)

- Floating 433.8

(41.1)

473.9

(39.5)

561.6

(38.7)

647.4

(39.4)

737.8

(41.0)

507.1

(30.7)

- Unfunded 332.9

(31.5)

439.2

(36.6)

573.9

(39.5)

669.4

(40.7)

712.0

(39.5)

764.4

(46.3)

Total Debt as % of GDP 43.5 44.8 49.4 52.2 52.7 44.3- Figures in parentheses ( ) are percent shares in total debt. Source: Finance Division, (D.M Section)@ Including FEBC, FCBC, US dollar bearer certificates and Special US dollar bonds.

Total domestic debt rose from Rs.920.3

billion in 1995-96 to Rs.1799.2 billion by end June

2001, depicting an annual average increase of 14.4

percent. Domestic debt is projected to be Rs.1652.1

billion in 2001-02, showing a decline of 8.2 percent

over last year. The decline in the domestic debt in

current fiscal year is primarily attributed to a

decline in floating debt due to the retirement of

Market Related Treasury Bills (MRTBs) worth Rs

193 billion in July 2001. The acceleration in

domestic debt in the second half of the 1990s was

spearheaded by unfunded debt followed by

floating debt and permanent debt. The unfunded

debt (NSS) grew at an average rate of 26.5 percent

during the second half of the 1990s, followed by

17.2 percent increase in floating debt and 2.3

percent in permanent debt.

The composition of the debt has

undergone considerable changes in the last five

years. There is a rapid increase in unfunded debt,

as its share in total domestic debt has increased

from 29.1 percent in 1995-96 to 39.4 percent in

2000-01. During 2001-02 it is budgeted to rise


further to 46.3 percent of the domestic public debt.

The attractiveness of the returns on the NSS was

mainly responsible for the astronomical increase

in unfunded debt.

It can be seen from Table 5.10 that a

substitution has taken place between unfunded

and permanent debt over the last five years.

During this period, the share of permanent debt in

total domestic debt declined by 12 percentage

points and almost the same percentage point

increase was observed in unfunded debt with

share of floating debt remained more or less the

same. The attractive real rates of return on the

various instruments of the National Saving

Schemes (NSS) were responsible for the rapid

increase in unfunded debt as compared with

permanent debt which grew at a much slower

pace (4.7 percent per annum). The linking of rates

of return on NSS instruments with market based

yield curve on Federal Investment Bonds (FIBs) is

a significant development in the right direction.

The unfunded nature of this debt and its on tap

manner of mobilization has severely complicated

the management of Pakistan’s domestic debt.

There is a need to re-examine this issue.

The growing burden of domestic debt is

shown in Table 5.11. Interest payment on

domestic public debt continued to increase during

the 1990s at an average rate of 20.0 percent per

annum. As percentage of GDP, interest payment

on domestic debt has

Table 5.11Domestic Debt & Interest Payment

DomesticOutstanding

Debt

InterestPayment

Interest Payment as Percentage ofYear

(Rs.bln) (Rs.bln) TaxRev.

TotalRev.

CurrentExp.

TotalExp.

GDP(mp)

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-20002000-01*2001-02**

448.2531.5615.3711.0807.7920.3

1056.11199.71452.9 1642.4 1799.2 1652.1

35.750.362.777.577.9

104.5126.5167.5175.3210.2185.5197.9

27.530.635.237.230.234.239.047.244.951.843.142.1

20.821.726.028.424.127.532.939.037.439.134.232.0

13.715.618.021.318.220.223.426.427.128.335.435.1

18.221.923.026.422.524.727.831.632.032.731.629.6

3.54.24.75.04.24.95.26.36.06.65.45.3

* Provisional Actual Source: Finance Division (Budget Wing)** Revised

increased from 3.5 percent in 1990-91 to 6.6

percent in 1999-2000. But interest payments

subsequently declined to 5.3 percent of GDP 2001-

02. It has consumed 35.1 percent of total revenue

and accounted for 32.9 percent of current and

31.3 percent of total expenditure during the last

three years (2000-2002).

______________________

Chapter 6. Money and Credit

6. Money and CreditFinancial development makes

fundamental contributions to economic growth. Italso tends to reduce aggregate economicvolatility. Sound public finances and a stablecurrency are key to the development of financialinstitutions. The governments that havesuppressed their financial systems in order tofinance public spending have ended up withtroubled and underdeveloped financial systems.Monitoring and disciplining ability of market

participants is yet another element of financialdevelopment. An essential element of improvingthe quality and effectiveness of market - disciplinefor financial institutions is ensuring the accuracyand availability of information on the operationsof these institutions. Independence from politicaldecision-making can improve governance in thebanking sector which is yet another key elementof financial development.

How to build a robust financial systemthat assist in risk mitigation and at the same timeimprove the efficiency of the financial institutionsin an environment of global financialrestructuring are the major challenges for thecountry’s monetary authority. The comprehensivefinancial sector reform programe introduced inthe 1990s has largely transformed Pakistan's

financial sector from an inward- looking, narrow-based and government controlled regime to anoutward looking, market-based and dynamicsystem. Financial health of the banking systemhas gradually improved, though at a relativelyslower pace, as a result of the measures taken toenhance banks' commercial orientation andupgrading of the banking supervision system.

Some problems still exist in the field of non-performing loans (NPLs), profitability of banks,and the interest rate structure.

Over the last two and a half years theState Bank of Pakistan (SBP) has accelerated thepace of reform with a view to strengthening thefinancial health of the country’s banking andfinancial institutions. One of the recent initiativesof the SBP is to introduce a supervisory frame

work known as ‘CAMELS’ which involves theanalysis of six indicators that reflect the financialhealth of the financial institutions. These are: (1)capital adequacy, (2) asset quality, (3)management soundness, (4) earnings andprofitability, (5) liquidity, and (6) sensitivity tomarket risk. The performance of both the bankingand non-banking institutions is now beingevaluated on the basis of CAMELS.

During the beginning of 2001-02 the SBPmoved towards a proactive monetarymanagement system to defend the rupee withoutresorting to a change in its monetary stance. TheSBP achieved a degree of market calm andprospects for the future, following a 1 percent cutin the discount rate in July and August, 2001. Theevents of September 11 created an uncertain

external environment in which the monetarymanagement had to be conducted. The SBP optedfor an easy monetary policy keeping in view thedevelopments that were taking place on globaleconomic scene. In October it slashed the discountrate by another 2 percentage points followed by afurther cut of one percentage point in January2002, bringing the rate down to 9 percent from 13


percent. This was followed by subsequent cuts inT-bill rates. It was understandable that the easingof monetary policy would see a pass-through inthe capital market after a lag of several months.Lending rates therefore, started coming downafter December 2001. The weighted averagelending rate stood at 11.97 percent in March 2002,showing a reduction of 2.0 percentage points overJune 2001. The decline in lending rate is expectedto stimulate investment in coming months.

Credit Plan, 2001-02

Monetary expansion was contained at 9.0percent as against the target of 10.3 percent infiscal year 2000-01. Government sector’s netretirement amounted to Rs 46.2 billion as againsta retirement target of Rs 14.5 billion and anexpansion of Rs 78.0 billion in 1999-2000. Thishuge retirement by the Government sector wasshared by a net retirement of Rs 32.3 billion in lieuof budgetary borrowings and a retirement of Rs12.5 billion against a zero target for commodityoperations. Thus, overall government sectorrecorded excellent performance in 2000-01. Net

credit flow to the private sector and PSCEs was atRs 57.1 billion as compared to a contraction of Rs1.1 billion in the previous year. The net foreignassets of the SBP increased by Rs 72.7 billion in2000-01. In view of this encouraging development,both in domestic credit and net foreign assets in2000-01, a realistic credit plan was envisaged forthe year 2001-02. The original Credit Plan 2001-02projected monetary expansion (M2) of Rs 146.0billion or 9.5 percent higher than last year. Ofwhich, net domestic credit (NDA) was targeted toexpand by Rs 91.0 billion and net foreign assets byRs 55.0 billion. A net retirement of Rs 26.0 billionwas projected for government’s budgetarysupport while a sum of Rs 5.0 billion was kept forcommodity operation. A large sum of Rs 99.0billion was kept for the private sector and PSCEswhile a provision of Rs 12.0 billion was made for

the autonomous bodies.

In the light of new developments withinand outside the country the original Credit Planwas modified putting emphasis on retiring morecredit by the government sectors and at the sametime ensuring enhanced credit to the privatesector and autonomous bodies. Although theoverall monetary expansion remained more orless at the original targeted level of Rs 146 billionin the revised Credit Plan, 2001-02, the retirementfigure for budgetary support was reduced fromRs 26.0 billion to Rs 19.0 billion and the retirementagainst commodity operations was fixed at Rs 36

billion instead of keeping a credit line of Rs 5billion, mainly due to huge stockpiling of unsoldwheat of the previous year with the government.Flow of credit to autonomous bodies wasincreased from Rs 12.0 billion in the original planto Rs 18.0 billion in the revised plan mainly toaccommodate higher demand for liquidity bysome big corporations, including the KESC. A bigdemand for credit was envisaged by the privatesector due to strong economic fundamentals beingreflected in the stock market. Hence, the credit tothe private sector and PSCEs was enhanced fromthe original target of Rs 99.0 billion to Rs 106.1billion in the revised plan. In view of a favourableeconomic environment and the rise ininternational flows the target for net foreign assetswere increased to Rs 75.4 billion from Rs 55.0billion in the original plan.

Monetary and Credit Development

Money supply (M2) increased by Rs 142.5billion (9.3%) in the first nine months of thecurrent fiscal year as compared with an expansionof Rs 66.1 billion (4.7%) in the same period lastyear. Upto March 2002, about 98 percent of thecredit plan target was achieved leaving only 2percent for the final quarter of the year. However,about 78 percent of the aggregate change in themonetary expansion was shared by NFA - afeature never witnessed in the past. By the end ofMarch 2002, the NFA stood at Rs 110.7 billion,


surpassing the revised Credit Plan target of Rs75.4 billion by 46.8 percent and last yearsexpansion (Rs 21.6 billion) for the same period by413 percent. There was a net retirement of Rs 28.8billion in the net government borrowingincluding Rs 5.9 billion on budgetary supportsand Rs 22.6 billion on commodity operations.There was an increase of Rs 0.23 billion in the caseof zakat funds.

Credit to the non-government sectorincluding PSCEs and autonomous bodies,increased by Rs 39.8 billion compared with Rs76.8 billion in the same period last year. Credit toautonomous bodies increased by Rs 6.2 billionduring the first nine months of the current fiscalyear as against the plan target of Rs 18.0 billionand last year’s contraction of Rs 13.9 billion forthe same period. The significant development thisyear with respect to autonomous bodies has beenthe inclusion of Pakistan Steel (PS) and PakistanInternational Airlines (PIA) in the list ofautonomous bodies.

Credit to private sector amounted to Rs34.8 billion during the first three quarters of thecurrent fiscal year as against Rs 82.9 billion in thesame period last year. On the face of it, privatesector credit expansion presents a dismal picture.However, the pace of private sector creditexpansion has not necessarily been slower for thefollowing reasons. Firstly, as it is well-known, thefigures of monetary expansion or for that mattercredit to private sector are on net basis (grossdisbursement minus retirement). Therefore,higher credit expansion last year means moreretirement in the current fiscal year. Credit toprivate sector amounted to Rs 82.9 billion lastyear in three quarters, therefore, retirement hasalso been higher given the effectiveness of loanrecovery drive and prudent lending by the banks.

Secondly, excluding export refinance,credit to private sector during the first ninemonths amounted to almost Rs 50 billion as

against Rs 78 billion in the same period last year.In other words, there were accelerated retirementof export finance (Rs 15 billion) as against netexpansion of Rs 4.8 billion during the same periodlast year (see Table 6.1). Retirement of exportfinance at accelerated pace was the result of thedeclining rates of the fund as exporters thoughtthis as an opportunity to get new funds at lowerrates.

Thirdly, credit to private sector was lowbecause of the relative lower requirement forcotton-related activities in view of lower prices ofraw and lint cotton. Almost Rs. 20 billion lesscredit was disbursed on this account.Furthermore, the credit requirement for privatesector was also low because of the very low (2.6%)inflation rate as well as the appreciation of theexchange rate, which translates into a lower creditrequirement for importers. Fourthly, higher taxrefund by the CBR to the extent of Rs 18 billionduring this period led to greater internalfinancing by businesses and therefore, reducedthe credit needs of the private sector to thatextent. Fifthly, credit to private sector normallypicks up in late August to peak in December-January. The events of September 11 andDecember 13 and their aftermath happenedexactly during the peak demand period. To theextent these events created uncertainenvironment, the private sector credit pick up wasslow.

Sixthly, unlike in the past, the privatesector is now reducing their reliance oncommercial banks for their credit requirementand turning towards non-bank financing for thesame. For example, the private sector has issuedTerm Finance Certificates (TFCs) worth Rs 8.6billion during July-May 2001-02, compared toaround Rs 4.5 billion in the corresponding periodof last year. Furthermore, after a number of years,corporates have raised significant amounts offinancing directly from the capital markets.According to data from the Karachi StockExchange, till the first week of May 2002, Rs 5.7


billion was raised through initial public offerings(IPOs) or right issues, compared to Rs 3.5 billionfor the whole of fiscal year 2000-01. And finally,the overall depressed international economicenvironment created by the events of September11, also affected domestic economic activityincluding industrial sector, which may have

impacted the credit demand of the private sector.Thus, on balance, the state of credit utilization bythe private sector has not been as dismal as thenumber suggests.

Factors causing changes in monetaryassets are given in Table 6.1.

Table 6.1 Factors Causing Changes in Monetary Assets (Rs billion)Sector/Factor Credit Plan Target 2001-

02 Actual

Original Revised2001-02

(July-March) 2000-01(July-March)

A. Domestic Credit(Growth Rate %)

i) Government Sector Borrowing(Net)- Net Budgetary Support- Commodity Operations- Effect of Zakat Fund

ii) Non-Government Sector- Autonomous Bodies- Net credit to Private Sector &

PSCEs

a) Private Sector Of which Export Refinance

b) PSCEsc) PSCEs SP A/C debt repayment

with SBP

iii) Other Items (net)

B. Foreign Assets (net)

Total Monetary Expansion (M2) (A+B) (Growth Rate %)

91.0(6.1)

-20.0-26.05.01.0

111.012.0

99.0

0.00.00.00.0

0.0

55.0

146.0(9.5)

70.2(4.7)

-54.0-19.0-36.01.0

124.218.0

106.1

0.00.00.00.0

0.0

75.4

145.6(9.5)

31.8(2.1)

-28.8-5.9-22.60.2

39.86.2

33.6

34.8-15.00.3-1.5

20.8

110.7

142.5(9.3)

44.6(3.1)

-26.213.0-37.1-2.4

76.8-13.9

90.7

82.94.8

11.0-3.1

-6.1

21.6

66.1(4.7)

Source: State Bank of Pakistan.

Components of Monetary Assets (M2)

Components of monetary assets (M2)include: (i) currency in circulation, (ii) demanddeposits, (iii) time deposits, (iv) other deposits(excluding IMF A/C, counterpart), and (v)residents’ foreign currency deposits. Thedevelopments in these components during thefirst nine months of the current fiscal year arepresented in Table 6.2 .

Currency in Circulation: Currency in circulation,is the most liquid form of money supply. During2000-01, currency in circulation increased by 5.5percent. In the first nine months of the current

fiscal year, currency in circulation increased by15.6 percent (Rs 58.6 billion), as against 8.5 percent(Rs 30.2 billion) in the same period last year. Ason 31st March 2002, currency in circulationconstituted 26.0 percent of money supply (M2),compared to its share of 26.3 percent in thecomparable period of last year (Table 6.2).Currency in circulation follows a seasonal patterndetermined jointly with the interaction ofcalendar and Islamic Hijra months. It starts togrow with the seasonal disbursement of credit toprivate sector (from September) and peaksusually in November or during the month inwhich Eid falls.


Table 6.2Stock of Components of Monetary Assets (M2)

(Rs billion)End June End March

Items Average80s

Average90s

2001 2001 2002

Currency in Circulation

Demand Deposits with banks(a)

Other Deposits(b) with SBP

Time Deposits with banks(a)

Residents Foreign CurrencyDeposit

Money Supply (M2)

As Percent of M2

Currency in Circulation

Demand Deposits

Other Deposits

Time Deposits

Residents Foreign CurrencyAccounts (RFCD)

M2/GNP

66.5(15.5)

71.8(13.7)

1.2(19.8)

63.9(10.9)

-

203.4(3.7)

32.7

35.3

0.6

31.4

-

36.5

225.1(12.1)

212.5(13.5)

5.6(15.2)

328.6(18.6)

119.2(57.0)

890.9(15.3)

26.3

24.7

0.7

36.9

12.4

43.9

375.4(5.5)

375.1(-0.1)

11.3(41.9)

610.1(11.2)

154.2(37.1)

1526.7(9.0)

24.6

24.6

0.7

40.0

10.1

45.4

385.9(8.5)

347.4(-7.5)

8.3(4.1)

587.8(7.1)

137.3(22.1)

1466.8(4.7)

26.3

23.7

0.6

40.1

9.4

43.6

434.0(15.6)

402.3(7.3)

11.3(-0.2)

670.9(9.9)

150.7(-2.2)

1669.2(9.3)

26.0

24.1

0.7

40.2

9.0

44.5Note: Figures in parentheses represent growth. Source: State Bank of Pakistan.

a) Excluding inter-bank deposits, deposits of government and foreign constituents.b) Excluding IMF A/C No. 1 & 2 and SAF Loan Account, Counterpart Funds and Deposit of foreign

governments, central banks, international organizations and deposits of money bank.

Demand Deposits with Scheduled Banks:Scheduled banks’ demand deposits declinedmarginally by 0.1 percent during 2000-01. Duringthe first nine months of the current fiscal year,demand deposits picked up by 7.3 percent ascompared to a sharp decline of 7.5 percent in thesame period last year. Main factor responsible forthe sharp increase in demand deposits as well ascurrency in circulation is the rise in the reservemoney during the first nine months of the current

fiscal year. As against a decline of Rs 10 billion,reserve money increased by Rs 33.6 billion duringthis period. This increase in reserve money is dueto the extra-ordinary increase in the net foreignassets. The outstanding stock of demand depositswas Rs 402.3 billion as on end March 2002,representing 24.1 percent of the M2 stock. On thecorresponding date of last year, demand depositsconstituted 23.7 percent of M2. During the secondquarter of the current fiscal year deposits of


banking sector grew by Rs 80.0 billion against Rs8.5 billion only in the same period last year.

Time Deposits: Time deposits of scheduledbanks increased by 11.2 percent in 2000-01 asagainst 6.3 percent in 1999-2000. In the first ninemonths of 2001-02, time deposits increased by 9.9percent as against 7.1 percent in the comparableperiod of last year. As on end March 2002, timedeposits constituted 40.2 percent of M2 as

compared to 40.1 percent on the correspondingdate of last year.

Residents’ Foreign Currency Deposits(RFCD): Since the opening of RFCD in 1991-92,deposits under the scheme continued to rise andreached at all time high of Rs 316.8 billion on May16, 1998. After the freezing of RFCD on 28th May1998, deposits under the scheme started decliningand at the end March 2002 they stood at Rs 151billion.

Table 6.3Key Indicators of Pakistan’s Financial Development

(Percent)Years M2/GDP M1/M2 DD+TD/M2 TD/M2

1980-811981-821982-831983-841984-851985-861986-871987-881988-891989-901990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01

July-March2000-012001-02

37.635.940.138.939.041.041.933.737.739.939.241.744.444.743.843.343.845.143.644.144.9

42.944.8

70.369.566.163.464.763.966.568.772.670.070.466.259.955.151.051.342.139.850.252.849.9

50.650.8

66.267.268.367.768.969.668.467.065.365.665.169.371.273.073.374.376.877.477.574.675.4

73.774.0

29.730.533.936.635.336.133.531.329.029.631.531.634.635.936.036.736.737.140.339.240.0

40.140.2


While there is no standard method to

measure financial deepening, the most widely

used indicator is the ratio of M2 to GDP. This ratio

indicates how monetized an economy is and how

important its banks have become. The M2/GDP

has increased significantly in the last 20 years –

rising from 37.6 percent in 1980-81 to 39.2 percent

in 1990-91. With the introduction of financial

sector reform since early 1990s, the ratio has

increased to nearly 45 percent as against 39

percent in 1990-91 – an almost 6 percentage points

increase in the ratio. This clearly indicates that

Pakistan’s economy is more monetized and the

banking sector is more important today than one

decade ago. Other indicators of financial

deepening such as the ratio of total deposits to

M2, and time deposits to M2, have all improved

as a result of the financial sector reforms.

Measures of Money Supply and theirBehaviour

The annual trends of M1, M2 and M3

since June 1991 to June 2001 and up to March 2002

are given in Table 6.4.


Table 6.4Stocks of Monetary Aggregates

(Rs billion)

Money Supply & Monetary Assets (Percentage Change)End PeriodStock

(M1) (M2) (M3) (M1) (M2) (M3)June 1991June 1992June 1993June 1994June 1995June 1996June 1997June 1998June 1999June 2000Average of the 1990s2000-01End March20012002

265.1302.9327.8358.8423.1448.0443.6480.3643.0739.0

761.8

741.6847.6

400.6505.6595.4703.4824.7938.71053.21206.31280.51400.6

1526.7

1466.81669.2

569.40679.2777.3923.4

1083.61246.31430.11696.81913.42137.2

2314.5

2233.52507.5

10.414.28.29.4

17.95.9-1.08.3

33.914.912.23.1

0.311.3

17.426.217.818.117.213.812.214.56.29.4

15.39.0

4.79.3

12.919.314.418.817.315.014.818.612.811.715.68.3

4.58.3

Source: State Bank of Pakistan & E.A. Wing, Finance Division.

Monetary aggregate of M1 definition

consists of the outstanding stock of currency in

circulation, demand deposits of scheduled banks

and other deposits with the State Bank of

Pakistan. Money supply of M2 definition consists

of M1 plus outstanding stock of time deposits of

scheduled banks and outstanding stock of RFCDs.

The main components of M3 include: outstanding

stock of M2, outstanding deposits of national

saving schemes (NSS), and outstanding deposits

of Federal Banks for Cooperatives. The deposits of

NDFC are no more included in M3 as NDFC has

been merged with the NBP.

During the first nine months of the

current fiscal year, while M1 has increased by 11.3

percent (Rs 85.8 billion), as against an increase of

0.3 percent (Rs 2.5 billion) in the comparable

period last year, M2 has recorded a growth of 9.3

percent during the period under review,

compared to 4.7 percent in the same period last

year. The broadest monetary aggregate, M3, has

increased by 8.3 percent during the first 3 quarters

of 2001-02 as compared to 4.5 percent in the

comparable period last year. Higher growth in M3

is attributable both to higher growth of M2 and

net accrual of National Saving Schemes. M3 is

dominated primarily by M2 and NSS deposits.

Since 1994-95, the share of NSS has been rising,

fuelling M3 growth. In June 1995, the shares of

M2, NSS, and two organizations (NDFC and Co-

operative Bank) in M3 were 76.1 percent, 23.6

percent, and 0.3 percent respectively. In June 2001,

M2/M3 declined sharply to 66.0 percent while

NSS/M2 increased to 33.9 percent. In March 2002,

M2/M3 slightly increased to 66.6 percent while

NSS/M3 came down to 33.3 percent mainly due

to higher M2 growth in the first nine months of

the current fiscal year.


BOX-1Monetary Policy

A number of important steps were taken during the fiscal year 2001-02 with a view toimproving the working of money and banking sector and promoting trade and investmentenvironment. Various monetary and credit control measures taken during the current fiscal year aregiven below.

Credit Control and other Measures, 2001-02

I. The SBP refinance rate was gradually reduced from 13 percent in July 2001 to 6 percentin March 2002. The banks would ensure that where they obtain refinance facilities the maximummargin/spread should not exceed 1.5 percent per annum.

II. The minimum rate on SBP 3-Day Repo facility against MTBs/Pakistan InvestmentBonds was reduced from 14.0 percent in July 2001 to 9.0 percent in January 2002.

III. Effective from September 15, 2001 the margin requirement for facilities against sharesof listed companies was reduced from 30 percent to 25 percent. Banks/NBFIs were however, free to seta higher margin requirement keeping in view other factors.

IV. Effective from 1st October 2001, the State Bank of Pakistan introduced new instructionsunder part-1 of Export Finance Scheme. Modifications in the old scheme were aimed at simplificationof procedures to eliminate excessive documentation’s, cut in the rate of mark up, extended coverageand setting up of a Pre-shipment Export Finance Guarantee (PEFG) agency. The State Bank of Pakistanhas also introduced a Foreign Currency Export Finance (FCEF) facility negotiated by the Governmentof Pakistan with the Asian Development Bank. The said scheme will run parallel to the Export FinanceScheme and the facility under this scheme is available on pre-shipment and post-shipment basis for aperiod of 180 days. Banks are free to provide financing facilities to the specific industries under EFS,with the exception of those included in the Negative List.

V. It was decided on 10th October 2001 to create a database of NPLs at the State Bank ofPakistan so as to have a consolidated as well as individual borrower wise figures of NPLs on a uniformbasis for the purposes of SBP monitoring and for sharing with others banks. Banks were advised tosubmit to the Credit Information Bureau, data of their non-performing loans of Rs 10 million andabove within 15 days of the end of each month

VI. Under the existing Export Finance Scheme finance is available to exporters for 180days. Since carpet and rugs, specially hand knotted and ‘man made’ required more time for theirmanufacturing, it was decided on 24th October, 2001 to relax the provision up to 270 days (both pre-shipment and post shipment). However, banks will have to adjust the finance within a maximumperiod of 180 days, and allow refinance for an additional period of 90 days.

VII. In the wake of 11th September, 2001 incident and thereby cancellation of export ordersof the producers of leather garments and leather product, SBP relaxed instructions on 21st December2001 for such exporters availing loans under export finance Part-I and II


VIII. After allowing commercial banks to raise funds from capital market by issuingTFCs/Bonds, SBP issued guidelines on 1st January, 2002 for regulating such activities of commercialbanks by defining and fixing the limit of the “sub-ordinated debt” in the supplementary capital of banks.

IX. To accommodate untoward developments in the forex market SBP relaxed instructionsregarding Foreign Currency Deposits under F.E.25 on 1st January 2002 and amended the relevantprudential regulation. All banks would report the equivalent Pak rupee amount of FE-25 depositsutilized for trade related activities in their Weekly Statement of position.

X. On 1st January, 2002 the SBP instructed all banks/DFIs not to nominate as directorincluding nominee director on the board of a banks/DFIs persons related with the business of moneychangers, members of the stock exchanges, brokerage houses or companies owned or controlled by themor persons directly or indirectly associated with the business of stock market/money changer.

XI. In order to improve storage facility for wheat, banks were allowed on 16th January, 2002,to provide adequate funds/financing as agricultural loans for a period up to 5-7 years to eligible flourmills and farmers for the construction of silos and other structures that can serve as storage area forprocurement of wheat at the debt equity ratio of 60:40 and 12 percent mark-up. The lending rates wouldbe subsequently made market based on their linkage with T.Bill rates.

XII. On 31st January 2002 the Investment Banks and Development Finance Institutions (DFIs)were allowed access to the SBP 3-Day Repo facility on the same terms and conditions as of thecommercial banks.

XIII. Effective from 16th March 2002, the maximum profit to be earned by a financial

institution on financial assistance to be extended under part-A (local sales) of the scheme for financing

LMM shall not exceed 11 percent p.a. where refinance is obtained from the SBP it will be remunerated at

9 percent per annum.

XIV. It was decided on 20th March 2002 to withdraw the existing maximum limit of 15 percent

for development loans for main agriculture against the total mandatory credit targets. This relaxation

was made initially for a period of one year ending 30th June 2003. Banks are now free to extend

development and production loans to other than small farmers up to 50 percent of their targets subject to

the condition that they shall ensure to make financing of the remaining 50 percent of their mandatory

credit targets to small farmers for production/crop loans.

Auction of T-Bills

In Pakistan the role of rate of return in

regulating liquidity was fairly constrained before

the monetary reforms were introduced in the

early 1990s. Other constraints were direct control

on the deposits and lending rates, directed and

subsidized credit, and use of credit deposit ratio

as a quantitative technique of credit allocations.

These devices were the main impediments in the


way of a smooth market-oriented monetary

management. The instruments of direct monetary

control have now gradually being phased out and

replaced by market- oriented monetary

instruments, like the open market operations

(OMOs). Since the early 1990s the SBP has been

pursuing the OMOs in the management of

government debts and reserve money. Now

auctioning of the government debts through open

market operations has become a regular feature in

the system. The corollary of the OMOs has been

that the market rates of return on debt

instruments are gradually being squeezed as SBP

is handling more and more of the government

debts. The OMOs is being used by the SBP in

making sales and purchases of Treasury Bills with

the primary dealers (banks) since its introduction

in 1990-91. The SBP mops up excess liquidity in

the market when there is an inflationary pressure

in the economy by selling T.Bills, and inject

liquidity by purchasing the same when the

economy requires more liquidity to beef-up

investment activities. The sales and purchase of

government securities have been increasing with

the passage of time.

In June 1998 the SBP introduced 3

months, 6 months and 12 months Market

Treasury Bills replacing the Short-Term Federal

Bonds (STFBs). Since 1998-99 these short-term

debt instruments have become the main

instruments of the OMOs. The weighted average

lending rates of returns on 6 months and 12

months T.Bills are given in Table 6.5. These rates

were as high as 15.4 percent (6 months) and 16.0

percent (12 months) on July 15, 1998. The SBP

gradually reduced these rates in reducing the

interest rate of T-Bills by 8.2 percentage points (6-

12 months maturity) until July 27, 2000 as part of a

liberal monetary policy. Beginning August 2000,

the SBP had been pursuing a relatively tight

monetary policy, which led to the sharp increase

in the T.Bills rates of 6 and 12 months maturity.

The T.Bills rates increased to 11.6 percent and 12.0

percent respectively on July 26, 2001. To improve

the investment environment and attract foreign

investors the government decided to gradually

reduce the T.Bill rates during 2001-02 alongwith

rationalization of the rate of returns on the

national savings schemes. Accordingly the T.Bills

rates of 6 months and 12 months maturity come

down rather sharply and stood at the lowest ever

of 5.6 percent and at 6.4 percent, respectively in

February 6, 2002. Latest auction results indicate

that T.Bill rates have slightly increased to 6.4

percent and 7.0 percent, respectively on May 16.

2002 (Table 6.5).

Table 6.5Auction of Market Treasury Bills (W.A.

Yield) 1998-02(Percent)

Date 6 Months 12 Months15-07-199817-11-199815-02-199921-04-199930-06-199901-12-199919-04-200027-07-200005-10-200012-12-200022-03-200130-05-200128-06-200126-07-200122-08-200131-10-200128-11-200127-12-200123-01-200206-02-200221-03-200218-04-200216-05-2002

15.4111.9613.3010.6013.1710.167.137.2310.4710.9611.5511.6012.8811.5810.478.508.267.936.355.646.446.456.39

16.0012.9913.8111.5013.0810.897.597.7810.9111.4911.9511.9912.9311.9810.829.008.748.406.826.386.956.986.95



Fig 1: Rate of Returns on T.Bills (1998-02)

5

7

9

11

13

15

17

7/15

/98

9/15

/98

11/1

5/98

1/15

/99

3/15

/99

5/15

/99

7/15

/99

9/15

/99

11/1

5/99

1/15

/00

3/15

/00

5/15

/00

7/15

/00

9/15

/00

11/1

5/00

1/15

/01

3/15

/01

5/15

/01

7/15

/01

9/15

/01

11/1

5/01

1/15

/02

3/15

/02

5/15

/02

6 Months 12 Months

During the first nine months of the out goingfiscal year a total amount of Rs 634.4 billion wasoffered including Rs 446.6 billion under MarketTreasury Bills (MTBs) of 3 months, 6 months and 12months maturity and Rs 187.8 billion under PakistanInvestment Bonds (PIBs). Out of this an amount of Rs283.4 billion was accepted including Rs 211.8 billion

under MTBs and Rs 71.6 billion under PIBs. Bothoffered and accepted amounts were higher by 77.5percent and 17.0 percent in the first nine months of thecurrent fiscal year as compared to the amount offeredand accepted in 2000-01. It indicates that MTBs andPIBs have become the most effective tools of OMOs.

Table 6.6Purchase and Sale of T.Bills

(Rs billion)

2000-01 2001-02 (July-March)

Offered Accepted Offered Accepted1. Market Treasury Bills (MTBs)

a) 3 Months 107.7 72.7 104.6 61.5

b) 6 Months 115.8 69.5 197.6 98.2

c) 12 Months 75.1 54.0 144.4 52.1

Total MTBs 298.6 196.2 446.6 211.8

2. Pakistan Investment Bonds(PIBs) 58.8 46.1 187.8 71.6

Grand Total

(Growth)

357.4 242.3 634.4

(77.5%)

283.4

(17.0%)


Interest Rate Structure

To achieve the twin objectives of reducinggovernment cost of borrowing on domestic debt

and encouraging private sector credit expansion,the SBP pursued a relatively easy monetary policyfrom July 1995 to July 2000. Beginning August2000, the SBP however, introduced a relatively


tight monetary policy with a view to providingexchange rate stability, which led to the sharpincrease in T-Bills rates of 6 and 12 monthsmaturity during 2000-01. As a result the weightedaverage lending rate of all commercial banksincreased to 14.0 percent in June 2001 from 12.9percent in June 2000. The sharp rise in the lendingrates rendered the money market environmentunattractive for the promotion of investment andeconomic activities. To improve the investmentenvironment the Government started loweringdown the T-Bills rates since the beginning of thecurrent fiscal year. At the behest of declining T-Bills rates the business community alsodemanded reduction in the lending ratesparticularly of the NCBs. Government furtherrationalized the rates on the national saving

schemes and the State Bank gradually reduced thediscount rate from 14 percent in June 2001 to 9percent in January 2002. This duel approach hadsome effect on the weighted average lending ratewhich ultimately came down to 11.97 percent inMarch 2002 showing a reduction of 2.0 percentagepoints over June 2001. With this reduction in thelending rates the spread between the lending andthe deposit rates narrowed from 7.85 percent inJune 2001 to 6.73 percent in March 2002. Thegradual reduction in spread is expected tocontinue as there is still room for lending rates tocome down if banks improve their efficiency,increase their recovery, reduce operative cost,develop new techniques of risk management andoffer different maturities term financing.

Table 6.7Lending and Deposit Rates

(Percentage)Weighted average

lending rateWeighted average

deposit rateDifference between lending

& deposit ratesNominal Real Nominal Real Nominal Real

June 1995June 1996June 1997June 1998June 1999June 2000June 2001March 2002

13.714.414.615.614.612.914.012.0

0.73.62.87.88.99.39.69.4

8.28.28.58.48.07.46.25.3

-4.8-2.6-3.30.62.33.81.82.7

5.56.26.17.26.65.57.86.7

5.56.26.17.26.65.57.86.8

Fig-2: Real Lending and deposit Rates

-6

-4

-2

0

2

4

6

8

10

12

Jun

_9

5

Jun

_9

6

Jun

_9

7

Jun

_9

8

Jun

_9

9

Jun

_0

0

Jun

_0

1

Mar

_0

2

Per

cen

t

Real lending rate Real deposit rate

One of the best measures of efficiency of

the banking sector is the spread (in weighted

average term) between the lending rates and the

deposit rates. This spread has, in fact, increased in

Pakistan from 5.5 percent in 1994-95 to 7.8 percent

in 2000-01. The nominal deposit rates after

increasing marginally from 8.2 percent in June

1995 to 8.5 percent in June 1997, gradually

declined to 6.2 percent in June 2001. The weighted

average lending rates on the other hand increased


2000-01. It was only during the first nine months

of 2001-02 that the weighted average lending rate


has declined more than that of the weighted

average deposit rates. Real deposit rates were

negative for quite some time during this period

while real lending rates did not move with the

movement in inflation rate. The main factors

responsible for stagnancy in deposit rates were

increased administrative cost of financial

institutions, overstaffing and increasing volume

of non-performing loans and defaults. The

increased cost of inefficiencies was passed on

partly to the borrowers in the form of higher

lending rates and partly to depositors as the rate

of return on deposits was reduced. High lending

rates increase the cost of borrowing thus,

discouraging investment, while low deposit rates

encourage consumption rather than saving. Low

saving rates have their own macroeconomic

consequences for the economy. Thus, the banking

sector has to take measures to improve its

efficiency and reduce further the spread between

the lending and the deposit rates.

Performance of Banks

As a result of extensive reforms in the

banking sector the number of loss making

domestic bank branches have been closed over the

last few years while, on the other hand, number of

foreign banks branches have increased at the

same time. The number of domestic banks

branches were 7871 in June 2000, reduced to 7272

in June 2001, and further to 6926 in March 2002.

On the other hand, number of foreign bank

branches were 78 in June 2000, increased to 80 in

June 2001, and further to 83 in March 2002.

However, both the decreasing number of

domestic bank branches and the increasing

number of foreign bank branches are giving a

positive signal of growing confidence of the

foreign bankers and investors in Pakistan’s

economic potential as well as indicating that the

banking and financial sector reform is taking its

firm roots.

During the first nine months of the

outgoing fiscal year total assets of all the

scheduled banks have increased by Rs 113.1

billion ---- from Rs 1643.9 billion in June 2001 to

Rs 1757.0 billion in March 2002. Their deposits

have increased by Rs 88.5 billion in the same

period, i.e., from Rs 1247.0 to Rs 1335.5 billion.

Higher deposits of the scheduled banks in the

current fiscal year resulted partly due to

extraordinary foreign exchange inflows in the 2nd

and 3rd quarters of the outgoing fiscal year. Low

premium between the kerb and the inter bank

exchange market has induced the overseas

Pakistanis to use the official means for remitting

foreign exchange. In addition, money coming

under Hajj Sponsorship Scheme also helped banks

(especially Nationalized banks) in replenishing

their deposit base. Total investment of all the

scheduled banks have increased from Rs 314.9

billion in June 2001 to Rs 434.7 billion in March

2002. Overall advances of the scheduled banks

have however, declined in the outgoing fiscal year

from Rs 829.9 billion in June 2001 to Rs 814.7

billion in March 2002. However, advances of the

private banks have increased from Rs 140.7 billion

in June 2001 to Rs 162.5 billion in March 2002.

In the wake of the SBP policy to

encourage merger of the weak financial institution

with the large and sound financial institutions, the

following Merger/Acquisitions were affected:

acquisition of ANZ Grindlays by Standard

Chartered Bank Ltd; acquisition of Gulf

Commercial Bank Limited by PICIC; acquisition

of Bank of America by Union Bank Limited;

acquisition of Prudential Commercial Bank by

Saudi Pak; merger/amalgamation of NDFC with

National Bank of Pakistan; merger of AI Taufeeq

with First Crescent Modaraba; merger of Altal

Leasing with Altas Investment Bank Limited and;

Societe Generale Bank has been merged with

Meezan Bank Ltd.


Further, Indus Bank Limited is under

liquidation and Doha Bank Ltd. is under closure,

which would take place with effect from 31st

December 2002. A new bank namely “Meezan

Bank Ltd” has been established/granted license to

operate under the tenet of Islam during 2001-02.

Table 6.8Branches of Domestic & Foreign Banks

(Numbers)June 97 June 98 June 99 June 2000 June 2001 March 2002

i) Domestic Banks

ii) Foreign Banks

iii) Total

8597

76

8,673

8049

81

8,130

7973

85

8,058

7871

78

7,949

7272

80

7352

6926

83

7009


Fig-3:Branches of domestic & foreign banks

6500

7000

7500

8000

8500

9000

Jun_

97

Jun_

98

Jun_

99

Jun_

00

Jun_

01

Mar

_02

74

76

78

80

82

84

86

Domestic Banks Foreign Banks

Recovery of Defaults and Non-PerformingLoans

Loan defaults continuous to be one of the

major problems of our banking industry in

general and nationalized banks and DFIs in

particular, adversely affecting their growth and

profitability. Total non-performing loans (NPLs)

of all commercial banks, specialized banks, and

DFIs have declined marginally and stood at Rs

278.62 billion in March 2002 as against Rs 279.07

billion in June 2001. NPLs of all commercial banks

have increased from Rs 159.47 billion in June 2001

to Rs 171.08 billion in March 2002 indicating a rise

of 7.3 percent. During the first 3 quarters of 2001-

02, NPLs of NCBs, private banks, and specialized

banks have increased by 10.2 percent, 63.3

percent, and 14.6 percent respectively. While

NPLs of the privatized banks, foreign banks, and

DFIs have declined by 2.6 percent, 43.8 percent

and 35.9 percent, respectively in the same period.

The NPLs of all commercial banks stood at 19.7

percent on end March 2002 as against 18.9 percent

on end June 2001 – marginal increase in NPLs.

Similarly, the NPLs of specialized banks and DFIs

also registered marginal increase during the same

period – from 58.1 percent to 59.7 percent.

Increase in the gross NPLs in respect of domestic

commercial banks, and specialized banks during

the outgoing fiscal year mainly reflects

adjustment of loans repayment schedule and

enforcement of classification guidelines and

prudential monitoring by the SBP.

In order to expedite recovery of stuckup/defaulted loans, the Government haspromulgated new recovery law, namely, “theFinancial Institutions (Recovery of Finances)Ordinance, 2001” vide Ordinance No.XLVI of2001 dated August 30, 2001. The new recovery


law contains additional provisions for expeditiousrecovery of stuck up loans including right offoreclosure and sale of mortgaged property withor without intervention of court, automatictransfer of case to execution, permissibility of costof funds and overriding effect of the law arehealthy features which may save lendinginstitutions from losses besides, early recovery offinances. Moreover, pecuniary jurisdiction ofBanking Courts (34 in number) has beenenhanced to below Rs 50 million as against Rs 30million in the repealed recovery law of 1997.

Cases of Rs 50 million and above shall be decidedby respective High Courts. It is expected that thenew law would considerably improve recoveryprocess which otherwise remained sluggish dueto weak provision.

Micro Finance (MF)

During 2000-01 the government

established the Khushali Bank (KB) or Microfinance Bank, with the objective to providesustainable micro finance service to poor persons,particularly poor women, to enable them to standon their own feet and promote social welfare andeconomic justice through community building.The government of Pakistan also entered into aloan agreement for US $ 150 million with theAsian Development Bank to support theoperations of Khushali Bank and to promote themicro finance sector in Pakistan. Part of this loanwill be utilized by KB for micro loans to the poor,particularly to women in rural areas. Somecomponent will be allocated for capacity buildingand the reminder will be utilized for supportingpolicy reforms of the micro finance sector. Themain thrust of the KB is to ensure on the spotspeedy and appropriate interaction with the

would be beneficiaries. The KB after carrying outan initial survey of the targeted area formscommunity organizations, who are then trained.Training teaches them how to prioritize theirneeds. These community organizations identify

the financial and infrastructure needs of itsmembers and localities, identify the borrowersfrom among themselves, provide the Bank withsocial collateral and monitor the utilization of theborrowed funds. The average loan size is Rs10,000 with successively larger loans up to Rs30,000 as the borrower builds up its track record.Recovery rate of the KB is very high. WhetherKhushali Bank will be able to make a dent inreducing poverty through micro financing withcommunity participation will depend on itsability to reach a larger segment of the poor,

targeting efficiency, ease of access to communityetc.

By March 31, 2002, the KB has expandedits operation in 27 Districts and more than Rs 280million disbursed to about 28000 poor borrowersthrough its branch network. During the next fouryears it would reach to another 600,000borrowers. To further expand the sector, theprivate sector has been allowed entry into thisfield and the first micro finance bank in theprivate sector has been established. The bank hasstarted operating with plans to open 8 branches indifferent parts of the country during the currentyear. The establishment of First Micro FinanceBank Limited is expected to attract other privateinvestors and reputed NGOs to invest in MFsector and or transform from NGOs to formal

micro finance banks.

SME Bank

In order to promote small and mediumenterprises, which are regarded as engine ofgrowth in developing countries, the Governmenthas set-up the Small and Medium Enterprises

Bank (SME Bank) by amalgamating Smallbusiness Finance Corporation (SBFC) andRegional Development Finance Corporation(RDFC). The bank became operational fromJanuary 1, 2002 with an initial capital of Rs 1billion to promote primarily the export oriented


small and medium enterprises. The bank waslaunched with 10 branches in six regions acrossthe country comprising four provinces, northernareas and Azad Kashmir. It would bedevelopment oriented and commercial financialinstitution that would extend loans ranging fromRs 50 thousands to Rs 30 million.

The financial sector is being geared

towards SMEs. Financial institutions need to

devise and structure financial products in a

manner that would mitigate any risk owing to

lack of collateral. SMEs in the past have been

denied access to financing because of their

inability to provide collateral. With the setting of

an SME bank, a long outstanding need of the

small entrepreneurs has been addressed. Not only

will they have access to formal credit, but will also

receive professional business advice and services.

The bank will develop a distinct financing

mechanism and a distinct porfolio of financial

products. The SME bank will also act as a catalyst

to develop techniques of credit appraisal, new

product lines, which other financial institutions

could replicate and perfect.

____________________

Chapter 7. Capital Market

7. Capital MarketA modern and efficient capital market is

the backbone of an economy. It plays a crucial rolein mobilizing domestic and foreign resources, andchanneling them to promote investment activitiesboth for the short and the long-term periods. Nocountry can prosper without developing its equitymarket. There are three stock exchanges inPakistan, which form an equity market. Capitalmarket in Pakistan has experienced many ups &down in the past, due to frequent changes in thegovernment and their policies relating to capitalmarket. The equity market of the country had tosurvive in an atmosphere of uncertainty, whichhad mainly impacted the performance of the stockmarket in the 1990s. Most of the companiesbelonging to different sectors of the economycould not achieve the desired results, as they didnot declare dividends on their scrips.Unpredictable fluctuations in the stock pricesinflicted losses particularly to the small investors.The comprehensive socioeconomic packageannounced by the present government inDecember 1999 and other corrective measureshowever, improved the performance of the stockmarket during 1999-2000 and the first half of 2000-01. The average monthly KSE share indexincreased to 1512 points in 1999-2000 from 1005points in 1998-99. The Securities & ExchangeCommission of Pakistan (SECP) is now playing anactive role in safeguarding the interest of smallinvestors.

Pakistan’s stock market remained underpressure during the second half of 2000-01whichwitnessed some bearish tendencies due tocontinuous selling pressure by foreign funds andconfusion among market players regarding theimplementation of T+3(1) settlement system. Theoutgoing fiscal year, 2001-02 also began withsome added turbulence, which kept the market

under pressure. The Karachi Stock Exchange(KSE) share index sheded 138 point in the monthof July 2001 alone which depicted a fall of 10.1percent. Two factors were mainly responsible forthis downward slide, namely (i) crackdown byNational Accountability Bureau (NAB) on certainmarket players, and (ii) continuous sellingpressure by some blue chip companies. Thegloomy market sentiments were however arrestedin the second week of August 2001 by thegovernment support fund for the equity market.Heavy buying was witnessed in PTCL and Hubcowhich pushed the KSE share index up at 1290.8points on August 16, 2001.

However, the September 11, 2001 terroristattacks in New York and Washington created avery tense business environment throughout theglobe which also put the stock market in Pakistanin a new precipice, as the KSE share index lost 116points or over 9 percent in just three trading days,between 12th and 14th September 2001. Thisunexpected fallout also led to various settlementproblems in the ‘Badla Market’. To offset furthernegative impact and ensure smooth clearing andsettlement, the stock market had to be shut downfor a week (from September 17 to 21) by theSecurities Exchange Commission of Pakistan(SECP). The timely decision of the SECP put thestock market on track again. Besides, the bailingout of Crescent Investment Bank by five majorcommercial banks and a number of other positivefactors, including decline in interest rates,removal of economic sanctions, trade concessions,economic assistance extended by a number ofcountries, restoration of Pakistan’s relations withthe International Financial Institutions, successfulcompletion of the Stand by Arrangement and anew three years Poverty Reduction and GrowthFacility (PRGF) programme with the IMF, Paris


Club debt rescheduling, and Pakistan’s enhancedstature in the comity of nations after September 11created a positive environment which led to theresurgence in the market, gradually picking upthe bullish fervour.

The stock market considerably improvedduring the month of October 2001. As on October31, KSE share index stood at 1406.1 points andmarket capitalization aggregate at Rs 341.0 billion,depicting growth of 28.2 percent and 24.0 percentrespectively over October 1, 2001. From October 1,to December 26, 2001, the stock marketmaintained its stable-trading environment.However, the heavy military build up by Indiaand threat of war created serious nervousnessamong investors. Resultantly, the market wentinto a tailspin again with the KSE share indexplummeting at 1273.1 points on December 31,2001. This predicament was, however, short-livedand the market began to bounce back again with avisible sign of recovery from the very start of thenew calendar year. Two factors were instrumentalin this recovery; firstly, the war phobia wasreceding quickly in the horizon and; secondly,economic fundamentals remained strong duringthis period. Largest ever foreign exchange

reserves, building up, a strong rupee vis-à-vis USdollar, low inflation, declining interest rates andthe SECPs timely action to improve the businessenvironment also added renewed vigour amongthe investors. The bullish business trendbeginning in the month of January 2002 continuedto become stronger day by day and remaineduninterrupted till April 30, 2002. The monthlyaverage of daily share index which was 1449.0points in January 2002, increased to 1715.3 pointsin February, to 1855.1 points in March, andfurther to 1865.3 points in April 2002. It reachedthe peak of 1930.5 points on March 14, 2002---- thehighest since April 27, 2000.

Pakistan’s stock market has been the bestperforming market world-wide in terms ofprofitability during January-March 2002. Withprofitability rate of 43.3 percent, Karachi StockExchange attracted considerable amount offoreign funds in the third quarter of the currentfiscal year. Karachi Stock Exchange (KSE) indexwas 1366.4 on June 29, 2001, it stood at 1868.1 atthe end of March 2002, showing an increase of 502points, or 36.7 percent during the period. Theperformance of stock market is documented inTable 7.1 and Figure- 1.

Table 7.1KSE Share Index

(The Leading Market Indicator)

July-AprilEnd Year/Month 1999-2000 2000-01 2001-02 % ChangeJuly 1251.8 1554.9 1228.9 -21.0August 1206.5 1488.9 1258.4 -15.5September 1199.3 1564.8 1133.4 -27.6October 1189.3 1489.3 1406.1 -5.6November 1247.4 1307.2 1358.2 3.9December 1389.2 1507.6 1273.1 -15.5January 1772.8 1461.6 1620.2 10.9February 1930.6 1423.2 1766.0 24.1March 1999.7 1324.4 1868.1 41.1April 1901.1 1367.1 1899.0 38.9May 1536.7 1377.6 - -June 1520.7 1366.4 - -Average 1512.1 1438.1 1481.1 -

Source: Karachi Stock Exchange


During the last one year in general andafter September 11, 2001 in particular equitiesmarkets throughout the world witnessed bigerosion in values. These erosionsnotwithstanding, Pakistan’s premier stock market(i.e. the Karachi Stock Exchange) was regardedthe best performing stock market duringDecember 31, 2001 – May 14, 2002, among the 14leading markets in Asia. As given in the Table 7.2,the KSE share index increased by 40.9 percent on

May 14, 2002 over December 31, 2001, followed byIndonesia (40.5%), Thailand (25.0%), South Korea(19.0%), Philippines (16.1%), Malaysia (15.2%) andJapan (10.4%) among the double digit growingmarkets. Other seven leading Asian stock marketsrecorded single digit growth in the same periodranging from 1.6 percent (New Zealand) to 7.4percent (Singapore). The Bombay Stock Exchangein India registered an increase of 3.7 percent.

Table 7.2Trend in various local stock markets in Asia

Country Index Name Dec. 31, 2001 May 14, 2002 ChangePakistan KSE 100 1273 1794 40.9%Indonesia Jakarta Composite 383 539 40.5%Thailand SET 305 381 25.0%South Korea Seoul Composite 725 863 19.0%Philippines PSE Composite 1170 1358 16.1%Malaysia KLSE Composite 683 786 15.2%Japan Nikkei 225 10543 11643 10.4%Singapore Straits Times 1626 1745 7.4%Sri Lanka All Share 611 646 5.7%Taiwan Taiwan Weighted 5600 5911 5.6%Hong Kong Hang Seng 11351 11832 4.2%India BSE 30 3269 3391 3.7%China Shanghai Composite 1646 1679 2.0%New Zealand NZSE 40 2053 2085 1.6%

Source: Indosuez W I CARR Securities, Pakistan Office

Fig 1. Monthly Trend of KSE Share Index

1000

1200

1400

1600

1800

2000

Jul(9

9-00

)Aug

Sept

OctNov

Dec Jan

Feb Mar Apr

May Jun

Jul(0

0-01

)Aug

Sept

OctNov

Dec Jan

Feb Mar Apr

May Jun

Jul(0

1-02

)Aug

Sept

OctNov

Dec Jan

Feb Mar Apr

KSE Share Index


In the current fiscal year, the Securities &

Exchange Commission of Pakistan (SECP) has

undertaken some major initiatives. The thrust of

these reforms has been towards safeguarding

investors’ interests, increasing market efficiency

and transparency and improving risk

management practices at the country’s stock

exchanges. These reforms will have the effect of

bringing Pakistani markets in line with best

international practices. The successful completion

of the first phase of reforms has improved the

performance in the capital market and its healthy

impact is being felt within and outside the

country. The key indicator is a visible revival of

the SECP to effectively deal with issues of stock

market in discovery and effective settlement of

transactions, stock broker, exchange governance

etc. In addition to enhancing its surveillance,

monitoring and enforcement, it is now

concentrating on improving corporate

governance. (Details measures taken by the SECP

are given in the box).

0

5

10

15

20

25

30

35

40

45

Pakis

tan

Indones

ia

Thaila

nd

South K

orea

Philippin

es

Mal

aysi

a

Japan

Singap

ore

Sri Lan

ka

Taiwan

Hong Kong

India

China

New Z

eala

nd

Fig2:- Growth of Various Stock Market During Dec. 31-May 14, 2001-02

BOX

Policy Measures Announced and Their Progress

During the current fiscal year, the Securities and Exchange Commission of Pakistan (SECP) hasimplemented far-reaching reforms over a broad front, besides taking several steps to develop itsregulatory capacity. As a cumulative result of all these measures, the Commission has advanced closertowards the goal of achieving a fair, transparent and efficient capital market. These measures willincrease the demand for and supply of capital that would provide the necessary fillip to promotefurther investment, expand industrial output, and generate employment opportunities in the country.The various policy measures so far announced are given below:


a) Governance

♦ Forty percent independent directors are to be nominated by the SEC on the Board of eachstock exchange. In 2001, seven non-broker directors were nominated on the Boards of theKSE and LSE and five directors on the Board of the ISE.

♦ Independent, professional management has been ensured on the stock Exchanges byrequiring the Managing Director/Chief Executive Officer (CEO) of each stock exchange to beappointed and removed with the approval of the Commission. Independent CEOs havealready been appointed at the KSE and LSE, with the prior approval of SEC.

♦ The Chairman of the Central Depository Company ( CDC) is to be a non-broker.

♦ The Board of Directors of the CDC shall not delegate their operational authority to anyoneexcept the CEOs.

b) Risk Management

♦ In line with international standard practice, the requirement for the net capital balance hasbeen enhanced by 10 times to Rs 2.5 million for the KSE, Rs. 1.5 million for the LSE and Rs.0.75 million for the ISE.

♦ Margin requirements have been strengthened; notably the brokers’ ability to trade up to Rs50 million without margin was abolished and all exposure of the brokers is now subject tomargin.

♦ The undisclosed market system in accordance with international practice has beenintroduced. This has helped check manipulation and front running to a certain extent.

♦ The internationally accepted T+31 settlement system has been introduced and successfullyimplemented at the three stock exchanges. This has greatly minimized the market riskprevailing due to T+52 settlement cycle.

♦ Blank selling of any sort has been prohibited and the three stock exchanges have beenasked to frame regulations for short selling with facilities for lending and borrowing ofsecurities.

c) Formulation of New Regulations

♦ In order to strengthen the regulatory framework of the capital market and to facilitate theimplementation of the SEC’s reform agenda, a number of rules and regulations were issuednamely; members’ agents and traders rules 2001; stock exchange members rules 2001;public companies rules 2001, insider trading guidelines 2001; amendments in securities andexchange rules 1971; share transfer agents, underwriters, balloters and consultants to theissue rules 2001; the companies share capital rules 2000; brokers agents registration rulesetc.

1 In the T+3 settlement system Monday trade is settled on Thursday in bourses. It reduces the risks.2 In the T+5 settlement system trade conducted between Monday – Friday would have to be settled on nextWednesday.


d) Developments in the Market

♦ A market in futures contracts has been introduced. A beginning was made by grantingapproval to the KSE to commence trading in standard futures contract in certain shares.Future trading at KSE commenced from July 05, 2001. It will provide investors with basichedging instruments and investment alternatives.

♦ The National Clearing Company of Pakistan Limited was incorporated on July 3, 2001. It hascommenced its operation with the implementation of the first phase of the National Clearingand Settlement System w.e.f. 24th December 2001.

♦ The Commission has established a Market Monitoring & Surveillance Wing (MMS), which hasfilled an important regulatory gap in the Securities Market Division. The core objectives ofthis wing is to closely track and monitor the market with a view to identifying possibleinstances of market manipulations and abuse for further investigation and action. MMS willbe supplemented by an analysis of real time trading data through a software program linkedto the automated trading systems of the stock exchanges (via a server).

♦ For quick redressal of investor complaints an Investor Complaints Section has been set up inthe Securities Market Division. The complaint cell has drafted a comprehensive “InvestorsComplaints Guide” which will soon be published. During July-December 2001, 444complaints were received out of which 415 complaints were resolved.

♦ A fundamental improvement in disclosure requirements has been made by the introductionof Quarterly Accounts. In line with international practices the SECP has directed all the listedcompanies to report quarterly accounts within one month of the close of a quarter, startingfrom the quarter ending December 31, 2001. Now listed companies shall be reporting firstquarter accounts, half yearly accounts, third quarter accounts, annual accounts, and fourthquarter accounts if annual accounts are not circulated within three months.

♦ The prospectus of any public offer of securities is required to be got approved from theCommission prior to its issue, circulation and publication. During July-December 2001, 11companies have offered Term Finance Certificates (TFCs), a debt instrument to the public inaggregate amounting to Rs 7.10 billion whereas 02 companies have offered shares to thepublic amounting to Rs 4.26 billion. The increasing number of TFCs issues shows theinterest of the investors in debt instruments as compared to equity issues.

♦ The SECP as part of its investor’s education programme has developed an “InvestorsGuide”. It includes all the basic information, which is necessary to know for a commoninvestor before making an investment in the stock market. The investors Guide is at finalstage and will be published soon.

♦ The Commission also intends to pursue other measures. These include; the strengthening ofaudit practices and enforcement of international accounting standards; facilitating thedevelopment of a vibrant primary market; and ensuring proper implementation of thenational clearing and settlement system etc.


Sectoral Performance

During the first ten months of the current

fiscal year, the KSE price index and aggregate

market capitalization have increased by 39.0

percent and 27.8 percent respectively, as against

their decline of 10.1 percent and 13.1 percent in

the same period last year. Total turnover of shares

on KSE was 21.5 billion in the first nine months of

2001-2002 as compared to 24.1 billion in the same

period last year. Funds mobilized by the KSE

during the first nine months of the current fiscal

year amounted to Rs 13.3 billion as compared to

Rs 4.5 billion in the same period last year. All the

12 major trading groups on the KSE (cotton and

other textiles, pharmaceuticals & chemicals,

engineering, auto & allied, cables and electric

goods, sugar and allied, paper and board, cement,

fuel and energy, transport and communication,

banks and other financial institutions and

miscellaneous) recorded positive growth in the

first nine months of the current fiscal year in their

share indices, ranging from 2.7 percent (cotton &

other textiles) to 34.0 percent (engineering).

Performance of some leading trading groups for

the first nine months of the outgoing fiscal year is

discussed below:

• Cotton and Other Textiles: In this group,there are three sub-groups: (a) textilespinning, (b) textile weaving & composite,and (c) other textiles. There were 251companies listed with KSE under this group.The share index of cotton and other textilerecorded a growth of 2.7 percent during thefirst nine months of the current year ascompared to a decline of 8.7 percent in thesame period last year. Its marketcapitalization increased by 8.1 percent or byRs 3.1 billion during July-March 2001-02 ascompared to a fall of 16.6 percent (Rs 7.3billion) in the same period last year. Itsmarket capitalization constituted 9.7 percentof the aggregate market capitalization (AMC)

of Rs 427.9 billion on 29th March 2002, ascompared to 11.3 percent in June 2001 and11.1 percent in March 2001.

• Chemicals & Pharmaceuticals: A total of 39companies were listed on KSE under thisgroup at end December 2001. During the firstnine months of the current fiscal year, itsshare index increased by 21.1 percent ascompared to a decline of 9.1 percent in thecomparable period of last year. Its marketcapitalization stood at Rs 57.4 billion on 29th

March 2002, showing an increase of 19.7percent over June 2001 and 22.4 percent overMarch 2001.

• Sugar and Allied: Under this group, a total of38 companies were listed on KSE with amarket capitalization of Rs 4.4 billion. Sugarand allied group is a minor player in the stockmarket although it has a weight of 8.6 percentin the production index of major industries.During the first three quarters of the currentfiscal year, the share index of sugar and alliedposted a growth of 3.1 percent as compared toa rise of 12.7 percent in the same period lastyear. It was the only group, which witnesseda contraction of 2.2 percent in marketcapitalization in the current fiscal year, ascompared to an increase of 6.5 percent in thesame period last year.

• Cement: At the end of 2001, there were 21cement companies listed with KSE. Its marketcapitalization stood at Rs 15.7 billion onMarch 29, 2002. The performance of thisgroup has been excellent in the current fiscalyear. Its share index has posted a growth of25.9 percent as compared to a decline of 27.9percent in the same period last year. Itsmarket capitalization has increased by 53.9percent, which was the highest among the 12trading groups. Expected construction boomin neighbouring Afghanistan have spurredthe activity of the cement sector in the currentyear. As of end March 2002, its marketcapitalization was only 3.7 percent of AMC,


which indicates that it is not a major player inthe stock market.

• Fuel & Energy: A total of 26 companies werelisted with KSE with a market capitalizationof Rs 114.8 billion as of 29th March 2002.During the first nine months of the currentfiscal year, its share index increased by 20.5percent and market capitalization increasedby 44.0 percent, as compared to the decline of15.0 percent and 10.8 percent respectively inthe same period last year.

• Transport & Communication: At the end of2001, there were 8 companies under thisgroup listed with KSE. Its marketcapitalization stood at Rs 79.8 billion onMarch 29, 2002. During July-March 2001-02,its share index increased by 21.5 percent ascompared to a decline of 22.4 percent in thesame period last year. Its marketcapitalization increased by 12.7 percent in thefirst nine months of the current fiscal year asagainst a decline of 33.4 percent in the sameperiod last year. The combined marketcapitalization of fuel and energy, andtransport & communication was Rs 194.6billion on March 29, 2002 which constituted45.5 percent of AMC as compared to 45.3

• percent on the corresponding date last year.

• Banks & Other Financial Institutions:This is the second largest group in respect ofcompanies listed with KSE. In December 2001,a total of 195 companies were listed with KSE.Its market capitalization stood at Rs 54.3billion in end March 2002. There are 4 subgroups in this group: banks & investmentcompanies, modarabas, leasing companies,and insurance. During the current fiscal year,the share index and market capitalization ofthis group have increased by 11.7 percent and41.5 percent respectively, as compared to theirdecline of 10.7 percent and 1.7 percentrespectively in the same period last year.

• Miscellaneous: The miscellaneous groupincludes five sub-groups: jute, food & allied,glass & ceramics, vanaspati & allied, andothers. In December 2001, a total of 102companies were listed with KSE. Its shareindex and market capitalization postedgrowth of 8.1 percent and 21.9 percentrespectively in the first nine months of thecurrent fiscal year, as compared to theirgrowth of 4.2 percent and 1.6 percentrespectively in the same period last year.

Table 7.3Profile of Karachi Stock Exchange

1998-99 1999-00 2000-01 2001-02(July-March)

a) New Companies Listedb) Fund Mobilized

(Rs Billion)c) Listed Capital

(Rs Billion)d) Turnover of Share

( Billion Nos)e) KSE Share Indexf) Aggregate Market

Capitalisation(Rs Billion)

Nil1.6

215.0

25.5

1055289

18.9

223.5

48.1

1521392

43.6

235.7*

29.2

1366339

313.3

260.2

21.5

1868428

* December 2001 Source: Karachi Stock Exchange.


In December 2001, 749 companies werelisted on Karachi Stock Exchange, including 251companies in cotton and other textile, 195 inbanks and financial institutions, 102 inmiscellaneous group etc. During 2001, number ofdividend paying companies were 87 as comparedto 370 in 2000. Only 98 companies were making

profit, listed with the KSE in 2001 as compared to493 companies in 2000. However during 2001only 11 companies were shown as loss-making ascompared to 174 companies in 2000. Group-wisenumber of companies and their performance in2000-01 is given in Table 7.4.

Table 7.4Performance of Companies Listed on KSE

S.No

Name of Sector No. ofCompanies2000 2001

AMC(Rs billion)*

2001 2002

DividendPaying

Companies2000 2001

ProfitMaking

Companies2000 2001

Loss makingCompanies

2000 2001

1. Cotton & otherTextile

257 251 36.5 41.5 126 12 168 14 47 3

2. Chemical &Pharmaceutical

39 39 46.9 57.4 23 10 26 10 12 1

3. Engineering 16 16 1.6 2.0 4 1 6 1 5 04. Auto & Allied 25 25 7.5 9.8 9 5 15 7 7 2

5. Cables & ElectricGoods

15 14 2.2 2.2 5 1 6 1 3 0

6. Sugar & Allied 38 38 4.1 4.4 20 1 24 1 13 07. Paper & Board 15 14 4.5 5.7 7 5 10 6 3 08. Cement 20 21 7.5 15.7 6 1 11 1 7 0

9. Fuel & Energy 27 26 78.0 114.8 20 10 22 10 4 010. Transport &

Communication8 8 70.8 79.8 3 1 4 1 2 1

11. Bank & FinancialInstitutions

197 195 35.5 54.3 104 30 144 36 40 2

12. Miscellaneous 105 102 33.2 40.5 43 10 57 10 31 2

Total 762 749 328.2 427.9 370 87 493 98 174 11* End March 2001 and 2002. Source: KSE Annual Report

Encouraging business trends were also

witnessed at other two stock exchanges namely,

the Lahore and Islamabad Stock Exchanges. The

turnover of shares on Lahore Stock Exchange

(LSE) during July-March 2001-02 was 11.7 billion

compared to 6.2 billion shares in the same period

last year. Total paid up capital with LSE increased

from Rs 226.2 billion in June 2001 to Rs 228.2

billion in March 2002. The LSE index, which was

273.5 points in June 2001, increased to 321.5 points

in March 2002. Market capitalization has

increased from Rs 325.7 billion in June 2001 to Rs

399.8 billion in March 2002. Four new companies

were listed during July-March 2001-02, as

compared to only one in the same period last

year. A profile of LSE is given in Table 7.5.


Table 7.5Profile of Lahore Stock Exchange

` 1998-99 1999-2000 2000-01 2001-02(July-March)


(Rs Billion)c) Listed Capital

(Rs Billion)d) Turnover of Share

(Billion Nos)e) LSE Index

1Nil

-

9.8

288.9

20.4

207.7

16.4

372.0

32.5

226.2

7.8

273.5

44.4

228.2

11.7

321.6

Source: Lahore Stock Exchange

The turnover of shares on the IslamabadStock Exchange (ISE) registered a growth of 20.0percent, from 1.1 billion shares in July-March2000-01 to only 1.32 billion during the first ninemonths of the current fiscal year. The amount offund mobilized at ISE was Rs 8.8 billion duringthe first nine months of the current fiscal year, as

compared to Rs 0.7 billion in the same period lastyear. The ISE price index has increased from4374.2 points in June 2001 to 4583.9 points inMarch 2002. The two new companies were listedwith ISE during the first nine months of thecurrent fiscal year, as compared to 3 companies inthe same period last year. (Table 7.6)

Table 7.6Profile of Islamabad Stock Exchange

1998-99 1999-2000 2000-01 2001-02(July-March)


(Rs billion)c) Listed Capital

(Rs billion)d) Turnover of Share

(In Billion Nos)ISE Index

15.0

150.2

3.3

4498.7

00

-

3.1

5327.2

50.8

183.3

1.4

4374.2

28.8

183.4

1.32

4583.9Source: Islamabad Stock Exchange

Total funds mobilized during July-March2001-02 in the three stock exchanges (KSE, ISE &LSE) amounted to Rs 26.5 billion, as compared toRs 6.8 billion in the same period last year. Totalturnover of shares in the three stock exchangesduring the first three-quarters of the current fiscalyear was 34.5 billion, compared to 31.4 billion inthe same period last year, recording an increasedof 9.9 percent.

Development Finance Institutions (DFIs)

During 2000-01, the DFIs sanctioned totalloans of Rs 4.4 billion against which they

disbursed Rs 3.7 billion. In the first nine months ofthe current fiscal year (2001-02), sanctions anddisbursements of loans by the DFIs for fixedinvestment finance to the private industrial sectorwere Rs 4.9 billion and Rs 3.6 billion respectively.The loans sanctioned and disbursed by the specialbanks (excluding ADBP) during 2000-01amounted to Rs 13.2 billion and Rs 11.1 billionwhile during the first nine months of 2001-02,their sanctions and disbursements amounted toRs 13.3 billion and Rs 5.8 billion respectively. In2000-01, investment banks’ total sanctions anddisbursements were Rs 8.8 billion and Rs 8.6billion. In the first nine months of the current


fiscal year, their sanctions and disbursementswere recorded at Rs 4.6 billion and Rs 4.3 billion.Total sanction and disbursement of housingfinance companies (HFCs) amounted to Rs 2.8billion and Rs 2.7 billion in 2000-01 and during thefirst nine months of 2001-02, these were Rs 1.94billion and Rs 1.96 billion respectively. Thekhushali bank, which was launched in 2000-01,sanctioned and disbursed Rs 0.193 billion in thefirst nine months of 2001-02 as against a meageramount of Rs 0.072 billion sanctioned anddisbursement in 2000-01. During the first ninemonths of the current fiscal year leasingcompanies sanctioned an amount of Rs 13.2billion out of which they disbursed Rs 12.8 billionwhile modarabas sanctioned Rs 4.18 billion anddisbursed Rs 4.16 billion respectively.

National Savings Organization (NSO)

The Central Directorate of NationalSavings (CDNS) is an attached department of the

Finance Division and performs deposit bankfunctions by selling government securitiesthrough a network of 366 savings centers, spreadall over the country. As of March 31, 2002 therewere about 4.2 million investors with NationalSaving Schemes (NSS). The seven savingsschemes currently in operation include: DefenceSavings Certificates, Special SavingsCertificates/Accounts, National DepositCertificates, Savings Account, Regular IncomeCertificates, “Mahana Amdani” Account, andPrize Bonds.

During the fiscal year 2000-01, netdeposits with National Saving Schemes fell to Rs51.1 billion, from Rs 142.2 billion in 1998-99 andRs 95.5 billion in 1999-2000. Defence SavingCertificates at Rs 16.6 billion maintained the topposition. Their share in the net accruals was 32.5percent in 2000-01 followed by the national prizebonds (20.3%) and Special Savings Certificates(18.4%). (Table 7.7).

Table 7.7Net Accruals by National Saving Schemes

(Rs Billion)July-March

1998-99 1999-2000 2000-01 2000-01 2001-021. Defence Saving

Certificates

2. Special SavingCertificates ®

3. Regular IncomeCertificates

4. Special SavingAccounts

5. National Prize Bonds

6. Others

Grand Total

38.3(26.9)

25.0(17.6)

59.1(41.6)

5.9(4.1)

10.1(7.1)

3.8(2.7)

142.2(100)

41.2(43.1)

19.4(20.3)

26.1(27.3)

5.5(5.8)

-0.03(-0.03)

3.4(3.6)

95.5(100)

16.6(32.5)

9.4(18.4)

8.6(16.8)

3.6(7.0)

10.4(20.3)

2.5(4.9)

51.1(100)

11.0(36.3)

5.1(16.8)

5.9(19.5)

-0.01(0.0)

8.2(27.1)

0.1 (0.0)

30.3(100)

13.2(26.0)

21.5(42.4)

7.8(15.4)

-0.2(-0.4)

6.9(13.6)

1.5(3.0)

50.7(100)

Source: Directorate of National Savings.

Note: Figures within brackets represent share to total.

R= Regular


During the first nine months of thecurrent fiscal year, total net savings amounted toRs 50.7 billion, as against the net receipts of Rs30.3 billion in the same period last year. All themajor scheme showed marked improvement intheir mobilization activities with the exception ofPrize Bonds. So far the special saving certificateswith a net accrual of Rs 21.5 billion put the bestperformance during the current fiscal year. Thiswas a big jump if compared to Rs 5.1 billion onlyin the first nine months and Rs 9.4 billion in theentire fiscal year of 2000-01. Defence SavingsCertificates mobilized Rs 13.2 billion during July-March 2001-02 as compared to its mobilization ofRs 11.0 billion in the same period last year,showing an increase of 20.1 percent. RegularIncome Certificates with Rs 7.8 billion rankedthird in the current fiscal year up to March 31,2002 as compared to Rs 5.9 billion mobilized in

the same period last year. The National PrizeBonds which mobilized Rs 6.9 billion as againstRs 8.2 billion in the same period last year ranked4th in the period under review.

The Government of Pakistan hasreviewed the rate of return on National SavingsSchemes in January 2002. The return on DefenceSavings Certificates has been fixed at 14.13percent per annum (on maturity) for thecertificates issued during the period from 01-01-2002 to 30-06-2002. The Defence SavingsCertificates purchased prior to the above saidnotification shall earn profit at the rate prevailingon the date of purchase. However, no change hasbeen made in the rates of other National SavingsSchemes. The year-wise payable amount on theinitial investment of Rs 100 is given as under:

Return on investment of Rs 100

After

one

year

After

two

years

After

three

years

After

four

years

After

five

years

After

six

years

After

seven

years

After

eight

years

After

nine

years

After

ten

years

109

(9%)*

121

(21%)

138

(38%)

157

(57%)

184

(84%)

210

(110%)

238

(138% )

275

(175%)

322

(222%)

375

(275%)

• Figures in bracket show return in percentage over the original amount.

41.2

19.426.1

-0.03

16.69.4 8.6 10.4

13.2

21.5

7.8 6.9

-5

0

5

10

15

20

25

30

35

40

45

(Rs

Bill

ion

)

1999-00 2000-01 2001-02(Jul-Mar)

Fig-3: Net Accruals by Major Schemes

Def.Sav.Cert. Spl.Saving CertificatesRegular Income Certificates National Prize Bonds


Moreover a withholding tax, on profits

from investment on National Savings Schemes

made on or after, July 1, 2001 shall be deducted at

source at the rate of ten percent of such profit if

such deposit exceeds Rs 0.3 million. The details

about the new and old rates on National Savings

Schemes are given in Table 7.8.

During the current fiscal year the nominal

deposit rates with NSS ranged between 6.0

percent (Prize Bond) to 14.13 percent (Defence

Savings Certificates) with a weighted average rate

of 11.5 percent, or 0.3 percentage point higher

than the last fiscal year but 4.3 percentage point

lower than the average of 1995-2000. With an

inflation rate of only 2.6 percent the real deposit

rates during July-April 2001-02 have increased

over last year ranging between 3.4 percent (Prize

Bond) to 11.5 percent (Defence Savings

Certificate) with a weighted average real rate of

8.9 percent.

Table 7.8Nominal and Real Deposit Rates on Savings Schemes During 1995-2002

1995-2000 2000-01 2001-02 SchemeNominalRate (p.a)

RealRate

NominalRate (p.a.)

RealRate

NominalRate(p.a.)

RealRate

1. Defence SavingCertificates

2. National DepositScheme

3. Special SavingsCertificate ®

4. Special SavingsCertificate (B)

5. Regular IncomeCertificates

6. Khas DepositScheme

7. Mahana AmdaniAccounts

8. Saving Accounts

9. Prize Bonds

Weighted Average

17.0

13.1

15.8

12.8

16.4

13.4

14.9

11.8

10.2

15.8

9.1

5.2

7.9

4.9

8.5

5.5

7.0

3.9

2.3

7.9

15.0

13.0

12.7

12.4

12.5

13.4

12.3

7.8

6.0

11.2

10.6

8.6

8.3

8.0

8.1

9.0

7.9

3.4

1.6

6.8

14.1

13.0

12.7

12.4

12.5

13.4

12.3

7.8

6.0

11.5

11.5

10.4

10.1

9.8

9.9

10.8

9.7

5.2

3.4

8.9

Source: Directorate of National Savings, Finance Division.Note: R= Registered

B= BearerAverage inflation was 7.9% during 1995-2000; 4.4% during 2000-2001; and 2.6% during July-April

2001-02.


In the previous years, although the

nominal deposit rates were apparently very high

but the real deposit rates remained low due to

high rates of inflation. For example, during 1995-

2000, average nominal rates ranged between 10.2

percent (prize bonds) to 17.0 percent (Defence

Savings Certificate). With an average inflation rate

of 7.9 percent during this period, the real rates

ranged between 2.3 percent (prize bonds) to 9.1

percent (Defence Savings Certificates), compared

to a weighted average real rate of 7.9 percent.

During 2000-01, both weighted average nominal

and real rates came down to 11.2 percent and 6.8

percent respectively mainly due to cut in the

nominal rates in January 2001. But with a decline

in the inflation rate (2.6%) in the current year, the

real rates of return have become even more

attractive than before. Since the weighted average

real deposit rates of the schedule banks remained

low (around 3%), the NSS still offers the most

attractive rate of returns to the depositors. This is

the main reason why net accruals have increased

by 67.3 percent in the first nine months of 2001-02,

over the same period of last year.

Reforms of the NSS

During the outgoing fiscal year the

Directorate of National Savings have undertaken

some structural changes as given below:

i. Rate of return on NSS has been linked

with the yield of the PIBs of

corresponding maturities.

ii. The return on NSS is being reviewed bi-

annually i.e. on 1st July and 1st January in

accordance with yield on PIBs.

iii. The profit earned on the deposits

exceeding Rs 0.3 million have been

subjected to deduction of withholding

tax.

iv. Institutions have been debarred from

investment in NSS.

The above measures (i-iv) have been

taken to remove the distortions in the financial

market and provide a level playing field for the

other banks and DFIs for deposit mobilization.

In order to improve the working

condition at the national saving centers (NSCs) a

detailed plan for restructuring of National

Savings Organization is under process and shall

be implemented soon. It includes, among others,

computerization of its accounts. As a first step

towards the objective, the accounting procedure

has been reviewed in line with the requirements

for shifting from manual to automated accounting

system.

_______________________

Chapter 8. Inflation

88.. InflationA high and sustained economic growth in

conjunction with low inflation is the centralobjective of macroeconomic policy. It is well-known that a stable macroeconomic environmentis conducive to investment, and therefore, togrowth. What constitute a conducivemacroeconomic environment? Low and stableinflation along with sustainable budget deficit,realistic exchange rate, and appropriate realinterest rates are among the indicators of a stablemacroeconomic environment. Thus, as anindicator of stable macroeconomic environment,the inflation rate assumes critical importance. It istherefore important that inflation rate be keptstable even when it is low.

Inflation is also important for otherreasons. It is a regressive and arbitrary tax, theburden of which is typically bornedisproportionately by those in fixed income groupand poor. Maintaining low inflation is thereforeseen as a necessary part of the poverty alleviationstrategy. Inflation is also harmful to growthbecause it distorts relative prices and provideswrong signal to investors; it causes real exchangerate to appreciate thereby eroding externalcompetitiveness and hurting exports; and mostimportantly it creates instability which is inimicalto growth. Thus, low and stable inflation is

essential for sustaining higher economic growth –so critical for poverty alleviation.

Price Indices

Four different price indices are publishedin Pakistan: the consumer price index (CPI);calculated for four different income groups; thewhole sale price index (WPI); the sensitive priceindex (SPI); and the GDP deflator. In mostcountries, the main focus for assessinginflationary trends is placed on the CPI because itmost closely represents the cost of living. InPakistan, the main focus is also placed on CPIbecause it is used for indexation for many wagesand is more relevant in measuring inflation as itsimpacts on households.

Major developments have taken placeduring the outgoing fiscal year as far asmeasurement of inflation is concerned. Not onlythe base year for CPI and SPI has changed from1990-91 to 2000-01 but their coverage in terms ofcities, markets, and items; weights for differentcommodities; income and occupational groupshave also changed. They are not only morerepresentative but include items which are widelyconsumed by different income groups. A comp-arison of two base years is reported in Table 8.1.

Table 8.1A Comparison of Old and New CPI and SPI

Base Year 2000-01=100.0 Base Year 1990-91= 100.0FeaturesCPI SPI CPI SPI

Cities coveredMarkets coveredItems coveredNumber of Commodity GroupsNumber of QuotationsIncome GroupsOccupational Groups

Reporting Frequency

357137510106,500FourAllCategoriescombinedMonthly

175151-10,404Rs.3000/Month3(urban)

Weekly

25614609112,240Five3(urban)

Monthly

124851-9,024Rs.1500/Month3(urban)

WeeklySource: Federal Bureau of Statistics.


Inflation During the 1990s

Pakistan has experienced sustainedinflation hovering between 10.0 to 13.0 percentrange during the first eight years of the 1990s. Notsurprisingly, one of the thorniest issues inPakistan’s policy arena during those periods hasbeen how to put inflation under effective control.The persistence of a double-digit inflation alongwith large fiscal deficit (7.0% of GDP) have beenthe major source of macroeconomic imbalances inthe 1990s. There has been a general agreementthat the excessive growth in money supply, thesupply side bottlenecks, the adjustment ingovernment – administered prices, the importedinflation (pass through of exchange rateadjustment), escalations in indirect taxes, andinflationary expectations have the major factorsresponsible for the persistence of a double-digitinflation during most period of the 1990s.

Both food and non-food inflationcontributed to the persistence of the double-digitinflation. Food and non-food inflation averaged11.6 percent and 10.3 percent, respectively duringthe eight years of the 1990s (Table 8.2). Inflationslowed to an average of 4.7 percent in theremaining two years of the 1990s, mainly on

account of 4.1 percent food inflation and 5.3percent non-food inflation. Non-food inflationwas mainly driven by the prices of POL productsand rise in transport charges.

Inflationary pressures have continued todiminish over the last three years mainly onaccount of tight monetary policy, prudent fiscalmanagement, and improved supply of food itemsin the country. Although the exchange rateadjustments and the rise in international price ofPOL products have put upward pressures oninflation but these pressures were countered bythe tight monetary policy fully supported by fiscalstance and improvement in the supply situationin the country. During the last three years(1999/2000 – 2001-02) overall inflation averaged3.5 percent as against double-digit inflationduring most period of the 1990s. As stated earlier,the decline in overall inflation owe heavily to alow (2.4%) food inflation, as non-food inflationaveraged 5.1 percent during the last three years.There is no room for complacency, however thereseems to be grounds for optimism with respect tothe chances of safeguarding the progress that hasbeen achieved on the inflation front over the lastthree years.

Table 8.2Inflationary Trends*

(% Change)

Year OverallInflation

FoodInflation

Non-FoodInflation

WPI SPI

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-012001-02(July-April)

Average of 1990sAverage of 1990/91-1997/98Average of 1998/99 – 1999/2000Average of 1999/2000 – 2001/02

12.710.69.8

11.313.010.811.87.85.73.64.42.6

9.711.04.73.5

12.910.611.711.316.710.111.97.75.92.23.61.4

10.111.64.12.4

12.410.57.8

11.29.3

11.511.78.05.65.05.35.0

9.310.35.35.1

11.79.87.4

16.416.011.113.06.66.41.86.22.1

10.011.54.13.3

12.610.510.711.815.010.712.57.46.41.84.82.9

9.911.44.13.2

* Inflation based on CPI and SPI are at 2000-01 base. Source : Federal Bureau of Statistics.


Inflation During 2001-02

One of the major achievements of the

outgoing fiscal year has been the sharp

deceleration in inflation. Inflation, as measured by

the changes in the CPI, is estimated at 2.6 percent

during the first ten months (July-April) of the

outgoing fiscal year as against 4.7 percent in the

comparable period of last year (Table 8.3). Thus,

inflation at 2.6 percent is the lowest inflation

experienced by Pakistan during the last three

decades. The overall low inflation is mainly

attributable to a very low food inflation which is

estimated at 1.4 percent as against 4.1 percent in

the comparable period of last year. Non-food

inflation, mainly driven by fuel and lighting and

transport, remained more or less at last year’s

level of 5.0 percent. Fuel and lighting component

of inflation was up at 9.2 percent as against 12.1

percent of last year. Similarly, transport charges

were up by 7.4 percent during the first 10 months

of the fiscal year as against 12.8 percent last year

in the same period. Almost 77 percent

contribution to current low inflation came from

non-food while food-inflation contributed only 23

percent. Last year, non-food and food inflation

had contributed 62 percent and 38 percent,

respectively to the overall inflation. Further

breakdown reveals that 44 percent contribution to

current inflation came from fuel & lighting and

transport charges. Last-year, these two

components contributed roughly 35 percent to

inflation.

By the standards of many developing

countries, Pakistan has succeeded in bringing

inflation down to an acceptable level. The hard-

earned progress on inflation front must be

sustained. Since inflation is a regressive and

arbitrary tax and hurts the poor most, keeping

inflation, and most importantly food inflation,

low would in effect be akin to saving the poor

from the regressive tax. Thus, maintaining low

inflation, in particular, low food inflation is seen

as a necessary part of an effective antipoverty

strategy.

Fig - 1: 1nflationary Trend

02468

1012141618

1990

-91

91-9

292

-93

93-9

494

-95

95-9

696

-97

97-9

898

-99

99-0

000

-01

01-0

2(J-

A)

CPI FOOD NON-FOOD


Table 8.3Changes in CPI According to Commodity Group

(%Change)July-April %age Point

Contribution (Jul-Apr)Commodity Groups

Weight2000-01 2001-02 2000-01 2001-02

CPI 100.00 4.7 2.6 4.7 2.6Food 44.13 4.1 1.4 1.8 0.6Non-Food 55.87 5.3 5.0 2.9 2.0Apparel, Textile 6.34 2.9 2.4 0.2 0.2House Rent 21.69 3.0 2.0 0.7 0.4Fuel, Lighting 8.01 12.1 9.2 1.0 0.7Household Furniture 2.57 2.7 3.0 0.1 0.1Transport & Comm. 5.56 12.8 7.4 0.7 0.4Recreation & Entertainment 0.69 3.6 4.3 0.0 0.0Education 2.79 - - - -Cleaning, Laundry 6.01 2.3 1.9 0.1 0.1Medicare 2.21 7.4 1.4 0.2 0.0- Not available Source: Federal Bureau of Statistics

Month-wise inflation analysis revealsinteresting developments that have taken placeduring the first ten months of the outgoing fiscalyear. Monthly inflationary trend is well-documented in Table 8.4. A cursory look at thetable is sufficient to see that on year-on-year basis,the overall inflation continued to decline sinceAugust 2001 and reached as low as 1.8 percent byDecember 2001. The steady decline in inflationfollowed closely the developments on non-foodinflation which also started declining untilDecember 2001. Food inflation continued at a verylow level. The overall inflation gradually and

slowly started picking up since January 2002 withthe firming of oil prices in international market.Since Pakistan’s domestic prices of POL productsare linked with international prices, theygradually started contributing to the overallinflation. Of late, during March and April 2002,food inflation also picked up as a result ofshortfall in the production of some of the fooditems. Thus, in April 2002, on year-on-year basis,overall inflation stood at 3.3 percent while foodand non-inflation are estimated at 3.6 percent and6.3 percent respectively.

Table 8.4Monthly Inflation Rate

(% Change)1998-99 1999-2000 2000-01 2001-02

Period CPI Food NonFood

CPI Food NonFood

CPI Food NonFood

CPI Food NonFood

JulAugSepOctNovDecJanFebMarAprMayJun

6.77.06.46.56.26.46.26.24.84.64.33.7

6.06.55.55.67.27.26.86.65.75.34.83.7

7.57.57.47.55.25.55.75.93.73.83.83.6

3.53.13.43.83.43.03.43.03.63.93.85.1

3.83.23.43.20.70.21.00.51.62.22.25.0

3.13.03.34.46.46.26.05.85.75.75.55.3

5.04.45.14.65.45.14.74.64.24.03.62.5

4.23.03.94.25.84.94.24.23.83.32.1-0.6

2.56.06.35.05.05.25.25.14.64.65.15.8

2.53.32.52.51.91.82.02.43.33.3--

-0.31.70.71.40.70.60.41.83.13.6--

5.45.14.54.23.53.13.37.17.96.3--



.

Inflation by Income Groups

The consumer price index is also

prepared for four separate income groups with

lowest (Rs.3000) and highest monthly income

(Rs.12000 and above). Inflation according to

income groups are reported in Table 8.5. It can be

seen from the table that the incidence of inflation

is lowest for lower income group (2.8%) but it is

highest (5.1%) for lower middle income group

(Rs.3001-5000). For income groups belonging to

Rs.5001 and above (i.e; upper middle and higher

income groups) the rate of inflation is estimated at

3.5 percent. The different rates of inflation reflect

different baskets of commodities consumed by

these income groups. Since most of the income of

the lowest income group people are spent on food

items, therefore, low food inflation saved people

in this group from regressive tax. People

belonging to Rs.3001-5000 income group faced

relatively higher inflation (5.1%). But for upper

middle and higher income groups, inflation was

about 3.5 percent, lowest in the last many years.

Table 8.5Inflation Rate by Income Groups

(% Change)Period Overall

CPIUpto

Rs.3000Upto

Rs.3001-5000Upto

Rs.5001-12000Above12000

1995-96 10.8 10.6 10.7 10.8 11.31996-97 11.8 11.7 11.9 11.8 11.61997-98 7.8 7.9 7.8 7.9 8.01998-99 5.7 5.6 5.6 5.9 6.21999-00 3.6 3.2 3.4 3.8 4.52000-01 4.4 4.5 4.3 4.5 4.72001-02(Jul-Apr)

2.6 2.8 5.1 3.5 3.6


Fig-2: Monthwise Inflation Rate (CPI)

-0.8

0.2

1.2

2.2

3.2

4.2

5.2

6.2

7.2

8.2

9.2

Jul-

98.

Aug.

Sep.

Oct

.N

ov.

Dec

.Ja

n.Fe

b.M

ar.

Apr.

May

.Ju

n.Ju

l-99

.Au

g.Se

p.O

ct.

Nov

.D

ec.

Jan.

Feb.

Mar

.Ap

r.M

ay.

Jun.

Jul-

00.

Aug.

Sep.

Oct

.N

ov.

Dec

.Ja

n.Fe

b.M

ar.

Apr.

May Jun

Jul-

01 Aug

Sep

Oct

Nov Dec Jan

Feb

Mar Apr

Food Non-Food Inflation(CPI)

...


Wholesale Price Index (WPI)

Wholesale Price Index during July-April2001-02 increased by 2.1 percent which is less thanhalf of the increase of 6.6 percent in thecomparable period of last year. The group wisebreak-up of the index indicates that the highestincrease (3.5.%) has been observed in the case offuel & lubricant followed by manufacturing(2.2%), and food group (1.8%). The raw materialand building material group each has recorded amarginal increase of 0.5%. The main reasons forthe increase in food prices have been the rise inthe prices of onion, tomato, gram pulse, freshfruit and vegetable ghee. The increase in fuel

group was due to the rise in the prices of POLproducts as a result of the increase in theirinternational prices. The higher increase in themanufacturing group prices was the result ofincrease in prices of cotton yarn, blended yarnand soap. The increase in raw material groupprices stemmed mainly from rise in prices ofcotton owing to –1.1 percent decline in itsproduction, during the year 2001-02, and increasein its support price from Rs.725 per 40 kg in 2000-01to Rs.780 per 40 kg in 2001-02 or by 7.6 percent.The overall increase in WPI during July-April2001-02 on an average basis, has beendecomposed into its five components andreported in Table 8.6.

Table 8.6Components of WPI

(%Change)July-April %age Point Contribution

(Jul-April)CommodityGroups Weight

2000-01 2001-02 2000-01 2001-02WPI 100.00 6.6 2.1 6.6 2.1Food 45.79 3.5 1.8 1.6 0.8Non-Food 54.21 9.4 2.3 5.1 1.3Raw Materials 8.76 8.5 0.5 0.7 0.1Fuel, Lighting &Lubricants

15.28 21.4 3.5 3.3 0.5

Manufacturers 25.53 1.1 2.2 0.3 0.6Building Materials 4.64 3.1 0.5 0.1 0.0


Fig-3: Inflation by Income Groups

0

2

4

6

8

10

12

14

95-96 96-97 97-98 98-99 99-00 00-01 01-02(J-A)

3000 3001-5000 5001-12000 above 12000

..


Sensitive Price Indicator (SPI)

Sensitive Price Indicator (SPI) is used to

monitor on weekly basis the behaviour of retail

prices of 51 essential consumer items with greater

weight in household budget of the low-income

group. The increase of 2.9 percent in SPI during

July-April, 2001-02 against 5.3 percent last year

was mainly due to the rise in the prices of onion

(157.4%), %), red chilies (24.0%), vegetable ghee

(18.5%), cooking oil (16.4%), wheat (4.5%),

washing soap (7.3%), gram pulse (6.7%) and rice

(7.3%). Prices of these items have been partly

affected by seasonality changes and partly by the

shortfall in production of some basic food items,

such as, rice (-19.2%), and chilies (-46.6%)

resulting from dry weather. The analysis of prices

of 51 essential consumer items covered by SPI (33

food and 18 non-food items) indicates that 16 food

items has recorded decline in the range of 0.3

percent in prices of beef to 26.1 percent in prices

of potatoes. While all the prices of 18 non-food

items with exception of only 3 i.e. course latha,

soap and electric charges have either declined or

remained static with largest decline of 11.8

percent in the price of kerosene to 4.8 percent in

price of petrol (super). The price trend of some of

the essential commodities during the first 10

months of the fiscal year are reported in Table 8.7.

Table 8.7Prices of Essential Commodities

Items Unit 5th July 2001(Rs.)

30th April 2002(Rs.)

Difference(Rs.)

% Change

WheatWheat FlourMasur PulseMoong PulseMash PulseGram PulseSugarMilk FreshVeg. GheeVeg. Ghee (Loose)Cooking OilTeaChicken (Farm)

KgKgKgKgKgKgKgLtr

2.5KgKg

2.5Ltr250Gm

Kg

7.528.97

39.3137.8448.5232.7426.7518.49148.0843.92152.6757.0052.38

7.869.5537.5832.4241.5734.9221.8018.05

175.4148.36

177.7157.0046.63

0.340.58-1.73-5.42-6.952.18-4.95-0.4427.334.44

25.040.00-5.75

4.526.47-4.40-14.32-14.326.66

-18.50-2.3818.4610.1116.400.00

-10.98Source : Federal Bureau of Statistics.

As shown in Table 7, out of 13 widely

consumed daily items the prices of 6 items have

declined in the range of 4.4 percent (Masur pulse)

to 18.5 percent (sugar). At the same time, the

prices of 6 items have increased in the range of 4.5

percent (wheat) to 18.5 percent (vegetable ghee). It

may be noted that out of four pulses, the prices of

three pulses (Masur, Moong, and Mash) have

declined because their production have increased

while the price of gram pulse has increased

despite an increase in its production by 2.3

percent.

Price Stabilization Measures

Price stabilization measures are important

when there are unusual variations in the prices.

Presently, the government in commensurate with

its policy of decontrol, deregulation and

liberalization, believes in tackling the inflationary


pressures through economic measures rather than

formal price control. However, close vigilance is

kept on unusual rise in prices through weekly

meetings of the Kitchen Items Committee, now

called the Sensitive Items Price Committee (SIPC)

and through the weekly meetings of the ECC of

the Cabinet. Other measures in the realm of

supply augmentation, reduction in import duty to

facilitate larger imports, improved marketing

practices, timely distribution, coordination with

private sector and persuading traders/

manufacturers to refrain from unfair practices are

undertaken to ensure price stability in the

country.

________________________

Chapter 9. Trade and Payments

9. Trade and PaymentsIntroduction

The outgoing fiscal year 2001-02 has beenthe most difficult and challenging year for theworld economy in general and Pakistan inparticular. Many epoch-making events unfoldedon the international scene which have impactedeconomies around the world, including Pakistan.The world economy was witnessing synchronizedslow down along with deceleration in tradegrowth and falling commodity prices since late2000. The tragic events of September 11 and theiraftermath further aggravated the alreadyemerging difficult situation on the globaleconomic scene. By the end of the year 2001 themajor growth poles of the world economy slippedinto recession, causing serious damage to theeconomies of the developing countries.International trade played a major role intransmitting the slow down in the advancedindustrial economies to developing countries.After growing by 11.5 percent in 2000, worldexports grew by 0.8 percent in 2001; developedcountries’ exports grew by 0.4 percent in 2001 asagainst 10.3 percent in 2000; and mostimportantly, developing countries’ exports grewby only 0.5 percent in 2001 as against almost 14percent growth a year earlier.

With world trade decelerating in 2001,many developing countries experienced sharpdeclines in their export growth. For example,Singapore saw its exports decline by 11 percent in2001, compared to 7 percent growth in 2000.Exports of Taiwan, Korea, Malaysia and Thailanddeclined in the range of 5 to 15 percent in 2001.Even export growth of China decelerated to 7percent in 2001 from 28 percent a year earlier.Recent data and information however showdistinct signs of improvement in the global

economy. The US economy seems to havebottomed out and appears to be recovering fasterthan earlier anticipated. A faster-than-expectedbut milder rebound is also evident in Europe. As aresult, the growth outlook for the next yearappears brighter. Exports are showing signs ofpicking up because of a steady improvement inworld economy.

Notwithstanding the recent “soft take off”the economic fallout from September 11 hascaused one of the most severe deceleration intrade growth in modern times. What has been theperformance of Pakistan’s external sector,including merchandise trade, in the midst ofsharp deceleration in world trade growth duringthe outgoing fiscal year? This is the subject matterof the present chapter.

Trends in Exports

Pakistan’s exports grew at an annualaverage rate of 6 percent in the 1990s. Exports,however, stagnated at around $ 8 billion or at 13.6percent of GDP during the second half of the1990s for a variety of reasons, prominent amongthose are: concentration of exports in fewcommodities and in few markets, concentration ofexports in low value added items, depressedinternational price of Pakistan’s major exportitems, misaligned exchange rate, and economicsanctions. After stagnating at around $ 8 billion,Pakistan’s exports crossed $ 9 billion mark in2000-01 and stood at $ 9202 million or 15.7 percentof GDP, thereby registering an increase of 7.4percent over last year [See table 9.1]. The netincrease of $ 633 million in exports during 2000-01was mainly attributed to higher exports of leather(33.0%), petroleum products (124.7%), leathermanufactures (25.6%), and chemicals &


pharmaceutical (56.9%). During this periodPakistan was also able to export raw cotton worth$ 139.3 million as against $ 72.5 million of theprevious year.

Table 9.1Trend in Exports

* Provisional Source: Federal Bureau of Statistics

Export Performance during 2001-02

Pakistan’s exports have been doublyaffected by the events of September 11 during theoutgoing fiscal year. The tragic events ofSeptember 11 accentuated the global economicslow down. The United States, the EuropeanUnion and Japan are the three major markets forPakistan’s exports. The pace of economic activityslowed considerably in these three markets inparticular which reduced demand for Pakistaniproducts in these markets. Slower demand inmajor markets also weakened prices of Pakistan’smajor export items.

Secondly, being the frontline state in waragainst terrorism, Pakistan witnessed its tradingactivities disrupted as a result of the events ofSeptember 11. Pakistan saw its export orderscancel, shipment of exports postpone, exportorders ‘halt’, particularly from the US andEurope, and clearing of export consignments atvarious ports delay, particularly in the US.Obtaining new orders became even more difficult.In addition to these factors, all cargo going intoand coming out from Pakistan were subject toadditional insurance cover. The London basedJoint War Committee of Underwriters imposed

war risk surcharge, freight charges were alsoraised and quite a few airlines stopped theirservices to Pakistan, resulting in an increase offreight charges and a sharp reduction in air cargocapacity. Furthermore, the depressedinternational commodity prices caused the unitprices of Pakistan’s major exports to decline in the

range of 1.0 percent (bedwear) to 26.9 percent(raw cotton) during July-April, 2001-02. All thesefactors have impacted Pakistan’s exportperformance in the first ten months of the currentfiscal year.

Exports were targeted at $ 10 billion in the

outgoing fiscal year – 8.7 percent higher than lastyear. Exports during July-April 2001-02 stood at $7323.9 million which were 1.8 percent lower than$ 7456.5 million recorded last year in the sameperiod. All the major categories of exports withthe exception of textile manufactures registereddecline. The major decline was observed in theexports of primary commodities (-19.5%) withmajor contribution in decline coming from rice(-18.0%) and raw cotton (-87.9%). The exports ofother manufactures were down by 0.9 percent,mainly due to decline in carpets (-15.5%), leather

manufactures (-9.6%) and chemicals &pharmaceutical products (-16.4%). Textilemanufactures have however maintained more orless their last year’s exports levels. The majorexport items that witnessed impressive increasewere: cotton cloth (10.1%), bedwear (24.5%),towels (10.8%), petroleum products (35.5%),footwear (23.1%), surgical goods (16.3%), electricfans (50.0%), and molasses (86.0%) [See table 9.2].

Year$

Mill-ion.

%Cha-nge

As %of

GDP

1990-911991-921992-931993-941994-951995-961996-971997-981998-9999-20002000-01Jul-Apr2000-012000-02*

6,1316,9046,8136,8038,1378,7078,3208,6287,7798,5699,202

7,4567,324

23.812.6-1.3-0.219.67.0-4.43.7-9.810.17.4

7.6-1.8

13.514.213.313.113.513.813.413.913.314.015.7

--


Table 9.2Structure of Exports

($ Million)

Particulars JULY-APRIL %

2001-02* 2000-01 ChangeA. Primary Commodities 653.0 811.1 -19.5

Rice 363.6 443.2 -18.0Raw Cotton 16.1 132.8 -87.9Fish & Fish Preparation 108.7 119.9 -9.3Fruits 70.4 65.4 7.6

B. Textile Manufactures 4675.7 4649.1 0.6Cotton Yarn 771.4 876.9 -12.0Cotton Cloth 913.1 829.7 10.1Knitwear 676.6 738.0 -8.3Bedwear 740.7 594.8 24.5Towels 213.2 192.4 10.8Readymade Garments 710.3 667.5 6.4

C. Other Manufactures 1483.9 1496.8 -0.9Carpets Rugs & Mats 191.0 226.1 -15.5Petroleum Crude 61.1 76.6 -20.2Petroleum Products 93.2 68.8 35.5Sports Goods 222.1 208.0 6.8Leather Manufactures 315.5 349.0 -9.6Footwear 41.5 33.7 23.1Surgical & Medical Instruments 113.7 97.8 16.3Chemicals & Pharmaceutical Products 113.8 136.1 -16.4Electric Fans 3.9 2.6 50.0Molasses 58.6 31.5 86.0

D. Others 511.3 499.5 2.4 Total 7323.9 7456.5 -1.8


Pakistan’s exports have expandedsubstantially in volume term despite overallmarginal decline in the value of exports duringJuly-April, 2001-02. Exports of Basmati rice inquantity term were up by 7 percent, fruits wereup by 11 percent, and oil seeds nuts were up by120 percent. Most importantly, in textile sector,exports of cotton cloth, bedwear, towels, andreadymade garments were up by 12 percent, 26percent, 17 percent and 23 percent, respectively inquantity terms. The quantity of these four items,on average, increased by over 19 percent and

these items in value terms, cover more than 55percent of total export earnings of textilemanufactures. Similarly in leather manufactures,exports of leather gloves and footwear were up by39 percent and 12 percent in quantity terms.Exports of petroleum products in quantity termswere up by 70 percent. Pakistan’s exports inquantity terms have shown significant increase ina difficult external environment. With firming ofprices in international market as a result ofrecovery in global economy, Pakistan’s exportsare likely to increase substantially next year.


Month-Wise Exports

The month-wise export analysis revealsinteresting developments during the outgoingfiscal year. During the first four months (July-October) of the fiscal year exports grew by 1.9percent over the corresponding months of lastyear, despite synchronized slowdown in themajor trading partners of Pakistan. The economicfallout of September 11 was observed during thenext four months (November-February) of thefiscal year when exports registered a decline of 7.6percent as against the comparable months of lastfiscal year. Exports during these months alsodeclined by 7.8 percent as against the first fourmonths (July-October) of the fiscal year. Withglobal economy showing signs of improvement,Pakistan’s exports also started picking up duringMarch-April, 2002. Exports during these twomonths have grown by 3.0 percent as against thecorresponding months of last fiscal year [See table9.3 and fig-1]. Pakistan’s exports seem to havebottomed out and appear to be picking up fasterthan expected.

Table 9.3Month-Wise Exports

($ Million)

Month 2001-02 2000-01 %Change

JulAugSepOctNovDecJanFebMar

683.9780.5800.2760.0711.1722.3699.6654.9725.8

668.8789.2766.7744.9753.9750.3759.9754.7732.5

2.3-1.1 4.4 2.0-5.7-3.7-7.9-13.2-0.9

Apr * 785.8 735.6 6.8

Jul-OctNov-FebMar-Apr

3024.62787.91511.6

2969.63018.81468.1

1.9-7.6 3.0


Concentration of Exports

Pakistan's exports are highly concentrated

in few items/groups namely, cotton, leather, rice,

synthetic textiles and sports goods. These five

categories of exports, on average, accounted for

about 83 percent of total exports in the 1990s.

Among these categories, cotton group alone

contributed, on average, 60.3 percent, followed by

leather (7.9%), synthetic textiles (6.5%), and rice

(5.7%). These four items together accounted for

80.4 percent of total export earnings. The degree

of concentration of these items/groups during

2000-01 remained close to the last year’s level

except that of leather whose share increased by 1.2

percentage point due to larger exports of its

quantity. Furthermore, almost all the export

earnings of cotton group have originated from

textile and clothing. Such a high degree of

concentration of exports in few items is a major

source of instability in export earnings. A poor

cotton crop can seriously affect total export

proceeds, as it has been observed several times

during the 1990s. The annual percentage shares of

major export commodities are given in table 9.4.

Table 9.4Pakistan's Major Exports

(Percentage Share)

-8

-6

-4

-2

0

2

4

Jul-Oct Nov-Feb Mar-Apr

Fig-1: Export Growth (%) Jul-Apr,01-02

% Change


Commo-dity 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00

Aver-age of1990s

00-01

Cotton 61.0 61.3 59.8 57.9 58.7 64.1 61.3 58.7 59.1 61.0 60.3 58.9

Leather 9.1 8.6 9.3 9.2 8.0 7.2 7.7 6.7 6.9 6.3 7.9 7.5

Rice 5.6 6.0 4.7 3.6 5.6 5.8 5.6 6.5 6.9 6.3 5.7 5.7

SyntheticTextiles 5.7 6.1 7.4 9.5 7.1 5.2 6.1 7.2 5.1 5.3 6.5 5.9SportsGoods 2.2 2.0 1.9 2.9 3.2 2.8 3.7 4.4 3.3 3.3 3.0 2.9Sub-Total 83.6 84.0 83.1 83.1 82.6 85.1 84.4 83.5 81.3 82.2 83.4 80.9

Others 16.4 16.0 16.9 16.9 17.4 14.9 15.6 16.5 18.7 17.8 16.6 19.1

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Pakistan's Foreign Trade Key Indicators, Ministry of Commerce.

Composition of Exports

The composition of Pakistan’s exports has

changed significantly over the decade of the

1990s. The principal changes have been the steep

fall in the shares of primary & semi-manufactured

exports and equally sharp increase in the share of

manufactured exports. During the 1990s, the

share of primary & semi-manufactured exports

declined from 19 to 12 percent and from 24 to 15

percent, respectively. On the other hand, the share

of manufactured exports has increased from 57

percent in 1990-91 to 73 percent in 1999-2000. The

share of primary commodities, semi-

manufactures and manufactured goods in the

year 2000-01 remained close to the last year’s level

at 13 percent, 15 percent and 72 percent,

respectively. However, during July-March of the

current fiscal year, the share of primary

commodities was down from 13 percent to 11

percent, semi-manufactures slipped by one

percentage point and settled at 14 percent and the

share of manufactured goods moved upward

from 72 percent to 75 percent [See table 9.5].

Table 9.5Composition of Exports

( Rs. Million)* Provisional Source: Federal Bureau of Statistics

If semi-manufactures and manufactured goods are taken together, 89 percent of export

Primary Commodities Semi-Manufactures Manufactured GoodsYear Total

Exports Value % Share Value % Share Value % Share1990-91 138,282 25,820 19 33,799 24 78,663 571991-92 171,728 32,645 19 36,731 21 102,352 601992-93 177,028 26,133 15 36,507 21 114,388 641993-94 205,499 21,321 10 48,748 24 135,430 661994-95 251,173 28,113 11 62,624 25 160,436 641995-96 294,741 47,852 16 63,802 22 183,087 621996-97 325,313 36,452 11 66,889 21 221,972 681997-98 373,160 47,357 13 64,683 17 261,120 701998-99 390,342 45,143 12 70,288 18 274,911 7099-2000 443,678 53,833 12 68,208 15 321,637 732000-01 539,070 67,783 13 81,288 15 389,999 72July-March2000-01 384,755 51,548 13 56,684 15 276,523 722001-02 * 404,836 44,279 11 58,702 14 301,855 75


earnings during July-March, 2001-02 originated

from manufactured exports and only 11 percent

from primary commodities. The changing

composition of exports suggests that Pakistan is

no longer a country that relies heavily on the

primary commodities exports for foreign

exchange earnings. However, Pakistan still relies

heavily on the labour intensive and low value

added exports.

Direction of Exports

Pakistan is trading with large number of

countries but its exports are highly concentrated

in few countries. Slightly above one-half of

Pakistan's exports during the 1990s went to seven

countries namely, USA, Germany, Japan, UK,

Hong Kong, Dubai and Saudi Arabia. Among

these countries, the share of Pakistan's exports to

USA has been rising persistently while that of

Japan exhibited a continuous decline, mainly on

account of a protracted recession in the Japanese

economy. The share of exports to Germany, UK,

Hong Kong, Dubai and Saudi Arabia remained

almost stagnant with some fluctuations over the

last 10 years. By and large, the same trend even

continued during 2000-01 [See table 9.6].

Table 9.6Major Export Markets of Pakistan

(% Share)

Country 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01

USA 10.8 12.8 13.9 14.4 16.2 15.5 17.7 20.5 21.8 24.8 24.4

Germany 8.9 7.1 7.8 8.0 7.0 6.8 7.5 6.3 6.6 6.0 5.3

Japan 8.3 8.3 6.8 8.0 6.7 6.6 5.7 4.2 3.5 3.1 2.1

UK 7.3 6.6 7.1 7.8 7.1 6.4 7.2 6.9 6.6 6.8 6.3

Hong Kong 6.0 7.3 6.6 7.3 6.6 9.1 9.4 7.1 7.1 6.1 5.5

Dubai 2.8 4.4 5.9 6.3 4.0 4.7 4.6 5.0 5.4 5.7 5.3

Saudi Arabia 3.6 4.3 4.7 3.5 2.7 2.4 2.6 2.5 2.4 2.5 2.9Sub-Total 47.7 50.8 52.8 55.3 50.3 51.5 54.7 52.5 53.4 55.0 51.8Other Countries 52.3 49.2 47.2 44.7 49.7 48.5 45.3 47.5 46.6 45.0 48.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Pakistan's Foreign Trade Key Indicators, Ministry of Commerce

Trends in Imports

Imports during the 1990s, on average,

witnessed a moderate growth of 4.8 percent per

annum. This was the outcome of demand

management policies which were pursued to

protect the country’s foreign exchange reserves,

especially in the later half of the decade. Imports

during 2000-01 grew by 4.1 percent, rising from $

10,309 million to $ 10,729 million mainly on

account of additional increase in import bill of

crude and petroleum products worth $ 556

million. If petroleum group is excluded, imports

were down by 1.8 percent. Furthermore, non-oil

and non-food imports remained almost flat in

2000-01. The trends in imports are shown in table

9.7.


Table 9.7Trend in Imports

Year $ Million % Change

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

99-2000

2000-01

July-April

2000-01

2001-02 *

7,619

9,252

9,941

8,564

10,394

11,805

11,894

10,118

9,432

10,309

10,729

8,859

8,245

9.9

21.4

7.4

-13.8

21.4

13.6

0.7

-14.9

-6.8

9.3

4.1

6.2

-6.9

* Provisional Source: Federal Bureau of Statistics.

Import Performance during 2001-02

Imports were targeted at $ 11.0 billion in

the current fiscal year – 2.5 percent higher than

last year. The events of September 11 have also

disrupted the shipping and cargo services, raised

marine freight rates, and witnessed imposition of

war risk surcharges. These factors along with the

decline in the price of petroleum and petroleum

products in international market on the one hand

and almost no imports of sugar and soyabean oil

have led to a decline in imports during July-April,

2001-02 by 6.9 percent to $ 8245.2 million as

against $ 8859.3 million of the comparable period

last year. [See Table-9.8]. Major decline in imports

during July-April, 2001-02 have been observed in

food and petroleum groups. Imports of food

group declined by 21.8 percent with major

contribution in decline coming from sugar and

soyabean oil, whose import bills are lower by 89.8

percent and 73.9 percent, respectively. Imports of

sugar declined because domestic production was

more than sufficient to meet domestic demand.

Imports of soyabean oil declined because Pakistan

received soyabean oil through PL-480

programme. Imports of petroleum group declined

by 20.0 percent. This decline was mainly caused

by 16.8 percent decline in the prices of its

products and 15.1 percent fall in crude petroleum.

Consequently, the share of POL in total imports

has declined from 31.4 percent to 27.0 percent in

the same period last year. Although the imports of

machinery have registered a decline of 2.7

percent, imports of textile machinery and

construction & mining machinery have increased

by 11.8 percent and 61.6 percent, respectively.

Imports of textile and metal groups have

increased by 13.3 percent and 26.3 percent,

respectively. Although the overall imports have

declined by 6.9 percent, the non-food and non-oil

imports have registered an increase of 2.5 percent

during the first ten months of the current fiscal

year

Month-Wise Imports

Like exports, the month-wise analysis of

imports also reveals interesting development

during the outgoing fiscal year. During the first

four months (July-October) of the fiscal year,

imports declined by 9.9 percent as against the

corresponding months of last year, mainly on

account of a decline in POL imports by 20 percent

and food imports by 22 percent. The decline in

POL imports was due to an almost 16 percent

decline in its price in international market as well

as some import substitution taking place in

petroleum products. The decline in the imports of

food group was mainly on account of substantial

decline (90%) in the import of sugar as the

country’s sugar production was more than

sufficient to meet domestic demand. During the

next four months (November-February) of the

fiscal year imports continued to observe a

declining trend and registered a negative growth

of 10.2 percent as against the corresponding


months of last year. Beside decline in imports of

POL products and sugar, the events of September

11 also caused disruption in trading activities,

resulting in higher declines in imports. During the

next two months (March-April) of the fiscal year

imports have picked up. Imports grew by 6.5

percent as against the same period of last year

[See table 9.9 and fig-2]. The pickup in imports

was on account of higher imports of textile and

metal groups as well as increase in petroleum

group as a result of higher international price of

crude and petroleum products.

Table 9.8Structure of Imports

($ Million)

Particulars JULY-APRIL %

2001-2002* 2000-2001 ChangeA. Food Group 668.2 855.0 -21.8

Wheat Unmilled 43.7 14.8 195.3Soyabean Oil 9.9 37.9 -73.9Palm Oil 293.7 238.8 23.0Sugar 23.0 225.7 -89.8Pulses 107.9 93.3 15.6

B. Machinery Group 1645.3 1690.4 -2.7Power Generating Machinery 148.2 169.8 -12.7Textile Machinery 335.1 299.7 11.8Const. & Mining Machinery 90.8 56.2 61.6Electric Mach. & App. 100.5 109.0 -7.8Agricultural Machinery 12.1 18.4 -34.2

C. Petroleum Group 2222.6 2779.7 -20.0Petroleum Products 1219.0 1635.6 -25.5Petroleum Crude 1003.7 1144.1 -12.3

D. Textile Group 154.7 136.6 13.3Synthetic Fiber 60.5 66.5 -9.0

E. Agri/Other Chemicals Group 1491.6 1563.3 -4.6Fertilizer 156.7 169.9 -7.8

F. Metal Group 363.5 287.7 26.3Iron & Steel 282.4 224.8 25.6

G. Miscellaneous Group 230.7 213.1 8.3H. Others 1468.6 1333.5 10.1

Total 8245.2 8859.3 -6.9

Excluding Petroleum Group 6022.6 6079.6 -0.9

Excluding Petroleum & Food Groups 5354.4 5224.6 2.5


Table 9.9Month-Wise Imports


($ Million)

Month 2001-02 2000-01 % Change

July

August

September

October

November

December

January

February

March

April *

791.6

938.0

774.5

838.3

825.3

707.7

854.8

738.1

886.6

890.3

801.3

979.5

949.6

980.0

930.3

754.7

972.8

823.5

848.7

818.9

-1.2

-4.2

-18.4

-14.5

-11.3

-6.2

-12.1

-10.4

4.5

8.7

July-October

November-February

March-April

3342.4

3125.9

1776.9

3710.4

3481.3

1667.6

-9.9

-10.2

6.5


Concentration of Imports

Pakistan's imports are highly

concentrated in few items namely, machinery,

petroleum & petroleum products, chemicals,

transport equipments, edible oil, iron & steel,

fertilizer and tea. These eight categories of

imports, on average, accounted for about 75

percent of total imports in the 1990s. Among these

categories, machinery, petroleum & petroleum

products and chemicals accounted for almost 54

percent of total imports. Considerable structural

changes have taken place in some categories of

imports over the years. The share of machinery

has declined on account of sliding investment, but

during 2000-01 its share has increased due to

higher imports of power generating machinery,

office and textile machinery. The share of

chemicals depicted a gradual rising trend – rising

from 12.8 percent to 20 percent, while that of

petroleum and petroleum products picked up

from 22.2 percent (1990-91) to 31.3 percent in

2000-01 – mainly on account of rising domestic

demand and higher international prices of POL

products. However, as a result of substantial fall

in the prices of POL during July-April, 2001-02, its

share is likely to decline to around 27 percent [See

table 9.10].

-11

-6

-1

4

9

Jul-Oct Nov-Feb Mar-Apr

Fig-2: Import Growth (%) Jul-Apr, 01-02

% Change


Table 9.10Pakistan's Major Imports

(Percentage Share)

Commodities 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00Ave-rage

00-01

Machinery * 20.5 27.0 24.3 22.0 22.8 21.6 23.1 18.9 17.9 13.9 21.2 19.3

Petroleum &

Products 22.2 15.0 15.5 16.1 15.3 16.8 19.0 15.5 15.5 27.2 17.8 31.3

Chemicals @ 12.8 13.1 12.5 14.4 14.0 15.6 13.4 15.7 16.6 17.5 14.6 20.0

Transport

Equipments 6.7 9.0 12.5 9.7 5.9 4.7 4.7 4.8 5.7 5.5 6.9 4.0

Edible Oil 5.3 4.4 5.9 5.7 9.6 7.3 5.1 7.6 8.7 4.0 6.4 3.1

Iron & Steel 3.3 3.5 3.2 3.8 3.6 4.1 3.9 3.2 3.1 3.0 3.5 2.6

Fertilizer 3.5 2.8 2.5 3.1 1.2 2.9 3.2 2.1 2.8 1.9 2.6 1.6

Tea 2.2 1.9 2.1 2.2 1.8 1.4 1.1 2.2 2.4 2.0 1.9 1.9

Sub-Total 76.5 76.7 78.5 77.0 74.2 74.4 73.5 70.0 72.7 75.0 74.9 83.8

Others 23.5 23.3 21.5 23.0 25.8 25.6 26.5 30.0 27.3 25.0 25.1 16.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

* excluding transport equipments Source: Pakistan's Foreign Trade Key Indicators,

@ Excluding fertilizer Ministry of Commerce

Composition of Imports

The composition of Pakistan’s imports

has not witnessed any appreciable change over

the years. The share of raw material for consumer

goods in the total imports continued to be higher

throughout the 1990s — rising from 38 percent

(1991-92) to 55 percent in 2000-01. On the other

hand, the share of raw material for capital goods

was minimum and stagnated at around 6 percent.

The share of capital goods exhibited a declining

trend and came down to 25 percent in 2000-01

from 42 percent in 1991-92 — mainly because of

slow down of investment in the country. The

share of consumer goods averaged at 15 percent

and fluctuated between 13 – 18 percent.

During the current fiscal year (July-

March, 2001-02), the share of raw material for

consumer goods remained flat at 55 percent, while

the share of consumer goods declined from 15

percent to 12 percent. The share of capital goods

together with raw material for capital goods

increased by 2 and 1 percentage points

respectively during this period. The details are

given in table 9.11.


Table 9.11Composition of Imports

(Rs. Million)

Raw Material ForCapital Goods

Capital Goods Consumer GoodsConsumer

GoodsYearTotal

ImportsValue %Share Value %Share Value %Share Value %Share

1990-91 171,114 56,303 33 11,621 7 76,290 44 26,900 161991-92 229,889 96,453 42 15,167 7 88,791 38 29,478 131992-93 258,643 108,993 42 14,304 6 99,290 38 36,056 141993-94 258,250 97,301 38 15,692 6 110,291 43 34,966 131994-95 320,892 112,305 35 16,754 5 148,419 46 43,414 141995-96 397,575 140,405 35 22,541 6 180,539 45 54,090 141996-97 465,001 169,774 37 22,259 5 202,379 43 70,589 151997-98 436,338 139,618 32 23,344 5 195,528 45 77,848 181998-99 465,964 146,450 31 25,646 6 220,563 47 73,305 1699-2000 533,792 140,045 26 30,712 6 287,801 54 75,234 142000-01 627,000 157,091 25 34,371 6 345,770 55 89,768 14Jul-Mar2000-01 459,942 114,237 25 24,106 5 254,103 55 67,496 152001-02 * 455,177 123,424 27 28,779 6 249,376 55 53,598 12* Provisional Source: Federal Bureau of Statistics

Direction of Imports

Pakistan is trading with large number of

countries but its imports are coming from few

countries. Almost one-half of Pakistan’s imports

during the 1990s originated from seven countries

namely, USA, Japan, Kuwait, Saudi Arabia,

Germany, UK and Malaysia. By and large, the

relative shares of imports originating from these

countries have remained almost the same. The

shares of USA, Japan and Germany exhibited

declining trends because of the declining share of

capital goods in total imports. On the other hand,

the shares of Pakistan’s imports from Kuwait and

Saudi Arabia depicted a rising trend because of

the growing share of POL products in total import

bills. Import share of Malaysia exhibited rising as

well as falling trends in the 1990s, mainly on

account of fluctuation in palm oil prices [See table

9.12].

Table 9.12Major Sources of Imports

(% Share)Country 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01

U.S.A. 11.8 10.5 9.4 10.6 9.4 8.9 12.0 11.2 7.7 6.3 5.3Japan 13.0 14.3 15.9 11.8 9.6 10.7 8.6 7.8 8.3 6.3 5.3Kuwait 0.7 0.9 3.3 5.3 5.8 6.4 6.9 5.6 5.9 12.0 8.9Saudi Arabia 6.2 5.2 5.4 5.4 4.9 5.9 6.0 6.1 6.8 9.0 11.7Germany 7.3 8.0 7.4 7.7 6.8 5.8 5.6 5.2 4.1 4.1 3.5U.K. 4.9 5.5 5.2 4.9 5.1 4.4 5.0 4.1 4.3 3.4 3.2Malaysia 4.0 4.2 5.1 5.5 8.8 7.2 4.7 7.1 6.7 4.3 3.9Sub-Total 47.9 48.6 51.7 51.2 50.4 49.3 48.8 47.1 43.8 45.4 41.8OtherCountries 52.1 51.4 48.3 48.8 49.6 50.7 51.2 52.9 56.2 54.6 58.2Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Pakistan's Foreign Trade Key Indicators, Ministry of Commerce


Trade Deficit

The trade balance on custom basis hasfluctuated widely in the 1990s and remained indeficit throughout the decade. The trade deficitincreased from $ 1488 million or 3.3 percent ofGDP in 1990-91 to $ 3574 million or 5.7 percent ofGDP in 1996-97 — the highest in the 1990s,mainly due to sharp decline in exports. However,it narrowed by more than one-half to $ 1490

million or 2.4 percent of GDP during 1997-98 onaccount of sharp decline in imports. Trade deficitstood at $ 1527 million or 2.6 percent of GDP in2000-01 on account of higher POL imports. Tradedeficit during the current fiscal year (July-April,2001-02) has improved by 34.3 percent to $ 921million as against $ 1403 million of thecomparable period last year due to a relativelylarger decline in imports (-6.9%) than exports (-1.8%). The trend is documented in fig-3.

Terms of Trade

The terms of trade with base year 1990-91

(equal to 100) has indicated a divergent trend in

the 1990s. It was as low as 90.9 in 1991-92 but

improved substantially by 35.9 percent in 1997-98

when it stood at 123.5. Thereafter, it continued to

decline and dipped below the base level at 91.0 in

the fiscal year 2000-01, mainly because of the

sharp increase in unit prices of petroleum

products & crude in the international market. The

terms of trade during July-March, 2001-02 has

improved by 1.5 percent and stood at 91.8 over

the level of 90.4 recorded in the comparable

period of last year. The export and import unit

value indices during this period reflected a rise of

1.9 percent and 0.4 percent respectively [See table

9.13]. The trend depicted by the terms of trade

since 1991-92 is also shown in fig-4.

Fig-3: Trends in Trade Deficit

2348

3128

1761

2257

3098

3574

1490 16

53

1740

1527

1403

921

1488

2.62.82.82.4

5.7

4.9

3.73.4

6.1

4.8

3.3

0

500

1000

1500

2000

2500

3000

3500

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

00-0

1 (J

ul-

Apr

)

01-0

2 (J

ul-

Apr

)

US

$ M

illio

n

0

1

2

3

4

5

6

7

8

As

% o

f GD

P

Trade Deficit As % of GDP

Fig-4: Terms of Trade (base year 90-91=100)

80

90

100

110

120

130

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

99-2

000

2000

-01

2000

-01

(Jul

-Mar

)

2001

-02

(Jul

-Mar

)


Table 9.13Unit Value Indices and Terms of Trade

(Base year 1990-91 = 100)

Unit Value IndicesYear

Exports ImportsTerms of Trade

1991-92 119.9 131.9 90.9

1992-93 123.5 133.5 92.5

1993-94 142.9 141.2 101.2

1994-95 168.6 164.2 102.7

1995-96 185.4 185.5 99.9

1996-97 204.8 201.7 101.6

1997-98 245.6 198.9 123.5

1998-99 258.4 223.3 115.7

99-2000 253.8 259.0 98.0

2000-01 271.5 298.4 91.0

July-March

2000-01 267.6 295.9 90.4

2001-02 * 272.7 297.0 91.8

* Provisional. Source: Federal Bureau of Statistics

Trade Policy

The trade policy announced for the fiscal year 2001-02 endeavours to continue previousyear’s objective of greater value addition for sustainable and consistent growth in export earnings.The focus has been placed on attaining higher degree of product and market diversification bystrengthening institutional support mechanism – thereby reducing anti-export bias and improveexport culture in the country. The policy is guided by the demand led strategy to get higher worldmarket share for traditional and non-traditional export items. The policy ultimately strives toupgrade productive capacity of the country and facilitates the new/emerging small and mediumsize exporters. The salient features of the trade policy are summarized below:

• Export of wheat and its milling products have been totally deregulated.

• Export of all commodities produced or manufactured in Pakistan, excluding thosemanufactured in manufacturing bonds, shall be allowed via land route to Afghanistanagainst payment in Pak-rupee. Likewise export of all items and commodities, produced ormanufactured in Pakistan shall be allowed to Afghanistan and through Afghanistan to theCentral Asian Republics against irrevocable letters of credit or advance payment inconvertible foreign currency.


• To encourage export of leather and leather manufactures, the 15 percent duty on finishedleather was withdrawn.

• Value addition norms on export of gold jewellery have been reduced to 5 percent on goldbangles and chains, 10 percent on other plain jewellery and 15 percent on studded orembedded jewellery. Furthermore, the display or sale of gold jewellery has also beenallowed in international fairs and exhibitions.

• Export of packeted rice up to 50 Kg has been allowed to avail the facility of exportrefinance.

• Export of petroleum & petroleum products have been fully de-regulated except for exportof high speed diesel oil and furnace oil, which can be exported by public sector agenciesonly while all other petroleum & petroleum products can be exported freely.

• Government has allowed remittance of tobacco export proceeds within 180 days instead ofstandard requirement of 120 days.

• Government has earmarked terminal-II at Karachi airport for one window operation toencourage exports of perishable items such as fruits and vegetables.

• The scope of re-export to other countries against bank guarantee has been enlarged byincluding Heing, Mulathi and Medicinal Herbs imports from Afghanistan.

• Import of second-hand or used surgical equipments like dialysis machines, reverse osmosisequipment and other electro-medical equipment not more than five years old wereallowed.

• Condition of continuous stay abroad of last six months for importing vehicle by overseasPakistanis under transfer of residence scheme has been relaxed by allowing 30 days breakin Pakistan.

• Import of ‘netting cloth’ as foundation garments was allowed.

• To promote photographic activities and to generate more employment in this sector,import of second hand mini laboratory equipment for automatically developing film andpaper not manufactured locally, has been allowed.

• For import of goods from Kenya, a fee at the rate of one percent of the invoice value ofgoods was reduced to 0.5 percent.

• Any goods imported and bonded for re-export as ship stores to a country outside Pakistanhave been exempted from the requirement of furnishing an indemnity bond or a bankguarantee.

• Import of wheat has also been allowed to the private sector.

• Mobile phones have been made importable by recognized manufacturers and their


authorized agents, apart from the companies having agreement with the government.

• The condition of registration in the name of the importer to import vehicles under transferof residence scheme has been reduced from two years to one year. A motor cycle orscooter has been allowed to be imported upon transfer of residence provided that thereshall be no entitlement to import a vehicle.

Balance of Payments

Over the years, the balance of payments

position remained under pressure. In the 1990s,

Pakistan maintained a relatively large current

account deficit which averaged at 4.5 percent of

GDP or $ 2557 million per annum – mainly

because of persistent deficits prevailing in the

trade and services account. Nevertheless, during

the last two fiscal years (1999-2000 and 2000-01),

the current account deficit (excluding official

transfers) has been reduced to an average of 1.4

percent of GDP or $ 826 million – due to

significant improvement in trade account. The

trade deficit (f.o.b) narrowed by 11.8 percent

which was attributed to better performance of

exports. Buoyancy was observed to the extent of $

804 million or 26.2 percent in the inflow under

private unrequited transfers which was largely

attributed to 10.5 percent increase in workers

remittances. Consequently, the current account

deficit reduced sharply (55.5%) to $ 509 million or

0.9 percent of GDP from the level of $ 1143 million

or 1.9 percent of GDP in 1999-2000. The deficit in

services account, however, widened by 12.0

percent on account of higher payments of $ 292

million. The year ended with a sound built up of $

1014 million in foreign exchange reserves.

The overall balance of payments position

during the outgoing fiscal year (2001-02)

witnessed a significant improvement despite the

adverse external environment caused by the

events of September 11. The favourable

turnaround was attributed to a number of factors

which include; lifting of economic sanctions by

the international community, debt relief through

debt rescheduling, increased inflow of

institutional assistance and quota concessions

extended by the European Union. Under the

combined impact of these developments, the

major components of balance of payments posted

significant improvement. The current account

balance (excluding official transfers) during July-

March, 2001-02 emerged with a sizable surplus of

$ 913 million or 1.5 percent of projected GDP, as

against a deficit of $ 746 million recorded in the

same period last year. However, including official

transfers, the current account balance recorded a

surplus of $ 2095 million or 3.4 percent of

projected GDP*. The positive upturn in current

account balance stemmed from a combination of

factors, including significant improvement in

trade balance, sharp increase in the inflow of

workers remittances, and substantial increase in

official transfers.

The trade deficit (f.o.b) during this period

fell steeply by 75.7 percent to $ 286 million over

the level of $ 1177 million of last year – primarily

on account of 10.9 percent fall in imports, caused

by the sharp decline in international prices of POL

as well as $ 231 million savings from sugar and

soyabean oil imports. The deficit in services

account narrowed by 26.7 percent and aggregated

at $ 1810 million as against $ 2469 million in the

same period last year. The inflow under private

transfers rose by 3.8 percent to $ 3009 million,

largely resulting from sharp increase in workers

remittance. The long term capital net improved

markedly and turned surplus at $ 526 million

from the deficit of $ 246 million of last year. After


making all the adjustments, the outgoing fiscal

year (July-March) ended with a strong built up of

$ 1780 million in foreign exchange reserves [See

table 9.14].

_________________________________________________________________________*: The current account balance (both including and excluding official transfers) numbers are not comparable with theone presented by the IMF because of different treatment accorded to outright purchases from the Kerb market.

Table 9.14Balance of Payments

($ Million)July-MarchComponents 1999-2000 2000-01

2000-01 2001-02 (P)Trade balance -1412 -1246 -1177 -286 Exports (fob) 8190 8925 6582 6628 Imports(fob) -9602 -10171 -7759 -6914Services (net) -2794 -3130 -2469 -1810Private transfers (net) 3063 3867 2900 3009 Workers remittances 983 1087 855 1629Current account balance Excluding official transfers -1143 -509 -746 913 Including official transfers -217 331 -82 2095Long term capital (net) 525 55 -246 526Changes in reserves (- = Increase) -71 -1014 -82 -1780

P: Provisional Source: State Bank of Pakistan.

Workers Remittances

Workers remittances in the 1990s depicteda declining trend with the exception of few years.The inflow has gradually been reduced to almostone half in the decade – declining from $ 1848million in 1990-91 to $ 983 million in 1999-2000[See fig-5]. The main factors responsible for thedecline in the inflows of remittances appear to bethe declining pace of construction activity in theoil rich countries, the changing composition of

labour demand – from unskilled/semi skilled toskilled and while collar workforce, decline inwages of unskilled/semi skilled labour, andhigher rate of premium that prevailed in the openmarket exchange rate. In recent years, particularlyafter the freezing of foreign currency accounts inMay 1998, the large gap between the inter-bankand open market exchange rate discouraged ex-patriate Pakistanis to send their remittancesthrough the official banking channels.


Workers remittances were targeted at $

1.3 billion in the current fiscal year 2001-02 – 19.6

percent higher than last year. During the first ten

months (July-April) of the current fiscal year,

remittances amounted to $ 1865.4 million as

against $ 922.0 million in the same period last year

– thus registering an increase of 102.3 percent. The

target for current fiscal year has already been

achieved. If this trend continues, there is

possibility that remittances may cross $ 2.2 billion

by the end of the current fiscal year. Further

analysis reveals that during the first quarter (July-

September), remittances on average were up by

14.7 percent per month. Thereafter, inflows

jumped sharply and during the next six months

(October-March), remittances averaged at $ 213

million per month, as against $ 76 million in the

same period last year. Further acceleration was

witnessed in the month of April, 2002 when

remittances climbed to $ 238.8 million, against $

67.4 million of the same month last year and

registered all time record increase of 254.3 percent

[See table 9.15].

Table 9.15Workers Remittances

($ Million)

July-April

Months 2001-02 2000-01 % Increase

July 84.7 76.3 11.0

August 88.2 78.2 12.8

September 91.2 75.9 20.2

October 185.5 80.9 129.3

November 259.9 73.4 254.1

December 189.6 73.7 157.3

January 180.6 80.5 124.3

1848

1467 15

62

1446

1866

1461

1409 14

90

1060

983 10

87

922

1865

0

500

1000

1500

2000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

00-0

1 (J

ul-

Apr

)

01-0

2 (J

ul-

Apr

)

Fig-5: Workers Remittances ($ Million)


February 236.3 78.2 202.2

March 227.2 66.5 241.7

April 238.8 67.4 254.3

July-April 1781.9 750.9 137.3

Total remittances includingHajj and War compensation(July-April) 1865.4 922.0 102.3


In the month of August 2001, cash

remittances from USA stood at $ 16.1 million,

while from Saudi Arabia and U.A.E. cash

remittances were $ 24.2 million and $ 23.4 million

respectively. However, after September 11 events,

USA has emerged as the largest source of cash

remittances. In April, 2002, remittances from USA

mounted to $ 90.8 million followed by Saudi

Arabia ($ 42.6 million) and U.A.E. ($ 27.2 million)

[See table 9.16].

Table 9.16Workers Cash Remittances

($ Million)

Month Kuwait Saudi Arabia U.A.E Dubai U.K U.S.A

January, 2001 25.0 * 21.5 11.6 5.9 7.6 11.4

February 3.7 22.7 10.5 6.2 7.6 11.9

March 3.1 18.9 9.5 6.5 6.6 9.3

April 3.2 24.2 9.0 5.7 4.3 10.2

May 3.2 24.8 10.7 6.3 6.8 12.8

June 3.4 24.5 13.0 9.7 7.1 16.6

July 3.2 23.8 11.4 7.2 6.4 16.7

August 4.4 24.2 23.4 10.7 6.9 16.1

Total 49.2 184.6 99.1 58.2 53.3 105.0

Average 6.1 23.1 12.4 7.3 6.7 13.1

September 4.9 37.3 62.4 30.2 9.4 17.4

October 5.2 29.4 38.7 30.4 12.8 57.4

November 8.7 29.2 57.8 37.8 13.6 97.2

December 8.2 26.1 28.2 20.0 12.1 69.2

January, 2002 7.4 28.6 30.1 22.2 14.1 58.5

February 9.0 27.4 40.1 32.3 13.2 81.9

March 9.4 33.0 56.0 47.9 15.1 69.5

April 9.9 42.6 27.2 17.1 18.1 90.8

Total 62.7 253.6 340.5 237.9 108.4 541.9

Average 7.8 31.7 42.6 29.7 13.5 67.7


* Includes Iraq – Kuwait war affectees $ 20.2 million Source: State Bank of Pakistan.

Many factors contributed to the sharp

acceleration in the inflow of remittances which

include: improvements in economic

fundamentals, confidence of expatriate Pakistanis

on the economic management of the country,

crackdown on hundi/hawala system in the

Middle East and other parts of the world, virtual

elimination of premium between the inter-bank

and open market exchange rates. Pakistani banks

in foreign countries also pursued aggressive

policy and motivated people to send their

remittances through banking channel.

Foreign Exchange Reserves

The foreign exchange reserves held by the

State Bank of Pakistan have widely fluctuated in

the 1990s. The reserves picked from low level of $

529 million on end June, 1990 to a maximum of $

2737 million by end June, 1995 – mainly on

account of one time sale of Pakistan

Telecommunication Vouchers amounting to $ 862

million. Thereafter it gradually declined and

stood at $ 930 million by end June, 1998. But as a

result of macro-economic stability attained

through effective management, the dwindling

reserves position improved and by end June,

2001, reserves totaled at $ 2076 million. The

foreign exchange reserves held by the State Bank

of Pakistan continued to rise during the current

fiscal year as well. By end May, 2002, reserves

touched all time high at $ 4125 million, showing

tremendous increase of 98.7 percent over the level

of end June, 2001.

In order to further liberalize the foreign

exchange regime in the country, the mandatory

requirement imposed upon the commercial banks

on June 2, 1999 for placement of their foreign

currency deposits with the State Bank of Pakistan

was withdrawn with effect from 2nd April, 2001.

Accordingly the foreign currency deposits

mobilized by commercial banks from resident and

non resident Pakistanis under FE 25 were no

longer required to be rendered to the State Bank

of Pakistan and the banks were asked to freely use

these deposits either in Pakistan or abroad. This

decision was taken to ensure that neither the

present nor the future governments will be able to

utilize these deposits for financing current

account deficits. The State Bank of Pakistan

however, continues to exercise its oversight to

ensure that the banks use these deposits in a

prudent way as the banks have been prohibited

from placing these deposits in junk bonds or other

high risk instruments. The banks also enjoy

freedom to remunerate the deposits in line with

the international market rates.

In view of these developments and to

present the country’s foreign reserves position in

a transparent, and comprehensible manner in

accordance with the current practices of other

Central Banks in the region, the State Bank of

Pakistan since 7th April, 2001 is preparing and

disclosing the foreign reserves position in the

following manner:

i) Foreign reserves held by the State

Bank of Pakistan.

ii) Foreign reserves held by banks

(other than SBP)

iii) Total liquid foreign reserves

According to this method of presenting

foreign exchange reserves, Pakistan’s total liquid

foreign reserves amounted to $ 5566 million on

June 1, 2002. Of which, foreign exchange reserves

held by the State Bank of Pakistan amounted to $

3663 million and foreign reserves held by banks


(other than SBP) stood at $ 1903 million. At the

beginning of the current fiscal year (July 03, 2001)

the total liquid foreign reserves stood at $ 3160

million, of which, $ 1643 million were held by the

State Bank of Pakistan and $ 1517 million were

with banks (other than SBP). Thus, during this

period total liquid foreign reserves increased by $

2406 million or 76.1 percent.

The build-up in foreign exchange reserves

is the direct outcome of the government’s

macroeconomic policies that have been pursued

over the last two and-a-half years. Improvements

in the trade and current account balances,

substantial increase in private flows, availability

of grant assistance, and inflow of assistance from

donor agencies are responsible for the reserves’

build-up. The contribution of purchases in

building reserves is, at best, minimal.

Exchange Rate

Pak-rupee against US dollar in the fiscal

year 2000-01 depreciated by almost 17 percent

both in the inter-bank and open market, while

premium averaged at around Rs 3/$ or 5 percent.

The exchange rate during the current fiscal year

remained stable both in inter-bank and open

market. The stability of Pak-rupee was attributed

to proactive management of foreign exchange

market by the State Bank of Pakistan. However,

after the events of September 11, Pak rupee

against US dollar continued to appreciate with the

surge in private inflows as it improved the supply

of foreign exchange in the inter-bank. To prevent

further appreciation in exchange rate the State

Bank of Pakistan continued to intervene in the

market by mopping up excess supply of foreign

exchange. In the meantime, the difference

between the open market and inter-bank

exchange rates was almost eliminated which

encouraged ex-patriate Pakistanis to send their

remittances through the official banking channel.

The inter-bank and open market rates at the end

of April, 2002 averaged at Rs. 60.1 and Rs 60.3 per

US dollar respectively. Thus, the rupee has

appreciated by around 7 percent in inter-bank and

11 percent in open market since the beginning of

the current fiscal year and until April, 2002. The

sharp build up in foreign exchange reserves

strengthened Pakistani rupee viz. US dollar [See

table 9.17].

Table 9.17Exchange Rates and Premium

(Rs/US$)

Month(2001-02) Inter-Bank Rate Open Market Rate Premium (Rs.) Premium (%)

July

August

September

October

November

December

January

February

March

April

64.1

64.1

64.1

62.2

61.1

60.6

60.2

60.2

60.1

60.1

67.2

67.0

67.0

62.7

61.5

60.9

60.9

59.8

60.3

60.3

3.1

2.9

2.9

0.5

0.4

0.3

0.7

-0.4

0.2

0.2

4.8

4.5

4.5

0.8

0.7

0.5

1.2

-0.7

0.3

0.3

Source: State Bank of Pakistan & E.A.Wing, Finance Division.


Euro Currency

A single euro currency was introduced on

1st January, 2002 in 12 European Union countries

of Austria, Belgium, France, Finland, Germany,

Greece, Holland, Italy, Ireland, Luxembourg,

Portugal and Spain. The currencies of these

individual countries are to be withdrawn from

circulation both from the international market and

from the local foreign exchange market. However,

UK, Denmark and Sweden have not yet joined

the European Monetary Union.

Pak-rupee exchange rate in terms of one

unit of euro during January, 2002 averaged at Rs

53.2444. The exchange rate of euro against rupee

remained weak since its introduction. In the

month of April, 2002, the parity averaged at Rs

53.2157, showing marginal appreciation of Pak

rupee by 0.1 percent, over January, 2002..

_________________________

Chapter 10. Foreign Economic Assistance

10. Foreign Economic AssistanceThe decade of the 1990s has seen

substantial increase in external debt and foreignexchange liabilities primarily owing todevelopments in the fiscal and external accountsof the balance of payments. The causes of rapidgrowth in external debt and foreign exchangeliabilities are multifaceted. They includepersistence of large fiscal and current accountdeficits; imprudent use of borrowed resources,such as wasteful government spending,borrowing for financing current expenditure,undertaking of low priority development projects,and poor implementation of foreign aidedprojects; weakening of debt carrying capacity interms of stagnant or declining real governmentrevenues & exports; and rising real cost ofgovernment borrowing, both domestic andforeign. Another source of rising debt has beenthe changing nature of composition of debt – thatis, from grant and soft term assistance to hardterm loans. The growing external debt and foreignexchange liabilities have had serious implicationsfor debt service obligations which squeezed the

net inflow of resources available fordevelopmental activities in the country. Thevarious aspects of foreign economic assistanceand country’s external debt burden have beenreviewed in the subsequent pages.

Commitments

The commitments of foreign aid exhibiteda declining trend in the 1990s, especially in thesecond half, - declining from $ 3025 million in1994-95 to $ 1759 million in 1996-97 because of thedecline in global saving and subsequent poorinternational aid environment. The economicsanctions further clouded the aid commitmentsand it declined to as low as $ 665 million in 1999-2000. Nevertheless, the restoration of relationshipwith the International Financial Institutions (IFIs)improved the environment of aid commitmentsand during the current fiscal year (2001-02), theseare expected to improve substantially to $ 3935million. The commitments by use and type of aidsince 1994-95 are given in Table 10.1.

Table 10.1Commitments of Aid by Use

($ Million)

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02 (E)

I. Project Aid 2714 2219 1351 776 1382 260 193 1815II. Non-Project Aid 311 462 408 1330 837 405 916 2120a) Non-Food 3 57 1 751 650 0 914 2060b) Food Aid 279 395 405 578 185 403 0 40c) Relief Assistance for Afghan Refugees 29 10 2 1 2 2 2 20Total (I + II) 3025 2681 1759 2106 2219 665 1109 3935

E: Estimated Source: Economic Affairs Division


Disbursements

The disbursements of foreign aid with

some fluctuations have continued to decline in the

1990s as a result of the poor international aid

environment. The disbursements declined by 33.8

percent over the last decade —declining from $

2156 million to $ 1428 million. However, with the

restoration of relationships with the International

Financial Institutions, the aid environment has

improved. As a result, a sum of $ 2384 million is

expected to be disbursed during 2001-02, which

would be higher by 49.1 percent over the last

year’s level, of $ 1599 million, mainly due to

higher disbursements of non-food aid and relief

assistance for Afghan refugees. The position of

disbursements by type and use of aid since 1995-

96 is summarized in Table 10.2.

Table 10.2Disbursements of Aid by Use

($ million)

1995-96 1996-97 1997-98 1998-99 99-2000 2000-01 2001-02(E)

I. Project Aid 2151 1821 1552 1620 1110 919 798

II. Non-Project Aid 414 412 1249 822 318 680 1586

a) Non-Food 21 1 626 550 125 678 1535

b) Food Aid 383 409 622 270 191 0 31

c) Relief Assistance for

Afghan Refugees 10 2 1 2 2 2 20

Total (I+II) 2565 2233 2801 2442 1428 1599 2384E: Estimated Source: Economic Affairs Division

Debt Service Payments and Net Transfers

The aid flows, instead of being utilized to

build up the productive capacity of the economy,

are increasingly being utilized for debt service

payments. The increased liability of debt service

payments has squeezed the net inflow of foreign

resources. The net transfers of aid in the 1990s

averaged at $ 534 million per annum. It was as

high as $ 853 million in 1991-92 but turned

negative by $ 34 million in 1996-97 due to decline

in disbursements and relatively more growth in

debt service payments. However, it improved to $

910 million during 1998-99 due to lower debt

servicing, resulting from debt rescheduling. Net

transfers, however, turned negative again to the

extent of $ 364 million in 2000-01 due to lower

disbursements but are estimated to improve

substantially to $ 1383 million in 2001-02 due to

improved aid environment. The annual details are

given in Table 10.3.

The net transfer of foreign aid as percent

of gross disbursements in the 1990s has

continuously been declining until 1996-97 due to

steep rise in debt service payments. The net

transfer of foreign aid was 36 percent of the gross

disbursements in 1990-91 but turned negative by

one percent in 1996-97. It improved to 16 percent

during 1997-98 because of the greater inflow of

loans & food aid and further to 37 percent in 1998-

99 due to lower debt service payments as a result

of debt rescheduling. However, it again turned

into negative by 6 percent and 23 percent in 1999-

2000 and 2000-01, respectively due to lower

disbursements but projected to revive

significantly to 58 percent in 2001-02 due to higher

disbursement of non-project aid. The ratios of net


annual transfers as percent of gross disbursements are shown in Fig-1.

Table 10.3Debt Servicing and Net Transfers

($ million)

YearGross

Disbursements*Debt Servicing **

Net Transfers(N.T)

NT as % of GrossDisbursements

1990-91 2045 1316 729 361991-92 2366 1513 853 361992-93 2436 1648 788 321993-94 2530 1746 784 311994-95 2571 2042 529 211995-96 2555 2136 419 161996-97 2231 2265 (-) 34 (-) 11997-98 2800 2353 447 161998-99 2440 1530 910 3799-2000 1426 1512 (-) 86 (-) 62000-01 1597 1961 (-)364 (-)232001-02 (E) 2364 981 1383 58

* Excluding relief assistance for Afghan refugees Source: Economic Affairs Division.

** Excluding interest on short-term borrowings and IMF charges. Data since 1999-2000 onward is

inclusive of IMF & bonds.

E. Estimated.

Sources of Aid

The major sources of foreign economic

assistance to Pakistan have been the Consortium,

non-Consortium and Islamic countries. Among

these, the Aid-to-Pakistan Consortium formulated

in 1960, now renamed as 'Pakistan Development

Forum' (including assistance from Consortium

sources under outside Consortium arrangements)

is still the largest source of economic assistance to

Pakistan by providing 84 percent of the total

commitments. Of this, 46 percent was on bilateral

and 38 percent on multilateral basis. The members

of non-Consortium provided 8 percent while

Islamic countries contributed 5 percent to total

foreign economic assistance. The share of relief

assistance for Afghan Refugees was 3 percent. The

share of Consortium sources (excluding aid under

outside Consortium arrangements and relief

assistance) in total commitments is likely to be

around 55.7 percent during 2001-02. Source-wise

commitments and disbursements are summarized

in Table 10.4.

Fig-1 : Net Transfers as percent of Gross Disbursements

-30

-20

-10

0

10

20

30

40

50

60

70

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-2

000

2000

-01

2001

-02

NT as % of Gross Disbursements


Table 10.4Sources of Foreign Aid *

($ million)

Commitments Disbursements

2000-01%

Share2001-02

(E)%

Share2000-01

%Share

2001-02(E)

%Share

Consortium 1053 94.9 2190 55.7 1512 94.6 1614 67.7Non-Consortium 10 0.9 1346 34.2 61 3.8 689 28.9Islamic Countries 44 4.0 379 9.6 24 1.5 61 2.6 Sub Total 1107 99.8 3915 99.5 1597 99.9 2364 99.2Relief AssistanceFor Afghan Refugees

2 0.2 20 0.5 2 0.1 20 0.8Total 1109 100.0 3935 100.0 1599 100.0 2384 100.0

* Excluding short-term credits of one and less than one year maturity. Source: Economic Affairs Division

E: Estimated

Project Vs Non-Project Aid

The share of project aid in the 1990s

averaged 73 percent per annum with annual

fluctuation in the range of 55-84 percent. The

share of non-project aid during the same period

fluctuated even more widely (16-45 percent) and

averaged at 27 percent per annum. The share of

project aid during 2000-01 was 57.5 percent,

which is expected to decline to 33.5 percent in

2001-02 due to difficulties in counterpart

financing. The share of non-project aid on the

other hand is likely to increase from 42.5 percent

in 2000-01 to 66.5 percent during 2001-02 due

mainly to higher disbursement of the programme

loans [See table 10.5 and fig-2].

Table 10.5Disbursement of Project and Non-Project Aid

($ Million)

YearProject

Aid

%

ShareNon-Project

Aid%

ShareTotal

1990-91 1,408 65.3 748 34.7 2,156

1991-92 1,766 71.5 705 28.5 2,471

1992-93 1,895 76.0 598 24.0 2,493

1993-94 1,961 76.9 588 23.1 2,549

1994-95 2,079 80.0 521 20.0 2,600

1995-96 2,151 83.9 414 16.1 2,565

1996-97 1,821 81.5 412 18.5 2,233

1997-98 1,552 55.4 1249 44.6 2,801

1998-99 1,620 66.3 822 33.7 2,442

99-2000 1,110 77.7 318 22.3 1,428

2000-01 919 57.5 680 42.5 1,599

2001-02 * 798 33.5 1586 66.5 2,384* Estimated Source: Economic Affairs Division


Composition of Aid

The composition of aid over the years hasconsiderably changed from grants and grant likeassistance to hard term loans. The share of grantand grant like foreign assistance in totalcommitments was 80 percent during the First FiveYear Plan (1955-60) but dropped to 46 percentduring the Second Plan (1960-65) and continuedto decline thereafter, averaging 32 percent duringthe Third Plan (1965-70) and 10 percent during theFourth Plan (1970-75). However, due to the reliefassistance for Afghan refugees, its share increasedto about 22 percent during the Fifth Plan (1978-83)and remained almost the same during the SixthPlan (1983-88). The share of grants and grant likeassistance continued to exhibit a declining trendthereafter and averaged at 16 percent during theSeventh Plan (1988-93) and only 9 percent duringEighth Plan (1993-98). It however, increased to 13percent in 1998-99 and further to 18 percentduring 1999-2000, but likely to reach to 34 percentduring 2001-02 due to higher inflow of assistancefrom donor agencies.

Terms of Loans and Credits

The terms of foreign loans and creditshave significantly become harder over the years.

The terms and conditions of the loans and creditswere soft during the 1960s and the 1970s, ascompared to the terms of the 1950s. During the1980s and the 1990s these terms have been madesomewhat more harder. The rate of interest,which averaged at about 4.6 percent during the1950s, declined to 3.3 percent during the 1960sand 3.6 percent during the 1970s, but increased to4.8 percent and 4.4 percent during the 1980s and1990s, respectively. The payment period of theloans/credits during the 1950s was 21 years witha grace period of 2 years, which improved to 30years with a grace period of 7 years during the1960s, but reduced to around 25 years with agrace period of 6 years during the 1970s.Repayment period, however, improved to 28years including a grace period of 7 years in the1980s but declined to 21 years including a graceperiod of 6 years during the 1990s. During 2000-01, the repayment period was 24 years including agrace period of 6 years. The terms of loans andcredits became harder as not only the grantelement has become quite insignificant but the aidalso became donors driven i.e. on the pre-specified terms and conditions of the donors.Furthermore, the commercial loans were availableonly on higher interest rates. By and large, thehardening of terms reflected by higher averageinterest rates and lower average maturity periods

0

500

1000

1500

2000

2500

3000

($ M

illio

n)

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-2

000

2000

-01

2001

-02

Fig-2: Disbursements of Project & Non-Project Aid

Total Project Aid Non-Project Aid


Fig-3: Debt Outstanding (Medium & Long-Term )

1547

1 1736

1 1904

4

2032

2 2211

7

2229

2

2250

9

2284

4

2542

3

2535

9

2555

5

2626

4

43.741.443.3

36.836.135.3

36.6

39.337.135.834.0

10000

15000

20000

25000

30000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-2

000

2000

-01

2001

-02

(Jul

-M

ar)

($ M

illio

n)

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

(As

% o

f GD

P)

Debt Outstanding As % of GDP

of the loans have adversely affected Pakistan'sexternal debt servicing.

Stock of External Debt(Medium & Long-Term)

Pakistan’s accumulated disbursed andoutstanding external debt (medium & long-termand publicly guaranteed) by end March, 2002 wasaround $ 26.3 billion. The stock of external debtduring 1990-91 was $ 15.5 billion and reached to $25.4 billion by the end of 1999-2000, reflecting anet increase of $ 9.9 billion or 63.9 percent at theend of 1990s. In other words, almost one billionUS dollar of external debt was accumulated everyyear in the 1990s. External debt has grown at anaverage rate of 5.4 percent per annum during the1990s with 8.0 percent per annum during the firsthalf and almost 2.9 percent per annum in thesecond half of the 1990s, mainly due to heavy

reliance on short-term borrowing in the later halfof the decade. As shown in Fig-3 and Table 10.6,medium and long term external debt remainedflat and did not show any increase during 1999-2000 to 2001-02.

The external debt to GDP ratio hasexhibited a fluctuating trend during the 1990s. Itwas 34 percent in 1990-91 but increased to 41percent in 1999-2000 due to addition of capitalizedinterest in debt stock as a result of debtrescheduling agreements with the donors. Theratio further moved upward to 43.7 percentduring 2000-01 on account of second Paris Clubrescheduling. As percentage of export earnings,external debt has remained in the range of 252 to327 percent during the 1990s, which issignificantly higher than the sustainable limit of225-250 percent. The ratio during 2000-01remained around 278 percent.

Pakistan's debt servicing liability has also

shown a rising trend in the 1990s – increasing

from $ 1316 million in 1990-91 to $ 2353 million in

1997-98, thereby registering an average increase of

8.5 percent per annum. Annual accumulation of

external debt, higher cost, and lower maturity

period of loans are mainly responsible for steady

increase in debt servicing liability. However, due

to the debt relief from the "Paris Club" and "Non-

Paris Club" donors/ countries, debt servicing

during 1998-99 and 1999-2000 has dropped to $

1530 million and $ 1512 million respectively.


During July-March 2001-02, it amounted to $ 981

million. The trend in debt service payments is

portrayed in Fig-4.

Debt servicing as percent of GDP has


percent in 1997-98 and remained almost at the

same level (3.3%) during 2000-01. As percentage

of export earnings, the debt servicing has also


percent in 1997-98, which is higher than the

sustainable limits of 20-25 percent. It, however,

declined to 19.7 percent in 1998-99 and further to

17.6 percent during 1999-2000 due to debt relief as

a result of rescheduling. It was up at 21.3 percent

during 2000-01. The annual details of stock of debt

(medium & long-term) since 1990-91 are given in

Table 10.6.

Table-10.6External Debt (Medium and Long-Term)

($ Million)

Items90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

Disbursed & out-standing debt* 15,471 17,361 19,044 20,322 22,117 22,292 22,509 22,844 25,423 25,359 25,555

Debt Servicing** 1,316 1,513 1,648 1,746 2,042 2,136 2,265 2,353 1,530 1,512 1,961

- Principal 782 921 999 1,078 1,294 1,346 1,520 1,623 1,065 893 1,273

- Interest 534 592 649 668 748 790 745 730 465 619 688

Debt Servicing as% of FEE *** 13.7 13.2 15.3 16.2 16.5 16.7 17.6 17.6 13.6 11.9 13.8

As % of GDP

OutstandingDebt

34.0 35.8 37.1 39.3 36.6 35.3 36.1 36.8 43.3 41.4 43.7

Debt Servicing 2.9 3.1 3.2 3.4 3.4 3.4 3.6 3.8 2.6 2.5 3.3

As % of Export Earnings

OutstandingDebt

252.3 251.5 279.5 298.7 271.8 256.0 270.5 264.8 326.8 295.9 277.7

Debt Servicing 21.5 21.9 24.2 25.7 25.1 24.5 27.2 27.3 19.7 17.6 21.3

* Regular debt (medium & long term) payable in foreign exchange only. Source: Economic Affairs Division** Excluding interest on short-term borrowings and IMF charges. Data since

1999-2000 onward is inclusive of IMF & bonds.

*** Foreign Exchange Earnings.

1316 15

13 1648 17

46

2042 21

36 2265 23

53

1530

1512

1961

981

0

500

1000

1500

2000

2500

3000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-2

000

2000

-01

2001

-02

(Jul

-Mar

)

Fig-4: Debt Service Payments($ Million)

Debt Service Payments


Total Stock of External Debt

Pakistan's total stock of external debt and

foreign exchange liabilities as on March 31, 2002

stood at $ 36.0 billion – almost $ 2 billion lower

than end June, 2000. Of which, medium and long-

term debt is $ 28.2 billion; short-term debt is $ 0.2

billion; private non-guaranteed & IMF debt is $

2.0 billion & $ 1.8 billion respectively; and other

foreign exchange liabilities are $ 3.8 billion [See

table 10.7]. Medium and long-term debt is 78.3

percent of total debt. While short-term debt

accounts for only 0.6 percent, private non-

guaranteed & IMF debt is 5.6 percent and 5.0

percent, respectively of total debt. Other foreign

exchange liabilities are 10.5 percent of total debt.

In other words more than three-fourth of

Pakistan’s external debt is of medium-to-longer

term maturities. Within medium and long-term

debt of $ 28.2 billion, multilateral debt of World

Bank, the Asian Development Bank etc., stood at $

13.3 billion and bilateral external debt amounts to

$13.0 billion. In other words, almost 37 percent of

our total debt is from multilateral sources. Almost

36 percent of our total debt is of bilateral nature.

Within bilateral debt of $ 13.0 billion, Paris Club

countries' debt amounts to $ 12.5 billion while

non-Paris Club debt amounts to only $ 0.5 billion.

Table 10.7External Debt and Foreign Exchange Liabilities

($ Billion)

End JuneItems 1980 1990 1996 1997 1998 1999 2000 2001

EndMar2002

1.Public & Publicly Guaranteed Debt 8.7 18.2 25.9 25.5 25.8 28.3 27.9 28.1 28.4 A. Medium & long term (Paris Club,

Multilateral & Bilateral) 8.7 14.7 22.3 22.5 22.8 25.4 25.4 25.6 26.3B. Other medium & long term (Bonds,

Military & Commercial) 0 2.7 2.1 1.9 1.6 1.6 2.4 2.3 1.9C. Short term (IDB) 0 0.8 1.5 1.1 1.4 1.3 0.1 0.2 0.2

2. Private non-guaranteed debt 0.1 0.3 2.4 2.7 3.1 3.4 2.8 2.5 2.03. IMF 0.7 0.7 1.5 1.3 1.4 1.8 1.5 1.5 1.8Total External Debt (1 through 3) 9.5 19.2 29.8 29.5 30.3 33.5 32.2 32.1 32.24. Foreign Exchange Liabilities * 0.4 2.7 9.1 11.0 12.4 4.1 5.7 5.0 3.8

- Foreign Currency Accounts (0.1) (2.1) (8.3) (9.8) (10.9) (1.4) (1.7) (1.1) (0.7)Total Debt and Liabilities (1 through 4) 9.9 21.9 38.9 40.5 42.7 37.6 37.9 37.1 36.0* Foreign Exchange Liabilities from 2000 onward are inclusive Source: Debt Management Committee Report

of National Debt Retirement Programme and SWAP (From 1980 to 1999) & State Bank

of Pakistan (from 2000 onward)

Rescheduling of Debt

Pakistan has successfully negotiated a

rescheduling of its external debt with the Paris

Club in December, 2001. This has been the third

rescheduling since January, 1999. The first

rescheduling agreement was reached in January,

1999 for its debt amounted to $ 3.0 billion, payable

during the consolidation period from January 1,

1999 to December, 2000. The second debt

rescheduling agreement was signed in January,

2001 for debt service payments falling due during

the period from January 1, 2001 to September 30,

2001. The approximate amount of debt relief

under this agreement was $ 1.8 billion. These two

reschedulings were ‘flow’ rescheduling which

limit rescheduling to the debt servicing (principal

plus interest) falling due within a specified period


(consolidation period) which usually coincides

with a country’s programme with the IMF. The

flow rescheduling provides temporary relief as

after the consolidation period, the magnitude of

debt servicing reverts to the former high level.

The issue of debt overhang is only deferred but

not resolved.

Unlike the previous two rescheduling the

third one received ‘stock’ treatment, which takes

into account the entire outstanding stock

(principal plus accumulated arrears) and

reprofiles it to over an extended period of time.

Stock treatment is rare as it is restricted by the

Paris Club to only Highly Indebted Poor

Countries (HIPC). Pakistan has been the fourth

non-HIPC country to get stock treatment of its

debt beside Egypt, Poland and Yugoslavia. It is

important to note that Pakistan did not seek

standard Paris Club terms such as Houston,

Naples or Cologne, rather it negotiated special

terms which were Pakistan specific. It is also

important to note that multilateral debts are not

reschedulable. It is the bilateral Paris Club debt

which received stock treatment during the third

rescheduling.

The total stock of bilateral debt, eligible

for debt rescheduling, as on September 30, 2001

has been $ 12.5 billion, of which, $ 8.8 billion was

ODA (Official Development Assistance) and the

remaining $ 3.7 billion was non-ODA. Under the

Paris Club agreement, the rescheduled ODA debt

will be repayable in 38 years including a grace

period of 15 years, while the non-ODA debt will

be repayable over a period of 23 years including 5

years grace period. The Paris Club has also

allowed Pakistan to negotiate reduction in interest

rates with bilateral creditors.

The Paris Club debt rescheduling has

provided substantial debt relief to Pakistan. On

the basis of ODA interest rate of 2.3 percent and

non-ODA interest rate of 4.0 percent, Pakistan will

be saving $ 1.047 billion during the current fiscal

year (2001-02); $ 2.7 billion during three years

(2001-02 to 2003-04); and $ 8.5 billion during the

grace period of ODA debt (2001-02 to 2016-17).

Any further reduction in bilaterally negotiated

interest rates would increase the savings in debt

servicing.

As a result of the debt rescheduling, the

implied Net Present Value (NPV) reduction of

external debt is estimated at 27 percent. Prior to

debt rescheduling the NPV of the stock of external

debt was 334 percent of exports of goods and

services. Although the final calculation is in

progress, the preliminary estimates suggest that

in NPV terms, Pakistan’s external debt during the

fiscal year 2001-02 would stood at 244 percent of

exports of goods and services.

The Paris Club debt rescheduling has

opened avenue for Pakistan to achieve debt

sustainability. However, the sustainability of debt

will depend upon the performance of Pakistan’s

exports of goods and services in years to come.

_______________

Chapter 11. Education

11. EducationIntroduction

Education is the cornerstone of broad-

based economic growth and poverty reduction.

No nation can take advantage of trade and

development opportunities in a technology-

driven and rapidly integrating economy without

making major advances in education. At the same

time, without rapid and substantial improvement

in access to and quality of education broader

poverty reduction efforts will be blunted.

Education offers an escape from poverty by

empowering people and enhancing opportunities

for greater participation in the labour market.

Globally, almost all the countries attach

highest priority to education owing to its

complementarities with important sectors of the

economy. The Government of Pakistan accepts

education as one of the fundamental rights of a

citizen as well as commitment to provide access to

education to every citizen. The challenge is to

implement the Education Policy through creative

and efficient use of all available resources. These

resources may come from the government,

private sector, civil society groups and

development partners.

Education is a key to change and

progress. The emergent consensus is that

Pakistan's sustained economic growth can be

achieved with higher emphasis on the quality of

its human capital. A deliberate strategy is being

designed to address social exclusion and

deprivation focusing on providing quality

education to disadvantaged groups served by

Public Sector options and through community

based initiatives. Sustainable development

through education must be an enterprise of

partnership for integrated human development.

Pakistan has been confronting withgigantic problems of human resourcedevelopment. The low literacy and participationrates have added to the gravity of the problems.These problems have been so challenging thatthey not only attracted the attention of thenational government but also of the developmentpartners and international financial institutions.Education is the most important factor whichdistinguishes the poor from the non-poor. There isclose linkage between poverty and illiteracy.South Asia and South East Asia were at the samelevel of development in 1960 but the onlydifference was literacy rate. In South Asia, literacyrate ranged between 9-15% while it was around70% in South East Asia. East Asian developingcountries achieved the formidable task ofeducating most of their people. Now the EastAsian countries are well-beyond the comparablerange of South Asia. The onslaught of East Asiannation's rapid economic progress in the 1980'swas based on educated human capitalendowment. Education remains inequitablydistributed among income groups and regions inthe country. The target of minimum essentialrequirement for quality education has not yetbeen achieved. There is shortage of trained andqualified teachers, especially females. Educationalinstitutions lack proper physical facilities.Teachers lack dedication, motivation and interestin their profession. Curricula are mostly non-relevant to the present day requirements.


The Government has given muchimportance to education, that is, it hasemphasized not only to increasing the literacy ratebut also to improving the quality of educationlevels. The efforts are being made to revise andupdate the curricula as well as provide necessarytraining to teachers to meet the challenge of thetime to achieve the objective of universal primaryeducation. In this regards, ordinance ofcompulsory primary education has beenpromulgated.

Educational Institutions, Enrolment andLiteracy

In the outgoing fiscal year 2001-02, the

number of schools at primary stage were 169,087,

at middle stage were 19,180, and at high stage

were 13,108. Enrolment at primary, middle, and at

higher levels were 19.92 million, 4.28 million, and

1.79 million respectively. The number of arts and

science colleges were 789 (480 male and 309 for

female). There were 68 Universities in Pakistan,

including forty in public sector. There were 18

degree awarding institutes at the technical &

vocational educational level. The number of

colleges of technology/polytechnics were 54 for

male and 12 for female. The number of

commercial training institutes were 216,

vocational institutes for male and female were 29

and 165 respectively, while secondary vocational

institutes stood at 498. The number of technical

education centers were 2,474 (see Table-11.1).

Table 11.1Educational Statistics 2001-2002

Level Institutions Enrollment TeachersPrimary 169,087 19,921.232 345,457Middle 19,180 4,278,392 99,098Secondary 13,108 1,795,444 66,522Higher Secondary 682 86,674 16,731Sec. Vocational 498 88,000 6,582Colleges 789 956,468 35,325Universities 68 1,100,000 6,000Information Technology BCS/MCS 27 22,058 337

Source: Ministry of Education.

Overall results in the education sector

remain disappointing. Pakistan's net primary

enrolment rate is well below its neighbourers in

South Asia; net primary enrolment rate is 65% in

Pakistan, 75% in Bangladesh, 77% in India and

close to 100% in Sri-Lanka. Pakistan's lower

school enrolment rates and poor quality education

means that it will lag behind its neighbourers in

improving literacy in the future. The main reasons

for the decline in the enrolment at government

schools include rising poverty and decline in the

quality of education. Significant gaps in

enrolment rates between urban and rural areas

still exist. These gaps are the product of inequality

in the distribution of resources, higher teacher

absenteeism, lack of access and higher

opportunity cost for the parents in rural areas.

The total population of 10 years and

above in Pakistan in 2001-02 is 104 million (54

million male and 50 million female). Of this 68.2

million live in rural areas of the country. Literacy

rate (10+ age group) is estimated to be 50.5%

(male 63%; female 38%). Rural and urban areas

literacy rate is 30% and 70% respectively. Under

the Education Sector Reforms, National Literacy

Campaign (Integrated approach to

comprehensive Literacy and Poverty Reduction)


has been launched through out the country. The

campaign envisages making 13.5 million people

literate to enhance the literacy rate to 60%.

Around 270,000 adult literacy centers would be

open for the purpose.

The table and figure showing literacy

rate, change by percentage point, population

growth and GDP growth from 1991 to 2002 are

given below (Table-11.2 and figure-1).

Table 11.2Literacy Rate - Population and GDP Growth

(Percent)

Year Literacy Rate Change byPercentage Point

Population Growth GDP growth

1991 34.9 - 2.63 5.41992 36.0 1.1 2.60 7.61993 37.2 1.2 2.56 2.11994 38.4 1.2 2.51 4.41995 39.6 1.2 2.47 5.11996 40.9 1.3 2.43 6.61997 42.2 1.3 2.38 1.71998 43.6 1.4 2.34 3.51999 45.0 1.4 2.29 4.22000 47.1 2.1 2.24 3.92001 49.0 1.9 2.22 2.42002 50.5 1.5 2.16 3.6


Ministry of Education.

34.90 36.0037.20

38.40 39.60 40.90 42.20 43.60 45.0047.10 49.00

50.50

0

10

20

30

40

50

60

1991 1992 1993 1994 1995 196 1997 1998 1999 2000 2001 2002

Fig.1 Literacy Rates 1991-2002

Private Education Sector

The Federal Bureau of Statistics survey

(1999-2000) indicates that there are 36,096 private

institutions in Pakistan. Out of the total, 66.4

percent lies in Punjab, 12.3 percent in NWFP, 17.9

percent in Sindh, 1.5 percent Balochistan, 0.9

percent in FATA & 1 percent in Islamabad.


Overall 39 percent of the institutions are in rural

areas and 61 percent in urban areas. The survey

further highlights the distribution by category,

illustrating that 14,758 (43.5%) are in the primary

sector, 12,250 (37%) in the middle, 5,940 (17.5%) in

secondary and only 695 (2%) in higher secondary

and above. A small number of technical and

vocational institutions lie in the private sector

compared to the general education. The

government wants to facilitate this trend but

ensuring equity and quality. Table 11.3 shows the

region-wise details of private institutions.

Table 11.3Private Institutions by Type Regions

(Nos)

Region General Professional/Technical(Under

Graduate)

Professional/Technical

(Graduate andPost Graduate)

Vocational Total

1 2 3 4 5 6Pakistan 33,893 433 265 1,505 36,096

Islamabad 309 10 12 31 362Punjab 22,855 263 157 688 23,963Sindh 5,943 86 42 286 6,457

N.W.F.P. 3,995 73 48 335 4,451Balochistan 465 1 6 53 525

FATA 326 - - 12 338Source: Federal Bureau of Statistics.

Problems Faced by Private Sector

It has been observed that majority of

private educational institutions select their own

curriculum/textbooks, which is not in conformity

with public schools. Usually, each school selects

its own syllabus and there is no agency to check

irrelevant textbooks being taught in these schools.

Irrespective of quality of education, most schools

are "English Medium" as this medium of

instruction attracts the parents for sending their

children to these institutions. Most of the

institutions either do not have rules and

regulations or they do not follow the rules

particularly in selection of teaching and

supporting staff. The schools did not have good

facilities, particularly the space in buildings is not

enough to accommodate all the students,

therefore, schools are overcrowded. Majority of

the schools are charging high fee from the

students whereas very few schools are providing

free education to poor students and some of the

schools relaxed fifty percent fee to the poor

deserving students. There is no regulatory body

for registration of private education Institutions.

Most of the institutions are unregistered; therefore

they are not observing any criteria for selection of

textbooks, teachers and provision of facilities. In

most cases certificates issued by private schools

were not recognized by the public schools;

therefore most of the students who graduate from

the private institutions are unable to get

admission in the public institutions. Most of the

private institutions are functioning in rented

buildings. Due to non-existence of any law to

protect the rights of tenants, the landlord can get

buildings vacate any time.

The National Education Policy 1998-2010

proposed the following policy

provisions/implementation strategy in respect of

involvement of private sector in education:


- There shall be regulatory bodies at the

national and provincial levels to regulate

activities and smooth functioning of

privately managed schools and

institutions of higher education through

proper rules and regulations. A

reasonable tax rebate shall be granted on

the expenditure incurred on the setting-

up of educational facilities by the private

sector. Grants-in-Aid for specific

purposes shall be provided to private

institutions. Setting up of private

technical institutions shall be encouraged.

Matching grants shall be provided for

establishing educational institutions by

the private sector in the rural areas or

poor urban areas through Education

Foundation. Existing institutions of

higher learning shall be allowed to

negotiate for financial assistance with

donor agencies in collaboration with the

Ministry of Education. Educational

institutions to be set up in the private

sector shall be provided (a) plots in

residential schemes on reserve prices, and

(b) rebate on income tax, like industry. In

rural areas, schools shall be established

through public-private partnership

schemes. The government shall not only

provide free land to build the school but

shall also bear a reasonable proportion of

the cost of construction and management.

Liberal loan facilities shall be extended to

private educational institutions by

financial institutions. The private sector

institutions at all levels shall be allowed

to collaborate with international

institutions of repute for achieving

common academic objectives, subject to

laws to be framed in this context. The law

pertaining to the setting-up of degree-

awarding higher educational institutions

and specialized institutes shall be

liberalized. The institutions so established

shall be placed under the University

Grants Commission for monitoring the

academic programs and the award of

degrees.

Non-formal Education

There are millions of people who have no

access to the formal school system. It is not

possible for the formal system to respond to the

challenges of rapidly increasing population. Non-

formal education is therefore becoming a matter

of increasing national and international concern. It

is increasingly recognized that low educational

levels among the adult population causes most

serious obstacles to the success of national

development programme. A country cannot wait

for the schools to turn out the next generation of

better educated children. The need for educational

services for adults are recognized and non-formal

education is seen as an integral part of the overall

educational system. Need and significance of non-

formal education cannot be over-emphasised for a

developing country like Pakistan facing huge

financial constraints and committed to develop in

the shortest possible time. Keeping in view the

growing need and significance of non-formal

education approach for Pakistan, several agencies,

institutions and organizations have undertaken

numerous non-formal education programmes in

the country. Non-formal Education (NFE) intends

to reach those who are out of the formal education

system and as such their needs are quite varied

and diverse. People with such backgrounds, if

motivated, can be provided with the requisite

infrastructure for non-formal education.

Primary Education

Education, in general, and primary

education, in particular, can rightly be called the


foundation stone upon which may be erected the

entire edifice of our future social, cultural and

economic development. Primary education plays

pivotal role in the social development. It helps the

individual to preserve and reconstruct the values

and norms of society. Primary education becomes

even more essential for girls, because they have an

obligatory assignment to train the coming

generations. In order to improve primary

education, a number of projects have been

initiated including rehabilitation of existing

primary schools through out the country. Teacher

Resource Centers are also being established in the

schools at a total cost of Rs.500 million. An

ordinance for compulsory primary education in

Islamabad Capital Territory (ICT) has been

promulgated. Similarly, ordinances have also

been promulgated in the Provinces of Punjab,

Sindh and NWFP. Ordinance for the Province of

Balochistan is under process.

Science Education

Realizing the importance of science

education the Planning Division has included

strengthening of Science Education facilities in the

10 years perspective plan under the title

"Revamping of Science Education". The cost

estimates are Rs.7153 million. The task can be

accomplished in three phases of three years each.

During the fiscal year 2001-02, Rs.100 million

were allocated in this scheme. So far a sum of

Rs.50 million have been released. Efforts for

improvement in quality of science education in

schools are being frustrated by shortage of

competent and qualified teachers and quality

teaching material. Video textbooks are being

looked upon as a possible solution for

improvement in quality of science education at

Secondary School level. A pilot project in

collaboration with Allama Iqbal Open University

(AIOU) for classes IX-X has been launched at a

cost of Rs.10 million. Total cost for a bigger follow

up project covering whole curricula and

production of multiple copies of the Video

Textbook for distribution to schools is estimated

at Rs.1410 million. The Second Science Education

Project under the umbrella of the Ministry of

Education has been launched with the financial

assistance of the Asian Development Bank covers

Punjab, Balochistan, NWFP, FATA and Federal

Capital Territory Islamabad. The total cost of the

project is Rs.2420.220 million with ADB share of

Rs.1759.384 million. The Project aims at

qualitative and quantitative improvement of

science, mathematics and computer education at

elementary and secondary levels.

Technical Education

Technical Education Project is an ongoing

(1996-2003) project of the Ministry of Education

launched with the assistance of the Asian

Development Bank. The main object is to improve

the quality and relevance of technical education.

The total cost of the project is Rs.2395.146 million.

The major components of the project include

construction of new polytechnics institutes for

women at Quetta and Technical Teacher Training

Centers at Sukkar and Peshawar, provision of

equipments, and introduction of emerging

technologies in selected institutes. A new

Polytechnic Institute for Women at Quetta, new

building of Women Polytechnic Institute Karachi,

Technical Teachers Training Institute at Sukkar

and Technical Teacher Training Center at

Peshawar have been completed. Besides civil

work on 32 sites that includes addition of new

buildings, renovation and repair of existing

Polytechnic Institutes has also been completed.

About 120 Teaching and Learning Resource

material has been developed in the existing and

new emerging technologies. Necessary equipment

including computers and furniture for all new

and selected existing technologies in 43

Polytechnic Institutes and 4 technical teacher-


training centers as per their need is also being

provided.

Public Sector Expenditure on Education

During the fiscal year 2001-02, the total

education budget is estimated to be 73.745 billion,

including development budget of Rs.8.770 billion

and recurring budget of Rs64.975 billion. The total

budget for education for 2001-02 is 2.0% of the

GDP. The education budget as percentage of GDP

is given below in Table-11.4.

Table 11.4National Education Budget during (1995-96-2001-02)

(Rs. In billion)

Year Recurring Budget Development

Budget

Total Education

|Budget

% of GDP

1995-96 39.610 2.585 42.195 2.00

1996-97 40.536 1.968 42.504 2.62

1997-98 46.100 2.984 49.084 2.34

1998-99 46.979 2.427 49.406 2.40

1999-00 51.572 2.430 54.002 1.7

2000-01 54.396 1.966 56.362 1.6

2001-02 64.975 8.770 73.745 2.0

Source: Ministry of Education

The declining trend in allocations to

education is a cause of major concern. However, it

is important to note that for the second time,

contributions by the private sector have also been

ascertained through a recently conducted survey

by the Federal Bureau of Statistics. The survey

indicates that the share of private education is

0.60 percent of GDP, which is higher than the

1999-2000 (0.49 percent of GDP). Additionally, the

private sector adds substantively to education

provision as a response to rising demand for

particular types of options.

Education Sector Reforms (ESR)

The Education Sector Reforms Action

Plan built on the 1998-2010 Education Policy, is

based on a long-term framework with a three

years action plan for 2001-04. Government of

Pakistan has outlined its policy objectives for

promoting economic growth and reducing

Poverty in the Interim - Poverty Reduction

Strategy Paper. Education Sector Reforms (ESR)

Action Plan (2001-04) has been fully integrated

into the Interim Poverty Reduction Strategy Paper

(IPRSP) and almost 80% of the ESR package

covers adult literacy, Education for All and

Technical Education. Devolution Plan is the main

framework for implementation of ESR. Federal

resources for ESR related schemes have been

transferred to provinces as grant in aid and

distributed in accordance with National Economic

Council (NEC) formula for development

assistance.

Education Sector Reforms (ESR)

recommend macro level reforms in planning,

procedures, resource mobilization and output

based utilization of funds. Education for All (EFA)

is integrated with ESR Action Plan and 77%

allocation relates to all areas of Education for All.

This is to be achieved by rewarding expertise,

honesty in planning and implementation,

improved teacher training programmes,


curriculum reforms, multiple textbooks and other

innovative projects. Maximizing equal

opportunities and reducing the gender gap at all

levels of education is one of the features of the

ESR. Under this programme, efforts will be made

for bringing suitable equilibrium in private and

public sector education and private sector will be

promoted in providing education at all levels

specially for higher and professional education.

The guiding principles of the ESR are derived

from the linkages between poverty and literacy,

and creating gender balance in education at all

levels. Implementation strategies stress good

governance and management, recognition of the

contribution of the private sector in education and

partnerships between private institutions, NGOs

and government.

Major Achievements.

An amount of Rs.1.57 billion has been

allocated in the budget 2001-02 for execution of

various components of ESR, including Rs.280

million for rehabilitation of existing school

facilities. An additional grant of Rs.Rs.2 billion

has been provided under the President

Programme for Rehabilitation of Existing

Primary/elementary Schools including capacity

building. The Ministry of Education has launched

project to give incentives in the form of free

textbooks to the primary students initially in ICT

as 'Pilot Project'. Through this incentive,

participation rate will be increased and literacy

rate will be improved considerably. Girls Primary

Education Development Project (GPEDP) Phase-I

was completed in 1996 at a cost of Rs.1763.95

million. The Project was launched in all the four

provinces of Pakistan. Under the first Phase, 880-

Community Model Schools (CMS) for girls were

established and made functional in rural areas of

Pakistan by providing all needed inputs. On

successful completion of Phase-I, 2nd Phase of the

Project has also been launched in all the four

provinces of Pakistan with effect from January 23,

1998 at a cost of Rs.2736.3 million. Under this

project, out of 937 Girls Primary Community

Model Schools, 585 schools have been established.

The project will be completed by May 2003.

Middle School Project is being implemented since

1996. The Project is launched by Federal Ministry

of Education in the provinces of Sindh, NWFP

and Balochistan. The Project envisages expansion

and improvement of elementary/ middle level

education facilities (class VI-VIII) with emphasis

on promotion of girls education. About 586

Primary Schools have been up-graded to Middle

level, 50,100 stipends have been awarded under

Girls Rural Stipend Programme. Curricula and

Textbooks of selected subjects including

Mathematics, English and Social Studies for

classes (VI-VIII) have been revised. Non

Formal Basic Education School Scheme is very

cost-effective scheme. Under this scheme primary

education course is taught in forty months. Non-

Formal Basic Education (NFBE) schools are

opened in the areas where formal school is not

available, Teacher's salary and free teaching

learning materials are provided by the

government where as school building/room is

provided by the community. At present, 6371

NFBE Schools are functioning in the four

Provinces, ICT, FATA, FANA, and AJ&K. Around

100 new NFBE Schools are being opened in ICT

during current financial year 2001-2002. Similarly

provinces have also been allocated funds under

ESR for opening of more NFBE schools. The ESR

Programme stipulates establishment of 30,000

Non-Formal Basic Education Schools in four

provinces including ICT, FATA, FANA, & AJ & K

during 2001-2004.

Eighteen (18) primary schools were

upgraded to middle level, 12 middle schools were

upgraded to secondary level and 5 secondary

schools have been upgraded to higher secondary

level. Furthermore, Science equipment, books


and other material amounting to Rs.12.000 million

is being provided to schools. Free Text Books have

been provided to all the students of class-1 of

Federal Government Schools in Islamabad Capital

territory . Science apparatus amounting to

Rs.4.000 million has also been provided to 53

secondary schools in ICT. Repair/Maintenance of

32 Secondary Schools and 6 colleges have been

carried out. Drinking water facility in 70 schools

and toilet facility to 30 school has been provided.

Seventy eight (78) additional classrooms were

added to 11 schools/colleges. Fifty-four (54) posts

of Teacher have been created in upgraded

primary schools and 7 primary schools buildings

are under construction.

ESR Targets (2001-2004)

Under the plan (2001-2004), literacy rate

will be increased to 60 percent, gross primary

enrolment will increase from 89 percent to 100

percent, net primary enrolment will increase from

65 percent to 75 percent, middle school enrolment

will increase from 47.5 percent to 55 percent,

secondary school enrolment would increase from

23 percent to 29.5 percent and high education

enrolment will increase from 2.6 percent to 5

percent.

Targets for Higher Education under ESR

Access to higher education opportunities

will be increased by 10 percent annually.

Enrolment in the Universities will be increased

from 100,000 to 200,000 students by 2004. Private

sector will raise its share of enrolment to 40

percent of the total. Allocation for research

through an Endowment Fund will also be

increased. There will be shift from Humanities to

Science & Technology from current 70:30 ratio to

50:50. Social services programmes and staff

development programmes will be reviewed

accordingly.

_____________

Chapter 12. Health and Nutrition

1122.. Health & NutritionHealth of a community depends not only

on the availability of health services but also on

the better hygienic atmosphere. The provision of

better health services together with clean drinking

water and adequate dietary intakes is the surest

safeguard against communicable diseases. The

improvement in health status directly addresses

the worse aspects of poverty and translates into

higher income, higher economic growth and

reduced population growth. Thus the high

correlation between investment in health and

increased productivity is enough to emphasize

the importance of health services as an aid to

growth. The public health sector in Pakistan is still

weak and is suffering from a considerable

deficiencies such as insufficient fund to meet the

recurring expenditures and mismanagement. The

main causes of avoidable deaths in the country is

malaria, tuberculoses, childhood infection

diseases, micro-nutrient deficiencies, unhygienic

living conditions and poor nutritional practices.

Such worsening health condition is reflected in

the very high rate of mortality (110.3), child death

(83.3), and low life expectancy (63.0) in

comparison to the regional developing and

neighbouring countries are documented in Table

12.1.

Table 12.1Social Indicators, 2000

Country Life Expectancy Infant MortalityRate per 1000

Mortality Rateunder 5 per 1000

PopulationGrowth Annual

(%)Pakistan 63.0 83.3 110.3 2.4*India 62.8 69.2 87.7 1.8Sri Lanka 73.1 15.0 17.9 1.6Bangladesh 61.2 60.0 82.6 1.7Nepal 58.9 73.6 104.7 2.4China 70.3 32.0 39.5 0.9Bhutan 62.2 57.6 - 2.9Thailand 68.8 27.9 33.2 0.8Philippines 69.3 30.7 39.2 1.8Malaysia 72.5 7.9 10.8 2.4Indonesia 66.0 40.9 51.4 1.6* The latest population growth for 2002 is 2.16 percent Source: World Development Indicators, 2002

It can be seen from the table thatPakistan’s achievement in terms of social progressis somewhat less striking. The high rate ofpopulation growth, low life expectancy and high

mortality rate put Pakistan among the bottom ofthe regional countries. The poor show of healthindicator of Pakistan in relation to other regionalcountries suggest an urgent need to invest in the


welfare of the people so as to improve thecountry’s health indicators. Attempts have beenmade over the years to improve the functioning ofthe health system through availability of trainedmanpower, adequate supply and distribution ofdrugs, and establishment of health infrastructure.However, the health care system as a whole needsto be strengthened at all levels.

To take care of this backlog, a nationalhealth policy with motto of “Health for All” wasannounced in June 2001 which aimed atprotecting the countrymen from hazardousdiseases, promoting public health and upgradingcurative care facilities. The policy identified tenspecific areas of reforms; including reducingwidespread prevalence of communicable diseases,addressing inadequacies in primary/secondaryhealth care services, removing professionaldeficiencies in the health system, promotinggreater gender equity, bridging basic nutritionalgaps in targeted population, correcting urban biasin health sector, introducing regulations in privatemedical sector, creating mass awareness in publichealth matters, effecting improvements in drugsector and capacity building for health policymonitoring. The overall aim of these reforms is toreduce mortality and morbidity, eliminatemalnutrition, particularly in infants and mothers,and to increase health services.

The new policy has targeted theimmunization coverage to be increased to 85percent by 2003-04, reducing polio cases to lessthan 30, and full dots coverage of TB will beachieved in all the districts by 2005. In regard toprimary/secondary health care service, 100,000

family planning workers would be trained and195 hospitals (58 districts and 137 tehsils) will beupgraded. Besides, fair pricing policies would bepursued to encourage investment in thepharmaceutical sector. The private practicespecialists would be replaced by the system ofinstitutional practice in mega hospitals and megahospitals under autonomy arrangements wouldbe institutionalized and a system of monitoringand performance of autonomy based hospitalswould be established.

Health facilities

In Pakistan, health care is being providingto the public through a vast infrastructure ofhealth facilities consisting of hospitals,dispensaries, basic health units and maternitychild health centres with adequate number ofdoctors, dentists, nurses, lady health visitors andmid-wives. At present there are about 97,945hospital beds in the country which give apopulation bed ratio at 1490 persons per bed. Thenumber of registered doctors is at 96,248 while thenumber of available dentists is 4622 and that ofnurses is 40114 and 5845 qualified health visitors.There is one doctor for 1516 persons, one dentistfor 31579 persons and one nurse for 3639 persons.There is about 907 hospitals and 4625 dispensariesin the country. The number of Basic Health Units(BHUs) is 5230 while the number of Rural HealthCentres (RHCs) is 541. Since the majority ofdoctors and hospitals are located in cities andtowns, the rural population has much lowerstandard of health facilities. Some statisticspertaining to health facilities are reported in Table12.2.

Table 12.2Health Facilities

Health Menpower Upto 1999-00 Upto 2000-01 Upto 2001-02Registered doctors 87,105 91,823 96,248Registered dentists 3,867 4,175 4,622Registered nurses 35,979 37,623 40,114Population per Doctor 1,578 1,529 1516Population per Dentist 35,557 33,629 31579Population per Nurse 3,822 3,732 3639

Source: Ministry of Health


These statistics suggest that the number of

registered doctors, dentists, and nurses have

increased in 2001-02 as against the last fiscal year.

Similarly, health facilities as measured by the

population per doctor, per dentist, and per nurse

have also improved in the outgoing fiscal year.

Physical Targets and Achievements During2001-02

A total of 40 Basic Health Units (BHUs),

10 Rural Health Centres (RHCs) and one Urban

Centre were built, against the target of 60 BHUs,

12 RHCs and one Urban Centre for the year 2001-

02. Thirty (30) BHUs and 20 RHCs of the existing

stock were upgraded. Moreover, 1300 new

hospital beds were added. A total of 3300 doctors,

250 dentists, 2300 nurses, 5000 paramedics, 470

TBAs and 13000 LHWs have been trained during

the year, against a planned target of 3700 doctors,

300 dentists, 2500 nurses, 5564 paramedics, 520

TBAs and 13000 LHWs. Under the preventive

programme, 8.5 million children were immunized

and 18.0 million packets of Oral Rehyderation Salt

(ORS) were distributed during 2001-02. The

targets and achievements for the year, 2001-02 are

given in Table 12.3.

Table 12.3Physical Targets and Achievements During 2001-02

Sub-SectorTargets(Nos)

EstimatedAchievements

(Nos)

Achievements(%)

A. Rural Health Programmei. New Basic Health Units (BHUs)ii. New Rural Health Centres (RHCs)iii. Upgradation of existing RHCsiv. Upgradation of existing BHUsv. Urban Health Centres

B. Beds in Hospitals/RHCs/BHUsC. Health Manpower Development

i. Doctorsii. Dentistsiii. Nursesiv. Paramedicsv. Training of TBAsvi. Training of LHWs

D. Preventive Programmei. Immunization (Million Nos)ii. Oral Rehyderation Salt (ORS) (Million Packets)

601230451

1400

3700300

25005564520

13000

9.1319.00

401020301

1300

330025023005000470

13000

8.518.00

66836766

10092

8983928988

100

9394

Source: Planning & Development Division

Health Expenditure

The budgetary allocations for the health

sector have been gradually increased to improve

the quality of life. The total outlay set aside for

health improvement programme during 2001-02

was Rs.25.406 billion (Rs.6.688 billion for

development and Rs.18.717 billion for recurring

expenditures). This is 4.6 percent more as

compared to the previous year and works out as

0.7 percent of the GNP as indicated in Table 12.4.


Table 12.4Health and Nutrition Expenditure

(Million Rs.)Public Sector Expenditure

(Federal Plus Provincial)FiscalYear Development

ExpenditureCurrent

ExpenditureTotal

Expenditure

Change( % )

As % ofGNP

1995-961996-971997-981998-991999-002000-012001-02

5741648560775492588759446688

10614118571358715316161901833718717

16355183421966420808220772428125405

35.312.27.25.86.110.04.6

0.80.80.70.70.70.70.7

Source : Planning & Development Division

Health Programme

The health programmes giving special

focus to major public health problems of the

country are discussed as follows:

1. National Programme for FamilyPlanning & Primary Health Care:The main thrust of the programme is to

extend the primary health care and family

planning services to the communities

through trained lady health workers

(LHWs) all over the country. At present,

the Programme is covering 50 percent

population, mainly in the rural and urban

slum areas. The programme envisages

that by the year 2003, 100,000 LHWs in

the field of family planning and health

care services will be trained and with

such a strength of LHWs, 70 percent of

the population will be covered. There is

9100 trained health facility staff and 1300

Lady Health Worker Supervisors who are

involved in the training and supervision

of the LHWs. Selection of another batch of

1000 supervisors is completed and their

training is underway. During the

outgoing fiscal year, Rs.1200 million has

been allocated for the implementation of

the programmes, while additional

allocation of Rs.983 million have also been

allocated during the current year.

2. Expanded Programme of

Immunization: The total cost of the

programme is Rs.5367 million for the

period of 1999-2004. The allocation for

current financial year has been at Rs.500

million. Besides, a sum of Rs.196 million

has been allocated as additional allocation

for the current year. The programme is

providing vaccination against six vaccine

preventable diseases to 4.5 million

children annually with immunization

coverage at 77 percent for children and 50

percent for expected mothers. Almost all

Lady Health Workers in 57 Districts (the

high risk Districts for Tetanus) have been

trained as vaccinators, with on the job

training.

3. National AIDS Control Programme:The programme aims to control

AIDS/HIV cases by creating awareness

and promote blood safety by

strengthening safe blood transfusion

services. The total number of cases

reported till 31st December 2001 stand at


1886 with HIV positive and 222 full blown

AIDS cases. However, the

WHO/UNAIDS estimate that currently,

there are 70,000 – 80,000 HIV positive

cases in the country. Significant

achievements of the programme during

the year 2001-02 include: an extensive

Information, Education &

Communication comparing for creating

awareness; continued support to the

forty-six HIV surveillance centers

throughout the country, which provide

HIV testing facilities to the general public

free of cost, screening of 600,000 – 650,000

blood bags for HIV and HBV;

development and distribution of national

guidelines on clinical management,

Laboratory Diagnosis and Counseling for

HIV/AIDS and training of relevant

professionals. The allocation for the

current fiscal year is Rs.90 million. An

additional allocation of Rs.94 million has

been set aside for the current year.

4. Malaria Control Programme: The

incidence of malaria has been successfully

contained. The disease has been brought

down in the last 28 years from annual

incidence of 13.18 cases per 1000

population in 1973 to 0.62 cases per 1000

population in 2001. The annual parasite

incidence (API) during the year 2001 has

decreased to 0.62 cases per 1000

population, as compared to 0.81

cases/1000 population last year. The

faslciparum percentage has also

decreased in Sindh province to 49.9

percent as compared to last year

percentage of 57.2. The overall reduction

is now 31.9 percent as compared to last

year percentage of 33.2. Province wise

percentage of annual parasite incidence is

highest in Balochistan (API=3.16),

followed by NWFP (API=0.83), Sindh

(API=0.62), and Punjab (API=0.170). The

programme has been approved at a cost

of Rs.253.0 million. During the current

year, Rs.40 million have been allocated

and additional allocation of Rs.106 million

has been set aside during the current

financial year.

5. T.B. Control Programme:Tuberculoses is still a health problem in

the country. The annual diagnosis and

treatment report of the diseases indicates

that the danger of TB is not yet over.

During the current fiscal year, Rs.10.0

million has been allocated. An additional

allocation of Rs.121 million has been

allocated for the current year. The

programme aims to control T.B. through

DOTS strategy with the objective of

achieving 85 percent cure rate and 70

percent detection rate; and reducing T.B.

cases by providing technical assistance,

training, monitoring and evaluation/

surveillance, development of health

education material and applied research

in T.B. and Multi Drug Resistance (MDR).

34 Districts have been covered under

DOTS strategy by December 2001, with

the coverage of 25 percent population of

the country.

6. Women Health Project: The project has

been launched throughout the country

with total outlay of Rs.3750 million in

July, 2000 with the Asian Development

Bank assistance. The project aims at

improving the health nutrition and social

status of women and girls by developing

Women – Friendly Health Systems in 20

Districts of Pakistan. Its specific objectives

are to:


a) expand basic women’s healthinterventions to undeservedpopulation.

b) develop women-friendly districthealth system for providing qualitywomen’s health care from thecommunity to first referral level.

c) strengthen the capacity ofinstitutional and human resourcesto improve women’s health in thelong-term.

7. National Hepatitis-B ImmunizationProgramme: Vaccine for Hepatitis B isbeing introduced in the EPI regime w.e.f.July 2001 with the help of grant assistancefrom Global Alliance for Vaccines andImmunization. Pakistan is the firstcountry in the EMRO selected for suchassistance.

8. Nutrition Programme: The programmeaims at reduction of infant mortality andlow birth weight babies, better child andmaternal health care, promotion of breastfeeding, and prevention of nightblindness, iron deficiency anemia, as wellas iodine deficiency disease. Theprevalence of low birth weight (25%),malnutrition in children (35%) andanemia in pregnant women (50%) isextremely high. In view of the situation, aNutrition Programme at the cost ofRs.302.720 million has been approvedbesides an additional amount of Rs.50million has been allocated in the revisedPSDP allocation (2001-02).

Cancer Treatment Programme

In Pakistan, at present, there are 12nuclear medical centres in the public sectoroperated by Pakistan Atomic EnergyCommission. These centres in various parts of thecountry are well equipped with latest machines

and other modern facilities. These centres havebeen effectively performing and contributing todiagnosis and treatment of cancer patients.During the year 2000-01, about 110,000 patientswere provided cancer treatment as well as follow-up. The Pakistan Atomic Energy Commission’shospitals are catering to about 80 percentpopulation of cancer patients coming from allparts of the country. During the year 2000-01,180,000 patients benefited from the nuclearmedicines facilities. The contribution of PakistanAtomic Energy Commission (PAEC) through itsintegrated programme in diagnosis of differentkinds of cancer and allied diseases and theirtreatment has received considerable acclaim in thepublic.

Drug Abuse

Drug addiction is a social problem inPakistan. Through a recent survey conducted byUNDCP in partnership with Government ofPakistan, a downward trend has been noticed inheroin addiction. However, it still remainsworryingly high and is the most difficultaddiction to deal with. It has also been observedthat injecting drug abuse is on the rise. This isextremely grave as it spreads various blood-bornediseases like HIV/AIDS and hepatitis B&C. Onthe prevention of drug trafficking and drug abuse,effective and meaningful steps have beeninitiated. Some of these are discussed in thepreceding paragraph.

A Five Years Master Plan (1998-03) isunder implementation. Under the plan, thefarmers in the poppy growing areas have to beprovided with alternative source of income. Thedevelopment project currently underimplementation in the poppy growing areas aimsat to bring a decrease in the poppygrowing/cultivating area. Four area developmentprojects as Dir, Bajawar, Mohmand and KhyberArea Development Projects at a total cost ofRs.1607.110 million are implemented. Beside thetreatment and rehabilitation project with the main


component of mass awareness against drug abusein Pakistan, community participation in drugreduction, NGOs support programme in thetreatment and rehabilitation and drug preventionand upgradation of treatment and rehabilitationcentres for drug dependents of population at atotal estimated cost of Rs.69.385 million has beenundertaken. A three years drug law enforcementprogramme with a grant of US$ 5.25 million bythe UNDCP for strengthening the lawenforcement agencies to combat illicit drugtrafficking and money laundering has been inoperation since 1999. The statistics regardingseizure of narcotics by all the law enforcingagencies during the period July-March 2001-02 isas follows:

Table 12.5Cases of Narcotics

i. No. of cases 32671ii. No of defendants 32182iii. Drug seizure (kgs)

Opium 1782.572 kg

Heroin 8111.357 kg Hashish 53468.591 kg

Source: Narcotics Control Division

Food and Nutrition

Protein energy and micro-nutrient

malnutrition has a very sever impact on the

potential development and productivity of the

people. They contribute to a great deal of

morbidity and ill health growth, retardation and

reduced level of physical and developmental

activities. The basic cause of these deficiencies is

lack of adequate intake through diets. Poverty in

many cases is the major basic cause of

malnutrition. In Pakistan, per capita per day

calories intake is estimated at 2306 for 2001-02 and

protein intake per capita per day is 67.0 grams.

The national food consumption/intake balance

sheet of major six selected food items including

pulses, sugar, milk, meat, eggs and edible oil is

given in Table 12.6. The overall per capita food

availability of the basic food items has declined

over the previous year.

Table 12.6Food Availability Per Capita

Items Units 49-50 79-80 89-90 95-96 97-98 98-99 99-2000 2000-01(E)

2001-02(T)

Cereals Kg 139.3 147.1 164.7 156.9 159.7 171.0 163.5 164.9 149.3Pulses Kg 13.9 6.3 5.4 6.2 5.9 6.8 7.2 7.0 6.1Sugar Kg 17.1 28.7 27.0 26.4 32.8 31.2 26.4 30.8 26.1Milk Ltr 107.0 94.8 107.6 121.1 147.3 148.0 148.8 149.6 150.8Meat Kg 9.8 13.7 17.3 21.4 17.9 18.2 18.7 18.8 18.9Eggs Dozen 0.2 1.2 2.1 2.2 2.2 5.1 25.1 5.2 5.2

EdibleOil

Ltr 2.3 6.3 10.3 11.4 11.6 12.3 11.1 11.2 11.3

Caloric & Protein Availability (Per Capita)Calories per day

(Number)2078 2301 2534 2522 2655 2728 2625 2706 2306

Protein per day(Gms)

62.8 61.5 65.47 67.38 68.37 71.85 70.00 71.74 67.00

E. Estimated Source: Planning & Development DivisionT - Targets


The government is taking a number ofsteps to improve the nutrition well being of thepopulation. To overcome this problem, followingprogrammes remained in progress:

i. Iodine Deficiency Disorders ControlProgramme: Private salt processorsare being motivated to produce andmarket iodized salt throughout thecountry. Promotional campaign throughmultimedia including Radio and TVnetwork and mass media continued. Thequality control system for Iodized salt hasbeen strengthened to improve the qualityof iodized salt. The IDD programmeactivities were shifted to the provinces forwhich IDD committees had beenestablished in each province. A nationwide study for IDD Performanceevaluation was completed.

ii. Anemia Control Programme: Situationanalysis for informal milling sector wascompleted. A feasibility study has beenprepared to develop a programme foriron fortification of wheat flour and aprogramme for anemia control throughfood fortification on pilot scale. InPakistan approximately 20-21 milliontonnes of wheat per year is consumedwhich is milled by two different millingsectors i.e. (a) modern milling industry(Roller Flour Mills) which are grindingalmost 45-50% wheat and all these millsare organized as a strong Pakistan FlourMills Association (PFMA) and (b) Smallscale grinders (chakkies) which grindabout 50-55% wheat are scattered throughout the country almost in every village.For both these milling sectors, separatestudies have been finalized and are underprocess to develop future strategies.

iii. Vitamin A Deficiency ControlProgramme: The fortification of edibleoil/ghee with vitamin A is legislatedsince 1965 as part of Pure Food Rules, butstandards of fortification are not adheredto by the manufacturers. Therefore, tostrengthen the ongoing process forvitaminization of edible oil, necessarytechnical support to oil manufacturersand the quality control agencies havebeen provided to maintain the requiredlevel of fortification of Vitamin A. Aprogramme for supplementation ofVitamin A to the children 6 months to 5years remained in progress with NationalImmunization Days and sub NIDs andhouse to house visits.

Promotion and Protection of Breast-feeding

The programme on promotion of breast-feeding throughout the country is in progress. TheBaby-Friendly Hospital Initiative (BFHI) has nowbeen extended to the community and the privatesector and the NGOs have been actively involved.The promotional activities remained in progressthrough multi-media campaign. The BreastFeeding Act is being finalized to rationalizeproduction and marketing of infant formulas inthe private sector. Lactation curriculum has beenrevised/updated in view of the changesrequirements and recent advances in this field.

Primary Health Care Programme (PHC)

Technical support is being provided toLHWs in PHC to deliver inputs and nutritionservices for the benefits of women and youngchildren. The programme covers the majority ofrural population which remains unservedthrough the static basic health service.

_____________________

Chapter 13. Population, Labour Force, and Employment

13.Population, LabourForce, and Employment

INTRODUCTION

In 1947, 32.5 million people lived in

Pakistan. According to the first census in 1951,

Pakistani population stood at 33.7 million. By

2001-02, the population is estimated to have

reached 145.96 million. Thus in roughly two

generations, Pakistan's population has increased

by 113.46 million or has grown at an average rate

of 2.8 percent per annum. Pakistan has more

mouth to feed, more families to house, more

children to educate, and more people looking for

gainful employment. Millions more are migrating

from the countryside to major cities in search of

jobs, raising pressure on urban infrastructure and

giving rise to Katchi Abadis. Population increases

of this magnitude in Pakistan may create alarm

for many but these trends in population growth

hide more promising developments.

East Asia has seen a dramatic and rapid

demographic transition over the last three and a

half decades. Prior to moving on a rapid and

sustained economic growth path, the share of

young population (age 0-14 years) has been, on

average, 40 percent while those of working age

population (Prime age: 25-59 years) averaged 35

percent and old age (65 plus) averaged 3.5

percent. With declining fertility and mortality

rates, the young population bulge started working

its way through the age distribution. The share of

working age started rising, approaching 50

percent in East Asia and those of young

population declined to an average of 25 percent,

and old age rose to an average of almost 10

percent. Empirical evidence has suggested that a

large part of East Asia's spectacular economic

growth derives from the demographic transition,

i.e. from working age population bulge. This

transition from a young to prime age population

represented a demographic gift because East Asia

has had relatively more working age (Savers)

population and relatively fewer young population

(non savers) compared with earlier periods. In

countries where an increasing share of the

population is of working age, economic growth

per person tends to be highest and national saving

rates tend to rise. East Asia is still passing through

the demographic transition, but of a different

nature. As a result of sustained high economic

growth, the people of East Asia are now more

richer, more healthier and more educated than 25

years ago. Consequently population growth has

slowed and the share of working age population

is declining and those of old age is rising. The

demographic gift is turning into a burden.

Economic growth in the next 15 years in East Asia

is likely to decelerate from what it achieved over

the last 35 years. In order to sustain higher growth

of yester years, East Asia will have to rely on

technical innovation and will have to move to

higher value chain of production.

The same demographic transition that

benefited East Asia over the last 35 years will

benefit South Asia during the next two decades.


Pakistan being located in South Asia, will benefit

from the same demographic transition. When

seen over the last four decades, Pakistan has not

experienced demographic transition. However,

over the last two decades Pakistan has seen a

marginal decline in the share of young age

population and only 2 percentage points increase

in prime age (working-age) population (see Table-

13.1 for details). The share of old age population

has declined by 1.5 percentage points. This change

in demographic structure owe heavily to a steady

decline in population growth since 1981 [see Table

13.2]. With further slow down in population

growth, Pakistan may see its shares of working-

age population rise while that of young age

population decline.

Table-13.1

Demographic Transition in Pakistan

Census Young

(0-9 age)

Prime

(age25-59)

Old

(age 60 +)

1961 51.4 41.7 6.9

1972 52.4 40.6 7.0

1981 54.0 39.0 7.0

1998 53.5 41.0 5.5

Source: Economic Survey 2000-01 and 50 years of

Pakistan's Statistics, Federal Bureau of Statistics

Can Pakistan benefits from the changes in

demographic structure? While demographic

transition provides an opportunity for raising

economic growth and increasing prosperity, it is

not automatic. It will depend whether Pakistan

succeeds in mobilizing sufficient capital

(investment) and use it efficiently with the rising

working-age population. This, in turn, will

depend largely on government's socio-economic

policies. If the workforce is better educated, it will

be better placed to contribute to economic growth.

If government's macro-economic policies are such

that lead to job creation, the country will more

likely to realize the potential benefits of

demographic transition in terms of higher

economic growth. However, if government

mismanages its economy the large workforce can

become the army of unemployed.

Demographic transition is taking place,

though currently at a slower pace. It poses

enormous challenge for the government to

manage the economy in such a way that the

transition benefits Pakistan. Investment in people,

maintaining macro-economic stability, and

achieving higher economic growth on a sustained

basis should form the basic principle of realizing

potential benefits of demographic transition in

Pakistan.

Having discussed the challenges and

opportunities of demographic transition we now

turn to analyse Pakistan's population, labour force

and employment issues. Since independence in

1947 Pakistan's population has increased 4.5

times. It now ranks 7th largest country in the

world in terms of the size of population. Having

grown at an average rate of slightly above 3.0

percent since 1951 and until 1983, population

growth in Pakistan is declining steadly thereafter

and has declined to 2.16 percent by 2001-02 (see

Table 13.2). The current population growth

(2.16%) is still high and the government is making

every effort to reduce it to 1.8 percent by 2003-04

as stated in the country's Interim Poverty

Reduction Strategy Paper (IPRSP). As will be

discussed later, the various population planning

programmes launched by the Government have

contributed in slowing the country's population

growth rate.


Table 13.2Population and Growth Rates and Literacy Rates(1981 to 2000)

Literacy Rate (%)Mid Year Total Population(Million)

Growth Rate (%)Rate % Change

1981198219831984198519861987198819891990199119921993199419951996199719981999200020012002

85.0987.6790.3092.9695.6798.41

101.18103.99106.84109.71112.61115.54118.50121.48124.49127.51130.56133.61136.64139.76142.86145.96

3.063.632.992.952.902.862.822.772.732.692.632.602.562.512.472.432.382.342.292.242.222.16

26.226.227.127.928.829.830.731.732.733.834.936.037.238.439.640.942.243.645.047.149.050.5

-0

3.43.03.23.53.03.33.23.43.33.23.33.23.13.33.23.33.24.74.03.1

Source: Population Census Organization & Ministry of Planning & Dev. Division

Population Growth

2

2.5

3

3.5

4

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

(Per

cent

)

Growth Rate (%)


The growing population and relatively lesser

investment in education in the past have

contributed in adding the number of illiterates in

the country, which have more than doubled from

22 million in 1961 to 54 million in 2001. The adult

literacy rate increased from 49 percent to 50.5

percent in 2001-02 - an increase of 1.5 percentage

points. Both male and female literacy rates have

also increased over the last year. While male

literacy rate increased from 61.3 percent to 63

percent, female literacy rate improved from 36.8

percent to 38 percent. Realizing the importance of

improving the country's social indicators in

general and education in particular the

government has prepared a medium-to-long run

program with a view to educating its citizen

under the Education for All Program.

Few policies have promoted development

as powerfully as effective investment in human

resources. The most important asset of any nation

is its people. A weak social profile is an indicator

of a waste of human potential. For effective

participation in the process of globalization, a

strong human capital base and investment in

human capital, particularly in education, are

essential. The present government is fully

committed to improve human capital because

Pakistan cannot afford another decade of missed

opportunities A comprehensive human

development strategy aimed at the effective

utilization of available resources through

improved institutional mechanism has been

prepared, the details of which are well

documented in the IPRSP.

Mortality and Fertility

Mortality and fertility rates have direct

bearing on country's population growth rates.

Higher population growth rate is the result of the

decline in mortality owing to elimination of

epidemic diseases, through the adoption of

modern medical services and expansion of public

health measures. Progress has also been made in

the environment, with better water supply,

drainage and other social services. While

mortality has been decreasing, fertility has also

shown a modest decline over the recent years


2000-01. The government is making effort to

reduce it further to 4.1 percent by 2003-04. The

crude death rate (CDR) in Pakistan is estimated at

8.2 (per thousand) in 2002, which is still high, but

it was lower than 10 (per thousand) only a decade

ago.

The maternal mortality rate ranges

between 350-500 per hundred thousand live

births, consequently every year about seventeen

thousand newly born babies become motherless.

The life expectancy in Pakistan is 63.6 years, 63.7

for males and 63.4 for females. The decline in

mortality rate has been slowed when compared

with those of many other developing countries.

One of the major reasons for the slow decline of

mortality rate in Pakistan is perhaps the

phenomenon of repeated pregnancies and births,

which is closely associated with the health and

mortality rate of infants, children and mothers.

The Infant Mortality Rate:

Despite considerable decline in total

mortality in Pakistan, infant mortality has been

quite high. It is estimated at 85 per thousand live

births in 2002. The major reasons for high rate of

infant and child mortality are diarrhea and

pneumonia.

The demographic indicators i.e. total

fertility rate (TFR), Crude Birth Rate (CBR), Crude

Death Rate(CDR), Infant Mortality Rate (IMR)

and Life expectancy in the country are given in

Table-13.3.


Table 13.3Selected Demographic Indicators

Indicators Year

(1995)

Year

(2002)

Total Fertility Rate (IFR) 5.7 4.1

Crude Birth Rate (CBR) 41 28.7

Crude Death Rate (CDR) 11 8.2

Growth Rate 2.63 2.05

Infant Mortality Rate

(IMR)

97 85

Life Expectancy

Male

Female

59

-

-

63.6

63.7

63.4

Source: Ministry of Planning & Development

Division.

The higher population growth

experienced over the past several years has been

mainly due to the reduction in mortality rate

accompanied by fairly slow decline in fertility

rates. It may be noted that fertility decline follows

drop in mortality with some lags. This trend has

also been observed in East Asia. Pakistan

continues to maintain a relatively high rate of

population growth mainly due to its broad-based

age pyramid, declining mortality, recent

downward trend in infant deaths and an increase

in life expectancy at birth.

POPULATION DISTRIBUTION:

i) Provincial distribution:

The population of Pakistan is unevenly

distributed over its four provinces (Punjab, Sindh,

NWFP and Baluchistan) and Federally

Administered Areas (FATA) and Federal Capital

Islamabad. Table-13.4 reflects province and area

wise population.

Table 13.4Province Wise Population, Land Area and Percent Distribution

1951, 1981, 1998 AND 2002(Thousand)

PROVINCE Area Sq.kms Year 1951 Year 1981 Year 1998 Year 2002PAKISTAN 796095

(100)33816(100)

84254(100)

130,600(100)

145,445(100)

NWFP 74521(9.1)

45879(13.6)

11061(13.1)

17,555(13.3)

19,593(13.54)

FATA 27220(3.4)

1337(3.9)

2199(2.6)

3,138(2.4)

3,432(2.3)

PUNJAB 205344(25.8)

20557(60.8)

47292(56.1)

72,585(55.59)

80,645(55.5)

SINDH 140914(17.7)

6054(17.9)

19229(22.6)

29,991(22.97)

33,558(23.0)

BALUCHISTAN 347190(43.6)

1187(3.5)

4332(5.1)

6,510(4.99)

7,264(5.0)

ISLAMABAD 906(0.1)

94(0.3)

340(0.4)

799(0.61)

951(0.70)

Source: Population Census Reports & Planning Commission.

The above Table reflects that the province of

NWFP is having 9.1% of the total area and 13.54%

of the population; Punjab 25.8% of area and 55.5%

of population; Sindh 17.7% of area and 23% of

population; and Baluchistan 43.6% of area and

only 5.0% of population. The federal capital,

Islamabad has 0.1% of area and 0.70% of

population.


ii) Population density:Table-13.5 reflects the increase in population

density across different provinces over the last 50

years.

Table 13.5Province Wise Population Density

(1951-2002)(Population in Million)

PROVINCE(Area Kms)

1951Population(density)




Percent Change During______________________

(1951-81) (1981-98) (1998-02)Pakistan(796095)

33816(43)

84254(106)

130,600(164)

145.445(183)

147 55 12

NWFP(74521)

4587(62)

11061(148)

17,555(235)

19.93(262)

138 59 12

FATA(27220)

1336(49)

2198(81)

3,138(235)

3.432(123)

65 42 7

PUNJAB(205344)

20556(100)

47292(230)

72.585(353)

80.645(393)

130 54 9

SINDH(140914)

6054(43)

19028(135)

29,991(213)

33.558(237)

232 58 11

BALUCHISTAN(347190)

1187(3)

4332(12)

6,510(19)

7.264(21)

300 58 11

ISLAMABAD(906)

94(104)

340(376)

0.799(881)

951(1026)

262 134 17

Source: Ministry of Planning & Development Division.

As shown in Table, population density

has increased from 43 (1951) to 183 (2002) persons

per sq.km. During the year 2002, population

density ranges between 1026 persons per sq.

kilometer in Islamabad (capital) and 21 persons in

Baluchistan province. The most populous

province is Punjab, having population density of

393 persons, followed by NWFP 262, Sindh 237

and FATA 123 persons per sq.km. During 1981-98

population density of Pakistan increased by 55

percent. The highest increase has been observed

in the case of Islamabad. All the four provinces

have witnessed increase in the range of 54 to 59

percent.

iii) Urban-rural distribution

The urban population at the time of

independence was 5 million (15.4%), in 1981, 23.84

million (28%) and in 1998 it was 42.445 million

(32.5%). During the period 1981 to 1998 the total

population increased by 55 percent whereas the

urban and rural population have increased by 60

percent and 40 percent, respectively.

Population Welfare Programme

Pakistan is now the seventh most

populous country in the world. Its population

growth rate has slowed in recent years from an

average of slightly above 3 percent to 2.16 percent

in 2002. Various population welfare programs

have been launched to reduce the size of the

population growth rate.

Population Welfare Programme is an on-

going national endeavour providing information

and services to the target population to encourage


voluntary adoption of birth spacing. It is pursued

within the reproductive health framework in

order to broaden the scope of activities and

provide appropriate context and options for

family planning. In the next three years, the

population growth rate (PGR) is to be reduced to

1.8%. The thrust of the Programme is, therefore, to

reinforce the activities and speed-up

implementation of reproductive health package,

address unmet need for family planning and

improve the quality of services.

Major activities pursued during the year:-

a) Service Delivery Infrastructure:

The service delivery comprises

programme outlets and service units of Provincial

Line Departments (PLDs), target group

institutions, and private sector undertaking civil

society initiative. The entire network consists of

1,688 family welfare centers (FWCs), 106

Reproductive Health Services (RHS) Centres, 131

Mobile Service Units (MSUs), 500 outlets of Target

Group Institutions (TGIs), 7191 outlets of

Provincial Line Department (PLDs) including

those of Provincial Health Departments.

Population welfare program offers wide range of

family planning services including motivation,

counseling, IEC material, full choice of

contraceptives and contraceptive surgery. To

augment the family planning component of

Primary Heath Care & FP Project bare 11000

Village Based Family Planning Workers (Female)

have been transferred to Ministry of Health to

form a unified cadre of Family Health Workers.

The responsibility to undertake services at the

grass root level are being envisaged to be handled

by male workers especially with regard to male

involvement in the Population Welfare

Programme. With the existing work of about 1052

male workers, need is now felt to expand the male

village based family planning workers to 7000.

b) Social Marketing of Contraceptives:

Social Marketing activities are

complementing the efforts of population welfare

programme in providing conventional and

hormonal contraceptives at subsidized rates to the

low and middle groups of population in the urban

and peri-urban areas of the country through about

62,000 outlets. The interim results are encouraging

and continued donor support for the Programme

is expected. Ministry of Population Welfare has

also endorsed Social Marketing of Contraceptives

(SMC) expansion of program to meet the target of

2.3 million Couple Year Protection (CYP) by 2004.

Donor grant assistance is being sought.

c) Advocacy and Information Educationand Communication(IEC):

The Advocacy & IEC has attained an

almost universal level of awareness i.e. about 97%

but the contraceptives use rate is only 29%. There

is still a wide gap between knowledge and

practise in spite of the fact that there is an unmet

need of 33%. The challenge is to address the

unmet need and convert this into service users.

Advocacy and IEC can make major contribution

in this regard. A comprehensive IEC campaign is

being maintained within the prevailing cultural

values and by using multiple media channel with

special attention to advocacy. Focus is being given

to regional and local programs to present

messages in local context. Messages and media

are being developed for specific groups and

potential new users.

d) Capacity Building:

Capacity building activities cover clinical

and non-clinical training at various levels. These

include 18 month basic training of 340 Family

Welfare Workers/Counselors, 3-month training of

70 Field Officers, Short-term training of 350


Medical Personnel of Provincial Line Departments

and Target Group Institutions and others,

advance-on the job training of 1100 Paramedics of

the programme, and 70 Paramedics of NGOs. In

addition, 120 faculty members of Training

Institutes will also be imparted training by June,

2002. Similarly, non-clinical training-orientation

activities cover 912 programme personnel, 2100

employees of other Nation Building Departments,

1600 personnel of organized sector and 8900

community-based Groups during the year. The

emphasis of non-clinical training has been shifted

from development of programme personnel to

Community Based Groups like the newly elected

public representatives.

e) Monitoring and Evaluation:

Monitoring of the programme activities

being a regular process is undertaken under

management information system (MIS) through

field monitoring and by holding review sessions.

This has further been intensified through surprise

visits by officers from the Ministry and by team of

provincial monitoring and evaluation cells to

various categories of service delivery outlets.

Contraceptive performance for the year

2000-2001 and 2001-2002 is given below in Table

13.6.

Table13.6Contraceptive Performance During 2000-01 and 2001-02

July2000 - June, 2001 July, 2001 - January, 2002MethodScheduleof Cont.

Mix

Achievement PercentageAchievement

Scheduleof Cont.

Mix

Achievement PercentageAchievement

Condom(Units)

214.750 119.869 55.86 135.872 73.181 53.86

Oral Pill(Cycles)

9.523 4.239 44.51 7.005 2.526 36.06

IUD(Insertions)

1.037 0.877 84.57 0.709 0.565 79.69

Injectable(Vials)

3.108 1.730 55.66 2.543 1.059 41.64

Cont.Surgery(Cases)

0.242 0.122 50.41 0.178 0.072 40.45

Source: Ministry of Population Welfare.

The emphasis of the programme is to

reach the desirous couples for meeting their

service needs. In this context, a mapping exercise

has been completed to systematically extend

coverage, improve access in order to avoid

duplication and fill the gaps. National standards

for family planning have been formulated and

disseminated to service providers to improve

quality of care. Training/orientations have been

accelerated to ensure application of the prescribed

standard for improving quality of services.

LABOUR FORCE AND EMPLOYMENT

On the basis of estimated population of

145.96 million for mid-year 2002, the total labour

force comes to 41.54 million. Of this 28.12 million

or 67.69 percent is in the rural areas and 13.42

million or 32.31 percent in the urban areas.

Distribution of labour force from 1995 to 2002 by

rural-urban areas is given in Table-13.7.


Table 13.7Labour Force Since 1995 to 2002

Labour Force Rural UrbanYear Population

(Mid year)

(Million)Million Annual

Growth

Million % Share Million % Share

1995

1996

1997

1998

1999

2000

2001

2002

124.49

127.51

130.56

133.61

136.69

139.76

142.86

145.96

33.60

34.43

36.84

38.64

39.52

39.84

40.69

41.54

-

2.4

70

4.8

2.3

0.8

2.1

2.1

23.37

23.83

25.56

27.09

27.56

27.31

27.73

28.12

69.55

69.21

69.38

70.11

69.74

68.55

68.15

67.69

10.23

10.60

11.28

11.55

11.96

12.53

12.96

13.42

30.45

30.79

30.62

29.89

30.26

31.45

31.85

32.31

Source: Labour Force Survey 1999-2000.

Labour Force Participation Rate

In Pakistan, labour force participation is

estimated on the basis of Crude Activity Rate

(CAR) and Refined Activity Rate (RAR). The CAR

is the percentage of labour force in total

population and the RAR is the percentage of

labour force in population of persons having 10

years of age and above. According to the Labour

Force Survey, 1999-2000 the overall labour force

participation rate (CAR) is 29 percent (29.8

percent in rural areas and 27.1 percent in urban

areas). The CAR was 27.5 percent in 1994-95. It

increased to 28.7 percent in 1996-97 and 29.4

percent in 1997-98 but has slightly decreased to 29

percent in 1999-2000. Similarly RAR was 41.2

percent in 1994-95, increased to 43.0 in 1996-97,

and further to 43.3 percent in 1997-98 but has

declined to 42.8 percent in 1999-2000.

Inter-comparison of rural and urban

participation rates reveals that labour force

participation rates are higher in rural areas as

compared to urban areas because Pakistan's

economy is mainly agrarian in nature and

agriculture is treated as a family occupation in

rural areas. The female labour force participation

rate is far less as compared to male participation

rate and as such their participation in economic

activities is low. The crude and refined labour

force participation rates by area and sex for 1994-

95, 1996-97, 1997-98 and 1999-2002 are given in

Table 13.8.

Employment Situation

Employed labour force is defined as all

persons of ten years of age and more who worked

at least one hour during the reference period and

were either "paid employees" or "self employed".

Based on this definition, the total number of

employed labuor force in 2002 is estimated at

38.29 million compared to 37.51 million in 2001 —

an increase of 2.1 percent. The total number of

employed persons in urban areas has increased

from 11.70 million in 2001 to 12.12 million in 2002.

Similarly rural employment increased from 25.81

million in 2001 to 26.17 million in 2002.

Distribution of employed labour force by

urban/rural areas from 1995 to 2002 is given in

Table 13.9


Table 13.8Labour Force Participation Rates by Area and Sex

(Percent)

Crude Activity Rate (CAR) Refined Activity Rate (RAR)YearPakistan Rural Urban Pakistan Rural Urban

1999-2000Both SexesMaleFemale




29.047.69.3

29.448.09.4

28.747.09.0

27.545.97.6

29.848.210.7

30.648.411.5

29.447.210.5

28.046.08.7

27.146.56.3

27.047.15.3

27.146.55.9

26.145.74.9

42.870.413.7

43.370.513.9

43.070.013.6

41.269.111.4

45.173.116.1

46.473.417.4

45.171.816.3

43.171.313.2

38.165.08.8

37.765.27.4

38.966.58.4

37.064.37.0

Source: Labour Force Survey.

Table 13.9Employed Labour Force by Area

Rural Urbanyear Employed

labour Force

(Million)

Annual

Growth (%) No. (Million) % Share No. (Million) % Share

1995

1996

1997

1998

1999

2000

2001

2002

31.80

32.58

34.59

36.36

37.19

36.72

37.51

38.29

0.3

2.5

6.2

5.1

2.3

-1.3

2.2

2.1

22.25

22.69

24.12

25.74

26.19

25.42

25.81

26.17

70.00

69.64

69.73

70.79

70.42

69.23

68.81

68.35

9.55

9.89

10.47

10.62

11.00

11.30

11.70

12.12

30.00

30.36

30.27

29.21

29.58

30.77

31.19

31.65

Source: Labour Force Survey 1999-2000.

Employed Labour Force By Sectors.

The agriculture sector is the largest

employer of labour force in the country,

employing 48.42 percent of total employed in 2002

compared with 47.25 percent in 1998. The relative

share of employed labour force in the services

sector which was 16.23 percent in 1998, has


declined to 15.02 percent in 2002. The share of

trade sector has also decreased from 13.87 percent

in 1998 to 13.50 percent in 2002. However the

share of manufacturing sector has increased from

10.15 percent in 1998 to 11.25 percent in 2002. The

construction and transport sectors have absorbed

5.78 percent and 5.03 percent of labour force,

respectively in 2002 compared to 6.26 percent and

5.48 percent in 1998.

Employed labour force by sectors for 1998

and 2002 alongwith its sectoral share is presented

in Table 13.10

Table 13.10Employed Labour Force by Sectors

1998 2002SectorNo.(Million) % Share No.(Million) % Share

AgricultureManufacturing & MiningConstructionWholesale & Retail TradeTransport

Fin., Insurance, Community & ServicesOthersTotal

17.183.692.285.041.99

5.900.2836.36

47.2510.156.2613.875.48

16.230.76

100.00

18.544.422.215.171.93

5.750.2738.29

48.4211.255.7813.505.03

15.020.70

100.00Source: Labour Force Survey 1999-2000.

Employment by Occupation

Information pertaining to employment by

major occupational group is documented in Table

13.11. A cursory look at the table reveals that

almost 40 percent of labor force is skilled

agricultural and fisheries workers followed by

unskilled group. Craft and related trades workers

accounted for 15 percent of employed labour force

and the white color workers accounted for 11

percent.

Table 13.11Employed Persons by Major Occupational Groups

1998 2002Major Occupational GroupNo.(Million) % Share No.(Million) % Share

Legislators, Senior Officers & managers.Professional.Technicians & associate professionalsClerks.Service workers and shop & market salesworkers.Skilled agricultural and fishery workers.Craft and related trades workers.Plant & machine operators & assemblers.Elementary (unskilled occupations).

3.551.101.060.67

2.1914.514.621.347.32

9.673.002.951.84

6.0239.9112.713.68

20.13

4.210.851.600.59

1.7515.335.761.266.94

11.002.214.171.55

4.5840.0315.053.28

18.13Total 36.36 100.00 38.29 100.00

Source: Labour Force Survey 1999-2000


Unemployment

Unemployment is defined as all persons

ten years of age and above who during the period

under reference, were (a) without work i.e. were

not in paid employment or self-employed, (b)

currently available for work i.e. were available for

paid employment or self-employment and (c)

seeking work i.e. had taken specific steps in a

specified period to seek paid employment or self-

employment. According to this definition, about

3.25 million persons in the labour force were

estimated as unemployed in 2002 compared to

3.18 million in 2001. Unemployed labour force by

urban/rural areas from 1995 to 2002 is given in

Table-13.12

Table 13.12Un-employment Rate Since 1995 to 2002

Unemployed Labour Force % Unemployment Rate (%)Year Population(Mid year) Total Rural Urban Total Rural Urban

19951996199719981999200020012002

124.49127.51130.56133.61136.69139.76142.86145.96

1.801.852.252.282.333.123.183.25

1.121.141.441.351.371.901.921.95

0.680.710.810.930.961.221.261.30

5.375.376.125.895.897.827.827.82

4.804.805.654.984.986.946.946.94

6.906.907.177.957.959.929.929.92

Source: Labour Force Survey 1994-95, 1996-97, 1997-98 and 1999-2000.

Employment Promotion Policies

There is a clear and perceptible evidence

that the growth performance of Pakistan's

economy has deteriorated in the 1990s. Against an

average growth rate of more than 6 percent per

annum in the 1980s, the real GDP growth slowed

to an average of 4 percent in the 1990s. More so,

the real GDP growth slowed to an average of 2.7

percent during 1996-99. The slower economic

growth restrained the economy's capacity to

generate employment and as such unemployment

also rose in the 1990s from 3.1 percent to 7.8

percent.

The best way to create employment is to

promote economic growth. Higher economic

growth is likely to create demand for labour

which will, in turn, reduce unemployment. It is

well-known that taking the economy from a low

and declining growth path to a higher and

sustainable growth path is a daunting task. Given

the state of unemployment in the country, the

Government has identified four major drivers of

growth, namely, agriculture, oil and gas, small

and medium enterprises (SMEs), and information

technology. With relatively lesser investment

more employment opportunities can be created.

Agriculture and SMEs have the greatest potential

of not only generating growth but also creating

employment opportunities. Informational

technology has the potential to create jobs for

educated unemployed youth and oil and gas

sectors to attract foreign investment which can

contribute in accelerating economic growth. Over

the medium-term the country's economic growth

is projected to accelerate to 5.2 - 5.5 percent and

pro-poor nature of growth would likely to create

more employment.

The government has also launched small

public works programme, namely the Khushhal


Pakistan Programme. An allocation of Rs.15

billion was made in 2001-02 and so far Rs.24

billion has been spent on this programme which

has created about 1.0 million temporary jobs in

the rural areas and adjacent small towns. To

promote SME sector the government has also set

up SME Bank on January 1, 2002. The Bank is

providing small loans in the SME sector. The Bank

has disbursed so far Rs.95 million for 330 projects

which have created about one thousand jobs. The

government has also established Khushhali Bank

with a view to improving poor peoples access to

credit and making them self-employed. In five

years time the Bank aims to provide loans to

600,000 people with loan portfolio of Rs.7.6

billion.

Technical/vocational training enhances

employability of the work force. Based on the

changing trends of the economy and the demand

for industry-wise and sector-wise skilled labour,

the existing technical training curricula is being

revised. Under the new training policy, women

shall be encouraged to fully participate in the

training programmes of the country so that they

are brought in the mainstream through the

formal, informal ad apprenticeship training. In

order to develop a skilled labour force, the

Ministry of Labour, Manpower & Overseas

Pakistanis has established Skill Development

Councils (SDCs). The SDCs assess the training

needs of their geographical areas, prioritize them

on the basis of market demand and facilitate

training of workers through training providers in

the public and private sectors. Further initiatives

are being undertaken to involve the private sector

more actively in expanding technical vocational

training in line with labor market needs.

During the year 2001 about 130,041

persons have been sent abroad as compared to

110,136 persons sent during the year 2000 which is

18 percent higher as compared to last year. Efforts

are being made to explore more overseas

employment opportunities for Pakistani

workforce. In order to facilitate Pakistanis seeking

employment abroad in professional/highly

skilled areas the Overseas Employment

Corporation has established a data bank for the

interested emigrants and has launched the "CV-

on-line Scheme for Overseas Employment

Promotion".

Women are about half of the nation's

population, but in the past this segment of society

remained neglected. Economic empowerment of

women is a primary objective of the growth.

Special efforts are being made to enhance their

employability through education and vocational

training responsive to the job market. Steps have

been taken to provide Greater access to women

for micro credit through Programmes such as the

First Women Bank and the Agriculture

Development Bank of Pakistan. The new

Khushhali Bank also focuses particularly on

women for credit.

______________

Chapter 14. Transport and Communications

14. Transport and CommunicationsTransport sector comprises several modes

(road, rail, maritime, inland waterway, aviation,

and urban transport). Each mode involves

infrastructure (roadways, rail tracks, ports,

airports, terminals, sidewalks, footpaths and

footbridges and so on) and services (such as

trucking, shipping, bus passenger transport and

bicycle-taxi). Each mode also provides several

types of services, which can be identified by both

geographic coverage, (international, domestic,

rural, urban, and community) and by users

(passenger and freight). Users are also a diverse

group with transport needs that differ widely __

for example, across rural and urban areas,

between gender and for persons of different ages

or with disabilities, and for motorized and non-

motorized (NMT) transport services.

A country’s ability to unleash its

economic potential is closely linked to the

efficiency of its transport system. Transport is also

an integral part of almost all daily subsistence and

social activities. Poor households transport their

water, fuel, and food. They need transport to get

to markets, jobs, and health clinics. The likelihood

that the children of poor families will go to

secondary schools, especially girl child, is much

higher if there are reliable and affordable

transport services. Better transport facilitates poor

people’s participation in social and political

processes. Without well-defined and effective

transport policies and strategies poor people will

not be able to accumulate enough human,

physical, financial, and social assets to move

ahead. Transport, therefore has to be an integral

part of a country’s poverty reduction strategy.

Poverty is associated with very low income and

consumption and is manifested in many

dimensions—malnutrition, illiteracy, vulnera-

bility, physical isolation, and political and social

exclusion. Each of these dimensions tends to

reinforce the others and they share important

transport linkages. Good transport policy also

contributes to reduce poverty in all its dimensions

and stimulates economic and social development

and inclusion. Better access to markets creates

economic opportunities for poor people to sell

their labour and products. Better transport

infrastructure and services facilitate access to

schools and health clinics. Good transport policy

contributes to economic growth by lowering

transaction costs, promoting economies of scale

and specialization, and hence lowering domestic

production costs, widening opportunities and

extending connection to rural hinterlands,

expanding trade, integrating markets, and

strengthening effective competition.

A. ROAD NETWORK

Road transport in industrialized,

developing and transition economies continues to

grow at 1.5 to 2.0 times the growth of GDP. This is

significantly higher than the rate of growth of the

government’s tax revenues making it increasingly

difficult for governments to fully-finance the

needs of the road sector maintenance, upgrading,

modernization of outdated networks, and

expansion through the consolidated fund. At the

same time, countries all over the world are

realizing that roads are big business.

Governments are responding to this state of


affairs in three main ways: (i) by tolling their

express way network, (ii) by restructuring their

road agencies to put them on a more commercial

basis, and (iii) by financing the balance of the un-

tolled network (often 98 percent or more of the

road network). Countries are increasingly

bringing road into the market place and putting

them on a fee for service basis. In other words,

they are commercializing the provision of road

services.

Pakistan’s achievement in building high

and low types of roads has been quite credible.

The total roads which were 170,823 KM in 1990-

91, increased to 249,959 in 2000-01 and further to

251,661 KM in 2001-02 or 47.3 percent higher than

1990-91. During the out going fiscal year the

length of high typed roads have increased by 7.3

percent over the last year but the length of low

type roads has declined by almost the same

percentage point. In other words, the low type

roads were converted in to high type roads. This

has been made possible through the Khushal

Pakistan Program, which has undertaken many

projects for improving rural infrastructure. The

annual growth of the roads in Pakistan since 1990-

91 to 2001-02 is given in Table 14.1 and Fig-1

Table 14.1Length of Roads

(Kilometers)

Fiscal Year High Type %Change Low Type %Change Total % Change1990-91 86,839 - 83,984 - 170,823 -1991-92 95,374 9.8 87,335 4.0 182,709 7.01992-93 99,083 3.9 90,238 3.3 189,321 3.61993-94 104,001 5.0 92,816 2.9 196,817 4.01994-95 111,307 7.0 96,338 3.8 207,645 5.51995-96 118,428 6.4 99,917 3.7 218,345 5.21996-97 126,117 6.5 103,478 3.6 229,595 5.21997-98 133,462 5.8 107,423 3.8 240,885 4.91998-99 137,352 2.9 110,132 2.5 247,484 2.71999-2000 138,200 0.6 110,140 0 248,340 0.32000-012001-02*

138,726148,877

0.47.3

111,233102,784

1.0-7.6

249,959251,661

0.70.7

* Estimated Source: Ministry of Communications

National Highway Authority (NHA)

The government of Pakistan has taken

various steps to improve the transport and

communication network. The functions assigned

to NHA are “Plan, promote, organize and

implement programs for construction,

development, operation, repairs and maintenance

of National Highways/Motorways and Strategic

Roads.

Fig-1: Length of Roads

5000070000900001E+051E+052E+052E+05

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

00-0

1

2001

-02(

Jul-

Mar

)

Kilo

met

ers

Hight Type Road Low Type Road


The NHA being Pakistan’s premier road

management and regulatory agency is the

custodian of 17 National Highways, Motorways

and Strategic Roads. Road transport dominates

the transport sector and presently carries over 85

percent of inland passengers and freight traffic,

over a 251,661 kms of road network. The National

Highway network consisting of 8,845 Km is 3.6

percent of the total road length in Pakistan but

accounts for 65 percent of the entire country’s

passengers and freight traffic.

The NHA is currently engaged in

completing the 11 road projects of National

Highway. As regards Motorway Projects, the

Lahore-Islamabad section (M-2) has already been

completed and in operation since 1997. The work

on Peshawar-Islamabad (M-1) and Pindi Bhattian-

Faisalabad (M-3) are in progress. Details of

existing road network with its present

implementation status are given in the Box-1

Box-1Road Projects

a) National Highway Projects

i) N-5 Karachi-Lahore Peshawar-Torkham Highway-The whole N-5 has been dualized with about Rs. 28 billion except Hala Moro (114 Km) andRahim Yar Khan-TMP (80 Km) sections, on which work is full swing and will be completed byMarch 2003.

ii) N-10 Makran Costal Road (653 Km):- The work on Liari- Ormara section (248 Km) of Makran Coastal Road is in progress. 91-Kmroad has been constructed while work from 91 to 127 Km is in progress.- Gwadar-Pasni Section (123 Km) about 2 percent work is completed.

iii) N-15 Kaghan Valley Road (175 Km):

- The project is 72 percent complete. Completion date is December 2002.

iv) N-25 Karachi-Khuzdar-Quetta-Chaman Highway(816 Km):The highway is being widened and improved to international standards. Wad-Khuzdar-Sorab(160 Km), Uthal-Bela (69 Km), Sorab-Kalat (74 Km) sections of N-25 has been completed.

iv) N-35 Hassanabadal-Gilgit-Khungrab (803 Km):- Chillas-Khunjrab (Section-II) is almost complete while work on Thakot Chillas (Section-I) is inprogress and about 85 percent work has been completed.

v) N-40 Lakpass-Dalbandin-Nokundi-Taftan (610 Km):Nokundi-Taftan section 124 Km has been widened and improved.

vi) N-50 Quetta (Kuchlac)-Muslim Bagh-Zhob-D.I.Khan Highway (528 Km):About 46 percent roadwork of D.I.Khan—Mughal Kot section completed. Expected completiondate is March 2004.

vii) N-55 Indus Highway (1265 Km):Work on upgradation of Phase-I & II from Kotri- Manjhad (58 Km), Manjhad.- Sehwan(70Km), Karappa Chowk-Badabher (51 Km), Ratodero- Ghauspur (98 Km), Ghauspur-Shorinullah (76 Km), Shorinullah- Rajanpur (96 Km), D.G.Khan- Retra Jn. (113 Km), Retra Jn.-Malana Jn. (85 Km), Serai Gambila-Karak (60 Km) and Karak-Karapa Chowk (36 Km) has beencompleted.


- Phase-III Sehwan-Ratodero (205 Km), Rananpur-D.G.Khan (110 Km), and MalanaJunction-Serai Gambila (112 Km) has been designed.

- Construction work on 30 Km Kohat Tunnel Project (1.88 Km tunnel and 28 Km accessroads) is in progress. Todate progress is 57 percent. The project is expected to becompleted by July 2003.

viii) N-65 Sukkur-Sibi-Quetta Highway (385 Km):Work on 60 Km Dera Allah Yar- Nutal section of N-65 is in progress, about 8 percentconstruction work completed.

- Work on Nutal—Sibi section (81 Km) also being started.

- The construction/replacement of existing steel bridges on (N-65) have been almostcompleted.

x) N-70 Multan-D.G.Khan-Qila Saifullah Highway (439):The entire N-70 has been designed. Work on Qila Saifullah-Loralai Bewata Section (257 Km) isgoing to start.

xi) N-75 Islamabad-Muzaffarabad Road (90 Km)- Additional Carriageway from Barakahu to Satra Mile (5 Km) completed.

- Work on Satra Mile to Lower Topa dual carriageway (41 Km) is in progress, 22percent work completed.

b) Miscellaneous Projects

i) Karachi Northern Bypass (56.8 Km)- Construction work has been started in April 2002. Project will be completed in 36

months.

ii) Lyari Expressway (16.5 Km)- Construction work has been started in the April 2002. The project will be completed in

36 months.

iii) Bund Road LahoreRehabilitation work on 10.1 Km long Bund Road from Chowk Yateem Khana to Niazi Chowk,78 percent work completed.

iv) Ghazi Ghat BridgeRehabilitation work on Ghazi Ghat Bridge has been completed.

v) Sukkar Bypass including 1.6 Km long bridge on River Indus (11.5 Km)Projected completed.

vi) Chiniot Bridge ProjectProjected completed.


vii) Tall-Parachinar (75 Km) Road project completed.

viii) Ratodero-Shahdadkot-Quba Saeed Khan 64 Km section is in progress. 75 percent work completed.

ix) Abbottabad-Nathiagali-Barian-Murree Road. Project completed.

x) Rawalpindi Urban Area Project- Qasim Market to Golra More has been completed.- Golra More to M-2 interchange is nearly completion.- Pir Wadhai round about is almost complete.-

xi) Installation of Toll PlazaA fee-for –use culture in Pakistan has been introduced. Toll Plaza’s at 47 locations all over thePakistan have been established and are operational since October 1999.

B. PAKISTAN RAILWAYS

Pakistan Railways is still a major mode of

transport in the public sector spreading over the

entire country from East to West and South to

North; and playing an important role in the

country’s economy by catering to the needs of

large-scale movement of freight as well as

passenger traffic. Pakistan Railways is not only

contributing to the country’s economic

development but also promoting national

integration. With shifting of priorities to road

sector as a mode of transport, the performance of

Pakistan Railways started deteriorating since the

1980s. Neglect of successive governments, lack of

investment in this sector, management

inefficiencies, unhealthy trade unionism, and

corruption have been responsible for the decay of

Pakistan Railways over the last many years.

Presently about 55 percent of infrastructure and

rolling stock is overage, it has, however,

improved from the last year’s level of 60 percent.

The present Government took note of the

situation and introduced structural and

management changes in the system--declaring

railway as main system of transportation in the

country. In this connection, emergency repair plan

amounting to Rs. 3.897 billion approved by the

Government for the Railway sector in December

1999 is being implemented. Under this plan

replacement of 85 Kms of overage rails and 187

Kms of overage sleepers, rehabilitation of 240

passenger coaches and rehabilitation of 1000

freight wagons will be completed by June 2002. In

addition, the Government has approved a

rehabilitation plan amounting to Rs. 40 billion for

5 years (2001-06). The rehabilitation plan has been

made part of 10-years perspective plan (2001-10)

announced by the Government of Pakistan. An

allocation of Rs. 105 billion has been made for the

Railways in the 10 years perspective plan to

rehabilitate and modernize the infrastructure,

rolling stock, signaling and telecommunication

facilities over the Railways network. The major

projects include procurement/manufacture of 169

diesel engines, locomotives, procurement/

manufacture of 575 passenger coaches,

procurement/manufacture of 1600 high capacity

wagons, rehabilitation of 136 locomotives,

rehabilitation of 450 passenger coaches,


procurement/manufacture of 45 electric

locomotives, doubling of track from Lodhran to

Peshawar and Lahore to Faisalabad, extension of

existing electric traction from Khanewal--Rohri

and replacement of out dated telecommunication

and signaling system. An amount of Rs. 6,369

million has been provided for development

programme for the year 2001-02. The major

activities include rail renewal of 79 Kms and

sleeper renewal of 194 Kms, rehabilitation of 16

diesel electric locomotives, and rehabilitation of

102 passenger coaches. The performance of

Pakistan Railways can be seen from Table 14.2

Table 14.2Performance of Pakistan Railways

Year RouteKilometers

Number ofpassengers

carried(Million)

Freightcarried(Milliontones)

Freight TonesKm

(Million)

Locomotives(No.)

Freightwagons

(No)

1990-91 8,775 84.9 7.7 5,709 753 34,851

1991-92 8,775 73.3 7.6 5,962 752 30,3691992-93 8,775 59.0 7.8 6,180 703 29,4511993-94 8,775 61.7 8.0 5,938 676 29,2281994-95 8,775 67.7 8.1 5,661 678 30,1171995-96 8,775 73.6 6.8 5,077 622 26,7551996-97 8,775 68.8 6.4 4,607 633 25,2131997-98 8,775 64.9 6.0 4,447 611 24,2751998-99 7,791 64.9 5.4 3,967 596 24,4561999-002000-01

7,7917,791

68.068.8

4.85.9

3,6124,520

597613

23,90623,563

July-March2000-01 7,791 52.4 4.3 3,205 599 23,4592001-02* 7,791 49.2 4.0 3,341 610 22,192

*Provisional Source: Ministry of Railways

The share of Railways in respect of

passenger traffic has declined from 13.5 percent in

1990-91 to 8.6 percent in 2000-01. The share of

freight traffic has declined from 14 percent to 4

percent in the same period. However, as far as

freight traffic is concerned, it has improved from

3.4 percent in 1999-2000 to 4 percent in 2000-01.

Pakistan Railways registered an impressive

recovery in 2000-01 when freight traffic increased

by 25 percent as against an average decline of 4.8

percent per annum in the 1990s. The same

positive growth has been maintained in the first

nine months of the current fiscal year.

Furthermore, as against an average decline in

passenger traffic by 0.7 percent per annum during

the 1990s, passenger traffic of Pakistan Railways

has increased by 5.9 percent in 2000-01 and

further by 2.4 percent in the first nine months of

the current fiscal year. Maintaining a positive

growth for two successive years can be attributed

to the various improvement made by Pakistan

Railways in its services, timeliness and cleaniless.

This trend is reported in Table 14.3 and Fig-2 &

Fig-3.


Table 14.3Trend of Passengers Traffic and Freight Traffic

(Road vs Rail)Passenger Traffic(Million passenger Km) Freight(Million Ton KM)Year

Road %Change Rail %Change Road % Change Rail %Change1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01(Jul-Mar)2000-012001-02

128,000131,352135,000137,037146,132154,566163,751173,857185,236196,692*208,370*

156,277*167,816**

-2.62.81.56.65.85.96.26.56.25.9

-7.4

19,96418,15817,08216,38517,54518,90519,11418,77418,98018,49519,590

14,51714,867*

--9.0-5.9-4.17.17.81.1-1.81.1-2.65.9

-2.4

35,21141,53653,71971,59675,77079,90084,34589,52795,246101,261107,085*

80,314*89,535**

-18.029.333.35.85.55.66.16.46.3

5.7

-11.5

5,7095,9626,1805,9385,6615,0774,6074,4473,9673,6124,520

3,2053,341*

-4.43.7-3.9-4.7-10.3-9.3-3.5-10.8-8.925.0

-4.2

*Provisional Source: Ministry of Railways & Ministry of Communications

**Estimated

Fig-2: Trend of Passenger Traffic

0

50

100

150

200

250

90-9

191

-92

92-9

393

-94

94-9

595

-96

96-9

797

-98

98-9

999

-00

00-0

1

00-0

1 (J

ul-M

ar)

01-0

2(Ju

l-Mar

)

(Bill

ion

Pas

sen

ger

Km

)

0

5

10

15

20

25

30

35

40

Road

Rail


Fig-3: Trend of Freight

0

20

40

60

80

100

120

90-9

191

-92

92-9

393

-94

94-9

595

-96

96-9

797

-98

98-9

999

-00

00-0

1

00-0

1 (J

ul-M

ar)

01-0

2(Ju

l-Mar

)

(Bill

ion

Ton

Km

)

0

1

2

3

4

5

6

7

8

9

10

Road

Rail

C. CIVIL AVIATION AUTHORITY

The Government has opened aviation

sector for the private sector. Presently two private

carriers are operating successfully on local and

international routes namely, M/S Shaheen Air

Lines and M/S Aero Asia Private Airline Limited.

The government plans to continue

modernization and upgrading its civil aviation

facilities. This includes the construction of new

terminal complex at Lahore Airport at the cost of

Rs.10.3 billion. Almost 80 percent of the

construction work is complete and the remaining

work is expected to be completed by end June

2002. The construction of secondary runway at

Karachi airport has been completed and

commissioned since August 2000. The

construction of a new airport in Islamabad is also

under consideration on BOOT (Build, Own,

Operate and Transfer) basis. The construction of

Concourse Hall at Quetta Airport has been

completed in August 2000 at a cost of Rs. 14.7

million. Arrival lounges at Islamabad airport have

been expanded at a cost of Rs. 68 million. To

facilitate exports, cargo sheds have been

completed at Multan and Karachi Airports during

the year 2001-02.

Pakistan International Airline (PIA)

PIA’s network covers 33 International

Stations and 21 Domestic Stations covering all

parts of the country. During the period July-

March 2001- 02, passenger capacity fell short by

15.6 percent as compared to the same period of

last year. The airline achieved 8,633 million RPKs

during the current financial year as against 9,739

million RPKs generated in same period last year.

During the period under review, seat factor

improved to 69.6 percent as against 66.3 percent

last year. A total 3.385 million passengers were

carried as compared to 4.178 million passengers in

the preceding year. The decline in passenger

traffic is attributable to unscheduled grounding of

Airbus A-300 aircraft, the events of September 11

and their aftermath, closure of Indian airspace

and reduced/non-issuance of visas to Pakistanis

by US/UK/UAE, Singapore, Thailand, Kuwait,


etc. During the period July-March 2001- 02,

despite a decline in capacity by 3.8 percent, freight

traffic improved by 6.6 percent over the same

period of last year. Freight load factor was up at

55.6 percent as compared to 50.2 percent in the

previous year. The improvement in freight traffic

was mainly due to suspension of foreign carriers

freighter operations. PIA operated total 238 flights

to ferry 90,750 Haj pilgrims from Karachi, Lahore,

Islamabad, Peshawar and Quetta. Haj operations

were completed totally with PIA’s own aircraft

and a record regularity of about 95 percent was

achieved. PIA’s aircraft fleet as on 31st March 2002

consisted of 5 Boeing 747-200s, 5 Boeing 747-300, 8

Airbus A300B4s, 6 Airbus A310s, 7 Boeing 737s,

11 Fokker F-27s and 2 Twin Others.

The PIA management has taken various

cost-cutting and revenue enhancement measures

during the period under review. The cost –cutting

measures included: closing down of non-

productive domestic and international station,

elimination of non-productive positioning flights,

new slip patterns were evolved with lower

layover costs for cabin crew, slip allowance rates

were reduced, hotels for crew layover were

changed from expensive downtown hotels to

more economical ones at foreign stations, a

number of foreign-based PIA staff were recalled,

locally hired personals at foreign stations were

also curtailed and feeder network was

rationalized. As regards the revenue enhancement

measures, the PIA has taken a number of

measures including: increasing of domestic fares

by 15 percent, increasing of international fares to

improve yield, capacity was re-deployed from

low yield to high yield markets, productive agents

were given incentives, charges applied on voided

tickets, and penalties on agents not following

reservation system rules. There was net loss of Rs.

5,146 million during 2000 and Rs. 2,285 in the first

half of the year 2001 (January-June). As a result of

the various strategies adopted in the second half

of 2001 (July-December), PIA was able to generate

an estimated profit of Rs. 303 million. Again, in

the first quarter of the year 2002 (January-March),

PIA earned an estimated profit of Rs. 1,238

million. Thus, during the nine months from July

2001 to March 2002, PIA has earned an estimated

profit of Rs. 1,541 million as against a loss of Rs.

4,575 million during the same period last year.

The financial performance of PIA in aggregate

manner is reported in Table 14.4

Table 14.4

Financial Performance of PIA(Million Rs)

Jul-Mar*

2000-01

July-Mar*

2001-02

Revenue 33,595 35,030

Expenditure 38,170 33,489

Profit/Loss

Before Tax

(4,575) 1,541

*Estimated Source: PIA

D. PORTS & SHIPPINGa) Karachi Port Trust

The country has two major seaports;

namely, Karachi Sea Port and Port Qasim.

Besides, two Fish Harbour-cum-Mini Ports are

being developed at Gawadar and Keti Bunder.

Karachi port is a deep-water natural seaport with

long approach channel and can receive tankers,

containers, bulk and general cargo ships. It is the

main port, handling the majority of all dry and

liquid cargo. Table 14.5 and Fig-4 gives the total

cargo handled at Karachi Port since 1990-91 to

2001-02.


Table 14.5Cargo Handled at Karachi Port

(000 Tonnes)

Year Imports %Change Exports %Change Total %Change

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01July-March2000-012001-02

14,71415,26617,25617,61017,52618,71918,36217,11418,31818,14920,064

15,31515,265

-3.8

13.02.1

-0.56.8

-1.9-6.87.0

-0.910.5

--0.3

3,9955,1864,9144,9595,5724,8625,1135,5705,7355,6135,918

4,3424,792

-29.8-5.20.9

12.4-12.7

5.28.93.0

-2.15.4

-10.4

18,70920,45322,17022,56923,09823,58123,47522,68424,05323,76225,982

19,65720,057

-9.38.41.82.32.1

-0.4-3.46.0

-1.29.3

-2.0

Source: Karachi Port Trust

Fig-4: Cargo Handled at Karachi Port

0

5000

10000

15000

20000

25000

90-9

1

91-9

2

92-9

3

93-9

4

94-9

5

95-9

6

96-9

7

97-9

8

98-9

9

99-0

0

2000

-01

2000

-01(

Jul-M

ar)

2001

-02(

Jul-M

ar)

00

0 T

on

nes

Import Export

The above table shows that the total

volume of cargo handling by the KPT has

increased from 18.7 million tones in 1990-91 to

almost 26 million tones in 2000-01 (almost 39

percent). As against an average increase of Cargo

handling at Karachi Port by 2.7 percent per

annum, Cargo handling increased by almost 10

percent in 2000-01. Despite the impact of

September 11 which disrupted normal trading

activity for at least three months (October-

December). Cargo handling increased by 2.0

percent in the first nine months of the current

fiscal year. Karachi Port has established an annual

cargo handling record of about 26.0 million with

nearly zero waiting time of vessels in 2000-01.

Karachi Port has planned a number of

development schemes financed through its own

resources. These include deepening of channel,

study for deep draught berth at Kemari Grovne

and strengthening of Menora breakwater,

procurement of new floating crafts, and expansion

of Kemari Grovne complex. As regards the

deepening of channel is concerned, the KPT

intends to deepen the channel to cater for 12

meter draught ships which are the most widely

used container vessels. The deepening would not

only respond to the demand of port users but

would also be a stepping stone towards enabling

Karachi Port to reposition itself in the regional

scenario to capture new markets. Presently the

port is not adequately deep to handle such

vessels: As regards the Study for Deep Draught

Berths at Keamari Grovne and Strengthening of


Monora Breakwater, the KPT would like to

further facilitate shipping by providing deep

draught berths at Keamari Grovne. The berths

would be located at the mouth of the harbour

hence ensuring expeditious cargo

loading/unloading and swift turnaround time for

transshipment vessels having deep draughts. As

regards the procurement of new floating crafts,the flotilla of harbour crafts is regularly upgraded

to cater for the shipping requirements. Presently,

KPT has a large flotilla of tugs, pilot boats, hopper

barges and dredgers. The old crafts are being

replaced with modern and efficient equipment

ensuring agile operations. Regarding expansion of

Kemari Grovne Complex, it has been planned to

provide additional area to meet with the future

requirement of container & existing traffic and the

potential container.

b) Port Qasim

Cargo volume, inclusive of containerized

cargo, during July-March, 2001-02 stood at 9.94

million tones, comprising 8.01 million tones of

import cargo and 1.93 million tones of export

cargo as against 10.27 million tones during July-

March 2000-01, thus registering a decline of 3.2

percent. This shortfall is mainly attributed to

lower furnace oil and chemicals imports of Fauji

Oil Terminal and Engro Vopak Terminal.

Port Qasim has embarked on an

ambitious plan to upgrade and expand its

facilities to optimize its potential. Major projects

being planned and implemented include: Night

Navigation facility which has been introduced at

Port Qasim since April 15, 2002 to serve multifold

objectives to facilitate the trade and meet the ever-

growing shipping requirements. To meet the

growing shipping facilities, PQA plans to

construct two tugs and two pilot boats with

Karachi Shipyard. The 2nd Oil jetty is planned to

be constructed for handling of White Oil and

further transportation through Papco Pipeline

being laid from Port Qasim to Mahmood Kot near

Multan.To facilitate efficient handling of edible oil

and export of molasses, a dedicated Liquid Cargo

Terminal, on Build Operate and Transfer (BOT)

basis, suitable for berthing ships up to 35,000 dwt

is proposed to be constructed. It will generate

additional revenue for PQA and foreign exchange

for the country by promoting export of molasses.

c) Gwadar Port

The port is geographically located at

Gwadar East Bay about 460 KM West of Karachi.

It will be developed in two phases. In Phase-1,

three multi purpose berths and a service berth

will be constructed. The port would be capable to

handle ships of 30,000 DWT Bulk Carriers and

25,000 DWT Container Vessels. The project is

being built with Chinese assistance and will be

completed within three years. The Phase-II of the

port project will be implemented under BOO

(Build Own and Operate) or BOT (Build Own and

Transfer) basis. Phase-II of the project will

comprise of 10 additional berths including 3

dedicated container terminals, one bulk/grain

terminal with capacity of handling vessels up to

100,000 DWT and two oil berths for vessels up to

200,000 DWT. Phase-II of the project will include

construction of rail link to hinterland as well. The

port also offers within its vicinity an Export

Processing Zone as well as an Industrial Zone so

as to facilitate setting of industry, commerce and

trade enterprises.

d) Pakistan National Shipping Corporation

Pakistan National Shipping Corporation

(PNSC) is a national flag carrier and its main

objective is to serve as an operating link between

major trading partners of the country, maintain

and stabilize the freight rates charged by the

conferences and other liner services operating to


Pakistan and provide strategic link in the case of

emergencies.

The fleet strength of Pakistan National

Shipping Corporation during July-March 2001-02

was 14 vessels with a dead-weight capacity of

243,749 tons. Estimated revenue during the nine

months under review was approximately Rs.

3,741 million. PNSC handles all kind of cargo

including rice, fertilizer, iron ore, coal and wheat.

PNSC is also a major carrier of crude oil for the

country. During the first nine months of current

financial year, PNSC has transported a total of

4.99 million tons of cargo including 3.9 million

tons of crude oil.

E. INFORMATION TECHNOLOGY (IT)

The present Government is accordinghigh priority to this sector. In fact, informationtechnology has been identified as one of the fourmajor drivers of growth. The windows ofopportunity opened through Internet commercehas been taken as a challenge. IT is one of the keydeterminants of competitiveness and growth oforganized and unorganized sectors of theeconomy. In response to the government’s policy,the per capita Internet prevalence is growing ingeometrical progression. The Internet usage isgrowing at more than 50 percent per annum andhas progressed from 0.011 million users in 1998 to1.7 million in the year 2001-02. The newdevelopments in IT are given in Box-2

BOX-2Ø Human Resource (HR) Development is imperative for the local IT industry to position the

country as an important player in the international IT Market. Under the HR Action Plan, alarge pool of academically as well as technically skilled IT manpower is being developed tomeet the local and export needs. In this regard, different program under implementation areas under: -

• Establishment of new IT Departments at university level.• Strengthening of existing IT Departments of the universities.• Establishment of new IT Universities.• Establishment of Virtual University.• Scholarship Projects.

Ø The President of Pakistan had inaugurated the Virtual University on 23rd March and formalclasses started from 26th March 2002. Initially 1000 students are enrolled in a 4-year.

Ø In future, Virtual University (VU) will also conduct Non-IT educational programs. An accessplatform for interconnection of universities/educational institutions with the VirtualUniversity.

Ø The projects for establishing 3 IT universities have been approved. Two IT universities havestarted functioning, one each in Abbotabad and Lahore. The preparatory work to establish 3rd

IT University, Petroman University has started.Ø An Educational TV Channel is being setup to promote distance-learning education.Ø To promote research and higher education in IT & Telecom Sector, University Endowment

fund amounting Rs. 1025 million has been created for 8 public engineering universities andinstitutions.

Ø Educational Internet facility is being setup to link various educational institutions (public aswell as private) across the country.

Ø Under e-government programe, the automation of District Government functions has beenlaunched with City District Government Karachi project as a pilot project. Upon successfulimplementation of this project, its replica may be used for other districts.

Ø To develop Web-based Geo-data centers, two projects are being implemented, one each inNWFP and Sindh.


Country has made lot of progress in the

field of information technology during the last

two years. The main emphasis has been on human

resource development and infrastructure build-

up. Following areas are aggressively targeted for

development.

(i) Human Resource DevelopmentProjects

In the field of Human ResourceDevelopment, the following trainingprojects have been completed: (i) 10,000Youths have been trained as Data EntryOperator, (ii) 5,000 Federal Governmentemployees have been given training inbasic computer education, (iii) 400participants have completed training forCISCO Certification, (iv) 1,050participants have completed JavaTraining, (v) 1,600 participants have beentrained in Medical Transcription, and (vi)98 Students from Balochistan has beenprovided one-year training of PGD.

(ii) Infrastructure DevelopmentProjects.

The Government has providedgenerous funding for infrastructureprojects in both IT and Telecom sectors.The infrastructure projects being carriedout, will provide a solid base in bringingrevolution in IT and Telecom sector. Theinfrastructure projects which are inprogress, include the following: (i) MultiService Data Network, (ii) EducationalIntranet (For Interlinking of Universitiesall over Pakistan), (iii) Establishment ofOptical Fiber base communication link onCoastal highway between Ketibander andJiwani, (iv) Communication Network forrural Telephone in Pakistan throughVSAT, (v) Educational TV channel forEducation, (vi) Reduction in bandwidthcharges and (vii) Internet access has beenincreased from 26 cities to 558 cities.

(iii) Software Development andExport

To enhance the local software andsoftware exports, number of initiativeshave been launched which includeestablishment of Technology Parks,helping IT companies for participating inInternational IT Exhibitions, providingbusiness development advisory servicesto private sector companies etc.

(iv) E-Government

Government is actively pursuingthe policy of transparency, efficiency inGovernment offices, for providing betterservice to citizen.

(v) Software Industry Development

Software development is a highgrowth industry and forms a majorsegment of the vast IT market and willcontinue to do so in the future. Integratedefforts to develop software industry withfocus on exports (in addition to the localmarket) are being undertaken. Thisincludes encouragement of local softwarehouses to participate in Governmentprojects, local content development, Urduand regional language softwaredevelopment, promotion of softwareexports through establishment ofInternational Marketing Network, specialbandwidth rates for software exports,encouraging joint ventures, hiring ofinternational consultants for globalbusiness development and fiscal andregulatory incentives for softwareexporters through State Bank of Pakistan.

(vi) Universal Internet AccessTo spread Internet to remote

locations, the PTCL has made the UIN(Universal Internet Number) into a localcall (from the remote locations) to thenearest Point of Presence (PoP) of one ormore Internet Service Providers (ISPs).


This has enabled equitable access. Inparallel, a drastic reduction in leased linecharges will enable ISPs to go to smallerlocations.

(vii) Provincial Allocations

The provinces are beingencouraged to introduce IT & Telecom attheir level. Government is sponsoringvarious IT related projects from theprovinces on equity of 75 percent (FederalGovt.) and 25 percent share of respectiveprovince.

a) Pakistan Software Export Board (PSEB)

The Government has set a target of $ 1

billion to be earned through the software exports

during the next fiscal year 2002-2003. In order to

achieve the target, the bandwidth rates have been

lowered from $ 60,000 per mega bit to $ 3,000 per

mega bit and various software technology parks

have been established in major cities of Pakistan.

b) Pakistan Computer Bureau

Pakistan Computer Bureau has been

assigned the responsibilities of training of Federal

and Provincial Governments Employees, as a part

of Government HRD programme for preparing

Government officials to launch e-Government

project. This HRD programme is being

implemented successfully at Islamabad/

Rawalpindi and the provincial capitals. The

targets of training 10,000 federal government

employees are almost complete while the training

of 15,000 provincial government employees is

running successfully and expected to be

completed in the stipulated period. The bureau

has recently introduced scanning of the

photographs of intending Hajj pilgrims to

facilitate the printing of scanned photos on their

passports.

c) Pakistan Telecommunication Company Limited (PTCL)

PTCL network consists of 92 percent digital

switching system exchanges, optic fiber cable

backbone and subsidiaries routes long distance

media. These are supported by digital radio

systems, satellite communications and alternate

arrangements. It has international gateway

exchanges at Karachi and Islamabad. PTCL tariffs

have been reduced by 12 percent for local, long

distance and International outgoing & incoming

calls and by 50 percent for international lease

lines, local lease lines, collection arrangements,

digital cross connect and other interconnection

facilities. At present, there are about 1.7 million

Internet users. The mobile phone service (Ufone)

has been launched in 13 big cities and Highways.

Its customer base is 80,000 and expected to

increase up to 350,000. The detail is given Table

14.6.

Table 14.6Bandwidth Capacity

Name of

station

Bandwidth

capacity

MB

Total number of

ISPs

Karachi 87 53

Lahore 34 44

Rawalpindi 34 39

Total 155 136 Source: PTCL

For promotion of Information Technology,

570 cities have been provided internet facility,

while by June 2002, this number will exceed 800

cities and by Dec. 2002, 1136 cities will be

provided this facilities.

d) Pakistan Telecommunication Authority (PTA)

Pakistan Telecommunication Authority

regulates the establishment, operation and


maintenance of telecommunication system and

provision of telecommunication service in the

country. Moreover, it promotes and protects the

interest of users of telecommunication services.

PTA is in the process of transition, moving away

from regulated state owned monopoly to de-

regulated competitive structure. PTCL’s

monopoly would be over by the end of year 2002.

There are enormous challenges for Pakistan

Telecommunication Authority. It has taken long-

term view of emerging era of highly competition

environment and is gearing its resources to meet

the requirements of post monopoly era.

PTA has issued value added licenses for

various telecommunication services totaling 2,744

till December 2001. PTA has issued 827 licenses

for cable television services, 79 for card payphone,

28 for data communication networks, 116 for

electronic information services, 11 for trunk radio,

9 for store and forward fax, 3 for non voice

communication network service and one for

global mobile personal communication.

e)National Telecommunication Corporation (NTC)

National Telecommunication Corporation

has an installed capacity of 68,400 lines with

52,200 working connections provided to its

designated customers in Federal, Provincial

capitals and other major cities. The Corporation

plans to expand the network to 78,000 installed

lines during 2002-03, which provides a total

number of 60,000 working connections. During

the year 2002-2003, the Corporation will provide

first-ever optic fiber backbone on Makran coast to

bring the people of the area to the national

mainstream of development. The Corporation will

set up its own gateway exchanges to provide

International connectivity to its designated

customers during 2001-02 and will introduce per-

paid calling cards for exclusive use by its

customers.

F. ELECTRONIC MEDIA

(i) Pakistan Television Corporation Limited

PTV is operating with three Channels in

the country, namely, PTV-I, PTV-2 (PTV-World)

and PTV-3. The Rebroadcast Centres, extending

TV signal to remote areas, are 43 for PTV-I, 29 for

PTV-2 and 13 for PTV-3. The Government has

desired to extend the TV signal by setting up

Rebroadcast Centres, two in rural Sindh at

Umerkot & Mithi, two in Baluchistan at Wadh &

Chaghi and four in NWFP. Apart from this,

setting up of a TV Centre and eleven Rebroadcast

Centres in AJ&K, have also been approved by the

Government through which AJ&K will not only

be on PTV’s Network, but also be having the

facilities of Production and Telecast of

programmes in local languages according to be

need of the time.

(ii) Pakistan Broadcasting Corporation (PBC)

Radio is playing a significant role in

promoting Islamic ideology & national unity,

based on the principles of freedom, equality,

tolerance, social justice & democracy. Pakistan

Broadcasting Corporation is most important and

powerful medium for promoting national

integration, projecting government policies at

home & abroad, providing information, education

and entertainment to the people through its

programmes. FM- 101 Channel launched in 1998

exclusively for entertainment, transmits

programmes for 73 hours daily. Presently the

channel is operating from Islamabad, Lahore,

Karachi and Faisalabad. Four more FM- 101

stations are due to be launched shortly from

Quetta, Hyderabad, Sialkot and Peshawar. News

& Current Affairs Channel launched in 2001

radiates 7 hours daily transmission based on

discussions, talks, analysis & panel discussion on


issues of current national and international

interests.

G. PAKISTAN POST OFFICE

It provides postal services through a

network of 12,234 (2,302 urban and 9,932 rural)

post offices across the country. Beside postal

facilities, the computerization of counters

operation and financial management reporting

system of Islamabad GPO have been completed

with the help of donors. Similarly Saving Bank

Counters have been computerized at Lahore GPO.

The International Post System IPS-96 has also

been computerized at Express Post Center,

Karachi.

________________________

Chapter 15. Energy

15. EnergyThe energy sector plays a key role in the

development and growth of the economy, as the

availability of adequate supplies of energy is a

pre-requisite to generate economic activities. The

main objectives of the energy sector are ensuring

adequate, secure, and cost-effective supplies,

utilizing the resources efficiently and minimizing

its losses. Because of its central importance to

economic growth and development the

Government has identified energy as one of the

four major drivers of growth (the other three

drivers are agriculture, small and medium

enterprises, and information technology). The

Government is making concerted efforts to ensure

that the development of energy resources

continue to contribute to the nation’s economic

growth and well-being. The Government is

following a multi-pronged strategy for energy

sector. First, to increase the supply of energy to

meet the growing demand. Secondly, to expand

and upgrade the transmission and distribution

infrastructure to conserve energy.

Efforts in improving the energy sector

operation is an on-going exercise with a view to

promoting higher productivity and efficiency. In

order to contribute towards sustaining and

improving the competitive edge of the nation the

energy supply support system and services will

continually be upgraded in terms of quality,

reliability and efficiency.

In Pakistan, the energy sector has been

handled with an unprecedented sense of urgency

to mitigate current shortages and speed up

development of the sector for long-term needs.

An attractive policy package for petroleum and

power was announced by the Government for the

elimination of load-shedding, mobilization of the

existing resources, promoting private sector

investment (domestic and foreign) and enhancing

indigenous oil and gas production. The prices of

petroleum products have also been deregulated.

Efforts have also been made to exploit the

existing energy resources to build a strong

indigenous exploration and production base.

These efforts are directed at achieving cost

effectiveness, reduction in import dependence,

promotion of self-reliance through accelerated

exploitation of energy resources and minimum

environmental degradation. In addition, a number

of far-reaching measures have been taken which

include; attracting private foreign investment,

creating a qualitatively improved infrastructure in

oil and gas industry, development of an efficient

and transparent management system

deregulation of downstream petroleum marketing

sector and rationalization of LPG allocations and

prices.

During the outgoing fiscal year 2001-02,

various measures have been taken. The

achievements made in respect of different sources

of energy i.e. oil, gas, petroleum products, coal

and electricity are being discussed in ensuing

pages.

Chapter 15. Energy

Energy Consumption

The energy sector consists of petroleum

products, gas, electricity, and coal. During the

decade of 1990s average consumption of the

petroleum products showed upward trends. On

average, it has increased by 6 percent per annum.

As regards the consumption of gas, it increased by

2.7 percent per annum. Similarly, the

consumption of electricity increased by 4.8

percent. However the consumption of coal, which

showed wide fluctuation in its annual

consumption trend recorded an annual growth of

0.9 percent only. The annual trend of energy

consumption since 1990-91 to 2001-02 is given in

Table 15.1.

Table 15.1Annual Energy Consumption

Fiscal Year Petroleum

Products

(000

tones)

%

Change

Gas

(mmcft)

%

Change

Electricity

(Gwh)

%

Change

Coal

(000 M.T)

%

Change

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00Avg. of 1990s

2000-01Jul-Mar2000-01

2001-02-E

9,961

10,983

12,012

13,225

13,960

15,601

15,606

16,624

16,647

17,768

17,648

12,947

12,711

-0.1

10.3

9.4

10.1

5.6

11.8

0.0

6.5

0.1

6.76.0

-0.7

-0.4

-1.8

465,338

486,631

511,526

550,769

546,788

582,868

597,799

607,890

635,832

714,744

774,410

542,806

624,058

-17.6

4.6

5.1

7.7

-0.7

6.6

2.6

1.7

4.6

12.42.78.3

-0.5

15.0

31,534

33,878

36,493

37,381

39,619

41,924

42,914

44,572

43,296

45,586

48,584

35,647

40,010

9.6

7.4

7.7

2.4

6.0

5.8

2.4

3.9

-2.9

5.34.86.6

5.0

12.2

3,054

3,099

3,267

3,534

3,043

3,638

3,553

3,159

3,461

3,168

3,095

2,151

2,328

1.5

5.4

8.2

-13.9

19.6

-2.3

-11.1

9.6

-8.50.9

-2.3

-10.6

8.2

E –Estimated Source: Hydrocarbon Development Institute of Pakistan.

A. Petroleum Products

During the first three quarters of the

current fiscal year, the household, industry,

agriculture and transport sectors showed declines

of 25.1 percent, 16.7 percent, 6.7 percent and 4

percent, respectively due to decline in the use of

kerosene, furnace oil, light diesel oil (LDO); and

conversion of vehicles to CNG. However, the

other government sectors have recorded

increasing trend mainly due to higher

demand/use of JP-4 by defence. September, 11

2001 events have also caused lower consumption

of petroleum products, as a number of foreign

airlines suspended/curtailed their operations in

Pakistan. The annual growth of energy

consumption of the petroleum products by major

sectors and their relative shares since 1999-91 to

2001-02 are given in Table 15.2 and Table 15.3,

respectively.

Chapter 15. Energy

Table 15.2Consumption of Petroleum Products

(000 tones)Year Hous

eholds

%Chang

e

Industry %Chang

e

Agri. %Chang

e

Trans. %Chang

e

Power %Chang

e

OtherGovt.

%Chang

e90-9191-9292-9393-9494-9595-9696-9797-9898-9999-0000-01Jul-Mar2000-012001-02E

944614622590585596510499493477451

366274

-15.5-35.0

1.3-5.1-0.81.9

-14.4-2.2-1.2-3.2-5.5

0.5-25.1

1,1481,3691,4801,6531,8892,4162,1412,0812,1402,1161,924

1,4921,243

-11.519.38.1

11.714.327.9

-11.4-2.82.8

-1.1-9.1

-9.8-16.7

265281287308269250269245249293255

195182

-7.66.02.17.3

-12.7-7.07.6

-8.91.6

17.8-13.0

-5.3-6.7

4,8415,6196,1076,4146,6467,1367,1727,3647,8648,3088,158

5,9665,736

3.416.18.75.03.67.40.52.76.85.6

-1.8

-1.8-3.9

2,4342,7753,1583,9024,2154,7865,1106,0545,5266,2286,488

4,6574,804

11.214.013.823.68.0

13.56.8

18.5-8.712.74.2

5.23.2

328323357357355417404381376346372

271472

-17.7-1.510.5

0-0.617.5-3.2-5.7-1.3-8.07.5

2.574.2

E-Estimated Source: Hydrocarbon Development Institute of Pakistan.

Table 15.3Consumption of Petroleum Products

(Percentage Share )

Year Households

Industry Agriculture Transport Power OtherGovt.

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01Average(10 Years)Jul-Mar2000-012001-02-E

9.55.65.24.54.23.83.33.02.92.72.6

4.3

2.82.2

11.512.512.312.513.515.513.712.512.911.910.9

12.7

11.59.8

2.72.62.42.31.91.61.71.51.51.61.4

1.9

1.51.4

48.651.250.848.547.645.745.944.347.246.646.2

47.5

46.145.1

24.425.326.329.530.230.732.736.433.235.036.8

31.0

36.037.8

3.32.92.92.72.52.72.62.32.31.92.1

2.6

2.13.7

E –Estimated Source: Hydrocarbon Development Institute of Pakistan.

Chapter 15. Energy

Table 15.3 shows that during the decade

of the 1990s, the sectoral consumption of

petroleum products has been fluctuating every

year. Which can be attributed to changes in

demand behaviour which is influenced by a

number of other factors such as, option of

alternative sources of fuel (gas, firewood, coal

etc), relative prices of substitutes, convenience in

their availability etc. As regards the sectoral

shares, transport sector was the largest consumer

of the petroleum products and accounted for 47.5

percent, followed by power sector (31 percent),

industry (12.7 percent), household (4.3 percent),

agriculture (1.9 percent) and others Govt. (2.6

percent).

During the year 2000-01, the

consumption of petroleum products have

declined in household (5.5 percent), industry (9.1

percent) agriculture (13 percent) and transport

sectors (1.8 percent). However, the consumption

in power and other government sectors have

increased by 4.2 percent and 7.5 percent

respectively. This trend more or less also

remained the same during the first three quarters

of the current fiscal year (Table 15.2).

B. Consumption of Gas

Table 15.4 gives the annual changes in the

consumption of gas by various users during 1990-

91 to 2001-02. The sectoral consumption of gas in

2000-01 exhibits a mix trend. The relative shares of

gas consumption by various users during the

decade of the 1990s are documented in Table 15.5.

Power sector has emerged as the largest consumer

of gas (34.1 percent), followed by fertilizer (24.4

percent), industry (19.0 percent), household (17.7

percent), commercial (2.9 percent) and cement (1.7

percent). The consumption of gas during the first

nine months of 2001-02 also shows a rising trend.

The power sector comes with higher consumption

(29 percent), followed by households (7.2

percent), fertilizer (6.5 percent) and industry (12

percent), mainly due to conversion of power

plants into gas. The excess supplies from two

main gas fields; namely, Zamzama and Miano

fields facilitated this higher gas consumption

(Table 15.4).

Table 15.4 Consumption of Gas

(Billion cft)Year House

Hold% Change

Commercial

%Change

Cement %Change

Fertilizer

%Change

Power %Change

Industrial

%Change

90-9191-9292-9393-9494-9595-9696-9797-9898-9999-002000-01Jul-Mar2000-012001-02

6771768297

110115134131139141

111119

11.16.07.07.9

18.313.44.5

16.5-2.26.11.4

-2.67.2

1213141516171819212221

1717

10.48.37.77.16.76.35.95.6

10.54.6

-4.5

6.30.0

13121210789

12897

4*

62.9--7.7

0.0-16.7-30.014.312.533.3

-33.312.5

-22.2

108101119144142150150148167177175

123131

-0.6-6.517.821.0-1.45.60.0

-1.312.86.0

-1.1

-8.26.5

176194187198181186194179184230288

179231

4.310.2-3.65.9

-8.62.84.3

-7.72.8

25.025.0

5.329.1

8996

103101104111110115121135139

109122

2.97.97.3

-1.93.06.7

-0.94.55.2

11.63.0

-0.912.0

*included in Industry Sector Source: Hydrocarbon Development Institute of Pakistan

Chapter 15. Energy

Table 15.5Consumption of Gas

(Percentage Share)Year Households Commercial Cement Fertilizer Power Industrial1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01Average(11 Years)July-March2000-012001-02

14.314.514.814.917.818.919.322.120.719.618.2

17.7

20.819.1

2.62.72.82.82.92.93.13.13.43.02.7

2.9

3.12.7

2.82.42.31.81.21.31.52.01.31.20.9

1.7

0.7*

23.220.823.426.225.925.825.224.326.324.822.7

24.4

22.721.0

37.939.836.535.933.132.032.429.428.932.237.2

34.1

32.937.1

19.119.720.118.319.019.118.418.919.118.917.9

19.0

20.119.5

* Included in Industry Sector. Source: Hydrocarbon Development Institute of Pakistan.

C. Electricity Consumption

Table 15.6 shows the position of electricityconsumption since 1990-91 to 2001-02, while Table15.7 discusses overall consumption on averagebasis. On average, the household sector has beenthe largest consumer of electricity, accounting for40.3 percent of the total electricity consumption,followed by industry (31.5 percent), agriculture

(14.8 percent), commercial (5.4 percent), andother government sector (7.6 percent). During thefirst 9 months of 2001-02, electricity consumptionby household, industrial, and commercialincreased as compared with the same period oflast year due to installation of new connectionswhile consumption by other government whichalso include agriculture has increased sharply(Table-15.6).

Table 15.6Consumption of Electricity

(000 GWH)Year House

hold%

ChangeCommercial

%Change

Industrial

%Change

Agri. %Change

StreetLight

(Total)

%Change

OtherGovt.

%Change

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01July-Mar2000-012001-02-E

10.411.413.214.015.617.117.818.819.421.422.8

16.718.3

11.29.6

15.86.1

11.49.64.15.63.2

10.36.5

4.49.5

2.12.11.71.81.92.22.22.32.42.52.8

2.02.3

5.50

-19.05.95.6

15.80

4.54.34.2

12.0

5.315.0

11.212.313.012.612.512.111.912.312.013.214.3

10.611.4

8.89.85.7

-3.1-0.8-3.2-1.73.4

-2.410.08.3

7.17.5

5.65.85.65.86.26.77.06.95.64.54.9

3.6*

11.83.6

-3.43.66.98.14.5

-1.4-18.8-19.9

8.9

9.0

297298324378390387224239213

53***

0.38.7

16.73.2

-0.8-42.1

6.7-10.9

-71.5

2.12.12.62.83.03.33.43.93.63.63.5

2.77.9

19.200

23.87.77.1

10.03.0

14.7-7.7

0-2.8

3. 8192.6


*Included in other Govt.

** only reported by KESC.

Chapter 15. Energy

Table 15.7Consumption of Electricity

(Percentage Share)

Year Households Commercial Industrial Agriculture Street Light Other Govt.1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-20002000-01Average(11 Years)July-March2000-012001-02

33.033.836.137.739.340.941.442.144.847.146.9

40.3

46.842.0

6.66.34.74.84.95.25.25.25.55.65.7

5.4

5.65.3

35.636.335.733.831.629.127.927.627.928.929.5

31.3

29.926.2

17.817.315.415.415.815.916.515.512.9

9.910.1

14.8

10.0

--

0.80.80.80.90.90.90.50.50.4

0.7

0.15

6.96.27.17.47.57.98.08.68.27.97.3

7.6

7.518.3*


*Including Agriculture.

Energy Supply

The annual trends of primary energy

supplies and their per capita availability,

measured in tones of oil equivalent (TOE) since

1990-91 to 2001-02 is given in Table 15.8 and Fig-

1& Fig-2

Table 15.8Primary Energy Supply and Per Capita Availability

Year Energy SupplyMillion TOE %Change

Per CapitaAvailability (TOE) % Change

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01July-March2000-012001-02-E

28.46930.47532.95334.77836.06238.74638.51540.40341.72143.22344.456

33.46834.025

7.08.15.53.77.4

-0.64.93.33.62.9

-1.7

0.2530.2640.2780.2860.2900.3040.2950.3020.3050.3090.311

0.2340.233

4.45.42.91.24.9

-3.02.51.01.20.6

--0.4

TOE= Tones of oil equivalent Source: Hydrocarbon Development Institute of Pakistan.

E: Estimated

Chapter 15. Energy

Fig-1: Energy Supply(Million TOE)

25

30

35

40

45

50

90

-91

91

-92

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

20

00

-01

Fig-2: Per Capita Availability (TOE)

0.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

90

-91

91

-92

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

20

00

-01

The supply of primary energy increased

from 28.469 million TOE in 1990-91 to 44.456

million TOE in 2000-01 or by an average annual

rate of 4.5 percent; and per capita availability

from 0.253 TOE to 0.311 TOE or by 1.9 percent per

annum. Because of the increase of primary energy

supplies, its per capita availability recorded a

rising trend over the decade of the 1990s, which

greatly helped consumers meet their ever-

growing annual demand for energy. The energy

supplies have also increased from 33.468 million

TOE in 2000-01 (July –March) to 34.025 million

TOE in 2001-02 (July-March) or by 1.7 percent but

the per capita availability declined from 0.234

TOE to 0.233 TOE or by 0.4 percent. The supply of

primary energy by various sources of energy as

well as their rates of increase are given in Table

15.9.

Table 15.9 Composition of Energy Supplies

Year CrudeOil(m

Barrels)

%Chang

e

Gas(bcf)*

%Chang

e

PetroleumProducts(Mln. T.)

%Chang

e

Coal(Mln.T)

%Change

Electricity(000

Gwh)(a)

%Change

90-9191-9292-9393-9494-9595-9696-9797-9898-9999-002000-01Jul-Mar2000-012001-02

51.752.451.351.448.252.149.850.452.653.373.6

54.858.1

13.31.4-2.10.2-6.28.1-4.41.24.41.3

38.0

36.06.0

518.5550.7583.5624.2628.2666.6697.8700.0744.9818.3875.4

650.7690.1

4.16.26.07.00.66.14.70.36.49.97.0

8.76.1

10.311.212.313.714.216.015.916.916.817.918.7

13.317.0

6.38.79.8

11.43.6

12.7-0.66.3-0.66.54.5

0.027.8

3.94.64.34.64.14.74.44.14.44.04.1

2.93.0 **

8.917.9-6.57.0

-10.914.6-6.4-6.87.3-9.12.5

-6.53.4

41.045.448.750.653.556.959.162.165.465.768.1

49.754.2 **

9.110.77.33.95.76.43.95.15.30.53.7

4.49.1

*: Billion cubic feet ` Source: Hydrocarbon Development Institute of Pakistan.a: Gega Walt hour** Estimated

a) Crude Oil

Chapter 15. Energy

The remaining recoverable reserves ofcrude oil as on 1st April 2002 were estimated at310 million barrels in the country. The averagecrude oil production during July March, 2001-02was 64,361 barrels per day as against 57,048barrels per day during same period last year,showing an increase of 12.8 percent. During theperiod under review, 21,136 barrels per day or 33

percent was produced in northern region and43,225 barrels per day or 67 percent in southernregion as against 20,370 barrels and 36,678 barrelsper day respectively, during the same period oflast year. Production of crude oil during July-March 2001-02 and corresponding period of thelast year is given in Table 15.10.

Table 15.10 Production of Crude Oil (Barrels Per Day)

Source: Director General of Petroleum Concession

b) Natural GasAs of April 1st 2002, the recoverable

reserves of natural gas have been estimated at 26.4trillion cubic feet. The average production ofnatural gas during July-March 2001-02 was 2521million cubic feet per day as against 2375 mcfdduring the same period last year, showing anincrease of 6 percent. Main companies currently

engaged in oil and gas production activities areOGDCL, PPL, POL, OPI, LASMO, BHP, MGCL,BP (PAKISTAN) AND TULLOW. Recently, OMVhas also started gas production at the rate of 10-20million cubic feet per day from Miano gas field.Table 15.11 shows the natural gas productionduring 2000-01, and 2001-02.

Table 15.11Production of Natural Gas

(Million Cubic Feet Per Day)July-March July-MarchCompany 2000-20012000-01 2001-02 % Change

LASMOMGCLOGDCLOPIPOLPPLBPC (Pakistan)BHPTULLOWOMV

59405708543

9222077033-

61408693

543925208

-33-

64411744

546915209942711

5.00.77.40.07.0-1.10.5-

-18.0-

TOTAL 2452 2375 2521 6.1Source: Director General of Petroleum Concession

Region 2000-2001 July-March2000-2001

July-March2001-2002

% Change

Northern Region- OGDCL- OPI-POL-PPLSouthern Region-OGDCL-UTP-PPL-BHP

202269044

64880792455

378811209225271

60458

203708927

66982212576

366781221024407

60458

211368823111387882412

432251131131172

115626

3.8-1.266.06.9

-6.417.8-7.427.792.036.7

Total 58107 57048 64361 12.8

Chapter 15. Energy

During July- March 2001-02, 32 wells have

been drilled, including 6 wells of OGDCL in the

public sector. Table 15.12 compares number of

wells drilled during July-March, 2001-02 with the

corresponding period for the last year.

Table 15.12Drilling Activities(Achievements)

(No. of Wells)

Sector 2000-2001 July-March2000-2001

July-March2001-2002

% Change

1)Public Sector (OGDCL) (i) Exploratory

(ii) Appraisal/Development2 )Private Sector (i) Exploratory

(ii) Appraisal/Development

64

24314

29

42

23212

20

63

3265

21

505050-19-585

Total 49 36 32 -11

Source: Director General of Petroleum Concession

The decline in the number of wells drilled

this year, so far, by the private sector is attributed

to the events of September 11, as many expatriates

working for Foreign Exploration and Production

Companies left Pakistan.

(i) Liquefied Petroleum Gas (LPG)

Being economical, clear and

environmental friendly fuel, LPG is the most

popular domestic fuel in areas where supply of

natural gas is technically or operationally not

feasible. Presently about 900 tons/day LPG is

being produced locally. There are 22 LPG

companies marketing the indigenous and

imported LPG. The government has taken a bold

and far reaching initiative to liberalize integrated

infrastructure projects of LPG free from

government guarantees and permission and also

allowed import of machinery, equipment,

specialized vehicles, consumables etc. on

concessionary rate of duties. In order to ensure

availability of domestic and imported LPG at

competitive and viable prices, the government has

deregulated the allocation and price of LPG with

effect from 15th September, 2000 with a view to

keeping the prices at a reasonable level, through

demand supply mechanism.

(ii) Compressed Natural Gas (CNG)

The use of CNG in automotive vehicles is

being encouraged to reduce pressure on

petroleum imports and improve environment.

The Government has issued directives to promote

CNG in the transport sector as an alternate fuel. It

is a new industry in Pakistan. More than 850

licenses for installation of CNG stations have been

issued. So far 242 stations have been established

in different parts of the country. These include 239

in private sector and 3 in public sector. More than

3000 stations are under construction in the private

sector. Up to March 2002, around 240,000 vehicles

have been converted on CNG. It is planned to

Chapter 15. Energy

convert 300,000 vehicles by 2003. This will

provide jobs to the skilled and un-skilled workers.

The use of this indigenous fuel will slash the

import bill of petroleum products and make

positive effects on environment by reducing

pollution level. Incentives for investment in CNG

business are being offered to private sector.

During the period July-March 2001-02, over 130

provisional permissions/licenses for setting up of

CNG stations have been issued.

c) Electricity Generation

i) Installed Capacity

The Water and Power Development

Authority (WAPDA), Karachi Electric Supply

Corporation (KESC), Karachi Nuclear Power Plant

(KANUPP) and Chashma Nuclear Power Plant

are the four main public sector organizations,

involved in power generation, transmission and

distribution of electricity in the country. The

Independent power projects (IPPs)__ the private

sector entities are also involved in power

generation.

The bulk of the installed capacity of

WAPDA’s power system comprising of Northern,

Upper, Lower Sindh and Quetta power markets

stood at 9,930 MW, hydel 5,009 MW (50.4 percent)

and thermal 4,921 MW (49.6 percent)} during July-

March, 2001-02 followed by the IPPs (5,652 MW)

or 31.3 percent and KESC’s own installed capacity

(1756 MW) and other sources such as M/s Tapal

Energy and M/s Gul Ahmad (262 MW),

supplying to KESC, totaling 2018 MW, and

Karachi and Chashma Nuclear Power Plants (462

MW). The total installed capacity stood at 18062

MW during July-March 2001-02, there by

registering an increase of 1.6 percent. In the total

installed capacity, the share of WAPDA system

has been 55.0 percent followed by the IPPs at 31.3

percent, KESC plus others at 11.2 percent, and

nuclear at 2.6 percent during the fiscal year 2001-

02. Within the WAPDA system, the shares of

thermal and hydel were 49.6 percent and 50.4

percent respectively. The details are given in

Table 15.13.

Table 15.13Total Installed Generation Capacity

(MW)

Name of

Power

Company

Installed

Capacity 2000-01

% Share Installed Capacity

2001-02

% Share % Change

WAPDA

Hydel

Thermal

IPPs

Nuclear

KESC + Others

9,884

4,963

4,921

5,417

462

2,009

55.6

50.2*

49.8*

30.5

2.6

11.3

9930

5009

4921

5652

462

2018

55.0

50.4*

49.6*

31.3

2.6

11.2

-0.5

0.9

0

14.3

0

0.4

Total 17,772 18062 1.6

* Share in WAPDA system Source: Water and Power Development Authority.

Chapter 15. Energy

ii) Electricity Generation

The trend in the composition of

electricity generation between hydel and thermal

since 1992-93 is given in Table-15.14. It can be seen

that the share of hydel is continuously declining

while that of thermal is rising steadily. The share

of hydel was almost 52 percent in 1992-93 but

declined to almost 30 percent in 2000-01. It has

slightly increased to 32 percent in the current

fiscal year. On the other hand, the share of

thermal increased from 48 percent to 70 percent

during the same period but declined slightly to 68

percent in the current fiscal year. It may be noted

that in 1960 the share of hydel was 70 percent

while that of thermal was only 30 percent. The

ratio changed to 58 percent (hydel) and 42 percent

(thermal) in 1980. By 2002 the ratio changed to 30

percent and 70 percent. Since electricity generated

through thermal is much more expensive than

hydel, therefore, the massive shift in reliance to

thermal has made electricity expensive in

Pakistan. For reducing the cost of electricity it is

essential that we make effort to reverse the

contribution of hydel and thermal in medium-to-

long-run.

Table 15.14Electricity Generation

(Million kWh)

Year Hydel Percentage toTotal

Thermal Percentage toTotal

Total

1992-931993-941994-951995-961996-971997-981998-991999-20002000-01(July-March)2001-02

21,11119,43622,85823,20620,85822,06022,44819,28717,259

13,993

51.845.849.647.541.141.441.834.329.5

31.9

19,68022,96023,26825,65329,92431,19931,23536,97241.196

29,848

48.254.250.452.858.958.658.265.770.5

68.1

40,79142,39646,12648,85950,78253,25953,68356,25958.455

43,841Includes purchase from IPPs. Source: Water and Power Development Authority

iii) Growth in Electricity Consumers

The number of consumers has increased

due to rapid urbanization, extension of electricity

grid supply to un-electrified areas and

rural/village electrification. The number of

consumers has increased to 12.5 million by

February 2002. Table-15.15 indicates the trend

since 1992-93, and Fig-4.

21.1

19.7

19.4

23

22.9

23.3

23.2

25.7

20.9

29.9

22.1

31.2

22.5

31.2

19.3

37

17.25

41

0

10

20

30

40

50

60

Bill

ion

KW

H

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

20

00

-01

Fig-3: Electricity Generation by WAPDA

Hydel Thermal

Chapter 15. Energy

Table 15.15Consumers by Economic Groups

(Nos. Million)

Year General Industrial Agriculture Total1992-931993-941994-951995-961996-671997-981998-991999-002000-01

(July-Feb)2001-02

7.98.38.79.19.59.9

10.411.211.8

12.1

0.20.20.20.20.20.20.20.20.2

0.2

0.10.10.20.20.20.20.20.20.2

0.2

8.28.69.19.59.9

10.210.811.612.2

12.5

Source: Water and Power Development Authority

iv) Village Electrification

The rural/villages electrification

programme is an integral part of the total power

sector development in order to increase the

productive capacity and socio-economic standard

of 70 percent of population living in the rural

areas. The number of villages electrified has

increased to 70,819 by February 2002 as given in

Table 15.16 and Fig-5.

Table 15.16Village Electrification

(Number)Year Target Realization * Progressive Total1992-931993-941994-951995-961996-971997-981998-991999-002000-01(Jul-Feb).2001-02

2,0704,5002,0005,0004,0004,0004,0001,852

-

-

4,8245,2836,2434,9572,4411,3831,2321,1091,595

932

45,64450,92757,17062,12764,56865,95167,18368,29269,887

70,819*Including FATA Source: Water and Power Development Authority

Fig-4: Total Electricity Consumers (Nos. Million)

5

6

7

8

9

10

11

12

13

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

20

00

-01

Chapter 15. Energy

v) Electricity consumption by EconomicGroups

Household/Domestic group is the largest

consumer of electricity accounting for 45.8 percent

of total consumption; followed by industry (28.1

percent), agriculture (12.2 percent), bulk supply &

lighting (8.7 percent), commercial (5.1 percent)

and traction (0.02 percent). Table 15.17 shows

electricity consumption by economic group since

1992-93 and Fig-6.

Table 15.17Electricity Consumption by Economic Groups

(% Share)Year Domestic Commercial Industrial Agriculture Bulk Supply &

Public LightingTraction

1992-931993-941994-951995-961996-971997-981998-991999-20002000-01(Jul- Feb).2001-02

35.937.238.440.840.541.543.646.446.1

45.8

4.24.14.34.64.64.54.74.94.9

5.1

34.932.830.328.726.326.025.626.327.1

28.1

17.917.917.818.418.217.514.311.011.3

12.2

7.17.99.37.410.410.511.811.311.3

8.7

0.10.10.10.10.10.040.040.040.04

0.02Source: Water and Power Development Authority

Fig.5 Village Electrification (000 Nos).

45.650.9

57.262.1 64.6 66 67.2 68.3 69.9

0

10

20

30

40

50

60

70

80

92

-93

93

-94

94

-95

95

-96

96

-97

97

-98

98

-99

99

-00

20

00

-01

Agriculture11.3%

Bulk-Sup.& Pub. Lighting

11.3%

Industrial27.1%

Commercial4.9%

Domestic46.1%

Fig-6. Electricity Consumption by Economic Group (% Share)

1992-93

Domestic35.9%

Industrial34.9%

Agriculture17.9%

Bulk Supply & Public Lighting

7.1%

Commercial4.2%

2000-01

Chapter 15. Energy

vi) Power Losses

The WAPDA has invoked vigorous

technical and administrative measures to improve

operational and management efficiency to reduce

power loss and theft. These measures have

resulted in increase in revenues and also reduced

energy theft. The programme of renovation,

rehabilitation, installing capacitors and

strengthening consumer-end distribution supply

network will further reduce power losses. The

total loss was 27.5 percent in 1998-99 but

gradually reduced to 24.3 percent in the first eight

months of the current fiscal year. Table 15.18

shows the trend of power losses since 1992-93.

Table 15.18WAPDA Power Losses

(Percent)

Year AuxiliaryConsumption

T&D Losses* Total

1992-931993-941994-951995-961996-971997-981998-991999-002000-01(July- Feb.)2001-02

2.32.62.62.92.42.01.72.12.0

2.1

21.121.621.421.521.723.925.825.123.8

22.2

23.424.224.024.424.125.927.527.225.8

24.3

* T&D = Transmission and Distribution Source: Water and Power Development Authority

vii) Power Development Programme

The optimal utilization of hydroelectric

potential is accorded priority in the overall power

development programme. The projects which will

be constructed under the vision-2025 programme

are Golan Gol 106MW, Khan Khwar 72 MW, Allai

Khwar 121 MW, Duber Khwar 130 MW and

Jinnah 96 MW. These projects are planned to be

completed by 2006.

The feasibility study of multipurpose

Basha Dam project of 3360 MW capacity was

carried out by M/s Montreal Engineering

Company Canada in 1984 and will be updated for

which the PC.II was approved. Feasibility study

of Bunji hydropower project will also be carried

out. The feasibility study of multipurpose Munda

dam 740 MW has been carried out and for hydro

project at Doyian 425 MW will also be

undertaken.

Besides, feasibility studies have also been

carried out for gas-fired combined cycle power

plants to provide low cost thermal power. The

Sindh Coal Development Authority has initiated a

feasibility study for a 1000 MW mine-mouth coal

fired power plant based on Thar coal with

technical and financial assistance of China.

viii) Restructuring and Privatization ofWAPDA

In order to bring improvement on long

term and sustainable basis in operation,

Chapter 15. Energy

management and finance, the Area Electricity

Boards have been restructured into independent

power companies, i.e. eight DISCOs, three power

generation companies (GENCOs) and a national

transmission and dispatch company (NTDC).

Presently, these entities are corporatized under

the management of Pakistan Electronic Power

Company (PEPCO). Ultimately, the DISCOs and

GENCOs will be privatized.

Karachi Electric Supply Corporation Ltd.(KESC)

The installed capacity of the KESC’s

various generating stations remained at 1,756 MW

during the period July-March 2001-02. However,

the energy generated by the KESC from own

sources was 6448 million kWh, during the current

fiscal year, which was about 14 percent higher

than the same period of last year. The KESC has

improved its generation and thus the imports of

electricity from various agencies have been

reduced significantly. The imports from Pakistan

steel, Karachi Nuclear Power Plant (KANUPP),

Independent power producers (IPPs) and

WAPDA totaled 2,217 million kWh during the

period under review, as against 2,741 million kWh

during the corresponding period last year,

showing a sizeable reduction in power imports by

19 percent.

The total energy made available to KESC

system, after accounting for auxiliary

consumption, stood at 8,246 million kWh during

July-March, 2001-02 as against 8,000 million kWh

in the same period last year, thus registering a

growth of 3 percent.

Private Sector Plants (IPPs) on KESCSystem:

Tapal Energy limited and Gul Ahmed

Energy Limited are the two independent power

producers (IPPs), which are hooked to the KESC

system, with an aggregate capacity of 262.17 MW.

The energy contributed by these two IPPs, during

the period under review, was 1,089 million kWh,

representing more than 13 percent of the total

energy supplied to KESC system. The share of

IPPs in the overall imports from other sources

stood at 49 percent.

Nuclear Power Energy

Nuclear power generation technology is a

sophisticated, advanced and multi-disciplinary

system. Most of the developing countries have

very little or no technological capability even for

conventional electricity generation technologies of

steam or combustion turbine plants. Increased

local contribution in the design, engineering,

construction and commissioning of nuclear

technology requires the development of qualified

manpower, research and design institutes and

advanced manufacturing facilities. So far only a

few developing countries like China, India, Korea

and Pakistan have achieved self-reliance in

nuclear power technology.

Pakistan Atomic Energy Commission

(PAEC) is responsible for nuclear power

development in Pakistan. It made a beginning in

the field of nuclear power generation by

commissioning the 137 MW Karachi Nuclear

Power Plant (KANUPP) in 1971. The KANUPP

has operated safely for more than 30 years.

During July-March 2001-02, the plant has

generated 359 million kWh raising the life time

generation to 10.36 billion kWh. Because of the

various restrictions and embargos on KANUPP,

its capacity factor has been reduced but it is a

good example of self-reliance in a developing

country. It is now planned to extend the life of

KANUPP for another 15 years, and work is

continuing in this regard. The Chashma Nuclear

Power Plant (CHASNUPP), Pakistan’s second

nuclear power plant, has been constructed with

Chapter 15. Energy

the help of China National Nuclear Corporation

(CNNC). It has a gross capacity of 325 MW. The

CHASNUPP has generated 1415 million kWh

during the period July-March 2001-02. Both the

power plants are working according to the safety

standards set by Pakistan Nuclear Regulatory

Authority.

D. COAL

The share of coal in the overall

commercial energy requirements of the country at

the time of Pakistan’s independence was about 60

percent but with the advent of natural gas in 1952,

the utilization of coal was gradually replaced with

gas. Currently the share of coal in the over all

energy mix is less than 5 percent. Production of

coal in the country during the first nine months of

the fiscal year 2001-02 was 2,248,412 tonnes. The

major consumption of coal is in the brick Kiln

industry (71.4 percent) followed by Coke (23.5

percent) and power generation (5.1 percent).

Estimated coal reserves in the country is about

185 billion tonnes, which include 175 billion tonne

of Thar coal.

Private Power And Infrastructure Board(PPIB)

The PPIB is an agency of the GOP set up

with the objective of implementing the GOP’s

Power/Energy Policies. It is currently playing a

lead role in facilitating implementation of four

hydel projects of 844 MW to which Letter of

Interest/Letter of Support were issues by

provinces and AJK under the Hydel Policy, 1995.

During the fiscal year 2000-2001, 10 MW Alter

Energy Limited and 235 MW Liberty Power

Limited achieved Commercial Operations

respectively on June 6, 2001 and September 10,

2001. The PPIB facilitated these projects in

resolving their outstanding issues with different

organizations to enable them in achieving their

operations.

The Government has taken a major step

for establishment of a 450 MW coal-fired power

plant based on Lakhra Coal, in accordance with

the 1998 Power Policy. The Sponsors has agreed

to conduct a feasibility study for the project at

their own risk and cost, without any obligations

on the part of the GOP. This is a major practical

effort for exploring the local indigenous coal.

The demand/supply projection prepared

by the NTDC, WAPDA (June 1999) portray a

supply deficit of the order of over 400 MW stating

from the year 2005-6, increasing to around 7200

MW by the year 2009-10. This is likely to further

increase up to 17, 300 MW by the year 2015-16, In

order to propose suitable strategy for meeting

further power demands shortages; WAPDA has

prepared a ‘Hydropower Development Plan’

(Vision 2025), which was approved by the

Government.

National Electric Power RegulatoryAuthority (NEPRA)

The Authority has been set up under an

Act of Parliament, called the Regulation of

Generation, Transmission and Distribution of

Electric Power Act, No. XL of 1997. The object in

passing the Act was to create an independent

body to regulate electric power services in the

country. During the period July-March 2001-02,

after finalization of the draft distribution licence

for distribution companies, two licences were

issued to distribution company’s namely (IESCO)

& (PESCO) and 14 generation licences were issued

to SPP’s. The process of issuance of licenses to

other distribution companies & SPP’s is in

progress.

During the period under review the

Authority made three determinations. First

determination was made on October 19, 2001 with

increase of 10.62 Paisas/kwh. Second

Chapter 15. Energy

determination was made on December 29, 2001

with decrease of 8.83 Paisas/kwh. Third

determination was made in March 2002 with an

increase of 4.54 Paisas (yet to be notified) by the

WAPDA. NEPRA has been actively perusing the

eventual goal of Privatization of the KESC. Tariff

& Licensing details are being worked out. NEPRA

is committed to provide a fair return to the

investor while ensuring safe & reliable service at

competitive rates to the consumers.

_______________

Chapter 16. Environment and Housing

16. Environment and HousingEnvironment

During the last decade, Pakistan hasmade diligent progress in institutionalstrengthening and capacity building of policy andplanning institutions, environmental awareness,promulgation of environmental legislations,National Environment Quality Standards (NEQS)and establishment of environmental tribunals.Energy sector has its due share by introducinglow lead petrol and promoting clean fuelsincluding CNG. However, rehabilitation andimprovement of biophysical environment andenforcement of environmental legislationremained slow-moving. Government hasreiterated its pledge to environmentalamelioration through Pakistan EnvironmentalProtection Council. In collaboration with theUNDP, the National Environment Action Plan(NEAP) was approved by PakistanEnvironmental Protection Council (PEPC) inFebruary, 2001. The major objectives of NEAP areto achieve healthy environment, sustainablelivelihood by improving quality of air, water andland with civil society cooperation. In this regard,Initial Environmental Examination (IEE) andEnvironment Impact Assessment (EIA) have alsobeen made mandatory for public sectordevelopment projects. To be consistent withGovernment’s National Environmental ActionPlan (2001), this sub-chapter discusses pollutionin air, water and land in the ensuing pages.

Auto and industrial emissions are themain source of dirty air. Over the last twodecades, the total number of motor vehicles onthe road has increased about five fold.Motorcycles and rickshaws, due to their two-stroke engines, are the most inefficient in burningfuel and contribute most emissions. Fortunately,

the rickshaws have only doubled in numbers, butmotorcycles and scooters have gone up about sixfold in the last two decades. Details are in Table16.1.

Table-16.1Index of Motor Vehicles on the Road

(1980=100)Vehicle type

YearMotor

Cycles/Scooters

Rickshaws

Total

19811982198319841985198619871988198919901991199219931994199519961997

113131147180202228243261284311335397434467506549598

105108113116118120121123126129132145158167176185195

111124138167189211227245270

292310361389414445477513

Source: Sustainable Development Policy Institute (SDPI).Note: Base year numbers of motor cycles/scooters,

rickshaws and total vehicles on the road inthousands were 287.6, 32.0 and 682.2respectively.

Coal is another main contributor to dirtyair. The three main uses of coal are, for power,brick-kilns and domestic. As indicated in Table16.2, the coal consumption in the power sectorwas steady from 1991-92 to 1994-95 but itincreased by almost ten fold in 1995-96 due to the


ten fold increase in the use of coal for thermalelectricity generation. Likewise, for domesticconsumption, it increased by 211 percent in 1996-97 over 1995-96. Moreover, run-offs fromchemical insecticides, fertilizers and solid wastesgenerated in urban and rural areas are otherimportant source of environmental pollution. Astudy of the Ministry of Environment estimatedthat 47,920 tonnes of waste are generated dailyand only 53.6 percent are collected while the restlies around. Even the waste collection system anddumping sites are inadequate.

Table-16.2Index of Consumption of indigenous coal

by sector (1990-91=100)Sector

Year Power Brick kilns Domestic1991-921992-931993-941994-951995-961996-97

160.1189.8177.2165.5

1,621.41,430.4

10110611599

107105

18085878582

255Source: Sustainable Development Policy Institute.Note: Base year consumption value were 24,603,

3,025,520 and 3,785 tonnes for power, brick-kilns and domestic, respectively.

Impact of Pollution

a. AirAccording to WHO guidelines, the

amount of sulphur dioxide (SO2), carbonmonoxide (CO) and Ozone (O3) in theatmosphere are well below danger levels.However, the particulate matter in theatmosphere is well above safety levels across allthe major industrial cities in the Punjab. Table16.3 shows the rapid pace of increase in airemissions over two decades between 1977-78 and1997-98 across the major commodity producingsectors. The average increase in sulphur dioxide(SO2) across all the sectors was twenty-three foldover these two decades. Similarly, nitrogenoxides (NOX) increased twenty-five fold in thepower sector and carbon dioxide (CO2) increasedan average of four fold across all the sectors.

Table 16.3Estimated air pollutants from various economic sectors

(Thousand Tonnes)

1977-78 1997-98Sector CO2 SO2 NOX CO2 SO2 NOX

IndustryTransportPowerDomesticAgricultureCommercial

123087068364016601845

1726

1952455

11

N.AN.A

3N.AN.AN.A

5342918987530623909863684261

982105996404025

N.AN.A76

N.AN.AN.A

Note: N.A. = Not applicable Source: Sustainable Development PolicyInstitute.

CO2 = Carbon dioxideSO2 = Sulphur dioxideNOX = Nitrogen oxides

A study by the Pakistan MedicalAssociation, indicates that the growth in trafficand dirty fuels have already had an adverseimpact. In Pakistan, sulphur in diesel and furnaceoil is 1 percent and 3 percent as compared to 0.05– 0.5 and 0.5 – 1.0 percent for other countries ofthe region, respectively. The lead in gasoline in

Pakistan is 0.35 grams per liter while the averagefor other countries in the region is 0.15 grams perliter. Thus the blood-lead levels for children inKarachi, Islamabad and Peshawar are 36.9, 22.3and 19.0 microgram per deciliter respectively,which are considerably higher than acceptablelevels of 15 micrograms per deciliter. The blood-


lead levels of traffic constables in Karachi areover three times and even those of adults twicethan that of acceptable levels.

b. Water

Various estimates have been made overthe years in connection with water quality. TheNational Environmental Quality Standards(NEQS) are used as a reference point to comparehow the average quality of water fairs on variousparameters. On most counts (includingtemperature, pH content, total dissolved solidsand biological Oxygen demand), the water issafe. However, in terms of total suspended solids(TSS) the counts are way above the NEQS acrossthe board and for chemical oxygen demand(COD), they are above the NEQS for Ravi and the

Hadyara Drain. In terms of fecal coliform, forwhich traces should be zero in drinking water,the actual presence is millions of times greaterthan acceptable levels.

A study conducted by the SindhEnvironmental Protection Agency (EPA)indicates that the industrial pollution levels arehigher for major industries in Pakistan, includingchemical, tanneries, textile, sugar, fertilizer andoil and ghee. The effluents are way above thanNEQS on all account including Biological OxygenDemand (BOD), Chemical Oxygen Demand(COD), Total Suspended Solids (TSS) and TotalDissolved Solids (TDS). Industrial pollutionlevels and National Environmental QualityStandards are detailed in Table 16.4.

Table-16.4Industrial pollution levels

BOD(mg/L)

COD(mg/L)

TSS(mg/L)

TDS(mg/L)

ChemicalTanneriesTextileSugarFertilizerOil and ghee

1400-9800800-1680800-8500100-1100400-610

460-1470

2300-186401020-2367

1610-16500200-1896860-16501260-3280

950 298190028509720 576

38000 9104 968017300

-15462

NEQS 80 150 150 3500Note: BOD =Biological Oxygen Demand Source:Sustainable Development Policy Institute.

BOD =Chemical Oxygen DemandCOD = Total Suspended SolidsTSS =Total Dissolved Solids

c: Land

Forests have an important role in landconservation, regulated flow of water forirrigation and power generation, reduction ofsedimentation in water channels and reservoirsand maintenance of ecological balance. Table 16.5indicates that the area under forests has increasedsteadily since 1990-91 with little fluctuations,however the overall increase in the forests area in2000-01 is higher by 9.5 percent over 1990-91.Although Pakistan has limited area under forest

cover, yet 11.25 percent of the total land area isprotected as national parks, wild life sanctuariesor game reserves while a rough percentagerecommended by experts is 12 percent. It hasbeen pointed out in the report of SustainableDevelopment Policy Institute that Baluchistanand NWFP which require more protection, haveonly 6 percent of their land protected whilePunjab has 16 percent protection. This study alsopoints out that the percentage cited above “—includes sites established with no basis inlegislation. If one only considers national parks


and wildlife sanctuaries as areas that affordprotection to bio-diversity because they alsoprotect habitat – the percentage of protected landthen drops from 11.25 percent to 6.5 percent. Inthat case, Pakistan lags behind other Asian statesincluding Nepal, Sri Lanka and Bhutan”. ForPakistan, currently the real issue is not theamount of land demarcated as a protected areabut the poor management of the areas alreadyprotected.

Table 16.5

Year Forest Area(Mln. Hectares)

% Increase/Decrease

1990-911991-921992-931993-941994-951995-961996-971997-981998-991999-002000-01

3.463.473.483.453.603.613.583.603.603.703.79

-0.30.3-0.94.30.3-0.80.6-

2.82.4

% Increase in2000-01 over1990-91

9.5 -

Source: Ministry of Food, Agriculture and Livestock.

Status of Pakistan in global and regionalpartnership on environment

Pakistan as signatory to manyinternational protocols and conventions, ismeeting various obligations with the technicaland financial assistance of developed countries.Under the Montreal Protocol, the ODS-basedindustry (using ozone depleting substance (ODS)such as Chloro Floro Carbons (CFC)) underrenovation and consumption of ODS will beeventually phased out by the year 2005.Government has imposed ban on import of usedODS-based equipment, and maximum duties arelevied on import of new CFC-based equipment.

Pakistan is also responding to UNFramework Convention on Climate Change bypreparing national Green Houses Gases (GHG)inventories. Several projects aiming at mitigationof climate change and adaptation to changingclimate are in pipeline, which will beimplemented with the technical and financialassistance of developed country parties to theConvention. Some initiatives have been under theUN Convention on Biological Diversity and UNConvention on Desertification such aspreparation of Biodiversity Action Plan (BAP)and Desertification Combat Action Plan.However, the pace of implementing internationalobligations is not up to the mark, which is largelydue to lack of in-country capacity and partialfulfillment of commitments by the developedcountries.

Environment Sector Programs/Projects

During the fiscal year 2001-02, majorprojects are under implementation in the followingprograms areas;

i. Institutional Strengthening, Capacity Building, Mass Awareness

Institutional strengthening is an on-goingprocess and has been made an importantcomponent of all development projects inenvironment sector. Capacity building of the projectimplementing agencies and other functionariesinvolved in policymaking, planning, lawenforcement, and monitoring of environmentalactivities has been an important area of investmentby different donors. Specific PSDP project include“Strengthening of Forestry Wing at Federal Level forsustained monitoring of the implementation ofForestry Sector Master Plan”, for which an amountof Rs.12.0 million was allocated during 2001-02. TheNGOs and other environmental pressure groupshave largely undertaken mass awarenesscampaigns.


ii. Forestry and Watershed Management

A mega project in forestry sector, named“Rachna Doab Afforestation Project” started in July1995 at a cost of Rs.485.4 million. During 2001-02,Rs.52.0 million were allocated to conclude the on-going activities towards achievements ofafforestation targets. Tarbella WatershedManagement Project sponsored by Ministry ofEnvironment is an on-going project at a total cost ofRs.689.0 million, to which Rs.108.7 million wereallocated. The main objectives of the projectinclude; soil and water conservation, extension offorests, appropriate land use, improvement ofenvironment and uplift of socio-economicconditions of people i.e., poverty alleviation. Duringthe fiscal year 2001-02, 41 acres of nurseries havebeen raised, 2000 acres planted, 14,500 acresafforestation maintained and 180 training/ exchangevisits have been conducted, 21management/utilization Plans have been preparedwith the total expenditure of Rs.20.1 million tillMarch, 2002. Another watershed project named“Mangla Watershed Management Project” is beingimplemented by Ministry of Water & Power at atotal cost of Rs.97.7 million. During the current fiscalyear, Rs.13.7 million were allocated to this projectand about 1200 acres/avenue miles ofplanting/afforestation have been completed withthe total expenditure of Rs.36.4 million until March,2002.

iii. Bio-diversity and Protected Areas

Global Environment Facility (GEF) isfinancing Protected Area Management Project at atotal cost of Rs.648.5 million. This is an umbrellaproject being implemented simultaneously inHingol (Balochistan), Machiara (AJK) and ChitralGol (NWFP) national parks. Another protectedareas management project named “Mountain AreasConservancy Project” was approved during the2000-01 which covers four conservancies falling inNorthern Area and NWFP. The project’s total cost isUS $ 7.0 million, which is not reflected in the PSDP.

iv. Fuel Efficiency in Road Transport

The Ministry of Environment/ENERCONis implementing “Fuel Efficiency in Road TransportSector (FERTS) Project at a total cost Rs.230.4million. The UNDP is providing grant assistanceworth Rs.220.5 million to this project. The projectaims at improving fuel efficiency and curtailingnoxious emissions from Transport Sector throughdigital tuning of gasoline and diesel vehicles. A totalof 15 digital tune-up stations have been establishedin four provinces. During 2001-02, Rs.66.00 millionwere allocated to the Fuel Efficiency in RoadTransport. The Revolving Loan Fund worth US$ 3.0million has been established for financing purchaseof tune-up equipment. Until March 2002, Rs.3.5million have been utilized against PSDP localcomponent allocation of Rs.5.0 million.

v. Industrial Efficiency and EnvironmentalManagement Sector Development Program

Total cost of the project is Rs.52.0 million,proposed to be totally funded by the AsianDevelopment Bank (ADB). The Project envisagescollection of data from private/public industrialsector and on the basis of the data the projectauthorities, i.e., Pakistan Environmental protectionAgency (Pak-EPA) will make recommendations forimproving efficiency, reducing pollution andincreasing profitability in seven highly pollutingindustrial sectors. The ADB has to provide ProjectPreparatory Technical Assistant (PPTA) grant ofRs.52.0 millions (1 million US$) to the Governmentof Pakistan to cover the cost of Consultants andother related expenses.

Renewable resources including solar andrenewable have vast potential in Pakistan, whichcould not be fully exploited due to lack oftechnology. The Global Environment Facility (GEF)is sponsoring a feasibility study to explore potentialof wind energy for power generation along coastlineof Pakistan. The Ministry of Environment hasestablished a fund to support grass-root non-


government organizations investing in community-based interventions which are successfully playingtheir contribution.

Housing Sector

The housing and construction sectorremained neglected in the past which resulted inhousing backlog of over 4.3 million units. Inorder to make up the backlog and meet theshortfall in the next 20 years, the overall housingproduction has to be raised to 500,000 housingunits per annum. The present governmentappreciating the gravity of situation and realizingthe linkages of this important sector with theconstruction industry and its potential togenerate employment, decided to revitalize it as avehicle for economic revival. Accordingly, theNational Housing policy, 2001, was formulatedby the Government. The major emphasis of thepolicy is on resource mobilization, landavailability, incentives for home ownership,incentives to developers and constructors, andpromotion of research and development activitiesto make construction cost effective. The objectiveis to create affordability, especially, for themiddle and low income groups. One of thecornerstones of the Policy is to ensuredevelopment of housing for the poor and needyand housing for the majority of rural population.The National Housing Policy was formallyapproved by the Cabinet in December 2001 andhas the concurrence of all the provinces. Thepolicy has already been referred to

all concerned organizations and the provincialgovernments for implementation. Committeeshave been set up by the provinces under theirrespective Chief Secretaries to monitor progresson implementation of the policy.

According to 1998 Population andHousing Census of Pakistan, there were over 19.3million housing units in the country as comparedto 12.6 million enumerated in 1980, showing anincrease of 53.2 percent. Of the total (19.3 million)housing units, 67.7percent were in rural and 32.3percent in urban areas accommodating totalpopulation of 131.5 million, nearly 15.6 million or80.8 percent were owned, 1.7 million or 9.0percent rented, and 2.0 million or 10.2 percentrent free. The percentage of owned housing unitswere higher in the rural areas compared to urbanareas. Similarly, percentage of rent free houseswas higher in rural areas as compared to that inthe urban areas. However, the percentage ofrented houses was significantly higher at 23.2 inurban as compared to only 2.3 percent in therural areas, as reflected in Table 16.6.

Table 16.6Housing Units by Tenure

(In million)

Census 1998Tenure All Areas Rural Urban


i) All types

ii) Owned

iii) Rented

iv) Rent Free

19.3(100)15.6

(80.8)1.7

(9.0)2.0

(10.2)

13.1(100)11.4

(87.1)0.3

(2.3)1.4

(10.6)

6.2(100)

4.2(67.6)

1.4(23.2)

0.6(9.2)

Note: The figures in parenthesis are percent shares Source: Population & Housing Census 1998

On the basis of World Bank’srecommended occupancy rates of 6 persons perhouse, the total number of required housing units inthe country would be roughly 24.3 million up to theend of June, 2002, based on the population of 146million at present. Every year, 0.3 million newhouses are added to the existing stock by the publicand private sectors. On the other hand, 10 percenthouses of the total supply are depleted/destroyed/demolished every year, resulting in to decrease inavailable housing units to 20.0 million housing unitsleaving a backlog of 4.3 million housing units.Realizing the slump in the housing market andfeeling the need to revive this important sector ofeconomy and narrow the present backlog, inaddition to regular Public Sector DevelopmentPrograms at Federal as well as provincial level, thegovernment has launched a housing program onself-financing basis which ensures market viabilityand implementation, keeping in view the marketforces. This model has been adopted to encourageprivate developers. Varied initiatives and incentiveshave been provided, including developing housingand construction as a priority industry, which isentitled to various reliefs and financial facilities fromthe financial sector. The present program involvesconstruction of approximately 4500 housingunits/apartments in 4 major urban centers ofKarachi, Lahore, Islamabad and Peshawar at anestimated cost of Rs.5.0 billion.

The execution of this program has been entrusted tothe National Housing Authority.

The work has been awarded to leadingconstruction companies of Pakistan and the designresponsibility rests with leading designers. Leadingconstruction managers are carrying out constructionmanagement. This combination ensures properdesigning, provision of proper facilities and, aboveall, quality construction and timely completion. Thisproject is expected to be completed and handedover by July, 2002.

Due to this initiative of the Government,substantial employment has been created. It isestimated that approximately 8,000--10,000labourers and skilled workers are working onvarious projects including more than 500Professional Engineers and Architects. In addition,this has also provided an incentive to the 40downstream industries including cement, steel,electrical industries, piping etc.

________________________

ANNEX-1CONTINGENT LIABILITIES

Contingent liabilities are costs that the

budget may have to incur if specific uncertain

events occur in some future point of time. Such

liabilities may be created through explicit

contractual guarantees or implicit non-contractual

commitments. These liabilities support specific

policy objectives by creating financial incentives

without an immediate financial outlay. However,

when these contractual guarantees or non-

contractual commitments are realized, the

government faces significant fiscal costs at the

expense of other outlays.

Explicit contingent liabilities

Explicit contingent liabilities represent a

government’s legal obligation to make a payment

only if a particular event occurs. The budgetary

cost of past legal obligations amounted to Rs. 17.6

billion during 2001-02 [Table-1]. These include

payments made on account of contractual

guarantees issued on GCP, RECP, TCP, CEC, and

Saindak bonds; payments for Pakistan Steel Mill’s

liabilities contractually assumed by the

government; payments to oil refineries on account

of guaranteed rates of return; and payments to

FFC Jordan on account of the 1989 investment

policy pertaining to the fertilizer industry. On a

definitional note these payments are now part of

the budget and as such are a direct government

liability and, therefore from a technical viewpoint,

not a contingent liability any more. However, here

they are treated as explicit contingent liabilities

due to the underlying guarantees that catalyzed

these payments.

Table 1Impact of Explicit Contingent Liabilities on

the Budget(Rs. In billion)

Enterprise 2001-02 2002-03 (BE)

GCP, RECP, TCP, &CEC 4.7 4.4Saindak Metal Ltd. 2.0 2.8Pakistan Steel 0.9 0.9Pakistan InternationalAirlines1 N.A 2.9

Oil Refineries 9.0 10.5

FFC Jordan 1.0 1.0 TOTAL 17.6 22.5

Note: Ghee Corporation of Pakistan (GCP), Rice ExportCorporation of Pakistan (RECP), Trading Corporation ofPakistan (TCP), Cotton Export Corporation (CEC), andPakistan International Airlines (PIA).

In addition, losses of PIA may represent

an additional source of risk to the federal budget.

PIA had been faced with huge losses over the past

several years due to mismanagement, obsolete

business practices, un-economical operational

activities and over staffing. With the result, that

by early 2001-02, it was faced with an immediate

debt burden of Rs. 18.42 billion, comprising Rs.

9.73 billion of overdraft and Rs. 8.69 billion of

overdue bills, and a cash deficit of Rs. 500 million

per month. Consequently, a comprehensive plan

was approved, which in addition to operational

reforms, included financial restructuring of its

short-term debt of Rs. 6.5 billion into medium

term (5 years) and provision of additional debt of

Rs. 14 billion on a long term basis (10 years)

through:

1 Payments to be made on account of PIA during 2002-03have been considered as explicit contingent liabilities as theyare contractually bound.

a) Restructuring of existing short-term debt

of Rs. 6.5 billion for five years with a 2

year grace period. The pricing of the

restructured facility will be 200 bps above

SBP discount rate. Mark up on the

restructured facility will be serviced by

the government through bi-annual equity

contributions to PIA.

b) Bridge financing of Rs. 6.5 billion with

government guarantee for six months.

The pricing of the facility will be 200 bps

above SBP discount rate.

c) Term financing certificates (TFCs) of Rs.

14 billion: The TFCs will have maturity

period of 10 years and grace period of 5

years. TFCs will carry a coupon rate of 10

year PIB + 200 bps, payable semi annually

through equity contributions by the

government. Principal redemption will be

in 10 equal semi annual installments

commencing from the 66th month. TFC

proceeds will be used first to repay the

bridge finance facility of up to Rs. 4.73

billion, then to settle the remaining

overdue payments to creditors at Rs. 8.27

billion, and last to cover working capital

requirements of Rs. 2 billion for fiscal year

2001.

Though, PIA’s financial position has

improved significantly in recent months, however

the government’s contractual obligations

underlying PIA’s financial restructuring plan

represent a significant risk to the budget.

Government guarantees issued on

account of lending operations are another

important source of the government’s explicit

contingent liabilities. It is generally believed that

since no cash is spent from the budget when the

government issues a guarantee, therefore it does

not impact measures of deficit or stock of debt.

However, once the guarantee is called it becomes

a charge on the budget.

In line with the government’s policy of

containing its risk exposure, the government has

instituted a policy of limiting guarantees, while

regularly measuring and identifying the range of

risks and the time period over which contingent

liabilities may materialize. During 2001-02 the

government issued guarantees equivalent to 0.4%

of GDP for rupee lending [Table 2]. which is less

than the average for the last decade. Additionally,

the government’s Fiscal Responsibility Law also

proposes specific limits on contractually binding

guarantees (i.e. explicit contingent liabilities)

including those on rupee lending, bonds, rates of

return, output purchase agreements and other

claims, that may pose significant risks for future

fiscal balances.

Table 2Guarantees issued2

Fiscal Year As % of GDP1991-1992 1.21992-1993 0.81993-1994 0.71994-1995 0.71995-1996 0.61996-1997 0.21997-1998 1.01998-1999 0.91999-2000 0.32000-2001 0.82001-2002 0.4

Note:Roll over of a guarantee is consideredas issuing a new guarantee.

Future pension payments by thegovernment are a direct government liability,even though they are contingent upon specificunderlying factors such as future demographicsand economic developments, and are not explicitcontingent liabilities. Pensions payments

2 Excluding commodity financing.

amounted to Rs. 33.6 billion during 2001-02 andare expected to rise significantly over the comingyears. In order to manage the rising cost ofpension obligations and limit their potential ofcrowding out other programs, the government isinstitutionalizing advanced actuarial techniquesfor estimating pension benefits through theestablishment of an actuarial office in the Ministryof Finance.

Implicit contingent liabilities or quasi-fiscalinterventions

Liabilities assumed by the government,which it is not legally obligated to do so, arecalled implicit contingent liabilities [Table 3]. Suchliabilities usually accrue on account of thegovernment’s quasi-fiscal activities e.g. bailouts of

strategically important corporations, banks etc.Being contractually non-binding, implicitcontingent liabilities do not represent a legalcommitment on the part of the government totake on a liability if a particular event occurs.However, their measurement and identification isessential for comprehensive analysis of fiscal risksfaced by government.

In this respect, non-performing loans ofthe banking sector are an important source ofimplicit contingent liability for the government.Owing to the effective implementation ofprudential regulations by the State Bank, totalnon-performing loans of the banking sectordecreased from Rs. 279.1 billion in end June 2001to Rs. 278.6 billion in end March 2002.

Table 3Impact of quasi-fiscal interventions on the federal budget

(Rs. In billion)

Enterprise 2001-02 2002-03WAPDA equity 2.0 N.AWAPDA shortfall in debt servicing 21.0 N.AKESC equity 83.2 6.1KESC shortfall in debt servicing 4.0 N.APeoples Steel Mill 0.9 0.4Utility Stores Corporation 0.2 0.2Karachi Shipyard 0.3 N.APECO 0.0 0.4

Pakistan Railways 6.0 6.0 TOTAL 117.6 13.1

N.A = Not Available.

However, Water and Power DevelopmentAuthority (WAPDA) and Karachi Electric SupplyCorporation (KESC) remained the largest sourceof implicit contingent liabilities for thegovernment (Table 3). During 2001-02, thesepower-generating companies necessitatedadditional cash equity injections of Rs. 85.2 billionand non-tax revenue losses (due to lowerreceivables on account of debt servicingpayments) of Rs. 25 billion.

With the repayment of the bulk of KESC’s

debt by the government, prospects of KESC’s salehave improved considerably. The PrivatizationCommission has invited expression of interests bypotential investors and expects to bring KESC tothe point of sale by end July 2002. With KESC’seventual privatization, one of the main sources offiscal leakages will be closed. WAPDA has alsoprepared a Financial Improvement Plan, which islikely to bring it financial viability and higherefficiency, thus reducing the likelihood of quasi-fiscal interventions in the future.

______________

ANNEX –IITAX EXPENDITURES

Tax expenditures can be defined as thecost of tax allowances and relief in the pursuit ofgovernment policy objectives. These costs relatedto tax exemptions and other forms of relief reducegovernment revenues. However on the otherhand it can be argued that government canachieve its policy objectives through enhancementin its public expenditure programs rather than taxconcessions. Theoretically tax allowances are akind of subsidies and may be seen as a form ofpublic expenditure. The estimates of total taxexpenditure for the financial year 2001-02 suggestthat it could be as high as Rs. 26.0 billion. Thiscomes out to be 0.7 percent of GDP (Rs. 3,727billion) and is about 6.3 percent of the CBRrevenue estimates of Rs. 414.4 billion. The tax-wise expenditure for the financial year 2001-02ranges from Rs. 0.5 billion (Central Excise) to Rs.10.2 billion (Income tax) with Sales Tax andCustoms amounting to Rs. 8.6 billion and Rs. 6.8billion, respectively.

Legal PositionIncome Tax

Section 14 of the Income Tax Ordinance1979 empowers the Federal Government toexempt from tax any income or classes of income,or persons or classes of persons. However, thesepowers were sparingly exercised by thegovernment. Categories of exemption, listed inPart-I of the Second Schedule to the IncomeTaxOrdinance, 1979 are broadly as under:

I. Exemption relating to pensions, providentfunds and superannuation funds;

II. Exemption of interest on borrowings fromexternal sources and on domestic savings;

III. Exemption to non-profit educationalinstitutions;

IV. Exemption to charitable activities;

V. Exemption relating to electric powergeneration; and

VI. Unexpired period to tax holidays forindustrial undertakings.

The income tax expenditure involved inrespect of exemptions listed in the aforesaidschedule is of Rs. 10.2 billion which is 0.27 percentof GDP and 39.2 percent of total tax expenditure.It may be noted that much of the exemptionrelates to National Saving Schemes (NSS) interestincome, agricultural income, meager pensions,provident funds and superannuation fund.Furthermore, exemption related to charitableactivities and non-profit educational institutionsare common in both developed and developingcountries. Exemption of interest on domesticsavings is likely to be withdrawn during fiscalyear 2002-03.

Following are the estimated mainexemptions in Income Tax allowable in fiscal year2001-02 compared to fiscal year 2000-01[Table 1].

Table 1Income Tax Expenditure

(Rs in billion)

Estimated Revenue LossNo Major Income Tax Expenditure Items2000-01 2001-02

1 Pensions 0.70 0.702 Allowances 1.00 1.103 Income from funds (e.g. NIT units) 0.60 0.604 NSS interest income 3.20 2.905 Other interest income 0.10 0.106 Capital gains 0.90 0.907 Sector and enterprise specific exemptions 0.70 0.708 Agricultural income 4.00 3.20 TOTAL 11.20 10.20

Sales Tax

Key exemptions of Sales Tax are fooditems (wheat, grain, pulses, and edible oilsexcluding palm oil and soybean oil). In additionto food items, exemptions also include phosphaticfertilizer, information technology equipment, andpharmaceutical products. As per internationalpractices, the bulk of such items cannot be taxed,

for example food grains etc. The cost of Sales Taxexemptions is estimated to be Rs. 8.6 billion forthe fiscal year 2001-02, which is 0.23 percent ofGDP and 33 percent of total tax expenditures.

Following are the main exemptions inSales Tax allowable in fiscal year 2001-02compared to fiscal year 2000-01[Table 2].

Table 2 Sales Tax Expenditure (Rs in billion)

Estimated Revenue LossNo Major Sales Tax Expenditure Items2000-01 2001-02

1 Retailers 1.00 0.002 Domestically produced edible oils 2.00 2.103 Pharmaceuticals (excluding life saving drugs) 4.00 4.304 Tractors and other agri machinery 1.30 1.505 Fertilizers 4.00 0.606 Pesticides 0.80 0.007 Others (e.g. agri seeds, cattle feed) 0.10 0.10 TOTAL 13.20 8.60

Central Excise

Tax expenditure involved on account ofCentral Excise is minimal when compared withother taxes being administered by the CBR. Thecost of Central Excise Exemptions for the fiscalyear 2001-02 is estimated around Rs. 500 millionwhich is at par with the exemptions grantedduring FY 2000-01. This is 0.01 percent of GDPand 1.9 percent of total tax expenditures for FY2001-02.Customs Duties

Customs exemptions are mainly given on

raw materials and components; plant, machineryand equipment imported by high-tech, priorityand value added industries; imports for energysector projects; exemption to exploration andproduction companies including OGDC;exemption to equipment for WAPDA; andimports by CNG companies. Some of theseexemptions are due to international contractualobligations.

Following is the break-up of mainexemptions in customs duties allowable in fiscalyear 2001-02 compared to fiscal year 2000-01[Table 3].

Table 3 Exemptions in Custom Duties (Rs in billion)

Estimate Revenue LossNo SRO No & Date Description2000-01 2001-02

1 369(1)/2000, June 17, 2000 Plant & Machinery for Investmentoriented industries

2.60 2.80

2 400 (I)/97, May 31, 1997 &367(I)/94, May 9, 1994

Exploration and Production companies inoil and gas sectors

1.20 1.40

3 555(I)/94, April 9, 1998. Raw material for certain industries 1.70 1.804 504(I)/94, June 9,1994. Raw materials for specified consumer

durable goods0.20 0.20

5 24(I)/96, January 8, 1996. Raw materials, sub-components andcomponents for automobile vendors.

0.20 0.20

6 557(I)/97, July 28, 1996. WAPDA 0.10 0.207 38(I)/98, January 21, 1998 CNG Companies 0.20 0.20 TOTAL 6.20 6.80

Following is the consolidated summary of tax

expenditures showing percentage increase/

decrease for the fiscal year 2001-02 compared to

FY 2000-01[Table 4].

Table 4Summary Of Tax Expenditures

(Rs in billion)Cost of ExemptionsNo Type of Tax

2000-01 2001-02Percent change

1 Income Tax 11.20 10.20 -8.9

2 Sales Tax 13.20 8.60 -34.8

3 Customs Duties 6.20 6.80 9.7

4 Central Excise 0.50 0.50 0

TOTAL 31.10 26.10 -16.1

A summary of the projected major tax expenditure items for the fiscal year 2002-03 is as

under[Tabfle 5].

Table 5Summary of Major Tax Expenditure For 2002-03

(Rs in billion)

No Major Tax Expenditure Items Estimated Revenue Loss

1 Agricultural Income 3.20

2 NSS Interest Income 2.90

3 Plant and Machinery for Investment 2.50

4 Tractors and other Agri Machinery 1.70

5 Raw Material for Certain Industries 1.60

6 Allowances 1.00

7 Capital Gains 0.90

8 Sector & Enterprise Specific Exemptions 0.80

9 Pensions 0.70

TOTAL 15.30

pakistan economics survey 2003-04

Documents

expert advisory

canal head

oral rehyderation

total suspended

total dissolved

textile commissioner

hydrocarbon

restoring