review economy jul feb
TRANSCRIPT
-
8/8/2019 Review Economy Jul Feb
1/17
Reviewof
EconomicSituation
(JulyFebruary200809)
GovernmentofPakistan
FinanceDivision
(EconomicAdviserWing)
-
8/8/2019 Review Economy Jul Feb
2/17
1ReviewofEconomicSituationJulyFebruary200809
1. IntroductionPakistan witnessed major disruptions in its normal economic activities as the fallout of the
war on terror spread into settled areas of Pakistan. The outlook for economic growth more
pessimistic,
import
demand
shriveled,
tax
collection
declined,
and
inflows
of
foreign
investment and privatization dampened. Pakistan economy still faces pressures from higher
inflation driven by spike in food prices, the acute power shortages, a bewildering stock
market, a perceptible slowdown in the manufacturing and services sectors; lower than
anticipatedinflowsand growingfinancingrequirement.
Recent trends in most macroeconomic variables suggest that the disciplined implementation
of the macroeconomic stabilization program is paying dividends. Improvement in fiscal
discipline is complementing the tightening of monetary policy to aggregate demand
compression to a meaningful level which has improved prospects of lower inflation in the
finalquarter
of
the
current
fiscal
year.
The
demand
compression
is
also
manifested
from
fall
in the cumulative JulFebruary FY 09 trade deficit which is the first reduction in the last six
years.The narrowingtradedeficitandrobustremittanceshascausedreductioninthecurrent
account deficit and even for the month of February2009, we have witnessed first surplus in
monthlycurrentaccountsurplussinceJune2007.The improvementallowedfor abuildupof
the countrysforeignexchangereserves. Abriefreviewoftheeconomicsituationduringthe
firsteightmonthsofthe currentfiscalyear200809isgivenbelow:
2. Real SectorNotwithstanding these improvements, the growth outlook is not free of risks as industrial
productionhas
been
badly
affected
by
acute
energy
shortages,
deterioration
in
law
and
order
situation,andconstrictedaccesstofinancebyriskaversebanks.Forthe year200809, given
domestic and international economic pressures especially high inflation and macroeconomic
imbalances, the GDP growth has been envisaged at 2.5% on the back of positive outlook of
the agriculturesectorwhereall indicationsarepointingatgoodgrowth.The outlookisbased
upon anticipated record wheat crop and abovetarget growth ofminor crops and reasonably
good outturn by the livestock subsector. The outlook for the services sector is mixed as
finance & insurance sector and fiscal spending on public administration are offset by falling
profits in telecom sector and negative fall out of weaker performance of the manufacturing
sectorand importcompressiononwholesaleand retailtrade.Stillthegrowth intheservices
sector will drive the modest GDP growth. The largescale manufacturing sector is victim of
-
8/8/2019 Review Economy Jul Feb
3/17
2 | ReviewofEconomicSituationJulFebruary200809
energyshortagesand demandcompression inthe exportsectorestimatedtocontractby5
percent.
AgricultureThe agriculture has been facing acute irrigation water shortages and the water intensive
crops
sugarcane
and
maize
fell
short
of
the
target
and
depicted
negative
growth
of
18.5
percent and 7.5 percent in 200809. However, other two major crops cotton and rice have
registered positive growth of 7.3 percent and 13.5 percent, respectively. The combined
weight of sugarcane and maize in overall agriculture is 6.2 percent while that of cotton and
riceis13.0percent.
The Rabi season started with estimated water shortages of 31.6 percent, however,
widespreadrainfallduringDecember2008toFebruary2009 inmostpartsofthecountryhas
positiveimpactonthe outlookfor the rabicrop.Wheatwithits 12.7percentweightinoverall
agriculture is estimated to post 19.0 percent growth over the last year. The area under
cultivation of wheat crop has surpassed the target of 8.6 million hectares by 5 percent. The
provincial governments and PASSCO has made arrangements for highest ever quantum of
procurementat6.55milliontonsofwheatwhich isfarhigherthan3.9 milliontonsprocured
lastyear.
Fertilizerofftake(bothUreaand DAP)decreasedbyalmost10.5percentduringJulyJanuary
200809 amid weak demand due to higher prices and vague market signals led to shortages.
The disbursementofthe agriculturalcredit isupby8.2 percent inJulyFebruary200809and
stoodatRs.130.3 billion as compared to Rs.120.4 billion disbursed in the comparable period
of lastyear.The cropsector isprojectedtosurpassthe growthtarget.The livestocksector is
growingat normal pace and thusthe target of 3.2 percent willbe achieved. The agriculture
sectorislikelytoachieveits growthtargetof3.3 percentforthe currentyear.
Table1: KharifCropsProduction (MillionTons)
Weightin
Agriculture200708 200809
%
Change
Cotton* 7.48 11.6 12.1 7.3
Sugarcane 4.55 63.9 52.1 18.5
Rice 5.47 5.6 6.5 13.5
Maize 1.63 3.6 3.33 7.5
Table2:RabiCropsProduction (MillionTons)
Weightin
Agriculture200708
200809
Est.
%
Change
Wheat
12.68
21.0
25.0
19.0
Gram 1.19 0.475 0.65 36.2
Potato 2.5 2.5
Onion 1.8 0.9 52.0
-
8/8/2019 Review Economy Jul Feb
4/17
3ReviewofEconomicSituationJulyFebruary200809
Manufacturing SectorLargescalemanufacturingregisteredanegative
growth of 5.35% in JulyJanuary 200809 as
against reasonable positive growth of 5.7% in
the
comparable
period
of
last
year.
This
implies
that largescale manufacturing sector is
exhibiting signs of moderation on the one hand
and acute power shortages along with several
other factors like rising cost of doing business,
demand compression in the export sector,
deteriorating law and order situation in the
country.The negativegrowthof8.9percentinthemonthofJanuary2009maybelookedinto
the backdrop of impressive growth rate of 9.5 percent in January 2008 which placed a high
base effect. Going forward the negative growth may improve to some extent because of
lower
base
effect
and
some
improvement
in
energy
supplies.
The
LSM
growth
is
adversely
impacted by a sharp reduction in demand from both domestic and international factors.
Therewasnegativegrowthall aroundinallmajorgroupswithoneortwoexceptions.
Servicessectorhas exhibitedresiliencetofluctuationsinthe economicactivityand FDI inthe
services sector witnessed healthy increases. The FDI inflows in the services sector provide
some anecdotal evidence regarding growth performance. The FDI inflows in the
telecommunications, financial businesses and personal services are up by 6.7 percent, 75.3
percent and 3.0 percent respectively in the first eight months (JulyFebruary) of the current
fiscalyear.Similarly, improvedprospects intransportation&storagesubsectorsonthe back
ofrelatively
better
production
in
major
crops,
strong
contribution
by
finance
and
insurance
sector and augmented administrative and defence related spending will provide support to
adequate levelofgrowth inthe servicessector.Theseprospectsofthe servicessectorwould
be neutralizedto someextentbynegative growth inthe LSM, importscontraction,shrinking
profits in the telecommunication sector. Leading indicators pertaining to the major sector
wholesale and retail trade points towards a reasonable growth in this subsector. The
targetedgrowthof4.1 percentisalreadyalmosthalfoflastyearsactual8.2 percent.
InflationIn sheer contrast to significant abatement in the inflationary pressures across the globe, the
inflation
in
Pakistan
has
depicted
downward
rigidity.
All
price
indices
like
CPI,
WPI
and
SPI
witnessedacleardowntrendinrecentmonths.The inflationrateasmeasuredbythe changes
Table3:GrowthinLSM(%)
200708 200809
July 5.29 4.47
August 8.546.86
September 7.69 6.41
October 8.08 2.17
November 4.22 7.57
December 4.00 1.64
January 9.45 8.91
JulyJanuary 5.71 5.35
-
8/8/2019 Review Economy Jul Feb
5/17
4 | ReviewofEconomicSituationJulFebruary200809
in Consumer Price Index (CPI) after reaching peak at 25.3 percent in August 2008, showing
easing since November 2008 but bounced back to 21.1 percent in February 2009 mainly
because of spike in the prices of some food items like onion, chicken farm, sugar etc. WPI
inflationisfollowinginternationaldecliningtrendbut nonfoodcomponentofthe CPI showed
some stubbornness till February 2009. The CPI inflation averaged 23.5 percent in July
February2008
09
as
against
8.9
percent
in
the
comparable
period
of
last
year
[See
Table
4].
Table4: InflationSituationinPakistan (%)
CPI WPI SPI CoreInflation
July 24.3 34.0 33.0 14.7
August 25.3 35.7 33.9 16.4
September 23.9 33.2 31.1 17.3
October 25.0 28.4 32.7 18.3
November 24.7 19.9 29.8 18.9
December 23.3 17.6 25.8 18.8
January 20.5 15.7 20.8 18.91
February 21.1 15.0 23.4 18.85
The food inflation is estimated at 28.9 percent in JulyFebruary 200809 as against 13.0
percent in the comparable period of last year. The relative slowdown in domestic inflation
sinceSeptember2008ismainlydrivenbythe decelerationinfoodinflationwhereasnonfood
component has generally remained stubborn. Notwithstanding recent downward trajectory,
the foodinflationisstillquitehighand isattributabletostubbornnessofpricesofedibleoil,
pulses, rice, milk, sugar, poultry, meat, wheat, wheat flour, fresh vegetables and fruits. The
nonfood inflation stood at 19.3 percent, against 5.9 percent in the corresponding period of
last year. The nonfood inflation is also high because of hike in transport group, fuel and
lighting group and house rent index. The downward adjustment of petroleum prices in the
month of November isneutralized byfrequent hikes in electricityand gas prices.On current
trends and barring any adverse shocks, it is expected that the average inflation for the year
(200809) asmeasuredbyCPI willbecloseto20percent.
The core inflation which represents the rate of increase in cost of goods and services
excludingfoodandenergypricesalsowentupfrom5.7 percentto17.8percentinthisperiod.
Notwithstanding,all demandcompression,thecoreinflationresistedall downwardpressures
and remained sticky at around 18.9 percent for the last four consecutive months.
Notwithstanding all monetary tightening during May 2007 to December 2008, the core
inflationhas
also
depicted
first
deceleration
since
May
2007
in
December
2008
but
hovered
around18.9percent.The monthofFebruarywitnessedfractionaldeclineinthe coreinflation.
-
8/8/2019 Review Economy Jul Feb
6/17
5ReviewofEconomicSituationJulyFebruary200809
The WholesalePrice Index (WPI) during first eight months of 200809 has increased by 24.7
percent,asagainst11.7percentinthecomparableperiodoflastyear.Ithasdeclinedfromas
high as 35.7 percent in August 2008 to 15.0 percent in February 2009, reflecting a marked
downward correction in the last six months. This downturn is contributed by both food and
nonfood components. The nonfood component fell more steeply from 37.4 percent in
August
2008
to
9.8
percent
in
February
2009.
Food
component
has
decelerated
from
33.5
percentinAugust2008to22.0percentinFebruary2009.
The SensitivePriceIndicator(SPI)has recordedanincreaseof26.1percentduringthisperiod
(JulFebruary200809) asagainst9.9 percent inthe sameperiodof lastyear.Goingforward,
the pricesofedibleslikesugar,wheat,meets,onionswillbecrucialindeterminingthe fateof
the SPI. Going forward, the prices of edibles like sugar, wheat, ghee/ cooking oil will be
crucialindeterminingthe fateofthe SPI.
3. Monetary PolicyThe
SBP
has
kept
its
tight
monetary
policy
stance
in
the
period
July
01,
2008
March
14,
2009.
The policyratewasadjustedupwardinNovember2008toshaveoffsomeaggregatedemand
from the economy and kept constant in January 2009. During July 01, 2008March 14, 2009,
money supply (M2) expanded by 2.9 percent against the target of expansion of 8.0 percent
for the yearand lastyearexpansionof7.6 percent inthe comparableperiodoflastyear.The
reserve money contracted by 0.3 percent against the expansion of 10.9 percent in the
comparableperiodoflastyear.
Table5: CausativeFactorsinMonetaryGrowth
FlowsDuring
the
Period
(Rs.
Billion)
200708
1stJulyto
15Mar08 14Mar09
NetForeignAssets(NFA) 317.4 232.3 283.5
NetDomesticAssets(NDA) 941.4 541.7 418.2
- NetGovernmentBorrowing 583.8 308.4 430.1
- FromSBP 688.7 367.0 320.5
CredittoPrivateSector 408.4 315.5 103.8
BroadMoney 624.0 309.4 134.7
ReserveMoney 270.0 131.4 4.26
GrowthinM2
Reserve
Money
Growth
15.35%
22.28%
7.61%
10.85%
2.87%
0.29%
-
8/8/2019 Review Economy Jul Feb
7/17
6 | ReviewofEconomicSituationJulFebruary200809
Net domestic assets (NDA) have increased by Rs.418.2 billion as compared to increase of
Rs.541.7 billion in last year, thereby showing an increase of 10.4 percent in this period
whereas, lastyearthe growth inthe comparableperiodwas17.6percent.Net foreignassets
(NFA) have recorded a contraction of Rs.283.5 billion against the contraction of Rs.232.3
billioninthecomparableoflastyear[SeeTable5].
Governmentborrowingfor budgetarysupporthasrecordedan increaseofRs.430.1billionas
comparedtoRs.308.0billioninthe comparableperiodofthe lastyear.The SBP financinghas
shownanet increaseof Rs.320.5billionand financingfromscheduledbankswitnessedanet
increaseofRs.99.3billionduringJuly01, 2008March14, 2009.
Credit toprivate sector witnessed a net increase of Rs.103.8 billion during July 01, 2008
March 14, 2009 as compared to Rs.315.5 billion in the comparable period of last year. The
stocksstillwentupby9.6 percent.SBP undertookaggressivemonetarytighteningduringthe
period, further increasing the policy rate by 300 bps in two rounds. On a cumulative basis,
this means a 550 bps increase during the last 18 months. These policy measures were in
response to carryover of macroeconomic stresses of the preceding year and increase in real
aggregatedemand.
Weightedaverage lending rate have witnessed slight decline from 15.5 percent in October
2008to15.3percent inJanuary2009.Weightedaveragedepositrateonthe otherhandhas
increased from 6.2 percent in October 2008 to 8.8 percent in January 2009 which implies
narrowing
of
the
spread
amidst
intensive
deposit
mobilization
efforts
on
the
part
of
the
banks. The weighted average yields on 6 months Tbill has declined by almost 100 basis
Fig-1: Trends in Interest Rate
Deposit Rate
Lending Rate
Spread
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Jun-01
Mar-02
Jul-02
Sep-02
Nov-02
Jan-03
Mar-03
May-03
Jul-03
Sep-03
Nov-03
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
(Percent)
-
8/8/2019 Review Economy Jul Feb
8/17
7ReviewofEconomicSituationJulyFebruary200809
points to 13.0 percent in February 2009 as against 14 percent in November and December
2008.
Capital Market: The period under review (July08February08) has witnessed global
economy meltdown and less than satisfactory security environment increasing investors
anxiety.
The
floor
imposition
on
KSE
100
index
for
about
four
months
(August
27,
2008
December12, 2008) resulted in a virtual halt of the stock market and shattered the
confidence of local and foreign investors badly. These gloomy events coupled with domestic
security environment have had an adverse impact on the performance of Pakistans equity
market.The stockmarkethasalsoreceivedbacklashofthe internationalfinancialmeltdown.
The benchmarkKarachiStockExchangehas undergoneasharp reversal in the risingtrendof
its leadingKSE100 indexinyear2008.The indexunderwentagiganticlossof58.3percentto
closearound5,800pointsbyendFebruary2009againstFebruary2008.Likewise,the market
capitalizationhasobservedahugefallofRs2,471billion(US$47billion)sinceDecember31,
2007. The aggregate market capitalization (AMC) closed at Rs 2,043 billion (US$ 23.5 billion)
on March 31, 2009, down by 50.8 percent (in Rupee) and 57.4 percent (in US Dollar) when
compared to the value of Rs 3,777.7 billion or US$ 55.2 billion on June 30, 2008. The AMC
reachedits highestlevelofRs4,791billiononApril18, 2008.Sincethen,ithas beenenduring
asetbackandincessantlyexhibitingadescendinginclination.
The price discovery process started post removal of stock price floor seems to be routing
towards its finishing point after more than 37 percent decline in the KSE100 index to date.
Put anotherway,the marketwillsoonfind its equilibrium.The marketbreached7,000points
psychologicalbarrieronMarch31, 2009inanticipationofpoliticalstabilityand restorationof
judiciary. The positivereports like possible inclusion of KSE in MSCI Frontier Index, expected
incentivedriven
petroleum
policy
and
encouraging
prospects
on
aid
front
are
the
supporting
factorsthatareguidingtheKSE inthe positivedirection.
4. Fiscal PolicyThe government has decided in the economic stabilization program to adhere to the fiscal deficit
target reverently and during the first half the fiscal deficit hovered around 1.9 percent of the
projected GDP for 200809 which is consistent with annual fiscal deficit target of 4.2 percent. The
fiscal improvement in the first half has largely based on reduction of oil subsidies and a cut in
developmentspending.Allmeaningfuleffortstoexpandrevenuesparticularlybybroadeningthetax
basewill
only
work
in
the
medium
term.
The
faster
growth
of
35.5
percent
in
the
total
revenues
is
morethanoffsetbyevenfastergrowthof25.2percentinthecurrentexpenditure.
-
8/8/2019 Review Economy Jul Feb
9/17
8 | ReviewofEconomicSituationJulFebruary200809
Thefinancingpatternsoffiscaldeficitremaineddominatedbythebankingsystemwhichfinanced85
percent of the fiscal deficit and only 15 percent were financed by the nonbank sources. The
government remained well ahead of the SBP financing limit allowed by the Economic Stabilization
Program. The government received Rs.141.1 billion in gross external inflows against outflow of
Rs.104.1 billion which means net availability of Rs.37 billion on account of to finance the deficit
remainednegligible
at
Rs.12
billion
only.
TaxRevenuecollectedbytheFederalBoardofRevenue(FBR)stoodatRs.704.2billion(net)during
thefirsteightmonths(JulyFebruary)ofthecurrentfiscalyear(200809)ascomparedtoRs.585.4
billioninJulyFebruary,200708postingahealthyincreaseof20.0%.Directtaxes,whichaccounts
for36.9percentoftotaltaxcollectionoftheFBRhaveregisteredagrowthof18.3percent.Indirect
taxes,ontheotherhand,exhibitedagrowthof21.0percent.Withinindirecttaxes,salestaxwhich
accounts for roughly 63.6 percent of indirect taxes and 40.1 percent of total taxes grew by 24.3
percent (Rs. 283.4 billion). The custom duty collection is up by 7.3 percent and the collection of
federal excise duty (FED) has recorded a note worthy increase of 29.1 percent (collected Rs. 69.7
billion)during
the
period
under
review
[See
Table
6].
Table6: FBRTaxCollectioninJulyFebruary (BillionRs.)
RevenueHeadTarget JulyFebruary Change
200809 200708 200809 (%)
A) DirectTaxes 496.0 216.7 256.3 18.3
B) IndirectTaxes 754.0 368.7 446.1 21.0
1. SalesTax 472.0 228.1 283.4 24.3
2. FederalExcise 112.0 54.01 69.7 29.1
3.
Customs
170.0 86.6 93.0 7.3
TotalNetCollection 1250 585.4 702.5 20.0
Source:FBR
Despiteadeclineinfiscaldeficitinthefirsthalfof200809,thegrowthindomesticdebtaccelerated
reflectingnonavailabilityoffinancingthroughexternalsources.Thestockofdomesticdebtgrewby
Rs.341billionbyendJanuary2009.Thisstronggrowthinthedomesticdebtreflectsnonrealization
of privatization proceeds and reduced availability of net external financing due to increase in
externaldebtrepaymentsonmaturingstockofforeigncurrencybonds.Themaincontributioncame
from 16.3 percent rise in floating debt but this rise is lower than 21.2 percent increase in floating
debtin
the
comparable
period
of
last
year.
The
stock
of
permanent
debt
increased
by
Rs.44.5
billion
whileunfundeddebtwitnessedamoderategrowthof7.2percentinJulJanuary200809.
-
8/8/2019 Review Economy Jul Feb
10/17
9ReviewofEconomicSituationJulyFebruary200809
5. External SectorExportsmanagedpositivegrowthamidsthostileinternationalenvironmentandgrewby4.3percent
risingfrom$11.7billionlastyearto$12.2billioninJulyFebruaryFY09.However,exportsfellby
17.7percent inFebruary2009overFebruary2008which isreallyworryingthingfortheeconomy.
The
exports
growth
of
4.3
percent
may
be
regarded
as
good
performance
in
the
wake
of
extremely
difficult international and domestic environment. However, we must consider the fact that rice
alonehascontributed114.7percentoftheadditionalamountmobilizedfromexportsandwithout
rice the growth could have been negative 0.7 percent. It implies that positive growth is mainly
becauseofricealone. Thishasagainraisesquestionsregardingstructureofexportsandreinforces
the need to resort to diversification of exports. Although the international price of rice has fallen
fromitspeaklevelattainedlastyear,theunitvalueofriceisstillupby83.4percent.Inquantitative
termstheexportsofricehaswitnessed8percentnegativegrowth[Table7].
Table7: StructureofExports($Million)
ParticularsJuly
February
Change
AbsoluteIncrease/
Decrease
%Contribution
to
Increasein
Exports200708 200809 (%)
A.FoodGroup 1,425.1 2,099.3 47.3 674.3 136.2
B.TextileGroup 6,854.0 6,470.4 5.6 383.6 77.5
C.PetroleumGroup 730.8 589.2 19.4 141.6 28.6
D.OtherManufacturer 2,232.7 2,444.4 9.5 211.7 42.7
E.AllOtherItems 417.9 552.4 32.2 134.5 27.2
Total 11,660.5 12,155.7 4.2 495.2 100.0
NonTextile 4,806.5 5,685.3 18.3
ShareofTextile 58.8 53.2
ShareofNonTextile 41.2 46.8
Source:FBS
Thetextileindustrywhichhasremainedthemajordriveroftheexportgrowthonceagaindepicted
sluggishperformanceanditregisterednegativegrowthof5.6percent.Thisdownwardtrendinthe
textilesectoriscontributedbybothsignificantfallintheunitvalueofalmostallmajortextileitems
and supply constraints reflected through negative growth even in quantity terms. The nontextile
exportsgrewby18.3percent onthebackofstrongperformers likechemicals and pharmaceutical
(14.5%), engineering goods (70.1%), cement (75.7%). These items have very low weight and thus
their huge growth could not impact overall quantum of the exports. The export of petroleum
productsfeltthepinchoffallingpetroleumpricesandtheydeclinedby19.4percent.
Theshare
of
textile
sector
has
declined
from
58.8
percent
last
year
to
53.2
percent
this
year
and
it
is
persistently posting negative growth for some time. On the other hand nontraditional items are
-
8/8/2019 Review Economy Jul Feb
11/17
10 | ReviewofEconomicSituationJulFebruary200809
inchinguptheirsharebypostinghealthygrowth.Weneedtofurtherexploreareaswherewecan
excel.Theproductandmarket wise diversification isthe need ofthe hour.Notwithstanding,good
growth in nontraditional sector, we still need to look into the structural problems of the textile
industry.TheJanuaryfigureofexportsisnotrepresentativeasthepassthroughofglobalmeltdown
isyettobeseen.
Importsregisteredanegativegrowthof1.5percent inJulyFebruary2009.The importsstoodat$
23.8 billion as against $ 24.1 billion in the comparable period of last year. The growth in imports
reflects impact of substantial fall in oil and food imports in monetary terms and these two items
were responsible for 80 percent of additional imports bill last year. Import compression measures
coupled with massive fall in international oil prices have started paying dividends and imports
witnessedmarkedslowdownduringthelasttwomonths.
Table8:StructureofImports($Million)
JulyFebruary Absolute
Increase
% Cont. of
absolute
increaseParticulars 200708 200809 %Change
TotalImports 24,137.9 23,770.5 1.5 367.4 100.0
A FoodGroup 2,511.3 2,749.6 9.5 238.4 64.9
WheatUnmilled 369.0 838.0 127.1 469.0 127.7
B MachineryGroup 3,497.9 3,698.0 5.7 200.1 54.5
PowerGen.Machine 647.9 1083.1 67.2 435.2 118.5
C PetroleumGroup 6,340.2 6,921.2 9.2 581.0 158.1
D TextileGroup 1604.7 1037.4 35.4 567.3 154.4
E AgriChemicalsGroup 3,653.6 3,528.9 3.4 124.7 33.9
Fertilizer 625.5 365.7 41.5 259.8 70.7
F ConsumerDurables 3,259.2 2,026.5 37.8 1,232.7 335.5
RoadmotorVehicles 855.8 622.8 27.2 233.0 63.4
G
Telecom
1,427.9
716.3
49.8
711.6
193.7
H RawMaterials 2,192.2 2,096.3 4.4 95.9 26.1
I. Others 1,862.4 2,165.0 16.2 302.6 82.4
NonFood,NonOil 15,286.4 14,099.7 7.8 1186.7 258.1
NonOilImports 17,797.7 16,849.3 5.3 948.3 323.0 Source:FBS
Notwithstandingtherecentdramaticfall inthepricesofcrudeoilintheinternationalmarkets,the
petroleumisstilldepictingpositivegrowthof9.2percentandadding$581milliontotheadditional
importbillover lastyearspetroleum import.Themonthly importbillonaccountofpetroleumhas
lost onethird of its value. The additional import bill during the period JulyFebruary 200809 on
accountofpetroleumandwheatwasjustabovethe$1.0billion.Thismassiveadditionisneutralized
bymassivenegativecontributionsfromnonfoodandnonoilimports.Otherpositivecontributorsto
-
8/8/2019 Review Economy Jul Feb
12/17
11ReviewofEconomicSituationJulyFebruary200809
additionalimportbillarepowergeneratingmachineswhichhaveadded$435.2million,agricultural
chemicals otherthanfertilizer($213.4 million),and electrical machines & appliances($92 million).
Thenonfoodandnonoil importsshowednegativegrowthof7.8percentwhich impliesondrastic
importcompression.
Theunit
value
of
import
of
crude
oil
is
still
depicting
45
percent
increase
in
the
period
July
February
200809.Theunitvalueofsoyabeenandpalmoilarealsoshowingmassiveincreasesof62.9%and
22.8%, respectively in this period [See Table8]. This clearly reflects the time lag involved in
translating the benefit of lowering of prices in the international market into the import bill. The
consumer durables, transport group and telecom sectors are responding positively to the import
compression measures. The current growth in imports is coming from only a narrow range of
products and corrective measures are needed accordingly in these items. Pakistan needs more
measures to cut on its petroleum imports either through looking into alternative fuel sources or
demandmanagement.Theimportofediblesalsoneedstobelookedintocarefullyandmaybegiven
priorityfordomesticsubstitution.
Trade Balance The merchandise trade deficit improved by 6.9 percent and declined from $12.5
billioninJulyFebruaryFY08to$11.6billioninJulyFebruaryFY09.Thesubstantialdecreaseof42.0
percentinimportsoutstrippedotherwisesignificantdeclineof17.9percentinexportgrowth,which
caused the trade deficit to improve by 6.9 percent. This is the first ever improvement in the last
threeyearsorso.
Workers Remittances totaled $ 4.9
billion in JulyFebruary FY09 as against $
4.1 billion in the comparable period of
last year, depicting an increase of 19.2
percent. The remittances fell by 19.7
percent in October 2008 over October
2007 amidst difficult global environment
and uncertainties surrounding domestic
economy, however, they recovered to
their normal high double digit growth
since November 2008. Deep recession in the US economy, which constitute close to onethird of
Pakistansremittancesstartedtakingitstollandwitnessedmarginalnegativegrowthof0.3percent.
The trend will be expected to continue in the months to come, however, overall outlook of
remittancesfromothersourcecountriesispositive[SeeTable9].
CurrentAccount Balance shrank by 13.7 percent during JulyFebruary FY09. Current account
deficit shrankto $ 7.5billion as against $ 8.6 billion last year. In themonth of February 2009, the
Table9:WorkersRemittances
$Million
JulyFebruary
200708 200809 %Change
Total 4,126 4,919 19.2
USA 1,160 1,157 0.3
SaudiArabia 762 962 26.3
UAE 682 1,035 51.9
OtherGCCCountries 619 783 26.6
U.K 293 344 17.5
EUCountries 116 150 29.2
OtherCountries 494 488 1.2
-
8/8/2019 Review Economy Jul Feb
13/17
12 | ReviewofEconomicSituationJulFebruary200809
current account witnessed a surplus which is a
rare development in Pakistan economy. This is
first monthly surplus since June 2007. Drastic
reduction in imports growth as well as better
performanceoftheprivate inflows iscontributing
to
improvement
in
the
current
account
deficit.
Going forward, Pakistan is likely to show
significant improvement against the target of
currentaccountdeficit[SeeTable10].Developing
countrieslikePakistanneedsomecurrentaccount
deficittoaugmenttheirdevelopmentefforts.The
current account surplus gave rise to the false
notion that Pakistan is a capital exporting country while Pakistan needs to import capital to
supplementitsmeagersavings.
Foreign direct investment (FDI) has reached $ 2794.4 million during JulyFebruary 200809 as
against$2789millioninthecomparableperiodoflastyear,thereby,depictingamarginalincrease
of 0.2 percent. If privatization proceeds of $133 million received in the comparable period of last
year are excluded, then FDI inflows witness an increase of 5.2 percent. The communication group
spearheaded the healthy rise in the FDI inflows with 28.3% stake in overall FDI and followed by
financial business (23.2%) and oil and gas exploration (17.3%). The power sector after remaining
oblivion for some period has witnessed amassivegrowth of103.4 percentbut its share remained
below3percentinFDI[SeeTable11].
Table11:FDIInflowsbyEconomicGroup(JulFebruary)$Million
200708 200809 %Change
Textiles 20.5 27.6 34.7
Chemicals&PetroChemicals 67.5 63.6 5.8
PetroleumRefining 56.1 74.0 31.9
Oil&GasExplorations 418.2 483.1 15.5
Cement 86.0 30.9 64.1
TransportEquipment(Automobiles) 67.0 58.5 12.7
Power 39.3 79.8 103.4
Trade 123.9 121.5 2.0
Communications 828.1 790.7 4.5
FinancialBusiness 714.8 647.2 9.5
PersonalServices 68.0 63.2 7.1
Others
299.7 354.3
18.2AllGroups 2789.1 2794.4 0.2
Table10: MonthWiseCAD$Million
JulyFebruary
Months 200708 200809
July 816 1039
August
754
1533September 700 1267
October 723 2172
November 1752 800
December 1308 551
January 1580 279
February 1010 146
JulyFebruary 8,645 7,455
-
8/8/2019 Review Economy Jul Feb
14/17
13ReviewofEconomicSituationJulyFebruary200809
ForeignExchangeReservesdeclinedsubstantiallyintheinitialmonthsofFY09droppingfrom$11.4
billionatendJune2008toalowof$6.4billionbyNovember25,2008.Thisdepletionofreservesin
the five months was lower than fall in foreign exchange reserves for the whole of FY08. The
subsequent recovery in November 2008 owed essentially the inflow of $ 3.1 billion from the IMF
following Pakistans entry into a macroeconomic stabilization program. The foreign exchange
reserves
stood
at
$10.3
billion
as
of
March
27,
2009.
The
import
coverage
ratio
declined
to
an
uncomfortablelevelof9.1weeksasofendOctober2008from16.8weeksofimportsasofendJune
2008butitimprovedto12.4weeksofimportsbyendFebruary2009[SeeFig2].
6
8
10
12
14
16
18
Jan2005
April
July
October
Jan2006
April
July
October
Jan2007
April
July
October
Jan2008
April
Jun16
Jul03
31Aug
31Oct
31Dec
22Jan
4Feb
16Mar
(BillionU
S$)
Fig2:ForeignExchangeReserves
March 16, 2009
$ 10.29 Bln
Exchange rate after remaining stable for more than 4 years, lost significant value against the US
dollar and depreciated by 21% during MarchDecember 2008. Most of the depreciation of rupee
against dollar was recorded in post November 2007 owing to combination of factors like political
uncertainty,
trade
related
outflows
and
speculative
activities.
With
successful
signing
of
Standby
arrangements with the IMF, the rupee got back some of its lost value. With substantial import
compressionandrevivalofexternalinflowsfromabroadinthecomingmonthsofthefiscalyear,the
exchange rate will remain stable at around Rs.8082 per dollar. Pak rupee recovered some of its
earlier lossesagainsttheUSdollarandregisteredanetdepreciationof13.5percentfortheperiod
JulFebruary200809[SeeFig3].
-
8/8/2019 Review Economy Jul Feb
15/17
14 | ReviewofEconomicSituationJulFebruary200809
Theexternaldebt&liabilitiesrecovered inthefirstquartersandactuallyfell inabsoluteaswellas
relativetermsmainlybecauseoflowerthananticipatednetdisbursementsandpositivetranslation
impactof
appreciation
of
dollar
versus
yen
and
euro.
External
debt
and
liabilities
(EDL)
stood
at
US$
50.9billionor31.2percentoftheprojectedGDPfortheFY09attheendofDecember2008whichis
higher than endJune 2008 stock of $46.3 billion or 27.6 percent of GDP. It implies that EDL grew
bothinabsoluteandrelativeterms.AlmostallcategoriesofEDLhavewitnessedincrease;however,
highestincreaseinabsolutetermwasrecordedindebtstockowedtotheIMFasaresultofinflowof
$3.1billiononaccountofStandbyArrangements(SBA)signedwiththeIMFinendNovember2008.
However,theEDLaspercent of foreignexchangeearningsdecreasedfrom125.3percentto112.2
percent.
The countrys debt burden defined as a ratio of external debt and liabilities to GDP declined from
50.9percent
at
the
end
of
2001
02
to
27.6
percent
of
GDP
by
end
June
2008;
however,
it
increased
to27.9percentbyendSeptember2008.Similarly,theEDLwere236.8percentofforeignexchange
earnings but declined to 125.3 percent by endJune 2008 and further to 112.2 percent by end
September2008.
6. ConclusionDuring the last fiscal year the stress on macroeconomic stability mainly emanated from
unsustainablebalanceofpaymentspositionandthefallingvalueofrupee,escalatingfoodandnon
food inflation, and structural problems like power shortages resulting in perceptible slowdown in
economic activity. The domestic socio political upheavals and rapidly changing global economic
environment
added
to
multifaceted
problems.
After
endorsement
of
Economic
Stabilization
program by the IMF, the economy got confidence back. By February 2009, early signs of
-
8/8/2019 Review Economy Jul Feb
16/17
15ReviewofEconomicSituationJulyFebruary200809
improvement in economic variables such as inflation, foreign exchange reserves, import
growth,andgovernmentborrowingsfromthe SBP areevident.
The fiscaldeficittargetof4.2 percentofGDP and the currentaccountdeficitof5.9 percentof
the GDP is now achievable. However, recent global financial crisis and extremely vulnerable
securityenvironmentaddedriskstothe economy. Thetradedataforthe monthofFebruary
2009 though not representative for months to come, still provide food for thought about
imminent risks to the external sector. If the trade data in the month of March 2009, follow
the sametrendthenitwillbetakenveryseriously.The twoextremesinthe remittancesdata
like massive growth in remittance inflow from UAE and negative growth in US again need
some assessment because if somebody has lost ajob in UAE, he has to return with retained
savingsimmediatelywhileapersoninsimilarsituationinUScanwaitfor the bettertomorrow
byconsumingpartofhis retainedsavings.The externaldatafortheMarch2009willprovide
ampleevidenceofthe impactofglobalfinancialcrisisonour externalsector.
The economic growth target at around 2.53.0 percent is still getable in the given
circumstances. The massive negative growth in the LSM for the month of January 2009 may
bepurelyabaseeffectbecausethegrowthinthe sectorfor January2008washugeone.The
comingmonthmaywitnesslowerintensityofnegativegrowthbecausethe baseeffectwillbe
favourable in the coming month. Similarly, the surge in inflation for the month of February
2009wasagainnot representativebecauseFebruary2008had witnessedraredecelerationin
the CPI index for the last one and half year. The persistent negativity in the SPI during the
monthofMarch2009reinforcesthe optimismthattheCPI inflationfor Marchonwardwillbe
sharplydecelerating. Inthisbackdrop it ismost likelythataverageCPI inflationfor the fiscal
year will be around 20 percent with endyear inflation of around 10 percent. The most
optimistic
estimate
for
the
next
year
inflation
will
be
around
6
percent.
The pressure on monetary, fiscal and exchange rate policy will be mitigated by lowering
financingneedsemanatingfrom lowerfiscaland currentaccountdeficitsasenvisaged inthe
StabilizationProgram.Eliminationofsubsidies,partialtransferofoil paymentstothe foreign
exchangemarket,andfall inthe internationaloil priceswillprovidegreathelponthiscount.
The downside risk to the stabilization program may come from slippages on account of FBR
revenue collection and slowdown in exports neutralizing to some extent steep fall in import
growth.The negativelargescalemanufacturing(LSM)growthandfallingcredittothe private
sector are indication of falling real economic activity, however, still better growth prospects
in the agriculture and the services sector will keep hope of real GDP growth at the targeted
levelin200809.
_____________________
-
8/8/2019 Review Economy Jul Feb
17/17
16 | ReviewofEconomicSituationJulFebruary200809
KeyEconomicIndicatorsJulyFebruary
Items Unit 200708 200809 %Change
Large
scale
Manufacturing@
%
5.2
5.4
Inflation % 8.9 23.5
Food % 13.0 28.9
NonFood % 5.9 19.3
CoreInflation* % 6.8 17.8
TaxCollection(FBR)
- DirectTax
- IndirectTax
- SalesTax
ImportRelated
Domestic
-Customs
Duty
- CentralExcise
Rs.Billion
585.4
216.7
368.7
228.1
126.1
102.0
86.6
54.0
702.5
256.3
446.1
283.4
133.0
150.4
93.0
69.7
20.0
18.3
21.0
24.3
6.0
47.0
7.3
29.0
Exports(FOB) $Million 12,482 13,015 4.3
Imports(FOB) $Million 21,776 21,878 0.5
TradeBalance $Million 9,294 8,863
4.6
Improvement
Remittances $Million 4,126.0 4,919.0 19.2
CurrentAccountDeficit $Million 8,645.0 7,455.0 13.8
ForeignInvestment(Total) $Million 2,873.4 1,892.1 34.2
FDI(Private) $Million 2,789.1 2,794.4 0.2
Portfolio(Private)** $Million 113.8 367.0 422.5
PublicInvestment** $Million 29.5 535.3 1714.6
FOREXReserves(EndFeb.) $Billion 14.1 10.1
ExchangeRate(Avg.Feb.) Rs/US$ 62.6 79.621.4
(Depreciation)
LendingRate(Avg.Jan.) % 11.3 14.1
@DataavailableforJulyJan.**PublicInvestmentismainlyinOGDCLGDRsanddebtequitieswhileMCBGDRsareincludedinPrivatePortfolioinvestment
*CoreInflation iscalculatedbyexcludingfoodgroupandenergygroupconsistsofkerosen,electricity,naturalgas,petrol
anddiesel.