Economic Issues and Challenges

Based on
Economic Survey 2017-2018
& Federal Budget 2018-2019
 Outline
1. Introduction
2. Sustainable Growth
3. Fiscal Deficit
4. Main Sectors of Economy
I. Agriculture Sector
II. Industrial Sector
III. Services Sector
5. Trade Deficit
6. Public Debt
7. Conclusion
 1. Introduction
• During the past five years the economy faced
numerous challenges on external and internal
front on account of;
• Power Crisis,
• Persistent inflationary pressures,
• Low Tax to GDP Ratio,
• High Fiscal Deficit, (revenues Rs3.8 trillion,
expenditures Rs5tr).
 1. Introduction
• Mounting Public Debt,
• High Interest Payments,
• High Growth in Subsidies on account Of
Circular Debt and
• Resource Drain Through PSEs.
• Consequently, the expenditure overrun
surpassed the revenue increases, thereby
resulted pressure on the fiscal deficit.
 1. Introduction
• Major structural reforms which are needed;
• Tax Legislation,
• Trade Reforms,
• Privatization of State owned Enterprises
• Financial Sector Reforms,
• Human Resource Development and
• Social Protection.
 2. Sustainable Growth
• Economy of Pakistan has continued the
growth momentum as the GDP growth reached
to 5.8% in 2017-18 against the growth of 5.4%
registered last year.
• The economic growth in outgoing fiscal year
is highest in the last decade, which is an
indicator that there is a strong turn around in
economic activities of the country.
 2. Sustainable Growth
• Agriculture sector registered a growth of 3.46
percent against the growth of 0.27 percent last
year.
• Industrial sector witnessed the growth of 5.02
percent against 5.80 percent last year, large
scale manufacturing posted growth of 4.61
percent against 3.29 percent last year.
• Services sector recorded 5.98 percent growth
as compared to 5.55 percent last year.
 2. Sustainable Growth
• After taking measures to restore
macroeconomic stability.
• The government focused on higher GDP
growth that brings:
i. better living conditions to the people through,
ii. Higher increases in per capita incomes,
iii. More job opportunities etc.
 2. Sustainable Growth
• Historical data suggests that the economy
reached a high of above 10 percent growth level
in 1954.
• Above 9 percent in 1969 and 1970.
• Likewise, it reached 7.5 percent in 2004-05
• But slowed down to 5.6 percent next year and
further dropped to 5.5 percent in 2006- 07.
• From 2007-08 to 2012-13 the economy grew by
3.2 percent on an average.
 2. Sustainable Growth
• Three main drivers of economic growth are:
1. Consumption,
2. Investment and
4. Export.
• Pakistani society like other developing
countries is a consumption oriented society,
having high marginal propensity to consume.
 3. Fiscal Deficit
• Overall fiscal deficit contracted by an annual
reduction of over 1 percent of GDP owing to
higher revenue receipts, rationalization of
subsidies, and stringent control on current
expenditure.
• Due to prudent expenditure management, the
budget deficit was successfully brought down
to 4.6 percent in FY 2018 from 8.2 percent in
FY2013
 3. Fiscal Deficit
• The fiscal deficit has been continuously on
low trajectory.
• 8.2 percent in FY2013,
• 5.5 percent in FY2014,
• 5.3 percent in FY2015 and
• 4.6 percent in FY2016.
• 4.2 percent in FY2017.
• 5.5 percent in FY2018.
 3. Fiscal Deficit
• The pace of revenue mobilization has
witnessed an upward trajectory since FY2013.
• Overall revenues increased to 15.3 percent of
GDP in FY2018, compared to 13.3 percent of
GDP recorded in FY2013.
• Among those, tax revenues increased from 9.8
percent of GDP in FY2013 to 12.6 percent of
GDP in FY2018.
 4. Main Sectors of Economy
• Agriculture 19.82 % in GDP

• Industrial 21.20 % in GDP

• Services 59.16 % in GDP

 Agriculture Sector - I

• The agriculture sector accounts for 19.82

percent of GDP and 42.3 percent of employment
with strong backward and forward linkages.
• It has four sub-sectors including:
i. Crops,
ii. Livestock,
iii. Fisheries and
iv. Forestry.
 Agriculture Sector - I

• The agriculture sector met its growth target of

3.5 percent, helped by government supportive
policies and by increased agriculture credit
disbursements. Last year growth was 0.19%
• These developments, along with PM’s
Agriculture Kissan Package together with
other relief measures have started yielding
positive results.
 Agriculture Sector – I (Problems)

• Under Utilization of Land – 90 Million Acres is

cultivable, 40 Million under cultivation, 60% wastage.
• Under Utilization of Manpower- in rural sector 15%
are paid workers and the rest are self employed. An
estimated 2(m) are unemployed.
• Uneconomic Holding – cultivating units are small.
Input-output ratio is low compared to bigger farms.
Almost half of farmers own only 3 acres or less of
land. Main cause Islamic law of Inheritance and lack
of alternative occupation.
 Agriculture Sector – I (Problems)

• Water–Logging and Salinity – Due to leakage of

water from the canals, the water table has come
closer to the surface of soil and the plants are
unable to get air and grow. This is called Water-
logging.
• When this water evaporates the salts contained in
the water spread on the surface. This makes the
surface hot and destroys the plants. This is known
as salinity. An estimated 15 Lakh acres have been
unfit for cultivation due to this.
 Agriculture Sector – I (Problems)

• Lake of Water Supply – Water supply is required

at different stages of cultivation. Inadequate water
damage the crop and its yield. Water supply is
either delayed or less than the requirment.
• Low Per Acre Yield-It is lowest in the world. It is
one third of what is produced in other countries.
Japan and Egypt produce 3 times more rice than in
Pakistan. Same is true about sugercane, cotton and
wheat.
 Agriculture Sector – I (Problems)

• Inadequate use of inputs – which include

chemical fertilizers, improved seeds, plant
protection and mechanization. Seeds defective
and inferior quality.
• Inadequate Rural Infrastructure: Roads and
storage facilities are non-Existing.
• Lack of Extension Services: reach of
agricultural facilities in far-flang areas.
 Agriculture Sector – I (Solutions)

• Increase in irrigation facilities

• Farm Mechanization
• Agriculture Research
• Reclamation program
• Agricultural Price Policy
• Land Reforms
• Credit Policy
• Cooperative Movement
 Industrial Sector - II
• The industrial sector contributes 21.02 percent
in GDP; it is also a major source of tax
revenues for the government and also
contributes significantly in the provision of job
opportunities to the labour force.
• Government planned and implemented
comprehensive policy measures on fast track
to revive the economy.
 Industrial Sector - II
• This sector mainly consist of
• Manufacturing: 65.4 % in industrial sector
• Construction: 12 %
• Mining and Quarrying :14.4 %
• Electricity generation & distribution and Gas
distribution: 8.2%
 Industrial Sector - II
• The manufacturing is the most important sub-
sector of the industrial sector containing 64.71
percent share in the overall industrial sector.
• Growth of manufacturing is registered at 5.00
percent compared to 3.90 percent last year.
 Industrial Sector - II
• Manufacturing has three components;
• Large-Scale Manufacturing (LSM): 80.11%
• Small Scale Manufacturing (SSM):13.12%
• Slaughtering: 6.77%
 Industrial Sector - II
• The LSM growth stood at 5.06 % during FY
2017 compared to 4.6 % last year.
• LSM include Wood Product, Engineering
Products, Paper and Board, Food Beverage
and Tobacco, Rubber products, Iron and Steel
Products, Automobiles, Leather Products,
Electronics, Pharmaceuticals,
• Automobile sector such as trucks, tractors, cars
& jeeps and LCVs.
 Industrial Sector - II
• Small scale manufacturing witnessed growth
at 8.21 percent against the growth of 8.22
percent last year and
• slaughtering growth is recorded at 3.63 percent
as compared to 3.35 percent last year.
 Industrial Sector - II
• The share of construction in industrial sector
is 12.29 percent and is one of the potential
components of industries. The construction
sector has registered a growth of 13.10 percent
against the growth of 6.24 percent of last year.
 Industrial Sector - II
• Mining and quarrying sub-sector contains
14.19 percent share of the industrial sector.
This subsector witnessed a growth of 6.80
percent as compared to 4.81 percent last year.
• Soap stone, Crude oil, Gypsum, Coal and
Lime Stone post, Phosphate, Dolomite,
Sulphur, Bauxite, Magnesite.
 Industrial Sector - II
• Electricity generation & distribution and
Gas Distribution is the most essential
component of industrial sector. This sub-sector
has registered growth at 12.18 percent as
compared to 11.98 percent last year.
 Industrial Sector – II (Problems)
• Controversial Industrial Strategy
i. Sectorial Balance between Agri and industry
ii. Balance Regional Development
iii. Growth verses distribution strategy
iv. Small scale verses large scale
v. Capital intensive versus labour intensive
vi. Public sector verses private sector
vii. Rural verses urban
viii. Nationalization versus Privatization
ix. Import substitution versus export promotion
 Industrial Sector – II (Problems)
• Lack of capital
• Limited Market
• Lack of Technical Know how
• Lack of infrastructure
• Lack of industrial research
• Unbalanced industrial structure
• Labour unrest
• Nationalization
• Lack of specialization
 Industrial Sector – II (Solutions)
• Clear strategy for industrial sectors
• Provision of industrial finance
• Provision of infrastructure
• Development of Capital Goods industry
• Industrial Research
• Fiscal Incentive
• Technical Education and Training
 Services Sector - III
• The share of the services sector in GDP has reached to
59.16 percent in FY 2018.
• Services sector contains six sub-sectors including:
1. Transport, Storage and Communication;
2. Wholesale and Retail Trade;
3. Finance and Insurance;
4. Housing Services (Ownership of Dwellings);
5. General Government Services (Public Administration
and Defense); and
6. Other Private Services (Social Services).
 Services Sector – III
• The services sector recorded a growth of 5.98%
and surpassed its target which was set at 5.70%.
• Wholesale and retail trade sector: 6.82 %.
• The Transport, Storage &Communication:
3.94%
• Finance and insurance: 10.77%, mainly because
of rapid expansion of deposit formation (15
percent) and demand for loans (11 percent).
• General government services grew by 6.91%
 5. Foreign Trade
• Total trade as a percentage of GDP for
Pakistan was reported at 24.5%,
• Compared to an average of 39% for South
Asian countries.
• As total trade includes both exports and
imports, the comparison suggests that Pakistan
is less open to trade, in terms of its GDP,
relative to the other South Asian countries.
 5. Foreign Trade - Exports
• Pakistan’s exports have been facing headwinds
for the past 2 years mostly due to weak global
demand and lower commodity prices.
• The analysis of data on exports shows that for
many product categories, Pakistan exported
higher quantities, but lower international
prices meant that the country was unable to
realize adequate FX receipts.
 5. Foreign Trade - Exports
• According to the World Development Indicators
by the World Bank, exports as a percentage of
GDP for Pakistan were 8.7% in 2018,
• compared to the global average of 29.4% (in
2015) and
• 18% for the South Asian countries.
• Pakistan reported its lowest level since 1971 in
2018.
 5. Foreign Trade - Imports
• The rise in overall import payments was
mainly driven by higher purchases of fuel and
capital equipment.
• This is understandable, given that Pakistan is
transitioning from a low growth to higher
growth economy, and is therefore faced with
supply-side bottlenecks in energy and
infrastructure.
 5. Foreign Trade-Problems
• Imports are more than the exports.
• In 2017-18 this gap was of $14 B. (Exports
$20 Billion , Imports $34 Billion).
• Our export base is very narrow . There are five
export oriented sectors leather, sports, surgical,
textile and carpets.
• Our major imports are machinery, petroleum
products
 5. Foreign Trade-Problems
• The decline in exports from Pakistan is likely a
result of
• poor trade facilitation,
• lack of export diversification and
• protectionist and discretionary trade policies
adopted by the government.
 5. Foreign Trade-Solutions
• Expansion of base.
• Exploring more markets
• Trade Related exhibitions
• Resolving regional disputes
• Following international Trading standards
• Product specialization
 6. Public Debt
• Public Debt is a combination of domestic and
foreign debt largely due to fiscal deficit.
• Our foreign debt has risen to $ 95 Billion.
• Domestic debt is Rs 29 Trillions.
• Getting debt is not bad but its proper utilization
is essential. Examples of Japan and Germany.
• Our debt is mainly due to security and economic
issues.