PAF-KIET (Karachi Institute of economics and technology)

MACRO ECONOMICS

PAKISTAN ECONOMIC SURVEY

(PAST OVERLOOK AND FUTURE
LOOK)
___

SUBMITTED BY :
Fiza Majid (63782)

Saqib Tanveer (63692)

Dilawar Ali (63051)

Bilal Ahmed (63334)

DATE: 18 Nov 2020

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ACKNOWLEDGMENT

The most important acknowledgement is to ALLAH (SWT), the most merciful, the most wise
that we are provided with the ability to learn.

We have taken efforts in this project. However, it would not have been possible without the
kind support and help of the instructor. We would like to extend our sincere thanks to our
professor “Ali SAjid” for his guidance and constant supervision as well as for providing
necessary information regarding the project & also for their support in completing the project.

We would like to express our gratitude towards our university “PAF-KIET” for giving us such a
platform that enhances our study and also our university fellows for their kind cooperation and
encouragement which help us in completion of this project.
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TABLE OF CONTENTS

INTRODUCTION: 5
BRIEF OF PAKISTAN ECONOMY: 5
ESTIMATIONS 6

REGULATION ON ECONOMY IN PAKISTAN 6

BUDGET MAKING PROCESS: 6
STATE BANK OF PAKISTAN 7

AGRICULTURAL SECTOR 8
FOOD REQUIREMENT 9
FARM MECHANIZATION: 9
ROLE OF DAIRY FARMING 10
ROLE OF SUGAR INDUSTRIES 10
USE OF NANOTECHNOLOGY 10
DATA REPRESENTATION OF AGRICULTURAL SECTOR: 11

MANUFACTURING AND MINING SECTOR 14

RAW MATERIAL FOR INDUSTRIES 15
ROLE OF TEXTILE INDUSTRIES 15
DATA REPRESENTATION OF MANUFACTURING AND MINING SECTOR 16

FINANCIAL SECTOR 17
DATA REPRESENTATION OF FINANCIAL SECTOR 17

SERVICE SECTORS 20
OVERSEAS EMPLOYMENT 20
DATA REPRESENTATION OF OVERSEAS EMPLOYMENT 20

ADVANTAGES COUNTRY ENJOYING FROM LARGEST ECONOMIC SECTOR

(AGRICULTURAL SECTOR) 24
INCREASE IN GDP LEVEL 24
DECREASE IN RURAL POVERTY 24
DEVELOPMENT IN BANKING SECTOR: 25
SOURCE OF EMPLOYMENT: 25
CONTRIBUTION TO EXPORTS 25
INFRASTRUCTURAL DEVELOPMENT 26
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IMPACT OF COVID- 19 ON PAKISTAN ECONOMY 27

DATA REPRESENTATION OF DOWNFALL IN 2 YEARS BY COVID-19 28

FUTURE OVERLOOK 29
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PAKISTAN ECONOMIC SURVEY

(LAST 3 TO 5 YEARS)

INTRODUCTION:
Economy is the major part that is connected with every other industry in this world. Every
business either legal or illegal, domestic or international, profession or passion, small or large,
startup or expanded, every other platform has a base relations with the economy of a country. If
you are running a business, your profit and loss matters to the economy, if you pursue your
passion, your training, your resources cost can be counted as a part of the economy, if you are
importing something or are busy in harvesting the field, every single will automatically become
a part of the economy.

BRIEF OF PAKISTAN ECONOMY:

The economy of Pakistan is the 23rd largest in the world in terms of purchasing power parity
(PPP), and 42nd largest in terms of nominal gross domestic product. Pakistan has a population
of over 220 million (the world's 5th-largest), giving it a nominal GDP per capita of $1,357 in
2019, which ranks 154th in the world and giving it a PPP GDP per capita of 5,839 in 2019, which
ranks 132nd in the world for 2019. However, Pakistan's undocumented economy is estimated to
be 36% of its overall economy, which is not taken into consideration when calculating per
capita income. Pakistan is a developing country and is one of the Next Eleven countries
identified by Jim O'Neill in a research paper as having a high potential of becoming, along with
the BRICS countries, among the world's largest economies in the 21st century. The economy is
semi-industrialized, with centres of growth along the Indus River. Primary export commodities
include:

➔ Textiles
➔ Leather goods
➔ Sports goods
➔ Chemicals
➔ Carpets/rugs.
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Growth poles of Pakistan's economy are situated along the Indus River; the diversified
economies of Karachi and major urban centers in the Punjab, coexisting with lesser developed
areas in other parts of the country. The economy has suffered in the past from internal political
disputes, a fast-growing population, mixed levels of foreign investment.] Foreign exchange
reserves are bolstered by steady worker remittances, but a growing current account deficit –
driven by a widening trade gap as import growth outstrips export expansion – could draw down
reserves and dampen GDP growth in the medium term.

Pakistan is currently undergoing a process of economic liberalization, including privatization

of all government corporations, aimed to attract foreign investment and decrease budget
deficit. In 2016, BMI Research report named Pakistan as one of the ten emerging economies
with a particular focus on its manufacturing hub.

ESTIMATIONS

According to the World Bank, poverty in Pakistan fell from 64.3% in 2002 to 29.5% in 2014. The
country's worsening macroeconomic position has led to Moody's downgrading Pakistan's debt
outlook to "negative"

In 2017, Pakistan's GDP in terms of purchasing power parity crossed $1 trillion. By May 2019,
the Pakistani rupee had undergone a year-on-year depreciation of 30% vis-a-vis the US Dollar

REGULATION ON ECONOMY IN PAKISTAN

BUDGET MAKING PROCESS:

A budget is an estimate of income that reflects the country’s social, economic, fiscal and
financial responsibilities for a set period of time. A budget is a government document
presenting the government’s proposed revenues and spending for a financial year.

Known as the Annual Financial Statement of the country the budget presented is according to
the governing law covered by various articles of the constitution of the country. The bill can be
tabled either in the National Assembly or in the Senate. But the money bill can only be tabled in
the National Assembly, the lower house of the parliament.
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This document is presented by the finance minister and after passage of the finance bill in the
parliament, approved by the President within 30 days of its passage to become a law.

The fiscal year in Pakistan starts from July 1st. The Budget proposals, made by the Finance
Ministry and considered and approved by the Cabinet, are presented in the Parliament. There is
no formal provision in the rules of procedure for a pre-budget discussion or consultation on the
part of the Ministry to engage the public or the Parliament on fiscal matters and issues.

When approved by the Cabinet, the Finance Minister, on behalf of the Government, delivers his
Budget speech in the National Assembly.

STATE BANK OF PAKISTAN

Like a Central Bank in any developing country, the State Bank of Pakistan performs both the
traditional and developmental functions to achieve macroeconomic goals. The traditional
functions, which are generally performed by central banks almost all over the world, may be
classified into two groups:

1. The primary functions include issue of notes, regulation of the financial system, lender
of the last resort, and conduct of monetary policy.
2. The secondary functions include management of public debt, management of foreign
exchange, advising the Government on policy matters, anchoring payments systems,
and maintaining close relationships with international financial institutions.

The central bank operations can also be categorized into macroeconomic function and
microeconomic function. The macroeconomic function is to preserve the value of the currency,
that is, maintain price stability and the microeconomic function is to maintain stability in the
banking system. However, in this document, we have discussed these functions in commonly
used classification of primary and secondary functions.

The non-traditional or promotional functions performed by the State Bank include

development of financial framework, provision of training facilities to bankers, and provision of
credit to priority sectors. The State Bank has also been playing an active part in the process of
Islamization of the banking system.

The State Bank of Pakistan, also acts as an advisor to the Government on financial and
economic matters particularly with reference to their monetary aspects. The Bank counsels the
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Government on loan operations and advises it with regard to the timings, terms and conditions
and rate of return on these loans. The advice is also tendered on matters like agricultural credit,
cooperative credit, industrial finance, exchange regulations, banking and credit control,
mobilization of savings, financial aspects of planning and development and similar other
economic issues. State Bank of Pakistan also tenders advice to the Government on debt
management issues.

The State Bank also participates in economic policy making as a member of various government
agencies and committees.

SECTORS IN PAKISTAN’S
ECONOMY
There are several sectors running in the economy of Pakistan and in years they fluctuate and
make it balance every year and provide the proper data which helps the government to consider
the annual financial budget and releases the policies accordingly.

The main sector that are involved in pakistan’s economy are:

1. AGRICULTURAL SECTOR
Agriculture is considered the backbone of Pakistan's economy, which relies heavily on
its major crops. . Pakistan's principal natural resources are arable land and water. About
70% of the economy of Pakistan is dependent on the agriculture sector. Agriculture
accounts for about 18.9% of Pakistan's GDP and employs about 42.3% of the labor force.
In Pakistan, the most agricultural province is Punjab where wheat and cotton are the
most grown. Mango orchards are mostly found in Sindh and Punjab provinces that make
Pakistan the world's 4th largest producer of mangoes

The most important crops are:

➔ Wheat
➔ Sugarcane
➔ Cotton
➔ Rice (together account for more than 75% of the value of total crop output).
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Pakistan's largest food crop is wheat. As of 2018, Pakistan wheat output reached 26.3
million tonnes. In 2005, Pakistan produced 21,591,400 metric tons of wheat, more than
all of Africa (20,304,585 metric tons) and nearly as much as all of South America
(24,557,784 metric tons), according to the FAO. The country had harvested more than
25 to 23 million tons of wheat in 2012.

Pakistan is a net food exporter, except in occasional years when its harvest is adversely
affected by droughts. Pakistan exports rice, cotton, fish, fruits (especially Oranges and
Mangoes), and vegetables and imports vegetable oil, wheat, pulses and consumer foods.
The country is Asia's largest camel market, second-largest apricot and ghee market and
third-largest cotton, onion and milk market.

A. FOOD REQUIREMENT
Population growth rate of Pakistan is increasing rapidly. According to the UNDP human
development report population growth rate of Pakistan is 2% per year. So with the
rapidly increasing population the food requirement is also increasing rapidly. In this
behalf agriculture is the only major sector which is meeting the increasing requirement
of food. It also reduces the import of food from other economies. So we can say that the
agriculture sector is playing a very vital role in the development of Pakistan by
providing food for the massive population as well as supporting economic growth.

B. FARM MECHANIZATION:
Introduction of farm mechanization in the agricultural sector has played a very effective
role in the development of the economy. With the use of modern machinery in
agricultural lands causes more and high quality production of crops. So the provision of
raw material to the industries increases. Due to increase in productivity level the export
rate of major export crops is increased which causes foreign exchange and economic
development.
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C. ROLE OF DAIRY FARMING

Dairy farming from the agricultural sector has also played a great role in economic
development. Livestock or dairy farming has a huge contribution toward economic
growth. The annual protein per capita is 18 kg of meat and 155 liters of milk. This is the
highest rate in South Asia. Milk and meat and their by products have a good market.
Farmers can receive a good return by producing and providing these products to the
market. This process results in an increase in per capita income as well as increase in
national income of the economy.

D. ROLE OF SUGAR INDUSTRIES

Sugar industry is also one of the major sectors of the economy which has great
importance according to the development of the economy. This is a totally agricultural
based industry. Sugar cane is produced on a very large scale in many areas of Pakistan.
This further supplies to sugar industries for the production of sugar and other by
products which have a great market. As large scale industries these also help to provide
employment levels to the public. This results in an increase in per capita income as well
as improves living standards.

E. USE OF NANOTECHNOLOGY
In the agricultural sector, use of modern technology like nanotechnology has played a
very vital role in the development of the economy. This technology is used for
producing the high yielding variety with high quality products. High quality products
result in a high rate of return to the farmers and the per capita income of farmers
increases. Increase in per capita income shows the growth of the economy toward
development.
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DATA REPRESENTATION OF AGRICULTURAL SECTOR:

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If we consider the economic data of agriculture then we got to know that in the previous five
years agriculture as well as other food sectors fluctuates. Among them in 2019, the crops have
to face negative values. By graphs it is easy to understand that in 2016 most of the agricultural
departments were at good standard but by time it decreased and by 2019 they made a good
jump but in 2020 due to several reasons like covid, 19 and extra seasonal rains the agriculture
and its components effects badly.

It is shown that Fishing industry did not gain that much in these specific years
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2. MANUFACTURING AND MINING SECTOR

Pakistan's industrial sector accounts for about 20% of GDP. Cotton textile production
and apparel manufacturing are Pakistan's largest industries, accounting for about 65%
of the merchandise exports and almost 40% of the employed labor force. Cotton and
cotton-based products account for 61% of export earnings of Pakistan. The consumption
of cotton increased by 5.7% over the past five years while the economic growth rate was
7%. By 2010 the spinning capacity increased to 15 million spindles and textile exports
hit $15.5 billion. Other major industries include:

➔ Cement
➔ Fertilizer
➔ edible oil
➔ Sugar
➔ Steel
➔ Tobacco
➔ Chemicals
➔ Machinery
➔ Food processing.

The government is privatizing large-scale parastatal units, and the public sector
accounts for a shrinking proportion of industrial output, while growth in overall
industrial output (including the private sector) has accelerated. Government policies
aim to diversify the country's industrial base and bolster export industries.

Mining is an important industry in Pakistan. Pakistan has deposits of several minerals

including:

➔ Coal
➔ Copper
➔ Gold
➔ Chromite
➔ mineral salt
➔ bauxite
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➔ several other minerals.

The other types of semi- precious minerals that are minded are:

➔ Peridot
➔ Aquamarine
➔ Topaz
➔ Ruby
➔ Emerald
➔ Bastnaesite
➔ Xenotime
➔ Sphene
➔ Tourmaline
➔ types of quartz.

A. RAW MATERIAL FOR INDUSTRIES

Industries have great importance for the development of any country specially for
developing economies like Pakistan. Industries need raw material to produce finished
goods. In Pakistan agriculture provides raw material to industries. Cotton is a very
important agricultural production which is also a major export of Pakistan. It is used as
raw material in textile industries. The production of these textile industries is exported
to various countries against foreign exchange. Live stock is also an agricultural sector. It
also plays a very important role to export goods by providing the raw material to various
industries like sports goods industries and leather industries. So in this way agriculture
helps the Pakistan economy and its growth toward development.

B. ROLE OF TEXTILE INDUSTRIES

In economic development textile industries play a very important role. These industries
totally depend on agriculture production in raw form. Cotton is the major crop which is
used as raw material for these industries for production purposes. Further these
products are exported to many economies against foreign exchange. So cotton as a raw
material from the agriculture side contributes toward an increase in NI (National
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Income). Textile industries also provide employment levels which increase the per
capita income of the person. So we can say that the contribution of textile industries in
the development of the economy has much importance.

DATA REPRESENTATION OF MANUFACTURING AND

MINING SECTOR
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The data that is presented above, represents changes in the manufacturing and mining sector
within 3 years. In graph the line is representing the change between 2019 to 2020 while the
blocks are representing 2018 to 2019. By the graph it is clear that automobiles and the iron and
steel industry have to face a huge loss by attaining values in the negative and electronics is
unbelievably jumping from a high value to a negative value while other changes are relatively
close.

3. FINANCIAL SECTOR
Finance contributes a relatively small value to GDP, though its growth rate in the late
20th and early 21st centuries has been considerable. Pakistan has a variety of state
banks, state-run banks (though more-recent trends have been toward privatizing these),
scheduled (i.e., commercial) banks, private banks, and foreign banks. Noteworthy has
been the spread of banks that operate within the principles of Islamic law. A number of
such institutions were established beginning in the 1980s, and, more recently, several
established Western-style banks have opened up divisions offering Islamic banking
services.

Pakistan has a fairly well-developed system of financial services. The State Bank of
Pakistan (1948) has overall control of the banking sector, acts as banker to the central
and provincial governments, and administers official monetary and credit policies,
including exchange controls. It has the sole right to issue currency (the Pakistani rupee)
and has custody of the country’s gold and foreign-exchange reserves.
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DATA REPRESENTATION OF FINANCIAL SECTOR

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The financial regulations vary at a large extent, therefore its main heads are enough to examine
the changes in overall years. By the given data it shows that reserve money grows annually as
well as money that is reserve also increases while the domestic assets fall but the foreigin assets
covers the overall asset by increasing itself.

4. SERVICE SECTORS
Over the time period, the share of the service sector in Pakistan is expanding in all
sectors. In fact, the rate with which the service sector is developing is higher than the
agriculture and industrial sector, contributing 59.6 % to the GDP. The sector gives
fundamental contributions to both sectors (agriculture and industry) which explain that
it has strong linkages throughout the economy (Government of Pakistan, 2016-2017). In
2012, this sector experienced 5.10 percent but in 2014 this sector saw a major back lag
as a lot of factors played a role in this cause. The sector saw boost back again in 2015-16,
accounting for 5.70 % of growth and finally reaching to 5.98 % growth in 2016-17
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A. OVERSEAS EMPLOYMENT
Some of the citizens are even giving their services outside the country which also counts
in the country’s economy, their income that they send to Pakistan, that counts. It is not
only a small part of the economy but occupies a very important space economically.
Following is the data that represents the number of employees that work outside the
country and how the quantity of working people fluctuates.

DATA REPRESENTATION OF OVERSEAS

EMPLOYMENT
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ADVANTAGES COUNTRY ENJOYING FROM

LARGEST ECONOMIC SECTOR (AGRICULTURAL
SECTOR)
If we examine economically then we get to know that the agricultural industry of Pakistan
stands on the top position and it is also giving some financial base advantages to the people.
They are:

1. INCREASE IN GDP LEVEL

Agriculture has a huge contribution toward GDP of Pakistan economy. it contributes
about 25% of total GDP, which is larger than other sectors of Pakistan. Increase in GDP
shows the developing progress of the economy. It has played a very important role since
independence toward GDP of Pakistan. Now agriculture is the 3rd largest sector of
contributing to GDP. Livestock and fisheries are the huge sector of agriculture in order
to provide employment. Employment contributes to GDP, it is as with the increase in
employment the per capita income will increase which results to increase in GDP rate of
the economy.

2. DECREASE IN RURAL POVERTY

Agriculture sector has played a very important role in order to reduce rural poverty.
Green revolution technology in irrigation, improved seeds and fertilizers played a very
vital role to increase agricultural production which results in an increase in GDP.
Through this technology farmers with land gain the opportunity to increase their
production. So in this way arable lands became cultivated lands and farmers got the
market of agricultural products against some return.

3. DEVELOPMENT IN BANKING SECTOR:

Agriculture has also contributed a great role toward the development of the banking
sector. As the government realized the importance of agriculture, it took steps to
improve the productivity of crops by providing credit facilities to the farmers at low
interest rates. With utilizing these credits farmers can produce more and more crops.
For this purpose the government established the ZTBL and other financial institutes for
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the provision of credit facilities. So in this way development of the banking sector takes
place.

4. SOURCE OF EMPLOYMENT:
Pakistan as a developing economy has employment on a consistent level. On this behalf
agriculture has much importance because it provides employment directly or indirectly
to the public. Employment directly affects the GDP of the economy as well as the per
capita income. With the increase in per capita income living standard increases, higher
hygiene facilities & better education facilities are also increases. All these signs are the
factors of economic development. So we can say that agriculture has a great
contribution toward economic development by providing employment.

5. CONTRIBUTION TO EXPORTS
Major exports or cash crops of Pakistan are wheat, rice and cotton.

● 9.8 billion Bales of cotton are produced per year.

● Rice crops produce 4.3 million ton per year.
● 20 to 24 million tonnes of wheat produce per year.

These agricultural commodities are exported to various countries against foreign exchange.
This foreign exchange is utilized for the import of industrial or technological equipment such
as machinery or automobiles. Further this foreign exchange is utilized to improve the
infrastructure of the economy or for improving the other sector of economy like education,
health and investments.

6. INFRASTRUCTURAL DEVELOPMENT
Infrastructure plays a very important role in the development of any economy. It is fuel
to economic development. Well organised infrastructure is a key to development
because of quick means of transportation of agricultural goods or commodities (raw
material or finished goods) and communication. On the distribution purpose of
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agricultural products good and quick means of transportation are required and this
intends to improve the infrastructure rapidly. So agriculture plays an important role in
the development of transportation for the purpose of distribution of goods.

IMPACT OF COVID- 19 ON PAKISTAN ECONOMY

Pakistan’s real GDP growth is estimated to have declined from 1.9 percent in FY19 to -0.4
percent in FY20. The first contraction in decades, this reflects the effects of COVID-19
containment measures that followed monetary and fiscal tightening prior to the outbreak. To
reduce the spread of the pandemic, a partial lockdown – that included restrictions on air travel,
inner-city public transport, religious/social gatherings and the closure of all schools and non-
essential businesses – was imposed in March, and gradually eased from May 2020 onwards. This
disrupted domestic supply and demand, as businesses were unable to operate and consumers
curbed expenditures, which specifically affected services and industries. The services sector is
estimated to have contracted, by over 1 percent, while industrial production is expected to have
declined even more, due to the high policy rates prior to the pandemic and plunging domestic
and global demand thereafter. The agriculture sector, partially insulated from the effects of the
containment measures, is estimated to have expanded modestly over the year.

On the demand side, private consumption is estimated to have contracted in FY20, as

households reduced consumption amid the lockdown and dimmer employment prospects.
Despite weak activity, consumer price inflation rose from an average of 6.8 percent in FY19 to
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an average of 10.7 percent in FY20, due to surging food inflation, hikes in administered energy
prices, and a weaker rupee, which depreciated 13.8 percent against the U.S. dollar in FY20. With
elevated inflationary pressures, the policy rate was held at 13.25 percent from July to February
but was subsequently lowered to 7.0 percent over the remainder of FY20 to support dwindling
activity and as inflationary expectations fell amid the pandemic. Following are some of the
main changes that has been consider:

1. The fiscal deficit is projected to narrow to 7.4 percent in FY22, with the resumption of
fiscal consolidation and stronger revenues driven by recovering economic activity and
structural reform dividends.
2. The balance of payments consequently swung to a surplus of 2.0 percent of GDP in
FY20, and official foreign reserves increased to US$13.7 billion at end-June 2020,
sufficient to finance 3.2 months of imports.
3. The current account deficit shrunk from 4.8 percent of GDP in FY19 to 1.1 percent of
GDP in FY20, the narrowest since FY15, driven mainly by import values falling 19.3
percent.
4. Expenditures rose mainly due to a fiscal stimulus package valued at around 2.9 percent
of GDP, while the public debt, including guaranteed debt, increased to 93.0 percent of
GDP by end-FY20.
5. There are considerable downside risks to the outlook with the most significant being a
resurgence of the COVID-19 infection, triggering a new wave of global and/or domestic
lockdowns and further delaying the implementation of critical IMF-EFF structural
reforms (slated to resume in H1-FY21).
6. Despite reforms, tax revenues slipped to 11.6 percent of GDP, with lower economic
activity and larger tax expenditures.

DATA REPRESENTATION OF DOWNFALL IN 2 YEARS

BY COVID-19
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FUTURE OVERLOOK
The economy should have recovered in the first quarter of this fiscal year—which began in July
2020—after GDP posted a slight contraction in FY 2020 (July 2019–June 2020) due to lockdown
measures imposed at the tail-end of the year. In July–August, industrial production rebounded,
predominantly driven by upbeat manufacturing and construction activity, which was likely
supported by the government’s fiscal stimulus package. Moreover, average remittances growth
surged in the quarter, which, coupled with easing containment measures, should have
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supported private consumption—as suggested by a sharp pickup in auto sales. Furthermore,

despite monsoon rains hampering supply chains, exports declined at a softer pace in the July–
September period relative to April–June. Consequently, the trade deficit narrowed slightly over
the quarter, boding well for the current account and much-needed FX reserves.