PROJECT OF MACRO ECONOMICS

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

GDP OF PAKISTAN
Presented to Sir Prof Ikram Ullah Toor

FMS

Table of Contents
How GDP is calculated in Pakistan.3 Sectors4 Production Sectors4 A) Agriculture sector5 B) Service Sectors6 Analysis of GDP of Pakistan10 Comparison of growth in GDP with last ten years14 How to improve GDP of Pakistan some recommendations / SUGGESIONS15 Reasons for the unsatisfactory growth in GDP15 TABLE Table2.1: Performance of major crops6 Comparison of growth in GDP with last ten years14

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How GDP is calculated in Pakistan:

Gross domestic product (GDP) refers to the market value of all final goods and services produced in a country in a given period. GDP per capita is often considered an indicator of a country's.

APPROACHES FOR SECTORAL ESTIMATES

The primary purpose of national accounts is to provide a coherent and comprehensive picture of the economy. To be concise, these estimates tend to answer questions such as: i) ii) What is the output of the economy, its size, its composition, and its uses? & What is the economic process by which this output is produced and distributed? In the following paragraphs these questions are addressed in relation to estimation of GDP/GNP and final uses of the GNP.

The gross national product (GNP) is the market value of all final goods and services, produced in the economy during a year. GNP is measured in Rupee terms rather than physical units of output. Gross domestic product (GDP) is a better idea to visualize domestic production in the economy. GDP may be derived in three ways or in combination of them.

i) Production Approach:
It measures the contribution to output made by each producer. It is obtained by deducting from the total value of its output the value of goods and services it has purchased from other producers and used up in producing its own output, i.e.; VA value of Output - value of intermediate consumption. Total value added by all producers equals GDP.

ii) Income/Cost Approach:

In this approach, GDP is calculated by adding up the factor incomes to the factors of production in the society. These include National Income (NY) + Indirect Business Taxes (IBT) + Capital Consumption Allowance and Depreciation (CCA) + Net Factor Payments to the rest of the world (NFP) In this approach, NY = Employee compensation + Corporate profits + Proprietor's Income + Rental income + Net Interest CCA = I gross + I net (I= Investment) NFP = Payments of factor income to the ROW minus the receipt of factor income from the rest of the world. Thus, GDP - NFP = GNP GROSS NATIONAL PRODUCT) GNP - CCA = NNP (NET NATIONAL PRODUCT) NNP - IBT = NY (NATIONAL INCOME)

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iii) Expenditure Approach:

This approach looks at the final uses of the output for private consumption, government consumption, capital formation and net of imports & exports.GDP in Pakistan is estimated as per guidelines provided by the UNSNA (united nation system of national accounts). For the purpose of GDP estimation by sartorial activities (current & constant prices) product, income and expenditure approaches are applied. The economy is divided into the following economic activities.

Sectors:
A) Production Sectors
i. Agriculture
- Major Crops - Minor Crops - Livestock - Fishing - Forestry

ii.

Industry
- Mining & Quarrying - Manufacturing Large-Scale Small-Scale Slaughtering - Construction - Elect. & Gas Distribution

B) Service Sectors
- Transport, Storage & Communication - Wholesale & Retail Trade - Finance and Insurance Project of Macro Economics

- Ownership of Dwellings - Public Admin. & Defense - Social, Community & Personal Services As earlier mentioned GDP is also estimated through expenditure approach comprising the following elements. - Private Final Consumption Expenditure - Government Final Consumption Expenditure - Gross Fixed Capital Formation - Change in Stocks - Exports of Goods & Services and - Imports of Goods & Services

SECTORAL ESTIMATES OF GDP

GDP from production side is computed by a combination of product, income and expenditure methods. Product method is applied to compute value added in agriculture, mining and quarrying, manufacturing, electricity & gas distribution, finance and insurance, wholesale & retail trade and ownership of dwellings whereas income method is used to work out income accruing from transport, storage & communication, , public administration & defense and services sectors. Expenditure method is used to estimate value added in construction on the basis of investment made and the co-efficient of value added relating to investment. The coverage, nature and sources of data used and the methodology followed in compilation of these estimates are explained under respective sectors.

AGRICULTURE:
Agricultural sector covers the activities of growing of crops, fruits & vegetables, harvesting & threshing, growing of trees & logging, fishing, breeding and rearing of animals and poultry, production of milk, eggs, dung, raw wool etc. For the purposes of computation of value added estimates, the sector has been divided in to the following four sub-sectors. i) Crops ii) Livestock iii) Fishery iii) Forestry

Crops: The contribution to the Gross Domestic Product (GDP) of agricultural crops has been estimated
through product approach. It involves estimation of gross value of products and byproducts, estimation of inputs like seed, fertilizer, pesticides, water and cost incurred on ploughing& planking and transport cost on intermediate inputs.

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Table2.1: Performance of major crops

fy09 Area under cultivation (000 HECTARES) Cotton sugar cane rice Wheat Production (000 TONS) Cotton sugar cane rice Wheat Yield (kg/hectare) Cotton sugar cane rice Wheat

fy10

fy11

fy11

YOY growth FY11

2850 1029 2963 9046 12060 50045 6954 24032 720 48635 2347 2657

3106 943 2883 9105 12914 49373 6883 23917 707 52357 2387 2627

3200 1070 2708 9045 14010 53665 6048 25000 745 51000 2228 2764

2693 998 2335 8895 11700 53738 4713 24213.5 739 53856 2018 2722

-13.3 5.8 -19 -2.3 -9.4 8.8 -31.5 1.2 4.5 2.9 -15.5 3.6

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Live stock:
i) Net sale of animals (for slaughtering) ii) Natural growth of animals iii) Livestock Products a. Milk Production b. Draught Power c. Dung and Urine d. Wool and Hairs

iv).Poultry Products a. Adult: As the adult are concerned they make part of work in progress and their value is accordingly imputed in net sale. For few categories, young males and females having age up to three years are taken as part of natural growth Agriculture sector emphasis on better rearing and catering, intensive use of medicines and health care services, and commercialization of dairy farming has led to diversification of input structure.

b. Young Males and Females: Generally the animals, which are of age one year and below, have been taken as a part of natural growth. Livestock Products: For the valuation of milk, dung & urine, wool & hairs. Fishery The fishing activities cover commercial and subsistence fishing in ocean, coastal and offshore waters and inland waters. This includes catching, tackling and gathering of fish from rivers, canals, lakes, fish farms, ponds and inundated tracts.

FORESTRY:
The Forestry sub-sector covers the activities of logging and gathering of uncultivated forest products which are classified into two groups. i. ii. Major products comprising industrial wood such as timber & firewood Minor products include a large number of heterogeneous items such as ephedra, grazing fodder, resin, medicinal herbs etc. In minor forest products only resin is gathered by the Forest Department, other forest products are gathered by the local population and sold in the market.

Estimates of Gross Value Added

i. ii. iii. Timber Firewood Minor Products of Forests a) Coal Mining b) Crude Oil Mining c) Natural Gas Mining d) Other Minerals Project of Macro Economics

e) Surface Minerals f) Allied Services Product approach is used for estimating the value added in coal, crude oil, natural gas, other minerals & surface minerals and allied services establishments. For the year 1999-2000 and onward, the separate input cost ratios of mineral items, surface minerals and allied services have been calculated. For the purpose of estimates, gross output is calculated at producers prices for each mineral category and intermediate cost at purchasers prices.

MANUFACTURING:
The manufacturing sector comprises of following three sub sectors: i. Large Scale Manufacturing Industries (LSMI): Large Scale Manufacturing covers the factories which employ 20 or more workers on any working day during the year and use power in their manufacturing operation. Small Scale Manufacturing: The estimates for the base year 1999-2000 are based on the findings of the Study on Small Scale and Household Manufacturing Industries in Pakistan conducted by Quaidian Economic Consultants, Quaid-e-Azam University, and Islamabad for change of base of National Accounts. For subsequent years a fixed growth rates of 7.51 percent is applied as per recommendation of the study until a new survey is undertaken to authenticate the growth rate Slaughtering: According to the latest classification the slaughtering industry relates to manufacturing whereas the livestock is a part of agriculture sector.

ii.

iii.

CONSTRUCTION:
This sector covers land improvement and construction of all type of buildings, roads, bridges, railway lines, utility lines (telecommunication lines, power lines, pipe lines) waterways, dams as well as repairs and maintenance of such infrastructure. The estimates of the sector have been developed on the basis of the expenditure, incurred by the establishments undertaking the construction or the contractors or the subcontractors purchasing the construction. The input structure and the coefficients of the value added components have been used to derive the GVA of all activities of construction separately provided by the Study on Construction 1999-2000 has been applied. The coefficient of Gross Value Added are based on data collected from concerned agencies such as WAPDA, CAA, Railways, PWD, KPT, KDA, Irrigation Departments

ELECTRICITY & GAS DISTRIBUTION:

This sector covers the whole range of electricity generation, transmission, distribution and gas transmission & distribution. Moreover, according to SNA-1993 classification, water works and supply is also covered in this sector. Following is the sub-classification and coverage of the sector: i) Electricity transmission and distribution by WAPDA & KESC and generation by: a) WAPDA, KESC, KANUPP b) Independent power plants (IPPs) c) Captive power plants (CPPs) d) Small hydel power units

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i) Electricity generation, transmission and distribution Water & Power Development Authority (WAPDA) and the Karachi Electric Supply Corporation (KESC) are the biggest sources of energy generation and distribution. Further Independent Power Plants (IPPs) units are worked under the license by the Government of Pakistan. ii) Gas transmission and distribution The activities in the Gas Sub-sector are the transmission and distribution of the natural gas. Up till now these two companies were considered as the sole distributors of the natural Gas. Oil & Gas Development Company Limited(OGDCL), Mari Gas Company Limited and Pakistan Petroleum Limited (PPL) have been included in the estimates as they are selling some of their output directly to industries using gas as bulk users. iii) Water works and supply For the purpose of Value Added estimates, the sub-sector has been divided into three parts. a) Irrigation Water (Canal and Tube well water) b) Domestic Water (For household consumption) c) Commercial/Industrial Water

TRANSPORT, STORAGE AND COMMUNICATION:

The economic activities covered are transportation by railway, road (mechanized and non-mechanized), water (coastal, ocean & inland) and air; storage; and communication services rendered by Pakistan Post Office, Telecom. Pakistan Broadcasting & Pakistan Television Corporations and STN etc. The estimates of value added are measured through production approach for which requisite data are collected from the source agencies. The activities included in this sector are: a) Wholesale and retail trade including imports c) Auctioning b) Purchase & sale agents and brokers

FINANCE & INSURANCE:

This sector consists of the following sub-sectors i) State Bank of Pakistan: This sub-sector consists of the central bank. The gross value added of State Bank of Pakistan has been compiled using production approach. The data on current factor cost supplied by source agency provide basis for estimation in nominal values. In order to compute constant cost estimates, CPI has been applied. ii) Other Depository Corporation: The Deposit Money Corporations consists of Nationalized Pakistani Banks, Private Pakistani Commercial Banks, Specialized Pakistani Banks and Foreign Commercial Banks, Cooperative Banks, Development Financial Institutions (DFIs), Investment Banks and Leasing Companies. The finance sector is one of the well established sector and all the banks, DFIs, leasing companies provide complete data on their output, intermediate cost, wages & salaries, depreciation and GFCF.

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iii) Other Financial Intermediaries: The institutions included in other Financial Intermediaries are Discount & guarantee houses, Housing Finance Companies, Venture Capital Companies, Investment Companies, Modaraba Companies, Exchange Companies (Money Changers) and Mutual Fund Companies etc. In Pakistan most of these companies are privately operated. iv) Insurance Corporations and Pension Funds: Insurance companies are generally incorporated entities and provide life, accident, sickness, fire, casualty or other forms of insurances. The estimates of GVA of Employees Old-Age Benefit Institution (EOBI) have also been included in this sub-sector. The gross value added EOBI has been calculated adding wages & salaries and depreciation. This institution is working as a government welfare department.

PUBLIC ADMINISTRATION AND DEFENCE:

National Accounts estimates on General Government are based on wages & salaries and other compensations in cash and kind of government employees. The data is provided in detail in budgets under current expenditure (non-development) and development expenditure heads. These are regularly published by Federal, Provincial and District Government, Tehsil Municipal Administration (TMAs) and Cantonment boards in their budgets. As per new reclassification in line with System of National Accounts 1993, Pension, uniforms and liveries, bonus and cash awards for meritorious services have been valued and included in estimates of wages and salaries.

COMMUNITY, SOCIAL & PERSONAL SERVICES:

Income approach has been applied to estimate the contribution of services sector in national economy which involves collection of data on number of service establishments classified by type of service and data on components of value added. Income arising in the Social Community.& Personal Services sector consists of persons engaged in business; private education; health &social work; community, social & personal services; recreational & cultural services; private household employees etc

REST OF THE WORLD

For estimation of GNP, the net inflow of income from the rest of the world sector which consists of remittances, investment income, and royalties & trade marks etc. is added to GDP figure. Data on current flows from the rest of the world is compiled from the balance of payments figures of State Bank of Pakistan. To account for the non-cash remittances, an imputation based on special study conducted by FBS is added. Estimates thus obtained are at current factor cost. These are converted into constant values by using unit value index of imports as the net factor income from abroad is regarded as a means of obtaining imports.GDP at factor cost. GDP plus net factor income from the rest of the world is called GNP. Further, inclusion of indirect taxes less subsidies makes it GDP/GNP at market prices.

Analysis of GDP of Pakistan

Output in the manufacturing sector has witnessed expansion of 3 percent in 2010-11 as compared to Expansion of 5.5 percent last year on the back of strong performance from small and medium Manufacturing sector Large-scale manufacturing grew by 0.98 percent (July-February 2010-11 incorporated in the national Accounts but the growth is now 1.7 percent in July-March 2010-11) as against 4.9 percent of last year. The services sector grew by 4.1 percent against the target of 4.7 percent and actual outcome of 2.9 Project of Macro Economics

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Percent. Within services sector Wholesale and retail trade sector grew at 3.9 percent as compared to 4.6 percent last year and the target for the year of 5.1 percent. Finance and insurance sector recorded negative growth of 6.3 percent in 2010-11 as against contraction of 11.3 percent last year. Public administration and defense posted a stellar growth of 13.2 percent as compared to 2.5 percent in last year. Social Services Sector grew by 7.1 percent which is slightly higher than the target of 5.0 percent but lower than last years actual growth of 7.8 percent. Pakistans per capita real income has risen by 0.7 percent in 2010-11 as against 2.9 percent last year. Per capita income in dollar term rose from $ 1073 last year to $ 1254 in 2010-11, thereby showing tremendous increase of 16.9 percent. This is mainly because of stable exchange rate as well as higher growth in nominal GNP. Real private consumption rose by 7.0 percent as against 4.0 percent attained last year. However, gross fixed capital formation lost its strong growth momentum and real fixed investment growth contracted by 0.4 percent as against the contraction of 6.1 percent in last fiscal year. The total investment has declined from 22.5 percent of GDP in 2006-07 to 13.4 percent of GDP in 2010-11. Fixed investment has decreased to 11.8 percent of GDP from 13.4 percent last year. The national savings rate has decreased to 13.8 percent of GDP in 2010-11 as against 15.4 percent of GDP last year. Domestic savings has also declined substantially from 16.3 percent of GDP in 2005-06 to 9.5 percent of GDP in 2010-11. FISCAL DEVELOPMENT Tax collection by the FBR was targeted at Rs 1667 billion for fiscal year 2010-11. However, the target was downward revised to Rs 1,588 billion, as a result of devastation caused by floods during July and August 2011. The catastrophic floods reduced growth and posed a further challenge to public finances by depressing budget revenues and additional spending to meet the humanitarian and reconstruction needs, thereby upward adjustment in the fiscal deficit target from 4 percent of GDP at the time of budget announcement to 5.3 percent of GDP have made. The government is focused on prudent expenditure management and better resource mobilization to create fiscal space for providing support to growth. Major reforms like harmonization of tax administration have taken place and strengthening of Risk Based Audit is under process. SBP has raised the discount rate to 14 percent on 30th November 2010, and decided to keep the rate unchanged at 14 percent. Net expansion in M2 increased by 9.62 percent during July-April, 2011 as compared to 8.1 percent during the same period last year Project of Macro Economics

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Net Domestic Assets (NDA) during July-April 2011 reached at Rs 402.5 billion against Rs 446.1 billion during the same period last year. The expansion in NDA mainly attributed by a rise in demand for private sector credit and government borrowings. On the other hand the NFA of the banking system during the period under review stood at Rs 153.2 billion after registering a significant decline of Rs 31.3 billion during the same period of last year. During July-April, 2011 Credit to private sector enterprises (PSEs) registered a sharp decline from Rs72.5 billion in 2009-10 to Rs 26.7 billion owing to the retirements by an oil refinery and a state owned oil marketing company . The government borrowing from the banking system for budgetary support and commodity operations stood at Rs 342.2 billion during July-April, 2011. Government has borrowed Rs 196.3 billion from the State Bank of Pakistan (SBP) , while Rs 275.9 billion has been borrowed from the scheduled banks. In the month of May 2011, the government has further reduced its borrowing stock from the SBP to attain the target of net zero borrowing from the SBP. INFLATION The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 14.1 percent during (July-April) of the current fiscal year 2010-11, as against 11.5 percent in the comparable period of last year. The food inflation is estimated at 18.4 percent and non-food 10.4 percent, against 12.0 percent and 11.0 percent in the corresponding period of last year. The core inflation which represents non-food and non-energy prices also decreased from 11.0 percent to 9.6 percent. TRADE AND PAYMENTS Overall exports recorded a positive growth of 27.8 percent during the first ten months (July-April) of the current fiscal year against an increase of 8.0 percent in the same period of last year. In absolute terms, exports have increased from $15,773.2 million to $20,154.2 million in the period. Imports during the first ten months (July-April) of the current fiscal year (2010-11) increased by 14.7 percent compared with the same period of last year, reaching to $32.3 billion. The overall import bill is higher by $4.1 billion, reflecting the impact of higher global crude oil & Commodity Prices. The higher import bill during July-April 2010-11 is contributed by food group ($1,528 billion), petroleum group ($678.3 million) consumer durables ($247 billion), raw material group ($ 1039 million), telecom ($245 million) and other item group ($ 951 million). Trade Balance The merchandise trade deficit improved by $240 million and declined from $12.3 billion in July-April 2009-10 to $ 12.1 billion in July-April 2010-11. The substantial increase of 14.7 percent in imports is more than neutralized by 27.8 percent growth in exports which caused the trade deficit to improve.

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Workers Remittances totaled $ 9.1 billion in July-April 2010-11 as against $ 7.3 billion in thecomparable period of last year, depicting an increase of 23.8 percent. Current Account Balance improved significantly during the last two years or so. Current account recorded a broad-based surplus of $ 748 million in July-April 2010-11 as against deficit of $3456 million in the comparable period of last year. The improvement came from all components of current account balance like trade balance of goods and services, and current transfers. Services account deficit shrank by 28.2 percent during July-April 2010-11 to reach $ 1.4 billion as compared to $1.9 billion during the same period last year. Financial account surplus deteriorated and reached to $ 412 million as compared to $ 3533 million in corresponding period last year. Exchange rate remained more or less stable as rupee depreciated by just 2.2 percent in July-April 2010-11, however, Real Effective Exchange Rate (REER) appreciated by 0.8 percent in the period. Foreign direct investment (private) stood at $1232 million during the first ten months (July-April) of the current fiscal year as against $1725 million in the same period last year thereby showing a decline of 29 percent. Foreign Exchange Reserves amounted to $ 17.1 billion by the end of April, 2011. Of which, reserves held by State Bank of Pakistan stood at $ 13.7 billion and by banks stood at $ 3.4 billion. EXTERNAL AND DOMESTIC DEBT During the first nine months of the current fiscal year 2010-11, Pakistans total external debt increased from $55.9 billion at end-June 2010 to $ 59.5 billion by end-March 2011 an increase of US $ 3.6 billion or 6.4 percent which is lowest growth in EDL in the last five years. Domestic Debt stood at Rs 5462.2 billion at end-March 2011 which implies net addition of Rs.803.9 billion in the nine months of the current fiscal year. In relation to GDP the domestic debt stood at 30.2 percent of GDP which is lower than end-June 2010 level at 31.4 percent. EDUCATION The overall literacy rate (10 years & above) which was 57.4 percent in 2008-09 has increased to 57.7 percent in 2009-10, indicating 0.5 percent increase over the same period last year. Male literacy rate (10 years & above) remained 69.3 percent in 2008-09 and 69.5 percent in 2009-10 while it increased from 44.7 to 45.2 percent for females during the same period. Literacy remained higher in urban areas (73.2 percent) than in rural areas (49.2 percent) during 2009-10. Province wise literacy data of PLFS (2009-10) shows Punjab stood at 59.6 percent, Sindh (58.2 percent), Khyber Pakhtunkhwa (50.9 percent) and Baluchistan (51.5 percent).

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Comparison of growth in GDP with last ten years:

As above table shows that the growth of GDP is 2.0% in 2000-01. After that there was a gradual increase in GDP of Pakistan and it rise maximum to 9.0% in 2004-05which is maximum growth of GDP of last 10 years. Then in 2005-06 the growth rate declines to 5.8% and in 2008-09 its declines to 1.7% which is the lowest growth throughout the ten years. More over in 2009-10 there is increase in the growth and it rise to 3.8% but unfortunately in current year it decreases to 2.4%.

Reasons for the satisfactory of growth in GDP: Good economic policies Loan from IMF Democracy

Reasons for the unsatisfactory growth in GDP: Floods: Unfortunately Pakistan faces national disasters like as Pakistan faces floods last year and currents year also. War on terror: This is another reason for the unsatisfactory growth of GDP of Pakistan that Pakistan is spending a lot on this war due to which economic situation of Pakistan is on declining. Corruption: Corruption is another reason for the unsatisfactory growth because from the day first it was the main problem for the Pakistan which we facing and it is the cause of many other problems in other word we can say that it is the root problem of Pakistan. Misutilization of resources: Pakistan is the country of resources we have lots of natural resources in Pakistan but unfortunately these resources are not utilized efficiently. Political instability: this is another reason of unsatisfactory growth of GDP in Pakistan. Inflation: inflation is most important reason of declining in growth of GDP this is just due to bad economic policies and unemployment. Project of Macro Economics

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Following are some other reasons of unsatisfactory growth of GDP: Overpopulation Smuggling lack of technology Electricity crises How to improve GDP of Pakistan some recommendations / SUGGESIONS: The GDP of Pakistan has shown a prominent growth from 2002 to 2007. The average GDP of Pakistan was about 6%. But after 2008, due to regime change and many other destabilizing factors GDP of Pakistan never showed very nominal growth. Last year flood made the overall economic conditions more than worse. The GDP growth during 2010-11 was 2.3%. being a student of economics, for me the GDP growth is not up to not mark. Here are some recommendations that will help the government to improve the GDP. 1) The government must reduce its expenditure 2) Curb the imports of luxury items 3) Enhance exports by value addition 4) Provision of electric and gas power to the industry 5) Subsidy on the industrial goods 6) Encouraging remittances 7) Giving subsidies to agriculture sector 8) Provision of employment 9) Reducing foreign and domestic debt 10) Discoursing inflation

Bibliography:
www.statpak.gov.pk/fbs/ www.imf.org/ www.finance.gov.pk/ www.wikipedia.org/ www.sbp.org.pk/

www.worldbank.org/ http://npfs-minfa.gov.pk/ www.statpak.gov.pk/fbs/

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