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Chapter 1

Growth and Stabilization


Introduction The resilience of the economy of Pakistan has been tested several times by one crisis after another. The economy has witnessed numerous domestic and external shocks from 2007 onwards. The sharp rise in international oil and food prices, the internal security hazards brought on by the campaign against extremism and the repeated natural disasters in the form of successive floods have buffeted the macroeconomic strategy with shock after shock. Domestically, two floods, the difficult security situation and the energy crisis have combined to drastically impact economic growth. The campaign against extremism with its associated destruction of physical infrastructure, the displacement of thousands of people from the affected areas and the associated rise in expenditure to support the moved people has all taken their toll. The growth in our export markets has slowed down compared to last year. Gross Domestic Product (GDP) growth has been stuck at a level, which is half of the level of Pakistans long-term trend potential of about 6.5 percent per annum and is lower than what would be required for sustained increases in employment and income and a reduction in poverty. Amidst the critical challenges of the floods and heavy rains of 2010 and 2011, skyrocketing oil prices and global contraction, the governments strategy continued to focus on regaining macroeconomic stability. There have been some successes. Pakistan has been able to withstand the pressures and improve its performance in some key areas such as the check on inflation, the increase in exports and revenue generation and maintenance of comfortable foreign exchange reserve levels. The focus on reforms and austerity through the control of public expenditures despite the difficulties has continued. The economy is now showing signs of modest recovery. The commodity producing sectors and especially the agriculture sector are doing better. Some improvement is also witnessed in the Large Scale Manufacturing (LSM) sector. The Service sector also gained from healthy trade activities and the improvements in the commodity producing sectors. The smooth functioning of the supply chains is playing a key role in improving the economic situation and ensuring the availability of essential items. Pakistan has the potential to grow at 6 to 7 percent in the next couple of years. The GDP growth for 2011-12 was projected at 4.2 percent on the back of 3.4 percent growth in Agriculture, 2 percent growth in LSM and 5 percent in Services sectors. However, the torrential rains in Sindh province during August 2011 compelled the government to revise its GDP growth target to 3.6 percent from 4.2 percent on the basis of 2.5 percent growth in Agriculture, 1.5 percent in LSM, and 4.4 percent growth in services sector. The revised growth targets have been met and marginally exceeded. The economy has shown resilience. GDP growth for 2011-12 has been estimated 3.7 percent based on nine month data as compared to 3.0 percent (revised) in the previous fiscal year 2011. The Agriculture sector recorded a growth of 3.13 percent against a target of 3.4 percent and previous years growth rate of 2.38 percent. The Large Scale Manufacturing sector grew by 1.78 percent as compared to the target of 2.0 percent and against the growth of 1.15 percent

Pakistan Economic Survey 2011-12 in the last year. Although the Services sector recorded steady growth of 4.02 percent as compared to 4.45 percent in 2010-11, this was
Fig-1.1 GDP Growth (%)
10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0

lower than the target of 5.0 percent set for the outgoing year. Figure-1.1 presents an overview of GDP growth over the previous years.

9.0 7.5 5.8 4.7 3.1 2.0 3.7 1.7 3.1 3.0 3.7 6.8

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

The 3.7 percent growth based on the nine months data 2011-12, up from 1.7 percent in 2008-09 and 3.0 percent last year, indicates the potential growth trajectory. The country has enormous potential to grow at much higher rates which is demonstrated by the achievement of the 3.7 percent growth this year despite the numerous internal and external shocks that the economy has been forced to withstand. Some of Pakistans economic problems are structural in nature. The objectives of sustaining high growth, low inflation, and external payment viability can not be achieved without removing certain structural barriers. To this end the major structural reforms of the government have included tax legislation, trade reforms, further privatization of State Owned Enterprises (SOEs), financial sector reforms, human resource development and social protection. The EU approval of duty waiver on textile items is being pursued aggressively, which would help in improving the exports and providing support to the business environment. In recent times, Pakistan has also undergone political and constitutional changes. Civil societies and other organizations are now playing a more active and independent role and this coupled with government reforms are helping economic growth. Global Developments The International Monetary Fund (IMF) has warned that the euro zone debt crisis is escalating 2

and dragging down the entire world economy. In this scenario China has remained a bright spot. Its growth rate, although down to a forecast of 8.2 percent for this year compared to 9.2 percent last year, has remained relatively high. If China can maintain its growth, its good for the world, providing support for commodities markets and growth in other countries. The IMF maintained its forecast of 2.1 percent growth for the US in the year 2012 and 2.4 percent for the year 2013. For Japan the growth rate projected for 2012 is 2.0 percent and for 2013 it is 1.7 percent. Overall, economic activity in advanced economies is likely to expand by 1.7 percent on average in 2012 and 2013. Growth in emerging economies is projected at 5.7 percent in 2012. The IMF expects growth in oil exporting countries in the Middle East and North Africa to slow to 3.9 percent in 2012, from 4.9 percent in 2011. Net oil importers in the Middle East and North Africa region are expected to record 2.6 percent growth in 2012, after sluggish growth of 1.4 percent in 2011. GDP growth across the Gulf Cooperation Council (GCC) countries is expected to be moderate at a rate of 4 percent in 2012. Unfortunately, Europe is now caught in a vicious cycle of high debt and low growth. Highly burdened by debt, most of the economies in the region may not attain respectable levels of growth to improve their fiscal position. This will imply

2011-12

Growth and Stabilization potential debt servicing difficulties and limit their abilities to unshackle their growth potential. Almost 17 percent of total exports of Pakistan are to the Euro zone as are a reasonable portion of its total import from this region. Problems in this area can impact on Pakistans trade and hence its overall growth. Asia on the other hand, continues to move ahead, with China and India leading the growth. There is some hope that perhaps Asia has created some distance from the OECD, and has therefore, not been dragged down so far. However, if the OECD continues its downward slide, the export-led Asian giants could see their growth prospects diminish.

Table-1.1: Comparative Real GDP Growth Rates (%) Region/Country 2009 2010 2011 World GDP -0.5 5.3 3.9 Euro Area -4.1 1.9 1.4 United States -2.6 3.0 1.7 Japan -6.3 4.4 -0.7 Germany -4.7 3.6 3.1 Canada -2.5 3.2 2.5 Developing Countries 2.7 7.5 6.2 China 9.2 10.4 9.2 Hong Kong SAR -2.7 6.8 5.4 Korea 0.2 6.1 4.5 Singapore 0.6 2.8 3.3 Vietnam 5.3 6.8 5.9 ASEAN Indonesia 4.6 6.2 6.5 Malaysia -1.6 7.2 5.1 Thailand -2.3 7.8 0.1 Philippines 1.1 7.6 3.7 South Asia India 6.6 10.6 7.2 Bangladesh 5.9 6.4 6.1 Sri Lanka 3.5 8.0 8.2 Pakistan 1.7 3.1 3.0 Middle East Saudi Arabia 0.1 4.6 6.8 Kuwait -5.2 3.4 8.2 Iran 3.9 5.9 2.0 Egypt 4.7 5.1 1.8 Africa Algeria 2.4 3.3 2.5 Morocco 4.9 3.7 4.3 Tunisia 3.1 3.1 -0.8 Nigeria 7.0 8.0 7.2 Kenya 2.6 5.6 5.0 South Africa -1.5 2.9 3.1 Source: World Economic Outlook (IMF), April 2012. P: Projected.

2012 3.5 -0.3 2.1 2.0 0.6 2.1 5.7 8.2 2.6 3.5 2.7 5.6 6.1 4.4 5.5 4.2 6.9 5.9 7.5 3.7 6.0 6.6 0.4 1.5 3.1 3.7 2.2 7.1 5.2 2.7

2013 (P) 4.1 0.9 2.4 1.7 1.5 2.2 6.0 8.8 4.2 4.0 3.9 6.3 6.6 4.7 7.5 4.7 7.3 6.4 7.0 4.3 4.1 1.8 1.3 3.3 3.4 4.3 3.5 6.6 5.7 3.4

Pakistans economy is very closely linked to the rest of the world due to its high external sector exposure. Several countries of the euro zone are important trading partners of Pakistan. As such, any untoward development in these countries could

have a substantial negative impact on the economy of Pakistan. A contraction or stagnation in economic activity in the global economy, can potentially affect the level of our exports, Foreign Direct Investment (FDI) and home remittances adversely. Similarly further increase in oil prices 3

Pakistan Economic E Sur rvey 2011-12 2 te hurdles in the ongo oing econom mic can creat activities of the countr ry. The increa ase in oil pric ces
Box-1 E Acti ivities Rise in Oil Prices and Economic Rising oil prices affect an economy through t direct t and indirect ch hannels. The direct d channel works through h the supply sid de whereas the e indirect chan nnel works thr rough the demand side. The va ariables ultimat tely affected by b oil price hikes include con nsumption, inv vestment, exch hange rate, balan nce of paymen nts, and unemp ployment. The first nine month hs of the fiscal l year 2011-12 2 depict that oi il bill has reache ed $11.14 billio on indicating a rise of 38 percent over $8.01 billion for the same pe eriod of last year. Soaring oi il prices are ca ausing massive e trade imbalan nces; the trade deficit d has reach hed to $16.1 bi illion which is $4.8 period of prev billion hig gher than the corresponding c vious period. Fig g 1.2: Impact of Oil Prices on o LSM S Sector
120.0 0 100.0 0 Rs. Per Liter 80.0 0 60.0 0 40.0 0 20.0 0 0.0 0 Jan-08 Jan-10 Jan-11 Jan-12 Jan 09 Jan-09 July-07 July-08 July-09 July-10 July-11 Mar-12
LSM Growth rate YOY Y Oil Prices

ady seriously hampering economic e acti ivities is alrea (Box-1).

20.0 00 15.0 00 Growth (%) 10.0 00 5.00 0 0.00 0 -5.00 -10.00

In the first t stage, rising oil prices mak ke input expen nsive which effe ect producers price p and lowe er the real profi fits of firms and investment i for future projects s. Decomposin ng the investme ent in different t sectors reveal ls further that the t fall in investm ment was more in the manufa acturing sector r compared to construction, transportation and communi ication sectors. Th hus Large Scale e Manufacturin ng (LSM) grow wth was more adversely a impa acted as shown n in the Fig-1.2. The increa asing oil pric ces also cripp pled our econ nomic growth du ue to the backw ward and forw ward linkages with agriculture e and the servi ices sector. Th hus oil price sh hocks hampered capacity utiliza ation and lowe ered the availab bility of inputs th hus adding to the capacity utilization u issue es. In response, firms attemp pt to minim mize the cost of production n through the minimization m o the variable of e cost resulting in n large layoffs. . Another im mportant aspec ct is the energy y mix for electr ricity generation-in Pakistan which w is creat ting huge fina ancial pressures and a massive electricity e shut tdowns. Pakist tan is generating almost 40 per rcent of electri icity (Fig-1.3) from thermal re esources (impo orted input), which w is the least cost-effective option due to the ever inc creasing furnac ce oil prices.

Fi ig-1.3: Electric city Generatio on


Others 3% Oil 40% 4

Gas 24%

Hydel H 3 % 33

Heavy reli iance on impor rted oil has res sulted in circu ular debt and electricity short tages, which is s eroding our export competitiv veness and crea ating fiscal im mbalances. So just the oil pric ce hike by itse elf has been a major challen nge for Pakistans economic grow wth.

A of Growth G Sectoral Analysis It is esse ential to loo ok into the performance p of various components c of Gross Na ational Produ uct (GNP) to understand what w is happe ening to over rall growth. The growth h performance of vario ous componen nts of GDP over the las st five years is 4

ted in Table-1.2. These data d highlight ts the present relative e importance e of various sectors and d subsectors s and the inter r- relationship p between the em.

Growth and Stabilization


Table 1.2: Growth Performance of Components of Gross National Product (% Growth at Constant Factor Costs of 1999-2000) Sectors/Sub-Sectors 2007-08 1.3 1.0 -6.4 10.9 4.2 9.2 -13.0 4.4 4.8 4.0 7.5 -5.5 -23.6 6.0 3.8 5.3 11.1 3.5 1.2 9.8 3.7 2008-09 1.8 4.0 7.8 -1.2 3.1 2.3 -3.0 -0.5 -3.6 -8.1 7.5 -11.2 59.0 1.7 3.6 -1.4 -7.6 3.5 3.6 8.9 1.7 2009-10 3.56 0.62 -2.28 -7.72 4.28 2.20 1.47 2.23 5.46 4.79 7.51 4.33 16.34 6.16 2.63 1.89 4.49 -12.16 3.51 2.52 7.83 3.07 2010-11 R 1.47 2.38 -0.23 2.68 3.97 -0.40 1.94 -1.28 3.06 1.15 7.51 4.38 -7.09 -7.25 4.45 0.87 3.53 -1.41 1.79 14.17 6.90 3.04 2011-12 P 3.28 3.13 3.18 -1.26 4.04 0.95 1.78 4.38 3.56 1.78 7.51 4.46 6.46 -1.62 4.02 1.25 3.58 6.53 3.51 2.61 6.77 3.67 Commodity Producing Sector 1. Agriculture -Major Crops -Minor Crops -Livestock -Forestry -Fishing 2. Mining & Quarrying 3. Manufacturing -Large Scale -Small Scale -Slaughtering 4. Construction 5. Electricity & Gas Distribution Services Sector 6.Transport,Storage and Communication 7. Wholesale & Retail Trade 8. Finance & Insurance 9. Ownership of Dwellings 10. Public Administration & Defence 11. Social, Community & Public Services 12. GDP (Constant Factor Cost) Source: Pakistan Bureau of Statistics P : Provisional, R : Revised, - : Included in Small Scale

Commodity Producing Sector The commodity producing sector (CPS) comprises of agriculture and industry. It is the most important sector of the economy, with relatively stronger forward and backward linkages for economic development and prosperity of the country. It accounted for 46.5 percent of GDP during the outgoing fiscal year. This is a decline from 49.1 percent of GDP in 2001-02, indicating that the share of the non-commodity producing sector has increased. The commodity producing sector has performed much better in outgoing fiscal year compared to last year; its growth rate this year was 3.28 percent against only 1.47 percent in last year. The recovery in both agriculture and industrial sector, though moderate, has helped to achieve this level. However, the growth of the commodity producing sector remained far below its potential due to largely unforeseen climatic factors.

Agriculture Sector Agriculture is a key sector of the economy. It provides food items and raw materials for industrial units and accounts for 21 percent of GDP, 45 percent of employment and 60 percent of exports. In the inevitable process of structural transformation its share shrank to 21.1 percent in fiscal year 2011-12 compared to 24.1 percent ten years earlier in 2001-02. Despite its declining share, it is the single largest sector of Pakistans economy. Moreover, an overwhelming majority of the population depends directly or indirectly on income generated by this sector. The agriculture sector has strong backward and forward linkages. As a result its growth has a larger impact on the overall economic performance. The performance of the agriculture sector remained weak due to recent catastrophic floods. However, the governments supportive polices in this sector resulted in a growth of 3.13 percent

Pakistan Economic Survey 2011-12 against the growth of 2.38 percent last year and 0.62 percent in fiscal year 2009-10. The improved performance is mainly attributed to a sharp pick-up in the production of rice; cotton, and sugarcane. Livestock also registered a significant growth. The agriculture sector consists of various sub-sectors which include crops, livestock, fisheries and forestry. The crop sub-sector is further divided into major crops, namely, wheat, cotton, rice, sugarcane, maize and gram and minor crops namely, pulses, potatoes, onions, chilies and garlic etc. Major Crops: Major crops account for 31.87 of agricultural value added and registered an accelerating growth of 3.18 percent compared to a negative growth of 0.23 percent last year and -2.28 percent in fiscal year 2009-10. The major crops including cotton, sugarcane and rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, wheat registered a negative growth of -6.7 percent. The main reason for the negative growth of wheat is the 2.6 percent decline in area under cultivation. In lower Sindh, in particular, sowing was delayed mainly because of late receding rain water which resulted in a decline in both the acreage as well as the yields. Moreover, in Punjab also the extended fog season delayed the planting of seed beyond the optimal period. The other major crops bajra, jowar, maize, sesamim, gram, barley, rapeseed and mustard and tobacco showed mixed trends but their share in the overall sector is small. Minor Crops: Minor crops contributed 10.11 percent to value addition in overall agriculture. Production in this sub-sector declined by -1.26 percent. This negative growth is far below the 2.68 percent positive growth last year. The main reason for this negative growth of minor crops is the heavy flood in Sindh and Balochistan provinces. The growth of pulses is estimated at -3.50 percent, vegetables -10.0 percent, chilies -78.4 percent, onion -15.4 percent and oil seeds -26.9 percent. Livestock: Global integration, rising income and living standards as well as changing dietary patterns across regions have brought a paradigm structural shift. This shift is visible in Pakistan also. The share of livestock in agriculture has increased to 55 percent. Livestock includes cattle, 6 buffalos, sheep, goat, camel, horses, asses, mules and poultry and their products. The demand for livestock has grown at a phenomenal pace. The increase in prices has provided incentive for greater production and spurred growth. The importance of this sector may be recognized by the fact that the majority of people living in rural areas depend directly or indirectly on the livestock and dairy sector. This sub-sector is highly labour intensive. It has also emerged as a major source of income for the small farmers as well as the landless rural poor. Livestock has witnessed a marginally higher growth of 4.04 percent against the growth of 3.97 percent last year. The production of milk, poultry products and other livestock items has increased at the rate of 3.3 percent, 7.1 percent and 2.24 percent respectively. Fisheries: The fisheries sector witnessed a growth of 1.78 percent against the growth of 1.94 percent last year. Components of fisheries such as marine fishing and in-land fishing, contributed to an overall increase in value addition in the fisheries sub-sector. The gross value addition of marine fish increased by 1.35 percent and that of inland fish by 1.96 percent. Forestry: The growth of the forestry sub-sector is recorded at 0.95 percent as compared to the contraction of -0.40 percent last year. Forests are a key component of our environment and degradation of forests can pose severe socioeconomic challenges for the coming generations. The main components of forestry, timber and fire wood, grew at 0.90 percent and 0.46 percent respectively. Manufacturing Sector: The manufacturing sector contributes much to the progress of our economy. The manufacturing sector has remained under stress for the last several years, due to energy shortages, poor law and order situation. The heavy floods also depressed the supply chain and affected market demand. The share of the manufacturing sector in GDP was 17.7 percent in 2001-02. This has increased in 2011-12 to 18.6 percent of GDP. The manufacturing sector has been hard hit by international and domestic factors, which caused the slowing down of its output. The growth of the

Growth and Stabilization manufacturing sector was 3.56 percent compared to the growth of 3.06 percent last year. Manufacturing has three main sub-components; namely the Large-Scale Manufacturing (LSM), Small Scale Manufacturing and Slaughtering. Small scale manufacturing maintained its growth of last year at 7.51 percent and slaughtering growth is estimated at 4.46 percent against 4.38 percent last year. Large Scale Manufacturing (LSM) has also witnessed a slight improvement. It has shown a growth of 1.78 percent against the growth of 1.15 percent last year. The major LSM industries which registered notable growth include; refrigerators 7.56 percent, sugar 27.09 percent, beverages 10.60 percent, liquid/syrup 15.93 percent, injection 6.53 percent, soaps and detergents 8.15 percent, buses 25.0 percent, electric bulbs 15.02 percent, electric transformers 27.72 percent etc. On the whole 38 major industries group recorded positive growth. The industries which reported negative growth include; cooking oil -1.61 percent, motor tyres 25.73 percent, T.V. sets -22.19 percent and deepfreezers -49.47 percent etc. Construction Sector: The construction sector has shown 6.46 percent growth as compared to negative growth of -7.09 percent in last year. The increase in growth is due to rapid execution of work on the rehabilitation of the flood affected areas, increased investment in small scale construction and rapid implementation of PSDP schemes which are near completion. Mining and Quarrying: Extraction of minerals and ores through efficient mining and quarrying provides convenient and economical access to raw materials and a competitive edge to the country. The mining and quarrying sector recorded positive growth of 4.38 percent during the year 2011-12 against the negative growth of -1.28 percent last year. The contribution of this sector in GDP has expanded remarkably and now accounts for 9.45 percent of the industrial value addition. The output of chromite, bauxite, gypsum, chalk and fluoride increased by 591.54 percent, 82.15 percent, 24.43 percent, 82.18 percent and 111.28 percent respectively. This growth was also made possible in some part due to the increase in natural gas production. The extraction of bentonite, however, registered substantial decline of -47.82 percent. Much of the countrys mining reserves exist in remote areas. Infrastructure improvements are necessary to sustain and achieve higher growth rates in future. Improvement in the security situation in the country would also lead to greater production. Services Sector: The importance of the services sector has been recognized all over the world. This sector has emerged as the main driver of economic growth. The services sector also plays a vital role in sustaining economic activities in Pakistan. The economy has gone through a major transformation in its economic structure. The share of the services sector has increased to 53.5 percent in 2011-12. In developed countries the share of services sector in GDP is around 75 percent. This share is 65 percent in Singapore, 52 percent in India and 42 percent in Indonesia. The services sector consists of the following subsectors: Transport, Storage and Communication; Wholesale and Retail Trade; Finance and Insurance; Ownership of Dwellings; Public Administration and Defense; and Social Services. The Services sector has registered a growth rate of 4.02 percent in 2011-12. This performance is dominated by Finance and Insurance at 6.53 percent, Social and Community Services 6.77 percent and Wholesale and Retail Trade 3.58 percent. The contribution of transport, storage and communication is estimated at 1.25 percent. The recovery in agriculture and industry have resulted a positive impact on the performance of the whole sale and retail trade. Our services sector has a great potential to grow at a rapid pace. In order to develop the services sector, Pakistan has recognized the needs to liberalize operating rights and has separated regulators from operators. Finance and Insurance Sector: The finance and insurance sector comprises the State Bank of Pakistan; all scheduled banks (domestic and foreign), Development Financial Institutions (DFIs), all insurance (life and general) companies, Modaraba/Leasing companies, Money Changers and stock exchange brokers. The financial subsector consists of all resident corporations principally engaged in financial intermediations or

Pakistan Economic Survey 2011-12 in auxiliary financial activities related to financial intermediation. Pakistans financial sector is integrated with the world economy and this is reflected in its performance. Finance and Insurance sector recorded positive growth of 6.53 percent in 2011-12 as against contraction of -1.41 percent last year. Transport, Storage and Communication: The role of Transport, Storage and Communication (TS&C) sector is very important in boosting the economic activities of the country. The current global economic crisis and the level of integration of these sub-sectors in the globalized economy including the presence of multi national enterprises (MNEs) in the markets of all countries of the world puts a greater need for major investments in physical and qualitative terms to meet expected demand. Information and Communication Technologies (ICTs) are perhaps the most critical tool for a dynamic and flexible services sector. The TS&C sub-sector grew at 1.25 percent as compared to 0.87 percent last year. Water Transport has declined by -3.14 percent during 2011-12, and Air Transport by a massive -27.93 percent. Sub-sectors that showed a positive growth are; pipeline transport 34.64 percent, road transport 2.88 percent, storage 2.10 percent and communication 0.93 percent. Wholesale and Retail Trade Sector: The wholesale and retail trade sector is based on the margins taken by traders on the transaction of commodities traded. In 2011-12, this sector grew at 3.58 percent as compared to 3.53 percent in the last year. Public Administration and Defense: Public Administration and Defense posted a growth of 2.61 percent as compared to 14.17 percent last year. The positive change in the wage component of public sector employees, and an increase in defense and security related expenditures were largely responsible for this growth. Ownership of Dwellings: Ownership of Dwellings has recorded a growth of 3.51 percent during the year 2011-12 compared to 1.79 percent last year. Social Services grew by 6.77 percent against the last years growth of 6.90 percent. The rise in the growth of Ownership of Dwelling and social services is mainly due to the fast track work on reconstruction and rehabilitation of flood affected areas by government, NGOs and private sectors. Contribution to Real GDP Growth (Production Approach) As in previous years the improvements in economic growth in the fiscal year 2011-12 came mainly from the services sector. The services sector contributed 58.58 percent to overall economic growth; while the commodity producing sector (CPS) contributed only 41.4 percent. The agriculture sector contributed 17.98 percent to economic growth compared to 23.43 percent contribution by the industrial sector. The overall growth of 3.67 percent is shared between the Commodity producing sector and Services sector. Within the commodity producing sector, agriculture contributed 0.66 percentage points to overall GDP growth, while industry contributed 0.86 percentage points. The services sector contributed the remaining 2.15 percentage points. The percentage share of agriculture, manufacturing and services in overall growth was 17.98 percent, 23.43 percent and 58.58 percent respectively. The sectoral contribution to the GDP growth is shown below in Table-1.3.
2009-10 0.13 1.57 0.10 1.37 3.07 2010-11 0.50 0.18 0.57 2.36 3.04 2011-12 0.66 0.86 0.66 2.15 3.67

Table 1.3: Sectoral Contribution to the GDP growth (% Points) Sector 2007-08 2008-09 Agriculture 0.23 0.86 Industry 0.38 -0.03 - Manufacturing 0.92 -0.69 Services 3.08 0.89 Real GDP (Fc) 3.68 1.72 Source: Pakistan Bureau of Statistics

Growth and Stabilization Furthermore, increase in rural income due to higher production of crops and the sharp increase in commodity prices also supported the consumption demand. The share of investment in GDP growth remained negative. A number of factors may be responsible for this decline. These include: slow down in global business activities affecting foreign direct investment, the decline in the external demand of the domestic production, serious energy shortages, unstable law and order situation and higher interest rates in the recent years. The contribution of net exports has also been negative. The balance between investment and consumption has been disturbed from 2008-09 onwards due to domestic and external shocks. The composition of aggregate demand highlights an alarming factor. The contribution of fixed investment to economic growth has become negative since 2008-09. Domestic demand continued to be the most significant driving force for economic growth, with private consumption being the major driver for sustaining aggregate demand.

Contribution to Real GDP Growth (Aggregate Demand Side Analysis) Consumption is the largest and relatively smooth component of aggregate demand; the other two components are investment and net exports. In every economy of the world consumption may be disaggregated into the public and private sector consumption. Similarly investment may be classified into public and private investment. Aggregate demand is the sum of consumption, investment and net exports (exports minus imports) of the goods and services. Pakistani society like other developing countries is a consumption oriented society, having a high marginal propensity to consume. As a result private consumption is the major sub-component of aggregate demand. Private consumption expenditure has increased to 75 percent of GDP, whereas public consumption expenditures are 13 percent of GDP. Total consumption has reached 88.35 percent of GDP in fiscal year 2011-12 compared to 83 percent in the last fiscal year. Private consumption has increased on the back of sustained growth in remittances.

Table-1.4: Composition of GDP Growth Point Contribution Flows 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Private Consumption 0.8 3.4 -1.9 8.3 -1.5 2.3 8.5 Public Consumption 3.9 -1.1 3.8 -4.2 5.1 0.4 0.9 Total Consumption [C] 4.7 2.3 1.9 4.1 3.6 2.7 9.4 Gross Fixed Investment 2.9 2.2 1.3 -2.7 -1.5 -1.3 -1.5 Change in Stocks 0.1 0.1 0.0 0.1 0.1 0.1 0.1 Total Investment [I] 2.9 2.3 1.3 -2.7 -1.4 -1.2 -1.4 Exports (Goods & Serv.) [X] 1.8 0.4 -1.0 -0.6 2.2 2.4 -2.1 Imports (Goods & Serv.) [M] 3.2 -0.7 0.6 -2.7 0.9 0.9 1.7 Net Exports [X-M] -1.5 1.1 -1.6 2.2 1.3 1.5 -3.8 Aggregate Demand (C+I+X) 9.4 5.0 2.2 0.9 3.5 3.0 5.9 Domestic Demand (C+I) 7.6 4.6 3.2 1.4 2.2 1.5 8.0 GDP MP 6.2 5.7 1.6 3.6 3.5 3.0 4.2 Source: Pakistan Bureau of Statistics

Composition of Gross Domestic Product The economy of Pakistan, like all developing economies, is in the process of structural transformation during the last few decades. There has been a clear shift away from the Commodity Producing Sector (CPS) which accounted for

almost 62 percent of the GDP in 1969-70 to 46.46 percent in 2011-12, a decline of 15.54 percent. The decline in the share of CPS is offset by the increase in the share of the services sector. A further breakdown of the CPS shows that the share of the agriculture sector has been falling over time. In 1969-70, agriculture accounted for 38.9 percent of 9

Pakistan Economic Survey 2011-12 GDP. This has gradually declined to 21.1 percent in 2011-12. The decline in the share of agriculture in GDP indicates that the non-agriculture sectors grew more quickly as compared to the agriculture sector. Scientific development and revolutionary innovations in the business climate have encouraged the manufacturing and services sectors more than the agriculture sector. Structural, social and cultural problems of the agriculture sector, the higher risk and vulnerability to natural calamities have encouraged investors to switch to the nonagriculture sectors. The contribution of agriculture to overall GDP will continue to decline as development takes place. This is an inevitable consequence of the process of growth and development. It has been observed during the last two decades that the major momentum to economic growth has come from the services sector which has emerged as the main driver of the economic growth. Within the services sector, almost all the sub-sectors have increasing contributions. The share of manufacturing in GDP has remained stagnant, at around 14.7 percent, for 30 years until 1999-2000. Its contribution to GDP has increased after 19992000 from 14.7 percent to 18.65 percent in 2011-12.

Table 1.5: Sectoral Share in Gross Domestic Product (GDP) (At Constant Factor Cost-in percentage) 1999-00 2004-05 2008-09 2009-10 2010-11 Commodity Producing Sector 49.3 48.7 47.1 47.6 46.7 1. Agriculture 25.9 22.4 21.8 21.2 20.9 - Major Crops 9.6 8.4 7.3 6.9 6.5 - Minor Crops 3.5 2.7 2.5 2.2 2.3 - Livestock 11.7 10.6 11.3 11.4 11.5 - Fishing 0.4 0.3 0.4 0.4 0.4 - Forestry 0.7 0.4 0.3 0.3 0.2 Industrial Sector 23.3 26.3 25.3 26.4 25.8 2. Mining & Quarrying 2.3 2.7 2.5 2.5 2.4 3. Manufacturing 14.7 18.3 18.2 18.6 18.7 - Large Scale 9.5 12.9 12.1 12.3 12.1 - Small Scale 5.2 4.1 4.7 4.9 5.1 4. Construction 2.5 2.1 2.1 2.6 2.5 5. Electricity & Gas Distribution 3.9 3.2 2.5 2.8 2.2 Services Sector 50.7 51.3 52.9 52.4 53.3 6. Transport, Storage & Communication 11.3 10.4 10.2 10.1 10.0 7. Wholesale and Retail Trade 17.5 18.7 16.8 17.0 17.2 8. Finance and Insurance 3.7 4.0 5.7 4.9 4.5 9. Ownership of Dwellings 3.1 2.9 2.8 2.7 2.7 10. Public Admn. & Defence 6.2 5.9 6.1 6.0 6.6 11. Other Services 9.0 9.5 11.3 11.8 12.3 12.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0 Source: Economic Advisers Wing, Finance Division P: Provisional

2011-12 P 46.46 21.1 6.71 2.13 11.61 0.37 0.24 25.40 2.40 18.65 11.90 6.74 2.15 2.19 53.54 14.12 17.12 4.79 2.72 6.62 12.65 100.0

Fig-1.4 presents the structural shift in the economy. During the last 10 years the sectoral share of the agriculture sector has decreased from 23 percent to 21.1 percent. The sectoral share of the manufacturing sector has increased from 18 percent to 18.6 percent and the share of other industries has remained more or less stagnant 10

around 7 percent of the GDP over the last 10 years. The share of the services sector has increased from 50.9 percent to 53.5 percent in the same period. It may be concluded that on the whole structural transformation has been slow during the decade under discussion. The share of the commodity

Growth and Stabilization producing sector and the services sector has increased marginally.
Other Industries 6.8% Agriculture 24.1% Agriculture 21.1%

Fig-1.4: Contribution to GDP


Other Industries 7.3%

2001-02

2011-12

Services 50.9%

Manufactu ring,17.7%

Services 53.5%

Manufactur ing 18.6%

The government has approved the Framework of Economic Growth which lays out a wide-ranging strategy for long term competitiveness and growth. The strategy focuses on governance, institutions, markets, connectivity and cities. The government
Box-2 New Growth Strategy ` `

is making efforts to accelerate the operationalization of the growth strategy by initiating specific policies and programs in key strategic areas. The salient features of the new growth strategy are summarized in Box-2.

New growth strategy is an approach to accelerate economic growth and sustain it. It identified a coherent approach to growth that goes well beyond projects and targets public service delivery, productivity, competitive markets, innovation and entrepreneurship The strategy is based on sustained reform that builds efficient and knowledgeable governance structure, and markets in attractive and well-connected locations. It focuses on the software of economic growth (issues of economic governance, institutions, incentives, human resources, etc.), and provides an environment in which the hardware of growth (physical infrastructure) could be expanded and made more productive at every level.

Targeting Growth ` ` ` Around 68 percent of Pakistans population is in the youth category (under 30 years) with the size of the workforce increasing by over 3 percent annually. To absorb this youth bulge productively, Pakistan's real GDP needs to grow at an annual average rate in excess of 7 per cent Efforts will be undertaken to revive the economy to its short term potential GDP growth rate of about 56 percent annually. Resolving issues regarding energy and governance and ensuring credible macro stability, this could be achieved in a short time Deep and sustained reforms for a number of years in areas such as public sector management, developing competitive markets, urban management and connecting people and places are the way forward for accelerating growth to above 7 percent. This is precisely what fast growing economies have done. This is also the direction towards which Pakistan is now aimed to move.

Thrust of Growth Strategy Pakistan is facing several external and internal challenges. In order to achieve economic growth in this scenario the new growth framework has the following characteristics. It does the following: ` ` Puts emphasis on productivity and efficiency beyond brick and mortar perspective Seeks to build a better government and markets, taking the view that good government complements

11

Pakistan Economic Survey 2011-12


` ` ` efficient, competitive and connected markets Recognizes that economic well-being is a result of the variety and frequency of economic transactions. Policy, law and regulation must seek to minimize transaction costs and allow speedy and frequent transactions. Focuses on urban development as a crucible for the nurturing of innovation entrepreneurship and productivity Includes youth through community development and the provision of market opportunities while continuing to impart skills and education.

Source: Planning and Development Division

Per Capita Income: Per capita income is defined here as Gross National Product at market price in dollar term divided by the countrys population. Per capita income is widely used and recognized as one of the important indicators of economic growth and general well-being of a society. Per Capita Income in dollar terms grew at a modest rate of 9.1percent in 2011-12 compared to 17.8 percent growth last year.
Fig-1.5: Per Capita Income ($)
1600 1400 1200 1000 800 600 400 200 0

The per capita income in dollar terms has increased from $ 582 in 2002-03 to $ 1,372 in 2011-12. The major factors, which contributed in the rise of per capita income, include acceleration in real GDP growth, inflows of workers remittances and the stable exchange rate. Fig 1.5 shows the improvement in per capita income during the last ten years.

1258 823 904 1015 990 1068

1372

582

663

724

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Investment and Savings Investment plays an important role in the economic growth of a country. It raises the productive capacity of the economy, affects the employment levels, and promotes technological progress through embodiment of new techniques. Investment spending is usually volatile, because it depends on multiple factors. That is why it is responsible for much of the fluctuations of the GDP. Investment has been hard hit by international and domestic factors during the last few years. Total investment has declined from 22.1 percent of GDP in 2007-08 to 12.5 percent of GDP in 201112

12. Fixed investment has decreased to 10.9 percent of GDP in 2011-12 from 20.5 percent of GDP in 2007-08. Private investment witnessed a contraction of 7.9 percent in 2011-12 compared to 15.0 percent of GDP in 2007-08. Public investment as a percent of GDP also declined to 3.0 percent in 2011-12 against the 5.4 percent in 2007-08. The composition of investment between the private and public sector has also changed during the period under review. The contribution of national savings to domestic investment is indirectly the mirror image of foreign

2011-12

Growth and Stabilization savings required to meet investment demand. The requirement of foreign savings needed to finance the saving investment gap, reflects the current account deficit in the balance of payments. National savings are 10.7 percent of GDP in 201112 compared to 13.6 percent in 2007-08. Domestic savings have also declined from 11.5 percent of GDP in 2007-08 to 8.9 percent of GDP in 2011-12. Net foreign resource inflows are financing the saving investment gap. Theoretically, there are two ways of improving the savings investment gap. One is through increasing savings and the other is through decreasing investment. Pakistan needs to gear up both savings and investment to enhance the employment generating ability of the economy as well as increase resource availability for investment. Public sector investment is crucial for catalyzing economic development. It creates spillover effects for private sector investment because private sector development is facilitated through public sector development spending particularly on infrastructure. However, curtailment of development expenditures limits private sector development. Public sector investment decreased from 5.4 percent of GDP in 2007-08 to just 3.0 percent in 2011-12. Saving and Investment as percentage of GDP are presented in Table 1.6.

Table 1.6: Structure of Savings and Investment (As Percent of GDP) Description 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Total Investment 16.6 19.1 22.1 22.5 22.1 18.2 15.4 Changes in Stock 1.6 1.6 1.6 1.6 1.6 1.6 1.6 Gross Fixed 15.0 17.5 20.5 20.9 20.5 16.6 13.8 Investment -Public Investment 4.0 4.3 4.8 5.6 5.4 4.3 3.6 -Private Investment 10.9 13.1 15.7 15.4 15.0 12.3 10.2 Foreign Savings -1.3 1.6 3.9 5.1 8.5 5.7 2.2 National Savings 17.9 17.5 18.2 17.4 13.6 12.5 13.2 Domestic Savings 15.7 15.4 16.3 15.6 11.5 9.8 9.3 Source: EA Wing Calculations P: Provisional

2010-11 2011-12 P 13.1 12.5 1.6 1.6 11.5 10.9 2.9 8.6 -0.1 13.2 13.3 3.0 7.9 1.8 10.7 8.9

Foreign Direct Investment Pakistan has a very fertile market for foreign investors given its very large consumer base of 180 million people. People need food, energy and other amenities to live and thrive. There is a great potential in the power and infrastructure sector and in natural resources. There seems to be huge scope for investment in hydel and coal based power projects, alternative energy like wind power, and natural gas transmission from foreign lands. The country also needs infrastructure, world class education systems, exploration of its natural resources and mechanization of industries. Foreign investors can exploit all such opportunities. Global foreign direct investment will be close to $ 800 billion during 2012; less than the $ 1 trillion achieved in 2007. The Euro crisis has dampened enthusiasm. However, prospects from East Asia are looking good. The United States is focusing on economic revival and its stock markets are

responding positively. China, India, Turkey, Brazil and Indonesia also appear to be moving in a positive direction. Foreign Direct Investment (FDI) in Pakistan stood at $ 666.7 million during July-April 2011-12 as against $ 1292.9 million last year. This is a decline of 48.4 percent. Oil & Gas Exploration remained the major sector for foreign investors. The share of Oil and Gas Exploration in total FDI during JulyApril 2012 stood at 69.8 percent. Pakistan will certainly attract foreign direct investment with the resolution of the energy shortages and improvement in the law and order situation. The Board of Investment (BOI) under the Prime Ministers Secretariat is making efforts to provide an increasingly investment friendly environment to investors. Efforts are being made to facilitate foreign investors in Pakistan with improved infrastructure and a better working

13

Pakistan Economic Survey 2011-12 environment so that the favorable business climate may induce investors to initiate new investment projects. In particular, efforts are also going on to encourage the setting up of fruit processing industries and more export processing zones in the country, so that sustained high economic growth through exports may be achieved. Workers Remittances Remittances from overseas Pakistanis have been an important source of foreign exchange during the last four years. These have not only provided critical support to the balance of payments but have helped in stimulating the domestic economy and helped to alleviate poverty. Significant flows of remittances also helped Pakistan to partially counter the adverse effects of the oil price shocks, reduce the unemployment problem, and improve
Table-1.7: Country Wise Workers Remittances Country USA U.K. Saudi Arabia U.A.E. Other GCC Countries EU Countries Total Source: SBP * : Provisional 06-07 1459.64 430.04 1023.56 866.49 757.33 149.00 5493.65 07-08 1762.03 458.87 1251.32 1090.30 983.39 176.64 6451.24

the standard of living of recipient households. The upsurge in the remittances may be attributed to the governments efforts for redirecting these flows from informal to formal channels. Bilateral arrangements of commercial banks with foreign entities under Pakistan Remittance Initiatives (PRI) have helped facilitate movement in this direction. Furthermore, initiatives under the PRI such as introduced Xpress money, Inter bank Fund Transfer (IBFT) facility have also helped to improve the remittance flow to Pakistan. Increase in remittances is also the result of the higher demand of Pakistani workers. An overview of country wise remittances is presented in Table 1.7.

US$ Million 08-09 1735.87 605.59 1559.56 1688.59 1202.65 247.66 7811.43 09-10 1771.19 876.38 1917.66 2038.52 1237.86 252.21 8905.90 10-11 2068.87 1199.67 2670.07 2597.74 1306.18 354.76 11200.97 July-April* 11-12 1922.35 1263.67 2987.86 2386.26 1226.61 304.59 10,876.99

Workers Remittances totaled $ 10,876.99 million in July-April of 2011-12, as against $ 9,046.61 million in the comparable period of last year. This is an increase of 20.23 percent. Remittances from Saudi Arabia recorded massive growth of 43.25 percent, followed by U.K. (27.52 percent), USA (14.57 percent), Other GCC countries (15.34 percent) and UAE (14.10 percent) during the period under review. Monthly data on remittances suggests that the monthly average for the period of July-April 2011-12 stood at $ 1,087.70 million compared to $ 904.66 million during the corresponding period last year. Prospects of Economic Growth Pakistans economy is resilient. This resilience comes from the potential as well as the growth in remittances and in the informal economy. Despite positive developments including the easing of 14

inflation and reduction in fiscal deficit, Pakistans economy remains in an unsteady state with slow growth, fragile macroeconomic fundamentals, and heightened vulnerability to balance of payments shock. Key problems affecting the economy include energy shortages and a host of structural impediments that have held back investment and growth. Necessary reforms are under process to remove the structural impediments. Reinitiating the privatization process will attract foreign investment for Pakistan. Foreign investment may also be attracted from the Middle East in agriculture and livestock sectors. Many of these countries need an assured supply of items like wheat, rice, milk, poultry meat, edible oil, flowers, fruit and vegetables and are ready to invest on the basis of long-term supply contracts.

Growth and Stabilization Savings are the mover of growth. Policies are being implemented which give savings incentives such as, tax breaks and compulsory savings in employee provident funds. The government is aware that several long term savings instruments may need to be developed to increase household savings. There is also need to expand the network of National Savings Schemes, microfinance institutions, banks and postal savings to far flung areas of the country. These have been and are the focus of the governments attention. Measures to stimulate growth will not yield full potential unless the structural weaknesses responsible for the decline in the investment are addressed. This decline is due largely to the unstable security situation. The shortage and high cost of energy, and the rising cost of doing business in Pakistan are also contributing to the decline. The government is making efforts to address these negative factors in order to improve investment climate in the country. Pakistans middle class has expanded and is currently estimated at 35 percent of the population. Having substantial size and composition primarily urban and associated with professional white-collar occupations the middle class may play a major role in boosting economic growth. A vibrant middle class not only generates demand of goods and services but also the savings required to fund productive investments. Moreover, the middle class households provide a breeding ground for the professional and skilled labour force. Such human capital is essential for growth in the long run. With the existence of such a vibrant middle class the consumer goods industry can provide a strong impetus to economic growth. Despite an overall slump in the economy, the consumer goods industry in Pakistan has registered a steady growth and has a great potential for further expansion. There is rising trend of youth entrepreneurship in Pakistan. Many young entrepreneurs have succeeded in establishing various businesses that are booming. This has produced a strong demonstration effect for others to follow. These young entrepreneurs have the potential to cause a paradigm shift in the economic fortunes of Pakistan. The opening up of trade with India is another major initiative that can boost economic growth by providing greater market access as well as easy and cheaper availability of raw materials for domestic producers.

15

Chapter 2

Agriculture
The agriculture sector continues to be an essential component of Pakistans economy. It currently contributes 21 percent to GDP. Agriculture generates productive employment opportunities for 45 percent of the countrys labour force and 60 percent of the rural population depends upon this sector for its livelihood. It has a vital role in ensuring food security, generating overall economic growth, reducing poverty and the transforming towards industrialization. The present government is determined to improve the quality of life of the people and to banish hunger and malnutrition from the country by making agriculture an efficient, productive and profitable sector of the economy. In order to improve governance in the public sector the government took bold steps and brought in the 18th Amendment to the Constitution of 1973. Accordingly, Ministries performing tasks which were provincial subjects were devolved from the Federal level, including the Ministry of Food and Agriculture. However, realizing the food security concerns across the country the government took timely steps to establish the Ministry of National Food Security and Research to tackle the Food Security issues. 1.6 billion to address the food security objective. Under this Programme the Ministry shall donate up to 500,000 metric tons of wheat per year and the World Food Programme intends to negotiate with local producers to exchange part of the donated wheat for High Energy Biscuits (HEB) and similar products manufactured in Pakistan factories for distributions through WFP operations to primary school children, siblings of malnourished children and the vulnerable populations especially children at risk of malnutrition. The fund will also be converted to fortified wheat flour for distributions aimed at combating food insecurity in Pakistan. The WFP will also cooperate in the capacity building of the Ministrys officials in areas addressing food security and monitoring progress. Flooding in 2011, affected crops like rice, cotton and sugarcane, although in the current year, 201112, they performed well and provided support and continued to support food security objectives this year. The agriculture sector recorded a growth of 3.1 percent in 2011-12. The profitability of agriculture sector during 2011-12, remained high because the farmers received good prices for rice, cotton and sugarcane, which allowed for greater financial resources passed on to the rural economy. Recent performance During 2011-12, the overall performance of agriculture sector exhibited a growth of 3.1 percent mainly due to positive growth in agriculture related subsectors, except minor crops. Major crops accounted for 31.9 percent of agricultural value added and experienced a growth of 3.2 percent in fiscal year 2011-12 with negative growth of 0.2 percent in 2011. The significant growth in major crops is contributed by rice, cotton and sugarcane 17

The newly created Ministry, under the aegis of the present government, has planned to take two major steps in order to solve the food security issues on a permanent basis. The first step is the establishment of the National Food Security Council representing Federal, Provincial and local level Governments.
Secondly, through a Letter of Intent the Ministry, in collaboration with World Food Programme, is launching the Zero Hunger Programme worth US $

Pakistan Economic Survey 2011-12 by 27.7 percent, 18.6 percent and 4.9 percent, respectively.
Livestock 15.8 2.8 4.2 3.1 4.3 4.0 4.0 Fishery 20.8 15.4 9.2 2.3 1.5 1.9 1.8 Forestry -1.1 -5.1 -13.0 -3.0 2.2 -0.4 1.0

Table 2.1: Agriculture growth percentages from 2005-2012 Year Agriculture Major Crops Minor Crops 2005-06 6.3 -3.9 0.4 2006-07 4.1 7.7 -1.0 2007-08 1.0 -6.4 10.9 2008-09 4.0 7.8 -1.2 2009-10 0.6 -2.3 -7.7 2010-11 2.4 -0.2 2.7 2011-12(P) 3.1 3.2 -1.3 Source: Pakistan Bureau of Statistics P:Provisional

Minor crops contributed 10.1 percent value addition in agriculture and exhibited a negative growth of 1.3 percent in 2011-12 against 2.7 percent growth of 2011. The Livestock sector, which has a 55.1 percent share in the agriculture, grew by 4.0 percent in 2011-12. The Fishery sector grew by 1.8 percent as against last years growth of 1.9 percent. Forestry sector posted a positive growth of 1.0 percent this year as compared to negative growth of 0.4 percent last year. Pakistan has two crop seasons, "Kharif" being the first sowing season from April-June and it is harvested during October-December. Rice, sugarcane, cotton, maize, mung, mash, bajra and jowar are Kharif" crops. "Rabi", the second
Table 2.2: Actual Surface Water Availability Period Average system usage 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Source: Indus River System Authority Kharif 67.1 65.9 59.1 70.8 63.1 70.8 66.9 67.3 53.4 60.4

sowing season, begins October-December and is harvested in April-May. Wheat, gram, lentil (masoor), tobacco, rapeseed, barley and mustard are "Rabi" crops. These crops make Pakistan an agricultural country and its performance is dependent upon timely availability of irrigation water. During 2011-12, the availability of water as a basic input for Kharif 2011 (for the crops such as rice, sugarcane and cotton) has been 10 percent less than the normal supplies but 13 percent higher than last years Kharif 2010 season. The water availability during Rabi season (for major crop such as wheat), is estimated at 29.4 MAF, which is 19.2 percent less than the normal availability, but 15 percent less than last years Rabi crop (Table 2.2).
(Million Acre Feet) %age incr/decr. Over the Avg. 103.5 97.4 82.2 100.9 94.3 98.7 91.8 92.3 88.0 89.8 - 5.9 - 20.6 - 2.5 - 8.9 - 4.6 -11.3 -10.8 -15.0 -13.4

Rabi 36.4 31.5 23.1 30.1 31.2 27.9 24.9 25.0 34.6 29.4

Total

I. Crop Situation Major crops, such as wheat, rice, cotton and sugarcane account for 91 percent of the value added in the major crops. The value added in major crops accounts for 32 percent of the value added in 18

the agriculture. Thus, four major crops (wheat, rice, cotton, and sugarcane) on average, contribute 29 percent to the value added in overall agriculture and 6.0 percent to GDP. The minor crops account for 10.1 percent of the value added in overall

Agricu ulture agricultur re. Livestock contributes 55.1 percent to agricultur ral value ad ddedmuch more m than the t combined d contribution n of major an nd minor cro ops
Table 2.3: Production of o Major Crop ps Cotton Year Sugarcane e (0 000 bales)
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12(P) 13,019 (-8.7) 12,856 (-1.2) 11,655 (-9.3) 11,819 (1.4) 12,914 (9.4) 11,460 (-11.3) 13,595 (18.6) 44 4,666 (-5.5) 54 4,742 (2 22.6) 63 3,920 (1 16.8) 50 0,045 (-2 21.7) 49 9,373 (-1.3) 55 5,309 (1 12.0) 58 8,038 (4.9)

(41.9 percent). Th he production n performanc ce of major crops c is docum mented in Ta able 2.3.
(i in thousands of f tons) R Rice
5,547 (10.4) 5,438 (-2.0) 5,563 (2.3) 6,952 (25.0) 6,883 (-1.0) 4,823 (-30.0) 6,160 (27.7)

Maize
3,110 0 (11.2 2) 3,088 8 (-0.7 7) 3,605 5 (16.7 7) 3,593 3 (-0.3) 3,261 (-9.2 2) 3,707 7 (13.7 7) 4,271 (15.2 2)

Wheat t
21,277 (-1.6) 23,295 (9.5) 20,959 (-10.0) 24,033 (14.7) 23,311 (-3.0) 25,214 (8.2) 23,517 (-6.7)

Source: Pa akistan Bureau of Statistics P: Provisio onal (July-Marc ch), Figures in n parentheses ar re growth/decline rates

a) Major Crops: i) Cotton: i an important cash h crop whi ich Cotton is significan ntly contribut tes to the nat tional econom my by provid ding raw material m to th he local text tile industry, surh as cotto on lint as an export item. . It accounts for 7.8 pe ercent of va alue added in agricultur re and 1.6 per rcent of GDP P. During 201 1112, the crop c was cult tivated on an n area of 28 835 thousand hectares, 5.4 percent mor re than last ye ear (2689 th housand hect tares). The production is reported at 13.6 milli ion bales dur ring the peri iod rch) 2011-12, , higher by 18 8.6 percent ov ver (July-Mar the last years product tion which was w 11.5 milli ion bales. The increase in cultiva ated area and a production n is attribute ed to the use e of BT cotto on, control ov ver widesprea ad attack of cotton leaf curl c virus (CL LCV) and su ucking pests s which help ped
Table 2.4: Area, Produ uction and Yie eld of Cotton Area Year (000 0 Hectare) % Change
2007-08 2008-09 2009-10 2010-11 2011-12(P) 3054 2820 3106 2689 2835 - 0.7 -7.7 10.1 -13.4 5.4

increas se in yield pe er hectare as s compared to last year. The T area, prod duction and yield y of cotto on for the last t five years is s given in Ta able 2.4 and Figure F 2.1.
Figu ure 2.1: Cotton Production P (000 bales)
140 000 135 500 130 000 125 500 120 000 115 500 110 000 07-08 08-09 09-10 10-11 11-12(P)

Source: PBS P

Production (000 Bales) % Chang ge


1165 55 1181 19 1291 14 1146 60 1359 95 - 9.3 1.4 9.3 -1 11.3 1 18.6

(Kgs/He ec)

Yield % Cha ange


-8.7 9.9 -0.8 2.4 12.6

649 713 707 724 815

Source: Pak kistan Bureau of o Statistics P: Provisional (July-March)

19

Pakistan Economic E Sur rvey 2011-12 2 World Co otton Outloo ok The produ uction and con nsumption of f major cotton n growing cou untries are giv ven in Table 2.5. 2
Table 2.5: Production and a Consumpt tion of Major Cotton Grow wing Countries s 200 09-10 20 010-11 E Production n China 6.9 92 6 6.40 India 5.1 18 5 5.76 USA 2.6 65 3 3.94 Pakistan 2.0 07 1 1.91 Brazil 1.1 19 1 1.96 Uzbekistan n 0.8 85 0 0.91 Others 3.2 29 4 4.22 World Total 22.1 17 25 5.10 Consumpti ion China 10.1 10 9 9.59 India 4.3 30 4 4.48 Pakistan 2.3 39 2 2.20 East Asia/A Australia 1.8 86 1 1.75 Europe & Turkey T 1.5 55 1 1.49 Brazil 1.0 02 0 0.96 USA 0.7 77 0 0.85 Others 3.3 36 3 3.17 World Total 25.3 36 24 4.49 Source: Pa akistan Central Cotton Comm mittee, M/O Tex xtile Industry E: Estimate ed, P: Provisio onal (in n Millions of To ons) 2011-12 P 7.40 5.69 3.39 2.35 2.00 0.88 5.28 2 26.96 9.38 4.56 2.33 1.63 1.46 0.90 0.70 3.01 2 23.96

Fig-2.2 2: Sugarcane Production P (0 000 Tons s)


65000 60000 55000 50000 45000 07-08 08-0 09 09-10 10-11 11-12(P) )

Source: PBS

cane: ii) Sugarc The sugar rcane crop is the second major m cash cr rop and is use ed as a raw material m in th he production of refined su ugar and gur. . Its share in value added d in agricultur re and GDP P is 3.7 and 0.8 perce ent,

respect tively. Sugarc cane was cul ltivated on an n area of 1,04 46 thousand hectares, h 5.9 percent p higher r than last years y level of 988 th housand hec ctares. Sugarc cane production for the year 2011-12 is estimat ted at 58.0 million m tons, in contrast to t last years production of 55.3 million n tons. This shows s an incr rease of 4.9 percent p over the producti ion of last ye ear. The mai in factors co ontributing to t the produc ction are luc crative mark ket prices of f last years produce and d timely ava ailability of inputs i encour raged the farm mers to grow w more suga arcane crop. However, H the yield per he ectare, if com mpared with la ast year, pos sted a negative growth. The floods of 2010 enhanced the e soil fertilit ty of Sugarc cane crop, and as a result, , yield per he ectare posted a growth of 6.9 percen nt as compar red to ve 0.9 per rcent this year. How wever, negativ produc ctivity gain could c not be sustained be ecause water receded very y slowly in sugarcane ar rea of lower Sindh. The area, produc ction and yie eld of sugarca ane for the la ast five years are given in Table 2.6 and d Figure 2.2.

20

Agricu ulture
Table 2.6: Area, Produc ction and Yiel ld of Sugarcan ne Area Produ uction Year (000 Hectare) H % Change (000 Tons) % Change 2007-08 1241 20.6 63920 16.8 2008-09 1029 -17.1 50045 -21.7 2009-10 943 -8.4 49373 -1.3 2010-11 988 4.8 55309 12.0 2011-12(P) 1046 5.9 58038 4.9 Source: Pa akistan Bureau u of Statistics P: Provisio onal (July-Marc ch) Yield (Kgs/Hec c.) % Cha ange 51 1507 -3.2 48 8635 -5.6 52 2357 7.7 55 5981 6.9 55 5486 -0.9

iii) Rice: Rice rank ks as second amongst a the staple food gra ain crops in Pakistan P and it i has been a major source e of foreign ex xchange earni ings in recent t years. Pakist tan grows a high h quality of o rice to fulf fill the domes stic demand and a also for exports. Ric ce accounts 4.9 4 percent of the value added a in agri iculture and 1.0 percent of GDP. The sown area for f rice is 25 571 thousand hectares, 8.7 percent more m than last l years 2365 thousand hectares. The production of the crop is i an estimate ed 6160 thou usand tons, 27 7.7 percent more m than the4 4823 thousand d tons produc ced last year. This increase e in area is du ue to 8.7 perce ent increase in i area sown n. The yield per p hectare has h shown im mproved gro owth of 17 7.5 percent as compared d to -14.6 percent last year. y The ar rea,
Table 2.7: Area, Produc ction and Yiel ld of Rice Area Year (000 He ectare) % Change 2007-08 2515 -2.6 2008-09 2963 17.8 2009-10 2883 -2.7 2010-11 2365 -18.0 2011-12(P) 2571 8.7 Source: Pa akistan Bureau u of Statistics P: Provisio onal (July-Marc ch)

produc ction and yiel ld of rice for the last five years are sho own in Table 2.7 2 and Figur re 2.3.
Figu ure 2.3: Rice P Production (000 Tons)
75 500 70 000 65 500 60 000 55 500 50 000 07-08 45 500 Source e: PBS 08-09 09-10 10-11 11-12(P)

Production ( (000 Tons) % Change 5563 2.3 3 6952 25.0 0 6883 -1.0 0 4823 -30.0 0 6160 27.7 7

Yield (Kgs/Hec c.) % Cha ange 2212 5.0 2346 6.1 2387 1.7 2039 -14.6 2396 17.5

iv) Wheat: fo most of the t Wheat is the basic staple food for population n and largest grain source e of the count try. Its impo ortance is always recognized wh hen formulatin ng agricultur ral policies. It contribu utes 12.5 percent to the value added in agriculture and a 2.6 percen nt to GDP. Wheat W is cultiv vated in an ar rea of 8666 thousand t hect tares in 2011 1-12, showing ga decrease of 2.6 perce ent over last years area of

8901 thousand t hec ctares. The production p of f 23.5 million n tons is estim mated during July-March 20112 12. Th he yield per hectare in 2011-12 pos sted a negativ ve growth of 4.2 percent as a compared to 11 percent t growth last year. This is due to the fac ct that the sow wing of whea at was delaye ed due to sta anding water and other climatic c facto ors. Recently y the govern nment has incr reased the pro ocurement pr rice to Rs. 10 050. This ste ep would he elp the farme ers to

21

Pakistan Economic E Sur rvey 2011-12 2 on and its impact i will be increase its productio n the later par rt of 2011-12. . realized in The overa all decrease in area is du ue to problems farmers faced in th he disposal of the wheat produced during last year. y Farmers s then began to increase predisposition p n of growing early sown BT B cotton and d reducing th he area of BT T cotton sown n in rain affect ted districts of o Sindh This phenomenon n is demonstra ated in Table 2.8 and Figur re 2.4.
Fig 2.4: 2 Wheat Pro oduction (000 0 Tons)
2700 00 2500 00 2300 00 2100 00 1900 00 1700 00 07-08 08-09 09-10 10-11 11-1 12 (P)

Source: PBS

Table 2.8: Area, Produc ction and Yiel ld of Wheat Area Year (000 he ectares) % Change 2007-08 8550 -0.3 2008-09 9046 5.8 2009-10 9132 1.0 2010-11 8901 -2.5 2011-12(P) 8666 -2.6 Source: Pak kistan Bureau of o Statistics P:Provision nal(July-March h)

Produ uction (000 tons) % Change 20959 -10.0 24033 14. .7 23311 -3. .0 25214 8.2 23517 -6. .7

Yield (Kgs /Hec c.) % Cha anges 2 2451 -9.8 2 2657 8.4 2 2553 -3.9 2 2833 11.0 2 2714 -4.2

v) Other Major Crops 011-12, the pr roduction of maize m increas sed During 20 by 15.2 percent, p while e rapeseed an nd mustard ro ose by 5.7 pe ercent. This is in contras st to crops li ike gram, the e largest Rab bi pulses cro op in Pakistan, where pr roduction sto ood at 291 thousand tons, against 49 96 thousand tons of last year, y showing ga

ion of about 41.3 percen nt during 2011-12 reducti mainly y because of unfavorable u w weather condi itions. The ot ther crops li ike bajra, to obacco, jawar r and barley also, witness sed a decline e in producti ion of 12.1 percent, p 8.7 percent, 2.8 percent and d 1.4 percent t, respectivel ly, in 2011-12 as compar red to the cor rresponding period p last year. y The area and produc ction of major r crops are giv ven in Table 2.9. 2

Table 2.9: Area and Pro oduction of Ot ther Major Kharif K and Rab bi Crops 201 10-11 2011-12 (P P) % Change In Crops production n over Are Area Production ea P Production Last yea ar (0 000 hectares) ) (000 hec ctares) ( (000 tons) (000 tons) Kharif Maize 974 370 07 1083 4271 15.2 Bajra 548 34 46 458 304 4 -12.1 Jawar 229 14 41 214 137 7 -2.8 Rabi Gram 1054 49 96 1055 291 -41.3 Barley 77 7 71 75 70 0 -1.4 Rapeseed & Mustard 203 17 76 213 186 6 5.7 Tobacco 51 10 03 47 94 4 -8.7 Source: Pa akistan Bureau u of Statistics P: Provisio onal (July-Marc ch)

22

Agriculture b) Minor Crops i) Oilseeds The major oilseed crops grown in the country include sunflower, canola, cottonseed, rapeseed and mustard. Although the cotton crop is grown for its lint, cottonseed contributes 50 to 60 percent of local edible oil production. At present, total requirement of edible oil in the country is 2.045 million tons. During the year 2010-11, the total availability of edible oil was 3.079 million tons; of which local production contributed 0.696 million tons (34 percent of the requirement); while imports of edible oil or oilseeds was 2.383 million ton. The import bill reached Rs. 224 billion (US$ 2.611 billion) in 2010-11. It is estimated that 10 percent of the total availability of edible oil is consumed in industries like cosmetics, paints and other allied products. Around 200,000 tons of edible oil is exported, mainly to Afghanistan. This does not include smuggling through porous borders which is not accounted for. During the year 2011-12 (July-February) 1.467 million tons of edible oil worth Rs. 145 billion (US$ 1.654 billion) was imported. Local production during 2011-12 was 0.636 million tons. The area and production of oilseed crops during 2010-11 and 2011-12 is shown in Table 2.10.

Table 2.10: Area and Production of Major Oilseed Crops Crops 2010-11 Area Production Area (000 Acres) Seed Oil (000 Acres) (000 Tons) (000 Tons) Cottonseed 6,450 2,934 352 6,958 Rapeseed/ Mustard 439 157 50 575 Sunflower Canola Total 1,108 223 8,230 643 131 3,865 244 50 696 877 27 8,437

2011-12 (P) Production Seed Oil (000 Tons) (000 Tons) 3,212 385 203 61 473 30 3,918 179 11 636

Source: Pakistan Oilseed Development Board P: Provisional (July-Feb)

ii) Other Minor Crops: The production of mung and potato has increased by 22.0 percent and 17.5 percent, respectively during, 2011-12. However, the production of chillies, onion, masoor (lentil) and mash decreased by 78.3 percent, 15.4 percent 12.8 percent and 3.5
Table: 2.11 Area and Production of Minor Crops 2010-11 Crops Area Production (000 hectares) (000 tons) Masoor 26.1 13.3 Mung 137.4 76.2 Mash 24.5 11.3 Potato 159.3 3491.8 Onion 147.6 1939.6 Chillies 63.6 171.7 Source: Pakistan Bureau of Statistics P: Provisional (July-March)

percent, respectively. The area sown for masoor, onion and chillies decreased by 13.8 percent, 14.9 percent and 65.7 percent, respectively. There was an increase of area sown for mung and potatoes by 2.5 percent and 16.2 percent, respectively. The area and production of minor crops are given in Table 2.11.
2011-12(P) %Change In Area Production Production (000 hectares) (000 tons) 22.5 11.6 -12.8 140.8 93.0 22.0 24.5 10.9 -3.5 185.1 4104.4 17.5 125.6 1640.0 -15.4 21.8 37.2 -78.3

23

Pakistan Economic Survey 2011-12 II. Farm Inputs i) Fertilizer: Fertilizer is Pakistans most important and expensive input in agricultural production. The contribution of balanced fertilizer use towards increased yield varies from 30 to 60 percent in different crop production areas of the country. One kg of fertilizer nutrient produces about 8 kg of cereals (wheat, maize and rice), 2.5 kg of cotton and 114 kg of stripped sugarcane. All of Pakistans soils are deficient in nitrogen (N), 80 to 90 percent are deficient in phosphorus (P), and 30 percent are lacking in potassium (K). The wide spread deficiency of micronutrients is also appearing in different areas. Lands used for single crops are depleting soil fertility because lands are using only certain essential plant nutrients and are intensely cultivated. When these soils go without being replenished, future crops are threatened from loss of micronutrients and other essential plant nutrients. The domestic production of fertilizers from JulyMarch, 2011-12 declined by 1.4 percent when compared to the last years production. The fertilizer industry experienced a curtailment of natural gas (the raw material for urea) and some urea plants produced less than their production capacity. However, a timely import of urea addressed the absence in supply and total availability of fertilizer increased by 16.3 percent. Despite the increased supply of urea, total consumption of fertilizer reduced by 4.9 percent. Nitrogen consumption increased by 0.3 percent while that of phosphate decreased by 22.3 percent and potash by 36 percent. Details of fertilizer production are presented in Table 2.12. The major reason for reduced fertilizer consumption was the effect of heavy and destructive rains in the Sindh province during the monsoon season in 2011, which adversely affected crop lands. Another reason for the reduction in consumption of fertilizer was the increase in price of all fertilizers. The prices of urea went up by 81.4 percent in July-March, 2011-12 as compared to the same period of the last fiscal year. The prices of DAP, CAN and NP also increased by 38.8 percent, 75.5 percent and 45.7 percent, respectively, over the same period last year.

Table: 2.12 Production and Off-take of Fertilizers Domestic % % Year Import Production Change Change 2007-08 2822 876 2008-09 2907 3.0 568 -35.1 2009-10 3082 6.0 1444 154.2 2010-11 3076 -0.2 645 -55.4 2010-11 P 2287 532 2011-12 P 2255 -1.4 1024 92.6 Source: National Fertilizer Development Centre P : Provisional (Jul-March)

Total 3698 3475 4526 3721 2819 3279

% Change -6.0 30.2 0.6 16.3

(000 Nutrient Tons) % Off-take Change 3581 3711 3.6 4360 17.5 3933 -9.8 3064 2913 -4.9

ii) Improved Seed: Quality seed is also an essential input for improving yield in Pakistan. Seed has a unique position among the other various agricultural inputs because the effectiveness of all other inputs depend primarily on the potential of the seeds. Seed is a high technology product and is an innovation readily adapted for Pakistans climate. Improving access to good quality seed is a critical 24

requirement for sustainable agricultural growth and food security. Effective use of improved and certified seed can result in higher agricultural production, which leads to increased net incomes of farming families. This is the desired positive impact of improved seed for greater rural development. Hence the availability of quality seed of improved varieties is essential to achieve production targets.

Agriculture During July-March, 2011-12 about 361.0 thousand tons of improved seed of various Kharif/Rabi season crops were procured. The procurement of seeds for various Kharif crops (cotton, paddy, maize, mung bean, etc) is currently underway. The details of this procurement are demonstrated in Table 2.13. The Federal Seed Certification and Registration Department (FSC&RD) is engaged in providing seed certification coverage to public and private sector seed companies of the country. It provides seed quality control services through its 28 seed testing laboratories as well as monitoring of seed quality in the market. The activities and achievements of the department during 2011-12 are described below: ` During the year 2011-12, forty-five (45) new seed companies were registered, making the total number of registered seed companies in the country 774, which includes four public sector and five multinational companies. Twenty-two (22) new crop varieties were approved {(5) wheat, (11) cotton, (3) oilseeds, (2) pulses and (1) fodder}. During 2011-12, different crops offered by the various seed agencies, totaling 502.6 thousand acres, were purposes. ` inspected for certification

A total quantity of 361.0 thousand MT seeds of various corps were sampled and tested for purity, germination and seed health purposes. Pre and post control trials of all pre-basic, basic seed lots and 20 percent of certified seed lots were carried out in the fields to determine the quality of seed distributed by various seed agencies. Under the provision of the Seed Act, five cases were filed in different courts of law against the seed dealers found selling substandard seeds. During 2011-12, a total of 13.7 MT of imported seed of various crops and hybrids, with a total value of Rs. 3287.6 million, was tested under the Seed (Truth in Labelling) Rules. 1991 at the port of entries i.e. Lahore and Karachi. Almost 718 samples of seed and propagating material of various vegetable and fruit crops were tested at the Central Seed Testing Laboratory, Islamabad for detection of fungal and viral disease using latest diagnosis techniques and protocols.

Table 2.13: Seed Availability* Crop Local Wheat 319890.0 Cotton 1649.8 Paddy 22749.6 Maize 1372.9 Pulses 1189.0 Oilseeds 23.5 Fodders 11.4 Vegetables 256.0 Potato 145.0 Total 347287.2 Source: Federal Seed Certification & Registration Department * : July-March 2011-12

Imported 0.0 0.0 2657.1 3739.3 0.0 328.7 1473.6 564.6 4963.6 13726.9

(Metric Tons) Total 319890.0 1649.8 25406.7 5112.2 1189.0 352.2 1485.0 820.6 5108.6 361014.1

iii) Irrigation Universally an efficient irrigation system is a prerequisite for higher agricultural production as it

helps in increasing crop intensity, an aim Pakistan hopes to achieve throughout the country. Despite the existence of a good irrigation canal network in Pakistan, large amounts of water are wasted in the 25

Pakistan Economic Survey 2011-12 irrigation process because of improper lining of waterways. Rainfall recorded during the monsoon
Table 2.14: Rainfall* Recorded During 2011-12 Monsoon Rainfall* (Jul-Sep) 2011 137.5mm 236.5mm + 99.0mm +72.0 %

and winter season is presented in Table 2.14.

Normal Actual Shortage (-)/excess (+) % Shortage (-)/excess (+) Source: Pakistan Meteorological Department * : Area weighted

(in Millimetres) Winter Rainfall* (Jan-Mar) 2012 70.5mm 34.2mm -36.3mm -51.4%

During the monsoon season, (July-September), the normal average rainfall 137.5 mm, while the actual rainfall received in 2011 was 236.5 mm, indicating an increase of 99.0 percent. During the winter, (January-March), normal average rainfall during this period is 70.5 mm and the actual rainfall received in 2012 was 34.2 mm,, indicating a decrease of 51.4 percent under the normal rainfall average.

The canal head withdrawals in April-September 2011 increased by 13 percent and stood at 60.4 million acre feet (MAF) as compared to 53.4 MAF during the same period last year. During the second planting season, October-March, 2011-12, the canal head withdrawals declined to 29.4 MAF, compared to 34.6 MAF during the same period last year. The Province-wise details are given in Table 2.15.
Million Acre Feet (MAF) Rabi % Change in (Oct Mar) Rabi 2011-12 2011-12 Over 2010-11 17.61 -6 10.13 -30 1.12 27 0.56 17 29.42 -15

Table 2.15: Canal Head Withdrawals (Below Rim Station) Kharif Kharif % Change in Provinces (Apr-Sep) (Apr -Sep) Kharif 2011 2010 2011 over 2010 Punjab 29.00 34.29 18 Sindh 22.61 23.29 3 Balochistan 1.21 1.86 54 KPK 0.60 0.96 60 Total 53.41 60.40 13 Source: Indus River System Authority

Rabi (Oct-Mar) 2010-11 18.73 14.51 0.88 0.48 34.59

To address the water sector issues, strategies and future water sector policy, an integrated water resource management approach, guiding principles of equity, efficiency, participatory decision making, sustainability and accountability have been adopted. The strategy is focused on priority investments in the water sector to achieve additional water storages and reorganization for effective and responsive institutional reforms. Water availability is continuously diminishing. The challenge is to formulate an effective implementation of a comprehensive set of measures for the development an efficient management of water

resources. The focus areas of investment in the water sector are:


a. Augmentation of surface water resources by construction of storage small/medium dams. b. Conservation measures, or the lining of irrigation channels, included modernizing and rehabilitating irrigation systems, lining of waterways and enhancing efficiency by rehabilitating and improving the operation of the existing system. c. Protection of infrastructure from onslaught of floods and water logging and Salinity. d. Introduction of high efficiency irrigation systems i.e. sprinkler and drip.

26

Agriculture It is expected about Rs. 30.00 billion would be utilized on the water sectors programmes under the Ministry of Water and Power for 2011-12. The following major water sector demonstrated in Table 2.16. projects are

Table: 2.16: Major Water Sector Projects under Implementation Projects Location Total Live Irrigated Latest Status App.cost Storage Area (Expected up to June 2012) (Rs. In (MAF) (Acres) million) Gomal Zam Dam Khyber 12,829 0.892 1, 91,139 75 % Physically completed Pakhtunkhwa Greater Thal Canal * Punjab 30,467 1,739,000 Phase-I, completed (3 Phases) Rainee Canal * Sindh 18,862 412,400 94 % Physically completed (3 Phases) Phase-I Kachhi Canal * Balochistan 31,204 713,000 62 % Physically completed (3 Phases) Phase-I Raising of AJ&K 62,553(O) 2.90 All over Physically completed Mangla Dam 97,000 (B R) Pakistan Satpara Dam Skardu 4,397 0.05 15,536 Physically completed Multi- purpose Right Bank Outfall Drain (RBOD) RBOD-I Sindh 14,707 88% Physically Completed RBOD-II Sindh 29,014 65% Physically Completed RBOD-III Balochistan 6,535 75% Physically Completed Source: Planning & Development Division, Planning Commission * Progress of all three canals is for Phase-I, whereas app. cost is reflected for total project, Revised cost of all three canals is un-approved, submitted for approval to P&D Division

Water Sector Programmes during (2011-12) These programmes are: ` Completion of phase-I of the Greater Thal Canal, substantial completion (60 percent) of Kachhi Canal in Balochistan and Rainee Canal (92 percent) in Sindh for irrigating 2.9 million acres. Completion of Mangla Dam Raising Project for additional storage of 2.9 MAF and additional power generation of 644 GWh. Completion of Satpara Dam in Gilgit Baltistan for irrigation of 15,536 acres of agriculture land and 17.3 MW power generations. Substantial completion of Gomal Zam Dam Project in Tribal/ Khyber Pakhtunkhwa (KPK) area for irrigation of 1, 91,139 acres of agriculture land and generation of 17.4 MW power

Rs. 1,800 million is expected to be utilized on lining various irrigation channels in Punjab, Sindh and Khyber Pukhtunkhwa during the year 2011-12. An amount of Rs. 1,600 million is expected to be utilized during the year 2011-12 on improvement of existing irrigating system in Punjab, Sindh, KPK and Balochistan. More than Rs. 2.00 billion is expected to be utilized on construction of new small to medium sized dams across Pakistan; (Winder, Darwat, Nai Gaj and Naulong dam). In Balochistan, about Rs. 3.00 billion are expected to be spent on the construction of new small, delay action dams and improvement of existing irrigation system and flood schemes. In the drainage sector, continued fast track implementation of the RBOD-1, II & III projects hope to protect and reclaim 4.90 million acres of irrigated land. 27

Pakistan Economic Survey 2011-12 iv) Agricultural Credit: The role of credit is instrumental in the agriculture sector where Pakistani farmers often lack finances necessary for carrying out vital farming activities. This issue, if not addressed, can cause a multitude of problems, ranging from the exploitation of poor farmers at the hands of informal sources of credit, to a slowdown in the adoption of modern farming techniques and inputs, resulting in slow development of this chief sector of our economy. The Government of Pakistan and the SBP is cognizant of the centrality of access to agriculture credit in the growth of the agriculture sector, and they have been making all efforts for the promotion and development of agricultural finance in the country at affordable prices. As a result, the flow of credit to agriculture sector from banks is showing improvement. A well-established network of lending institutions operates to meet the financial requirements of farmers in the rural areas. Currently 26 commercial and microfinance banks, with around 3,900 agriculture designated branches, are facilitating farmers by extending agriculture credit throughout the country. These include; ABL, Habib Bank Limited (HBL), Muslim Commercial Bank (MCB), United Bank Limited (UBL), two specialized banks, viz, Zarai Tarqiti Bank Limited (ZTBL), Punjab Provincial Corporative Bank Limited (PCBL), and 14 private domestic banks. Furthermore, five microfinance banks (MFBs) are also providing financing to farmers. These banks provide credit to the farming community for all types of farming activities such as growing crops, livestock, poultry, fisheries, orchards, forestry, nurseries, apiculture and sericulture. The increasing demand for credit is due to an array of factors, such as the rising pressure from the quickly expanding population. Credit on food resources and high prices of agriculture inputs, and the reasonable prices of agricultural commodities are attracting investment into Pakistans agriculture sector. The Agricultural Credit Advisory Committee (ACAC) has allocated an indicative agriculture credit disbursement target of Rs. 285 billion for 2011-12 as compared to the target of Rs. 270 billion; (fixed for last year and the actual credit disbursement of Rs. 263 billion during 2010-11). Out of the total amount of agricultural credit disbursed, Rs. 195.1 billion was allocated to Commercial Banks, Rs. 70.1 billion to ZTBL, Rs. 12.2 billion went to the Microfinance Banks, (five MFBs included since July 2011), and Rs. 7.6 billion was allocated to the Punjab Provincial Cooperative Bank Limited (PPCBL). During July-March, 2011-12 five major banks, as a group, disbursed Rs 107.7 billion or 76.3 percent of their whole years targets. ZTBL disbursed Rs 37.9 billion or 54 percent of its targets and Domestic Private Banks (DPBs) disbursed Rs 37.3 billion or 69 percent of their targets. MFBs disbursed Rs 8.5 billion or 69.9 percent of their target and the PPCBL disbursed Rs 6.0 billion or 79.1 percent of its allocated target. During the period July-March, 2011-12, bank disbursement to the agriculture sector surged by 17 percent on a year-to-year basis to Rs 197.4 billion, or 69.2 percent of the target, of Rs. 285 billion. This goes in contrast to the disbursement of Rs 168.7 billion during corresponding period last year. The details are presented in Table 2.17.
(Rs. in Billion) Total MFBs 0.0 0.0 0.0 0.0 0.0 0.0 8.5 Rs. Billion 168.8 211.6 233.0 248.1 263.0 168.7 197.4 %Change 22.8 25.3 10.1 6.5 6.0 17.0

Table 2.17: Supply of Agricultural Credit by Institutions Year ZTBL Commercial Banks 80.4 94.7 110.7 119.6 140.3 93.3 107.6 PPCBL 8.0 5.9 5.6 5.7 7.2 4.4 6.0 Domestic Private Banks 24.0 43.9 41.6 43.8 50.2 33.7 37.3

2006-07 56. 5 2007-08 66.9 2008-09 75.1 2009-10 79.0 2010-11 65.4 2010-11 P 37.4 2011-12 P 37.8 Source: State Bank of Pakistan. P: Provisional (July Mar)

28

Agriculture
Box-1 Credit Disbursement to Farm and Non-Farm Sector The sector-wise classification reveals that the share of the non-farm sector showed healthy growth and its share in overall agriculture credit disbursement rose to 36.3 percent in March, 2012. During the period under review Rs 125.64 billion was disbursed to the farm sector while credit disbursement to non-farm sector stood at Rs 71.73 billion. Last year, an amount of Rs 110.46 billion or 65.5 percent was extended to farm sector and Rs 58.23 billion or 34.5 percent was disbursed to non-farm sector. Sector A Farm Credit 1 Subsistence Holding i Production ii Development 2 Economic Holding i Production ii Development 3 Above Economic Holding i Production ii Development B Non-Farm Credit 1 Small Farms 2 Large Farms Total (A+B) Source: SBP 2011-12 July-March 2011 125.64 70.83 68.60 2.23 33.82 33.04 0.78 20.98 19.07 1.91 71.73 19.02 52.71 197.36 2010-11 July-March 2010 110.46 65.97 63.97 2.82 28.68 27.94 0.74 15.81 15.09 0.72 58.23 12.67 45.56 168.69

III. Forestry During the year 2011-12, forests have contributed 92 thousand cubic meters of timber and 262 thousand cubic meters of firewood as compared to 91 thousand cubic meters timber and 261 thousand cubic meters firewood in 2010-11. IV. Livestock and Poultry A. Livestock The livestock sector occupies a unique position in the National Agenda of economic development of the present government. The sector provides a net source of foreign earnings. Historically livestock has been the subsistence sector dominated by small holders to meet their needs of milk, food security and daily cash income. Therefore, livestock is considered a more secure source of income for the small farmers and landless poor; and, is a source of

employment generation at the rural level. It also helps to reduce income variability, especially in cases of crop failure due to a variety of causes. Livestock is central to the livelihood of the rural poor in the country and can play an important role in poverty alleviation. It can uplift the socioeconomic condition of Pakistans rural masses. The livestock population for the last three years is given in Table 2.18. Livestock contributed approximately 55.1 percent to the agricultural value added and 11.6 percent to national GDP during 2010-12, against 54.6 percent and 11.6 percent during the same period last year. Gross value added of the livestock sector at constant factor cost has increased from Rs. 672 billion (2010-11) to Rs. 700 billion (2011-12); showing an increase of 4.0 percent as compared to previous year.

29

Pakistan Economic Survey 2011-12


Table 2.18: Livestock Population Species 2009-101 2010-111 Cattle 34.3 35.6 Buffalo 30.8 31.7 Sheep 27.8 28.1 Goat 59.9 61.5 Camels 1.0 1.0 Horses 0.4 0.4 Asses 4.6 4.7 Mules 0.2 0.2 Source: Ministry of National Food Security & Research 1 : Estimated Figure based on inter census growth rate of Livestock Census 1996 & 2006 (Million Nos.) 2011-121 36.9 32.7 28.4 63.1 1.0 0.4 4.8 0.2

The major products of livestock are milk and meat. The production of these products for the last three years is given in Table 2.19.
Table 2.19: Milk and Meat Production Species Units 2009-101 2010-111 2011-121 000 Tons 44,978 46,440 47,951 Milk (Gross Production) Cow " 15,546 16,133 16,741 Buffalo " 27,848 28,694 29,565 Sheep2 " 36 36 37 Goat " 739 759 779 Camel2 " 808 818 829 000 Tons 36,299 37,475 38,690 Milk (Human Consumption)3 Cow " 12,437 12,906 13,393 Buffalo " 22,279 22,955 23,652 Sheep " 36 36 37 Goat " 739 759 779 Camel " 808 818 829 000 Tons 2,965 3,095 3,232 Meat4 Beef " 1,655 1,711 1,769 Mutton " 603 616 629 Poultry meat " 707 767 834 Source: Ministry of National Food Security & Research 1: The figures for milk and meat production for the indicated years are calculated by applying milk production parameters to the projected population of respective years based on the inter census growth rate of livestock census 1996 & 2006 2 : The figures for the Milk production for the indicated years are calculated after adding the production of milk from camel and sheep to the figures reported in the livestock census 2006. 3 : Milk for human consumption is derived by subtracting 20% (15% wastage in transportation and 5% in calving) of the gross milk production of cows and Buffalo. 4 : The figures for meat production are of red meat and do not include the edible offals.

The production of other livestock products over the last three years is demonstrated in Table 2.20.
Table:2.20 Estimated Livestock Products Production Species Units Eggs Million Nos Hides 000 No's Cattle " Buffalo " 2009-101 11,839 13,040 6,496 6,445 2010-111 12,457 13,481 6,741 6,640 2011-121 13,144 13,938 6,995 6,842

30

Agriculture
Table:2.20 Estimated Livestock Products Production Species Units 2009-101 2010-111 2011-121 Camels " 99 100 101 Skins 000 No's 47,402 48,478 49,582 Sheep Skin " 10,495 10,620 10,745 Goat Skin " 23,061 23,685 24,237 Fancy Skin " 13,846 14,173 14,509 Lamb skin " 3,117 3,154 3,192 Kid skin " 10,728 11,019 11,318 Wool 000 Tons 42.0 42.5 43.0 Hair " 22.6 23.2 23.8 Edible Offals " 334 344 353 Blood " 56.8 58.3 59.8 Guts 000 No's 47,886 48,974 50,089 Casings " 13,879 14,347 14,832 Horns & Hooves 000 Tons 48.1 49.5 50.9 Bones " 713.4 735.1 757.5 Fats " 228.1 234.8 241.7 Dung " 1,008 1,039 1,071 Urine " 311 320 329 Head & Trotters " 208.2 214.0 220.1 Ducks, Drakes & Ducklings Million Nos 0.6 0.6 0.5 Source: Ministry of National Food Security & Research 1 ; The figures for livestock product for the indicated years were calculated by applying production parameters to the projected population of respective years

Consequent of 18th Constitutional Amendment, the subjects of animal health and production have been delegated to the provinces. The Ministry of National Food Security and Research created a Livestock Wing, delegating the following roles: 1. Co-ordination of foreign aid and technical assistance in the livestock sector and related fields. 2. Animal Quarantine Departments/ stations/ facilities located anywhere in Pakistan. 3. Veterinary drugs, vaccines and animal feed additives. a. Import and export. b. Procurement from abroad for federal requirement and for interprovincial supplies. 4. Livestock, poultry and livestock products; a. Import and export. b. Laying down national grades. The population growth, increase in per capita income and the potential for export is fueling the

demand of livestock and livestock products. The rise in production cost has increased the retailers and consumers price index for milk, yogurt, meat, eggs, and other items. The overall livestock development strategy resolves to foster private sector-led development, with the public sector providing an enabling environment through policy interventions and playing a capacity building role for improved livestock husbandry practices. The emphasis will be on improving per unit animal productivity and moving from subsistence to market oriented and then to commercial livestock farming in the country to meet the domestic demand and surplus for export. The Livestock Wing with its redefined mandate continued regulatory measures that included allowing import of high yielding animals, semen and embryos for crossbreeding. It also included duty free import of veterinary dairy and livestock machinery/equipment, allowing import of feed inputs, and vaccines at zero rates. In order to reduce input costs in livestock/poultry feed production, certain feed ingredients, growth promoters and vitamin premixes have been zero rated. Sales tax exemption has been allowed to 31

Pakistan Economic Survey 2011-12 uncooked poultry meat; processed milk, yogurt, cheese and flavoured milk, butter and cream in order to encourage establishment of a value added industry in the country. More than 9500 exotic animals, 318,768 semen doses and 4300 embryos of high yielding animals have been imported in the country from July 2010 to December 2012. New slaughterhouses, milk processing and meat processing units have been established in the private sector. The export of the meat (beef, mutton and camel meat) has increased from US $108.54 million (2010-11) to US $123.61 million in 2011-12, showing an increase of 13.9 percent. The future plan for the livestock sector is to persuade the policies to achieve 5 percent or more growth in meat and 8 percent or more in milk production through shifting from subsistence livestock farming to market-oriented and commercial farming. The focus will be to encourage and promote high yielding animals production and their crossbreeding through Artificial insemination services. The future road map has clear mile stones in the shape of entering into global Halal Food Trade Market, controlling trans-boundary animal diseases of trade and economic importance, as well as a socio-economic uplifting mechanism of poor, small-scale livestock farmers. Poultry The poultry sector is one of the most organized and vibrant segments of the agriculture industry of Pakistan. This sector generates direct and indirect employment and income for about 1.5 million people. Its contribution in agriculture and livestock is 6.4 percent and 11.5 percent, respectively. Poultry meat contributes 25.8 percent of the total meat production in the country. The current investment in the poultry industry is about Rs 200.00 billion. The poultry sector has shown a robust growth of 8 to 10 percent annually, which reflects its inherent potential. The production of commercial and rural poultry and poultry products for the last three years is given in Table 2.21.

Table 2.21: Domestic/Rural & Commercial Poultry Type Units 2009-101 2010-111 2011-121 Domestic Poultry Million Nos 77.35 78.51 79.68 Cocks " 9.58 9.84 10.10 Hens " 36.76 37.42 38.09 Chicken " 31.02 31.25 31.48 Eggs2 " 3676.00 3742.00 3809.00 Meat 000 Tons 102.40 104.43 106.51 Duck, Drake & Duckling Million No's 0.59 0.56 0.54 Eggs2 " 26.28 25.18 24.13 Meat 000 Tons 0.80 0.77 0.73 Commercial Poultry Layers Million No's 30.41 32.54 44.10 Broilers " 493.40 542.74 34.82 Breeding Stock " 8.39 8.81 597.02 Day Old Chicks " 515.36 566.89 9.25 Eggs2 Million Nos 8137.00 8690.00 623.58 Meat 000 Tons 603.47 662.18 9281.00 Total Poultry Day Old Chicks Million Nos 546.00 598.00 655.00 Poultry Birds " 610.00 663.00 721.00 Eggs " 11839.00 12857.00 13114.00 Poultry Meat 000 Tons 707.00 767.00 834.00 Source: Ministry of National Food Security & Research 1 ; The figures for the indicated year are statistically calculated using the figures of 2005-06. 2 : The figures for Eggs (Farming) and Eggs (Desi) are calculated using the poultry parameters for egg production.

32

Agriculture Poultry Development policy envisions sustainable supply of wholesome poultry meat, eggs and other value added products to the local and international markets at competitive prices. It is aimed at facilitating and supporting private sector-led development for sustainable poultry production. The strategy revolves around improving the regulatory framework; disease control and genetic improvement in rural poultry; high tech poultry production under environmentally controlled housing; processing and value addition; improving bio-security; need based research and development and farmers training and education. It envisages poultry sectors growth of 15-20 percent annually. MEGA DEVELOPMENT PROJECTS The Ministry of Livestock and Dairy Development, before devolution concluded the following (7) projects in the Livestock sector at an estimated cost of Rs. 8.8 billion. The achievements of these projects are summarized below: Strengthening of Livestock Services Project (SLSP) ` Field studies on (5) models of service delivery were conducted (CAHEW, WLEW, DFCM, Wool Producers Association, PRSM); Introduced PPR vaccine production in the country; Distribution of 2200 Motor-Cycles to field staff of provincial livestock departments on hire purchase basis to strengthen and improve the veterinary health coverage; and Established the National Epidemiology Network for Livestock Disease Surveillance and Reporting. ` Formed 207 Milk Producer Groups (MPG) in all the four provinces, Azad Jammu & Kashmir and Gilgit Baltistan Installed 150 milk cooling tanks Provided 63.3 tons of fodder seeds and 663 tons of animal ration/feed on cost basis to the members of MPGs Registered 1,004 Red Sindhi, Sahiwal and NiliRavi livestock breeders for production of quality breeding animals.

` `

Prime Ministers Special Initiative for Livestock (PMSIL) ` A total of 290 veterinary clinics have been established providing veterinary services at 70 percent reduced cost to rural farmers at their door steps i.e. 100 percent achievement Quality medicines/vaccines are available to rural farmer at 30 percent reduced cost as compared to market prices A total of 3,150 community organizations (COs) have been formed and 3000 rural community persons have been trained by imparting one month training in basic veterinary services through the government livestock institutes have been trained in better animal husbandry practices to enhance their income through enhanced milk productivity National Programme for the Control and prevention of Avian Influenza ` ` Established 40 surveillance and response units (RRUs) 66 rapid

` `

` A total of 4,265 rural livestock female farmers

Livestock Production and Development for Meat Production ` Completed more than 13,000 feed-lot fattening operations (beef and mutton) in which more than 163,000 beef animals and 200,000 mutton animals have been produced.

Processed 0.4 million samples of blood, tissues and swabs for screening against Avian Influenza Establishment of the Bio security Laboratory-3 is under process Disbursed Rs. 23.5 million as compensation to Avian Influenza affected farmers Pakistan is maintaining Avian Influenza (bird flu) free status since June 2008

` ` `

Milk Collection Processing and Dairy Production and Development Programme

33

Pakistan Economic Survey 2011-12 Improving Reproductive Efficiency of Cattle and Buffaloes in smallholder production systems ` ` Civil work of Embryo Transfer Technology Centre at Okara has been completed For strengthening and improvement of Provincial Semen Production Units (SPU) 6 Semen Quality Analyzer (SQA-VB with Test Kit) were given to SPUs in Korangi, Quetta, Khairimurat, Qadirabad, Harichand, and Karaniwala Embryo Transfer Technology Centre has produced 502,996 semen doses and 2,031 embryos from elite exotic animals for cross breeding purposes and carried out 178,318 artificial inseminations, embryo transfer has been carried out in 168 animals Provided training to artificial insemination technicians million tons was from marine production and the remaining came from inland waters. In July-March, 2010-11 the production was estimated to be 937,082 million tons, where 672,652 m. tons was marine and the remaining was produced by inland fishery sector. iii) The government is taking a number of steps to improve the fisheries sector. A number of initiatives have been taken by the federal and provincial fisheries departments which also include strengthening of extension services, introduction of new fishing methodologies, development of value added products, enhancement of per capita consumption of fish, and the upgrading of socio-economic conditions of the fishermens community. iv) Modernized Fishing Fleets: A project for the improvement of fish holds of local fishing boats was approved and four local fishing boats have been modified by the federal government (Marine Fisheries Department) as demonstration boats at a total cost of Rs. 5.0 million with the aim of assisting boat owners to modify their boats on similar lines. As a result of introducing modular boats by the MFD, boat owners have started modifying boat using their own expenses. So far, 502 boats have been modified. This shows success in the fishermen community because they have accepted and are using the technology of lining of fish holds with fiberglass coatings. (v) Resumption of Export to the EU Countries The European Union (EU) has expressed satisfaction with most of the steps taken by the government of Pakistan. However, with regard to the Hazard Analysis Critical Control Point (HACCP) of processing plants, the EU has now asked for an inspection report. MFD, in consultation with a UNIDO consultant, submitted this report on December 31, 2011. Based on this report it is hoped that fisheries exports will be resumed. The export of fish and fishery products to the European Union was suspended in April 2007. The Government has made adequate and effective efforts to resume of export to the EU.

Up gradation and Establishment of Animal Quarantine Stations in Pakistan ` A total of (5) Animal Quarantine Stations (AQS) have been up-graded in order to facilitate import/export of livestock and its products A total of 2 new AQS are being established at Khunjrab and Khokhrapar. Fishery plays an important role in Pakistans economy and is considered to be a source of livelihood for coastal inhabitants. Apart from marine fisheries, inland fisheries (based in rivers, lakes, ponds, dams) are also a very important activity throughout the country. Fisheries share in GDP is 0.3 percent. Although the contribution is very small it adds substantially to the national income via export earnings. A total of 84,498 million tons of fish and fish preparation were exported during the July-March, 2011-12. Pakistans major buyers are China, Thailand, Malaysia, Middle East, Sri Lanka and Japan. Pakistan earned US $222.8 million from these exports.

V. Fisheries i)

ii) During July-March, 2011-12 the total marine and inland fish production was estimated at 951,324 million tons, out of which 681,700 34

Agriculture In this connection, two laboratories of the Marine Fisheries Department achieved accreditation under ISO/IEC-17025 international standards and now the test report of these laboratories are recognized all over the world. Thus, the requirement of EU and SPS has been fulfilled. As mentioned above, during the tenure of the present government, more than 500 fishing boats have been upgraded; the government of Sindh contributed 75 percent, while 25 percent contribution was made by the owner to upgrade present standards. Landing sites and auction halls at Karachi Fish Harbour have also been upgraded; processing plants have rectified the deficiencies. The knowledge and skills of MFD inspectors under official watch have been enhanced. Training has also been provided to the fishermen on hygienic preservation and handling of a catch once it is onboard the fishing vessels. v) Conservation and management of marine resources MFD in collaboration with fisheries department of the government of Sindh, Fishermans Cooperative Society Ltd, Karachi Fisheries Harbour Authority and other stakeholders undertook research/experimental surveys to test different sizes of the cod-end of trawl-net being used by local fishermen. The optimal mesh size, on the basis of results of the surveys, will be selected and notified for implementation by the fishermen to ensure juveniles and/or undersized fish cannot escape from the trawl-net. Conclusions The agriculture sector continues to play a crucial role in Pakistans economy. Currently it contributes 21 percent to GDP, and provides employment to 45 percent of the countrys labour force, while 60 percent of the rural population derives its livelihoods from this sector. Despite the floods of 2011, the sector recorded a growth of 3.1 percent in 2011-12. The profitability of agriculture sector during 2011-12, remained high because the farmers received good prices for rice, cotton and sugarcane, which allowed for greater financial resources passed on to the rural economy. Recognizing the vital role the sector plays in ensuring food security, generating overall economic growth, reducing poverty and the transforming towards industrialization, the present government is determined to support the sector by promulgating policy that will continue to make agriculture an efficient, productive and profitable sector of the economy.

35

Chapter 3

Manufacturing and Mining


3.1 Introduction Manufacturing (QIM) increased by 1.05 percent against the target of 2.0 percent compared to growth of 0.98 percent during the same period last year. Due to revision of the base year as well as new industries being added, it is not prudent to compare the performance of the LSM sector on the revised base against the official growth target of 2.0 percent (Box-1).

The manufacturing sector posted a growth rate of 3.56 percent during the current fiscal year JulyMarch 2011-12 compared to 2.96 percent of the same period last year. A modest improvement was seen in Large Scale Manufacturing (LSM) in JulyMarch 2011-12 as the Quantum Index of
Box-1

The methodology to compute Quantum Index of Manufacturing (QIM) has been revised during the current fiscal year. This includes rebasing, addition of new industries and revision of weights. Important Changes can be gauged from the table below. Previous QIM Base Year 1999-00 Weight derived from the Census Manufacturing Industries (CMI) 2000-01 Rebased QIM Base Year 2005-06 Weight derived from the Census of Manufacturing Industries (CMI) 2005-06 using UN International Standard Industries Classification (ISIC) Rev 3.1 Cumulative weight of 70.332 percent for 112 items is being used for computation of QIM

of

Cumulative weight of 75.075 percent for 100 items is being used for computation of QIM

Comparison of Weights CMI 2000-01 Sources MOIP/1 OCAC


/2

CMI 2005-06 Weights (%) 44.446 5.232 25.397 75.075 Sources MOIP/1 OCAC
/2

No of Items 35 11 54 100

No of Items 36 11 65 112

Weights (%) 49.556 5.410 15.366 70.332

BOS/3 All
/1 /2

BOS/3 All

: Ministry of Industries and Production : Oil Companies Advisory Committee /3 : Bureau of Statistics (Provincial)

37

Pakistan Economic Survey 2011-12 Statistics 65 items respectively have contributed in LSM growth as -0.26 percent, 0.75 percent and 0.55 percent.

The production data received from the Oil Companies Advisory Committee (OCAC) comprising of 11 items, Ministry of Industries and Production 36 items and the Provincial Bureau of
Fig 3.1: LSM Growth rates (Y-o-Y)
15.0 10.0

Growth rate

5.0 0.0 -5.0 -10.0 June-11 Oct-10 Feb-11 Oct-11 Aug-10 Nov-10 Aug-11 Sept-10 May-11 Sept-11 Nov-11 Mar-11 Apr-11 Feb-12 Jan-11 Jan-12 Jul-10 July-11 Mar-12 Dec-10 Dec-11

Source: Pakistan Bureau of Statistics

The growth rate in Large Scale Manufacturing (LSM) has recovered, largely due to good performance among the sub categories such as food, beverages and tobacco, paper and board, textile, non-metallic mineral products, pharmaceutical and leather products compared to negative growth seen during the second quarter of the current fiscal year. The Year to Year positive growth during the start of current fiscal year (JulySep) can be partially attributed to export demand which has increased the production in the short run. Dismal performance was seen in the winter season (Oct-Dec) which was due to persistent gas shortages. Moreover, agro-based industries which were recovering from the impact of the floods of 2010, was again hit by another natural calamity in the form of heavy rains in Sindh during August 2011. The cotton crop is most vulnerable to floods and almost all major sugarcane producing districts were affected but losses to sugarcane were lower as the crop is relatively resilient to flooding. The floods also damaged industrial supply networks and rural demand and this coupled with severe power and natural gas shortages led to a number of

key industries (textile, fertilizer, steel, glass etc) not operating at expected levels. LSM production began to revive in December 2011 as the impact of flood began to subside. A remarkable growth of 6.0 percent was witnessed in Feb-2012. This could also be attributed to the beneficial effect of specific policies on large scale industry. Effective fiscal policy helped in revitalizing the growth to some extent due to reduction in duties on beverages, automobiles, cement and air conditioners. This step was necessitated in view of the costly input prices and the need to absorb the volatility in the production of these industries. In addition, the growth in agrobased industries was based on increase in cotton (Punjab) and sugarcane production during the current fiscal year. In March 2012, the year to year performance of the sector turned negative by registering a decline of 3.7 percent owing to prolonged power and gas shortages. Group-wise Performance The group-wise analysis (Table 3.1) indicates some of the groups in the Large Scale

38

Manufacturing and Mining Manufacturing (LSM) experienced a positive growth during the first nine months (July-March) of the current fiscal year. The groups showing substantial increase include pharmaceutical (10.89 percent), paper and board (8.38 percent), wood
Fig 3.2: LSM growth rate (Annual Basis)
12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00 -4.00 -6.00 -8.00 9.49 6.02 1.51 1.05

product (7.39 percent), food beverages and tobacco (6.53 percent), non-metallic mineral products (2.87 percent), leather product (1.76 percent) and textile (0.77 percent).

0.33

-5.98

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12 (July-Mar)

Source: Pakistan Bureau of Statistics

The sectors showing a decline in production during July-March, 2011-12 were iron and steel products (28.47 percent), rubber products (24.63 percent), engineering products (10.19 percent), electronics (7.88 percent), coke and petroleum products (5.68 percent), chemicals (4.70 percent), automobiles (0.84 percent) and fertilizers (0.42 percent). The performance of LSM production for the remaining period of 2011-12 augurs well due to the

improvement in some other external factors such as higher textile export, better marketing strategies in smaller food processing industries and the governments supportive policies for tractors, wheat milling and pharmaceutical industry. The group wise growth and the contribution of each of the LSM for the period July-March 201011 versus July-March 2011-12 is presented in Table-3.1.

Table 3.1: Group-wise Growth and Points Contribution rate of LSM for the month of July-March 2011-12 vs. July- March 2010-11 % Change % Point Contribution July-March July-March S.No Groups Weights 2010-11 2011-12 2010-11 2011-12 1 Textile 20.91 0.7 0.8 0.15 0.16 2 Food, Beverages & Tobacco 12.37 14.0 6.5 1.73 0.81 3 Coke & Petroleum Products 5.51 -4.6 -5.7 -0.25 -0.31 4 Pharmaceuticals 3.62 1.3 10.9 0.05 0.39 5 Chemicals 1.72 -2.5 -4.7 -0.04 -0.08 6 Automobiles 4.61 11.9 -0.8 0.55 -0.04 7 Iron & Steel Products 5.39 -10.3 -28.5 -0.56 -1.53 8 Fertilizers 4.44 -9.2 -0.4 -0.41 -0.02 9 Electronics 1.96 -14.4 -7.9 -0.28 -0.15 10 Leather Products 0.86 17.4 1.8 0.15 0.02 11 Paper & Board 2.31 -2.3 8.4 -0.05 0.19 12 Engineering Products 0.40 -9.5 -10.2 -0.04 -0.04 13 Rubber Products 0.26 9.2 -24.6 0.02 -0.06 14 Non-Metallic Mineral Products 5.36 -9.6 2.9 -0.51 0.15 15 Wood Products 0.59 6.9 7.4 0.04 0.04 Source: Pakistan Bureau of Statistics

39

Pakistan Economic Survey 2011-12 juices, syrups and squashes (26.68 percent), heavy machinery & equipment (20.99 percent), sugarcane machine (19.24 percent), electric tubes (17.86 percent), kerosene oil (14.56 percent), liquids/syrups (14.09 percent), footwear (6.15 percent) and LPG (3.44 percent). An Item wise review of production of selected items in Large Scale Manufacturing during JulyMarch 2011-12 is presented in Table 3.2.

Growth was mainly derived from consumer goods. Food and pharmaceuticals showed the strongest contribution. In addition, intermediate goods such as building materials, fertilizers and petroleum products posted a modest contribution in overall LSM performance. Some important items wise contribution in Large Scale Manufacturing growth witnessed in generating sets (143.88 percent), blankets (109.87 percent), electric transformer (31.15 percent),

Table-3.2 : Production of selected industrial items of Large Scale Manufacturing July-March % Change % Point S.No. Items Unit Weight (Jul-Mar) Contribution 2011-12 (Jul-Mar) 2011-12 2010-11 2011-12 1 Deep Freezers (Nos.) 0.16 67380 35316 -47.59 -0.08 2 Jeep & Cars (Nos.) 2.80 101532 110430 8.76 0.25 3 Refrigerators (Nos.) 0.24 690236 737146 6.80 0.02 4 Upper Leather (000 sq.m.) 0.39 19324 18350 -5.04 -0.02 5 Cement (000 tones) 5.30 20814 21410 2.86 0.15 6 Liquids/Syrups (Milion Liters) 1.10 62.456 71.259 14.09 0.16 7 Phosphatic fertilizer (000 N tones) 0.40 385.313 359.344 -6.74 -0.03 8 Tablets (Milion Nos) 1.90 15848.369 17550.617 10.74 0.20 9 Cooking oil (000 tones) 2.20 228.649 228.834 0.08 0.00 11 Nitrogenous fertilizer (000 N tones) 4.04 1667.918 1674.972 0.42 0.02 12 Cotton Cloth (Million sq.m.) 7.20 764.480 769.600 0.67 0.05 13 Vegetable Ghee (000 tones) 1.10 816.924 829.434 1.53 0.02 14 Cotton Yarn (000 tones) 13.00 2200.41 2225.31 1.13 0.15 15 Sugar (000 tones) 3.50 3892.141 4485.592 15.25 0.53 16 Tea Blended (000 tones) 0.40 50.783 57.511 13.25 0.05 17 Petroleum products (Milion Liters) 5.50 8427.809 8046.298 -4.53 -0.25 18 Cigarettes (Billion Nos.) 2.10 47.458 45.674 -3.76 -0.08 19 Coke (000 tones) 0.10 218.824 138.616 -36.65 -0.04 20 Pig iron (000 tones) 1.58 326.675 195.81 -40.06 -0.63 Source: Pakistan Bureau of Statistics

The country has been faced with energy shortages due to which the utilization capacity remained low (Box-2). Nevertheless capacity in the local industry and expected domestic demand based on

high consumption trends remained the driving force in helping to stimulate revival. However, alternate energy sources in the long run could help to further foster growth in the industrial sector.

40

Manufacturing and Mining


Box-2 LSM Data Annual Installed & Utilized Capacity of 37 Items S.No Items Unit of Annual 2010-11 (July-June) 2010-11 (July-Jan) Measure Installed Capacity % Age Capacity % Age Capacity Utilization Utilization Th. Tones 6,800 4,169 61.31 2,266 74.98 Min Nos 96,187 65,403 68.00 34,521 61.52 Th. Kgs 3,240,400 3,939,480 90.71 1,734,630 91.77 Th. M2 12,644,000 9,008,980 71.25 5,320,100 72.13 Tones 24,000 18,218 75.91 10,986 78.47 Tones 120,000 62,630 52.19 34,261 48.94 Tones 36,000 12,326 34.24 7,041 33.53 Tones 900,000 434,740 48.30 288,309 54.92 27,464 378,048 172,031 6,026,611 13,342 28,716 343,205 301,701 433,104 3,913 358,597 87,946 2,720 153,997 3,300 70,855 1,638,457 28.91 75.61 74.59 82.96 18.79 69.22 49.03 31.10 35.21 0.59 45.28 41.88 2.72 55.00 13.20 94.47 55.81 16,844 214,135 99,665 3,532,812 8,107 16,421 135,307 106,647 158,230 1,403 117,235 16,628 94,076 1,715 14,896 962,665 30.40 73.42 74.08 83.37 19.57 67.86 33.14 18.85 22.05 0.36 25.38 13.57 0.00 57.60 11.76 34.05 56.22

1 2 3 4 5 6 7 8-11

Sugar Cigarettes Cotton Yarn Cotton Cloth Jute Hessian Jute Sacking Jute Others Paper & Paper Board 12 Chip Board Tones 95,000 13 Sodah Ash Tones 500,000 14 Caustic Soda Tones 230,650 15-21 Fertilizer Tones 7,264,700 22 Glass Sheet Th.M2 71,000 23 Cement Th. Tons 41,484 24 Bicycles Nos 700,000 25 Coke Tones 970,000 26 Pig Iron/H. Metal Tones 1,230,000 27 Cast / Rolled Billet Tones 660,000 28 Hr. Coils/ Plates Tones 792,000 29 Cr. Coils Tones 210,000 30 Glav. Products Tones 100,000 31-33 Cars/LCVs/Jeeps Nos 280,000 34-35 Trucks/Buses Nos 25,000 36 Tractors Nos 75,000 37 Motor Cycles Nos 2,935,525 Source: Ministry of Industries and Production

3.2

Textile Industry

The textile industry plays a pivotal role in Pakistan's economy. The contribution of the textile industry in total exports is around 54 percent of the total export earnings of the country. It is a labourintensive industry and offers entry-level jobs for unskilled labour. Job creation, especially in the clothing sector, has been particularly strong for women, who previously had limited income opportunities outside the household or the informal sector. The textile and clothing industry accounts for 46 percent of the total manufacturing and provides employment to 38 percent of the manufacturing labour force. The availability of basic raw material for the textile industry i.e. cotton, has played a significant role in the growth of the industry because of which Pakistan has been

able to prove its strength in the world by sustaining its position and growth. Global Overview The international statistics report on export of textile and clothing trade indicates some signs of recovery in this sector after the global financial meltdown in 2008-09. The exports of textile and clothing trade has increased from US$ 524.0 billion in 2009 to US$ 602.2 billion in 2010; an increase of 14.7 percent. The export of Pakistan textile and clothing trade has also shown positive signs, increasing from US$ 9.9 billion in 2009 to US$ 11.8 billion in 2010, an increase of about 20 percent. In 2010 China became the major exporter of textiles, pushing the European Union into second 41

Pakistan Economic Survey 2011-12 place. India recorded a 40 percent increase in its exports of textiles in 2010 to become the third largest exporting nation, just ahead of the United States. Chinas share in world exports of clothing increased to 37 percent in 2010, rising from 18.3
Table 3.3: Export of Textile and Clothing 2000 2004 World Textile 157.3 195.5 World Clothing 197.7 260.6 Total:355.0 456.1 Pakistan Textile Pakistan Clothing Total % Age of World Trade Source: Ministry of Textile 4.5 2.1 6.7 1.88 6.1 3.0 9.1 2.01

percent in 2000, while its share in the countrys total exports declined to 8.2 percent, from 14.5 percent in 2000. Among the major exporters of clothing, India registered a decline of 3.1 percent.

2005 202.7 276.8 479.5 7.1 3.6 10.7 2.23

2006 220.4 309.1 529.5 7.5 3.9 11.4 2.15

2007 240.4 345.8 586.2 7.4 3.9 11.2 1.91

2008 250.2 361.9 612.1 7.2 3.9 11.1 1.81

(US $ Billions) 2009 2010 209.9 250.7 315.1 351.5 524.0 602.2 6.5 3.4 9.9 1.88 7.8 3.9 11.8 2.00

Domestic Overview Domestically Pakistan is facing problems of shortage of electricity, gas and law and order situation. The unscheduled/scheduled load shedding along with increasing rates of gas and electricity have obstructed the viability of the textile industry as exporters are unable to meet their commitments. Besides this, high interest rates of bank financing have also hindered new investments in the textile industry and layoffs and closures have become common in the industry.

Performance of Textile Industry The textile industry of Pakistan has the potential to perform better both in production as well as in export by virtue of its inherent competitiveness on account of its conventional products. However, to sustain its position and increase its share and to move into high value added products, large investments in machinery equipment and new technology are essential. The training of workers, improvement in labour productivity, research and development, product diversification and branding are the immediate areas to focus on. The export performance of this industry is reported in Table 3.4.
(US$ Millions) 2011-12 (Jul-Mar) 8513 395 95 9063 16913 54%

Table 3.4: Export of Pakistan Textiles 2006-07 Cotton & Cotton Textiles Synthetic textiles Wool & Woolen Textiles Total Textiles Total Exports Textile as %age Source: Ministry of Textile 10390 430 233 11053 17011 65% 2007-08 10071 490 216 10777 19224 56% 2008-09 9308 319 145 9772 17782 55% 2009-10 9754 446 137 10337 19290 54% 2010-11 13104 670 132 13906 24827 56%

3.2.1 Ancillary Textile Industry The ancillary textile industry includes cotton spinning, cotton cloth, cotton yarn, cotton fabric, fabric processing, home textiles, towels, hosiery and knitwear and readymade garments. These 42

components are being produced both in the largescale organized sector as well as in the unorganized cottage/small and medium units. The performance of these various ancillary textile industries is discussed below.

Manufacturing and Mining (i) Cotton Spinning Sector The spinning sector is the most important segment in the hierarchy of textile production. At present, as per the record of Textile Commissioner Organization (TCO), it is comprised of 521 textile units (50 composite units and 471 spinning units) with 9.99 million spindles and 116 thousand rotors in operation with capacity utilization of 89 percent and 60 percent respectively, during July March, 2011-12. Clothing Sector The pattern of cloth production is different from that of the spinning sector. Usually production of cloth in the mill sector is reported and the nonmills sector is not reported. For the non-mills sector, therefore, estimated numbers are taken as proxy. The production of cotton cloth has increased substantially. This sector served as the main strength for the down stream sectors such as bed wear and made-ups and garments. The following table presents the production and export performance of the cloth sector.
July-Mar 2011-2012 769.600 5975.850 6745.450 1412.963 1709.961 % age Change 0.67 0.07 0.14 9.12 -0.369

Table 3.5: Production and Exports of Clothing sector Production July-Mar (M. Sq. Mtrs.) 2010-2011 Mill Sector 764.480 Non Mill Sector 5971.650 Total 6736.130 Cloth Exports Quantity (M.Sq Mtr.) 1294.863 Value (M.US$) 1716.300 Source: Ministry of Textile

(ii) Textile Made-up Sector This is the most dynamic segment of the textile industry. The major product groups are towels,
Table 3.6: Exports of Made-Ups 2011-2012 (July Mar) Hosiery Knitwear Quantity (M.Doz) Value (M.US$) Readymade Garments Quantity (M.Doz) Value (M.US$) Towels Quantity (M.Doz) Value (M.US$) Tents/Canvas Quantity (M.Doz) Value (M.US$) Bed Wears Quantity (M.Doz) Value (M.US$) Other Made up Value (M.US$) Source: Ministry of Textile

tents and canvas, cotton bags, bed-wear, hosiery and knitwear, and readymade garments including fashion apparels. Export performance of the madeup sector is presented in Table 3.6.

2010-2011 (July-Mar) 100.451 1276.722 25.455 1276.722 149.224 580.448 9.221 29.260 243.051 1556.984 508.768

% Change -24.96 -4.75 -22.45 -4.75 -31.98 -15.88 96.71 130.37 -22.49 -12.87 -17.68

75.383 1216.120 19.741 1216.120 101.508 488.273 18.139 67.406 188.385 1356.656 418.802

43

Pakistan Economic Survey 2011-12 a) Hosiery Industry There are about 12,000 knitting machines all over the country. There is greater reliance on this industry due to the substantial value addition in knitwear. This sector has tremendous export potential also. However the sector remained under pressure from its competitors.
Table 3.7: Export of Knitwear
(July Mar) 2011-2012 (July Mar) 2010-2011 % Change

Table 3.8: Exports of Tent & Canvas Industry


(July Mar) 2011-2012 (July Mar) 2010-2011 % Change

Quantity 18.139 (000 Doz) Value 67.406 (M.US$) Source: Ministry of Textile

9.221 29.460

96.71 130.37

iv) Art Silk and Synthetic weaving industry The art silk and synthetic weaving industry has developed as a cottage industry over the time based on power looms. Units comprising of 0-10 looms are spread all over the country. The major concentration is in Karachi, Faisalabad, Gujranwala and Jalalpur Jattan as well as in the unsettled areas (Bara, Swat, Khyber Agency and Waziristan). During 2011-12 (July-March), production of synthetic fabric recorded at 1,311,550 million square meters as compared to 1,478,571 million square meters during the same period last year, showing a decrease of 11.3 percent. v) Woolen Industry The main products manufactured by the woolen industry are woolen yarn 6.864 M.kgs, acrylic yarn 6.960 M.kgs, fabrics 3,445 (M.sq.meter), shawls 13.353 million, blanket 657,235, and carpets 3.5 (M.Sq.meter). The exports of carpets during the period July to Mar 2011-12 is as below Table 3.9.
Table 3.9: Exports of Carpets and Rugs (Woollen)
(July Mar) (July Mar) 2010-2011 2011-2012 % Change

Quantity 75.383 (000 Doz) Value 1534.662 (M.US$) Source: Ministry of Textile

100.451 1726.139

-24.96 -11.09

b) Readymade Garment Industry The garment industry provides highest value addition in the textile sector. The industry consisted of small, medium and large scale units most of them having 50 machines and below. Large units are now coming up in the organized sector of the industry. During July-March 2011-12, readymade garments worth $ 1.2 billion were exported compared to $ 1.3 billion in the comparable period of last year, thus showing a decline of 4.8 percent. In quantity terms the decline in the exports of readymade garments was 22.5 percent. c) Towel Industry During July-March 2011-12, exports in this sector stood at $ 488 million as against $ 580 million in the comparable period of last year; showing a decrease of 15.9 percent. Quantity exported declined by 31.9 percent. d) Canvas This is the highest raw cotton consuming sector. The production capacity is more than 100 million sq. meters. This value-added sector also has great potential for export. Nearly 60 percent of its production is exported while 40 percent is consumed locally mostly by the armed forces. Pakistan is the cheapest source of tents and canvas.

Quantity 2.123 (M.Sq.Mtr) Value (M.US$) 96.078 Source: Ministry of Textile

2.512 95.305

13.61 0.80

vi) Jute Industry The main products manufactured by the jute industry are jute sacks and Hessian cloth, which are used for packing and handling of wheat, rice and food grains. During 2011-12 (July-March), no change has been recorded in spindles installed capacity whereas single addition has been recorded in the looms installed capacity compared to last

44

Manufacturing and Mining year. However, negative growth was observed in the working capacity of both spindles and looms during the current fiscal year. Table 3.10 shows the installed and working capacity of the industry during the period under review.
Table 3.10: The installed and working capacity of jute industry
(July Mar) 2010-11 (July Mar) 2011-12 % Change

planning to prepare a growth strategy with active participation of all stakeholders in order to touch the export target of US$ 500 million by 2015. The electric fan industry is mainly clustered in Gujrat and comprises of more than 2,000 small and medium enterprises. The industry is not only fulfilling local demand for domestic fans of various categories but is also earning handsome foreign exchange besides providing ample employment opportunities. A number of measures have been taken during 2011-12 and are currently underway to facilitate the industry to produce domestic fans at par with internationally accepted standards. The Fan Development Institute (FDI) is also being updated with the cooperation of the Pakistan Council for Science and Industrial Research (PCSIR). In addition to projecting the engineering image of Pakistan, the EDB has initiated the compilation of the Engineering Goods and Services exporters Directory of Pakistan 2012. The directory shall have the complete profile of the Exporters and shall be circulated to Pakistans Foreign Missions, Foreign Chambers of Commerce and the EDBs International support partners in the potential markets. 3.3-2 Automobile Industry The four sectors of the automobile industry have shown mixed trends of growth during the year July-March 2011-12. The industry seems to be less buoyant in comparison with the corresponding period of last year 2010-11. Buses, cars, LCVs and two/three wheelers managed to grow by 23 percent, 9.1 percent, 5.7 percent and 3.1 percent respectively compared to 24.7 percent, 16.4 percent, 20.5 percent and 12.6 percent respectively during the same period last year. A larger decline was witnessed in tractor production which was recorded at 48 percent compared to negative growth of 2.2 percent. During the start of the current fiscal year, production of tractors declined substantially by almost 70 percent after the imposition of the 16 percent general sale tax (GST) in April 2011. Following the governments announcement to cut GST from 16 percent to 5 percent production

Spindles Installed Spindles Worked Looms Installed Looms Worked

36076 27697 1851 1129

36076 24279 1852 1047

0% -12% 0.1% -7%

Source: Ministry of Textile

The production of jute goods for the period of July Mar. 2010-11 and 2011-12 was 92,666 M. ton and 98,753 M. ton respectively, showing an increase of 6.6 percent. 3.3 Other Industries

Although Pakistans exports are mostly confined to cotton and textile products in the international market, there are other industries as well which progressed rapidly and also contributed to the manufacturing sector.
3.3-1 Engineering Sector The engineering industry in Pakistan has enjoyed some success as a result of some really hard work. The increasing competition that the international market presents has been challenging. Engineering Development Board (EDB) is the apex government body entrusted with strengthening the engineering base of Pakistan. Its main objective is to maintain international standard in the field of engineering goods and services. The EDB has taken initiatives to boost the production of the surgical industry and electric fan Industry. The current capacity in the surgical sector is under utilized. During 2011-12 (July-March), exports of surgical goods and medical instruments reached US$ 221 million compared to US$ 186.7 million during the same period last year. The EDB is

45

Pakistan Economic Survey 2011-12 figures have started to recover. The two other components of the automotive industry such as jeeps and trucks also showed dismal performance by registering negative growth of 44 percent and 6.8 percent respectively. The table given below presents the comparative analysis of the sector.

Table 3.11: Production of Automotive Industry Installed 2010-11 Products Capacity (July-March) Cars 240,000 100,870 LCVs 43,900 14,159 Jeeps 5,000 662 Buses 5,000 357 Trucks 28,500 2,031 Tractors 65,000 51,664 Two/Three Wheelers 1,800,000 602,268 Source: Pakistan Automotive Manufacturing Association (PAMA)

2011-12 (July-March) 110,059 14,971 371 439 1,893 26,840 620,741

% Change 9.1 5.7 -44.0 23.0 -6.8 -48.0 3.1

The potential demand for vehicles in the economy is helping to grow the industry but it is highly dependent on the long term policy commitments. The term of the current Auto-industry Development Program is expiring on June 30th 2012. The governments commitment with the industry would reflect in a new program which may bring new hope and opportunities for growth. It may be added that the forthcoming opening up of trade with India would bring new opportunities as well as challenges for the auto-industry and thus a transformation is inevitable. 3.3-3 Fertilizer Industry The fertilizer industry, being provider of one of the key inputs for crop production, has significant importance in the countrys economy. At the beginning of 2011-12, it was assumed that the country will attain self-sufficiency at least in urea availability because of the operationalizing of two new plants. This has added annual production capacity of 1.8 million tonnes to the national installed capacity taking it to 6.3 million tonnes per annum. However, due to the curtailment of natural gas (the raw material for urea manufacturing), some urea plants produced substantially less than their production capacity. As a result 1.6 million tonnes of urea had to be imported by the government during 2011-12 to meet the deficit. Hence, in addition to spending foreign exchange for imports, the government had to pickup the price difference to equalize the prices of domestic and imported urea; and for this purpose, it is

estimated that the government spent around Rs. 45 billion as fertilizer subsidy in 2011-12. The fertilizer sector is the second largest consumer of gas after the power sector. Natural gas is used as feedstock as well as fuel in the manufacturing of nitrogenous fertilizers. Three companies namely Sui Northern Gas Pipeline Limited, Sui Southern Gas Company Limited and Mari Gas Company Limited are providing gas to the fertilizer sector. The intensity of the prevailing energy crisis specifically in relation to the supply of natural gas to supply curtailment (20 percent on Sui Network plants and 12 percent on Mari Network) to the fertilizer industry since May, 2010, has meant that the winter load shedding has increased from normal 45 days to 60 days. And on the SNGPL system the rotational load management (shedding) of 15 days for fertilizer plants has also been observed. This policy of gas supply is adversely affecting domestic production of fertilizer and resulting in a price hike and increase in the import bill. Smooth supplies of natural gas to urea plants are essential to run the plants at 100 percent of their installed capacity for making urea available (as per requirement) at stable/affordable prices and for avoiding its import. 3.3-4 Cement Industry The cement production capacity in Pakistan has increased to 44 million tonnes in 2011-12 from 30 million tonnes in 2006-07 due to the establishment of new cement plants. Pakistans cement is being exported to Afghanistan, India, Africa, and Middle

46

Manufacturing and Mining East. Export of cement is exempted from the Sales Tax and Federal Excise Duty (FED). However, a 16 percent sales tax and the Rs. 500 per ton Federal Excise Duty are being charged on the domestic consumption. The import of coal used as fuel for the cement plants is allowed at 0 percent customs duty and 16 percent sales tax. As per the investment policy of the government, the import of
Table 3.12: Supply (Million tonnes) Years Production Capacity Capacity Utilization(% age) 2006-07 30 80 % 2007-08 37 82 % 2008-09 42 75 % 2009-10 45 77 % 2010-11 41 76 % 2011-12 44 70% (July-Dec) Source: Ministry of Industries

plant machinery and equipment for the manufacturing sectors is allowed at 5 percent customs duty. The key factors hindering the overall production capacity of cement industry are the energy crises and demand and supply mechanism. Table-3.12 presents the production and utilization capacity along with the total production of cement.

Local Market (Cement) 21 22 20 23 22 11

Export (Cement + Clinker) 3 8 11 11 9 4

Total Production 24 30 31 34 31 15

3.5: Privatization Programme Pakistans privatization program was initiated in the early 1990s to demonstrate the governments high priority to private sector development. Pakistans privatization program was the most successful program in the whole of South Asia, Central Asia and the Middle East as it successfully managed to complete approximately 167 privatization transactions, generating revenue of over US$ 9 billion. The last privatization transaction completed by the Privatization Commission was Hazara Phosphate and Fertilizers Limited (HPFL) in November 2008. Thereafter, the privatization program entered into an extended lean period due to domestic and global challenges. Domestically, unstable law and order situation and negative economic outlook adversely affected the investment climate in the country. Internationally, the global financial crisis of 2008 and the on-going Euro zone sovereign debt crisis affected the flow of investment into the country. It may be noted that the privatization program cannot be conducted in isolation and is highly dependent on both the domestic and international regulatory, financial, economic and political environment. Despite the challenges, the government had re invigorated the privatization program by focusing

on a policy of Privatization for the People. Under this program a renewed focus is placed on domestic capital market listings. Despite many challenges, the Privatization Commission is actively pursuing a capital market road map, which includes a secondary public offering of Pakistan Petroleum Limited and an Exchangeable Bond for the Oil and Gas Development Company Limited. The transactions will be launched in the near future subject to market conditions. The Privatization Commission, besides conducting privatization through the capital markets, is also exercising the traditional privatization mode i.e. the strategic sale of two entities, the National Power Construction Company (NPCC) and Heavy Electrical Complex (HEC). The transactions are at an advanced stage and the privatization process is expected to be completed soon subject to market conditions. In addition, the Ministry has also initiated a landmark program for empowerment of employees of public sector entities in the form of the Benazir Employees Stock Scheme (BESOS), offering 12 percent stock options to employees of 78 public organizations. It is expected that approximately 500,000 employees of 78 SOEs will benefit from this scheme. So far, Trusts have been registered in 64 entities. Out of these, Unit Certificates have 47

Pakistan Economic Survey 2011-12 been distributed to 142,756 employees of 50 entities. The total dividend received from the Trusts of 11 entities stands at Rs. 6.79 billion (approx.) out of which 50 percent has been distributed among employees of respective entities and the remaining 50 percent has been transferred to the Central Revolving Fund (CRF) of the Privatization Commission (PC). Buyback claims received till date stand at Rs. 4.45 billion, out of which Rs. 1.160 billion has been paid. 3.6: Small and Medium Enterprises SME-led economic growth has become the hallmark of economic prosperity and general wellbeing in the world. SMEs are globally recognized as critical for economic development and poverty alleviation. In Pakistan, nearly 99 percent of economic establishments are SMEs; absorbing 80 percent of unskilled labor. These SMEs are collectively providing undeniable support to economic growth by contributing 40 percent to GDP and 30 percent to the exports from the manufacturing sector. To further boost its significance in the economic development process the government has introduced various initiatives to promote SME-led economic growth with the dual aim to accelerate industrial development and export diversification. Most important of these initiatives include approval of the first SME Policy of Pakistan and Infrastructural Development through Public Sector Development Program. In addition to these, SMEDA as a government agency for SME development has been involved in various activities such as providing over the counter services to SMEs, helpdesk facilitation, human resource development, technological up gradation and infrastructural support. Parallel to infrastructural support, SMEDA, in collaboration with international agencies like Japan International Cooperation Agency (JICA), Deutshe Gesellshaft Fur Internationale Zusammenarbeit (GIZ), Senior Experts Services (SES, Germany), Asian Productivity Organization (APO) and local experts, is providing technical assistance to SMEs in the relevant industrial units to upgrade their skills and improve systems. During July-March 2011-12, 27 industrial units have been the direct beneficiaries of this programme; whereas, 16 technical training workshops, seminars and awareness sessions were conducted. Major sectors facilitated under the Industry Support Programme are: textiles (spinning, weaving processing, garments, sportswear and apparel), auto parts, electric fans sector and furniture sector across the country. The factors that impede development of the SME sector in Pakistan are well-known. However, lack of support of concrete data and quantifiable research are making the task of securing attention of policy makers and key government stakeholders difficult. During 2011-12, SMEDA took the initiative of bridging this information gap through publication of the SMEDA Research Working Papers Series. 3.7: Mineral Sector The production of minerals are important for the growth of mineral based industries due to their use in the other sectors of the economy such as energy minerals-coal; agriculture mineralsrock phosphate, gypsum; construction mineralslimestone, natural stones, pozzolana etc. The most significant benefits to be derived from an expansion of the mineral sector activities are: expansion of employment opportunities; expanding business opportunities for local industries; increase revenue flow to the provincial and federal governments; technology transfer; and regional infrastructure development. Pakistan has a widely varied geological framework, ranging from Pre-Cambrian to the present that includes a number of zones hosting several metallic minerals, industrial minerals, precious and semi-precious stones. The government has extended special incentives for mineral development through public and private investment and facilitating private sector to contribute in this sector. To revive industrial growth, a 100 MW power plant was established by using Thar coal deposits based on underground coal gasification, which would convert into 1000 MW power plant. Efforts are for exploration and evaluation of coalfields in Sindh and Balochistan. These studies are aimed at enhancing the coal resource base, supplement power generation, and

48

Manufacturing and Mining substitute furnace oil in different industrial units in the country. The indigenous problems faced by this sector are inadequate provision of the geological data base, limited mining experience and inadequate capital resources and finally the lack of infrastructure and security in geological promising areas. The future programmes in the sector are: Reko Diq Cooper Gold Prospects; utilization of indigenous Iron ore resources at Nokkundi and Dilband area; exploring the hidden resources through private/multinational investment and, up gradation/strengthening of Geosciences advance Research labs.

49

Chapter 4

Fiscal Development
The importance of a prudent fiscal policy cannot be overruled as it supports economic activity through sustainable growth and poverty alleviation. The effective implementation of the policy endeavors to mobilize resources through taxes and public savings, which can fund much needed public goods and services. It also helps to correct fiscal imbalances as well as promote investment and growth by optimal allocation of resources and through improving the tax system. Consequently, a well structured fiscal policy ensures rapid economic growth and development in the country. The global financial crisis and the policy responses of the governments around the world exemplified the potential role for fiscal policy to stabilize the global economy and to avert an employment collapse of the type witnessed during the great depression. However the current global economic environment is characterized by a fragile financial system, high public deficits and mounting debts. Global output is expected to increase by only 3.5 percent in 2012 as compared to 4 percent in 2011 on account of the significant rise in sovereign vulnerabilities and deteriorated financial conditions in the advanced countries1. Going forward, the emerging and developing countries are also expected to witness sluggish growth due to the worsening external environment and the weakening of internal demand. Accordingly, sustained adjustment, ample liquidity and easy
1

monetary policy and most importantly restoration of confidence are urgently required for sustained economic recovery. Pakistans economy, which largely remained impervious to the global financial crisis due to its lower exposure to international finance, faced multifaceted challenges on external and internal fronts mainly campaign against extremism, unstable law and order situation, lingering energy shortages and non materialization of external inflows. Additionally the unprecedented calamity of floods in 2010 and torrential rain in Sindh in 2011 contributed further stress on the economy. However, the fiscal situation was well contained. Efforts to manage the fiscal deficit within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises (Box-1) have yielded results. The fiscal deficit declined from 7.6 percent in FY08 to 5.9 percent in 2010-11. In 2011-12 the fiscal deficit was projected to be 4 percent of GDP (Rs. 851 billion). Nevertheless, during the course of the period the projection for fiscal deficit has been revised to 4.7 percent. However, achievement of this revised target depends crucially on the realization of the envisaged surpluses from provincial governments, the non-tax revenues which depends on inflows into the Coalition Support Fund, and strict control over expenditures.

Global Economic Outlook , April, 2012

51

Pakistan Economic Survey 2011-12


Box-1 Snapshot of Current Economic Reforms in Pakistan The government has undertaken various economic and financial reforms for economic stabilization. These include:I. Expenditure Management Strategy through, ` Containing fiscal deficit ` Elimination of general subsidies, to be replaced by targeted subsidies ` Restructuring of public sector enterprises ` Power sector reform Improving domestic resource mobilization through, ` Harmonization of tax administration ` Strengthening risk based audits ` Improving efficiency of tax administration ` Broadening of tax base Achieving economic efficiency through devolution through, ` Transfer of concurrent subjects to provinces ` Equitable resource transfer to provinces Strengthening social safety nets through, ` Benazir income support program ` Bait-ul-Mal ` Disaster management

II.

III.

IV.

In order to maintain the budgetary allocation of the development program a number of steps have been initiated such as curtailing the expenditure on traveling allowance, stationery, entertainment, advertisement, repair/maintenance and utilities by 20 percent of the budget estimates. It is also worth mentioning that as a part of the austerity measures, the federal government has implemented the Compulsory Monetization of Transport Facility for Civil Servants in BS-20 to BS-22 which will be help to save Rs. 1.3 billion per annum. From

these measures an amount of Rs. 5.366 billion is expected to be saved during the financial year 2011-12. In addition, to create more fiscal space through the expansion of the tax base, various tax measures have been taken such as an exclusive and dedicated directorate general has been created specifically for broadening of tax base (BTB). In this regard a nationwide BTB campaign is in progress. Similarly sales tax exemptions and zero ratings have been withdrawn for all major items except food items, health, education and agricultural produce (Box-2).

Box-2 Revenue Measures The government introduced reform initiatives through presidential ordinance and withdrawal of SRO based exemptions; amendments were made in the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005. These measures were effective from 15th and 16th March, 2011 to meet the growing need of flood affected people and to reach the assigned target. These reforms include: ` ` 15 percent surcharge on income and advance taxes Increase in the rate of special excise duty from 1 percent to 2.5 percent, however special excise duty was abolished in 2011-12

52

Fiscal Development
Withdrawal of special regime of assessable price for levy of GST at 8 percent on actual value of sugar Removal of SRO based exemptions from fertilizer, pesticides, tractor and elimination of zero rating from plants, machinery and equipment ` Restriction of zero rating to registered person for export of textile, leather, carpets, sports goods and surgical goods. Source: FBR ` `

These measures yielded a total of Rs. 29.4 billion during 2010-11. The withdrawal of exemptions and the left over amount of 15 percent flood relief surcharge contributed an additional amount of around Rs. 50 billion during July-March, 2011-12. Fiscal Policy Development Tax as a major source of revenue and growth plays a vital role in building up institutions and markets. A good tax system not only helps in equitable distribution of economic benefits for social justice but also attracts investment at all levels of business activities. The absence of an efficient tax system

discourages well documented investment and compels the country to rely on continuous borrowing from internal and external sources to finance the budgetary deficit, which may crowd out private investment. For more than a decade now the low tax to GDP ratio has been a major economic issue confronting Pakistan. The overall tax to GDP ratio has varied between 9.5 to 11.4 percent mainly due to structural deficiencies in the tax and administration system. Pakistan is characterized as having the lowest tax to GDP ratio not only amongst the peer countries but also in the region.

Table 4.1: Fiscal Indicators as Percent of GDP^ Expenditure Revenue Year Overall Real GDP Fiscal NonTotal Growth Tax Total Current Development Deficit Tax Rev. 2.0 4.3 17.4 15.3 2.1 13.1 10.5 2.6 FY01 3.1 4.3 18.5 15.7 2.8 14.0 10.7 3.3 FY02 4.7 3.7 18.8 16.2 2.6 14.8 11.4 3.4 FY03 7.5 2.3 16.5 13.7 2.8 14.2 11.0 3.2 FY04 9.0 3.3 16.8 13.3 3.5 13.8 10.1 3.7 FY05 5.8 4.3* 18.4 13.6 4.8 14.1 10.5 3.6 FY06 6.8 4.4 20.6 15.8 5.0 14.9 10.2 4.7 FY07 3.7 7.6 22.2 18.1 4.4 14.6 10.3 4.4 FY08 1.7 5.3 19.9 16.0 3.8 14.5 9.5 5.1 FY09 3.1 6.3 20.3 16.8 3.5 14.0 10.1 3.9 FY10 3.0 5.9 19.2 16.1 2.8 12.5 9.5 3.1 FY11 3.7 4.0 18.0 14.4 3.6 13.9 10.4 3.5 FY12B Notes ^: The base of Pakistans GDP has been changed from 1980-81 to 1999-2000, therefore, wherever GDP appears in denominator the numbers prior to 1999-2000 are not comparable. : Statistical discrepancy (both positive and negative) has been adjusted in arriving at overall fiscal deficit numbers. * : Include earthquake related expenditure worth 0.8 and 0.5 percent of GDP for 2005-06 and 2006-07 respectively. B : Budgted

However, the government is committed to increase this ratio by introducing various additional tax measures such as: monitoring and risk based audit, strengthening electronic payment, close watch on Afghan transit trade and recovering arrears etc. These measures helped the FBR to collect Rs.

1,558 billion during 2010-11 against Rs. 1,008 billion in 2007-08. FBR Tax collection has shown a significant growth of 54.6 percent since 2007-08. For the current fiscal year 2011-12, the target of Rs. 1,952.0 billion has been set; which is expected to be achieved as the total collection during first 53

Pakistan Economic E Sur rvey 2011-12 2 hs of 2011-12 2 stood at Rs. . 1,426.0 billi ion ten month excluding g Rs 19 billion of sales tax t on servic ces collected by the Sin ndh Revenue e Board (SR RB)
Fig-4.1: Fisc cal Deficit
23 22 21

t Rs. 1,149. .8 billion in n the compa arable against period of last year r. This is an n increase of f 24.0 percent t.

Total Revenues

20 19 18 17 16 15 14 13 12 FY00 FY01 1 FY02 FY0 03

Expendi itures

Fi iscal Deficit

R Revenue
FY04 FY Y05 FY06 F FY07 FY08 F FY09 FY10 FY11 FY12B

Despite th he numerous challenges the t country has h faced sin nce 2001 including the continued and a intensified d security iss sues, the fisc cal position last l year in terms t of key y fiscal indi icators such as revenues, expenditure es and the fiscal defi icit indicates a notable cha ange. Table 4.1 4 suggests th hat as a perc centage of GDP G the total expenditu ures remained in a narrow w band durin ng the last five fi years. De espite the larg ge demands for governme ent spending on subsidies (electric city subsidie es), ayments, secu urity and floo od related issu ues interest pa (rehabilita ation and reconstruction) the governme ent has suc ccessfully brought b dow wn the to otal expenditu ures from 22.2 2 percent of GDP G in 2007-08 to 19.2 pe ercent in 201 10-11. These are expected d to decline to o 18.0 perce ent in fiscal year 2011-12. Every eff fort has been n made to pro otect the PSD DP program, which not on nly gives imp petus to pove erty reduction but als so creates employme ent opportuni ities. During the current fiscal year Rs. R 300 billion were allocated by y the fede eral ent to the PSDP and no o cut has be een governme imposed. During the first nine months of the t current fi iscal year (Ju uly-March, 2012) 2 about Rs. R 219 billi ion committed for the Public Sec ctor Developm ment Program m (PSDP) has s been released. This acco ounts 73 per cent c of the tot tal allocation n of Rs. 300 bi illion. 54

On the e revenue sid de the tax to o GDP ratio either remain ned stagnant or showed a secular de ecline. Conseq quently the budget b defici it widened during d the pas st four years. However, it was w well cont tained during fiscal year 2010-11 2 desp pite the chall lenges faced due to the e flood and d security re elated expend ditures. On the e other hand the expendit ture to GDP ratio witness sed a simil lar pattern to t that for total expend ditures; show wing an over rall decline since 2007-0 08. The decl line in total expenditure e (3.0 percent tage points of o GDP) is shared by cu urrent expend diture (2 per rcentage poin nts of GDP) ) and develop pment expend diture (1.6 pe ercentage points of GDP) during the past p four ye ears. During JulyMarch, , 2011-12 per riod total exp penditures sto ood at Rs. 2,6 641.9 billion against Rs. 3,721.2 billio on set for the e fiscal year r 2011-12. During D the period p under review total l revenues were w Rs. 1, ,747.0 billion against the e budgeted estimates of f Rs. 2,870.5 5 billion. The fis scal deficit ha as declined from fr 7.6 perce ent in 2007-0 08 to 5.9 perc cent in 2010-11 on accou unt of reducti ion in develo opment expen nditure. The fiscal deficit witnessed considerable deviation d fro om its origina al target due to some stru uctural deficie encies

Fiscal Develop pment in the tax x system, larg ge additional subsidies to the t electricity y sector and d support to o public sec ctor enterprise es (PSEs). However, H the government is committed d to contain n the fiscal deficit throu ugh several measures m as well as to put the t economy on a high gr rowth trajecto ory. These in nclude auster rity measures, , broadening of the tax base through tax t measures, , elimination of subsidies s (specially the t power sec ctor subsidies s), restructurin ng public sec ctor enterprise es and power r sector refo orms. Howev ver, the massive floods in 2010 and 20 011 have put an enormous s strain on public p financ ces due to the t unexpecte ed expenditur res to meet th he rehabilitati ion and reco onstruction needs n and resulted r in the t upward ad djustment in the fiscal def ficit target fro om
Fig-4.2: FBR F Tax Rev as a % of GDP
10.0

4 perce ent to 4.7 perc cent of GDP. Structu ure of Tax Revenues R An ef fficient tax system is vital for ra aising sufficie ent revenu ues to fi finance ess sential expend ditures withou ut recourse to o excessive public p sector borrowing. At present the t country has h a narrow w tax base, massive tax t evasion and admini istrative weak knesses due to the chall lenges faced in i the imple ementation of f an efficien nt and effectiv ve tax system m. Although revenue colle ection has inc creased in recent years, the e tax to GDP ratios varied between 8.6 and a 9.8 perce ent (Table 4.2).

9.5

Percent

9.0

8.5

8.0 2001-02 2002-03 2003-04 4 2004-05 2005-06 2006-07 2007-08 2008-0 09 2009-10 20 010-11 2011-12B B

Table 4.2: Structure of Federal Tax Revenue R (Rs. Billion) B Year Tax Rev v as % irect Di Total (FBR R) of GD DP Ta axes 124.6 2000-01 39 92.3 9.4 [31.8] 142.5 2001-02 40 04.1 9.2 [35.3] 151.9 2002-03 46 60.6 9.6 [33.0] 165.1 2003-04 52 20.9 9.2 [31.7] 183.4 2004-05 59 90.4 8.9 [30.1] 225.0 2005-06 71 13.5 9.4 [31.5] 2006-07 84 47.2 9.7 333.7

Cus stoms 65.0 {24.3} 47.8 {18.3} 68.8 {22.3} 91.0 {25.6} 115.4 {28.4} 138.4 {28.3} 132.3

Indirect Taxes s Sa ales Exc cise 153.6 49.1 {57.4} {18.3} 166.6 47.2 {63.7} {18} 195.1 44.8 {63.2} {14.5} 219.2 45.6 {61.6} {12.8} 238.5 53.1 {58.6} {13.0} 294.8 55.3 {60.3} {11.3} 309.4 71.8

To otal 267.7 [68.2] 261.6 [64.7] 308.7 [67.0] 355.8 [68.3] 407.0 [68.9] 488.5 [68.5] 513.5

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Pakistan Economic Survey 2011-12


Table 4.2: Structure of Federal Tax Revenue (Rs. Billion) Year Tax Rev as % Direct Total (FBR) of GDP Taxes [39.4] 387.9 2007-08 1,008.1 9.8 [38.5] 443.5 2008-09 1,161.1 9.1 [38.2] 526.0 2009-10 1,327.4 9.0 [39.6] 602.5 2010-11 1,558.2 8.6 [38.7] 745.0 2011-12B 1,952.0 9.5 [38.2] Source: Federal Board of Revenue [ ]as % of total taxes { } as % of indirect taxes Indirect Taxes Sales Excise {60.3} {14.0} 377.4 92.1 {60.9} {14.9} 451.7 117.5 {62.9} {16.4} 516.3 124.8 {64.4} {15.6} 633.4 137.4 {66.3} {14.4} 852.0 140.0 {70.6} {11.6}

Customs {25.8} 150.7 {24.3} 148.4 {20.7} 160.3 {20.0} 184.9 {19.3} 215.0 {17.8}

Total [60.6] 620.2 [61.5] 717.6 [61.8] 801.4 [60.4] 955.7 [61.3] 1207.0 [61.8]

Under the present tax system, some sectors are under-taxed and others are not taxed at all. This distortion is being addressed. Moreover, the internal tax system has undergone substantial changes as the share of income tax has risen significantly from around 32 percent in 2000-01 to 38.2 percent in 2011-12. On the other hand the composition of taxes has been rationalized with a gradual decrease in the dependence on foreign trade taxes and a simultaneous increase in GST. Customs and excise duties have registered a gradual decline on account of the tax and tariff reforms with excise and custom comprising only 8.5 percent and 10.6 percent respectively in 201112. Pakistans tax to GDP ratio stood at around 8.6 percent in 2010-11 and expected to be about 9.5 percent of GDP in 2011-12. The indirect tax to GDP ratio stood at around 5.3percent and direct tax to GDP ratio at around 3.3 percent in 2010-11. During July-April, 2011-12 indirect tax to GDP ratio stood at 4.3 percent and direct tax to GDP ratio recorded at 2.6 percent. The ratio can only be increased substantially if the major contributors to GDP growth not included in the tax net can be brought into the tax system. Tax Reforms The low tax-to-GDP ratio restricts the countrys ability to counter inflation, deliver quality public services or improve human resources to reach a take-off stage for economic development. To address this issue and others including debt servicing and defense needs, the government has 56

placed Tax Administration high on its reform agenda. Reform Strategy The reform strategy had three main planks (a) policy reforms, (b) administrative reforms and (c) organizational reforms. The policy reforms include simpler laws, universal self-assessment, elimination of exemptions, less dependence on withholding taxes and effective dispute resolution mechanism. The administrative reforms aim (i) to transform income tax organization on functional lines; (ii) re-engineer manual processes of all taxes with the aim to reduce face to face contact between taxpayers and tax collectors, increase effectiveness of FBR, and improve skills and integrity of the workforce and facilitation of taxpayers. The organizational reforms also included reorganization of the FBR on functional lines, reduction in number of tiers and reduction in the workforce. In pursuance of tax reforms FBR has been restructured on functional lines. With a view to supplement the level of skills in the FBR, the government in March-April, 2001 appointed professional members from private sector for (i) Human Resource Management (HRM), (ii) Information Management System (IMS), (iii) Audit, (iv) Facilitation and Taxpayers Education (FATE) and (v) Fiscal Research and Statistics (FR&S). The FBR has prepared a new recruitment policy (with greater emphasis on skills that match

Fiscal Development FBR needs), incentive and merit based remuneration and promotion mechanism and extensive training. FBR through its reform program is strengthening audit and enforcement activities. Broad objectives of reforms included overall increase in the revenue collection/tax-GDP ratio, broadening of the tax base, strengthening audit and enforcement procedures, guarantee fairer and more equitable application of tax laws, increase in transparency and integrity, facilitate and promote voluntary compliance with tax laws and provide transparent and high quality tax services.
Box-3 Major Achievements under TARP General Income Tax Automation a. Integrated Tax Management System (ITMS) 100% e-filing of corporate income tax returns. 100% e-filing of Sales Tax returns. 100% e-filing of sales tax invoice summaries. E-Registration. E-Payment. E-Notices and feedback to taxpayers. Self Assessment Scheme introduced. Improved voluntary compliance and number of compliant taxpayers increased to more than 2.5 million. Efficiency of the department improved with the introduction of working on functional basis. Computerized and updated taxpayers profiles. Reduced contact between tax officials and taxpayer. Tax base widened. Simplification of Income Tax Law, Rules and Forms. Share in total Revenue collection increased. Gaining stakeholders respect. Creating business friendly environment. Introducing professionalism, integrity, teamwork, courtesy, responsiveness, transparency and fairness. Facilitating and providing service to the taxpayers. Reducing the cost of doing business. Moving towards optimum use of automation and IT. Infused confidence among taxpayers through regular facilitation and tax education which has bridged the gap between taxpayers and tax collectors. Creation of an enabling environment for various stakeholders

To achieve reforms objectives, the FBR has established Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to test the reorganized structure of income tax and sales tax and Taxpayers Education and Facilitation Centers to improve voluntary compliance. Customs processes have been re-engineered and Customs Administration Reform (CARE) was started which has minimized the time of clearance of goods and reduced the cost of doing business. Facility for online filing of goods declarations and a website for information dissemination and helpline for taxpayers have been established (see Box-3).

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Pakistan Economic Survey 2011-12


Risk based refund processing (Pilot Project). Audit case selection through Nexus Business Intelligence System.

b. Customs Automation E-filing, paperless workflow and risk based selectivity. Nationwide e-filing. Post Clearance Audit (PCA) introduced. Electronic access to consolidated data to different stake holders. System based random marking of examiners and appraisers. Availability of country wide referential import value data. On-line Bank Payment System (24 NBP nation wide booths). Elimination of GD filling fee. Source: FBR

Review of Public Expenditure Public expenditures are significant for provision of social services, economic stabilization and growth. However, in Pakistan, public expenditures remained under tremendous pressure during 201112 owing to flood related expenses, continued security related issues and higher subsidies. During July-March, 2011-12, actual disbursement against

the budgeted subsidy of Rs. 166.4 billion set for the current fiscal year 2011-12 stood at Rs. 103 billion (excluding Rs. 391 billion on account of debt consolidation). It is expected to increase further on account of a settlement of circular debt issue. The permanent solution of the circular debt issue requires the rationalization of electricity tariff and improving the overall efficiency of the energy sector.

Table 4.3: Trends in Components of Expenditure (as % of GDP) Year 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12B
Total Current Interest Defence Expenditure Expenditure Payments (A) (B) (C) (D) Revenue Development Non Interest Primary Deficit/ Expenditure NonFiscal deficit Surplus Defence Exp Deficit (TR-NI (TR-Total (E) (A-C-D) Exp) CE)

18.5 17.0 18.5 18.4 16.9 17.2 18.4 20.6 22.2 19.9 20.3 19.2 18.0

16.4 15.3 15.7 16.2 13.7 13.3 13.6 15.8 18.1 16.0 16.8 16.1 14.4

6.8 5.9 6.1 4.8 4.0 3.4 3.4 4.4 5.0 5.2 4.5 4.0 3.8

3.9 3.1 3.3 3.3 3.3 3.2 3.2 2.9 2.7 2.6 2.5 2.5 2.4

2.5 2.1 2.8 2.6 2.8 3.5 4.8 5.0 4.4 3.8 3.5 2.8 3.6

7.7 8.0 9.0 10.0 9.7 10.5 11.8 13.3 14.5 12.1 13.3 12.7 11.8

5.4 4.3 4.3 3.7 2.3 3.3 4.3 4.3 7.6 5.4 6.3 5.9 4.0*

-3.0 -2.2 -1.7 -1.4 0.3 0.5 0.5 -0.9 -3.5 -1.5 -2.7 -3.5 -0.5

1.7 2.0 1.6 1.2 1.1 0.0 -0.8 -1.3 -2.6 -0.2 -1.8 -2.6 -0.3

B Budgeted * Budgeted number is revised to 4.7 percent of GDP

58

Fiscal Development Total expenditures (TE) stood at Rs. 3,455.1 billion or 19.2 percent of GDP in 2010-11 as compared to Rs. 3,006.7 billion or 20.3 percent of GDP in 2009-10. It is worth mentioning that despite the unplanned expenditures due to flood related activities at the start of the current fiscal year, the expenditures as percent of GDP remained at 12.8 percent (Rs. 2,641.9 billion) during JulyMarch 2011-12. Total expenditures are expected to decline by 18.0 percent. Current expenditures (CE) are expected to remain at 14.4 percent of GDP in fiscal year 2011-12. During fiscal year 2010-11, current expenditure were Rs. 2,900.8 billion or 16.1 percent of GDP compared to Rs. 2,481.0 billion or 16.8 percent of GDP in 2009-10. The decline came from noninterest-non-defense spending. During July-March, 2011-12 current expenditures stood at Rs. 2,154.1 billion or 10.4 percent of GDP compared to Rs. 1,909.8 billion or 10.6 percent of GDP in the same period of fiscal year 2010-11. Development expenditures in fiscal year 2010-11 remained at Rs. 506.1 billion or 2.8 percent of GDP as compared to Rs. 517.9 billion or 3.5 percent of GDP in 2009-10. In the current fiscal year's budget, the allocation for development expenditure is 3.6 percent of GDP. The share of current expenditure in total expenditure has declined significantly from 89.9 percent to 84 percent in 2010-11. These are expected to decline further by 4 percent due mainly to the substantial fall in interest payments. Defense expenditures accounted for 15.5 percent of current expenditure in 2010-11. As a percentage of GDP defense expenditures were 2.5 percent in 2010-11 and are likely to remain slightly below this level in 201112. However in absolute terms defense expenditure rose to Rs. 450.6 billion during 2010-11 from Rs. 375.0 billion in 2009-10. Nevertheless the budget target is set at Rs. 495.2 billion for 2011-12 which is around 2.4 percent of GDP. Fiscal Performance: July-March, 2011-12 At present Pakistan is confronting unsustainable fiscal deficits and unabated debt service charges on account of both external and internal challenges including electricity and gas outages that have restricted the overall growth of the economy. Similarly insufficient external inflows have resulted in increased reliance of government on domestic resources. It is, therefore, important to revamp the strategies of domestic and external financial resource mobilization through tax and non-tax instruments. Pakistan has witnessed a sharp deterioration in fiscal indicators during the past few years due to the revenue-expenditure gap. The fiscal situation was further aggravated by the domestic and external imbalances together with the deteriorating security environment, persistent inflationary pressures, unprecedented floods in 2010 and massive rains in 2011.

Table 4.4 Consolidated Revenue & Expenditure Budget Estimate 2011-12 A. Total Revenue 2,870.5 a) Tax Revenue 2,151.2 Federal 2,074.2 of which FBR Revenues 1,952.0 Provincial Tax Revenue 77.0 b) Non-Tax Revenue 719.3 B. Total Expenditure 3,721.2 a) Current Expenditure 2,976.3 Federal 2,016.3 - Interest 791.0 - Defence 495.2 Provincial 960.0 b) Development Exp. & net lending 744.9

Prov. Actual July-March 2010-11 1,495.3 1,117.6 1,074.8 1,020.1 42.8 377.7 2,262.6 1,909.8 1,345.7 507.4 335.1 564.1 352.7

Prov. Actual July-March 2011-12 1,747.0 1,379.2 1,321.5 1,280.4 57.6 367.9 2,641.9 2,154.1 1,478.7 624.5 348.0 675.4 428.0

Growth (%) July-March 2011-12 16.8 23.4 23.0 25.5 34.6 -2.6 16.8 12.8 9.9 23.1 3.8 19.7 21.3

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Pakistan Economic Survey 2011-12


Table 4.4 Consolidated Revenue & Expenditure Budget Estimate 2011-12 PSDP 639.9 Other Development 97.1 c) Net Lending 7.9 C. Overall Fiscal Deficit 850.6 As % of GDP 4.0 Financing of Fiscal Deficit 850.6 i) External Sources 134.5 ii) Domestic 716.1 - Bank 412.6 - Non-Bank 303.5 GDP at Market Prices 21,042 Source: Budget Wing, Finance Division and FBR Prov. Actual July-March 2010-11 246.5 35.7 70.5 783.3 4.5 783.3 83.1 700.1 316.4 383.8 18,033 Prov. Actual July-March 2011-12 375.6 45.4 6.9 894.9 4.3 894.9 47.4 847.5 443.8 403.7 20,654 Growth (%) July-March 2011-12 52.4 27.2 -90.2 14.2 -4.4 14.2 -43.0 21.1 40.3 5.2 14.5

According to the consolidated revenue and expenditure statement of the government, total revenues grew by 16.8 percent during July-March 2011-12 and stood at Rs. 1,747.0 billion compared to Rs. 1,495.3 billion in the same period of fiscal year 2010-11. The increase is mostly due to a significant rise in FBR tax collection, which increased by 25.5 percent during the period under review. On the other hand non tax revenue declined by 2.6 percent as it stood at Rs. 367.9 billion in July-March 2011-12 from Rs. 377.7 billion in the same period last year. Total expenditures were recorded at Rs. 2,641.9 billion during July-March; 2011-12 compared to Rs. 2,262.6 billion in the same period last year posted a growth of 16.8 percent. External resources for financing the budget deficit amounted to Rs. 47.4 billion - a net decline of 43 percent. Insufficient external financing shifted greater reliance on domestic resources to finance the budget deficit during July-March, 2011-12. The fiscal deficit as a percentage of GDP stood at 4.3 percent against 4.5 percent during the same period of fiscal year 201011. FBR Tax Collection FBR tax collection for the fiscal year 2011-12 was targeted at Rs. 1,952 billion which was higher by 25.3 percent over the actual collection of Rs. 1,558 billion during 2010-11. During July-April, 2011-12 net collection stood at Rs. 1,426.0 billion despite 60

the major challenges to the economy due to the dearth of electricity and gas. This reflects 24.0 percent growth over Rs. 1,149.8 billion collected during the same period last year (Table:4.5). Direct Taxes The gross and net collection of direct taxes has registered growth of 31.3 percent and 22.6 percent respectively during the first ten months of 2011-12. The gross and net collection increased from Rs. 462.9 billion and Rs. 431.3 in July-April, 2010-11 to Rs. 607.8 billion and Rs. 528.9 billion respectively during July-April, 2011-12. Major revenue spinners of direct taxes are withholding tax, voluntary payments and collection on demand. Indirect Taxes During July-April 2011-12, the gross and net collection of indirect taxes has witnessed a growth of 23.1 percent and 24.9 percent respectively. It has accounted for 62.9 percent of the total FBR tax revenues. Within indirect taxes, growth in sales tax increased by 33.7 percent. The gross and net sales tax collection during July-April 2011-12 reached Rs. 673.0 billion and Rs. 635.1 billion respectively, showing growth of 30.6 percent and 33.7 percent respectively over the corresponding period of 2010-11. Of the net collection, 44.8 percent of total sales tax was contributed by sales tax on domestic

Fiscal Development goods and services during July-April, 2011-12, while the rest was derived from imports. Within net domestic sales tax collection, the major contribution came from POL products, telecom services, natural gas, fertilizer, other services, sugar, cigarettes, beverages, cement and electrical
Table 4.5: FBR Tax Revenues Change A. DIRECT TAXES Gross Refund/Rebate Net 602.5 B. INDIRECT TAXES Gross Refund/Rebate Net 955.7 B.1 SALES TAX Gross Refund/Rebate Net 633.4 B.2 FEDERAL EXCISE Gross Refund/Rebate Net 137.4 B.3 CUSTOM Gross Refund/Rebate Net 184.9 TOTAL TAX COLLECTION Gross Refund/Rebate Net 1,558.2 Source: Federal Board of Revenue (FBR) 2010-11 (Actual) 2011-12 (B.E) July-April 2010-11 2011-12 462.9 31.6 431.3 766.5 47.9 718.6 515.3 40.3 475.0 102.2 0.0 102.2 149.0 7.6 141.4 1,092.3 -57.6 1,149.9 607.8 78.9 528.9 943.4 46.2 897.2 673.0 37.9 635.1 95.8 0.2 95.6 174.6 8.1 166.5 1,551.2 125.1 1,426.1 % Change

energy. On the other hand POL products, plastic, edible oil, fertilizers, iron and steel, vehicles, machinery, organic chemicals and oilseeds contributed significantly to the collection of sales tax from imports.

Rs Billion Achievement (Percentage)

31.3 22.6 23.1 24.9 30.6 33.7 -6.3 -6.5 17.2 17.8 42.0 24.0 73.1 77.4 68.3 74.5 74.3 71.0

745.0

1,207.0

852.0

140.0

215.0

1,952.0

Custom duty collection has registered a growth of 17.2 percent and 17.8 in both gross and net terms. The gross and net collection has increased from Rs. 149.0 billion and 141.4 billion during JulyApril, 2010-11 to Rs. 174.6 billion and Rs. 166.5 billion respectively during July-April, 2011-12. The major revenue spinners of custom duty have been automobiles, edible oil, petroleum products, machinery, plastic, iron and steel, paper and paperboard, textile materials and organic chemicals. A negative growth of 6.5 percent has been recorded in the net collection of Federal Excise Duties (FED) during July- April, 2011-12. The net

collection stood at Rs. 95.6 billion during JulyApril 2011-12 as against Rs. 102.2 billion during the same period last year. The major revenue spinners of FED are cigarettes, cement, beverages, natural gas, POL product and services. Provincial Budget The total outlay of the four provincial budgets for 2011-12 stood at Rs. 1,435 billion; 21.7 percent higher than the outlay of Rs. 1,179 billion last year

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Pakistan Economic Survey 2011-12


Table 4.6: Overview of Provincial Budgets
Items A. Total Tax Revenue Provincial Taxes Share in Federal Taxes B. Non-Tax Revenue C. All Others Total Revenues (A+B+C) a) Current Expenditure b) Development Expenditure i) Rev. Account ii) Cap. Acount Total Exp (a+b)

(Rs Billion)

Punjab Sindh KPK Baluchistan Total 2010-11 2011-12 2010-11 2011-12 2010-11 2011-12- 2010-11 2011-12 2010-11 2011-12 RE BE RE BE RE BE RE BE RE BE 502.6 625.4 310.6 359.4 160.2 195.4 100.5 111.5 1073.9 1291.7 39.0 48.6 32.7 35.0 3.3 3.6 1.2 1.3 76.2 88.5 463.6 576.8 277.9 324.4 156.9 191.8 99.3 110.2 997.7 1203.2 26.0 20.6 12.4 19.9 5.4 5.9 2.8 3.5 46.6 49.9 -7.5 21.2 11.3 17.9 37.6 23.9 3.8 -0.2 45.2 62.8 521.1 667.2 334.3 397.2 203.2 225.2 107.1 114.8 1165.7 1404.4 387.6 434.8 281.2 283.1 139.5 149 74.3 90.6 882.6 957.5 138.7 220.0 65.6 141.1 65.0 85.1 27.1 31.4 296.4 477.6 81.4 57.3 526.3 127.2 92.8 654.8 3.9 61.7 346.8 51.7 89.4 424.2 10.3 54.7 204.5 13.1 72.0 234.1 0.0 27.1 101.4 0.0 31.4 122.0 95.6 200.8 1179 192.0 285.6 1435.1

Source: Provincial Finance, Budget Wing

Punjab witnessed the highest increase of 24.4 percent in budgetary outlay, followed by Sindh (22.3 percent), Baluchistan (20.3 percent) and KPK (14.5 percent). The overall provincial revenue receipts for 2011-12 are estimated at Rs.

1,404 billion, which is up by 20.5 percent compared to last year. During 2010-11 provincial revenues witnessed a growth of 34 percent compared to 20.4 percent in 2009-10.

Table 4.7: 4- Years Overview of Provincial Budget Growth Rates (%) Items 2007-08 2008-09 2009-10 A. Total Tax Revenue 504.1 612.0 697.3 Provincial Taxes 50.3 57.3 68.6 Share in Federal Taxes 453.8 554.7 628.8 B. Non-Tax Revenue 59.6 58.0 56.7 C. All Others 48.2 52.9 116.2 Total Revenues (A+B+C) 611.9 722.8 870.2 a) Current Expenditure 497.5 688.9 704.8 b) Development Expenditure 262.0 314.0 291.8 Total Exp (a+b) 759.5 1,002.9 1,357.7 Source: Provincial Finance, Budget Wing

Rs. Billion 2010-11 FY10 FY11 13.9 54.0 1,073.9 76.2 19.7 11.1 997.7 13.4 58.7 -2.2 -17.8 46.6 -61.1 45.2 119.7 20.4 34.0 1,165.7 2.3 25.2 882.6 -7.1 1.6 296.4 35.4 -13.2 1,179.0

The accelerated growth in revenues was mainly due to the increase in the provincial share in federal revenues under the 7th NFC award. On the other hand the consolidated fiscal balance deteriorated during July-March, 2011-12 and stood at Rs. 65 billion compared to Rs. 115 billion recorded in the same period of 2010-11. The growth in total expenditure has outpaced the significant growth in revenues. Allocation of Revenues between the Federal Government and Provinces Fiscal decentralization, or the transfer of fiscal power from the national government to the sub national governments, is considered to be an 62

effective tool to improve efficiency in the public sector and to stimulate economic growth. This devolution refers to the devolution of responsibilities for public spending and revenue collection from the central to the local governments. In 2010 the government took a major step towards fiscal decentralization by signing 7th National Finance Commission (NFC) award between the federal government and provincial governments and by passing 18th Constitutional Amendment. This has not only allowed the transfer of more funds but also widen the range of responsibilities from the federation to the provinces.

Fiscal Development
Table 4.8: Transfers to Provinces (NET) Divisible Pool Straight Transfer Special Grants/ Subventions Project Aid Program Loans Japanese Grant Total Transfer to Province Interest Payment Loan Repayment Transfer to Province(Net) Source: Budget in Brief, 2011-12 2008-09 477.4 82.4 40.6 26.3 0.0 0.0 626.8 18.5 21.0 587.3 2009-10 574.1 81.2 82.0 16.0 0.0 0.0 753.3 18.7 24.0 710.6 2010-11 834.7 163.0 54.1 21.9 0.0 0.1 1,073.7 18.5 32.4 1,022.8 (Rs. Billion) 2011-12B 1,043.9 159.4 55.4 38.2 16.6 0.9 1,313.7 15.6 27.2 1,270.9

Under the 7th NFC award, the financial autonomy of the provinces has been ensured by increasing their share in the divisible pool from 50 percent to 56 percent in 2010-11 and 57.5 percent from 201112 onwards. The distribution of the resources has been made on multiweighted criteria which consist of population (82 percent), poverty/backwardness (10.3 percent), revenue collection/generation (5.0 percent) and area or inverse population density (2.7 percent). While the share of the federal government in the net proceeds of the divisible pool stood at 44 percent in 2010-11 and 42.5 percent from 2011-12 onwards. Total transfers to provinces have been projected to increase to Rs. 1,270.9 billion; an increase of 24.3 percent in 2011-12 over the actual transfer of Rs. 1,022.8 billion in 2010-11. Medium Term Budgetary Framework The MTBF has improved the budget preparation process. Firstly, the medium-term fiscal framework and budget policies have been incorporated into a medium-term Budget Strategy Paper on rolling basis, which include medium-term indicative budget ceilings for the recurrent and development budgets, and provides an opportunity to discuss the budget between the technical and political levels prior to the presentation of the annual budget. The political level involvement includes cabinet, Standing Committees on Finance & Revenue, and political parties. Secondly, the Priorities Committee has been upgraded. Before the reform program, the

Priorities Committee meeting was headed by an Additional Finance Secretary (Budget) and would discuss only the development budget in detail. The MTBF reform, has upgraded the committee which is now chaired jointly by the Secretary Finance, Secretary Planning and Secretary Economic Affairs Division. The committee now discusses both the recurrent and development budgets with increased focus on policy priorities. The Output Based Budget (OBB) has also been institutionalized in the federal government which presents policies of the ministries in the shape of goals, outcomes, outputs and medium-term budgets. The OBB also presents key performance indicators for the outputs to introduce government wide monitoring system. Similarly the MTBF reform program has drafted the Public Finance Act to legalize the MTBF reform program. Also, the reform program is working with the Planning Commission to implement strategic planning processes in line ministries and introduce an Apex Monitoring and Evaluation function in the government to monitor service delivery and outcomes. The reform program is also interacting with PIFRA (Project to Improve Financial Reporting and Auditing) to introduce SAP based budgeting in the line ministries. In addition to the above, the following important developments have been initiated as part of the reform program:

63

Pakistan Economic Survey 2011-12 ` The Priorities Committee, which would only discuss project funding prior to the MTBF has been upgraded and is chaired by Secretary Finance, Secretary Planning and Secretary Economic Affairs Division. The upgraded Priorities Committee discusses policy priorities of the Principal Accounting Officers together with medium-term budgets. The Budget Strategy Paper (BSP) is discussed with Parliamentary Standing Committees on Finance and Revenue. This process improves parliamentary input into the budgeting processes of the government. The Budget Strategy Paper (BSP) is discussed with political parties, economic advisory council and chambers. This allows greater focus on strategic economic and budgeting agenda of the government. alleviation. Pakistans economy has fared well in terms of fiscal deficit in the recent past, reducing deficit from 7.6 percent in FY08 to 5.9 percent in 2010-11. In fiscal year 2011-12 the fiscal deficit was projected to be 4 percent of GDP (Rs. 851 billion). Nevertheless, during the course of the period the projection for fiscal deficit has been revised to 4.7 percent. Various external factors contributed to this revision, for instance, growing burden from the campaign against extremism, domestic security concerns, energy shortages, unprecedented natural disasters, and upheaval in the global economy. However, government efforts to contain the fiscal situation were effective and fiscal deficit has remained within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises. The achievement of the revised deficit target depends crucially on the realization of the expected surpluses from provincial governments, the non-tax revenues which depend on inflows into the Coalition Support Fund, and strict control over expenditures.

Conclusion Fiscal policy has the potential of playing a crucial role in spurring economic growth and poverty

64

Chapter 5

Money and Credit


Pakistans monetary policy aims at stabilizing economic growth through a number of channels. It influences the future expectations of economic activity and inflation. A sound fiscal position is important for achieving macroeconomic stability. This occurs through efficient resource allocation and the mobilization of domestic savings. Because of this, the central bank through its monetary policy and strategies plays an influential role. The global financial crisis that erupted in late 2007 not only produced the severe worldwide economic contraction, it has also hampered the ability of central banks to successfully manage the economy. In reaction to the crisis, markets of developed economies responded in a variety of ways, such as creating measures aimed at specific sectors, as well
Box 1 High Demand for Safe Assets There is a potential threat to global financial stability due to high demand for safe assets. The threat has been driven up on account of heightened uncertainty, regulatory reforms and the extraordinary post-crisis responses of central banks in the advance economies. The supply of safe assets has contracted as the ability of the public and the private sectors to produce such assets has declined. Similarly, the number of countries whose debt is considered safe has fallen. Lack of safe asset scarcity will increase the price of safety and compel investors to move down the safety scale. It will also lead to more short-term spikes in volatility, and shortages of high-grade collateral. There is a need for flexibility in policy design and implementation for a smooth adjustment in the markets for safe assets. Hence policy makers should strike a balance between the desire to ensure the soundness of financial institutions and the costs associated with potential overly rapid acquisitions of safe assets to meet such goals. Global Financial Stability Report, April 2012. IMF.

as more general stimulus packages aimed at keeping financial institutions buoyant. On the other hand, economic activity in emerging and developing economies remained relatively vigorous on account of strong internal demand. The global economic activity rebounded in 2010 on the back of better macroeconomic performance and continued accommodative macroeconomic policies. Unfortunately, performance slowed later in the year because countries with large public and private debt burdens faced serious problems accessing sovereign debt markets. Consequently, heightened concerns about long term debt sustainability in various parts of the world have posed additional risks, not only to financial stability, but also for the ability to access safe assets.

Pakistans financial sector has not witnessed a direct impact of the global financial crisis due to its limited exposure in international financial markets. However, high inflationary pressures, heightened

security risks, power shortages and a high cost of doing business posed numerous challenges for Pakistans economy. Consequently, all these factors along with the global financial crisis caused a deceleration in the investment rate, a rise in 65

Pakistan Economic Survey 2011-12 unemployment and poverty, an increase in the debt burden, and a sharp fall in foreign exchange reserves. Moreover, the dearth of financial inflows resulted in a sharp diversion of credit away from the private sector. As a consequence, monetary policy remained under enormous pressure to strike a balance between supporting growth and keeping inflation under watch. The devastating floods in 2010 and heavy rains in Sindh in 2011 once again brought on a plethora of challenges. The governments efforts to contain the fiscal deficit were undermined by the significant rise in federal and provincial governments expenditures in favor of rehabilitation and reconstruction activities. Moreover, the less than expected external inflows intensified fiscal stress. In addition, changes in key export and import prices in the international markets and the fragile global economic recovery are also affecting domestic economic conditions. Despite the challenges faced by the economy due to flood and security related issues Pakistan holds enormous potential and resilience. This was evident when the fiscal deficit remained within reasonable limits, (i.e 5.9 percent of GDP in 201011). The year to year CPI inflation was also recorded at 10.8 percent in March 2012 against 13 percent in the same period of the previous year.
Table 5.1: Policy Rate Effective from Date 21-Apr-09 17-Aug-09 25-Nov-09 30-Jan-10 27-Mar-10 02-Aug-10 30-Sep-10 30-Nov-10 01-Aug-11 10-Oct-11 30-Nov-11 until date Source: State Bank of Pakistan

Pakistan, monetary management has mainly focused on controlling inflation. Inflation has persistently remained in double digits in the last few years on account of difficult domestic and external economic environment. Similarly, the heavy reliance on domestic borrowings in the absence of diversified and sustainable financing sources has constricted the availability of credit to the private sector. Furthermore, dried up external financing and insufficient funds from non-bank sources resulted in short-term borrowing from the banking system. Consequently, the banking sectors exposure to government papers has increased significantly. Given the difficult economic situation, the State Bank of Pakistan (SBP) followed a proactive policy response to shave-off additional demand from the economy. It has also accommodated the fiscal deficit. The SBP adopted an expansionary monetary policy during the fiscal year 2011-12. It slashed the discount rate by 50 bps points to 13.5 percent from 14 percent on the back of an improved fiscal position. The decision continued to show progress, as the consumer price index (CPI) and government borrowings from the Central Bank remained lower than its level at the end of June. However, the rate was further reduced by 150 bps points to 12 percent on October 8th, 2011, in order to boost to private sector credit and investment. Similarly, for a smooth functioning of a payment system and financial stability, SBP has injected substantial short term liquidity in the system. Nevertheless, risks to macroeconomic stability due to fiscal weakness and decline in foreign inflows have not retreated. The power crisis and the precarious law and order situation are still an impediment to provide an environment conducive for productive activities. Hence, there is a need for a cautious approach to keep the inflation expectations around the medium term targets of 9.5 percent for fiscal year 2012-13 and 8 percent for fiscal year 2013-14. On the other hand increase in government borrowing to finance the budget deficit is adversely affecting the inflation outlook. Keeping the overall macroeconomic situation in view, the SBP has decided to keep the policy rate unchanged at 12 percent w.e.f. April 13, 2012.

14.0 13.0 12.5 12.5 12.5 13.0 13.5 14.0 13.5 12.0 12.0

Monetary Policy Stance The continuation of sound monetary management is central to taking on the multifaceted challenges faced by any economy as it deals with major issues of price stability, control of money supply and rationalization of administered interest rate. In

66

Money and Credit C Recent Monetary M and d Credit Development During th he first eleven n months of th he current fiscal year, July y 11th May 2012 broad money m (M2), or money an nd close substitutes for mo oney, witness sed an expans sion of 9.09 percent p as com mpared to 11. .47 percent during d the sam me period in n 2010-11. The T decelerati ion in money y supply is primarily p driv ven by the sig gnificant fall in the Net Fo oreign Assets of
Table 5.2: Profile of Mo onetary Indica ators Jul-14May 2010-11 506.5 603.3 -101.1 4.2 118.7 107.8 10.6 -0.2 0.5 -143.6 481.6 6 (9.20%) 181.1 662.6 (11.47%)

b syst tem, along with incr reased the banking govern nment borrow wing and a one-off settleme ent of circular debt. During the first hal lf of the fisca al year 2011-12, a significa ant decline in capital fina ancial accoun nt inflows re esulted in depletion d of SBP foreign n exchange re eserves to fina ance the majo or part of curr rent account deficit. d The profile p of mon netary indicat tors for fiscal l year 2010-1 11 and 2011-12 is demonstrated in Tab ble 5.2.
Rs. Billion Jul-11Ma ay 2011-12 1,003.3 1,084.4 -81.6 0.5 92.9 234.8 -142.6 0.0 0.7 -215.3 880.9 (14.89 9%) -272.2 608.7 (9.09 9%)

1. Net government sector r Borrowing(a+ +b+c) a. Borrow wing for budge etary support b. Comm modity operatio ons c. Others s 2. Credit to o Non-governm ment Sector (d+ +e+f+g) d. Credit t to Private Sec ctor e. Credit to Public Sect tor Enterprises (PSEs) f. PSEs Special S Accoun nt-Debt repaym ment with SBP g. Other Financial Insti itutions(SBP cr redit to NBFIs) ) 3.Other Ite ems(net) 4.Net Dom mestic assets (N NDA) 5.Net Fore eign Assets (NF FA) 6.Monetary y Assets(M2) Source: Sta ate Bank of Pa akistan

Net Dome estic Assets (NDA) ( from July J 11th May M 2012 stoo od at Rs. 880 0.9 billion ag gainst Rs. 481.6 billion du uring the sam me period last year, reflecti ing an increas se of 14.9 percent over th he last year. The T expansion n in NDA is mainly du ue to a rise in demand for f private se ector credit and a governme ent borrowing gs. Conversel ly, Net Foreig gn Assets (NF FA) witnessed da significan nt contraction n on account of reduction in SBPs for reign exchan nge reserves that t arose fro om the wid dening curre ent account t deficit and a deteriorating capital and fina ancial accou unt . NFA of the e banking sys stem during the t surpluses. period un nder review declined d to Rs. R 272.2 billi ion as compar red to an inc crease of Rs. 181.1 billion n in the same period p of 2010-11. During Ju uly 11th May M 2012, credit c to pub blic sector ent terprises (PSE Es) registered d a sharp decli ine from Rs. 10.6 billion n in 2010-11 1 to Rs. 142 2.6 billion. Credit C to PSEs s was mostly concentrated d in electricity y generation n companies s, however in Novembe er 2011 in or rder to partia ally resolve the t

ment borrowe ed Rs. circular debt issue the governm illion from commercial c b banks through h 12391 bi month treasury bills and 5-year Pak kistan Investm ment Bonds.
Figu ure-5.1: Net Fo oreign Assets
200 100 0 -100 -200 -300 -400 2007-08 2008- 09 2009-10 2010-11 Jul-11May Jul 11May 2012 Jul-14May 2011

Govern nment Bank k Borrowing The government g b borrowing fr from the ba anking system m for budget tary support t and comm modity operati ions stood at Rs. 1,003.3 billion b during g July

67

Pakistan Economic E Sur rvey 2011-12 2 11th Ma ay 2012 on account a of ris sing subsidy on commodit ties, public sector s enterpr rises' losses and a less than target reven nue collectio on. Governme ent borrowing g for budgeta ary support al lone stood at Rs 1,084.4 billion as com mpared to Rs. 603.3 billion n in p of the last year. The e SBP financi ing the same period has increa ased to Rs. 442.3 4 billion as compared d to
Figure 5.2: Gov vernment Bor rrowings
800.0 0 600.0 0 500.0 FromSBP FromScheduledba anks T Totalborrowings 200.0 0.0 0 200708 -200.0 0 200809 20 00910 201011 July14May y July 11May 2011 2012 50.0

Rs. 217 7.7 billion. Financing F from m scheduled banks b witness sed a net incr rease of Rs. 642.1 billion during d the per riod under re eview against t Rs. 385.6 billion b last ye ear. Non-ban nk and exter rnal financin ng for budget tary support t was less than expe ected, compel lling the gov vernment to borrow from m the SBP an nd scheduled banks.

Rs. Billion

400.0 0 350.0 200.0 0

Commod dity Finance Commodi ity finance aims a to prov vide short te erm advances either to the e governmen nt, public sec ctor corporatio ons or private e sector for the t procureme ent of the co ommodities such s as cotto on, wheat, ri ice, sugar and d fertilizer. During Ju uly 11th May y 2012, loans s for commod dity financing registered a net retireme ent of Rs. 81.6 billion against the retir rement of Rs. 101.1 billion n in the same e period of fiscal year 2010-11. The T retirement t was prim marily concen ntrated in the t second quarter q of fiscal year 2012 as the t governme ent released Rs. R 78 billion to procureme ent agencies for the settlement s of accumulat ted th subsidies. On 11 May, 2012 the stock of governme ent borrowing gs for commo odity operatio ons stood at Rs R 315.9 billio on (Figure 5.3 3).

overnment pro ocurement tar rget is 7.72 million m The go tons (M MT) of wheat this year, and d the support t price has be een raised to o Rs. 1050 per p 40 kg fo or the forthco oming wheat crop. Additi ionally, decli ine in interna ational whea at prices has h reduced d the incentive for its export e by th he private sector. s fore, a cons siderable ris se in the credit Therefo require ement for wh heat procure ement is exp pected during the rest of th he months of current fiscal year 2011-12.

68

Rs Billion

The heavy y reliance on n the borrowi ing requireme ent of the go overnment fro om the bank king system has h also led to the slugg gish growth in the private sector, un nder the crowd ding out effec ct. According g to the recen nt SBP Am mendment Act, A 2012, the t governme ent borrowing g from the SB BP is required d to be repaid d at the end d of each quarter q and the t existing st tock is to be retired r within n eight years.

Fig gure 5.3: Comm modity Financ ce


450 400 350 300 250 200 150 100 50 0

Money and Credit C Credit to Private Sect tor y the private e sector duri ing The credit availed by M 2011-12 2 stood at Rs 234.8 billion n as July-11th May, compared d to Rs 107.8 8 billion in th he same peri iod last year. On the other r hand year to o year growth h in ector credit was w 7.5 percent up until 11 private se May, 2012. There is a strong relati ionship betwe een private sector s credit and econ nomic grow wth. However, , heavy bor rrowing from m the banki ing system ha as restricted the credit ex xpansion to the t private sector. The priva ate sector wi itnessed the highest h flow of credit in the t second qu uarter of fisca al year 2011-12 standing at Rs. 28 82.2 billion. . Despite the t substantia al credit flow, the cum mulative private sector cre edit (PSC) ex xpansion dur ring July 11 1 th May 2012 2 was limited d to Rs 234.8 billion becau use of more th han usual sea asonal retirem ments in the fi irst quarter of f fiscal year 2012. Credit to Private Sect tor (Sectoral l Analysis) val of private investment in i the econom my The reviv was one of o the main concerns c for SBP S to ease the t monetary policy stanc ce in 2011-12 2. However, the t
Table 5. 3: Credit to Private Sector Sectors Overall Cr redit (1 to 5) 1. Loans to Private Secto or Business A. Agricul lture B. Mining and Quarrying g C. Manufa acturing Textiles D. Electric city, gas and wa ater supply E. Constru uction F. Commer rce and Trade G. Transpo ort, storage and d communications I. Other pri ivate business n.e.c 2. Trust Fu unds and NPO Os 3. Persona al 4. Others 5. Investment in Security y & Shares of Private P Sector Source: Sta ate Bank of Pa akistan End June St tocks Jun-10 2,749.3 2,258.5 169.5 17.5 1,263.6 470.2 215.5 67.1 229.7 105.1 23.6 13.1 321.5 11.1 145.1 Ju un-11 2 2,918.2 2 2,431.8 180.5 17.9 1,385.4 514.7 269.4 67.7 213.7 106.2 29.4 18.0 294.0 16.4 158.0

desired d boost in pri ivate investm ment demand could not tak ke place due e to energy shortages an nd an unfavo orable law and order situa ation. Additio onally, substan ntial governm ment borrowin ng has crowde ed out the pri ivate sector from f receivin ng credit. Thi is has limited d the availability of credit. Similarly, due d to rising non-perform ming loans (NPLs) banks b preferr red to invest t in liquid assets a rather than extendi ing credit to the t private sector.
Fi ig-5.4 : Growth of Private Sector S
2 25.0

percentages

2 20.0 1 15.0 1 10.0 5.0 0.0 2005-06 2007-08 2008-09 2009-10 2010-11 2006 07 2006-07 2011-12(July-11 0 (Ju y May)

Rs Billion B Ju uly-March Growth Ra ates (Flows) 2010-11 2011-12 2010-11 2011-12 228.3 41.6 8.3 1.4 222.1 42.9 9.8 1.8 3.3 10.5 2.0 5.8 0.4 -2.8 2.3 -15.7 205.3 65.0 16.2 4.7 105.5 16.4 22.4 3.2 28.1 -12.2 13.1 -4.5 -0.9 -9.5 -1.4 -14.0 -18.1 -4.3 -7.9 -2.0 -0.6 -2.5 -0.6 -2.3 3.6 -1.4 15.1 -4.8 3.4 -1.0 25.7 -5.4 -17.6 -7.8 -5.5 -2.6 6.7 -0.1 60.6 -0.6 13.6 7.5 9.4 4.7

ise growth in n credit to the private sec ctor Sector wi shows th hat loans to private sec ctor business ses

register red a sharp decline. d In flow w terms, the credit expans sion during th he period und der review sto ood at Rs. 42. .9 billion aga ainst Rs. 222.1 billion in July J

69

Pakistan Economic Survey 2011-12 March 2011. However, the stocks reached Rs 2474.7 billion in March 2011-12 against the end June stock of Rs 2431.8 billion, reflecting an increase of only 1.8 percent. All of the major sectors, excluding agriculture, registered a decline in credit when compared to last year. Particularly, loans to textile sector are significantly lower than last year. The ample profitability of textile sector in 2010-11, along with subsequent decline in cotton prices in 2011-12 explains the relatively lower requirement for credit during July - May 2012. The manufacturing sector advanced over 100 percent (Rs 65.0 billion) of total PSC, followed by textiles (38.2 percent), and agriculture (24.5 percent). On the other hand, credit to trade and construction declined by 14 percent, followed by electricity, gas and water supply (4.5 percent), and then commerce and trade (2 percent).
Table 5.4: Consumer Financing Description Consumer Financing 1) For house building 2) For transport i.e. purchase of car 3) Credit cards 4) Consumers durable 5) Personal loans 6) Other Source: State Bank of Pakistan July-March 2010-11 2011-12 -17.40 -8.50 -5.40 -5.20 -10.60 -5.60 -3.40 -1.70 0.03 0.10 0.40 2.70 1.60 1.20

In agriculture, overall credit disbursement by five major commercial banks1 stood at Rs. 107.6 billion in JulyMarch 2012 as compared to Rs. 93.3 billion in JulyMarch 2011 posting an increase of Rs. 14.4 billion or 15.4 percent. Total credit disbursement to agriculture sector during JulyMarch 2012 surged by 17 percent on year to year basis to Rs. 197.4 billion against total disbursement of Rs. 168.7 billion in the same period of fiscal year 2010-11. Net decline in consumer financing during July March 2012 stood at Rs8.5 billion as compared to the decline of Rs 17.4 billion in the comparable period of 2010-11 , thereby registered a decline of 3.9 percent as compared to the decline of 7.1 percent during the period under review.

Rs. Billion Growth (%) 2010-11 2011-12 -7.10 -3.90 -10.00 -10.90 -16.40 -11.00 -12.20 -7.00 13.90 37.10 0.40 3.00 55.70 27.00

Loans for consumer durables witnessed a net expansion of 37.1 percent during July 2011 March 2012 against 13.9 percent in the same period last year. However, auto loans, mortgages, credit cards and personal loans have consistently been on the decline since January 2008 on account of multiple factors (e.g. fragile economic conditions, rising cost of credit and increasing default). The stock of consumer finance reduced to Rs. 209.1billion in March 2012 from its peak of Rs. 371.3 billion exactly four years earlier.

Each category within the consumer finance segment has registered a persistent increase in the loan infection ratio for the last three years. This increase has been a combination of rising NPLs and declining credit to each category with the exception of consumer durables. Monetary Assets The component of monetary assets (M2) include: currency in circulation, demand deposit, time deposits (excluding IMF A/C, counterpart), and residents foreign currency.

Allied Bank, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited

70

Money and Credit


Table-5.5 Monetary Aggregates Items A.Currency in Circulation Deposit of which: B. Other Deposits with SBP C.Total Demand &Time Deposits incl.RFCDs of which RFCDs Monetary Assets Stock (M2) A+B+C Memorandum Items Currency/Money Ratio Other Deposits/Money ratio Total Deposits/Money ratio RFCD/Money ratio Income Velocity of Money Source: State Bank of Pakistan (Rs Million) July-11May 2010-11 2011-12 1,550,840 1,705,749 10,359 4,878,666 368,012 6,439,864 24.1 0.2 75.8 5.7 2.7 11,924 5,586,202 416,962 7,303,874 23.4 0.1 76.5 5.7 2.7

End June 2010 1,295,385 6,663 4,475,186 345,438 5,777,234 22.4 0.1 77.5 6.0 2.7 2011 1,501,409 10,145 5,183,640 374,945 6,695,194 22.4 0.2 77.4 5.6 2.9

Currency in Circulation During July 11th May 2012, currency in circulation (CIC), in flow terms, stood at Rs. 204.3 billion as compared to Rs. 255.5 billion in the

same period last year. Similarly, the currency in circulation as percent of money supply (M2) has declined to 23.4 percent in 2011-12 as against 24.1 percent during the same period in 2010-11.

Fig-5.5 : Currency in Circulation % M2 & GDP 25.0 24.0 23.0 22.0 21.0 20.0 2006 2007 2008 2009 2010

CIC/M2

CIC/GDP 10.5 10.0 9.5 9.0 8.5 8.0

7.5 2011 2012(July-11May)

Broad money (M2) grew by 9.09 percent during July 11th May 2012, as compared to an increase of 11.47 percent during the same period last year. The decline in broad money (M2) came from the decline in both currency in circulation and deposit money. Deposits During July 11 May 2012, demand and time deposits stood at Rs. 402.6 billion as against Rs 403.5 billion during the same period last year. Hence the decline in currency in circulation is
th

offset by the increase in demand and time deposits. Similarly, resident foreign currency deposits (RFCDs) have increased to Rs. 42.0 billion as compared to Rs. 22.6 billion during the same period last year. Monetary Management Efficient monetary management is crucial in providing a sound and secure financial environment that is favorable for the attainment of both macroeconomic stability and growth. Moreover, a well-developed financial system facilitates the exchange of goods and services by

71

Pakistan Economic Survey 2011-12 providing payment services. It also allocates societys savings to its most productive use by acquiring and processing the information about enterprises and finds possible investment projects. Finally, it helps diversify and reduce liquidity and inter-temporal risk. A stable financial system is essential for an efficient, deep and liquid market. The strains on the financial sector and the credit crunch in the aftermath of the global financial
Table 5.6: Summary of OMO's Injections July August September October November December January February March Total Source: State Bank of Pakistan 2010-11 75.05 165.05 196.55 36.85 67.55 34.10 106.85 119.40 230.85 1,032.25 2011-12 408.45 640.35 1025.10 1058.65 1381.45 1418.90 969.15 1244.40 1210.90 9357.35 2010- 11 20.50 54.40 171.50 102.50 128.55 11.50 51.20 540.15 Absorptions 2011-12 24.00 3.00 27.00 Rs. billion

crisis led to the closing of many credit lines and erosion various of financial mechanisms. Pakistans financial markets witnessed a slowdown in deposit mobilization and profitability in the sector. Conversely, the financial sector remained generally immune to the contagion of the unstable financial sector.

During the first half of fiscal year 2011-12 reliance on the banking system to fund the governments finances created further challenges to striking a balance between cautious liquidity operations and payment system stability. Furthermore, the excess volatility in short term interest rates increased the challenges of monetary management, mainly due to a sharper deterioration in the external current account deficit, a declining trend of foreign
Table 5.7: Market Treasury Bills Auctions
JUL-JUN FY2010-11 Offered 3-Months 6-Months 12-Months 2,837,276 2,226,878 908,194 Accepted 1,668,408 1,614,552 599,015 W.A Rate* 12.8 13.0 13.2

inflows, and a higher currency to deposit ratio. However, other market interest rates, such as KIBOR and the weighted average lending rate (WALR), have largely followed the policy rate reductions. The average spread between the policy rate and the 6 month KIBOR has narrowed to 12 bps after the cumulative 200 bps reduction in the policy rate.

Rs. Million
Offered FY11 2,479,501 1,101,412 437,602 4,018,515 FY12 671,490 1,501,433 2,086,003 4,258,926 Jul-March Accepted FY11 1,484,235 809,208 234,144 2,527,587 FY12 363,478 883,012 1,239,758 2,486,247 W.A.Rate* FY1 FY11 2 12.8 12.5 13.0 13.2 12.7 12.8

5,972,348 3,881,975 Total Source: State Bank of Pakistan Average of maximum and minimum rates

72

Money and Credit C The SBP P accepted Rs. R 2486.2 billion from the t primary market m of T-bills T during g July 2011 1 March 20 012 as comp pared to Rs. 2527.6 billi ion during the e same period d of fiscal yea ar 2010-11. The T market of ffered a total amount of Rs. R 4259 billi ion during the e first nine months m of cur rrent fiscal ye ear 2011-12. In an anticipation of a further cut in n the policy rate r in Octobe er 2011 and onwards o inves stment in long ger tenure pa apers increas sed. During the first ni ine months of 2011-12 months m T-bills s, accounted for 49.9 perce ent of the tota al accepted am mount follow wed by 35.5 pe ercent in 6 mo onths T-bills
Figu ure-5.6: Contr ribution of T-b bills
58.7 60.0 0 35.5

FY 11
49.9 32.0 14.6 9.3

FY Y12

Percent

40.0 0

20.0 0

0.0 0 3-Months 6-Months 12-Months

Fig-5.7: Weighted d Average Int terest Rates 14.5 14.0 13.5 13.0 12.5 12.0 11.5 11.0 Feb-09 Feb-10 Jun-09 Aug-08 Aug-09 Jun-10 Jun-11 A 10 Aug-10 g Aug-11 J 08 Jun-08 Feb-11 Apr-11 Apr-09 Apr-10 Oct-08 Oct-09 Oct-10 Dec-09 Dec-10 Oct-11 Dec 08 Dec-08

6-Month hs 12-Mont ths

Feb-12

Table 5.8: Pakistan Investment Bond ds Auctions Offered Accepted *W.A * Rate PIBs Jul-Jun FY 2010-11
3 Years 5 Years 10 Years 15 Years 20 Years 30 Years Total 81,960 33,306 176,840 2,966 7,875 12,413 315,360 49,712 16,668 101,355 460 875 225 169,295 14.0 13.3 14.1 14.1 14.2 14.2

Offered FY 11
42,227 18,662 111,246 2,031 6,500 11,113 191,779

A Accepted FY 12
50,607 41,938 64,370 2,262 0 0 159,177

Jul-March FY Y12 FY 11
74 4,171 57 7,277 108 8,032 2 2,446 200 210 242 2,336 18,684 6,674 57,537 B BR 525 B BR 83,420

*W.A Rate R FY 11
14.0 13.3 14.1 Nil 14.2 Nil

Dec-11

Rs. Million

F 12 FY
12.8 12.6 12.8 13.5 0.0 0.0

Source:SB BP * : Average of Minimum m and Maximum m rates

During 2011-12, the SBP rose up p to Rs. 159 9.2 billion fr rom the pri imary marke et of Pakist tan Investmen nt Bonds (PIB Bs) as compa ared to Rs. 83 3.4 billion in n the same period last ye ear. The mark ket

d a total amo ount of Rs. 24 42.3 billion in i the offered first nin ne months of f the fiscal year 2011-12 ag gainst Rs. 191 1.8 billion in 2010-11.

Apr-12

73

Pakistan Economic E Sur rvey 2011-12 2 percent t while the weighted ave erage deposit rate (includ ding zero mar rk-up) stood at 6.98 perce ent in March 2012. This resulted in a spread of f 5.82 percent t. The decli ine in the weighted av verage lending g rate is due d to the lag involve ed in contrac cting fresh loans in th he new decl lining interest t rate environ nment and th he decline in banks b return on o governmen nt securities. It is pertinent p to mention m that since the Central Bank was w following g a tight mon netary policy y until August t 2011 and the t interest rates r were moving m up, the t banking g spread remained high. Conseq quently, there e was a lacklu uster movement in deposit t rates. Pakista ans Financial Sector A we ell-developed financial sector play ys an importa ant role in overall o econo omic develop pment, as it mobilizes m savi ings for prod ductive invest tment, facilita ates capital inflows i and remittances from abroad d, and stimula ates investmen nt in both phy ysical and human h capita al. It includ des banks, stock exchan nges, credit unions, insu urance companies, microfi finance instit tutions and money len nders. Hence a sound and stable financial sector s contrib butes to econo omic and soci ial developme ent. Comm mercial Banks s The as sset base of the t banking system s and it ts key elemen nts posted a st trong growth trend, particu ularly in term ms of the dep posit base. However, H the asset mix of f the banking g system shift fted further to oward investm ment, as ba anks continu ued to inve est in govern nment papers s and bonds of public sector s enterpr rises (PSEs). On a Year to year basi is the asset base b of the banking syst tem registere ed an increas se of 15 perce ent and stood at Rs. 8207 billion b in Dece ember 2011 as a compared to t Rs. 7138 billion b in Dece ember 2010.

Figure- 5.8: Contr ribution of PIB Bs


75.0 60.0

FY 10 FY11

Percentages

45.0 30.0 15.0 0.0 3 Years 5 Years 10 Years

he period und der review, he eavy investme ent During th occurred in i 10 years PI IBs which constituted alm most 40.4 perce ent of the tota al accepted am mount.
Table 5.9 9: Lending and Deposit R Rates Weight ted Average (W W.A.) LR R DR Spread Dec-10 14.2 20 7.41 6.79 Jan-11 14.2 22 7.20 7.02 Feb-11 14.1 19 6.99 7.20 Mar-11 14.2 24 7.09 7.15 Apr-11 14.3 37 7.35 7.02 May-11 14.2 21 7.45 6.76 Jun-11 14.2 25 7.22 7.03 Jul-11 14.6 62 7.46 7.16 Aug-11 14.2 22 7.40 6.82 Sep-11 14.2 28 8.40 5.88 Oct-11 13.9 97 8.03 5.94 Nov-11 13.5 58 7.48 6.10 Dec-11 13.2 23 7.06 6.17 Jan-12 13.1 18 7.12 6.06 Feb-12 13.1 14 7.03 6.11 Mar-12 12.8 80 6.98 5.82 Source: Sta ate Bank of Pa akistan

The weigh hted average lending rate (including ze ero mark-up) on outstand ding loans stood s at 12. .80

Table 5.10 0: Highlights of o the Banking g System Rs bi illion CY*05 CY Y06 CY07 CY08 CY Y09 Dec-10 Sep-11 Dec-11 Total Asse ets 3,660 4,353 4 5,172 5,628 6,5 516 7,138 7,763 8,207 Investment ts (net) 800 833 1,276 1,087 1,7 737 2,142 2,845 3,053 Advances (net) 1,991 2,428 2 2,688 3,173 3,2 240 3,349 3,263 3,341 Deposits 2,832 3,255 3,854 4,218 4,7 786 5,450 5,769 6,238 Equity 292 402 544 563 6 660 697 753 784 Profit Befo ore Tax (PBT) 94 124 107 63 81 111 116 170

74

Money and Credit


Table 5.10: Highlights of the Banking System Rs billion CY*05 CY06 CY07 CY08 CY09 Dec-10 Sep-11 Dec-11 Profit After Tax (PAT) 63 84 73 43 54 65 76 110 Non-Performing Loans 177 177 218 359 446 548 613 607 Non-Performing Loans (net) 41 39 30 109 134 182 210 202 Base-I Base-II Capital Adequacy Ratio (all banks) 11.3 12.7 12.3 12.3 14.0 14.0 14.9 14.6 Source: State Bank of Pakistan * Calendar year

The deposits of the banking system increased to Rs. 6238 billion in December 2011 from Rs. 5450 billion in December 2010 thus posted a growth of 14.4 percent year to year basis. With continuous growth in the non-performing loans (NPLs) since CY07, credit risk has been a

major challenge for banks. NPLs reached Rs. 607 billion in December 2011 against Rs. 548 billion recorded in December 2010. The capital adequacy ratio also increased to 14.6 percent from 14 percent during the period under review (Table 5.9).

Fig-5.9: Capital Adequacy Ratio (percent)


15.5 14 12.5 11 9.5 8

BOX-2 Financial Development Financial development in reference to the increase in the ratio of money supply to GDP suggests that the more liquid money is available in the economy, the more opportunities exist in economy for sustainable economic growth. Therefore, the development of the nancial system (nancial deepening) is interlinked with the economic development of any country. Considering M2 as a proxy for the size of the financial sector, increase in M2/GDP ratio reveals that in nominal terms the financial assets are growing faster than the non financial assets. In case of Pakistan, the financial market has shown great resilience in the wake of global financial crisis due to low integration with global financial markets.

Table 5.11 suggests that the M2 to GDP ratio has shown a rising trend since 2000-01 with growing economic activity and rose from 36.7 percent to 47 percent in 2006-07. The ratio

Table5.11: Key Indicators of Pakistan's Financial Development Years M2/GDP DD+TD/M2 2000-01 36.7 75.4 2001-02 40.0 75.4 2002-03 43.1 76.2 2003-04 44.9 76.8 2004-05 45.1 77.6 2005-06 45.0 72.5 2006-07 46.6 74.1 2007-08 44.7 73.3 2008-09 39.2 72.0 2009-10 39.4 71.5 2010-11 37.1 71.8 July-May 2010-11 35.0 70.0 2011-12 34.9 70.1

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started to decline gradually and stood at 37.1 percent in 2010-11. During July May 2012 M2 to GDP ratio has declined further to 34.9 percent as compared to 35 percent in the same period last year on account of the pressure to the liquidity profile of the financial markets mainly due to the rising governments borrowing needs. On the other hand another significant ratio DD + TD/M2, which represents monetary depth, has also shown the declining trend since 2004-05 by decreasing from 77.6 percent to 71.8 percent in 2010-11. This is the period when the monetary policy stance changed from accommodating to tightening. However, reduced policy rate by 200 bps to 12 percent during the current fiscal year 2011-12, resulted in a slight increase of 70.1 percent during July 2011May 2012 from 70 percent during the same period last year. In an effort to improve financial deepening and competition in the banking system, SBP is already encouraging depositors to put their savings in government securities through Investors Portfolio Securities (IPS) accounts which may lead to better returns on deposits over time. Moreover, in May 2008, SBP introduced a minimum percent floor on all categories of Savings/PLS Saving Products. Consequently, average deposit rate of all saving related products increased from 2.1 percent to 5.25 percent, with no significant change thereafter. The saving deposits category now account for 38 percent of all bank deposits and 52 percent of total number of deposit accounts.1

Islamic Banking The Islamic banking industry in Pakistan has maintained a strong and sustainable growth
Table 5.12: Islamic Banks

momentum in the wake of fragile economic conditions. Over the past six years it has witnessed an average growth of 30 percent.
CY08 276.0 201.6 4.90% 4.78% CY09 366.3 282.6 5.60% 5.90% Dec-10 477.0 390.1 6.68% 7.16% Rs. Billion Dec-11 641.0 521.0 7.80% 8.40%

CY05 CY06 CY07 Assets of the Islamic banks 71.5 119.3 205.9 Deposits of the Islamic Banks 49.9 83.7 147.4 Share in Banks Assets 1.95% 2.79% 3.98% Share in Bank Deposits 1.75% 2.62% 3.82% Source: Islamic Banking Department, State Bank of Pakistan *Provisional data

The asset base of the industry reached Rs. 641 billion reflecting 34 percent Year to year (YOY) growth, while the share in bank assets increased to 7.8 percent from 6.7 percent during the period under review. The growth in assets is mainly attributed to financing and investment that together grew by 40 percent year to year basis. On the other hand deposits reached to Rs. 521 billion depicting YOY growth of 34 percent by end of Dec 2011. Thus it contributed 8.4 percent in banks deposits against 7.2 percent in Dec 2010. Similarly operating performance indicators also witnessed encouraging performance in 2011, as nonperforming financing (NPFs) declined while return on assets (ROA) and return on equity (ROE) both

remained higher than that of overall banking industry average. The breakup of financing in CY11 indicates that Murabaha dominates followed by Diminishing Musharaka and Ijara with all other modes constituting a relatively small share. Microfinance The Government of Pakistan and the SBP remain committed to promoting microfinance as a long term strategy to broaden access to financial services by the low income segments, thus improving their livelihood and income generating opportunities.

Monetary Policy statement, April, 2011-12

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Table 5.13: Financing Products by Islamic banks Mode of Financing CY05 Murabaha 44.4 Ijara 29.7 Musharaka 0.5 Mudaraba Diminishing Muskaraka 12.8 Salam 0.6 Istisna 1.4 Others 12.1 Source : State Bank of Pakistan CY06 48.4 29.7 0.8 14.8 1.9 1.4 3.0 CY07 44.5 24.0 1.6 0.3 25.6 1.4 1.0 1.6 CY08 36.5 22.1 2.1 0.2 28.9 1.8 2.9 5.4 CY09 42.3 14.2 1.8 0.4 30.4 1.2 6.1 3.6 CY10 44.9 12.7 2.9 0.2 29.5 1.4 5.8 2.6 %age CY11 43.8 10.4 2.4 0.1 32.0 2.4 4.4 4.4

The overall microfinance sector witnessed loan portfolio growth of 13 percent over the year. Its gross loan portfolio stood at Rs. 28.84 billion as the quarter ended in December 2011 with 2.07 million active borrowers. On the deposit side, the number of depositors of Micro Finance Banks (MFBS) increased to 1.44 million with a deposit base of Rs. 13.6 billion as of March 31, 2012. The overall performance of the sector remained positive in spite of the various challenges including the heavy floods/rains that adversely affected

various parts of the country especially Sindh, for the second consecutive year. The loan portfolio growth is attributable to the recent microfinance sector strategy that stresses the need for microfinance providers to diversify portfolio in different economic and geographic segments. The NPLs of microfinance banks have also dropped to two (2) percent as the quarter ended in March 2012 against 5.29 percent in March 2011 depicting effectiveness of the credit process. The sector was able to expand its retail network to 1,739 business locations across the country.

Table 5.14: Microfinance Industry Indicators Year Institution Number Number of Total No. of of MFBs Branches Borrowers Dec-08 MFBs MFIs Total Dec-09 MFBs MFIs Total Dec-10 MFBs MFIs Total Dec-11 MFBs MFIs Total Source: State Bank of Pakistan 7 20 27 8 21 29 8 21 29 9 23 32 271 1,186 1,457 284 1,159 1,443 284 1,252 1,536 303 1,436 1,739 542,641 1,190,238 1,732,879 703,044 1,123,001 1,826,045 717,141 1,342,395 2,059,536 733,931 1,339,140 2,073,071

Gross loan Average Total No. of Deposits portfolio Loan Size Depositors (Rs) (Rs. In '000) (Rs. In '000) 6,461,462 11,907 254,381 4,115,667 11,952,000 14,940 18,413,462 10,626 254,381 4,115,667 9,004,000 13,576 459,024 7,099,206 12,719,000 11,326 21,723,000 12,131 459,024 7,099,206 10,528,000 20,151 780,294 10,289,000 14,966,000 17,180 25,494,000 18,385 780,294 10,289,000 14,650,000 19,691 1,362,202 13,927,066 14,195,000 10,600 28,845,000 13,914 1,362,202 13,927,066

Microfinance Policy Initiatives The policy framework for microfinance has evolved in tandem with sector growth. It encourages private sector participation by supporting a multi-institutional approach. The regulatory instructions are developed in view of

the present market situation and MFBs preparedness allowing adequate room for further innovation and market development. During the past two consecutive years Pakistan was globally ranked first by the Economist Intelligence Unit (EIU) of the Economist magazine, in terms of

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Pakistan Economic Survey 2011-12 microfinance regulatory framework via its reports released in 2010 and 2011. In September, 2011 the Waseela Microfinance Bank was granted a license under the Microfinance Institutions Ordinance, 2001 to operate nationwide. In addition, the Auriga Group acquired the district wide Network Microfinance Bank with the intent of upscaling its operations as a nation wise MFB. Also in the same month, the general provisioning requirement for MFBs was withdrawn in cases where loans were backed by liquid securities, gold, or other cash collateral with appropriate margin. However, in case of all other loans, microfinance banks shall maintain general provision of 1%. In March 2012, the State Bank has revised Prudential Regulations No. 10 and 11 for MFBs to
Box-3 Programs initiatives: SBP is playing a pivotal role in promoting inclusive finance through implementation of government and donor funded programs. These programs are managed with the objective of enhancing the provision of financial services to unbanked segments especially to the poor and marginalized population through sustainable models. The updates on government programs and SBP market interventions are as follows: 1. Financial Inclusion Program (FIP): FIP is implemented with grant assistance of 50 million pounds from the UK Governments Department for International Development (DfID). SBP has successfully launched a number of market interventions under FIP since 2008. Progress under each of these interventions is as follows: a. The Institutional Strengthening Fund (ISF) was launched to strengthen institutional and human resource capacity of MFB is in order to enhance scale and sustainability of microfinance services. So far funding support of Rs. 819 million has been approved for 19 microfinance providers including top and middle tier MFBs and MFIs as well as the Pakistan Microfinance Network. The grant covers 22 projects addressing institutional strengthening needs of the grantee institutions for capacity building/ HR training, IT development, business plan/ strategic reviews, market research, branchless banking, corporate governance, credit ratings, remittances, and treasury functions, and others. Microfinance Credit Guarantee Facility (MCGF) was launched to mobilize wholesale commercial funding for microfinance providers through partial guarantees to commercial banks. So far, fourteen (14) guarantees with a total exposure of Rs. 957 million have been issued for mobilizing Rs. 3,275million. Credit Guarantee Scheme (CGS) for Small and Rural Enterprises aims to facilitate credit to small and rural businesses through partial guarantees. So far partner banks have booked guarantees of Rs. 1,107 billion against sanctioned loans of Rs. 2.711 billion for 3,846 small and rural enterprises by the end of March 2012. Financial Innovation Challenge Fund (FICF): was launched in May 2011. It aims to foster innovations and test new markets, lower cost of delivery, enable systems and procedures to be more efficient and provide new ways of meeting the unmet demand for financial services. A number of applications were received under the 1st

facilitate lending to microenterprise segment. For these purposes, the term microenterprise shall mean projects or businesses in trading, manufacturing, services, and agriculture sectors that lead to livelihood improvement and income generation. Microenterprises are undertaken by micro-entrepreneurs who are either self-employed or employ few individuals; these businesses do not exceed 10 employees and they excluded seasonal labor. The revisions will facilitate lending of up to Rs. 500,000 to eligible microenterprises. Moreover, MFBs that previously were unable to tap the microenterprise market constraints of lending up to Rs. 150,000 under the general loans category will now be able to upscale their credit operations.

b.

c.

d.

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round and the selected applicants will be announced after due process. 2. Improving Access to Financial Services Fund (IAFSF) The following interventions have been taken under IAFSF: a. Nationwide Financial Literacy Program has been launched in January 2012 to disseminate basic education about financial concepts, products and services to the masses. Grass Root Level Training Programs on Microfinance is a series of 40 individual training programs expected to benefit 1000 participants from various microfinance providers. So far 12 training Programs have been organized.

b.

Insurance Sector The insurance industry in Pakistan is relatively small compared to its counterparts in the region. The insurance penetration and density remained
Fig-5.10: Insurance Penetration in Pakistan

modest as compared to other jurisdictions while the insurance sector remained underdeveloped relative to its potential. As of December 2010, the industrys total premium revenue stands at Rs. 100.58 billion.

Box-4 Way Forward 1. Development of New Insurance Law: SECP is considering embarking upon the initiative of revamping of insurance laws in Pakistan. The derived benefits will include a new regulatory and supervisory framework encompassing enhanced reserves and capital requirements, insurance industrys risk-focused surveillance mechanisms, training and capacity building to support the implementation of the improvised insurance regulatory framework. Under this new regime, certain new regulations will also be introduced where no such framework exists currently such as regulations for reinsurance, regulations for insurance & reinsurance brokers, regulations for alternate distribution channels, regulations for disclosure requirements and consumer protection, regulations for Takaful Investment Products, and others. Voluntary Pension Schemes by Insurance companies: Although there are already nine (9) Pension Funds

2.

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operating under the Voluntary Pension System Rules, 2005, none of the insurers have so far ventured in this area while registering itself under these rules. The SECP intends to make the existing Rules more conducive and equally attractive for insurers by initiating a consultative process with the relevant stakeholders and encouraging the insurance companies to offer voluntary pension products. 3. Development of Crop Insurance in Pakistan: The agriculture sector contributes approximately 21 percent to Pakistan's GDP and generates about 45 percent of employment. It also contributes to the economic growth of the country by supplying raw materials to the industry as well as for export purposes. With the proliferation of numerous initiatives launched by the public and private sector, including the access to financial services in rural areas, it has become imperative that measures be taken to mitigate risks to which farmers are exposed. It is a known fact that agricultural production can increase if the vagaries of nature and the risks associated with it can be better managed. While, the majority of areas of our agricultural economy are exposed to adverse weather events such as floods and droughts, crop diseases and other disasters, the immediate need is to provide it with a carefully designed tool to mitigate such inherent risks. As the apex regulator of the insurance industry, it is the endeavor of SECP to develop and promote the agricultural insurance in order to ensure the well-being of the economy. Also, while augmenting the efforts of government whereby it formed a crop insurance scheme in year 2008 and the recent interest to develop a scheme available to all farmers of the country involved in the cultivation of the major crops, there is a need of bringing all stakeholders, including SECP, State Bank of Pakistan, insurance industry, agriculture and livestock development departments/ agencies, together to articulate the development of crop insurance in Pakistan. SECP will be working to help in building a market-based approach in the design and pricing of crop insurance products.

Conclusion Pakistans financial institutions are doing the utmost to continue to respond to the global economic and financial volatility. Although Pakistan was not heavily affected by the financial crisis of 2007, it is taking every precaution in how it moves forward to support growth and monitor

inflation. Efforts continue in avoiding high inflationary pressures, mitigating heightened security risks, eliminating power shortages and providing a lower cost of doing business, in order to boost Pakistans economy. With evidence of its past resilience in rough economic times, the future roles of money and credit in Pakistan remain optimistic.

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Chapter 6

Capital Markets
Introduction The capital market, like the money market plays a significant role in the national economy. A developed, dynamic and vibrant capital market can contribute significantly in the speedy economic growth and development. It mobilizes funds from people for further investments in the productive channels of an economy, activating idle monetary resources and puts them in proper investments. Capital market also helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. It raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a longer period of time. It provides suitable interest rate return also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provide diverse investment avenues for the public. The capital market enhances production and productivity in the national economy. As it makes funds available for long periods of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in increasing production and productivity in the economy by generation of employment and development of infrastructure. The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. The developed capital market also provides access to foreign capital for domestic industry. Thus the capital market definitely plays a constructive role in the overall development of an economy. Capital markets consist mainly of Stock (equity) and Debt markets. The capital market provides an avenue for raising the long-term financing needs of business through equity and long term debt by attracting investors with a long term investment horizon. Pakistan Equity Markets The Karachi Stock Exchange (KSE) is the biggest and most liquid exchange in Pakistan with an average daily turnover of 254 million shares and market capitalization of US $ 41.0 billion as of the first week of May, 2012. The international magazine 'Business Week' declared the KSE as the best performing world stock market in 2002. Since then, international investors have given due considerations to the KSE in making decisions regarding foreign investment in equity markets. Since 1991, foreign investors have an equal opportunity together with local investors to operate in the secondary capital market on the Karachi Stock Exchange. The establishment of the new policy for foreign investors and the privatization initiated in Pakistan has accelerated the development of the KSE, which had 591 companies listed in 2012. The Karachi Stock Exchange trades the KSE-100 Index. It is a highly-diversified index of 100 largest capitalization companies stocks from all sectors of Pakistans economy. A constantly revised index is a good indicator of the overall exchange performance over a period of time. In May, 2012, 92 percent of the KSE total market 81

Pakistan Economic Survey 2011-12 capitalization was represented by the KSE-100 Index. The Lahore Stock Exchange is the second stock exchange established in Pakistan in 1971. Today, the LSE is the only domestic exchange to have more than one trading floor and is also the only exchange in the region to have established a unified order book with another domestic stock exchange in the country. The institution was established to facilitate the investors of Punjab and Northern areas by providing them an access to the capital market and enabling them to take part in the progress of the corporate sector of the country. The Lahore Stock Exchange Twenty Five company index, the LSE25, calculates the performance of stocks of major companies. The third stock exchange, the Islamabad Stock Exchange, was incorporated as a guarantee limited company in 1989 in Islamabad with the main object of setting up a trading and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place. The purpose for establishment of the stock exchange in Islamabad was to cater to the needs of less developed areas of the northern part of Pakistan. ISE10 index monitors the performance of the ISE. Developments in 2011-12 The Pakistan stock markets remained range bound during the first half with a predominantly declining trend. The obscure movement of the stock market statistics was consequent to various challenges faced by the country including escalating political upheaval, uncertainty due to worsening law and order situation as well as rumours on the economic front pertaining to reduction in military and civil aid from international donors, the Pak rupee depreciation and increasing fiscal deficit of the government. However, the KSE-100 index resumed its momentum during the 3rd quarter of 2011-12 owing to certain encouraging measures like considerable reduction in discount rate by the SBP during latter period of the first half of Current Financial Year and increase in foreign exchange reserves. Further, the market sentiment was boosted by the proposed promulgation of the Capital Gain Tax Ordinance under which the National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the Capital Gain Tax (CGT) on listed securities. The subject Ordinance was finally promulgated on the 24th April, 2012. In Pakistan, securities trading remained exempt from CGT for 36 years till June 30, 2010. The imposition of CGT on securities from July 1, 2010 has not only impacted the tax revenue (less than 10 percent of figure three years ago) but also reduced average traded value to the lowest level during the last ten years. During the period of exemption, the investors kept making gains from the securities trading which remained undocumented due to exemption from requirement of filing of income tax returns relating to exempt income. In 2010, after the imposition of CGT, investors were required to file the income tax returns along with declaring the source/evidence of investments for which they did not have the documented details. Due to this the investors reduced investments in the stock markets and the average daily turnover reduced along with the reduction in the share prices. To address the distress condition of share trading in the stock market, some mechanism was required to provide relief to the investors who were subjected to 100 percent documentation of the gains and increase in the tax revenue. This has now been done with the promulgation of the CGT Ordinance under which NCCPL has been appointed as an intermediary entity to compute, determine, collect and deposit the CGT on listed securities. NCCPL is a clearing company where all the amounts relating to the trading activity in the stock markets in Pakistan are settled. Therefore the NCCPL can capture and tax all the transaction in which capital gain arises under the income tax law. The NCCPL will compute tax for all type of investors except the few financial intermediaries, foreign institutional investors and any other person specified by FBR. The tax rate for CGT will be 8 percent and 10 percent for investment holding up to six months and 12 months respectively till June 30, 2014. NCCPL will be depositing the tax with the FBR on an annual basis.

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Capital Markets In addition, no question relating to the source/nature of money will be asked by the tax authorities if the money remains invested in the stock market for a period of 45 days (till June 30, 2012) and 120 days (till June 30, 2014) before and after the promulgation of CGT Ordinance with a condition that the investor files with FBR a statement of investment, wealth statement, income tax returns and statement that the due tax has been paid. Further the automated system of the NCCPL will be audited on a quarterly basis and the NCCPL will submit quarterly statements to FBR relating to the CGT. Performance of Karachi Stock Exchange A total of 591 companies were listed at the Karachi Stock Exchange (KSE) as of May 04, 2012 with a total listed capital of Rs1,059.087 billion. The aggregate market capitalization as on May 04, 2012 stood at Rs. 3,730.489 billion which remained below 18.1 percent of the provisional estimates of GDP, fiscal year 2012. Market performance in terms of volumes also remained sluggish during the first half of the 2011-12 but volumes gathered pace in the 3rd
Table 6.1: Profile of Karachi Stock Exchange Description 2007-2008 Total listed companies New companies listed Fund mobilized (Rs. in billion) 652 7 62.88 2008-2009 651 8 44.95 781,793.81 2,120,650.87 28,332.78 115.64 2009-2010 652 8 111.83 909,893.67 2,732,373.61 42,959.12 172.53 2010-2011 639 1 31.04 943,732.85 3,288,657.32 28,018.14 111.63 2011-12 (end March 2012) 591 3 107.29 1,058,455.26 3,528,143.84 23,633.28 127.75

quarter. The average daily volume for the nine months was 108.21 million shares. The investment by foreign investors in the capital markets during the period from July 2011 to March 2012 depicted a net outflow of USD 176.303 million.
Fig-1: Net Inflow of Foreign Investment
600,000 400,000 200,000 0 (200,000) (400,000) (600,000) (800,000) (1,000,000) (1,200,000) 2007-08 2008-09 2009-10 2010-11 2011-12 (Jul-Mar)

Total Listed Capital 706,419.98 (Rs. in million) Total Market Capitalization 3,777,704.89 (Rs. in million) Total Shares Volume 63,316.12 (million) Average Daily Share volume 256.34 (million) Source: Karachi Stock Exchange

The closing value of KSE 100-index as on May 07, 2012 stood at 14,617.97 points registering a growth of 17.04 percent as compared to July 01, 2011 when the index stood at 12,484.17 points. It

also touched its highest level of 14,617.97 points on May 07, 2012 and lowest level of 10,842.26 points on August 23, 2011.

US 000 $

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Table 6.2: Leading Stock Market Indicators on KSE (KSE-100 Index: November (1991=1000) Months 2010-11 2011-12 KSE Index Market Turnover KSE Index Market (end month) Capitalization Of shares (end month) Capitalization (Rs. Billion) (billion) (Rs. Billion) July 10,519.02 2,992.5 1.5 12,190.37 3,247.4 August 9,813.00 2,781.3 1.2 11,070.58 2,938.0 September 10,013.31 2,810.3 1.2 11,761.97 3,125.8 October, 10,598.40 2,943.1 2.2 11,868.88 3,119.1 November 11,234.76 3,113.8 2.3 11,532.83 3,022.6 December 12,022.46 3,324.4 2.9 11,347.66 2,960.1 January 12,359.36 3,392.6 3.6 11,874.89 3,064.0 February 11,289.23 3,109.9 1.8 12,877.88 3,317.7 March 11,809.54 3,181.1 2.2 13,761.76 3,501.8 April, 12,057.54 3,2241.8 1.6 13,990.38 3,548.9 May 12,123.15 3,249.9 1.6 June 12,496.03 3,315.8 1.7 Source: Karachi Stock Exchange

Turnover Of shares (billion) 1.2 1.0 1.4 1.8 0.9 0.8 1.6 3.9 7.0 6.6

Fig-2: KSE Index


15000 14000 13000 12000 11000 10000 9000

Fig-3: Market Capitalization


3900 3700 3500 3300 3100 2900 2700 2500

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Capital Markets Various steps are being taken by the SECP to encourage new listings. These include the following: ` The management of unlisted public companies is being approached through stock exchanges to motivate them for listing at the stock exchanges. An initial public offering (IPO) summit has also been organized to identify potential IPOs and to attract them to list their companies on the stock exchanges. Various regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached so that their regulated entities can be motivated for listing. Formation of a technical committee, comprising members from all the three stock exchanges and the commission to take necessary steps for encouragement of new listing. Such steps include review of the existing regulatory framework for new listing; introduction of venture/SME board for listing of small capital based companies and venture companies; amendments in the listing regulations for reviewing the minimum allocation of capital to the general public; devising a procedure for allocation of capital to various categories of applications during IPOs, and bringing uniformity in the listing regulations of all the three stock exchanges of Pakistan. year 2010 the profit after tax was Rs. 104,249.82 million. As on March 31, 2012 the total market capitalization of this sector was Rs. 1,186,015 million as against total paid up capital of Rs. 74,537.225 million. Chemicals Within this sector 32 companies are listed, with total paid up capital of Rs. 95,480.23 million and the market capitalization was Rs. 393,536.80 million. The profit after tax of this sector was Rs. 49,515.7 million. Six fertilizer manufacturing companies are included in this sector which has earned good profits during the year. These include Engro Chemicals, Fatima Fertilizer Company, Fauji Fetilizer Company and Fauji Fetilizer Bin Qasim etc. Construction and Materials This sector comprises of 36 companies, with total listed capital of Rs. 77,003.96 million and the market capitalization of Rs.113,500.56. On the back of higher cement prices and increase in local demand the sector also showed growth which translated into good financial results compared to last year. In 2011 the total loss after tax has come down to Rs.404.275 million as against total loss of Rs. 6,107.25 million in year 2010. Automobile and Parts The sector comprises of 16 companies with the total paid up capital of Rs. 6,940.80 million and the total market capitalization was Rs. 43,857.87 million. The sector posted total profit of Rs. 4,519.86 million in year 2011. Automobile sales also picked up in spite of increase in prices of locally manufactured cars. Personal Goods This is the largest sector with 188 companies (mostly related to the textile sector) with a listed capital of Rs. 54,366.23 million and market capitalization of Rs. 54,366.23 million. The total profit after tax of this sector was Rs. 26,807.96 million. Fixed Line Communication The sector comprises of 5 companies which includes PTCL with capital of Rs. 51,000 million. 85

Sector wise Performance Oil and gas Sector, food producers, chemicals, construction and materials were the outperforming sectors during the current year. Performance of some of the major sectors is mentioned below. Oil and Gas In this sector 12 companies are listed at the Karachi Stock Exchange. In addition to the oil and gas exploration companies, oil marketing companies and refineries are also listed in this sector. Due to global increase in prices and higher consumption, Pakistans oil and gas sector has also shown good profits, and continued to be the major market player. In the year 2011 the total profit before tax was Rs. 196,116.97 million, whereas profit after tax was Rs. 134,496.29 million. In the

Pakistan Economic Survey 2011-12 The total paid up capital of this sector is Rs. 68,858.86 million and the market capitalization of Rs. 51,638.25 million. The total profit after tax was Rs. 2,828.473 million in year 2011. Food Producers This sector comprises of 57 companies (mostly sugar related) with total paid up capital of Rs. 20,476.29 million and market capitalization of Rs. 383,406.15 million. The profit after tax of this sector was Rs.16, 462.50 million in year 2011. Commercial Banks The sector comprises of 23 listed banks with listed capital of Rs. 382,507 million and market capitalization of Rs. 774,521.13 million. The total profit after tax of this sector increased to Rs. 104,213.46 million from Rs. 65,060.58 million in year 2010. Pharmaceuticals and Bio Tech The sector comprises of 9 listed pharmaceutical companies with paid up capital of Rs. 4,955.77 million; whereas the market capitalization was Rs. 33,509.46 million. The total profit after tax of this sector was Rs. 4,041.26 million. Performance of some Blue Chips During July-March 2011-2012, the total paid up capital of fifteen big companies (Oil & Gas Development Company Limited, Pakistan Petroleum Limited, Nestle Pakistan Limited, Fauji Fertilizer Company Limited, Habib Bank Limited, MCB Bank Limited, Pakistan Oilfields Limited, Unilever Pakistan Limited, National Bank of Pakistan, United Bank Limited, Allied Bank Limited, FATIMA Fertilizer Limited, Fajui Fertilizer Bin Qasim limited, Hub Power Company Limited and Pakistan Telecommunication Limited) was Rs. 215.87 billion, which constituted 20.7 percent of the total listed capital at KSE. These fifteen companies earned a profit after taxation of Rs.248.19 billion in the fiscal year up to March 2012. Out of the total profit after tax, the share of OGDCL and PPL was Rs. 94.98 billion representing 38.3 percent of the fifteen big companies. For the period ending March 31, 2012, earnings per share for the top rated companies ranged from a 1.46 in the case of PTCL to 307.98 in respect of Unilever Pakistan. This indicates that the business environment in the current fiscal year has improved considerably for the blue chip companies (Table 6.3).
Market Price PE ratio Market (Rs.) Capitalization March 31, (Rs. billion) 2012 14.77 167.66 11.35 721.09 182.79 4447.00 124.84 111.37 175.44 365.24 5601.00 45.62 76.68 63.92 23.72 41.57 37.63 12.31 6.95 43.20 4.71 5.92 7.55 7.99 18.19 4.36 6.21 5.42 11.52 3.61 8.03 8.45 218.43 201.67 105.88 122.74 146.71 86.40 74.46 76.30 93.18 54.99 47.44 38.83 43.54 62.78

Table 6.3: Price to Earnings Ratio of Top Fifteen Companies Name of Company Profit After Paid up EPS Tax in Capital (Rs. billion) (Rs. billion) Oil & Gas Development Company Limited Pakistan Petroleum Limited Nestle Pakistan Limited Fauji fertilizer Company Limited Habib Bank Limited MCB Bank Limited Pakistan Oilfields Limited Unilever Pakistan Limited National Bank of Pakistan United Bank Limited Allied Bank Limited FATIMA Fertilizer Limited Fajui Fertilizer Bin Qasim limited The Hub Power Company Limited Pakistan Telecommunication Limited Source: Karachi Stock Exchange 63.53 31.45 4.67 22.49 20.74 19.42 10.82 4.09 17.60 15.50 10.14 4.12 10.77 5.42 7.43 43.01 11.95 0.45 8.48 11.02 8.36 2.37 0.66 16.82 12.24 8.60 20.00 9.34 11.57 51.00

26.31 102.94 26.52 18.82 23.23 45.72 307.98 10.47 12.66 11.79 2.06 11.53 4.69 1.46

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Capital Markets Performance of Lahore Stock Exchange The top market indicators witnessed an encouraging trend at the Lahore Stock Exchange (LSE). The turnover of shares on the LSE during Jul-March, 2011-12 was 0.587 billion shares compared to 0.923 billion during the same period last year. The total paid-up capital with the LSE increased from Rs. 888.2 billion in June, 2011 to
Table 6.4: Profile of Lahore Stock Exchange 2006-07 Total Number of Listed Companies New Companies Listed Fund Mobilized (Rs billion) Listed Capital (Rs billion) Turnover of Shares (billion) LSE 25 Index Aggregate Market Capitalization (Rs billion) * : Funds mobilized through Right issues. Source: Lahore Stock Exchange 520 10 38.8 594.6 8.2 4,849.9 3,859.8 2007-08 514 2 29.7 664.5 6.5 3,868.8 3,514.2 2008-09 511 9 32.8 728.3 2.7 2,132.3 2,018.2 2009-10 510 25 67.5 842.6 3.4 3092.7 2622.9 2010-11 496 9 18.1 888.2 1.1 3,051.1 3,166.0 2011-12 (Jul-Mar) 460 2 5.5* 981.7 0.6 3,707.6 3,294.1

Rs. 981.7 billion in March, 2012. The LSE25 index which was at 3,051.1 points level in June, 2011, increased to 3,707.6 points in March, 2012. The market capitalization of the LSE has increased from Rs. 3,166 billion in June, 2011 to Rs. 3,294.1 billion in March, 2012. Two new companies were listed with the LSE during Jul-Mar 2011-12 in addition to listing of seven Open End Funds and one TFC and Bond during the same period.

Performance of Islamabad Stock Exchange The Islamabad Stock Exchange (ISE) witnessed a mixed trend during the first nine months of 201112. The ISE-10 index started at 2,722.8 points on July 01, 2011 and closed at 2,821.9 points level at the end of March, 2012 showing an increase of 99.1 points (3.6 percent). The highest level of the
Table 6.5: Profile of Islamabad Stock Exchange 2006-07 Number of Listed Companies New Companies Listed Fund Mobilized (Rs. billion) Listed Capital (Rs. billion) Turnover of Shares (billion) ISE 10 Index Aggregate Market Capitalization (Rs billion) Source: Islamabad Stock Exchange 246 12 30.7 488.6 0.2 2,716 3,060.6

index 2,907.97 was witnessed on March 05, 2012 as compared to the lowest level of 2,302.8 as on August 23, 2011. The average daily turnover of shares in the ISE during Jul-March, 2011-12 was 0.11 million shares as compared to 0.14 million shares during 2010-11. ISE index however increased to 2,942.01 points on May 07, 2012.

2007-08 248 7 24.6 551 0.6 2,749.6 2,872.4

2008-09 261 15 24.8 608.6 0.3 1,713 1,705.1

2009-10 244 2 76.7 715.7 0.2 2,441.2 2,261.7

2010-11 236 17.8 727.0 0.04 2,722.8 2,621.1

2011-12 (Jul-Mar) 254 20.8 830.5 0.01 2,821.9 2,824.4

The total funds mobilized during Jul-Mar, 2011-12 in the three stock exchanges amounted to Rs. 133.6 billion compared to Rs. 66.9 billion in the last fiscal year. The total turnover of shares in the three stock exchanges during the first three quarters of the current fiscal year was 24.24 billion shares,

compared to 29.16 billion shares during the last financial year. Corporatization and Demutualization of Stock Exchanges The Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, was 87

Pakistan Economic Survey 2011-12 promulgated with the signing of the bill by the President of Pakistan on May 7, 2012. The demutualization bill was approved on March 27, 2012, in a joint session of the Parliament. The demutualization law provides a framework for the corporatization, demutualization and integration of the stock exchanges and had been drafted by the SECP after consensus with all the stakeholders. The law requires the stock exchanges to be demutualized within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualization exercise. At present, the Pakistan stock exchanges are operating as non-profit companies with a mutualized structure wherein the members have the ownership as well as trading rights. This structure inherently creates conflict of interest as members predominantly control the affairs of the stock exchange which results in lack of transparency in the operations of the stock exchange and compromises investors interest. Also, due to lack of resources our exchanges have not been able to grow to the expectations of investors, as trading activity is mostly concentrated of these exchanges with the dominant share going to the Karachi Stock Exchange. Corporatization and demutualisation of stock exchanges would entail converting the stock exchanges structure from non-profit, mutually owned organizations to for-profit entities owned by
Box-1 Measures to encourage New Equity Listings: Various steps are being taken to encourage new listings which include the following: ` The management of unlisted public companies is being approached through stock exchanges to motivate them for listing at the stock exchanges. An IPO Summit has been organized to identify potential IPOs and to attract them to list their companies on the stock exchanges Various regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached so that their regulatees can be motivated for listing Formation of a technical committee, comprising members from all the three stock exchanges and the commission to take necessary steps for encouragement of new listing. Such steps include o o o revision of the existing regulatory framework for new listing introduction of SME board for listing of small capital based companies and venture companies amendments in the listing regulations for reviewing the minimum allocation of capital to the general public

shareholders. Demutualization would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading and ownership rights. Demutualization will assist in expansion of market outreach, resulting in larger number of investors, improved liquidity and better price discovery. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualization will also facilitate consolidation of brokers leading to financially strong entities. Demutualization is a well-established global trend and almost all stock exchanges worldwide operate in a demutualized set up. The enactment of this law will bring the Pakistan capital market at par with other international jurisdictions such as India, Malaysia, Singapore, the US, the UK, Germany, Australia, Hong Kong, and Turkey. Listing Guide Book In order to facilitate the issuers/offerers of securities and to create awareness among the general public about the process of initial public offerings (IPOs), a listing guide book (LGB) has been published by the SECP. LGB not only contains general information about the purpose and benefits of listing but also contains all major legal requirements applicable to IPOs and listings.

` `

88

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o o devising a procedure for allocation of capital to various categories of applications during IPOs, and bringing uniformity in the listing regulations of all the three stock exchanges of Pakistan

Global Stock Markets During fiscal year 2011-12, the leading stock markets indices of the world observed mixed trends. Some of the markets witnessed negative growth ranging from 18.1 percent (China) to 3 percent (UK). Whereas major stocks which observed positive growth include, Philippines (19.03 percent), Pakistan (10.13 percent), US S&P

500 (6.65 percent), Indonesia Jakarta composite (5.99 percent) and Tokyo Nikkei 225 (2.72 percent). It may be noted that compared with the other world indices, the Pakistan stock market performed well during the current fiscal year. This was mainly due to the steps taken by the current government to boost the confidence of the equity market investors which included reforms in the Capital Gains Tax, etc.

Table 6.6: Global Stock Indices during June 30, 2011 to March 2012 Date Change June 2011-Mar Index 2012
30-Jun-2011 31-Mar-2012 Points %

Local Currency V/s US$


30-Jun-2011 31-Mar-2011

KSE 100 Index Philippines PSE Composite Jakarta Composite Kuala Lumpur KLSE Composite US S&P 500 New Zealand NZX 50 UK FTSE100 Australia AORD Seoul Composite Tokyo Nikkei225 Singaporer Strait times Hong Kong Hang Seng Bombay Sensex Taiwan T.weighted China Shanghai Comp Source: Karachi Stock Exchange

12496.03 4291.21 3888.57 1579.07 132064 3448.35 5945.70 4659.80 2100.69 9816.09 3120.44 22398.10 18845.87 8652.59 2762.08

13,761.76 5,107.73 4,121.55 1,596.33 1,408.47 3,509.55 5,768.50 4,420.00 2,014.04 10,083.56 3,010.46 20,555.58 17,404.20 7,933.00 2,262.79

1265.73 816.52 232.98 17.26 87.83 61.20 -177.20 -239.80 -86.65 267.47 -109.98 -1842.52 -1441.67 -719.59 -499.29

10.13 19.03 5.99 1.09 6.65 1.77 -2.98 -5.15 -4.12 2.72 -3.52 -8.23 -7.65 -8.32 -18.08

85.95 43.33 8,570.00 3.02 1.21 0.62 0.93 1,068.88 80.73 1.23 7.78 44.70 28.79 6.46

91.02 42.90 9,138.00 3.06 1.22 0.62 0.97 1,131.95 82.84 1.26 7.77 50.87 29.53 6.30

Debt Capital Markets The importance of a sound and diversified financial sector, which efficiently performs the function of financial intermediation, can hardly be overemphasized. However, it has been observed over the years that Pakistans economy relied mostly on the banking system to meet the financing needs of the economy, whereas the capital markets developed relatively slowly. In Pakistan, within the overall capital markets, equity markets have grown more significantly. During the past few years the significance of debt markets and in particular, the bond markets has been realized as a complementary source of finance. Notably, the

government has a market-completion role in the development of the debt market. As the primary issuer of sovereign bonds of various tenors, the government effectively establishes the benchmark for the pricing of private sector debt instruments. In most Asian countries, as in Pakistan, the bond market is dominated by government bonds. The major drivers of financial assets in Pakistan are deposits and government bonds, whereas corporate bonds remain a very small portion. Pakistan Investment Bonds (PIBs) remain the longest tenor sovereign bonds, providing the benchmark yield curve for private issuances. The National Savings Schemes (NSS), on the other 89

Pakistan Economic Survey 2011-12 hand, with tenors up to 10 years, provide risk-free investment options to retail and institutional investors. Government Securities Pakistan Investment Bonds (PIBs) are long term bonds issued by the Government of Pakistan and sold through the State Bank of Pakistan via periodic auctions. These are long term Bonds issued by the Government of Pakistan, offering a risk free investment to the bond holders at premium interest rates depending on the maturity of the bond. PIBs are issued with tenors of 3, 5, 7, 10, 15, 20 and 30 Years. Backed by the government, they present a low risk long term investment option. The Pakistan Investment Bonds offer a fixed semiannual coupon and repayment of principal at maturity. They are highly liquid Statutory Liquidity Requirement (SLR) eligible securities that are actively traded in the secondary market. The minimum denomination of PIBs is Rs.100, 000. The government conducted fourteen auctions of PIBs in 2009-10, seven in 2010-11 and seven in 2011-12 (Jul-Mar) raising Rs. 64.7 billion, Rs.169.291 billion and Rs. 159.246 billion respectively. A well-developed corporate bond market is essential for the growth of the economy as it provides an additional avenue to the corporate sector for raising funds for meeting their financial requirements. During the period under review JulyDecember 2011 two listed debt instruments were offered to the general public i.e. offering Rs. 2 billion Term Finance Certificates (TFC) with a Greenshoe Option of Rs. 1 billion by Engro Corporation Ltd and offering Rs. 1.5 billion TFCs by Summit Bank Limited. The TFCs by Engro Corporation Ltd., were offered to retail investors only whereas, TFCs offered by Summit Bank Ltd., were offered to both institutional and retail investors. TFC Issue by Engro Corporation Ltd., was oversubscribed, whereas, TFC Issue by Summit Bank Ltd., was under subscribed.

Table 6.7: Listing of Debt Instruments during July 2011 to March 2012 S.No. Name of the Company Floated on Formal Listing Date i. Engro crop. Ltd. (2nd Issue) (2nd issue-Engro Rupiya Certificate) Summit Bank Limited June 01,2011- August November 04, 2011 31,2011

Listed at

KSE LSE

Issue Size: (In billion rupees) 2.00

ii.

October 27, 2011

01-Dec-11

KSE TOTAL

1.50 3.50

Source: Securities Exchange Commission of Pakistan

Further, in addition to the above, during the period July 2011 to March, 2012 a total of five debt

securities issued through private placement were reported. The details of these privately placed corporate debt issues are as follows:

Table 6.8: Debt Securities issued through Private Placement during July 2011 to March 2012 S. No. Name of Security No. of Issues Amount (In billion rupees) i. Private Placed Term Finance certificate) 01 1.00 ii. Sukuk* 04 112.29 iii. Commercial Papers 01 0.21 Total 06 113.51 *includes two Sukuk Issues of Rs.108.393 billion by Pakistan domestic Sukuk company Limited. Source: Securities Exchange Commission of Pakistan

As of March 31, 2012 a total of 131 corporate debt securities were outstanding with an amount of Rs. 90

500.433 billion. Details are presented in Table 6.9 below:

Capital Markets
Table 6.9: Debt Securities Outstanding as on March 31, 2012 S. No. Name of Security i. ii. iii. iv. Listed Term Finance Certificates (L-TFCs) Private placed term Finance certificates (PP-TFCs) Sukuk Commercial Papers Total Source: Securities Exchange Commission of Pakistan

No. of Issues 37 39 54 01 131

Amount outstanding (In billion rupees) 66.51 68.18 365.53 0.21 500.43

Box-2 Measures for the development of debt markets: ` ` In order to encourage listing of debt securities on the exchanges, a separate set of regulations for debt securities are being framed Regulatory framework for the credit rating agencies (CRAs) are being revamped so that CRAs play a more effective role in the development of the debt market. In this regard a committee, comprising of the representative of SECP and SBP and CRA has been constituted by the Commission which has been mandated with the tasks of: o o o o o o Review of the existing regulatory framework for CRAs in line with the international best practices Strengthening of the existing regulatory Framework for CRAs viz the credit rating companies rules, 1995 and the code of conduct for CRAs dated February 17, 2005 Review of the proposals of CRAs regarding enhancement of the rating universe Diversification of capital structure of CRAs and their listing on the stock exchanges Regulatory framework for establishment of a Bond Pricing Agency (BPA) In order to rationalize the cost of issue of corporate bonds, steps are being taken to reduce the rate of stamp duty applicable on issue and transfer of Term Finance certificates (TFCs) and commercial papers.

Development of new regulatory framework In one of the major moves towards development of a vibrant debt market in Pakistan, the Securities and Exchange Commission of Pakistan has recently approved notification of the Debt Securities Trustee regulations (DST Regulations). The main objective of the DST Regulations is to protect the interests of debenture holders and to safeguard the breach of provisions of the Trust Deed, monitor the working of debenture trustees by calling for details regarding compliance by the issuers of the terms of the trust deed, creation of security, payment of interest, redemption of debentures and redress of complaints of debenture holders. Development of New Regulatory Regime for Brokers In order to ensure that standards and principles adopted in the markets conform to international

best practices, a revised market participant regime is being proposed. The proposed regime would address some of the most significant issues pertaining to the business of stock brokerage and is expected to increase the efficiency of our capital market. Capital Market Reforms and Development Activities During the period under review, the Securities and Exchange Commission of Pakistan (SECP) continued with its reform agenda for strengthening the Pakistani capital market with the objectives of improved risk management, increased transparency, investor protection and new product/market development. The highlights of reform measures introduced during the period under review are as follows: o For development of the debt market, the Bonds Automated Trading System (BATS) at the 91

Pakistan Economic Survey 2011-12 stock exchange was revamped along the lines of the Bloomberg-based-E-Bond with various system enhancements for facilitating the price discovery process of debt instruments and price negotiation between the market participants. Further, to facilitate investors trading in Term Finance Certificates (TFCs) listed at different exchanges, a regulatory framework was introduced for facilitating inter-exchange trades in listed TFCs. A brokerto-broker functionally was introduced in BATS which enables settlement of the inter-exchange trades directly with the National Clearing Company of Pakistan Limited (NCCPL); resulting in greater efficiency and transparency in the trading and settlement process. Also, a centralized platform was developed at the NCCPL for mandatory reporting of trades executed in the unlisted TFCs, which provides access to real-time trading information in unlisted TFCs thereby providing better price discovery and transparency. To fulfill the hedging requirements of various groups of investors in the commodities market, new futures contracts were introduced at the Pakistan Mercantile Exchange Limited (PMEX) in sugar, cotton, wheat, crude oil (10 barrel), silver (100 ounces), silver (10 tola) and gold (10 ounces). Further, the concept of market makers was introduced which will promote liquidity and investors confidence through enhanced profitability, reduced volatility in prices and efficient execution of orders. To ensure easy access to financing and liquidity to the market, amendments were approved to the Securities (Leveraged Markets and Pledging) rules, 2011 thereby removing practical hindrances and creating flexibility for margin financing and margin trading products. Through the amended rules, reduced cash margin requirements were prescribed and individual investors were allowed to participate as financiers in the margin trading market, along with waiver of the mandatory condition of prescribing minimum liquidity requirement for selecting securities eligible for margin financing. To add depth and diverse investment alternatives to the market, various new product/system development initiatives were undertaken. In line with international best practices, Exchange Traded Funds (ETFs) were introduced at the Karachi Stock Exchange (KSE). EFTs are a globally popular investment product which allow investment in a diversified portfolio of securities tracking a benchmark index and provide investors with benefits such as trading flexibility, overall portfolio diversification and transparency. To implement robust Anti-Money Laundering and combating the financing of Terrorism regime in the Pakistan capital market in light of the Financial Action Task Force (FATF) recommendations and international best practices, effective Know-Your-Customer (KYC) and Customer-Due-Diligence (CDD) policies and procedures were introduced for the capital market and its intermediaries. To ensure improved monitoring of internet trading activities offered by the brokers, internet trading regulations were approved for KSE which comprehensively cover various aspects while effectively addressing issues unique to this segment including risk management and privacy of investors accounts. To strengthen monitoring and compliance by market intermediaries with the applicable regulatory provisions and to improve enforcement power of the regulators, regulations governing system audit of the brokers of KSE were revamped with major changes in the brokers audit process and scope.

National Savings Schemes Central Directorate of National Savings (CDNS) is engaged in making innovative efforts to promote a saving culture in the country. The CDNS offers attractive saving products to various categories of people to suit their specific needs. CDNS is currently engaged in restructuring of the CDNS to better cater for the needs of the investors and introduce more profitable products. Focus is on introducing short term saving certificates and expansion of CDNS network not only across the country but also to overseas Pakistanis. Details of the investment made in the saving schemes are given in Table: 6.10.

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Table 6.10: National Savings Schemes (Net Investment) S.No. Name of Scheme 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Defence Savings certificates National Deposit Scheme Khaas Deposit Scheme Premium Saving Certificate Special Savings Certificates(R) Special Savings Certificates(B) Regular Income Certificates Bahbood Savings Certificates Pensioners Benefit Account Savings Accounts 2007-08 (4,317.43) 0.05 (6.99) -13,800.57 (0.18) (273.53) 38,799.69 18,695.93 8,989.12 2008-09 (27,411.28) (2.71) (1.64) -128,469.03 (8.53) 40,094.28 78,537.96 22,215.74 (10,899.15) 21,627.05 (50.03) 14,649.97 -267,220.71 2009-10 (32,493.15) (0.13) (3.84) -61,856.60 (0.30) 44,538.27 59,267.18 18,166.85 1,021.30 31,375.53 (195.73) 38,556.68 3,625.16 225,714.46 2010-11 9,748.10 (1.01) (2.62) -43,960.21 (0.74) 46,946.79 61,731.56 17,940.32 (625.30) 14,240.79 (77.94) 41,083.40 -234,943.98 (Rs. Billion) 2011-12 (Jul-Mar) 4,656.64 (0.71) (0.26) -(24,189.99) (0.70) 31,419.74 38,128.51 11,107.85 1,566.09 3,331.26 61.62 41,314.32 -107,484.37

Special Savings Accounts 5,521.48 Mahana Amdani Accounts (24.97) Prize Bonds 8,277.07 National Savings Bonds -89,460.81 Total Source: Central Directorate of National Savings

Mutual Funds The period July 2011 to March 2012 marked a substantial rise in mutual funds with total assets of the industry surging by 24 percent from Rs. 290 billion to Rs. 400 billion. As of March 31, 2012, the number of mutual funds in the industry stood at 146 compared to 137 in June 2011. The upward trend in the assets of the mutual funds industry is primarily attributed to soaring investment in money market and capital protected funds since the industry continues to be predominantly risk averse. Though the equity markets have depicted a bull run in the current financial year, equity funds have not been very successful in attracting substantial inflows. Influx in income funds is expected to remain subdued so long as the debt market is revitalized. During the period July-March, 2011-12, the Securities Exchange Commission of Pakistan, in its continuous efforts to curb money laundering, issued a circular on reporting/submission of suspicious transaction/currency transaction by Non Banking Finance Companies (NBFCs) to the Financial Monitoring Unit under the Anti-Money

Laundering Act 2010. Further, SECP to facilitate the industry, brought about significant amendments in the Non-Banking Finance Companies and Notified Entities Regulations, 2008. Some of the important amendments made included the following: o o o Registration of trustee to bring it within the regulatory ambit Eliminating the seed capital requirement for new funds Empowering unit holders of a mutual fund to change its management rights in case redemption of units is suspended beyond fifteen days, and Enhanced oversight by trustee of a mutual fund in line with best international practices.

Furthermore, the SECP also allowed equityoriented mutual funds to invest in all kinds of futures contracts to effectively achieve their investment objectives. This measure was also taken in anticipation of its potential impact on growth and development of the futures market.

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Table 6.11: Major highlights of mutual funds during February 2012 Total assets of Industry* Total number of funds* Total number of AMCS/IAs* Assets Size of AMCs/IAs* Discretionary /Non-discretionary portfolio Funds launched during the month Source: Securities Exchange Commission of Pakistan *include assets under management of Arif Habib and MCB amounting to Rs.34.9 billion. Rs. 399 billion* 128 24 Rs. 43.136 billion Rs. 44 billion -

Modaraba The modaraba sector has an established legal framework that allows it flexibility to provide a wide range of financial products and services under the tenets of Islamic shariah which reflect the innovative and dynamic nature of the industry. Modarabas have played a vital role in the development and growth of Islamic modes of financing in the country and the capital markets since their inception in 1980. Most of the Modarabas in Pakistan are doing business in the financial sector while a few are engaged in the industrial, trading or other services sectors. Like any other industry, modarabas create a distinctive value proposition that meets the needs of its customers. Despite the prevailing financial and economic crises in the country, most of the modarabas continued to perform well and record profits. Currently, 40 registered modaraba companies are in existence and the total number of operational modarabas are 26. As per the quarterly financial statements of modarabas, as on February 29, 2012, the aggregate paid-up fund of modarabas was Rs. 8.896 billion. The total assets of the modaraba sector stood at Rs. 26.757 billion against Rs. 26.392 billion in June, 2011. Similarly, total equity of the modaraba sector was Rs. 11.486 billion (inclusive of revaluation reserves) compared to Rs. 11.560 billion during June, 2011. In order to improve the financial standing and image of modarabas in the financial sector of the country, the SECP, after detailed consultation with stakeholders and industry experts, introduced Shariah compliance and Shariah audit Mechanism for modarabas. These will strengthen the Shariah compliance by modarbas and help them to be recognized as true Islamic financial institutions in the financial sector. In terms of the 94

said mechanism, the modarabas are required to appoint independent Shariah advisors who would provide necessary guidance to the management companies to carry out the business operations of modarabas in accordance with the Shariah principles. The first report of the Shariah Advisors on the affairs of modarabas will be disseminated to the stakeholders with the annual audited accounts of modarabas for the year ending June 30, 2012. During the current financial year, the joint session of the Parliament unanimously approved the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, (Ammendment) Bill, 2009. The bill seeks to empower the Securities and Exchange Commission of Pakistan to make regulations and issue circulars, code and guidelines etc. so as to strengthen regulatory framework for the modaraba sector and enable the Commission to safeguard the interest of stakeholders in a more proactive and effective manner. Investment Banks and Leasing Companies Investment banking started to take root in Pakistan in the second half of the 1980s. A broad range of business services were envisaged that include money and capital market activities, project financing, corporate financial services, and operations in the call and money market. The investment banking sector showed a strong performance and continued to flourish till the mid1990s. However, due to non-diversification of their portfolio, they could not absorb the changing economic conditions of the country. Therefore, this sector started facing severe problems and witnessed a declining trend. At present, there are only seven functional investment banks operating in Pakistan compared to 13 in 2005. Significant reasons for the downfall of investment banking sector are small capital bases with limited ability to absorb significant shocks, focus on quasi banking

Capital Markets activities, maturity mismatch in their assets and liabilities, failure to develop competencies for delivering non-fund based services, high cost of funds, limited capacity to expand outreach, and the rise of universal banking. In order to revive the investment banking sector, necessary amendments were made to the regulatory framework to allow investment banks to undertake brokerage business from their own platform instead of forming a separate company. The objective was to encourage investment banks to focus on providing non-fund based services; to play a crucial role in the capital market; to promote corporate brokerage houses culture; and, to address the corporate governance issues in the brokerage industry. Presently, the possibility of introducing an appropriate regulatory regime for non-deposittaking and non-listed Non Banking Finance Companies and ensuring that only licensed entities engage in investment banking activities are being explored for reviving the investment banking sector.
Table 6.12: Financials of Investment Banks in February, 2012 Amount Particulars (Rs in millions) Total Assets 18,273 Total Equity 3,300 Total Deposits 7,040 Source: Securities Exchange Commission of Pakistan

economic life. The total number of active leasing companies was 9 as of February 29, 2012.
Table 6.13: Financials of Leasing Companies in February, 2012 Amount Particulars (Rs in millions) Total Assets 34,242 Total Equity 4,566 Total Deposits 5,650 Source: Securities Exchange Commission of Pakistan

Voluntary Pension System The last two decades witnessed pension reforms globally. In high-income countries, the driving force has been the threat that the current pension system will become unaffordable as demographic developments presented a major risk. The countries that were in the process of transition from a controlled economy to a market economy confronted the challenge of introducing a public pension system in place of social security available to their populace under the socialist system. However, again the demographic change and affordability have been the driving force for reforms in these countries. It is anticipated that Pakistan shall also face similar challenges in the near future. Lately, the government has been considering reforming the current pension system. Luckily, the dependency ratio at this point of time is extremely favourable for Pakistan to shift from a defined benefit system to a defined contribution system. While reforms at the national level will take some time, the SECP has introduced Voluntary Pension System (VPS), with the approval of the government. VPS envisages contributions by Pakistani nationals in a pension fund approved by the SECP. The pension fund promises a stream of income to its members after retirement. The government has given tax incentives to individuals under the current tax regime. The penetration of VPS is low at the moment because these are still new to Pakistan and nonbinding upon employers and individuals. It is hoped that, with the passage of time and complementary reforms in defined benefit retirement schemes, the system would gain a foothold and acquire substance. So far, 11 pension funds have been launched under VPS. 95

Leasing is a mature business model. However, the leasing sector in Pakistan has been facing a multitude of challenges like liquidity issues, low capitalization, limited sources for resource mobilization, high cost of funds, high level of nonperforming assets and limited outreach. Several important amendments to the applicable regulatory framework have been made over a period of time in order to promote this sector. During 2011, an important amendment was made in the Non Banking Finance Compinies & Notified Entities (NBFC & NE) Regulations, 2008 i.e. deleting the condition that requires a leasing company to fix the period of finance lease for not less than three years. The amendment is expected to increase in the business volumes of leasing companies as they will be able to entertain customers who desire a shorter lease period and finance assets with a shorter

Pakistan Economic Survey 2011-12


Table 6.14: Growth of Pension Funds since 2007 No. of pension Net assets in Rs. Date funds million 30-JUN-07 4 420 30-JUN-08 7 766 30-JUN-09 7 870 30-JUN-10 9 1,301 30-JUN-11 9 1,557 31-DEC-11 11 1,829 29-FEB-12 11 1,979 Source: Securities Exchange Commission of Pakistan

REIT Real Estate Investment Trusts (REITs) provide property owners an opportunity to securitize their properties. It also provides the investors with small capital base an opportunity to invest in the real estate assets. Currently there are two REIT management companies, operating in Pakistan. Keeping in view the macroeconomic indicators, the SECP has taken necessary measures to attract entrepreneurs to venture into the regulated real estate business. Amongst these, amending the REIT regulations in 2010 was one notable initiative. Significant amendments included reduction of fund size, introduction of hybrid REITs and reduction in share capital for the REIT management companies (RMCs). However, these measures still proved inadequate in attracting high yield properties into REITs. To improve the regulatory framework a committee has been formed which includes the leading market players. This committee will review the REIT models in different jurisdictions and suggest an appropriate regulatory model for our market. Currently, work of the committee is in progress.

Before June 2011, the maximum limit for tax credit for savings through VPS to individuals was up to Rs. 500,000 of taxable income. In the last budget the limit has been increased up to 20 percent of taxable income. The limit is still lower than that available to those employed in private or public sector institutions. To encourage funding of retirement schemes VPS needed to be made interchangeable with other retirement schemes, provident fund, and gratuity and superannuation funds. This will encourage funded schemes leading to accumulation of assets and efficient deployment of retirement savings.
Box-3 Future Road Map

In consultation with relevant stakeholders, a comprehensive three-year Capital Market Development Plan (2012-14) has been drafted. The plan envisages introduction of key structural and regulatory reforms, development of equity, derivative, debt, commodities and currencies markets, development of Shariah-compliant investment alternatives, and measures for improving governance, risk management, efficiency and transparency in capital market operations. Efforts are underway for achieving the plans objectives within timelines provided, most important of which are given below: ` The Stock exchanges (Corporatization), Demutualization and Integration Bill has been approved in the joint session of Parliament in March 2012. The bill provides a framework for the corporatization, demutualization and integration of the stock exchanges. Demutualization would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights. It will also assist in expansion of market outreach, resulting in larger number of investors, improved liquidity and better price discovery at the stock exchanges. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualization will also facilitate consolidation of brokers leading to financially strong entities. The SECP, along with the stock exchanges, is in the process of ensuring that subsequent to the enactment of the law, the activities set out therein are completed in a timely manner. o In line with international best practices, efforts will be undertaken for NCCPL to function as Central Counter Party; establishment of a settlement guarantee fund; and transfer of risk management to NCCPL. ` For developing the commodities market, the SECP may explore the possibility of allowing new commodity exchanges to function in the country, as presently the potential offered by this market segment is not being utilized to the maximum. This measure will also facilitate healthy competition and business generation in this segment while contributing towards greater market outreach to the investors resulting in growth in the size of the commodities market.

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Capital Markets
` For developing an Islamic capital market in line with global best practice, the SECP is contemplating the establishment of a Shariah Board comprising of eminent Islamic scholars and market professionals to ensure that all products/services offered under this umbrella are in conformity with the Shariah principles. Also, efforts will be made for consideration of existing Islamic institutions and development of innovative Shariah compliant institutions, products and services in order to deepen the capital market. Regarding new product/system development, the future SECP agenda includes introduction of trading in index option to provide investors with avenues to develop better investment and hedging strategies. Also, to boost activity in index futures market, dialogue will be initiated with foreign stock exchanges for cross listings of foreign indices at Pakistani stock exchanges. For investors in the commodities segment, efforts will be made for introduction of new futures contracts in commodities like cotton seed, oilcake, crude palm oil and maize, and rolling currency contracts on foreign currency exchange rate pairs. Also, work is underway for establishment of a collateral management company that would have a national network of approved warehouses with storage, grading/certification capabilities for commodities market. To accelerate growth in the debt market, endeavors will be made for listing of government debt instrument at the stock exchanges and integration of National Savings Schemes instruments in to the mainstream capital market, in coordination with relevant stakeholders including the federal government and the State Bank of Pakistan. Also, to promote transparency and price discovery of debt securities and minimize pricing issues of debt securities, establishment of an independent Bond Pricing Agency (BPA) conforming to international standards, is in the pipeline. The BPA is expected to contribute towards stimulating activity in the primary and secondary debt markets, increasing market depth, reducing information asymmetry, increasing credibility of financial statements through accurate asset-liability valuation, product development etc.

From the standpoint of risk management and transparency, a Centralized KYC Agency will be established for registration and maintenance of investors KYC records in line with the international best practices pertaining to KYC and CDD policies. These KYC records will be available for access by all market intermediaries and this measure will assist in removing the duplication presently faced in the KYC process by bringing uniformity to the same.

Conclusions The performance of stock markets presented a mixed trend during the current fiscal year. Various factors such as unstable law and order situation, natural disasters, rumours on the economic front pertaining to reduction in military and civil aid from international donors, the Pak rupee depreciation and increasing fiscal deficit of the government have all contributed to the underperformance of the capital market during first half of current fiscal year. However, the KSE-100 index resumed its momentum during the 3rd quarter of the 2011-12 owing to certain encouraging measures like considerable reduction in discount

rate by the SBP during latter period of the first half of current fiscal year and increase in foreign exchange reserves. Further, the market sentiment was boosted by the proposed promulgation of the Capital Gain Tax Ordinance under which the National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the Capital Gain Tax (CGT) on listed securities. The subject Ordinance was finally promulgated on the 24th April, 2012. The government is committed to formulating timely and effective policy to spur activity in, and shore up the strength of, the capital market.

97

Chapter 7

Inflation
The global economy experienced significant financial crises in 2007-08. The financial crisis emanated in subprime mortgage loan portfolio and shocked the confidence of the international institutions and markets which in turn badly deteriorated the economic development and balance of payments across the world. In the developing countries, the crisis was seen at the time when they were already experiencing severe terms of trade and slower economic growth. The financial meltdown led to a backlash on consumer
Fig-7.1: Inflationary Trend
25.0 OldBase 200001=100 NewBase 200708=100

markets and broadly on the process of investment in the production of goods and services. This coupled with spike in commodity and oil prices led to a decline in the aggregate demand and raised inflation the world over. In Pakistan the affect was felt much severely as the country was also experiencing internal security issues and compaign against terrorism. The surge in food and commodity prices witnessed during 2008-09 pushed the consumer prices index (CPI) to a record level of 25.3 percent in August 2008.

CPI
20.0

15.0

10.0

5.0

0.0 Jan-09 Jan-10 Jan-11 Nov-08 Nov-09 Nov-10 May-09 May-10 May-11 Nov-11 Sep-08 Sep-09 Sep-10 Mar-09 Mar-10 Mar-11 Sep-11 Jan-12 Jul-08 Jul-09 Jul-10 Jul-11 Mar-12

The rising trend in domestic prices in tandem with global food and fuel prices affect several macroeconomic dynamics - consumption, investment, inflation, trade and fiscal balances and ultimately resulted in slow down of GDP growth. Asian Development Bank (ADB) report of 19th March, 2012 titled Food Price Escalation in South Asia noted that the region suffers from a higher

overall food inflation rate than the rest of developing Asia. The report further pointed out that the region, with a large number of people already living close to the poverty line, is one of the most vulnerable regions in the world to food price shocks. The World Bank has also rated high food prices as the biggest challenge facing most developing countries. This rising trend in inflation is not specific to Pakistan. Regional inflation is 99

Pakistan Economic Survey 2011-12 estimated to have also risen in India, Bangladesh and Thailand (Table 7.1).
Sri Lanka CPI Food 7.4 9.3 7.0 8.2 6.4 6.6 5.1 3.8 4.7 2.1 4.9 2.5 3.8 -0.2 2.7 -4.1 5.5 -2.5 6.1 0.2

Table: 7.1 Regional Countries Food Price Inflation Pakistan India Bangladesh Thailand CPI Food CPI Food CPI Food CPI Food Jul-11 12.4 17.1 8.4 8.2 11.0 13.4 4.1 7.2 Aug-11 11.6 13.2 9.0 9.6 11.3 12.7 4.2 8.4 Sep-11 10.5 9.9 10.1 9.6 12.0 13.8 4.1 8.9 Oct-11 11.0 11.7 9.4 10.2 11.6 10.9 4.2 9.9 Nov-11 10.2 10.0 9.3 8.5 11.6 12.5 4.1 10.2 Dec-11 9.7 9.5 6.5 0.7 10.6 10.4 3.6 9.1 Jan-12 10.1 9.2 5.3 -0.5 11.6 10.9 3.4 7.7 Feb-12 11.0 10.5 8.8 6.1 10.4 8.9 3.4 7.2 Mar-12 10.8 9.8 9.5 9.9 10.1 8.3 3.4 7.1 Apr-12 11.3 10.7 9.9 8.1 2.7 4.9 Source: PBS, BBS, Ministry of Commerce & Industry India, Bank of Thailand.

Food insecurity is a multi dimensional problem and deserves to be tackled through a multi pronged strategic approach where demand, supply and distribution factors need to be taken into account. Availability and access, two important components of food security needs to be addressed simultaneously. Food carries the largest weight in three price indices and hence influences the movement of these indices even with slight variation in prices. The most visible impact of rising food prices on the economy is acceleration of inflationary pressure. In such a situation controlling the inflation becomes unmanageable. Pakistan is experiencing double-digit inflation over the last several years mainly due to increase in prices of food. Inflation is generally measured by the Consumer Price Index (CPI). The other measures of inflation used in Pakistan are the Wholesale Price Index (WPI) and Sensitive Price Indicator (SPI). The Pakistan Bureau of Statistics (PBS) has changed the base year of the price indices from 2000-01 to 2007-08, which by comparison with the previous base has undergone considerable change in terms of revision to commodity groups; their weights derived from Family Budget Survey 200708; and, coverage of items to capture the changing pattern of consumption of the people. The old basket of commodities in the CPI has been revised and the commodities increased from 374 to 487 items and the commodity groups from 10 to 100

12. The coverage of cities has also been increased from 35 to 40. Proper representation has been given to large cities (population of 500,000 and above), medium cities (population 100,000 to 500,000), medium small cities (population 50,000 to 100,000) and small cities (population below 50,000). The food group weight has been reduced from 40.3 percent to 34.8 percent and 21 items in the old basket have been dropped while 111 new items have been added. Health and Restaurant two new sub indexes have been included. The sub index of transport and communication in the old base year has been split into two separate sub groups as transport and communication group. Rent being an important component of CPI is now computed on the basis of real rental value rather than using wage rates and prices of construction materials. In the CPI series with base 2000-01, the coverage in terms of income groups is as below: i. ii. iii. iv. Up to Rs. 3000 Rs. 3001 to Rs. 5000 Rs. 5001 to Rs. 12000, and Above Rs. 12000

In the new series with base 2007-08, the income groups have been divided into five income quintiles as under: i. ii. iii. iv. v. Up to Rs. 8000 Rs. 8001 to Rs. 12000 Rs. 12001 to Rs. 18000, and Rs. 18001 to Rs. 35000 Above Rs. 35000

Inflation The basket of goods that makes up the WPI has also been revised for the base year 2007-08 due to change of consumption patterns. In the current series of WPI, items are categorized into five commodity groups namely: (i) food products, beverages and tobacco, textiles, apparel and leather products (ii) agriculture forestry and fishery products (iii) ores and minerals, electricity gas and water (iv) other transportable goods except metal products, machinery and equipment (v) metal product machinery and equipment. A set of 463 items have been selected instead of 425 items to
Table:7.2 Inflation by Consumer Income Groups Upto Rs. Combined Upto Rs.8000 8001-12000 Source: Pakistan Bureau of Statistics (PBS)

accommodate changes in the production and sales of commodities in the wholesale market in 21 major cities instead of 18; with coverage of 112 commodities. The SPI indicates the weekly change of prices of 53 selected items of daily use prevailing in 17 major cities as consumed by six groups (Table 7.2) whose monthly income ranges from Rs. 8,000 to Rs. 35,000 per month and an overall households (combined) category.

Upto Rs. 12001-18000

Upto Rs. 18001-35000

Above Rs.35000

The key changes in the computation of the various indices are summarized in Table 7.3 below:
Table:7.3 Price Indices in Pakistan
Features Cities covered Markets covered Items covered Commodities covered No. of commodity groups No. of price quotations Base Year 2007-08=10 CPI 40 76 487 89 12 148048 SPI 17 53 53 11236 WPI Features 21 Cities covered 21 Markets covered 463 Items covered 112 Commodities covered 5 No. of commodity groups 2366 No. of price quotations Base Year 2000-01=100 CPI SPI 35 17 71 374 92 10 106,216 53 53 11236 WPI 18 18 425 106 5 1,550

Reporting Frequency Monthly Weekly Monthly Reporting Frequency Income Groups (in base Income Groups (in base Six Quintile Six Quintile year) with separate basket year) with separate basket Source: Pakistan Bureau of Statistics (PBS)

Monthly Weekly Monthly Four Four -

Inflationary Trends The year 2011-12 (Jul-Apr) witnessed both demand pull and cost push inflation when viewed in the backdrop of the affects of the floods of 2010 and heavy rains in 2011, which almost wiped out the major and minor standing crops in Sindh province, created disruption in the supply chain which resulted in surging inflation. The global spikes in commodities and fuel prices also exerted pressure on domestic inflation. Inflation on year to year basis reveals that the CPI was highest in July 2011 at 12.4 percent. However, in December 2011 it declined to single digit at 9.7

percent. Thereafter it increased steadily and reached 11.3 percent in April 2012. Food inflation on a year to year basis was highest in July 2011 and lowest in January 2012 at 9.2 percent. Nonfood inflation was lowest in July 2011 at 9.2 percent and highest at 11.6 percent in April 2012. Core inflation during the last nine months of the year remained almost at double digit levels except in July 2011 when it dropped to single digit at 9.5 percent (Table 7.4). The main factor contributing to the rise of non-food inflation was the upward adjustment of energy, gas and fuel prices.

101

Pakistan Economic Survey 2011-12


Table 7.4 Inflation on year on year (Y-o-Y) Basis %Change Commodity Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 12.4 11.6 10.5 11.0 10.2 9.7 10.1 11.0 10.8 11.3 CPI 17.1 13.2 9.9 11.7 10.0 9.5 9.2 10.5 9.8 10.7 Food 9.2 10.4 10.9 10.4 10.3 9.9 10.7 11.5 11.5 11.6 Non-Food 9.5 10.0 10.6 10.4 10.4 10.1 10.2 10.6 10.8 10.8 Core 20.3 18.7 17.0 15.4 12.0 8.3 8.7 7.2 4.5 3.8 WPI 12.7 11.9 8.7 8.2 5.9 5.1 6.8 8.3 8.4 9.7 SPI

The Consumer Price Index (CPI) on average basis recorded as 10.8 percent during Jul-Apr 2011-12 as compared to 13.8 percent during the same period last year. The two broad component of CPI, food and non-food inflation recorded an increase of 11.1 percent and 10.7 percent respectively during the period under review compared to 18.8 percent and 10.8 percent during Jul-Apr 2010-11. While the

Wholesale Price Index (WPI), during Jul-Apr 2011-12 recorded as 11.2 percent as against 21 percent last year. Food and non-food under WPI was noted as 6.7 percent and 13.3 percent during current period whereas it was recorded to be 23.5 percent and 19.9 percent during the same period last year. The following table and graph represent the trends in the CPI, WPI and SPI.
(Average percent) 2011-12(Jul-Apr) 10.8 11.1 10.7 11.2 6.7 13.3 8.5

Table:7.5 Rate of Inflation on the basis of various price indices Items 2010-11(Jul-Apr) A Consumer Price Index Food Non-Food B Wholesale Price Index Food Non-Food C Sensitive Price Indicator

13.8 18.8 10.8 21.0 23.5 19.9 18.1

Fig-7.2: CPI (Food, Non-food), WPI (Food, Non-food) and SPI (Percent) Sensitive Price Indicator Non-Food Food Wholesale Price Index Non-Food Food Consumer Price Index 2011-12(Jul-Apr) 0.0 2010-11(Jul-Apr)
6.7 11.2 10.7 10.8 11.1 10.8 13.8 18.8 21.0 8.5 13.3 18.1 19.9 23.5

5.0

10.0

15.0

20.0

25.0

CPI inflation during the period (Jul-Apr) 2011-12 increased by 10.8 percent on average and that of food increased by 11.1 percent. The food group with 34.8 percent weight in the CPI basket has a

considerable effect on overall prices. A slight variation in food prices has a large impact on inflation (Table 7.6).

102

Inflation
Table:7.6 Rate of Inflation on the basis of Food and Non-Food Groups Items A B C D Consumer Price Index (CPI) Food Group) Non-food Group Core 2010-11(Jul-Apr) 13.8 18.8 10.8 9.3 Source: Pakistan Bureau of Statistics 2011-12(Jul-Apr) 10.8 11.1 10.7 10.4

Fig: 7.3 Inflation by Groups


Core

Non-food Group

Food Group)

CPI 2011-12(Jul-Apr) 0 2010-11(Jul-Apr) Percentage points 2 4 6 8 10 12 14 16 18 20

Both supply and demand side factors are responsible for food price escalation. These included supply disruption on account of the natural calamities during the year as well as the increase in transportation cost due to high fuel prices; on the demand side, the price hike is the consequence of the inflationary gap measured as the difference between monetary expansion and growth of overall national productivity. The reasons for the rising food prices are manifold. The demand and supply side factors responsible for the food price hike in 2007-08 also seem to continue in the current food price hike. These include rapid economic growth in emerging countries leading to the increase in international food demand, lower agricultural productivity due
Table-7.7: (Percent) Change In Price Indices Commodity General (CPI) Food, & Non Alcoholic Beverages Alcoholic Beverages& Tobacco Non-Food Weights 100.0 34.8 1.4 65.2

to the scarcity of water in certain regions, supply short fall in the global food markets and oil supply shocks resulting from geopolitical instability in the Middle East etc. The non-food prices increased at a slower pace of 10.7 percent than food prices. The divergent trend is due to different factors influencing these two broad components of CPI differently, such as items coverage, nature of items and impact of seasonal variation and availability etc. Among the nonfood items, the hike in fuel related items such as diesel, petrol, gas, CNG and power tariff rates pushed the production and transportation cost up thereby accelerating inflation. Core inflation which is nonfood - nonenergy is estimated at 10.4 percent during Jul-Apr 2011-12.
On Average Basis July Apr July Apr 2010-11 2011-12 13.8 10.8 18.8 11.1 11.8 7.5 10.8 10.7 (%) Point Contribution July -Apr July Apr 2010-11 2011-12 13.8 10.8 6.6 3.9 0.2 0.1 7.0 6.9

103

Pakistan Economic Survey 2011-12


Table-7.7: (Percent) Change In Price Indices Commodity Non-Food Non Energy Clothing & Foot wear Housing, Water ,Elec. Gas & other Fuel Furnishing &Household Equip. Maintenance Health Transport Communication Recreation & culture Education Restaurant & Hotels Miscellaneous Source: Pakistan Bureau of Statistics (PBS) Weights 53.5 7.6 29.4 4.2 2.2 7.2 3.2 2.0 3.9 1.2 2.1 On Average Basis July Apr July Apr 2010-11 2011-12 9.3 10.4 11.4 14.9 11.0 7.5 9.2 17.4 8.1 11.2 13.8 5.3 6.6 16.5 13.3 11.1 15.5 0.6 5.7 12.3 13.7 19.9 (%) Point Contribution July -Apr July Apr 2010-11 2011-12 5.0 5.6 0.9 1.1 3.2 2.2 0.4 0.7 0.2 0.8 0.4 0.1 0.3 0.2 0.3 0.2 1.1 0.02 0.1 0.5 0.2 0.4

Inflation by Income Groups Inflation by income groups affects the consumption pattern of various income groups. The current CPI covers the consumption of those households whose monthly income ranges from Rs. 8,000 to Rs. 35,000 per month. Table 7.8

reflects the highest incidence of inflation (11.4 percent) in the highest income earning group. As already stated food carries the highest weight (34.8 percent) in consumer items. This reveals the fact that a greater portion of expenditure of an average household is spent on food whereas the prices have recently increased significantly.

Fig-3: Monthly % Change of CPI, Food and Non-Food


18.0 17.0 16.0 15.0 14.0 13.0 12.0 11.0 10.0 9.0 Oct-11 Sep-11 Aug-11 Nov-11 Dec-11 Feb-12 Jan-12 Jul-11 Mar-12 Apr-12

CPI

Food

Non-Food

Table:7.8 Inflation by Consumer Income Groups Fiscal Year Combined Upto Upto Rs. Upto Rs. Upto Rs. 18001- Above Rs.35000 Rs.8000 8001-12000 12001-18000 35000 Spliced with Base Year 2007-08 = 100 2008-09 17.0 18.0 17.8 18.1 17.6 16.8 2009-10 10.1 10.5 10.5 10.6 10.3 9.8 2010-11 13.7 14.5 14.3 13.0 14.7 13.3 Jul-Apr 2010-11 13.8 14.8 14.6 13.2 14.9 13.4 2011-12 10.8 9.8 10.2 10.3 10.6 11.4 Source: Pakistan Bureau of Statistics (PBS)

104

Inflation
Fig-7.8: Inflation By Income Groups
19 18 17 16 15 14 13 12 11 10 9 2008-09 2009-10 2010-11 Jul-Apr 2010-11
Combined Upto Rs.8000 Upto Rs. 8001-12000 Upto Rs. 12001-18000 Upto Rs. 18001-35000 Above Rs.35000

Percent

Wholesale Price Index The wholesale price index on annual average basis has increased by 11.2 percent during (Jul-Apr) 2011-12. The increase in the food and non-food group averaged 6.7 percent and 13.3 percent respectively. The 14 major commodities covered under various sub groups of WPI contributed about 8 percent point to the overall increase in WPI. The

largest increase in wholesale prices was recorded for fertilizer at 55.5 percent, followed by furnace oil 36 percent, gram (whole), diesel and kerosene oil at 27 percent each (Table 7.9). Further analysis of the acceleration in wholesale prices reveals the considerable spike in prices of cotton, cement, vegetable ghee, fresh vegetable, milk, meat, rice and tea are the major contributory factors in the increase in WPI.

Table: 7.9 Percentage point contribution of major WPI items Weight Fertilizer 2.9 Furnace Oil 3.3 Gram (Whole) 0.5 Diesel Oil 5.3 Kerosene Oils 0.2 Vegetable Ghee 1.6 Meat 3.5 Vegetables 1.2 Fresh Milk 4.4 Rice 2.4 Tea 0.7 Cotton 1.2 Soaps 0.8 Cement 1.8 Total 30 Source: Pakistan Bureau of Statistics (PBS)

%Change 55.5 35.9 27.6 27.3 26.5 23.4 23.8 24.3 18.5 22.1 18.9 15.2 17.4 15.4

Jul-Apr 2011-12

Impact 1.6 1.2 0.1 1.4 0.1 0.4 0.8 0.3 0.8 0.5 0.1 0.2 0.1 0.3 8.0

105

Pakistan Economic Survey 2011-12


Fig: 7.9 Percent Change of major commodities in WPI
60 50

%Change

40 30 20 10 0 Furnace Oil Vegetables Fresh Milk Vegetable Ghee Cotton Rice Fertilizer Gram (Whole) Soaps Diesel Oil Kerosene Oils Cement Meat Tea

Table: 7.10 (Percent) Change In Price Indices Commodity Weights On Average Basis (%) Point Contribution July Apr July -Apr July Apr July Apr 2010-11 2011-12 2010-11 2011-12 21.0 11.2 21.0 11.2 30.7 1.6 12.9 0.7 19.8 13.3 11.5 7.7 15.1 11.2 1.8 1.4 23.4 6.7 7.3 2.1 11.6 28.3 2.6 6.3 13.1 21.4 1.1 1.9

General(WPI) Agriculture Forestry & Fishery Non-Food Ores & Minerals Food Products, Beverages Other Transportable Goods Metal Products Machinery Source: Pakistan Bureau of Statistics

100.0 42.1 57.9 12.0 31.1 22.4 8.7

Sensitive Price Indicator (SPI) The SPI measures the changes in weekly prices of 53 essential items. During the current fiscal year (JulyApril) 2011-12, the increase in SPI is estimated at 8.5 percent over the corresponding increase of 18 percent last year. An item wise review of these 53 items which can be further categorized into food, non-food, utility and transport groups, indicates that the majority of the
Table:7.11 Essential items point contribution in SPI Items Onions Gram Pulse Tomatoes Tea (Packet ) Beef Mutton Rice Basmati Broken Unit KG KG KG 200 GM. KG KG KG

increase came from the increase in the prices of 11 basic items. These few items account for 40 percent of the weight in the SPI and contributed around 4.0 percent to the overall increase in the SPI. The contribution of onion is estimated at 0.6 percent, gram pulse 0.2 percent, tomatoes 0.2 percent, tea 0.4 percent, beef 0.5 percent, mutton 0.2 percent, rice 0.2 and vegetable ghee 0.1 percent (Table7.11).

SPI Weight 1.4 0.6 1.2 2.2 4.3 2.1 1.9

(% Change) April 12/ July 11 40.5 36.4 20.1 17.4 11.7 10.8 8.4

Contribution 0.6 0.2 0.2 0.4 0.5 0.2 0.2

106

Inflation
Table:7.11 Essential items point contribution in SPI Items Milk Fresh Veg. Ghee (Loose) Chicken Farm Cooking Oil (Tin) Total Unit LTR KG KG KG SPI Weight 16.8 2.7 3.6 2.3 40.0 (% Change) April 12/ July 11 7.8 4.8 3.5 3.5 Contribution 1.3 0.1 0.1 0.1 4.0

Fig: 7.11 Change in prices of essential items in SPI


45 40 35 30 25 20 15 10 5 0

(% CHANGE) April 12/ July 11

%Change

Chicken Farm

Tea (Packet )

The current increase in the prices of edible oil and rice represents the global price trend in the prices of these commodities and the domestic demandsupply situation. Palm oil prices in international market increased from $1,088 per ton in July 2011 to $1,152 per ton in March 2012; an increase of 6 percent. When the prices of basic inputs increase,
International Prices of Major Commodities
690 590 490 1130 390 1080 290 190 90 Dec-11 Oct-11 Sep-11 Aug-11 Nov-11 Feb-12 Jan-12 Jul-11 Mar-12 Apr-12 1030 980 Wheat ($/Ton) Rice ($/Ton) Sugar ($/Ton) Crude ($/Brl) Palm Oil ($/Ton) 1230

the overall price is bound to show an increase too. The price of rice has increased by 17.2 percent in the international market. Pakistan, being part of the global economy, cannot remain immune to such global developments on the price front. These are then reflected in the local markets.

Fig7.7
Domestic Prices of Major Commodities
84 74 Wheat (Rs/Kg) Rice Basmati (Rs/Kg) Sugar (Rs/Kg) Cooking Oil (Rs/2.5 Kg) 515 510 505 500 495 490 485 Sep-11 Aug-11 Nov-11 Feb-12 Oct-11 Jan-12 Jul-11 Mar-12 Dec-11 Apr-12

1180
64

Rice Basmati Broken

Gram Pulse

Cooking Oil (Tin)

Mutton

Beef

Milk Fresh

Veg. Ghee (Loose)

Onions

Tomatoes

Palm OIl

54 44 34 24

107

Cooking Oil

Pakistan Economic Survey 2011-12 A review of the price trend of essential commodities during the period (Jul-Apr) 2011-12 suggests that the current price hike is the outcome of rising food prices which influenced overall inflation. Prices of vegetable, fruit, meat and chicken (farm) etc. experienced larger increase during the period July 2011 to April 2012. The prices of essential items have increased for a
Table:7.12 Prices of Essential Items
July Aug Sep Oct Nov Dec Jan Feb Mar Apr %Change 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 Wheat Kg 25.4 25.4 25.9 26.2 26.7 27.3 27.4 27.4 27.5 27.4 7.9 Wheat Flour Kg 29.7 28.6 29.7 29.9 30.2 30.7 30.7 30.8 30.9 31.0 4.4 Rice Basmati Kg 57.3 58.9 58.9 59.1 59.9 59.7 59.1 59.0 60.1 62.1 8.4 Rice Irri-6 Kg 43.7 44.7 45.3 45.2 45.2 45.0 45.4 45.4 46.0 46.9 7.3 Masoor Pulse Kg 107.5 106.0 106.1 105.7 104.6 101.2 98.8 98.3 101.6 100.9 -6.1 Moong Pulse Kg 140.3 139.5 137.1 134.0 129.6 124.3 120.9 118.8 122.5 122.6 -12.6 Mash Pulse Kg 154.5 153.3 150.8 148.6 147.3 145.1 143.0 141.4 143.4 141.8 -8.2 Gram Pulse Kg 72.4 72.9 72.7 72.5 71.6 71.4 70.9 75.2 97.3 98.7 36.3 Beef Kg 233.7 239.8 244.6 249.1 252.2 252.2 253.5 257.1 259.6 261.0 11.7 Mutton Kg 451.1 458.1 463.6 469.9 477.1 479.8 485.0 491.9 498.6 499.9 10.8 Eggs Dozen 79.0 79.8 81.8 82.7 88.5 100.4 116.8 103.5 90.4 72.4 -8.4 Sugar Kg 71.3 75.1 75.4 70.0 65.2 53.7 51.7 50.3 54.9 55.6 -22.0 Milk Fresh Liter 55.9 56.0 56.1 56.5 57.1 57.7 57.8 58.0 59.0 60.2 7.7 Veg.Ghee 2.5Kg 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5 Veg.Ghee (loose) Kg 166.2 166.4 165.9 161.8 160.8 160.4 161.5 161.6 170.3 174.2 4.8 Cooking oil 2.5Ltr. 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5 Potato Kg 31.6 31.0 31.4 29.4 28.5 21.8 18.6 18.3 18.9 23.5 -25.6 Onion Kg 18.2 24.0 32.3 42.7 53.2 36.0 43.4 37.6 31.8 25.6 40.7 Tomato Kg 41.8 36.8 47.7 76.5 78.1 61.6 49.4 43.1 33.3 50.3 20.3 Red chillies Kg 253.4 252.6 283.1 313.8 319.5 318.2 316.4 311.7 307.5 308.4 21.7 Tea pack 200 Gms 121.1 121.1 131.6 131.6 131.6 131.6 131.6 134.5 140.0 142.1 17.3 Chicken Farm Kg 160.8 164.4 143.5 132.1 127.1 131.9 160.3 162.2 156.9 166.5 3.5 Source: Pakistan Bureau of Statistics (PBS) Items Unit

variety of reasons. The increase in price of chicken (farm), fresh milk, beef and mutton is attributable to supply shortage of these items in the market. The increase in prices of tomatoes and onion is owing to damage to the crops by the floods as well as seasonal volatility. Details of the commodity wise movement of prices are given below: (Table7.12).

The prices of pulses show a mixed trend. The gram pulse presents an increase of 36 percent. This was due to the prolonged winter season and unfavourable climate resulted in delay of its supply as a result gram pulse was imported while the prices in international market were also rising. Tomato being a heavy weight item, its prices remained high during April 2012, and at one point

in time it showed an increase of 67 percent, this was due to seasonal affect as major crops of tomatoes in Sindh was destroyed. Now with the arrival of this vegetable from Punjab, a declined trend in its prices was noted in May 2012. The SPI of the last two weeks of April and first two weeks of May 2012 suggests a negative trend as given in the table below.

Table 7.13: SPI (53 Items) 2007-08=100 Percentage Change over Week ended SPI for lowest prev. week corr. Week on income group 2011-12 2010-11 05/04/2012 174.76 0.95 7.89 12/04/2012 175.47 0.41 7.88 19/04/2012 175.22 -0.14 7.29 26/04/2012 174.41 -0.46 7.03 03/05/2012 174.17 -0.14 7.90 10/05/2012 174.07 -0.06 7.55

Combined SPI 183.66 184.54 184.36 183.53 183.31 183.28

Percentage Change over prev. week corr. Week 2011-12 2010-11 1.05 9.87 0.48 10.00 -0.10 9.48 -0.45 9.24 -0.12 9.30 -0.02 8.97

108

Inflation Regional Prices Prices of essential consumer items prevailing on 10th May, 2012 in Pakistan as compared with neighboring countries including India, Bangladesh, Sri Lanka, Iran and Afghanistan indicate that prices of rice, beef, chicken (farm), sugar and red chilies were lower in Pakistan than in the other regional countries. Prices of 08 items i.e. rice basmati, beef, mutton, chicken (farm), sugar, tomatoes, red chilies and garlic are lower in Pakistan as compared to India.

Table 7.14: Prices of Selected Essential Items in Neighboring Countries Items Unit Islamabad New Delhi Dhaka Colombo 10/5/2012 10/5/2012 2/5/2012 2/5/2012 Wheat Kg 27.8 27.2 39.1 -Wheat Flour Kg 30.3 28.9 38.0 85.0 Rice Basmati Kg 100.1 160.5 150.7 127.5 Masoor Pulse Kg 118.1 91.8 111.6 106.2 Moong Pulse Kg 131.9 119.0 122.8 106.2 Mash Pulse Kg 156.9 143.5 122.8 106.2 Gram Pulse Kg 113.8 88.4 78.1 106.2 Beef Kg 280.0 283.0 290.2 368.3 Mutton Kg 556.9 567.0 502.3 708.2 Chicken Farm Kg 148.9 321.0 178.6 311.6* Eggs Dozn 85.1 83.0 117.2 76.4 Sugar Kg 58.8 59.5 69.2 87.1 Veg. Ghee (loose) Kg 206.0 147.9 468.9 -Edible Oil(Dalda) Ltr 206.0 183.6 145.1 208.9 Potato Kg 35.8 28.9 22.3 70.8 Onion Kg 36.9 23.8 20.1 63.7 Tomato Kg 36.3 37.4 16.7 56.7 Red Chilies Kg 321.3 378.0 --Garlic Kg 126.3 227.0 78.1 141.6 Tea Kg 710.6 544.0 362.8 424.9 Source: Planning & Development Division -- Not available, * : Price of chicken is without feather

Value in Pak Rupees Tehran Kabul 15/4/2012 12/4/2012 -54.0 -58.0 216.8 135.0 222.2 220.0 259.2 202.0 -276.0 222.2 127.0 1133.3 496.0 1851.6 652.0 318.5 309.0 171.8 127.0 133.3 92.0 -190.0 244.4 181.0 459.2 54.0 459.6 54.0 162.9 127.0 888.8 398.0 259.2 147.0 -469.0

Price Stabilization Measures The government is focused to restrict inflation to 12 percent during the current fiscal year 2012. Different policy measures have been taken to deal with food and fuel price hikes and to contain the inflation through monetary policy, augmenting supply, streamlining distribution and interventions to stimulate productivity. Given that the average inflation for (Jul-Apr) 2011-12 was 10.84 percent and in view of the international food and fuel price trend the government is keeping a close watch on the movement of price trend through weekly ECC and Cabinet Meetings. In addition to the above, the National Price Monitoring Committee (NPMC)

also monitors the prices of essential commodities in consultation with the Provincial governments and the concerned Federal Ministries/ Divisions and Organizations. The NPMC has so far held twelve meetings to monitor the price and supply situation. The SBP controls inflation through the policy rate under the monetary policy. The recent inflationary pressure has necessitated a tight monetary policy to suppress aggregate demand. The State Bank of Pakistan continued to keep money supply on a tight leash. To maintain fiscal discipline, the government has also focused on prudent expenditure management. Expenditures are being contained through austerity measures and administrative mechanisms. The Senate Standing Committee on Finance Revenue, Economic Affairs, Statistics and Planning Division has 109

Pakistan Economic Survey 2011-12 recently approved the report of the sub committee on the control of price of essential commodities which is primarily aimed at finding ways and means to control prices. Flood Impact Severe monsoon rains have triggered floods in Southern Pakistan of unprecedented scale, both in terms of volume and spatial coverage. According to report of ADB, it is estimated that approximately 9.6 million people have been affected in Sindh and Balochistan as a result of the floods. The overall damage from 2011 floods is estimated at Rs 324.5 billion (1.6 percent of GDP), with direct damages amounting to 1.3 percent of GDP and indirect losses of 0.2 percent of GDP. The floods remained confined to Sindh and Balochistan, with almost 96 percent of the damage occurred in Sindh. The flood in terms of their economic impact, especially in Sindh was more devastating and caused an estimated damage of Rs 311 billion (6.1 percent of provincial GDP) in the province. The floods impacted the richer districts on the left bank of Indus, the agricultural heartland of the province. The damage just in agriculture is estimated to be Rs. 151 billion. On the other hand, damages in Balochistan in 2011, are Rs. 12 billion, (1.4 percent of provincial GDP).

Table 7.15: 2011 Kharif Area Affected by Flood Crop Area Area Damaged (000 Ha) Damaged Province Cotton Rice Sugarcane Maize Vegetables (000 ha) Balochistan 21.42 1.29 14.30 1.78 Sindh 859.61 494.94 163.85 88.40 99.24 Total 881.03 496.22 178.14 88.40 101.03

Fruit 0.17 13.19 13.36

Other 3.88 3.88

The floods have had a large and direct impact on the Kharif cropping season. It has been estimated by the World Bank and Asian Development Bank, that about 10 percent (142,434 ha) of the affected Kharif crop area will not be available for cultivation in Rabi and 5 percent in the Kharif 2012. The main Rabi crop in Pakistan is wheat which is grown on some 8.5 million ha. In Sindh 95 percent of the land was allocated to wheat in Rabi 2010. There is a high possibility that wheat planting in Sindh may face substantial constraints, mainly due to fact that the flood waters have not fully receded. In Balochistan, water have receded except for some low lying areas and, provided the necessary support system for land clearing and input supplies are put in place for the planting season, wheat planting may not be substantially affected. However, damage to watercourses and tube wells, which are a critical source of supplementary water, may affect yields. Another factor that may contribute to decrease in the area under wheat will be the delayed start of sugarcane crushing but a recovery in the gap may be filled by the early clearing of the damaged cotton areas. SUPARCO estimates 0.5 million tons loss of

wheat production in Sindh due to non availability of land. These damages of crops may affect the supply position and as a result prices may rise. The increase in wheat procurement prices from Rs. 950 per maund to Rs. 1,050 per maund may add to price increase. Future Outlook The government is focusing on restricting inflation to 12 percent during the current fiscal year 201112. The current trend of inflation reported during the first 10 months Jul-Apr 2011-12 suggests that inflation has been stabilized on account of pursuing tight monetary policy and declining trend in global commodity prices. Inflation is likely to further decelerate gradually over the next few months, as better crops production and better management of supply chain may bring price stability in the country. The decline in inflation may continue further by falling global commodity prices and steps towards fiscal consolidation to contain inflation. However, long term solutions lie increase in agricultural investment; strong market integration; and, regional cooperation to secure food supplies for the countrys growing population.

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Chapter 8

Trade and Payments


The unfavorable global environment has slowed down the world output and trade volume during 2011; world output which grew by 5.3 percent in 2010 decelerated to 3.9 percent in 2011. This slowing down of the global economic activity has caused a sharp decline in the growth of world trade. Against the strong pick up of nearly 13.0 percent in 2010 the growth of world trade dropped to 5.8 percent in 2011. The global economic slowdown and consequential decline in the growth of world trade has also depressed the international commodity prices. The prices of non-fuel commodities witnessed a deceleration from 26.3 percent in 2010 to 17.8 percent in 2011; and, are projected to grow negatively by 10.3 percent in 2012. These developments can be attributed to the ongoing European Sovereign Debt Crisis, the turmoil in the Arab Countries and the natural disasters that hit Thailand and Japan which caused disruptions in the supply chain. The growth in world output and trade volume is projected1 to decelerate further during 2012 due to the downside risks of deepening of the sovereign debt crisis and worsening financial stress, increase in oil prices, and geo-political risks. It is projected that world output will grow by 3.5 percent and trade volume will increase by 4.0 percent during the period. Amid the difficult global economic environment, the slowing down of the world trade, the drop in international commodity prices, and the energy
1

shortages domestically, the exports from Pakistan remained higher by US$ 14.0 million during JulyApril 2011-12 over the same period last year and stood at $ 20,474 million. During the period JulyApril 2011-12, the growth of imports at 14.5 percent remained more or less the same as the corresponding periods growth in the previous period. So as exports declined imports continued to grow highlighting the dominant role of external developments. Pakistans exports growth would have been in much better position had there been normalization in international prospects during the period. In fiscal year 2011-12, workers remittances grew by $ 1.83 billion over the last year. Current Account Balance The current account deficit stood at $ 3,394 million during July-April 2011-12.This deficit in the current account was largely caused by the widening of trade and services account deficit. However, continued support from current transfers in the form of workers remittances helped in containing further increase in the current account deficit during the period under review. The trade deficit expanded mainly due to the 14.5 percent growth in imports and the 0.1 percent increase in exports; thereby widening the trade deficit by 49.2 percent during the period. The major factor behind the widening of the trade deficit was the sharp rise in the import bill during July-April 2011-12 which increased due to the higher international prices of crude oil

: World Economic Outlook April 2012, IMF

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Table 8.1: Summary Balance of Payments Items Current Account Balance Trade balance Goods: Exports Goods: Imports Services Balance Services: Credit Services: Debit Income Account Balance Income: Credit Income: Debit Current Transfers Net of which: Workers remittances Capital & Financial Account Capital Account Financial Account Direct Investment In Pakistan Portfolio Investment (Net) Other Investment Net Errors and Omissions Overall Balance Source: State Bank of Pakistan *: Provisional July-June 2009-10 -3,946 -11,536 19,673 31,209 -1,690 5,229 6,919 -3,282 561 3843 12,562 8,906 5,272 175 5,097 2,151 -65 3,087 -60 1,266 2010-11 214 -10,516 25,356 35,872 -1,940 5,768 7,708 -3,017 716 3733 15,687 11,201 2,262 161 2,101 1,635 338 172 16 2,492 US$ Million July-April* 2010-11 2011-12 466 -3,394 -8,499 -12,683 20,460 20,474 28,959 33,157 -1,225 -2,347 4,917 4,101 6,142 6,448 -2,465 -2,655 563 668 3028 3323 12,655 14,291 9,046 772 82 690 1,293 295 -846 -29 1,209 10,877 1,367 167 1,200 668 -126 721 -515 -2,542

Analysis on a comparative month to month basis shows that the current account balance remained under pressure during the months of September 2011, October 2011 and November 2011. The month of September 2011 witnessed the highest deficit in current account in the entire July-April 2011-12 period due to the fall in remittances and the increase in the trade deficit during the month. The current account deficit remained lower in the following months alongwith a surplus of $ 142 million in March 2012. The monthly average exports increased by 0.1 percent during July-April 2011-12 and stood at $ 2,047 million per month as against the average of $ 2046 million per month during the comparable period last year. The month-wise imports averaged $ 3,316 million during July-April 2011-12 and remained higher than the average import of $ 2,896 million in the same period last year. With the exception of March 2012, monthly imports remained higher in all the remaining periods of the current fiscal year 2011-

12, compared to the corresponding months of the previous year.


Fig-8.1: Monthly Current Account Balance
800 400 US$Million 0 400 800 1200 Jul10 Aug10 Sep10 Oct10 Nov10 Dec10 Jan11 Feb11 Mar11 Apr11 May11 Jun11 Jul11 Aug11 Sep11 Oct11 Nov11 Dec11 Jan12 Feb12 Mar12 Apr12 Source:StateBankofPakistan

During July-April 2011-12, the services account deficit recorded an expansion of $ 1,122 million. This deterioration in the services account was primarily due to the 16.6 percent fall in services exports. In addition to this, the 5.0 percent increase in imports also contributed to the deterioration in

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Trade and Payments the services account during the period under review. Within services export, government services witnessed a major decline of 34.4 percent during July-April 2011-12 compared to the same period last year. This was the outcome of the absence of logistic support inflows during July-April 2011-12 as compared to $ 743 million in the corresponding period last year. The other major categories of services export which showed a fall during July-April 2011-12 remained transportation, other business services and communication services; these services declined by $ 51.0 million, $ 68.0 million and $ 21.0 million respectively over the July-April 201011. On the other hand, the major service exports of insurance, computer and information and travel witnessed a major increase during July-April 201112. Government services and travel remains the major
Fig-8.2:Remittances By Country of Source
3,000 2,700 2,400 2,100 US$ Million 1,800 1,500 1,200 900 600 300 0 USA U.K. Saudi Arabia U.A.E. Other GCC Country EU Countries

contributors to the overall increase in services imports during July-April 2011-12. Workers Remittances According to World Bank estimates the remittances flows to developing countries in 2011 increased by 8.0 percent from $ 325 billion in 2010 and is forecast to grow at 7 to 8 percent annually till 2014. Compared to the 10.1 percent growth in South Asia, remittances to Pakistan witnessed a strong growth of 25.8 percent in 2011 over previous year. Pakistan has become the fifth largest remittances recipient developing country in 2011. The general upward trend in remittances during the period under review was composed of a per annum average growth from U.A.E of 32.2 percent followed by U.K. (30.1 percent), Saudi Arabia (27.3 percent), EU countries (25.3 percent), Other GCC Countries (15.1 percent) and USA (9.5 percent) during the period 2007-08 to 2010-11.

FY 08

FY 09

FY 10

FY 11

More recently, following the impressive performance of the last year, workers remittances continued to provide strength to the current account. During July-April 2011-12, workers remittances grew by 20.2 percent and stood at $ 10.9 billion. The cumulative increase of $ 1.83 billion during July-April 2011-12 over July-April 2010-11 is largely attributed to the governments

efforts to divert remittances from the informal to the formal channel. Since the launch of the Pakistan Remittances Initiative (PRI), the share of workers remittances coming through the banking channel has increased considerably, from 75 percent in 2009-10 to 91 percent in 2011-12. PRI has taken a number of steps to enhance the flow of remittances through formal channels which 113

Pakistan Economic Survey 2011-12 include: (a) preparation of national strategies on remittances (b) taking all necessary steps to implement the overall strategy (c) playing the advisory role for financial sector in terms of preparing a business case, relationship building with overseas correspondents, creating separate efficient remittance payment highways and (d) becoming a national focal point for overseas Pakistanis through round the clock call centre, separate web site etc. Monthly analysis shows that with the exception of September and November 2011, the growth in workers remittances remained higher during JulyApril 2011-12 compared to the corresponding years. It also crossed the one billion mark during these months. Country-wise data shows that remittances from almost all major traditional sources increased. The share of Saudi Arabia in overall remittances was the largest; with UAE and USA having the second and third largest shares. Other countries like UK and Other GCC Countries also contributed to the increase in remittances during the period under review
Fig- 8.3: Monthly Workers' Remittances
1400 1200 US$ Million 1000 800 600 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 Source: State Bank of Pakistan

Table:8.2. Country/Region Wise Cash Workers' Remittances Country/ Region Jul-Apr 2010-11 2011-12* USA 1,677.9 1,922.4 U.K. 990.9 1,263.7 Saudi Arabia 2,085.8 2,987.9 UAE 2,091.3 2,386.3 Other GCC Countries 1,063.5 1,226.6 EU Countries 290.8 304.6 Other Countries 846.4 785.7 9,046.6 10,877.0 Total Source: State Bank of Pakistan * Provisional

($ Million) % Change 14.6 27.5 43.2 14.1 15.3 4.8 -7.2 20.2 % Share 17.7 11.6 27.5 21.9 11.3 2.8 7.2 100.0

Financial Account The financial account posted a surplus of $ 1,200 million during July-April 2011-12 against a surplus of $ 690 million in the corresponding period last year. Foreign direct investment declined by $ 625 million and portfolio investment witnessed a fall of $ 126 million. Other investment stood at $ 721 million during July-April 2011-12. During the period July-April 2011-12, Foreign Direct Investment (FDI) declined by 48.3 percent. This decline was primarily due to lower investment in the telecommunication, financial business and

power sector during the period. The fall in FDI in Pakistan appears to be the result of factors such as energy crises and circular debt. However, the Oil & Exploration remained the major attraction during current fiscal year as its share in overall FDI stood at 69.8 percent with 37.9 percentage points increase during the period. Foreign Exchange Reserves In current fiscal year 2011-12, Pakistans foreign exchange reserves reached by $ 16.49 billion at the end-April 2012 compared to $ 17.05 billion in corresponding period last year.

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Trade and Payments This was mainly due to current account deficit and repayment of $ 400 million to the IMF. On the other hand, the rising inflows of scheduled banks reserves on account of healthy rise in FE-25 deposits and trade NOSTROs helped increase reserves in scheduled banks by $ 1.10 billion.
Fig 8.4: Gross Foreign Exchange Reserves SBP
16.0 $ billion 12.0 8.0

Fig-8.5: Monthly Exchange Rate


95 90 Rs./US$ 85 80 75 70 Apr-09 Apr-10 Apr-11 Dec-08 Dec-09 Dec-10 Aug-08 Aug-09 Aug-10 Aug-11 Dec-11 Apr-12 70 68 Index(FY04=100) 150.0 66 64 62 60 58 90.0 56

20.0

Banks

Source:StateBankofPakistan

Real Effective Exchange Rates


4.0 0.0 FY07 FY08 FY09 FY10 FY11 Jul-Apr FY12

Source:StateBankofPakistan

Exchange Rate After witnessing the continuous decline in depreciation of average annual exchange rates during 2009-10 and 2010-11, the domestic currency remained under pressure through most of fiscal year 2011-12. This pressure is emerging from the deficit in the overall external account of the country during July-April 2011-12. As a result Pakistans currency vis--vis the US dollar depreciated during July-April 2011-12. In absolute terms, the exchange rate averaged Rs. 85.50/US$ during July-April 2010-11, whereas it averaged at Rs. 88.55/US$ during July-April 201112. The Pak Rupee depreciated by 3.4 percent during July-April 2011-12 over the depreciation of 2.2 percent in July-April 2010-11 period due to the widening current account deficit and speculations on account of the repayment of IMF loan during the period. Apart from the deficit in the current account balance during July-April 2011-12 other domestic factors as well as the speculative environment in the foreign exchange market added volatility to the exchange rate.

Conceptually, the REER is defined as the weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries. Given the weakness against the US dollar, the Pak Rupee depreciated by 8.8, 5.7 and 3.7 percent, against Yen, Euro and Great Britain Pound, respectively. Despite the depreciation against the US dollar and other major currencies in nominal terms, the Pakistan currency appreciated by 0.51 percent in real terms during Jul-Dec 2011-12 against an appreciation of 0.16 percent during Jul-Dec 2010-11. The appreciation in real terms was due to the sharp and persistent rise in the relative price index (RPI).
Figure 8.6: REER, NEER and RPI
REER RPI 180.0

NEER(RHS)

120.0

Source:StateBank ofPakistan

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Pakistan Economic Survey 2011-12 Commodity-Wise Performance of Exports and Imports2 Exports Group-wise analysis of exports growth suggests that the exports of the other manufacturers witnessed an impressive growth of 19.9 percent during July-April 2011-12 over the same period last year. Its share in overall exports also increased by 3.9 percentage points and stood at 20.0 percent during current fiscal year 2011-12. Jewelry, chemicals and pharmaceutical products, surgical goods & medical instruments, guar and guar products and engineering goods remained the prominent categories among the positive contributors to the overall increase in other manufactures group. Furthermore, these five items collectively added $ 668.6 million in the overall exports during July-April 2011-12. Jewelry exports have witnessed a significant $ 335.6 million increase over the last year and its share in other manufactures group also increased from 10.0 percent to 17.0 percent during July-April 2011-12. Moreover, cement exports also increased by 3.5 percent during July-April 2011-12 against the fall of 9.9 percent during July-April 2010-11. This increase in cement export receipts is mainly the outcome of higher unit values, which increased by 12.9 percent during the period. The decline in quantum exports of cement which witnessed a fall by 8.3 percent during the period tampered the increase in cement export receipts. However, the overall increase in other manufactures group was offset to some extent by the negative growth of carpets (5.9 percent), leather garments (15.6 percent) and cutlery (6.3 percent) during July-April 2011-12. The export category of carpets, rugs and mats declined due to increased competition from the neighboring countries of Pakistan. The value of exports from the food group stood at $ 3509.7 million during July-April 2011-12 compared to $ 3597.6 million in the corresponding period last year, thereby showing a negative
2

growth of 2.4 percent. In absolute terms this represents a fall of $ 87.9 million during the period. Further details reveal that the lower quantity of exports of most of the food items remains the major reason behind the overall decline. The unit values of different food items remained largely positive during the period. The major factors behind the overall fall in food exports remain wheat, rice and vegetables. In absolute terms these three items fell by $ 442.3 million during the first ten months of the current fiscal year 2011-12. Rice exports followed last years trend and declined by 3.2 percent during July-April 2011-12. This fall in rice export is due to the overall quantum exports of rice by 9.1 during the period. The major reason behind the fall in rice exports remained the higher availability of rice internationally. The other reason for the fall in rice exports was the higher proportion of nonbasmati rice in the overall export quantum of rice. Wheat exports declined due to the internationally lower demand and prices as quantity and unit value of wheat both witnessed a negative growth of 70.6 percent and 8.3 percent, respectively. On the other hand, fruits exports witnessed a major increase during 2011-12; in absolute terms fruit exports increased by $ 70.5 million during JulyApril 2011-12 over the same period last year. In contrast to the 32.1 percent growth in July-April 2010-11 textile exports declined by 9.6 percent during July-April 2011-12. This fall in textile is mainly attributed to decline in quantity exports; the majority of the textile categories show a negative growth in the quantities exported. The major reason behind this phenomenon is the energy crisis hitting the textile sector and the fall in international demand. Owing to this, the share of the textile sector in overall exports declined from 55.8 percent in July-April 2010-11 to 52.4 percent during July-April 2011-12 and on absolute term it fell by $ 1076 million during the period.

: The analysis of exports and imports is based on trade data released by Pakistan Bureau of Statistics (PBS) on Customs basis which differs from exchange record data by SBP.

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Trade and Payments


Table 8.3: Structure of Exports Particulars A. Food Group Rice Fish & Fish Preparation Fruits Vegitables Wheat Spices Oil Seeds, Nuts & Kernels Meat & Meat Preparation B. Textile Manufactures Raw Cotton Cotton Yarn Cotton Cloth Knitwear Bed Wear Towels Readymade Garments Made-up Articles C. Petroleum Group Petroleum Products Petroleum Top Naptha D. Other Manufactures Carpets. Rugs & mats Sports Goods Leather Tanned Leather Manufactures Surgical Goods & Medical.Inst. Chemicals & Pharma. Pro. Engineering Goods Jewellary Cement Source: PBS * Provisional July-April 2011-12* 2010-11* 1,735.2 259.3 322.4 131.9 112.7 38.6 23.4 141.6 433.1 1,451.7 1,969.8 1,624.5 1,453.1 556.5 1,326.6 472.7 291.9 518.4 104.3 269.2 358.7 435.3 249.6 909.0 230.1 649.7 387.3 1,792.2 234.4 252.0 211.7 418.2 38.7 14.5 122.0 327.3 1,880.0 2,081.2 1,870.1 1,686.0 607.8 1,396.5 509.0 752.9 388.5 110.9 262.9 370.8 450.3 212.6 725.5 196.4 314.1 374.2 % Change -3.2 10.6 28.0 -37.7 -73.0 -0.3 60.6 16.0 32.3 -22.8 -5.4 -13.1 -13.8 -8.4 -5.0 -7.1 -61.2 33.4 -5.9 2.4 -3.3 -3.3 17.4 25.3 17.2 106.9 3.5 ($ Millions) Absolute Change -57.0 24.9 70.5 -79.8 -305.5 -0.1 8.8 19.6 105.8 -428.3 -111.4 -245.6 -232.9 -51.3 -69.9 -36.3 -461.0 129.9 -6.6 6.2 -12.2 -14.9 37.0 183.5 33.7 335.6 13.1

The negative effects of the energy shortages domestically and the slowdown of global demand are especially visible in the decline in the quantity of exports despite the increase in the unit values of the majority of items during the period July-April

2011-12. Due to this phenomenon, the quantum exports of high value added items such as knitwear, bed wear, towels and readymade garments have shown negative growth during the period under review.

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Pakistan Economic Survey 2011-12

Fig-8.7: Textile Exports (July-April 2011-12) 100 75 50 25 0 -25 -50 -75 -100
RAWCOTTON COTTONYARN COTTONCLOTH COTTON CARDEDOR COMBED YARNOTHER THANCOTTON YARN KNITWEAR BEDWEAR TOWELS

Quantity

UnitValue

% Growth

TENTS,CANVAS READYMADE &TARPULIN GARMENTS

Source: PBS

ART,SILK& SYNTHETIC TEXTILE

Notwithstanding the higher international prices, the petroleum group export receipts declined by 29.0 percent during the first ten months of the current fiscal year compared to the same period last year. This decline in the petroleum group is due to the decline in quantum export as petroleum products and naptha fell by 68.4 percent and 13.9 percent respectively causing a decline of $ 331.0 million in net absolute terms in export receipts from petroleum group over the corresponding period last year. The circular debt problem in the country remained the major reason for the decline in the petroleum group exports during July-April 201112. Moreover, the share of the petroleum group also declined by 1.50 percentage points during the period under review.
Table 8.4:Pakistans Major Exports Commodity 06-07 07-08

Concentration of Exports The process of decrease in concentration of exports items continued in the current fiscal year (JulyApril 2011-12) as the share of other items in overall exports increased to 39.0 percent against the 28.5 percent during 2006-07, a 10.5 percentage points increase during the period. Moreover, the share of the other items category witnessed a 6.2 percentage points increase during July-April 201112 compared to the same period last year. In spite of this structural change in exports of the country, the major share of Pakistans export is still concentrated in a few items with only three items (cotton manufactures, leather and rice) making up 61.0 percent of total exports during July-March 2011-12.
(Percentage Share) Jul-Mar* 10-11 11-12 53.7 50.1 4.5 2.2 9.0 8.7 67.2 61.0 32.8 39.0 100 100

08-09 52.6 5.4 11.2 69.2 30.8 100

09-10 50.6 4.5 11.3 66.4 33.6 100

10-11 52.9 4.4 8.7 66 34.0 100

Cotton Manufacturers 59.7 51.9 Leather** 5.2 5.8 Rice 6.6 9.8 Sub-Total of three Items 71.5 67.5 Other Items 28.5 32.5 Total 100 100 Source: Pakistan Bureau of Statistics *Provisional, ** Leather & Leather Manufactured

Direction of Exports Despite being concentrated in a few markets, Pakistan has witnessed some geographical diversification in exports. During 2005-06, 47.2 118

percent of the countrys exports were concentrated in five markets (USA, UK, Germany, Hong Kong and U.A.E.) of the world and remaining share of all other countries was 52.8 percent. This

Trade and Payments concentration is on continuous decline since 200506 and recently the share of these five market stood at 35.2 percent whereas the share of all other countries increased to 64.8 during July-March 2011-12 compared to 52.8 percent share during 2005-06. This improvement in geographical
Table 8.5: Major Exports Markets Country USA UK Germany Honk Kong U.A.E. Sub-Total Other Countries Total 05-06 25.5 5.4 4.2 4.1 8.0 47.2 52.8 100.0 06-07 24.6 5.6 4.1 3.9 8.2 46.4 53.6 100.0 07-08 19.5 5.4 4.3 2.7 10.9 42.8 57.2 100.0 08-09 18.9 4.9 4.2 2.1 8.2 38.3 61.7 100.0 09-10 17.4 5.3 4.1 2.2 8.9 37.9 62.1 100.0 10-11 16.0 4.9 5.1 2.0 7.3 35.3 64.7 100.0

diversification was mainly the result of the Strategic Trade Policy Framework (STPF-200912) introduced by the government and the resulting increase in exports to China, Afghanistan and Bangladesh.

(Percentage Share) Jul-Mar 10-11 11-12* 15.9 14.7 5.0 5.1 5.0 4.8 2.2 1.6 7.3 9.0 35.4 35.2 64.6 64.8 100.0 100.0

Source: Pakistan Bureau of Statistics *Provisional

Imports Structure of imports indicates that food group imports accounted for 11.4 percent of total imports and showed a negative growth rate of 1.7 percent during July-April 2011-12 compared to last year. This fall in the overall food import bill is the result of a decline in the quantity of imports of most of the food items despite the increase in the unit values of food group items. Within food group imports, the major contribution came from sugar as its import bill declined by $ 665.0 million in absolute terms during July-April 2011-12 compared to the same period last year. This fall in sugar imports came on the back of improved sugar production domestically due to higher crop production of sugarcane during the fiscal year under review. Moreover, the import bill of spices and pulses also witnessed a fall during the period. The import bill for edible oil increased by 16.5 percent and has added $ 273 million to this years import bill. Palm oil imports surged in quantity, value and per unit value as it increased by 5.1 percent, 18.3 percent and 12.5 percent, respectively. The higher import bill of palm oil is

the result of higher international prices and higher domestic demand during the period, resulting in an increase in the palm oil import bill in absolute terms by $ 292 million. In addition, the import bill for tea during 2011-12 also increased by 4.8 percent on the back of higher import prices during the period.
Fig-8.8: Sources of Change in Petroleum Imports (Jul-Apr 2011-12)
90 80 70 60 50 40 30 20 10 0 Price Effect Source: PBS Quantity Effect

The Import of petroleum group products grew by 43.5 percent during July-April 2011-12 against the 8.4 percent growth in the corresponding period last year reflecting mainly the impact of higher international oil prices since per unit values of

% age

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Pakistan Economic Survey 2011-12 petroleum products and petroleum crude increased by 28.9 percent and 36.6 percent, respectively. Moreover, during July-April 2011-12, the petroleum group import bill increased by $ 3,815.3 million over the same period last year. Nearly 76.4 percent of this increase in the import bill is contributed by the price impact and 23.6 percent by the quantum impact. The increase in the petroleum import bill is also evident from the international monthly average prices of oil. These surged from $ 76.4 per barrel in July 2010 to $ 120.5 per barrel in April 2012. Moreover, the quantity of petroleum product imports increased by 31.7 percent while quantum imports of crude oil declined by 19.5 percent during July-April 2011-12. This phenomenon in quantum imports results from the effect of the circular debt problem in the country faced by refineries.
Fig-8.9: International Monthly Oil Prices (Average)
140 120 100

percent during the period. During July-April 201112, the increase in road motor vehicle imports was the outcome of higher import of CBU (complete build-up unit) which increased by $ 234.3 million over the last year due to the import of cars and buses, trucks and other heavy vehicles categories increasing by 161.0 percent and 91.3 percent respectively during the current fiscal year period under review. Moreover, the complete knocked down-down (CKD)/semi-knocked-down (SKD) category of road motor vehicles also increased by 6.8 percent during July-April 2011-12. Within this category, motor cycles and buses, trucks and other heavy vehicles contributed positively during the period. Due to these developments, the import quantum and value of rubber tyres and tubes witnessed an increase of 25.4 percent and 14.4 percent respectively during July-April 2011-12. Increase in the overall import bill of consumer durables is generally the outcome of the fall in duties on automobiles, deep freezers, air conditioners and beverages along with the cut in taxes announced by government. Telecom imports grew by 22.9 percent during the first ten months of the current fiscal year. In absolute terms the import in the telecom sector witnessed an increase of $ 195.2 million. Out of the total increase in telecom imports, 65.4 percent has been contributed by mobile phone imports which grew by 29.0 percent and added $ 127.7 million to the import bill during July-April 201112 as compared to the corresponding period last year. This increase may be the result of increased availability of cheaper mobile phones in the country. The machinery group imports decreased to $ 3148.4 million during the first ten months of the current fiscal year 2011-12 as against $ 3595.9 million in the corresponding period last year. Among the different items of the machinery group, textile machinery, air crafts, ships and boats and other machinery witnessed a decline during the period under review. The decline in textile machinery import may be attributed to the fall in external demand; decline in export prices; and, energy problems faced by textile sector.

$/Brl

80 60 40 20 0 Jul 10 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 11 Aug Sep Oct Nov Dec Jan Feb Mar Apr 12

The import of consumer durables added $ 229.8 million to the overall import bill for July-April 2011-12. The contribution to the increase in consumer durables imports remained road motor vehicles. Their import bill increased by $ 229.3 million. Moreover, the import of electric machinery and appliances also increased by 0.1

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Table 8.6: Structure of Imports Particulars A. Food Group Milk & milk food Wheat Unmilled Dry fruits Tea Spices Edible Oil (Soyabean & Palm Oil) Sugar Pulses B. Machinery Group Power Gen. Machines Office Machines Textile Machinery Const. & Mining Mach. Aircraft Ships and Boats Agriculture Machinery C. Petroleum Group Petroleum Products Petroleum Crude D. Consumer Durables Electric Mach. & App. Road Motor Vehicles E. Raw Materials Raw Cotton Synthetic fibre Silk yarn (Synth & Arti) Fertilizer Insecticides Plastic material Iron & steel and Scrap Iron & steel F. Telecom Source: Pakistan Bureau of Statisics July-April 2010-11 2011-12 129.5 5.2 74.4 288.3 91.3 1,660.3 679.9 344.6 865.6 195.6 399.4 98.6 713.5 77.6 4,919.9 3,847.6 674.8 1,082.8 852.8 464.2 444.7 499.6 122.3 1,263.8 423.9 993.9 854.3 134.3 0.0 72.3 302.0 86.6 1,933.6 14.4 320.3 877.2 239.8 339.0 111.0 305.8 103.0 8,354.8 4,228.1 675.3 1,312.1 369.5 434.6 503.9 1,081.7 110.4 1,287.5 446.8 1,119.0 1,049.5 ($ Million) Absolute Change 4.9 -5.2 -2.1 13.7 -4.7 273.3 -665.5 -24.3 11.6 44.2 -60.4 12.4 -407.7 25.4 3,434.8 380.5 0.5 229.3 -483.4 -29.5 59.2 582.1 -11.9 23.7 22.9 125.1 195.2

% Change 3.7 -100.0 -2.8 4.8 -5.2 16.5 -97.9 -7.1 1.3 22.6 -15.1 12.6 -57.1 32.7 69.8 9.9 0.1 21.2 -56.7 -6.4 13.3 116.5 -9.8 1.9 5.4 12.6 22.9

On the other hand, the items which grew positively continued to be the power generating machinery, office machines, construction and mining machinery and agri machinery. Power generating machinery imports increased due to energy shortfalls in the country. As a result the import bill stood at $ 877.2 million during July-April 2011-12. The increase in import of construction and mining machinery reflects the increase in construction activities in the country. This improvement can be attributed to the start of public projects and is also the result of the increase in remittances which went primarily into the construction sector. The higher demand for agricultural machinery imports ($ 25.4

million) is mainly the outcome of remarkable improvement in the agriculture sector. The import of products in the raw material group surged by 7.4 percent and accounted for 22.4 percent of total imports during the period of JulyApril 2011-12. Within raw material imports, raw cotton declined in absolute terms by $ 483.4 million mainly due to increased availability of the crop domestically. The prominent increase witnessed in the imports of fertilizer is due to decline in domestic production owing to gas shortages. As a result the import bill of fertilizer increased by $ 582.1 million over the last year. Of 121

Pakistan Economic Survey 2011-12 this total increase around 87.6 percent was due to increase in quantity and the remaining 12.4 percent due to higher prices. Direction of Imports
US$ Million Fig-8.10 Source of Change in Fertilizer Import (Jul-Apr 2011-12)
600 500 400 300 200 100 0 Price Effect Quantity Effect Source: PBS

Despite being fairly concentrated in a few markets, Pakistans import sources are witnessing a change in direction since 2007-08. The combined share of Pakistans major imports markets (Saudi Arabia, Kuwait, Japan, U.S.A., Germany and U.K.) has been declining from the 36.7 percent in 2007-08 to 30.2 percent at present thereby showing a 6.5 percentage points fall during the period under review.

Table-8.7: Major Sources of Imports (Percentage Share) Country 07-08 08-09 09-10 U.S.A. 6.1 U.K. 1.9 Germany 3.2 Japan 4.6 Kuwait 7.5 Saudi Arabia 13.4 Sub-Total 36.7 Other Countries 63.3 Source: Pakistan Bureau of Statistics *Provisional 5.4 2.6 3.8 3.6 6.6 12.3 34.3 65.7 4.6 1.7 3.4 4.4 6.9 9.7 30.7 69.3

10-11 10-11 4.5 1.6 2.3 4.1 8.2 11.3 32.0 68.0

Jul-Mar 11-12* 4.3 1.6 2.3 4.2 6.8 11.7 30.9 69.1 3.3 1.2 2.5 4.2 8.4 10.6 30.2 69.8

Measures/steps taken by the government regarding exports and imports ` ` In July, 2009 the Federal Cabinet approved complete zero-rating of exports. Incentives have been given to boost exports such as concessionary financing, duty free imports of raw material under temporary importation scheme/Duty Tax Remission on Exports (DTRE), duty drawback scheme, concessions in duty/taxes on import of machinery and raw material of priority export sectors, development of export clusters. Through active trade diplomacy, Government is trying its level best to get better market access for the local `

businesses in international markets by concluding Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) with different countries. Trade Development Authority of Pakistan (TDAP) is undertaking various export promotional activities through trade exhibitions and delegations in the new markets viz China, Hong Kong, Russia, Malaysia, Africa region, America and Eastern Europe etc. The following measures have been taken during 2011-12 in the import / export regime, through Amendments in the Import Policy and Export Policy Orders:

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Amendments in Exports Imports Policy orders during 2011-12 Gist of Amendment Rationale/Justification Allowing export of organic brown sugar. To encourage local production of organic brown sugar. Allowing units registered under DTRE scheme also to import To bring DTRE users at par with inputs given in restricted list of the Import Policy Order (IPO), normal importers. subject to fulfillment of conditions mentioned therein. Restricting import of exhausted batteries to industrial consumers To safeguard environment. only subject to a fool proof mechanism. Restricting disposal of ambulances before ten years imported as a To avoid misuse of ambulances as donation in secondhand used condition by imposing duty taxes commercial vehicle after import. applicable at the time of import. Importer duly registered with Oil and Gas Regulatory Authority To safeguard consumers interest. for importing automotives engine/gear oil etc. Another 17 categories were included in the positive list of items To reduce cost of doing business. importable from India. Allowing export oriented textile and leather sector to import To facilitate export sector. accessories on import cum export basis from India. Allowing raw material/inputs including polythene, polypropylene, To reduce cost of doing business. newsprint and pure terephtalic acid from India through Wagha via land route. Banning import of CNG cylinders and conversion kits. The ban To check fast depletion of existing shall however not apply in the following cases: gas resources. a) For which letters of credit established prior to 15-122011. b) Public transport vehicle i.e. buses and vans. Positive List with India has now been replaced with a Negative To normalize Pakistans trade List of 1209 items. relations with India.

Sr. No. 1. 2.

3. 4.

5. 6. 7. 8.

9.

10.

123

Chapter 9

Pub blic Debt D


duction 9.1 Introd Developin ng countries hinge in a delicate d balance; they need d to borrow in order to facilitate th heir developm ment process - on the other o hand the t borrowing g should be allocated a effi iciently in view of their re epayment abi ility. Debt ma ay well act as a catalyst in n the course of o growth of an a economy, but b only if it t is undertaken to facilita ate a very well w thought out o road map devised with h due diligen nce. Such mea asures can also a lead to strengthening g a countrys capacity of f repayment. Unsustainab ble levels of debt can plague econom mic growth by lowering the actual dev velopmental expenditure e d due to heavy debt servicing requiremen nt. This intricate scenario calls c for a co omprehensive e, dynamic and a rule based d policy whic ch ensures th he right choic ces among several opt tions, addre esses financ cial constraint ts and ensure es intergener rational welfa fare impact. s debt dy ynamics hav ve undergo one Pakistans substantia al changes since s fiscal year 2007. A myriad d of domestic issues and d the interna ational recession and cred dit crises ha ave impacted d the ys debt position. Higher interest paym ments, country large su ubsidies spec cially food an nd energy, gro owing security y spending ne eeds, narrow tax base and rising interna ational comm modity prices have result ted in large tw win account (i.e. ( fiscal an nd current acc count) deficits s. The financ cing of the fiscal deficit t is a growin ng challenge in i the wake of o the shrinkin ng net foreign n assets of th he banking system s in Pak kistan owing to the curren nt account de eficit; the resultant liquidit ty crunch is exerting pressure on dom mestic interest t rates. Low wer FDI and other non n-debt creating flows due to t energy shor rtages and security concern ns have contributed towards t neg gative balance e of paymen nt and draw wdown on of fficial foreign n currency reserves of th he country. Total Liquid Foreign Ex xchange Rese erves were $16.49 $ billion by end-Apr ril 2012, com mpared to $18.24 $ billion as of end Jun ne 2011.

Fig-9.1: Public Deb bt (as percent of o GDP)


100% 90% 80% 70% 60% 50% 40% 30% 20% FY80 FY90 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12-Q3

125

Pakistan Economic Survey 2011-12 9.2 Public Debt Total public debt is a measure of government indebtedness. It includes all government and government guaranteed obligations denominated in rupee as well as foreign currency. It is an important means of bridging government financing gaps. However, excessive reliance on public debt and inappropriate public debt management raise macroeconomic risks, impede economic growth, and hinder economic development. Domestic and external debt should be treated separately. Domestic debt is a charge on the budget and must be serviced through government revenues and/or additional borrowings whereas external debt (both public and private) in addition to government
Table-9.1 Public Debt 1990 Domestic Currency Debt Foreign Currency Debt Total Public Debt Rupee Debt Foreign Currency Debt Total Public Debt Rupee Debt Foreign Currency Debt Total Public Debt 374 428 801 42.8 48.9 91.7 235 269 505 1995 790 873 1,662 42.3 46.8 89.1 245 270 515 2000 1,576 1,442 3,018 41.2 37.7 78.9 308 281 589 2008 2009 2010 2011 2012* (In billion Rs.) 2,178 3,275 3,859 4,654 6,015 7,206 1,913 2,780 3,736 4,284 4,694 4,818 4,091 6,055 7,595 8,938 10,709 12,024 (In percent of GDP) 33.5 32.0 30.3 31.4 33.4 34.9 29.4 27.1 29.4 28.9 26.0 23.3 62.9 59.1 59.7 60.4 59.4 58.2 (In percent of Revenue) 242 218 208 224 266 251 213 185 202 206 208 168 455 404 410 430 474 419 (In percent of Total Debt) 53.2 54.1 50.8 52.1 56.2 59.9 46.8 45.9 49.2 47.9 43.8 40.1 2005

revenues is also a charge on the balance of payment and must be serviced from foreign exchange earnings, reserve drawdown, and additional borrowings. As at end of March 2012, public debt stood at Rs. 12,024 billion registering an increase of Rs. 1,315 billion or 12.3 percent as compared to fiscal year 2011. The increased amount includes Rs. 391 billion consolidated by the government into public debt against outstanding previous years subsidies related to the food and energy sectors. Public debt as a percent of GDP stood at 58.2 percent by endMarch 2012 compared to 55.5 percent of GDP during the same period last year.

Rupee Debt 46.6 47.5 52.2 Foreign Currency Debt 53.4 52.5 47.8 Memo: Foreign Currency Debt 19.5 28.1 27.5 32.1 40.7 45.9 50.1 54.6 53.1 ($ Billion) Exchange Rate 21.9 31.1 52.5 59.7 68.3 81.4 85.5 86.0 90.7 (Rs./U.S.$, E.O.P) GDP (in Rs. Billion) 874 1,866 3,826 6,500 10,243 12,724 14,804 18,033 20,654 Total Revenue (in Rs. Billion) 159 323 513 900 1,499 1,851 2,078 2,261 2,871 Source: State Bank of Pakistan, Budget Wing, Economic Advisers Wing & Debt Policy Coordination Office * End-March

Historically, public debt stock accounted for almost the same burden from domestic and external sources. However, government has increasingly focused on the domestic part over the last few years owing to non-availability of

sufficient external financing i.e. domestic borrowings inched up in share from 46.6 percent in fiscal year 1990 to 59.9 percent at end March, 2012.

126

Public c Debt

Fig-9.2 Sources of Public P Debt (p percent)


60 55 50 45 40 35 30 25 20 15 10 5 0 FY90 FY95 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Q3-FY12 FY 11

Domes stic Currency Debt t

F Foreign Currency Debt D

lic debt ma ay be under rstated witho out The publ reporting contingent liabilities s. Continge ent liabilities are not adde ed to the ove erall debt of the t country. However, contingent liabilities are a possible obligations o th hat arises fro om past events and whose existence will w be confirm med only by the t occurrenc ce or non-oc ccurrence of f one or mo ore uncertain future even nts not who olly within the t f the governm ment. In the case of Pakistan, control of these incl lude, for ins stance, explic cit and impli icit guarantee es issued to Public Sec ctor Enterpris ses (PSEs) an nd unfunded losses of state e owned entiti ies. The Go overnment of o Pakistan issued new guarantee es aggregating g Rs. 146.6 billion or 0. .71 percent of o GDP. Total outstan nding stock of governme ent guarantees as of March h 2012 stood d at Rs. 487 bi illion.
Table-9.2 Guarantees Outstanding O as of Marc ch 31, 2012 (Rs. Billion) ) Outstandin ng Guarantees s extended 487 7 to PSEs -Domest tic Currency 256 6 -Foreign n Currency 231 1 Memo: Foreign Cu urrency (US$ Million) M 2,544 4 Source: De ebt Policy Coordination Offic ce

9.2.1 Dynamics D of Public P Debt Burden B Borrow wing domestic cally or exter rnally is a no ormal, indeed, necessary part p of econo omic activity y. The mic rationale e for debt creation is that econom borrow wers can earn a higher eco onomic return n than the cos st of invested d funds and th hat these econ nomic returns s can then be translated t into o financial re eturns. Debt problems p for r governmen nts arise if debtservicin ng capacity does d not keep p pace with gr rowth of deb bt. This may y also be expressed e as debt exceed ding sustainab ble levels. The level of debt depends on the t debt serv vicing ty of the eco onomy i.e. ex xport earning gs and capacit revenu ue generation n. The debt t burden ca an be express sed in terms of the stock k ratio i.e. de ebt to GDP, external e debt to GDP or flow fl ratios i.e. debt to rev venue, extern nal debt to foreign exch hange earning gs. It is com mmon practic ce to measur re the public debt burden n as a perc centage of GDP; er, it makes more sense e to measure e debt howeve burden n in terms of flow ratios s because ea arning potenti ial reflects more m accurate ely on repay yment capacit ty as GDP changes do not fully translat te into revenu ues, particularly in case of Pakistan P whe ere the taxation systems are a inelastic and the tax xation nery is weak. machin

127

Pakistan Economic Survey 2011-12


Table-9.3 Dynamics of Public Debt Burden Public Debt to GDP Real Growth of Public Debt Real Growth of Revenues Real Growth of Public Debt Burden Real Growth of GDP 2007 60.1 2.3 11.9 -9.7 6.8 2008 59.1 8.3 -0.6 8.9 3.7 2009 59.7 5.2 2.9 2.3 1.7 2010 60.4 4.3 0.3 4.0 3.8 2011 59.4 1.1 -8.4 9.5 2.4 2012* 58.2 2.4 1.5** 0.9 3.7

Source: Budget Wing, SBP and Debt Policy Coordination Office *End March, 2012 **Growth as compared to same period in 2011

If the primary balance (fiscal deficit before interest payments) is zero and the real growth in revenue is higher than the real growth in debt, the debt burden will ease. Pakistan saw a primary surplus in fiscal year 2004, however, since then it is running a primary deficit. In fiscal year 2009 the government was able to bring the deficit down to 0.1 percent of GDP from 2.5 percent in fiscal year 2008 as a result of fiscal consolidation and rationalization of expenditure. However since fiscal year 2010, owing to increased security expenditure, sustained food and energy subsidies and the great floods of 2010, the fiscal adjustment path was altered and the primary deficit reached 2.5 percent of GDP at the end of June 2011. A similar pattern was witnessed in terms of real growth of revenues; from a high of 11.9 percent in fiscal year 2007 it declined to -8.4 percent in fiscal year 2011. On the other hand a gradual decline in
Table-9.4 Public Debt Servicing 2010-2011
Budgeted Actual

real growth of debt has been witnessed since fiscal year 2008. However, the real growth of debt has been greater than the real growth of revenues; and, this complemented by the primary deficit resulted in increase of the debt burden. The public debt stood at 4.7 times government revenues at the end of fiscal year 2011. Ideally the debt to revenue ratio should be 3.5 or lower. 9.2.2 Servicing of Public Debt Increases in the outstanding stock of total public debt have implications for the economy in the shape of a greater amount of resource allocation towards debt servicing in the future. In order to meet debt servicing obligations, an extra burden is placed on limited government resources and might have costs in the shape of foregone public investment or expenditure in other sectors of the economy.

2011-2012
Budgeted Actual* Percent of Govt. Revenue Percent of Current Expenditure

Percent Percent of of Govt. Current Revenue Expenditure

(In billion Rs.) Servicing of External 76.8 68.4 Debt Repayment of External 174.4 154.2 Loans Servicing of Domestic 621.8 629.7 Debt Servicing of Public Debt 872.9 852.2 Source: Debt Policy Coordination Office * July-March, 2012

% 3.0 6.8 27.9 37.7

% 2.4 5.3 21.7 29.4

(In billion Rs.) 76.3 45.9 243.2 714.7 1,034.2 94.5 578.6 719.0

% 2.6 5.4 33.3 41.3

% 2.1 4.4 26.9 33.4

128

Public Debt During the year 2010-11, servicing of public debt amounted to Rs. 852.2 billion as opposed to a budgeted amount of Rs. 872.9 billion (Table 9.4). The saving of Rs. 20.7 billion has mostly been due to stable dollar rupee parity; which reduced the amount used for interest and principal repayments of foreign loans in Rupee terms. Repayment of foreign loans stood at Rs. 154.2 billion as opposed to a target of Rs. 174.4 billion, while interest payments on foreign loans, which were budgeted at Rs. 76.8 billion, reached Rs 68.4 billion by endJune 2011. An amount of Rs. 629.7 billion was spent on account of servicing of domestic debt against the budgeted estimate of Rs. 621.8 billion. The increase in domestic debt servicing is partly the result of a tight monetary stance taken in order to arrest the monetary overhang caused by previous policies. As at the end of March 2012, servicing of the public debt stood at Rs. 719 billion against the budget amount of Rs. 1,034.2 billion. 9.3 Domestic Debt Pakistans domestic debt comprises permanent debt (medium and long-term), floating debt (shortterm) and unfunded debt (made up of the various instruments available under the National Savings Scheme) having shares of 21.6 percent, 54.5 percent and 23.9 percent respectively in total domestic debt. Banks preference of risk-free sovereign credit in view of mushrooming nonperforming loans augured well for the government securities market and overwhelming participation was witnessed in the auctions of T-Bills, PIBs and Government Ijara Sukuk. The composition of major components shaping the domestic debt portfolio has undergone a transformation from a high dominance of unfunded debt to an increasing dependence on floating component of the domestic debt. The unfunded category comprising about 44.6 percent of the aggregate domestic debt stock in fiscal year 2002 has declined to 23.9 percent by end March, 2012. Contrary to this, the share of floating debt to total domestic debt has reached 54.5 percent by endMarch 2012 as compared with 31.4 percent in fiscal year 2002 indicating an over reliance on shorter duration instruments i.e. 54.5 percent of the total domestic debt has the duration of 0.31 years at end March 2012 which is fairly low owing to market appetite for shorter duration reflecting inflationary expectations and higher interest rates in the second half of the fiscal year 2012. Undue reliance on short-term sources of financing raises the rollover or refinancing risk for the government. Failure to issue new debt in order to mature a large amount of outstanding short term debt may trigger a liquidity or debt rollover crisis. The increase in frequency of such operations (due to their short term nature) coupled with any adverse rise in interest rates may leave the government vulnerable to the high cost of debt. The trends in domestic debt are discussed in the following graph:

Fig-9.3 Trends in Permanent, Floating & Unfunded Debt


3700 3200 2700 Rs. billion 2200 1700 1200 700 200 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12Q3

Permanent Debt Floating Debt Unfunded Debt

129

Pakistan Economic Survey 2011-12 9.3.1 Outstanding Domestic Debt The total domestic debt was positioned at Rs. 7,206.9 billion at end-March 2012, representing an increase of Rs. 1,190.5 billion in the first nine months of the current fiscal year. This increase stems from net issuance of market debt namely Treasury bills (Rs. 576.4 billion) and PIBs (Rs.
Table-9.5 Trends in Domestic Debt 2002 Permanent Debt Floating Debt Unfunded Debt Total Permanent Debt Floating Debt Unfunded Debt Total

307.5 billion). In relation to GDP the domestic debt stood at 34.9 percent which is higher than end-June 2011 level at 33.4 percent. The domestic debt grew by 19.8 percent in first nine months of current fiscal year. The focus on deficit financing through internal sources owing to lower external receipts has been the major cause.

2003

2004

2005

424.8 468.8 570.0 557.8 516.3 542.9 792.1 909.5 899.2 1774.7 1894.5 2012.2 9.7 12.7 18.0 40.3 9.7 10.7 18.9 39.3 10.1 9.6 15.9 35.7 28.3 27.0 44.7 5641

Permanent Debt 23.9 24.7 Floating Debt 31.4 27.3 Unfunded Debt 44.6 48.0 Memo: GDP (in billion of Rs.) 4402 4823 Source: Budget Wing, Ministry of Finance * End-March

2008 2009 2010 2011 2012* (In billions Rs.) 526.2 616.8 685.9 797.7 1125.3 1554.6 778.2 1637.4 1903.5 2398.7 3235.4 3926.9 873.2 1020.4 1269.2 1457.5 1655.8 1725.4 2177.6 3274.5 3858.7 4653.9 6016.4 7206.9 (In percent of GDP) 8.1 6.0 5.4 5.4 6.2 7.5 12.0 16.0 15.0 16.2 17.9 19.0 13.4 10.0 10.0 9.8 9.2 8.4 33.5 32.0 30.3 31.4 33.4 34.9 (In percent of Total Debt) 24.2 18.8 17.8 17.1 18.7 21.6 35.7 50.0 49.3 51.5 53.8 54.5 40.1 31.2 32.9 31.3 27.5 23.9 6500 10243 12724 14804 18033 20654

The following section highlights the developments in the various components of domestic debt during first nine months of the outgoing fiscal year. I. Permanent Debt Permanent Debt mainly consists of medium to long term instruments including Pakistan Investment Bonds (PIBs), Government Ijara Sukuk bond, Prize Bond etc. PIBs are non-callable instruments, with semi-annual coupon payment. PIBs are issued in tenors of 3, 5, 7, 10, 15, 20 and 30 years maturity. The 3, 5 and 10 years tenor are most liquid while longer maturities are thinly traded. Government Ijarah Sukuks are medium term Shariah compliant bonds currently issued in 3 years tenor. The purpose of issuance was to raise money from Islamic banking which has grown substantially in Pakistan in recent years. The total share of permanent debt in the governments domestic debt stood at Rs. 1,554.6 130

billion as at end-March 2012 compared to Rs. 1,125.3 billion in 2011 registering an increase of Rs. 429.3 billion. The share of permanent debt in total domestic debt inched up from 18.7 percent in 2011 to 21.6 percent at end March 2012. Sizeable receipts from Government Ijara Sukuk bond and Pakistan Investment Bonds contributed to this expansion. Government mopped up net of retirement Rs. 80.5 billion through successful auctions of Ijara Sukuk bond and Rs. 307.5 billion through Pakistan Investment Bonds during JulyMarch, 2012. II. Floating Debt Floating debt consists of short term domestic borrowing instruments such as Treasury Bills and State Bank borrowing through the purchase of Market Related Treasury Bills (MRTBs). Treasury Bills are zero coupon or discounted instruments issued in tenors of 3 months (introduced in 1997), 6 months (introduced in 1990) and 12 months

Public Debt (introduced in 1997). The share of 3 months, 6 months and 12 months maturity in total T-Bills portfolio is 9 percent, 20 percent and 71 percent respectively as at end-Mar 2012. In order to raise short term liquidity, the government borrows from the domestic banks through auction in the form of Treasury Bills. The auction of Treasury bills is arranged by the State Bank of Pakistan (SBP) twice a month. Treasury Bills having maturity of 6 months are also created by SBP on average rate of interest of previous auction on need basis. Floating Debt share in overall public debt and domestic debt stood at 32.7 percent and 54.5 percent respectively as at end-March 2012. During July-March, 2012, the floating debt grew by Rs. 691.5 billion or 21.4 percent. Around 58 percent of the total increase in government domestic debt stock was contributed by floating debt instruments during July-March, 2012. Much of the proceeds accrued through Market Treasury Bills (MTBs) as Rs. 576.4 billion was added to the stock of June 30, 2011. On the other hand, government borrowed Rs. 167.3 billion by issuing Market Related Treasury Bills (MRTBs) to SBP. III. Unfunded Debt Unfunded Debt made up of the various instruments available under the National Savings Scheme (NSS). A number of different schemes are offered under NSS in the investment horizon of 3 years to 10 years. The total share of unfunded debt in the governments domestic debt stood at Rs. 1,725.4 billion or 23.9 percent on end-March 2012. The stock of unfunded debt increased by Rs. 69.6 billion or 4.2 percent compared with fiscal year 2011. Net receipts in Regular Income Scheme were up by 17.2 percent in July-March, 2012, as the stock increased from Rs. 182.6 billion in June, 2011 to Rs. 214 billion at end-March 2011. Special NSS Schemes including Bahbood Savings Certificates and Pensioners Benefits Accounts registered a combined nominal increase of Rs. 49.3 billion compared to Rs. 59 billion during JulyMarch 2011. Rates of return on NSS instruments were revised downward in October 2011 and January 2012 in response to the decrease in the benchmark discount rate. 9.3.2 Duration of Domestic Debt As at end March 2012, duration of domestic debt stood at 2 years excluding SBP Market Related Treasury Bills (MRTBs). Duration including MRTBs stood at 1.61 years. This estimate of duration may be a little inconsistent owing to the non-availability of actual maturity profile of NSS and manual operations of Central Directorate of National Savings (CDNS). A behavioral analysis was undertaken to estimate the maturity of NSS instruments. Generally, across the globe, governments desire to incur the lowest annual debt servicing cost while ignoring portfolio risks. It is important for the government to take necessary measures to lengthen the maturity profile of domestic debt. Though this may result in additional debt servicing cost in the short term, it would certainly help in reducing the associated liquidity and refinancing risks in the domestic debt portfolio. 9.4 External Debt and Liabilities Pakistans external debt and liabilities (EDL) include all foreign currency debt contracted by the public and private sector, as well as foreign exchange liabilities of the State Bank. EDL has been dominated by Public and Publically Guaranteed Debt having share of 76 percent owing to current account deficit which is financed through loans from multilateral and bilateral donors. Debt obligations of the private sector are fairly limited and have been a minor proportion of EDL (6 percent). Borrowing from IMF contributed 13 percent in EDL Stock which was intended for Balance of Payment (BoP) support and is reflected in foreign currency reserves of the country. The explicit concessional terms of loans (low cost and long tenors) contracted with international financial institutions or donor countries have concealed the inherent capital loss associated with foreign currency debt to some extent. However, the analysis of currency movement of last 20 years reveals that cost of foreign currency borrowing adjusted for exchange rates movement has been 1.5 percent lower than the average domestic interest rates. Pakistan External Debt and Liabilities (EDL) stock was recorded at $60.3 billion as of March 2012. During July-March 2012, $179 million was added 131

Pakistan Economic E Sur rvey 2011-12 2 DL stock. As A a percenta age of GDP in to the ED dollar ter rms, the EDL L was down n by 200 ba asis points in July-March, J 2012 2 compare ed to fiscal ye ear 2011 and d approximat ted to 26.5 percent. Sin nce fiscal yea ar 2010, EDL L has increased in absolu ute terms, but t decreased in n relation to GDP Howev ver, focusing on the absolute a inc crease in the t outstandin ng stock of EDL E can be misleading for two main reasons. Firs stly, the outst tanding stock k of debt must t be analyzed d in relation to o the size of the t economy and its repay yment capaci ity (in terms of GDP an nd other macroeconom m mic indicator rs). Secondly, , the absolut te change in n EDL negle ects classificat tion between an actual in ncrease in sto ock in and inc creases caused by fluctuations fl internation nal exchange rates.
Fig-9.5: Struc cture of EDL End March, 2012 2
Foreign Ot thers Exchange 6% 6 Liabilities 4% IMF 13% Priva ate Non nGuaran nteed Deb bt 6% % Other B Bilateral 4%

Fig g-9.4 External Public Debt (as perce ent of GDP)


60% 50% 40% 30% 20% 10% 0% Q3-FY12 FY80 FY90 FY95 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

The co omposition an nd structure of f Pakistan Ex xternal Debt as a on March 31, 2012 is s depicted thr rough followi ing graphs:
Fig-9.6 : Components of f EDL End March h, 2012
Sched duled Ban nks' Borrow wing, 1% % Foreign e Exchange Liabilities s, 4%

Paris Club 25%

F, 13% IMF Priva ate Non nGuaran nteed Debt, 6%

l Multilateral 42%

Public and Publically d Guaranteed Debt, 76%

The follow wing section highlights th he developments in the var rious compon nents of EDL during the fi irst nine mont ths of the outg going fiscal year. y I. Public c and Publicl ly Guarantee ed Debt (PPG G) At the end-March e 2012, 2 Public c and public cly guarantee ed debt accou unted for the largest share of 76 percen nt in EDL. Pu ublic and publ licly guarante eed debt is do ominated by the loans fro om bilateral and a multilater ral donors. Multilateral M deb bt, which is the t largest co omponent of Pakistans ED DL witnessed da decrease of $730 mill lion during th he period und der review. The projec ct-based nat ture of loa ans contracted d under this category c hinge es on Pakistan ns ability to o instill proj ject efficienc cy. Debt fro om 132

bilatera al sources in ncludes loan n contracted with Paris Club C countrie es and other countries ou utside the Par ris Club. It is second larg gest compone ent of Pakista ans EDL. It witnessed an n increase of f $137 million n during the period p under review. r II. IM MF Debt At the e end-March h 2012, deb bt owed to IMF aggregated up to $8 8.1 billion. Pa ayment amou unting to $793 million has s been made in the 3rd an nd 4th quarter r of fiscal yea ar 2012.

Public Debt III. Private Non-Guaranteed Debt The share of private non-guaranteed debt in total EDL stood at 6 percent at end-March 2012. The
Table-9.6: Pakistan External Debt and Liabilities
2004 1. Public and Publically Guaranteed debt A. Medium and long term(>1 year) B. Short Term (<1 year) 2. Private Non-guaranteed Debt (>1 yr) 3. IMF Total External Debt (1 through 3) 4. Foreign Exchange Liabilities Total External Debt & Liabilities (1 to 4) (of which) Public Debt Total External Debt (1 through 3) 1. Public and Publically Guaranteed debt A. Medium and long term(>1 year) B. Short Term (<1 year) 2. Private Non-guaranteed Debt (>1 yr) 3. IMF 4. Foreign Exchange Liabilities Total External Debt & Liabilities (1 to 4) 29.9 29.9 0.0 1.7 1.8 33.4 2.0 35.3 31.3 34.1 30.6 30.5 0.0 0.02 1.8 2.0 36.1 2005 31.1 30.8 0.3 1.3 1.6 34.0 1.8 35.8 32.1 31.1 28.4 28.1 0.2 0.01 1.5 1.6 32.7 2006 32.9 32.7 0.2 1.6 1.5 36.0 1.6 37.6 33.9 28.2 25.8 25.7 0.1 0.01 1.2 1.2 29.5 2007 35.3 35.3 0.0 2.3 1.4 39.0 1.5 40.5 2008 40.6 39.5 1.1 2.9 1.3 44.9 1.3 46.2 2009 42.6 41.1 1.5 3.3 5.1 51.1 1.3 52.3 2010 43.1 42.3 0.8 3.4 8.1 54.6 1.3 55.9 49.5 30.9 24.5 24.0 0.4 0.02 4.6 0.6 31.5 2011 46.7 46.1 0.6 3.5 8.9 59.1 1.0 60.1 54.6 28.1 22.1 21.8 0.3 0.02 4.2 0.5 28.5 2012Q3 46.4 45.8 0.6 3.3 8.1 57.8 2.5 60.3 53.1 25.4 20.1 19.8 0.2 0.01 3.5 1.1 26.5

stock of private non-guaranteed debt decreased by $147 million; from $3.48 billion in June 2011 to $3.34 billion by end-March 2012.

36.5 40.9 46.3 (In percent of GDP) 27.3 27.4 31.5 24.7 24.8 26.3 24.7 24.1 25.4 0.0 0.7 0.9 0.02 0.02 0.02 1.0 0.8 3.2 1.0 0.8 0.8 28.3 28.2 32.3 Memo: 10243 62.5 68.3 163.8

GDP (in billion of Rs.) 5641 6500 7623 Exchange Rate (Rs./U.S. dollar, Period Avg.) 57.6 59.4 59.9 Exchange Rate (Rs./US$, EOP) 57.9 59.7 60.2 GDP (in billions of U.S. dollars) 98.0 109.5 127.4 Source: State Bank of Pakistan, EAD and Debt Policy Coordination Office

8673 60.6 60.6 143.0

12724 78.5 81.4 162.1

14804 83.8 85.5 176.5

18033 20,654 85.6 90.8 86.0 90.7 210.8 227.8

9.4.1 Composition of Foreign Economic Assistance The total amount of foreign economic assistance received in the first nine months of 2011-12 stood at $1,660 million. The composition of this assistance is as follows: I. Commitments The commitments of foreign economic assistance were $4,580 million during 2010-11, while during July-March 2012, total commitments amounted to $1,967 million. About 76 percent of total commitments during July-March 2012 were in the shape of project aid while the remaining comprised non-project aid. Out of total non-project aid, share of BOP/budgetary support was 78 percent.

II. Disbursements During July-March 2010-11, disbursements of $1,660 million were for different purposes like Project Aid ($1,113 million), Programmeloans/Budgetary Support ($99 million) and relief ($448 million). Project aid accounted for 67 percent of the total disbursements. 9.4.2 External Debt Servicing During fiscal year 2011, external debt servicing summed to US$ 4,799 million that is 14.3 percent lower than the previous year. A segregation of this aggregate number shows a payment of US$ 2,348 million in respect of maturing EDL stock where interest payments were US$ 963 million. US$ 1,488 million was rolled-over.

133

Pakistan Economic E Sur rvey 2011-12 2


Table-9.7 Pakistan's Pu ublic External Debt Servicing Actual Amount Total Amount Rolled Years Paid Over (i in million of US$) U 2006-07 2,326 1,300 3,626 6 2007-08 2,558 1,200 3,758 8 2008-09 3,986 1,600 5,586 6 2009-10 3,880 1,723 5,603 3 2010-11 3,311 1,488 4,799 9 2011-12* 2,325 1,243 3,567 7 Source: Sta ate Bank of Pa akistan *July-Marc ch 2012

f net fresh h disburseme ents, exchang ge rate Apart from fluctua ations in US$ $ against the ese currencie es can also re esult in chang ge in External Debt Stoc ck i.e. appreci iation of US$ against oth her currencies s will result in i decrease in i External Debt D Stock or r vice versa. The total tra anslational ga ain on accou unt of cross-c currency mov vement again nst US$ amo ounted to $1,129 million which can be attribute ed to appreci iation of US $ against ha ard currencies like Euro, Japanese J yen (JPY), SDR by b 7.9 percen nt, 2.0 percent t and 3.2 perc cent respectiv vely. 9.4.4 External E Debt Sustainabil lity Analys sis of the cu urrent accoun nt deficit pro ovides importa ant clues as to the futur re direction of o the externa al debt path. Higher curre ent account in i the absence of offsettin ng increases to t current tran nsfers and no on-debt creatin ng capital flo ows can add to t the stock of o external debt. d Similarly y, any increa ase in interest t rates and exchange e rate e depreciation n will increas se the debt se ervicing cost of the countr ry and will af ffect the sove ereign debt portfolio. p Ex xternal Debt and a Liabilities s expressed as a a percenta age of GDP might m be a co ommon means s of measurin ng the indebte edness of an a economy y, but repay yment capacit ty is more accurately captured thr rough express sing the level ls of debt as a percentage of the econom mys foreig gn exchange e earnings and reserve es. In orde er to ensu ure sustainab bility, govern nment can ass sign threshold d levels to the e debt stock as a ratio of economi ic indicators s and compar rison with in nternational th hresholds pro ovides insight t into a countr rys debt posi ition. During g 2010-11, th he non interest current ac ccount showed d a surplus of o 0.8 percent t of nominal GDP on acc count of im mproved trade e balance (h higher cotton prices) and swelling s inflo ows in remitta ances. This in ndicator show wed a downw ward trend in fiscal year 20 012 by record ding a deficit t of 1.2 perce ent of nomina al GDP com mpared to a surplus of 0.66 percent t of nominal l GDP during g the same period p last yea ar owing to high value of oil o imports. EDL as a perce entage of Foreign F Exch hange gs (FEE) giv ves a measu ure of a coun ntrys Earning debt re epayment cap pacity by co omparing leve els of externa al debt to the t sum of exports, ser rvices receipt ts, and priv vate unrequi ited transfer rs. A general lly acceptable e threshold re equires a coun ntrys

Servicing of external debt d and liabilities during the t first nine months of fi iscal year 2012 amounted d to $3,567mil llion. Out of the total, $1,6 692 million was w paid again nst principal while w interest t payments we ere $633 mill lion. US$ 1,2 243 million was w rolled-ov ver. When com mpared to a stock of appr roximately US$ U 60.1 billi ion at the en nd of fiscal year 2011, the t relatively smaller am mount of interest payments made dur ring the first three quarter rs of fiscal ye ear 2012 sign nal towards the concessi ional nature of most of the t foreign lo oans contracted by Pakistan. Notwithst tanding, with h the IMF-SB BA repayments over next two years, th he servicing will w increase. pact of Excha ange Rate Flu uctuations 9.4.3 Imp Pakistan External Deb bt is contrac cted in multip ple currencies s, however, outstanding o b balance of the ese loans is co onverted into o US$ for repo orting purpos ses. As at end March 2012, 94 percent of o total Extern nal Debt is contracted in 4 major currencies as depicted in i the followin ng graph:
Fig-9.7 Currency Wise Externa al Debt Com mposition (as on o March 2012)
rs Other 6% USD 26% EUR 12%

JPY 30%

SD DR 26 6%

134

Public Debt EDL to remain below 2 times of FEE. Improvement was observed in the EDL-to-FEE ratio, which was 1.3 in fiscal year 2011 compared to 1.5 in fiscal year 2010 at the back of strong workers remittances and a positive turn-around in export earnings. The improvement of this ratio suggests that Pakistans stock of external debt and liabilities is growing at a slower rate than its foreign exchange earnings. During July-March 2012, the ratio stood at 1.7against 1.3 during the same period last year.

Table-9.8 External Debt Sustainability External Debt Indicators 2007 2008 Non Interest Current Account/GDP -3.8 -7.1 EDL/FEE (times) 1.2 1.2 EDL/FER 2.5 4.0 EDL/GDP 28.3 28.2 EDL Servicing/FEE 12.6 11.7 STD/EDL 0.1 2.4 Source: EAD, SBP & Debt Policy Coordination Office * July - March 2012 FEE: Foreign Exchange Earnings; STD: Short-term Debt; EDL: External Exchange Reserves

2009 -4.5 1.5 4.2 32.3 18.0 2.8

2010 -1.4 1.5 3.3 31.5 16.5 1.4

(in percent) 2011 2012* 0.8 -1.2 1.3 1.7 3.3 3.6 28.5 26.5 11.4 10.0 1.0 0.9

Debt and Liabilities; FER: Foreign

A decrease in EDL in relations to Foreign Exchange Reserves reflects the consolidation of foreign exchange reserves and a general improvement of the countrys repayment capacity or vice versa. On the onset of SBA in 2008, the ratio declined to 3.3 in 2009-10 as EDL growth slowed and foreign exchange reserves shored up. The ratio did not improve in fiscal year 2011 mainly because of stagnation in reserves and lower growth in EDL stock. By end-March 2012, the ratio deteriorated slightly to 3.6 compared to 3.3 by end June 2012 mainly because of drawdown on reserves owing to lower Foreign Direct Investments and other non-debt creating flows. A major improvement has been witnessed in EDLto-GDP ratio as it improves from 31.5 percent in fiscal year 2010 to 28.5 percent in fiscal year 2011. By end-March 2012, EDL as a percent of GDP stood at 26.5 percent, thereby showing a decrease of 2.0 percentage points in first nine month of current fiscal year. This improvement is mainly due to faster growth in nominal GDP in relation to slower growth in external debt owing to lower financing from external sources. External Debt Servicing as a percentage of Foreign Exchange Earnings has been declining since fiscal year 2010 and stood at 11.4 percent during fiscal year 2011 owing to strong workers remittances

and a positive turn-around in export earnings. A generally acceptable threshold requires a countrys EDL servicing to remain below 20 percent of FEE. The current levels of servicing are bound to increase as IMF-SBA repayments initiate in fiscal year 2012, that require serious efforts to enhance the export earnings. Pakistans level of Short Term Debt (STD) as a percentage of EDL has historically been lower than most other developing countries. It was just 0.1 percent in 2006-07. Fiscal year 2009-10 has seen an improvement in STD as a percentage of EDL to 1.4 percent which decreased to 1 percent in fiscal year 2010-11. During July-March 2012, the ratio stood at 0.9 percent. 9.5 Pakistans Link with International Capital Market The first ten months of the current financial year witnessed a period of substantial volatility in the global markets, largely as a consequence of fears relating to the Eurozones peripheral economies. The Emerging Market Bond Index (EMBI), a benchmark index for measuring the total return performance of international government bonds issued by emerging market countries, has depicted an increase over June 2011 levels, implying an increase in costs for tapping international debt

135

Pakistan Economic Survey 2011-12 capital markets. However, since January 2012 the EMBI has shown a slight decrease indicating that the debt capital markets might be improving, however, uncertainty with respect to the Euro area remains and continues to affect the credit risk appetite of global investors. In the backdrop of prevailing uncertainty in the global markets, the situation for Pakistan is further affected by concerns over higher commodity prices, consequent energy shortages, flood etc. Given the general risk awareness and volatility prevailing in the international markets, Pakistan has not issued any new debt instrument since 2008. The government plans to tap the global markets once the conditions become more favourable. 9.6 Recent Performance of 2017 And 2036 Eurobonds Pakistan has witnessed an increase in spreads on its 2016, 2017 and 2036 Eurobonds in the first ten
Table-9.9 Selected Secondary Market Benchmarks Ratings Issuer Coupon (%) (Moodys/S&P) Pakistan B3/B7.125 Pakistan B3/B6.875 Pakistan B3/B7.875 Source: Bloomberg, as at May 9th, 2012

months of 2010-11. External factors mainly contributed to the spread performance of Pakistans bonds over the past year, with an overall tightening witnessed since the beginning of 2012. However, levels remain high when compared to levels seen at the beginning of 2010. The Eurobond maturing in 2016 is currently (as of May 9th, 2012) trading at a spread of UST+1098 basis points. The 2017 maturity bond, that had an issue spread of UST+200 basis points, is trading currently at a spread of UST+1157 basis points. The 2036 bond, compared to the issue spread of UST+302 basis points and a spread of 681 basis points last year, is trading currently at a spread of UST+1002 basis points. The following table contains the latest position of bond issued by Pakistan along with their current yields.

Maturity

Spread over UST (bps) Mar 2016 1098 Jun 2017 1157 Mar 2036 1002

Yield (%) 11.714 12.312 13.024

9.7 Conclusion Pakistans public debt position declined slightly in the current fiscal year. A host of internal and external factors contributed to the decline. Higher interest payments, large subsidies specially food

and energy, growing security spending needs, narrow tax base and rising international commodity prices have resulted in large twin account (i.e. fiscal and current account) deficits. Prudent government policy will be necessary to address the issue of public debt.

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Chapter 10

Education
Introduction The primary objective of government policy in the last few years has been to improve the level and quality of education in Pakistan. The government vision is to expand primary education and this measure can be used to assess whether government schools have increased their coverage, by increasing enrolments faster than the growth in population, especially at the primary level because that level forms the core of the literate population. Literacy and primary school enrolment rates in Pakistan have shown improvement during last five years but they are still lagging behind other countries of the region. Scarcity of resources and inadequate provision of facilities and training are the primary obstacles in imparting and expanding education. The present governments strategy for the sector includes improving the functioning and utilization of existing schools, improving the quality of education, increasing enrolment, improving access to education and expanding the primary education system. Under the 18th constitutional amendment control and management of the education sector has been devolved to the provinces. They are now responsible for the key areas of the education sector i.e. curriculum and syllabus, centers of excellence, standards of education up to intermediate level (Grade 12) and Islamic education. Planning and policy and standards of education beyond Grade 12 are covered under Federal Legislative List. All the provinces have shown their commitment to the National Education Policy 2009. This chapter presents an overview of the National Education Policy, followed by a discussion of literacy and enrolment statistics. Educational budget and programmes and issues related to technical and vocational training are discussed next, followed by a description of the activities and achievements of the Higher Education Commission. The last section presents a brief summary of the Annual Status of Education Report Survey. National Educational Policy 2009 The National Educational Policy (NEP) 2009 is a milestone which aims to address a number of issues including: ` ` ` ` ` ` ` ` quality and quantity in schools and college education universal primary education improved Early Children Education (ECE) improved facilities in primary schools converting primary schools to elementary schools detaching education classes XI-XII from college

adopting a comprehensive definition of free education achieving regional and gender parity especially at elementary level the share of resources for education in both public and private sectors

` provide demand based skills and increase in

The policy also defines the role of government at the federal as well as the provincial level in the field of education.
137

Pakistan Economic Survey 2011-12 Literacy The National Education Policy 2009 proposes that the literacy rate be increased up to 86 percent by 2015 through up-scaling of ongoing programmes of adult literacy and non-formal education in the country and achieving universal primary education and ensuring zero-drop rates at the primary level. The provinces will allocate a minimum of 4 percent of education budget for literacy and nonformal education. Existing school infrastructure wherever feasible shall be used for literary and non formal education. Literacy is one of the important indicators of education because its improvement is likely to have a longer run impact on other important indicators of national welfare. According to the latest Pakistan Social and Living Standards Measurement (PSLM) Survey 2010-11, the literacy rate for the population (10 years and above) is 58 percent during 2010-11, as compared to 57 percent in 2008-09. Literacy remains much higher in urban areas than in rural areas and much higher for men than for women. Province wise data suggest that Punjab leads with 60 percent literacy followed by Sindh with 59 percent, Khyber Pakhtunkhwa with 50 percent and Balochistan with 41 percent. The details are given in Table 10.1.
(Percent) 2010-11 Female 69 63 81 70 64 80 71 60 82 68 67 77 60 54 79 46 35 67 51 42 71 46 22 68 33 29 50 19 13 40 Total 58 49 74 60 53 76 59 42 75 50 48 63 41 35 61

Table 10.1: Literacy Rate (10 Years and Above)-Pakistan and Provinces 2008-09 Province/Area Male Female Total Male Pakistan 69 45 57 Rural 63 33 48 Urban 81 67 74 Punjab 69 50 59 Rural 63 39 51 Urban 82 71 76 Sindh Rural Urban KPK Rural Urban Balochistan Rural Urban 71 61 81 69 67 76 45 22 65 31 27 48 59 43 73 50 47 62

62 23 45 57 16 38 78 47 64 Source: Pakistan Social and Living Standards Measurement Survey, 2010-11

Primary Enrolment Rates Gross Enrolment Rates (GER) The GER or the participation rate is the number of children attending primary schools divided by the number of children who ought to be attending. The GER at the primary level excluding katchi (prep) for the age group 5-9 years at national level during

2010-11 increased to 92 percent from 91 percent in 2008-09. Amongst the provinces, Punjab shows a marginal increase from 97 percent in 2008-09 to 98 percent in 2010-11. Sindh remained stable with 84 percent, Khyber Pakhtunkhwa improved from 87 percent to 89 percent and Balochistan declined slightly from 75 percent to 74 percent in 2010-11. The details are given in Table 10.2.

138

Education
Table 10.2: National and Provincial GER Province/Area Male Total Pakistan 99 83 91 Punjab 102 92 97 Sindh 93 75 84 Khyber Pakhtunkhwa 102 70 87 Balochistan 93 54 75 Source: Pakistan Social and Living Standards Measurement Survey, 2010-11 2008-09 Female Male 100 103 94 101 92 2010-11 Female 83 93 72 76 52 (Percent) Total 92 98 84 89 74

Net Enrolment Rates (NER) The NER at the primary level refers to the number of students of primary school age enrolled in primary schools divided by the number of children in the age group for that level of education. In other words, for Pakistan, the official primary NER is the number of children aged 5 to 9 years attending primary level divided by the total number of children aged 5 to 9 years. Table 10.3 show the Net primary level enrolment rates at the national/provincial (excluding katchi

abadies) level for the age group 5-9 years. The NER at the national level during 2010-11 slightly decreased to 56 percent from 57 percent in 200809. Punjab shows a decrease from 62 percent in 2008-09 to 61 percent in 2010-11. Sindh also shows decrease from 54 percent to 53 percent in 2010-2011, Khyber Pakhtunkhwa witnessed a decrease from 52 percent to 51 percent and Balochistan improved from 44 percent in 2008-09 to 47 percent in 2010-11.

Table 10.3: National and Provincial NER at Primary Level 2008-09 Province/Area Male Female Total Pakistan 61 54 57 Punjab 64 60 62 Sindh 57 49 54 Khyber Pakhtunkhwa 58 45 52 Balochistan 51 36 44 Source: Pakistan Social and Living Standards Measurement Survey, 2010-11

(Percent) Male 60 62 57 57 56 2010-11 Female 53 59 48 45 35 Total 56 61 53 51 47

Educational Institutions and Enrolment i) Pre-Primary Education Pre-Primary education is the basic component of Early Childhood Education (ECE). Prep or Katchi classes are for children between 3 to 4 years of age. An increase of 7.4 percent in Pre-Primary enrolment (9.41 million) in 2010-11 over 2009-10 (8.76 million) has been observed and it is estimated to increase by 4.8 percent to 9.86 million in 2011-12. [Table 10.4]. ii) Primary Education (Classes I V) A total of 155,495 Primary Schools with 440,523 Teachers were functional in 2010-11. An increase in primary enrolment (19.16 million) over 2009-10

(18.77 million) was observed during 2010-11. It is estimated to increase by 2.2 percent to 19.57 million in 2011-12. [Table 10.4]. iii) Middle Education (Classes VI-VIII) A total of 41,951 middle schools with 334,984 teachers were functional in 2010-11. An increase in middle enrolment (5.64 million) in 2010-11 over 2009-10 (5.50 million) has been observed during 2010-11. It is estimated to increase by 1.3 percent (5.72 million) in 2011-12. [Table 10.4]. iv) Secondary Education (Classes IX-X) A total of 25,209 secondary schools with 452,779 teachers were functional in 2010-11. An increase 139

Pakistan Economic Survey 2011-12 in secondary enrolment (2.63 million) in 2010-11 over 2009-10 (2.58 million) has been observed during 2010-11. It is estimated to increase by 3.6 percent to 2.73 million in 2011-12. [Table 10.4]. v) Higher Secondary / Inter Colleges (Classes XI-XII) A total of 3,435 higher secondary schools and inter colleges with 81,183 teachers were functional in 2010-11. An increase in secondary enrolment (1.19 million) in 2010-11 over 2009-10 (1.17 million) has been observed. It is estimated to increase by 8.7 percent to 1.291 million in 2011-12 [Table 10.4]. vi) Degree Colleges Education (Classes XIIIXIV) An enrolment of 1.02 million students is expected during 2011-12 in degree colleges against an enrolment of 0.76 million in 2010-11. A total of 1,558 degree colleges with 36,349 teachers were functional during 2010-11. [Table 10.4].
(In thousand) (In thousand)

estimated to increase further to 1.45 million during the year 2011-12. [Table 10.4].
Fig-10.1: Enrolment at each level
25000 20000 15000 10000 5000 0 2009-10 2010-11 2011-12 E Primary Middle High

Fig-10.2: Institution at each level


180 160 140 120 100 80 60 40 20 0 2009-10 2010-11

Primary Middle High

vii) Universities Education (Classes XV onwards) An enrolment of 1.41 million is estimated in 201112 in higher education (universities) over 1.11 million in 2010-11. There are 135 universities with 63.557 thousand teachers in both private and public sectors are functional during 2010-11. [Table 10.4]. Overall Assessment The overall educational situation, based on key indicators such as likely enrolments, number of institutes and number of teachers, has shown a slight improvement. The number of enrolments during 2010-11 was 39.9 million as compared to 38.2 million during the same period last year. This shows an increase of 4.4 percent. It is estimated to increase to 41.6 million during 2011-12. The number of institutes stood at 227,800 during 201011 as compared to 228,400 during the same period last year. This shows a decrease of 0.3 percent. However, the number is estimated to increase to 228,300 during 2011-12. The number of teachers during 2010-11were 1.41 million compared to 1.39 million during the same period last year showing an increase of 1.7 percent. This number is 140

2011-12 E

Fig-10.3: Teachers at each level


500 450 (In thousand) 400 350 300 250 200 150 100 50 0

Primary Middle High

2009-10

2010-11

2011-12 E

Education
Table 10.4: Number of Mainstream Institutions, Enrolment and Teachers by Level (Thousands) Year Enrolment Institutions Teachers 2009-10 2010-11 2011-12 2009-10 2010-11 2011-12 2009-10 2010-11 2011-12 (E) (E) (E) 8762.5 9412.5 9863.2 Pre-Primary 18771.6 19157.6 19571.0 157.5 155.5 Primary* 5504.5 5643.7 5717.5 41.3 42.0 Middle 2583.4 2630.1 2725.1 24.8 25.2 High 1166.0 1187.8 1291.0 3.3 3.4 Higher Sec./ Inter 478.4 760.9 1015.2 1.4 1.6 Degree Colleges 935.6 1107.7 1413.5 0.132 0.135 Universities 38202.0 39900.3 41596.5 228.4 227.8 Total Source: Ministry of Professional & Technical Training, AEPAM, Islamabad E: Estimated,*: including Pre-primary and Mosque Schools 154.6 42.6 25.8 3.6 1.7 228.3 441.7 331.5 447.1 77.2 30.8 57.8 1386.1 440.5 335.0 452.8 81.2 36.3 63.6 1409.4 435.5 342.6 463.9 85.0 45.4 72.6 1445.0

Education Programme under PSDP 2010-11 Financial During the fiscal year 2010-11, an amount of Rs. 2.87 billion was provided in the Federal PSDP for expansion and development of basic and college education. The provincial governments were allocated Rs.26 billion (Punjab, Rs. 10.4 billion, Sindh Rs. 4.5 billion, KPK Rs. 9.3 billion and

Balochistan Rs. 1.6 billion) for schools and college education. Physical Achievement Expenditures for basic missing facilities were provided to 180 schools to develop and improve basic and college education. The province/area wise details are given in Table 10.5.
(Numbers) FATA 25 Total 180

Table 10.5: Province/Area wise provision of missing facilities in Schools Khyber Gilgit Sindh Balochistan AJK Pakhtunkhwa Baltistan 50 32 26 22 25 Note: Excluding Punjab Province as it had its own programme.

Introduction of M.Com. classes at FG College of Commerce, H-8/4, Islamabad and up-gradation of 5 primary schools to middle level remained in progress. A number of scholarships were provided to needy and talented students at all levels. A total of 180 students from Balochistan and FATA were enrolled in quality institutions and provided scholarships. Work continued on the 4 Polytechnic Institutes. Work on construction of 14 Cadet Colleges also continued. Rs. 1 billion was spent under the Canadian Debt Swap Projects on inservice training of 40,000 teachers, head teachers and master trainers. Provision of scholarships to 200 student-teachers, repair and maintenance of 25 teachers training institutions were also in progress. The Academy of Educational Planning and Management (AEPAM) has provided training to

200 principals, head teachers, district education officers and educational administrators for their capacity building. The achievements of provincial educational departments Punjab: Campaign for enhancement of literacy was launched specially for promotion of primary education for girls in rural areas. The revamping of existing science laboratories of 1,000 schools was completed. Construction of library rooms was completed in 450 elementary schools. Sindh: In order to improve the quality of teachers, B.Ed classes were introduced at the Provincial Institute of Teachers Education (PITE) at Benazir Abad. Early childhood education and early

141

Pakistan Economic Survey 2011-12 learning programmes have been introduced in the province. Post-graduate courses have been introduced in degree colleges as well. Khyber Pakhtunkhwa: A total of 100 Primary schools on need basis have been completed and 300 additional class rooms have been constructed. Stipend to girl students was provided to reduce the drop-out rate. Construction of library blocks, boundary walls and provision of water facilities have been completed in various degree colleges of the province. Balochistan: A total of 50 primary schools were upgraded to middle level. Buildings were provided for various shelter-less primary schools. Rehabilitation of the Government Degree College and provision of residence facilities for lecturers remained in progress. Development Programme 2011-12 Financial An allocation of Rs. 2.51 billion was made for the financial year 2011-12 for development projects for education. This includes Rs. 677.4 million for projects under the Capital Administration and Development Division (CADD), and Rs. 1.65 billion for the teacher training programme under CIDA, Rs. 30.3 million for projects of education in cantonment and garrison areas under Ministry of Defense, Rs. 1.7 million under the Cabinet Division for printing of a comprehensive biography of Faiz Ahmad Faiz in Urdu, Rs. 82.3 million for Kashmir Affairs and Baltistan Division and Rs. 23.7 million for scholarship schemes under Inter Provincial Coordination Division. Major Programmes 1. Establishment of degree colleges for boys at Shihala and for girls at Bhara Kahu, Islamabad. 2. The construction work on provision of computer labs in 119 schools is going on. The academic activities in Degree College for Women at Sector I-14 are expected to start from September 2012. 3. An allocation of Rs. 1.65 billion under Canadian Debt Swap has been made for capacity building of teacher training institutes 142 (For Islamabad, AJK, Gilgit-Baltistan and FATA Rs. 150.0 million, for Punjab Rs. 705.1 million, for Sindh Rs. 315.9 million, for KPK Rs. 260.6 million and for Balochistan Rs. 181.8 million). 4. An allocation of Rs. 81.3 million has been made for provision of scholarships; three schemes under Inter-Provincial Coordination Division and one scheme under the Defense Division. A scheme for provision of quality education to 200 students belonging to Balochistan and FATA for studying in quality institutions of other provinces has also been launched. Technical and Vocational Education There is a need to enhance and upgrade technical and vocational education in the country to cater to the labour demand in emerging sectors. In this context the government is endeavoring to focus on enhancing productivity and skill development industries particularly in the SME sector and in economic opportunities within and outside the country. The National Vocational and Technical Training Commission (NAVTTC) is an apex body and a national regulatory authority that has been set up to address the challenges of technical and vocational education and training (TVET) in the country. It is involved in policy making, strategy formulation, and regulation and revamping of the TVET system. The commission is establishing and promoting linkages among various stakeholders at the national as well as international level. Since 2006, the commission has given a high priority to unaddressed areas and challenges faced by TVET. In order to combat these challenges during 2011-12, following steps have been taken: ` NAVTTC has developed 60 new curricula of different vocational trades and technologies, which are being taught in public and private sector institutes across the country. A MoU has been signed between NAVTTC and the Sri-Lankan Tertiary and Vocational Education Commission to share copy rights of their 107 National Skill Standards and Training Learning Resource.

Education ` A total of 134,118 youth received vocational and technical training under the Presidents Funni Maharat Programme and Prime Ministers Hunermand Pakistan Programme. 117 new Vocational Training Centres were established in 72 tehsils of the country which were hither to without any TVET Centre. NAVTTC is assigned by its Act to establish an internationally acceptable system of accreditation for TVET institutions. NAVTTC has formulated a mechanism and has obtained consensus of the stakeholders in the provinces on this mechanism. This is the first ever attempt in Pakistan to develop such a system involving the TVET Sector. NAVTTC has formulated a framework for accreditation of TVET institutes (public and private) throughout the country. In this connection a manual for accreditation in consultation with the concerned stakeholders has been developed and is under implementation. NAVTTC has signed a MoU with Asia-Pacific Accreditation and Certification Commission (APACC), Manila. Under which one institute, the Construction Technology Training Institute, Islamabad has been accredited. While nine other institutes are in the process of accreditation. Moreover, the initial phase of accreditation of 12 institutes (both from public and private sectors) has started from March 30, 2012. The Code of Conduct and Professional Ethics for Technical and Vocational Training (TVT) was developed and printed for implementation. The code serves as an instrument and provides an important base for promoting good practices in teaching and learning of international standards. An agreement for Technical and Vocational Education and Training (TVET) Reform Support Programme for a period of five years at a cost of 42.40 million has been signed with the GIZ (German Development Agency).The programme is aimed at reforming the TVET sector as whole. The reform components cover (i) TVET governance and institutional buildings (ii) national qualification framework and human resource development and (iii) effective and innovative training delivery and labour market information services. ` NAVTTC has signed a memorandum of understanding with the well known Pakistani NGO-AKHUWAT for providing interest free loan of Rs. 50,000 to the successful trainees of NAVTTC. All NAVTTC trainees are expected to benefit from this scheme. NAVTTC has constituted 22 advisory groups of experts from different industries and chambers of commerce. The advisory group is expected to play a major role in articulating the criteria for providing quality training to the required skilled force. NAVTTC has constituted Project Monitoring Advisory Committees at the Tehsil level for monitoring the NAVTTC sponsored training programmes. These committees are comprised of notable and dedicated volunteers without any political affiliation. NAVTTC has acquired ISO 9001 Certification as a step towards a better managed and efficient system. NAVTTC has developed institutional linkages with a number of the worlds important organizations dealing with TVET sector. These organizations are: United Nations Educational, Scientific & Cultural Organization (UNESCO) United Nations Industrial Development Organization (UNIDO) British Council (BC) European Union (EU) Turkey International Cooperation Agency (TIKA) International Labor Organization (ILO) Colombo Plan Staff College for Technician Education (CPSC) for Human Resources Development in Asia and the Pacific Region, Philippines. Japan International Cooperation Agency (JICA). Korean International Cooperation Agency. 143

Pakistan Economic Survey 2011-12 Higher Education Commission (iv) Financial management and sustainability

Since its inception in 2002, the Higher Education (v) Research, innovation and entrepreneurship Commission (HEC) has been striving to encourage universities to play a greater role in the economic Key achievements of the Higher Education development of the country. After implementing Commission are as follows: the MTDF 2005-2010, HEC has proposed its next Human Development five year plan viz. its second MTDF 2010-2015 to create the knowledge capital and technology Human resource development within the higher required to enable Pakistan to join the ranks of the education sector lies at the heart of the HECs industrially advanced countries within the next reform process. This is an area in which vital and decade. The few prime physical targets of the significant progress has been made. With the dual objective of increasing institutional capacity and proposed 5-year plan are: enhancing local research activities, the major thrust (i) Promoting excellence in learning and research of the programmes in this area have been primarily aimed at improving the academic qualifications of (ii) Developing leadership, governance and university faculty. However, scholarships schemes management are also open to individuals working in the private (iii) Universities building economies and or government sectors as well as Pakistani communities students. The projects and programmes are given in Table-10.6.
Table 10.6: Projects/Programmes
Project Name Scholarship Availed Scholars Completed Studies 28 935 148 819

(Numbers)

Provision of HE Opportunities for Students 2000 of Balochistan/ and FATA Japanese Need Based Merit Scholarships 950 Program Financial Support for Meritorious Needy 165 Students Program Indigenous PhD Scholarship Schemes 1512 692 People are placed in HEIs under Interim Placement of Fresh PhDs Programmes. Source: Higher Education Commission

HEC is also playing its role in running different scholarship programmes to enhance academic
Table 10.7: Scholarships Project Name

qualification at various levels on merit basis in line with requirements. The details are given in Table 10.7.
Scholarships Awarded
590 604 901 21 189 19 1439 233

Scholars Proceeded
477 604 901 21 117 19 1200 233

(Numbers) Scholars Completed Studies


449 N/A 659 1 2 383 132 24

Post-Doctoral Fellowship Programmes 1000 Cuban Scholarships for Studies in General Comprehensive Medicine US needs based Scholarship Programme for Pakistani University Students MS / M. Phil leading to PhD Scholarships for teachers of Weaker Universities. MS leading to PhD Faculty Development Programme of UESTP/UETs Universities. Overseas scholarship scheme for PhD in selected fields Phase - 1 Overseas Scholarships Phase-II Fulbright Scholarship Programme Source: Higher Education Commission

144

Educ cation h and Develop pment Research Research and develop pment (R&D) ) is essential to be comp petitive in the t changing internation nal econom mic scenarios s. HEC has allocated a fun nds in accorda ance with th he needs of the t country in i the R&D arena a (see Fig g 10.4).

Fig-10.4: Funds F Allocat ted for Promotion of Resear rch


900 800 700 650 680 726 80 00 800

Rs. Million

600 500 400 300 200 100 0 2002-03 2003-04 2004-05 2006-07 2007-08 2008-09 2010-11 2005 06 2005-06 2009-10 47 270 300 44 42

So ource: HEC

g Innovation at HEC Learning Faculty training pr rogrammes, designed for building a high quality pool of academics a and managem ment staff at a learning institutions of

Pakista an, are being g implement ted by the HEC. These programme es are des signed to make interna ational stand dard educati ion availabl le to student ts. The details of this initia ative are pres sented in Tabl le 10.8.
(Num mbers) A AJ&K 02 114 7 121 To otal 74 6431 401 6832 Sindh 13 1279 87 1366 KPK 15 1347 71 1418 Ba alochistan 05 573 39 612

Table 10.8 8: Province-W Wise Distribution of Faculty Members/Ma anagement Sta aff Trained Programmes Total numb ber of Universi ities HE Faculty y Trained Manageme ent Staff Traine ed Grand Tota al Source: HE EC Federa al 21 9 970 94 10 064 Punjab 18 2146 6 103 3 2249 9

A Pr rogrammes Quality Assurance Quality assurance a is one o of the ob bjectives of the t HEC. I order to achieve it some qual In lity parameter rs have been developed an nd implement ted to fill th he gaps in quality prov vision betwe een national and interna ational syste ems of high her learning. The Tenure e Track Sys stem (TTS) of appointme ents has been n introduced in public sec ctor universitie es. It aims at enhancing performance p a and

efficien ncy of the faculty fa memb bers by creat ting a healthy y competitio on among them, allo owing freedom m of research h and teachin ng, as well as a the financi ial independe ence to pursue these objec ctives. To date e a total of 1,3 378 faculty members m have e been appoin nted by 58 pu ublic sector universities/D u Degree Awarding Institutes (DAIs). Due D to contin nuous suppor rt to research journals by the HEC, res search output from Pakista an is now more m visible at a the 145

Pakistan Economic Survey 2011-12 international level. Almost 45 research journals are now in the Institute of Scientific Information (ISI) master list with 11 journals having an impact factor. Plagiarism Eradication System The HEC's goal is to combat plagiarism effectively in an academic environment in all institutions of Pakistan while ensuring that the students and academicians know that stealing intellectual property is unethical and leads to serious consequences. HEC is committed to eradicate plagiarism from higher education institutes. For this, the IT Division had sought a technological solution and acquired an online software tool to assist in identifying plagiarized material. The software tool, Thenticate is one of the leading software used globally for this purpose. Anti-Plagiarism Service Turnitin Plagiarism detection service Turnitin has been provided to all public and private sector HEIs by the HEC in order to facilitate authentication of contents. Some of the salient features of this strategy are as follows: ` Unlimited accounts have been acquired for a one year period and each university has been
2008 10 2885 2009 50 763 2094 10446 2010 13 2263 6855 69042 (Numbers) 2011 54 4144 15811 146297

given 1000 user accounts. The service is provided to a focal person nominated by the university, who will be the resource person for faculty members. ` ` ` ` Technical support and facilitation through emails, phone and personal visit Updating Turnitin guidelines for instructors and circulation of the same to universities Monitoring usage by the universities Involved focal persons for conducting training sessions at respective campuses

For the past three years, all public sector universities have been provided with campus version of plagiarism detection solution, named as Turnitin. This online service is available at http://www.turnitin.com and 1000 licenses for each of the public sector universities/ institutes have been acquired for teaching faculty, post graduate students and researchers in order to address the issue at the grass root level. This year HEC has provided ten (10) months trial access to Turnitin service to all the Private sector universities/ institutes, after having negotiations with I Paradigm (Turnitin parent company).

Table 10.9: Plagiarism Eradication System Facilities Key Indicators No. of Universities given access to Turnitin No. of Registered Instructors No. of Registered Students No. of Submission for Originality Report Source: HEC

In person and remotely managed trainings are arranged for the focal persons of all the universities to rise to the level of master trainer, so that they can in turn extend trainings in-house to their respective universities/ institutes faculty and post graduate students. All universities users are also encouraged to go through the training material available at the Turnitin site and webinars arranged by the service provider on a regular basis. In addition, a master trainer program was also arranged through the Turnitin service provider for the focal persons nominated by the

universities/institutes while selecting top ten (10) extensive users of Turnitin Service. Impact of Plagiarism Policy The zero tolerance policy of the HEC towards plagiarism has had a positive impact on research activities being carried out in higher education institutions and R&D organization. Because of increased awareness about proper documentation, literature referred during research activities has improved and researchers are more vigilant in citing information in their scholarly works.

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Education Financial Scenario For efficient allocation and disbursement of public funds, HEC has developed a formula based funding mechanism that assigns appropriate weights to different need and performance indicators along with students and faculty strength. The detail of recurring funds released to higher education sector during last 4 years is given in Table 10.10.
Table 10.10: Recurring Grant Released (Rs. Million) 2007-08 12,536.5 2008-09 15,766.4 2009-10 21,500.0 2010-11 29,057.0 Source: HEC Note: For the year 2011-12, Rs. 26.9 million have been allocated as annual recurring grant out of which 55 percent has been released so far.
Rs. billion

projects. The HEC expects to complete 48 development projects during the current financial year. The year wise breakup is given in Table 10.12. and Fig-10.5.
Table 10.12: Development Expenditure(Rs. Billions) Financial Year Allocation Releases 2008-09 18.00 16.42 2009-10 22.50 11.30 2010-11 15.76 14.06 *2011-12 14.00 8.96 Total 70.26 50.74 Source: HEC *The releases are till Dec. 2011

Fig 10.5: Development Expenditure


25.00 20.00 15.00 11.30 10.00 5.00 0.00 2008-09 2009-10 2010-11 18.00 16.42 15.76 14.06 22.50

Allocation Releases

14.00 8.96

To streamline and support institutional processes and operations, the HEC has successfully introduced/installed SAP Enterprise Resource Planning (ERP) application in its offices. The HEC has introduced a tenure track system, which offers a market based competitive salary package to attract and retain intelligentsia in public sector institutions of higher learning. Currently, there are 1,257 tenure track teachers working in different public sector universities. In addition to recurring funds, development funds were also released under the Subsidy to Scholars under Cultural Exchange Programme. The details are given in Table 10.11.
Table 10.11: Subsidy to Scholars (Rs. Millions) Year Subsidy Tendered 2008-09 21.5 2009-10 77.0 2010-11 75.7 2011-12 13.5 Total 187.8 Source: HEC

*2011-12

Source: HEC

Education Survey Annual Status of Education Report (ASER) is a citizen led household based learning survey mostly in rural and selected urban areas. It measures learning levels of children 5-16 years the same age group as identified for compulsory education in Article 25 A of the Constitution of Pakistan. ASER is conducted each year across Pakistan and will continue up to 2015. It is led by the Idara-eTaleem-o-Aagahi (ITA) in collaboration with the National Commission for Human Development (NCHD), Sindh Education Foundation and many other Civil Society Organizations (CSOs). In 2011, 84 rural and 3 urban city districts, 2,502 villages, 97 urban blocks and 3,642 government/private schools were surveyed. The survey included 49,793 households and 146,874 children. The ASER 2011 Survey was conducted in 84 rural and 3 Urban districts (Lahore, Peshawar and Karachi) 147

Planning & Development In the development portfolio of HEC, there are 174 ongoing projects. Only 3 new projects were allowed to be included in the current year PSDP. Up till March 2012, 70 percent of the original allocated funds have been released to development

Pakistan Economic Survey 2011-12 of Pakistan by 5000 active citizen volunteers


Box 1 ASER 2011 National Summary (RURAL) Enrolment Characteristics ` In 2011, 79.9 percent of 6-16 year olds in rural Pakistan were enrolled in schools while 20.1 percent were out of school. This number has held steady since 2010. Nationally there is a persistent gender gap in out of school children with more girls than boys being out of school except for the 14-16 age group where slightly more boys are out of school than girls (boys 3.1 percent, girls 2.9 percent) Pre-school enrollment (3-5 years) was 42.8 percent, which is quite close to the overall EFA/National Plan of Action (NPA) target of 50 percent enrolment in pre-school by 2015. The highest enrolment in this age group was 51.3 percent in Punjab and lowest in Gilgit-Baltistan (29.4 percent) with majority enrolled in government schools. For urban areas this trend is highest in Karachi (68.9 percent) with majority of children in private schools

throughout Pakistan.

Private school enrolment is on the rise: ` Nationally, non-state private school enrolment stood at 25.5 percent. Highest private school enrolment was seen in Gilgit-Baltistan (43.6 percent) with FATA (40.5 percent) and Punjab (33.2 percent) close behind ` ` Madrasah enrolment increased from 0.9 percent in 2010 to 2.1 percent in 2011 According to provincial data, highest Madrasah enrolment was found in Balochistan at 6.5 percent while district wise data show that Bahawalpur had the highest Madrasah enrolment (6.4 percent)

No major changes in Drinking Water and Toilet Facilities ` National figures for 2011 do not show any significant improvement in the proportion of schools with useable water and toilet facilities. Of the total government primary schools surveyed, 55.4 percent had useable water facility and 43 percent had a functional toilet ` ` In ASER 2010, it was found that 57.5 percent of the government primary schools surveyed had useable water while 45.3 percent had a functional toilet Facilities in government schools have improved most in Punjab followed by Khyber Pakhtunkhwa (KPK). In Punjab 80 percent government schools have a useable water facility and 70 percent have a functional toilet whereas in KPK 59 percent government schools were found with a useable water facility and 52 percent with a functional toilet

Arithmetic Competencies Improved but Basic Reading Levels show a Decline ` ` Like 2010 the ASER 2011 evidence is most worrying on learning levels across school systems Arithmetic levels have improved: Basic arithmetic levels estimated in ASER 2011 show a slight improvement. For example, nationally, the proportion of class 5 children able to solve a 3 digit division problem has increased from 34.3 per cent in 2010 to 37.3 per cent in 2011. The improvement is most visible in the provinces of Punjab, Gilgit-Baltistan and Balochistan. Urdu reading levels are estimated to have declined slightly: The proportion of children in class 5 able to read a class 2 level Urdu story text has dropped from 51.6 per cent in 2010 to 47.4 per cent in 2011. Balochistan, however, has shown a visible improvement. The proportion of children in class 5 able to read a class 2 level Urdu story text has increased from 26.1 percent to 41.7 percent. English Reading Levels: In ASER 2010, 42.3 percent of class 5 students were reported as being able to read sentences compared to 40.6 percent of class 5 students who could read sentences in the previous year.

Children's Attendance has Declined ` Overall student attendance in government schools (rural) was recorded at 79.7 percent. This is a drop from the 2010 attendance level of 81.5 percent. The highest attendance level was found in Azad Jammu Kashmir (88.5 percent) while the lowest was in Sindh (61.6 percent).

148

Education
Class 2 sitting together with other Classes: ` Nationally, for rural government schools, about half of all classes visited are multigrade. For example, at the national level class 2 children were sitting with one or more other classes in 44 percent of the surveyed schools. This figure was 11.3 percent for class 8. Private Tuition Trends: ` Of the enroled children in the rural sample, 11 percent reported paying for private tutors. ` The incidence of attending private tutors was lower among children in public sector schools (7.1 percent) as compared to children in private sector schools (24 percent). ` Children in Punjab (20.2 percent) are by far the most intensive users of private tutors in the country. Mothers Literacy: ` Mothers literacy stood at 34.5 percent. Lowest being 12.8 percent in FATA and highest being in Punjab (41.6 percent) Source: ASER-Pakistan 2011

Conclusion The government of Pakistan is committed to improving both the quality and the coverage of education through effective policy interventions and expenditure allocations. While literacy and enrolment rates are lagging behind other countries

in the region, they have been improving over the past five years. To achieve the goals of providing higher quality education and expanding the coverage of educational services, more resources will need to be allocated to providing training and high quality facilities

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Chapter 11

Health and Nutrition


Access to good health can contribute positively to the economic and social development of a country. Thus, key issues that impact the health status of people ought to be addressed through a diverse set of policy tools comprising short and long term measures to secure better health outcomes. The people of Pakistan have grown healthier over the past three decades. The vision for the health sector comprises a healthy population with sound health, enjoying good quality of life through the practice of a healthy life style. In order to achieve this vision, significant measures have been taken toward disease prevention, health promotion, greater coverage of immunization, family planning, and provision of female health worker services. This chapter is structured as follows: the next section presents the National Health Policy and its primary objectives, followed by an overview of the state of health indicators, expenditures, and facilities in Pakistan. The targets and accomplishments for the 2011-12 are then described, followed by a discussion of the governments special focus on cancer treatment and the response waged to counter dengue outbreaks. The chapter then focuses on the challenges of narcotics trafficking and the burdens of growing incidence of drug addiction in Pakistani society. The governments efforts at augmenting food security and enhancing the availability and uptake of nutrients are examined before presenting conclusions. National Health Policy In light of the health related MDGs, reducing child and maternal mortality by 2015 is a high priority for the government of Pakistan. Health spending has increased progressively over the years as the National Health Policy adopted in 2009 focuses on making the population healthier. Some of the important targets of the policy are summarized in the table below:

Table:11.1 National Health Policy 2009 Health Sector Indicators (Baseline, Benchmarks and Targets) Indicators Baseline Benchmarks and Targets 2006-07 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 I <5 mortality rate (per 1000 lb) 94 78 73 68 65 60 55 II Infant mortality rate (per 1000 lb) 78 66 62 58 55 48 43 III Maternal mortality ratio (per 276 240 220 200 175 165 150 100,000 lb) IV % of children (12-23 months) 76 (47) 78 80 82 84 84 85 fully immunized (disaggregation by gender and income) V TB - Case detection rate (SS+) 51 74 77 79 80 83 84 % VI TB - Treatment success rate - % 87 87 88 88.5 89 90 91 Source: National Health Policy 2009 Note: lb refers to Live Births

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Pakistan Economic Survey 2011-12 (ii) Health status varies between urban-rural locations and by economic status. (iii) Health achievements in Pakistan contrast sharply with those of its neighbours. Special efforts and considerable resources are required to achieve the desired health outcomes. Health Indicators The most recent data on health performance of other South Asian countries suggest that Pakistan lags behind in infant mortality rate (at 63 per 1000 live births) and the under 5 years mortality rate (at 86.5 per 1000 live births). These indicators continue to remain high mainly on account of unhealthy dietary habits, water borne diseases, malnutrition and rapid population growth. However, the average life expectancy at 66 years compares well with India, Nepal and Bangladesh. Pakistan is committed towards achieving the MDGs. The MDGs 4, 5 and 6 relate to child mortality, maternal health and combating HIV & Aids, Malaria and other diseases. Considerable efforts and immense resources are required to achieve the desired health outcomes.

The objectives of the health policy are being achieved through the following targeted interventions. i. Making the health system more responsive and accountable

ii. Introducing reforms in the health sector to make pragmatic progress in meeting MDG targets and tackling effectively newly emerging and re-emerging health issues iii. Effectively engaging private health sector and civil society organizations to improve health outcomes iv. Prioritizing vulnerable and disadvantaged groups in society as recipients of social uplift programmes. Despite these positive efforts, the health indicators have been slow to improve due to various external and natural factors. Communicable diseases still account for a major cause of death. Maternal health problems are widespread and the current infant mortality at 63/1000 is the highest in South Asia. Analysis suggests that: (i) Infectious and nutritional deficiency related diseases dominate the causes of mortality in the country.

Table 11.2: Regional Human Development Indicator Country Life Expectancy Mortality Rate 2011 under 5 per 1000 2010 Pakistan 65.99 86.5 India 66.80 62.7 China 74.68 18.4 Indonesia 71.33 35.3 Bangladesh 69.75 47.8 Sri Lanka 75.73 16.5 Malaysia 73.79 6.3 Nepal 66.16 49.5 Thailand 73.60 13.0 Philippines 71.66 29.4 Source: World Development Report 2011

Infant Mortality Population Growth Rate per 1000 Rate (%) 2011 2011 63.26 2.03 47.57 1.34 16.06 0.49 27.95 1.07 50.73 1.57 9.70 0.93 15.02 1.58 44.54 1.60 16.39 0.57 19.34 1.90

152

Health and Nutrition Health Expenditure To maintain the expansion of health facilities, the financial allocation for the health sector has been increasing steadily. However, the massive floods of 2010 caused a significant downwards rationalization of health and nutrition expenditures which had to be diverted to the relief and rehabilitation effort. Total health expenditures (federal and provincial) declined from Rs. 79 billion in 2009-10 to Rs 42 billion in 2010-11. For 2011-12 these have been increased to Rs 55.12 billion; comprising Rs 26.25 billion as development expenditure and Rs 28.87 billion as non-development (current) expenditure. Rs 15.72 billion has been provided in the federal PSDP for 2011-12.

Table 11.3: Health & Nutrition Expenditures (2000-01 to 2011-12) (Rs. Billion) Fiscal Years Public Sector Expenditure (Federal and Provincial) Percentage Health Change Expenditure as % Total Health Development Current of GDP Expenditures Expenditure Expenditure 2000-01 24.28 5.94 18.34 9.9 0.72 2001-02 25.41 6.69 18.72 4.7 0.59 2002-03 28.81 6.61 22.21 13.4 0.58 2003-04 32.81 8.50 24.31 13.8 0.57 2004-05 38.00 11.00 27.00 15.8 0.57 2005-06 40.00 16.00 24.00 5.3 0.51 2006-07 50.00 20.00 30.00 25.0 0.57 2007-08 60.00 27.22 32.67 20.0 0.57 2008-09 74.00 33.00 41.10 23.0 0.56 2009-10 79.00 38.00 41.00 7.0 0.54 2010-11 42.00 19.00 23.00 (-)47 0.23 2011-12 55.12 26.25 28.87 31.24 0.27 Source: Planning & Development Division
Fig:11.1Health&NutritionExpenditures
75 65 PakRs(billion) 55 45 35 25 15 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011 201112 Decline due to rationalization on account of Flood 2010 Health&NutritionExpenditures

Source: Planning and Development Division

Year

Health Facilities The health facilities and health related manpower have expanded substantially due to the greater focus on health sector programmes over the last

three decades. This has resulted in the establishment of a large network of health facilities with 108,137 hospital beds, 149,201 doctors, 10,958 dentist and 76,244 nurses by 2011. The current position of health personnel is as follows: 153

Pakistan Economic Survey 2011-12


Table 11.4: Healthcare Facilities Health Manpower 2009-10 Registered Doctors 139,555 Registered Dentists 9,822 Registered Nurses 69,313 Population per Doctor 1183 Population per Dentist 16914 Population per Bed 1592 Source: Planning & Development Division

2010-11 144,901 10,508 73,244 1,222 16,854 1,701

2011-12 149,201 10,958 76,244 1,206 16,426 1,665

Insufficient health spending and rapid population growth have contributed to continuing low facilities to population ratios particularly in the case of dentists, nurses and hospital beds. The potential pay off of investing in and improving the overall health services is enormous. The health care system in Pakistan comprises both public and private health facilities. The public sector until recently was under the domain of the Ministry of Health. However, under the 18th amendment of the constitution of Pakistan, the Ministry of Health has been devolved in June 2011 and the functions of the ministry have been transferred to provincial health departments. The provinces are now responsible for developing their own strategies, programmes and interventions based on their local needs. The private health system now stretches across the spectrum from primary to tertiary care and exists all over the country in both urban and rural areas. This sector provides varying levels of care and constitutes a diverse group of doctors, nurses, pharmacists, traditional healers and laboratory technicians. The services they provide include hospitals, nursing homes, and maternity clinics. The private sector has developed considerably by capitalizing on the existing demand. The majority of the private sector hospitals in Pakistan follow either a sole proprietorship or a partnership model organization. People sometime prefer private health services over public health care due to concerns about quality of care in public facilities. Given the complex nature of the healthcare delivery system in Pakistan and the limited resources available to the health care sector, concerted efforts are required through inter154

sectoral collaboration focusing disadvantaged segment of population.

on

the

Health insurance is one of the complementary interventions for the safety net beneficiaries with the purpose of improving their access to health care services and reducing income loss due to catastrophic shocks. An important consideration in social insurance relates to the extent of health cover to be provided. Zakat, Bait-ul-Mal, Workers Welfare Fund, Employees Old Age Benefit and Workers Participation Fund are all forms of social security. These funds provide assistance in a limited number of cases to cover medical treatment costs. Targets and Achievements during 2011-12 The targets for the health sector during 2011-12 included establishment of 10 rural health centres (RHC), 50 basic health units (BHUs) and renovation of 20 existing RHCs and 50 BHUs. The manpower targets include the addition of 5,000 doctors, 500 dentists, 4,000 nurses, 5,000 paramedics and 550 traditional birth attendants. Under the preventive program, about 7.5 million children were targeted to be immunized and 22 million packets of oral rehydration salt (ORS) were to be distributed during 2011-12. The achievements in the health sector during 201112 included the establishment of 7 rural health centres (RHCs), 30 basic health units (BHUs) and renovation of 15 existing RHCs and 35 BHUs and addition of 4,000 hospital beds. The manpower development achievements include entry of 4,300 new doctors, 450 Dentists, 3,000 nurses and completion of training for 9,500 Lady Health Workers (LHWs). 60 percent of the set target was

Health and Nutrition achieved in the case of BHUs and 95 percent in the case of training of Lady Health Workers. Under the preventive program, about 7 million children
Table: 11.5 Physical achievements 2011-12 Sub Sectors A. Rural Health Programme New BHUs New RHCs Strengthening/ Improvement of BHUs Strengthening/ Improvement of RHCs B. Hospital Beds C. Health Manpower Doctors Dentists Nurses Paramedics TBAs Training of LHWs D. Preventive Programme Immunization ( Million Nos) Oral Rehydration Salt (ORS) (Million Packet) Source: Planning & Development Division Targets (Number) 50 10 50 20 5000 5000 500 4000 5000 550 10000 7.5 22 Estimated achievements (Numbers) 30 7 35 15 4000 4300 450 3000 4500 500 9500 7 20 Achievement (%) 60 70 70 75 80 86 90 75 90 91 95 93 91

were immunized and 20 million packets of ORS were distributed till March, 2012.

Health Programs In pursuance of the 18th amendment to the constitution of Pakistan, the health sector has been devolved to the provinces and the federal Ministry of Health has been abolished. However, national planning in the health sector and cooperation with the provinces and international development partners is vested with the Planning and Development Division. All the vertical health programs have also been devolved to the provinces. However, upon request of the provinces, the Council of Common Interests (CCI) in its meeting held on 28th April 2011 decided that the federal government (Planning and Development Division) shall fund these programs till currency of the 7th NFC award at a predefined share. Accordingly, the following national health programmes continue to be financed by the federal government in the post devolution scenario till 2014-15. 1. National Program for Family Planning and Primary Health Care The program has recruited more than 103,000

LHWs as of March 2012. More than 60 percent of the total population and 76 percent of the target population is covered by LHWs. Out of 30 million children, about 16 million were immunized by LHWs during National Immunization Days (NIDS) Similarly, in high risk districts out of 5 million target women, 4.5 million were vaccinated by LHWs. 2. Expanded Program on Immunization The National EPI Program provides immunization against the seven killer diseases childhood tuberculosis, poliomyelitis, diphtheria, pertussis, neonatal tetanus, measles and hepatitis B. Initiated in 1978, the EPI programme is an effective public health intervention that has a great impact on the health of the population. By reducing the cost of treating diseases, immunization offers opportunities for poverty reduction. Every year a nation wide National Immunization Day (NID) is carried out to give polio vaccine to all children below 5 years of age. The mass immunization campaign has gained a great deal of acceptance across the country.

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Pakistan Economic Survey 2011-12 3. Malaria Control Program Malaria is the second most prevalent and devastating disease in the country and has been a major cause of morbidity in Pakistan. More than 90 percent of the disease in the country is in the 56 highly endemic districts, mostly located in Balochistan (17 districts), FATA (7 agencies) and Sindh (12 districts). More than 40 percent of the reported cases from these districts are due to flaciparum malaria which is the more dangerous form of malaria. The Federally Administrated Tribal Areas (FATA) is the second highest malaria affected belt of the country accounting for 12-15 percent of the total case load of the country. The National Strategy for Malaria Control is based on the following six key Roll Back Malaria (RBM) elements. 1) Early diagnosis and prompt treatment. 2) Multiple prevention 3) Improved epidemic detection and response to partnership and inter-sectoral collaboration, monitoring and supervision, research for evidence based planning and Advocacy, Communication and Social Mobilization (ACSM). The prevalence rate of TB is nearly 300 per 100,000 of population whereas the absolute number of cases is 211,500 and the treatment success rate is 91 percent. The percentage of TB case-detection rate is 80 percent and cure rate is 74 percent. 5. HIV/ AIDS Control Program The government is implementing an HIV/ AIDS Control Programme since 2003 at a cost of Rs 2.9 billion for five years. The major focus is on Behaviour Change Communication (BCC), services to high-risk population groups, treatment of Sexually Transmitted Infections (STIs), supply of safe blood and capacity building of various stakeholders. A total of 4,500 HIV positive cases have been reported to the national and provincial AIDS Control Programmes. These include 2,700 full blown AIDS. Around 1,030 patients are receiving free treatment through 12 AIDS Treatment Centers. 6. National Maternal and Child Health Programme National Maternal and Child Health Programme has been launched in order to improve maternal and neonatal Health services for all, particularly the poor and the disadvantaged, at all levels of the health care delivery system. It aims to provide improved access to high quality mother and child health and family planning services, train 10,000 community health and nutrition women workers, provide Comprehensive Emergency Obstetric and National Care (EMONC) service in 275 hospitals/ health facilities, provide basic EMONC services in 550 health facilities, and family planning services in all health outlets. 7. National Programme for Prevention and Control of Blindness The National Programme for Prevention and Control of Blindness (NP-PCB) was launched by the federal Ministry of Health in 2005. The Program is in line with VISION 2020, the

4) Developing viable partnership with national and international partners 5) National commitment 6) Intensive and comprehensive public education activities to enhance public awareness of malaria, treatments and prevention 4. National TB Control Program Pakistan is sixth amongst the top 22 high disease burden country. National Tuberculosis Control Programme (NTP) has achieved 100 percent Directly Observed Treatment System (DOTS) coverage in the public sector; in the last five years NTP and partners have provided care to more than half a million TB patients in Pakistan. Despite this the global target of 70 percent casedetection has not been achieved. There are certain areas where there is room for the NTP to further improve such as, at the client level suspect management, contact management, quality bacteriology services; at the community level, the NTP can strengthen engagement with all care providers through public private 156

Health and Nutrition global initiative of WHO for elimination of preventable causes of blindness by the year 2020. An allocation of Rs. 246.9 million was made for this program during 2011-12. Cancer Treatment The Pakistan Atomic Energy Commission (PAEC) is playing a vital role in the health sector by using nuclear and other advanced techniques, for diagnosis and treatment of cancerous and allied diseases, as well as national cancer awareness and prevention programmes. Presently the PAEC is operating 14 modern cancer hospitals in the country while four others are in the final stages of completion and are expected to start functioning by June 2012. These hospitals are manned by skilled teams of more than 2,000 professionals; including doctors, engineers, scientists, paramedical, technical and other supportive staff. These hospitals bring facilities for early diagnosis and treatment of cancer within the reach of a very large proportion of the population of the country. The major services provided at these hospitals are diagnostic and therapeutic nuclear medicine, hormonal assays, radiotherapy, chemotherapy, indoor/wards facilities, breast care clinics, biochemistry, ultrasonography, color Doppler, diagnostic radiology, histopathology, hematology, molecular based diagnostics and cancer prevention and awareness programmes. About 527,633 patients were treated from July to March 2012. Work continues in the following areas: Research continued on various International Atomic Energy Agency (IAEA) TC/ Regional Cooperative Agreement (RCA) projects and others in collaboration with different international/ national organization. The cancer awareness and prevention/control campaign was launched especially for early diagnosis of breast cancer and treatment leading to better prognosis through arranging lectures, seminar, and workshops in remote areas, and through print and electronic media and mobile breast care clinics. Provision of state of the art treatment (radiation therapy) facility at Atomic Energy Medical Centre (AEMC), Karachi.

In order to provide better treatment facilities to the patients at their door steps, the PAEC continued working on the following projects: ` 4 Hospitals (3 in KPK and 1 in Sindh province) have almost been completed and out patient departments have started working. These hospitals are expected to start functioning at full capacity by June 2012. Addition of latest and advanced diagnostic and therapeutic facilities on par with international standards is also underway and Positron Emission Tomography- Computed tomography (PET/ CT) facility at the PAEC Cancer Hospital Institute of Nuclear Medicine and Oncology (INMOL) in Lahore has been added and patients throughout Pakistan are benefitting from these facilities. PAEC Cancer Registry Programme (PCRP), started in 2007, is now in completion phase and is expected to be completed in August 2012. Patients in remote areas also benefited with mobile breast care clinics being arranged on fortnightly and monthly basis for awareness, diagnosis and treatment of patients.

Dengue Epidemic and Control Programme In Pakistan, the outbreak of Dengue Hemorrhagic Fever (DHF) was first reported in Karachi in 1994, followed by outbreaks in 2005, 2008, and most recently in 2011. Heavy monsoon rains in Punjab provided ideal conditions for dengue-bearing mosquitoes to thrive in stagnant water. Although the disease spread in all provinces, Punjab was badly affected. 21,292 confirmed cases of dengue were reported in Punjab in 2011, 352 of these cases were fatal. No deaths have been reported so far in 2012. In order to prevent the dengue epidemic, the following steps have been taken:

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Pakistan Economic Survey 2011-12 ` The Punjab government has established a provincial task force headed by the Chief Minister of Punjab. A provincial steering committee headed by the Chief Secretary of the province has been constituted. District implementation committees headed by DCOs are operational. Chief Minister (CMs) Dengue Research and Development (R&D) cell was established to carryout applied and operations research on dengue. Emphasis is placed on utilizing latest technology for combatting dengue epidemics. A system has been developed and put in place for online dengue case surveillance, while Global Positioning System (GPS) mapping of cases, vector, and digital monitoring of dengue prevention and control activities are being carried out. Environmental management measures have also been taken including proper disposal of waste water, de-silting operations, supply of safe water, time repair of leaks in plumbing systems, use of water filters, management and regulation of used tyres, and cleanliness drives in eateries. All teaching hospitals have established isolation wards and high dependency units with all facilities. On the average 200 extra beds were allocated for dengue patients in each teaching hospital. About 10,000 bed nets treated with insecticide were provided to each hospital for dengue isolation wards. For the arrangements of platelets, cell separator machines with platelet kits were made available on an urgent basis at the Institute of Blood Transfusion Services, Jinnah Hospital Lahore, Childrens Hospital Lahore and Lahore General Hospital. In other hospitals centrifuge machines have been provided for platelet segregation. Delegates of dengue experts from Sri Lanka and Indonesia also visited Pakistan to review the strategies and provide guidance on larva surveillance and capacity building on vector control and case management. Job positions of 875 sanitary patrols, 337 CDC supervisors, 292 LHWs and 66 data entry operators were created. The creation of 718 positions of lady sanitary patrols is under process. In Khyber Pakhtunkhwa a total of 386 confirmed cases with 7 deaths were reported from Peshawar, Abbotabad, Mansehra, Haripur, Mardan, Swat and Nowshera. Rs 55 million was released for purchase of larvicides, insecticides, spray machines, foggers, and social mobilization activities. To address future dengue outbreaks a scheme at a cost of Rs 265.7 million has been approved. The scheme will be implemented in all 25 districts of the province for three years. Main components of the scheme include institutionalization, advocacy, social mobilization and communication, vector control and surveillance, disease management and surveillance, and research and development. In Sindh, a total of 1,547 suspected cases were reported out of which 1,326 were from Karachi and 221 were from the rest of Sindh. 18 of these cases were fatal, 16 from Karachi and 2 from the rest of Sindh. Sindhs response to this outbreak includes detailed situation analysis (need assessment and gap analysis) of epidemiology and entomology of transmitting vectors. Provincial Strategic planning for sustained control of vector borne diseases involve: ` ` ` Adopting integrated diseases control for dengue, malaria and leishmaniasis Restructuring of vector control programme to fill existing planning Capacity building of care providers for clinical management of dengue cases using guidelines specific to Pakistan Development of coordination and collaboration with UN Agencies, other line department and development partners for resource mobilization and technical assistance

` `

The incidence of dengue in Balochistan was much less compared to other provinces. However, the government of Balochistan also

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Health and Nutrition took necessary measures to overcome any emergency situation related to dengue. Drug Abuse Illicit drug consumption, production and trafficking have emerged as a serious global issue. Drug abuse has also affected Pakistan in many ways. Proliferation of drugs and psychotropic substances within Pakistani society and the subsequent increase in number of drug addicts are emerging challenges. A Drug Control Master Plan (2010-14) has been prepared to reduce the health, social and economic cost associated with drug trafficking and substance abuse in Pakistan. The plan includes short, medium and long term initiatives for implementation of the National AntiNarcotics Policy 2010. The Ministry of Narcotics Control in collaboration and cooperation with the provincial governments and other stakeholders, is taking measures to effectively implement the policy. Currently, there are 16 ongoing development projects being implemented at a total cost of Rs.4.67 billion including local cost of Rs.2.13 billion and foreign aid of Rs.2.52 billion.
Table: 11.6 Drug Seizures S.No. Kind of Narcotics

Food and Nutrition The links between malnutrition, ill health and poverty are well known. Disease contributes to poverty due to the costs of illness and reduces earning capacity during and after illness. Good health is a first step towards prosperity and reduction of poverty. It is therefore, critical to move towards a system which will address health challenges and prevent households from falling into poverty due to poor health. In Pakistan, health sector investments are viewed as part of the governments poverty alleviation endeavors. Food security is a national priority. According to the recent National Nutrition Survey (NNS) 2011, about 32 percent children under the age of five years and 15 percent mothers are underweight. About 30 percent babies have low birth weight, reflecting the poor nutritional status of mothers. The national food availability estimated through food balance sheets, has been satisfactory for major food items during the fiscal year 2011-12. The average calories estimated based on food availability has been 2,430 per capita per day. The overall food availability trend of essential food items for the last five years is given in the following table. The consumption of essential food items shows slight improvement in calorie intake from 1,650 to 1,700 and protein from 44 to 46gm per capita per day in 2010-11 compared to data from the HIES 2007-08. The change in food consumption between 2007-08 and 2010-11 has mainly been through increase in cereals: wheat 3 percent, rice 12 percent, pulses 30 percent, vegetable ghee and oil 8 percent, meat 5 percent, fruits and vegetables 11 percent. Consumption decreased for sugar (1 percent) and milk (3 percent). Food consumption remained lower than food available and the minimum food basket1

Quantity of Drugs Seized (in Kgs) i Opium 8,725.006 ii Morphine 1,249.000 iii Heroin 1,641.014 iv Hashish 65,445.850 Source: Narcotic Control Division

Pakistan is one of the top three countries where the confiscation rate, seizure of narcotics, drugs and precursor chemicals is high. The seizures of narcotics by the Anti-Narcotics Force (ANF) during the period July 2011 15th February, 2012 are given in the table 11.6:

Planning and Development Division 2012

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Pakistan Economic Survey 2011-12

Table:11.7 Food Availability per capita Items Year/ units 2006-07 Cereals Kg 151.1 Pulses Kg 7.7 Sugar Kg 30.3 Milk Ltr 164.7 Meat Kg 19.2 Eggs Dozen 5.4 Edible Oil Ltr 12.8 Calories per day 2398 Protein per day (gm) 69.0 Source: Planning & Development Division E: estimated T: targets

2007-08 158.1 7.2 30.0 165.4 20.0 5.5 12.8 2410 72.0

2008-09 160.3 5.8 25.6 167.2 20.0 5.6 12.5 2425 72.5

2009-10 2010-11 (E) 2011-12 (T) 158.8 158.7 160.0 6.8 6.7 7.0 26.1 26.5 29.5 169.1 169.8 170.0 20.5 20.9 21.5 5.8 6.0 6.0 12.6 12.6 13.0 2415 2420 2430 71.5 72.0 72.5

The cost of the food basket for the fiscal year 2011-12 (July- March) fluctuated and a cumulative increase of about 1 percent from Rs.1,745 to Rs.1,767 was noted. The change in cost among provinces has been highest in Khyber Pakhtunkhwa with a 5 percent increase owing to lower availability with respect to demand and lowest in Punjab where there was a 2 percent decrease. The nutrition related activities/programmes are summarized below: ` Food security and social safety net measures especially for poor households continued to be in place to combat the impact of food inflation. The Benazir Income Support Program (BISP) and Pakistan Bait-ul-Mals Food Support Program for poorest of the poor households continued to provide cash incentive support during the year throughout the country. Food quality control is also an important food security concern. A reference food laboratory for strengthening of food quality control system at the Nutrition Division of the National Institute of Health (NIH), Islamabad was completed during the year and is currently operational. Nutrition improvement through micronutrient supplementation to address anemia, and vitamin-A deficiency in children under five

and women of child bearing age continued along with growth monitoring, counseling of breastfeeding and weaning practices and raising awareness through 98,000 Lady Health Workers in primary health care (PHC) continued across the country to cover more than 60 percent of the total population. ` Micronutrient Deficiency Control Program to address major micronutrient deficiencies of iodine, iron and vitamin-A& D are being addressed through food fortification in the public and private sector. The emphasis during the fiscal year remained on improving the quality of fortified products.

Conclusion This chapter discussed the state of health and nutrition in Pakistan. An overview of the National Health Policy and its primary objectives are presented, followed by a discussion of the state of health indicators, expenditures, and facilities in Pakistan. The targets and accomplishments for the 2011-12 are described, followed by a special focus on cancer treatment and the governments response to dengue outbreaks. The chapter highlights the challenges of narcotics trafficking and growing incidence of drug addiction in Pakistani society. Finally the chapter documents the governments efforts at augmenting food security and enhancing the availability and uptake of nutrients.

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Chapter 12

Population Labour Force and Employment


Balanced growth in population is crucial for the welfare of the country or improving the productive capacity of the economy. It is important to know the size of a countrys population, its growth rate and other demographic attributes in order to analyze the dynamics of the population, labour force and employment and to estimate the quantity of goods and services that will be needed to meet future demand. The population of a country plays a vital role not only in the economic development but also for the social well-being of the people. However, poor management of human resources can lead to social distress and reduced economic performance. Due to rapid population growth and lack of welldeveloped human resources, Pakistan is faced with socioeconomic crises including food insecurity, and unemployment. Nevertheless, with continuous efforts of the government, the situation has started to improve. Due to improved health facilities and promotion of population welfare activities through the Ministry of Population Welfare the crude birth and fertility rates have been reduced considerably which has led to a reduction in the average growth rate of the population. This has been accompanied by an increased labor participation rate. However despite these improvements Pakistan is still lagging behind in comparison to its neighboring countries. For example, the fertility rate in Pakistan is still higher than neighboring countries like India, Bangladesh, Sri Lanka, Nepal and China. As a result population growth rate is not reducing considerably and at the same time dependency ratio is increasing. Therefore, it is imperative to put further efforts for development of better human resources. Since its creation Pakistan has exhibited a continuously high rate of population growth. When measured by population size it has moved from the thirteenth largest country in 1950 to the sixth largest country in 2011. According to World Bank projection it will become the fifth largest country by 2050. This rapid increase in population leads to greater demand for food, infrastructure, and services and puts an enormous strain on food security and provision of basic services. This chapter presents a discussion of the structure of Pakistans population and the evolution of demographic indicators, followed by a thorough overview of the structure of labour force, including unemployment statistics and details of government projects and programmes aimed at boosting employment opportunities. Overview of Population and Demographic Indicators The structure and growth pattern of population can be evaluated through certain key indicators. These are briefly explained below: Crude Birth Rate: The average annual number of births during a year per thousand persons in the population at midyear is known as the crude birth rate. The birth rate is the main factor in determining the rate of population growth. It depends on both the level of fertility and the age structure of the population. The Crude Birth Rate (CBR) does not take into account the age or sex differences among the population. A crude birth rate of more than 30 per thousand is considered high and a rate of less than 18 per thousand is considered low. The global crude birth rate in 2011 was 20 per thousand. The CBR in Pakistan is

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Pakistan Economic Survey 2011-12 estimated at 27.2 per thousand in 2011-12; in 2008 it was 25.0 per thousand. This indicates a marginally improving trend. Similarly, the crude death rate measures the rate of deaths per one thousand people in a given population per year. A crude death rate of less than ten per thousand is considered as low while above twenty per thousand is considered as high. According to the World Population Data Sheet 2011, the global crude death rate in 2010 was 8 persons per thousand. In Pakistan it was 7.3 per thousand in 2011. It is worth mentioning that the crude death rate decreased from 7.7 per thousand in mid-year 2008 to 7.2 per thousand in mid-year 2012, which shows an improving trend (Fig.1). Infant mortality in Pakistan has also improved as the country experienced a considerable decline in maternal and infant mortality. Infant mortality was 70.20 per thousand in mid year 2008, which reduced to 69.00 per thousand live births in mid year 2012. The major reason for this decline is provision of improved health facilities to control diarrhea and pneumonia which can be fatal for infants. Nevertheless, this decline is not significant, given the repeated pregnancies and
Table 12.1: Selected Demographic Indicators 2010-11 (1st July) Total Population (Million) Urban Population (Million) Rural Population (Million) Total Fertility Rate (TFR) Crude Birth Rate (Per thousand) Crude Death Rate (Per thousand) Population Growth Rate (Percent) Life Expectancy (Year) - Females - Males Source: P&D Division, National Institute of Population Studies 177.1 65.3 111.8 3.5 27.5 7.3 2.05 65.8 63.9 2011-12 (1st July) 180.71 67.55 113.16 3.4 27.2 7.2 2.03 66.1 64.3

births. The status of maternal health is improving in Pakistan. The maternal death rate decreased from 400 per 100,000 live births in 2005-06 to 276 per 100,000 live births in 2010. This decline is the result of the strengthening of the four pillars of safe motherhood including family planning, antenatal care, clean safe delivery and essential obstetrical care.
Fig-12.1: Population Overview
30 Crude Birth & Death Rate 25 20 15 10 5 0 2008 2009 2010 2011 2012
Source: National Institute of Population Studies (NIPS) Population Census Organization
Crude birth rate Crude death rate Population (mln)

185 180 175 170 165 160 155

Some of the selected demographic indicators for the period (2010-11 and 2011-12) are posted in Table 12.1.

The demographic indicators reflect improvement in the structure of the population and point to future trends. There is improvement in life expectancy and a fall in the population growth rate. Increase in life expectancy indicates the provision of a better living environment and health facilities in the country. The decline in fertility and the

resultant decline in population growth lead to a lower dependency ratio which may help in improving living standards in the country. However the population growth rate is still higher than other neighboring countries and is still a challenge for the government.

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Population, Labour Force and Employment Age Composition of Population The age composition of a population gives insight to the size of the future productive human resource. It also highlights changes in the dependency levels. During 2011, the under-15 population was 62 million, whereas 104 million were between the ages 15-59 years. The available projections of the population by age categories indicate that those below 30 years of age will constitute more than 53 percent of the total population by 2030. Countries, like Pakistan, having a very young age structure are more likely
Table 12.2: Population by Age Groups Age Group 1998
00-04 05-09 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+ Total 19.59 20.72 17.14 13.73 11.88 9.76 8.24 6.32 5.89 4.68 4.26 2.86 2.72 4.64 132.43

to have large dependent population which puts a considerable stress on the economy. This higher percentage has a dual impact on the countrys future economic and social wellbeing. The growing youth population will only add marginally to the productive resources of the country but will put a large burden on health, education and decent jobs, if they are not trained properly. This will worsen both the economic and social situation. Conversely with effective government policies for their education and training, these youth can become a powerful force for economic development.
2015
22.76 21.33 20.07 20.12 19.8 17.13 14.72 12.4 10.36 8.49 6.88 5.53 4.31 7.82 191.72

2011
22.02 20.40 19.94 20.27 17.72 15.25 12.95 10.83 8.90 7.32 6.01 4.83 3.78 6.81 177.03

2020
23.28 22.35 21.24 20.01 20.05 19.71 17.04 14.62 12.27 10.2 8.26 6.57 5.13 9.39 210.12

2025
22.44 22.95 22.28 21.19 19.95 19.98 19.62 16.94 14.49 12.01 9.95 7.93 6.14 11.39 227.26

Million 2030
20.35 22.18 22.88 22.24 21.14 19.89 19.91 19.53 16.81 14.31 11.84 9.60 7.45 13.93 242.06

Source: National Institute of Population Studies, Planning & Development Division, June 2010

Regional Demographics The Pakistan family planning indicators, though improving, do not compare favorably with other countries. Table 12.3 and 12.4 present a comparison of the family planning indicators with neighboring and some brotherly Islamic countries. It is evident from the data that the performance of Pakistan when compared with these countries is modest. Many Muslim countries such as Turkey,

Iran and Egypt have experienced a considerable decline in the Total Fertility Rate (TFR). In Pakistan an important reason for the slower decline is the low Contraceptive Prevalence Rate (CPR) due to the lack of awareness because of which people hesitate in practicing contraception. The following table provides a comparison with regional countries on TFR, CPR and the Population Growth Rate (PGR).

Table 12.3: Family Planning Indicators of Regional Countries-2011 Contraceptive Prevalence Country Total Fertility Rate Rate %
Asia Bangladesh Bhutan 2.1 2.2 2.3 67 56 31

Population Growth Rate%


0.9 1.3 1.5

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Pakistan Economic Survey 2011-12


Table 12.3: Family Planning Indicators of Regional Countries-2011 Contraceptive Prevalence Country Total Fertility Rate Rate %
India Maldives Nepal Sri Lanka Pakistan 2.5 1.7 2.6 2.2 3.4 56 35 48 68 27

Population Growth Rate%


1.3 1.3 1.7 0.8 2.03

Source: i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) Population Projection by Planning Commissions Working Group on Population Sector, 2010 ii) Sub Group II on Population Projections for the 10th Five Year Peoples Plan 2010-15 Table 12.4: Family Planning Indicators of Muslim Countries-2011 Country Total Fertility Rate Contraceptive Prevalence Population Growth Rate % Rate% Egypt 1.7 60 2.6 Morocco 2.2 63 1.0 Turkey 2.0 73 1.1 Iran 1.6 73 1.0 Indonesia 2.1 61 1.0 Malaysia 2.6 55 1.6 Pakistan 3.4 27 2.03 Source: i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) Population Projection by Planning Commissions Working Group on Population Sector, 2010 ii) Sub Group II on Population Projections for the 10th Five Year Peoples Plan 2010-15

Fertility in Pakistan The Total Fertility Rate (TFR) of a population is the average number of children that are born to a woman over her life time. The TFR is closely tied to the population growth rates of a country and can be a good indicator of future population trends. Awareness of contraception is increasing in the country. According to the Demographic and Health Survey of Pakistan 2006-07 by the Ministry of Population Welfare, 96 percent of women who have ever been married are aware of at least one family planning method compared to 78 percent in 1991.The survey also shows that less than 30 percent of married women were using contraception. The fertility rate per woman has been reduced to 3.4 percent in 2012 from 4.0 percent in 2006 and the population growth rate has come down to 2.03 percent. The results are still not encouraging when compared with other developing countries of the region. Pakistan has the highest birth as well as total fertility rate among the Asian developing

countries. If this trend prevails, it is expected that Pakistans population will double in 2046, and other things remaining the same Pakistans rank in terms of the selected social and economic indicators in comparison with other developing Asian countries may deteriorate further. Therefore, vigorous efforts are needed to control population growth and reduce the TFR.
Fig-12.2: Trend in Fertility Rate (%)
4.5 4.3 4.1 3.9 3.7 3.5 3.3 3.1 2.9 2.7 2.5 2006 2007 2008 2009 2010 2011 2012

Source: SubgroupIIonpopulationprojectionforthe 10thFiveYearPeoplePlan201015(Planningand DevelopmentDivision)

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Population, Labour Force and Employment Reproductive Health Reproductive health is a state of complete physical, mental and social well-being (and not merely the absence of disease or infirmity), in all matters relating to the reproductive system, and to its functions and processes. The provision of comprehensive, voluntary family planning and reproductive health services is a fundamental human right. Contrary to its importance, the general public is not sensitive about realizing and understanding the importance of reproductive health and as a result a large proportion of the population is reluctant to use contraception. The prevailing social mindset of son preference and the limited role of women in decision making for the welfare of the family hinder the effective implementation of any reproductive health program in many parts of the country. The Rights of Women and Children The future of a country depends largely on the quality of maternal guidance to the children and
Box 1 Measures for Empowering Women Equal access to education, training and science and technology The government has signed national and international commitments like Convention On Elimination of all Forms of Discrimination Against Women(CEDAW) and Millennium Development Goals(MDGs) Increase of women quota up to 10% for recruitment in public sector Reservation of thirty three percent seats for women in all local bodies, seventeen percent seats have been reserved in the Senate, Provincial Assembly and in National Assembly Protection of women against harassment at workplace Benazir Income Support Programme (BISP) for enhancing the confidence of women Establishment of working women hostel, provision of transport facilities to female employees and establishment of day care centre are part of the government initiatives to resolve the problems faced by employed women

the social and academic environment available to them. A healthy and educated mother, therefore, plays an extremely important role in making sure that her children are physically healthy, intellectually developed and academically active. Similarly every child has the right to avail good quality health care, safe drinking water, balanced diet and clean and safe environment. The first focus of population welfare, therefore, has to be on the education and health of a countrys female population which has direct relevance to childrens future. At the International Summit on Population and Development in 1994, nations of the world agreed that progress in addressing population issues could be better achieved through empowering women and girls to participate in their societies and economies on equal footing with men and boys and to make fundamental decisions about their lives, including decisions related to the timing and spacing of pregnancies and births.

Population Welfare Programme Since 2002 the service delivery of the Population Welfare Programme has been under the administrative control of the provinces. Now the provincial governments are responsible for implementing the Population Welfare Programme. The federal government will be funding the

programme for a four year period. The population welfare department played an impressive role in the promotion of health and family planning related services throughout the country. Major achievements are listed as below: ` The population welfare program has established 2,891 family welfare centres 165

Pakistan Economic Survey 2011-12 (FWC) during 2010-11. The FWC is one of the main service delivery networks of the program established in rural and urban areas for the provision of Mother Child Health Services (MCH), contraceptives and the treatment of minor ailments. ` Reproductive Health Services-A Centres (RHSA) are hospital based units which provide the full range of family planning methods including contraceptive surgery services. These centres also assist in public health education campaigns and raising awareness about personal hygiene. There are 207 RHS-A centres functioning throughout the country. ` At present 292 Mobile Service Units (MSU) are functioning in the country. The MSU extends reproductive health and family planning services to villages through regular (twice a week) camping services. The hospitals registered as RHS-B Centres are providing training for doctors and paramedics. During 2010-11, the government launched 133 RHS-B Centers. Registered Medical Practitioners, Hakims and Homeopaths are a significant source of health care provision in both the urban and rural areas of the country.
2010-11 (Achievement) 2891 207 292 2.734 133 9297 8071 2011-12 (Target) 3427 269 300 10.241 184 27576 14009

Table-12.5: Physical and Contraceptive Users Targets (Cumulative Number) Name of Service 2010-11 Outlet / Unit (Target) Public Sector Family Welfare Centers (FWCs) 3084 Reproductive Health-A Centers 258 Mobile Service Units (MSUs) 293 Contraceptive users (million) 9.953 Private Sector RHS-B Centers 145 Registered Medical Practitioners 24273 (RMPs) Hakeems and Homeopaths 13925 Source: Planning and Development Division

Urbanization

Urbanization is a process which involves the absolute and relative growth of towns and cities within defined areas. Major reasons for urbanization are better economic opportunities and living conditions as compared to rural areas. Due to the growing needs and limited work opportunities people are rapidly moving towards urban centers. Resultantly urbanization has been accelerated worldwide. This is the first time in human history that the majority of the world's population has been shifted to urban areas. At present 3.3 billion people (more than one half of world population) are living in urban areas. It is predicted that by 2030 at least 60 percent of the population will be living in cities. In developing countries, about 60 million people move from rural to urban areas each year and this rate of movement is expected to continue.

In Pakistan cities are growing rapidly as a result of the movement of people from rural areas in search of jobs, opportunities to improve their lives and make a better future for their children. Moreover the lack of basic facilities in rural areas like electricity, sanitation, safe drinking water and schooling are some of the reasons for rapid urbanization. The population in urban areas increased from 65.28 million in 2011 to 67.55 million in 2012. This means that within a year, two million people shifted from rural to urban areas in Pakistan. The annual population growth in urban areas is expected to increase further in coming years which may cause socio economic problems in future. In order to cope with the situation, the government is not only trying to create a better economic and healthy environment in urban areas but also provide basic facilities in slum areas. Some of the reforms to manage urbanization are:

166

Population, Labour Force and Employment ` Provision of adequate infrastructure, such as roads, houses, electricity, water and sanitation services, public transportation, schools and health clinics. Transforming slums into legitimate communities. Government supportive policies for agricultural sector. country. Pakistan has a very large labour force due to its large population size. Since independence, six labour policies have been announced by the government. These were announced in 1955, 1959, 1969, 1972, 2002 and 2010. These policies laid down the parameters for the growth of trade unionism; protection of workers rights; the settlement of industrial disputes and the redress of workers grievances. The policy of 1972 was the most progressive one in terms of reforming the labour laws. The present government, recognizes that there should be a cordial relationship between workers and employers and at the same time both must enjoy reasonable benefits without inflicting any set back on the economy. This is only possible if there is a mutual awareness and understanding between workers and employers of the rights and obligations. The labour policy 2010 has been developed within a framework of objectives and initiatives; some of which are summarized in Box-2

` `

Table 12.6: Urban and Rural Population (Million)


Mid-Year Urban Population Rural Population

2008 57.32 2009 60.87 2010 63.05 2011 65.28 2012 67.55 Source: Planning and Development Division

105.06 109.07 110.46 111.82 113.16

Labour Force and Employment The labour force can be defined as that part of the economically active population which can supply labour for production of goods and services in the
Box 2 Labour Policy 2010 Objectives ` ` ` ` ` `

Promotion of employees social security and social insurance programme Adequate security of jobs should be available to the workers Conditions should be created so that workers and employers are committed to enhancing labour productivity Promotion of higher jobs be ensured at all levels based on suitability and merit Forced labour in all its forms to be eliminated Just and humane conditions of work be guaranteed to all workers

Initiatives ` ` ` ` ` ` ` The government has increased the minimum wages from Rs.7,000 to Rs.8,000 per month (announced by Prime Minister on 1st May, 2012). Consolidation of labour laws is underway Mine workers, whether contracted or permanent, will be provided with the same protection as other workers The government has started the process to regularize/confirm contract employees Elimination of gender discrimination Special emphasis on education of workers children Regulate and control child labour

167

Pakistan Economic Survey 2011-12 previous year. The total number of people employed during 2010-11 was 53.84 million, 0.63 million more than the preceding year.
2009-10 56.33 53.21 3.12 (Million) 2010-11 57.24 53.84 3.40

According to the Labour Force Survey (LFS) 2010-11, Pakistan has a labour force of 57.24 million people which is 0.91million more than the

Table-12.7: Civilian Labour Force, Employed and Unemployed for Pakistan YEAR 2003-04 2005-06 2006-07 2007-08 2008-09 Labour Force 45.5 50.05 50.33 51.78 53.72 Employed 42 46.95 47.65 49.09 50.79 Unemployed 3.5 3.1 2.68 2.69 2.93 Source: Various Issues of Labour Force Survey, 2010-11

Labour Force Participation Rates The Labour force participation is estimated on the basis of the Crude Activity Rate (CAR) and Refined Activity Rate (RAR).The CAR is the percentage of the labour force in the total population while RAR is the percentage of the labour force in the population of persons 10 years of age and above. The RAR gives a relatively better picture of change in the labour force participation in the country because it is comprised of the active labour force. Between 2008-09 and 2010-11, the CAR showed a mixed trend in the rural areas. The male CAR decreased from 49.2 percent to 48.6 percent whereas at the same time the female CAR increased from 18.5 percent to
Table-12.8: Labour Force Participation Rates Indicators 2008-09 2009-10 2010-11 Crude Activity (Participation) Rates (%) Pakistan Total 32.8 33.0 32.8 Male 49.6 49.5 49.3 Female 14.9 15.5 15.6 Augmented Total 38.8 38.8 38.4 Female 27.0 27.2 27.0 Rural Total 34.3 34.5 34.3 Male 49.2 49.0 48.6 Female 18.5 19.3 19.4 Augmented Total 42.7 42.6 42.2 Female 35.6 35.8 35.4 Urban Total 29.9 30.0 30.0 Male 50.4 50.6 50.6 Female 7.6 7.8 8.1 Augmented Total 31.0 31.1 31.0 Female 9.9 10.1 10.1 Source: Labour Force Survey 2010-11

19.4 percent. Therefore the net effect on participation in rural areas was zero. In the case of the urban areas the female CAR increased more than the male CAR and there was an increase in the overall participation rate. The RAR for the rural areas shows a marginal decrease during the 2009- 2011 period. There is a marginal increase in the female RAR and a decrease in the male RAR. However in the urban areas both male and female RAR increased which on aggregate eliminated the effect of reduction in the rural RAR. Therefore as a whole, no change has been seen in RAR at the country level. An important insight in this change is that female participation is increasing in urban areas. This is a good sign of female empowerment.

Indicators 2008-09 2009-10 2010-11 Refined Activity (Participation) Rates (%) Pakistan Total 45.7 45.9 45.7 Male 69.3 68.8 68.7 Female 20.7 21.5 21.7 Augmented Total 53.9 53.9 53.5 Female 37.5 37.9 37.4 Rural Total 49.2 49.4 49.1 Male 71.0 70.2 70.0 Female 26.4 27.6 27.6 Augmented Total 61.2 61.0 60.4 Female 50.7 51.2 50.3 Urban Total 39.3 39.5 39.5 Male 66.3 66.4 66.4 Female 10.1 10.3 10.7 Augmented Total 40.8 41.0 40.8 Female 13.1 13.3 13.3

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Table 12.9: Employment Trend and Changes from 1999-00 to 2010-11 (Million) Pakistan Rural Urban Year Employed Change Employed Change Employed Change 36.32 2.19 25.55 1.68 10.77 -0.01 1999-00 38.88 2.56 26.66 1.11 12.22 1.45 2001-02 42.00 3.12 28.81 2.15 13.19 0.97 2003-04 46.95 4.95 32.49 3.68 14.46 1.27 2005-06 47.65 0.70 33.11 0.62 14.54 0.08 2006-07 49.09 1.44 34.48 1.37 14.61 0.07 2007-08 50.79 1.70 35.54 1.06 15.25 0.64 2008-09 53.21 1.08 37.25 0.79 15.96 0.29 2009-10 53.84 0.63 37.85 0.60 15.99 0.03 2010-11 Source: Various issues of Labour Force Survey (2010-11) Pakistan Bureau of Statistics

Age Specific Labour force Participation rates There is an unambiguous disparity between the male and female participation rates in Pakistan in age groups of 15 to 29 and 60+. The total labour force participation rate increased from 32.81 percent in 2008 to 32.83 percent in 2010-11. The participation rate in the 10-14 age groups decreased for both males and females. There was a declining trend (1.10 percent) for males in the 15-

19 age groups whereas an increasing trend (0.70 percent) was found in females of the same age group. In case of the 20-24, 25-34 and 35-44 age groups both male and female participation has increased. In the 45-54 and the 55-59 age groups the participation rate has decreased compared to last year. In the 60+ category the male participation rate has decreased while an increasing trend is observed in the female group in this cohort.
2010-11 Male 14.3 51.6 84.3 96.8 98.2 98.4 98.3 97.8 96.6 92.2 55.0

Table-12.10: Age Specific Labour Force Participation Rate (%) Age 2008-09 2009-10 Groups Total Male Female Total Male 10-14 13.1 16.2 9.5 12.6 15.4 15-19 37.0 52.7 18.9 37.1 52.7 20-24 53.8 85.4 22.7 54.7 84.5 25-29 57.5 96.6 22.8 58.0 96.3 30-34 58.8 97.9 24.6 59.1 97.6 35-39 62.2 98.5 27.7 62.2 97.4 40-44 62.7 98.2 27.6 62.4 97.7 45-49 62.6 97.3 26.8 65.0 97.4 50-54 63.1 95.9 24.5 64.7 96.4 55-59 62.8 93.7 26.4 62.6 93.3 60+ 38.6 56.4 15.2 37.6 55.5 Source: Labour Force Survey 2010-11

Female 9.2 19.2 23.9 24.7 26.4 29.0 26.6 29.5 29.3 28.0 13.5

Total 11.8 36.4 53.8 58.9 59.5 62.5 64.2 64.8 63.5 61.5 37.3

Female 8.8 19.6 24.2 25.0 25.9 29.0 30.0 28.6 28.1 26.3 11.9

Employment by Sectors Most of the labour force in Pakistan works in the rural areas where agriculture is the dominant activity. The total labour force working in the agricultural sector remained unchanged during the 2008- 2011 period. However, female participation has shown an increase of 1.4 percent during this period. Contrary to that the male participation shows a declining trend. The manufacturing and construction sectors are also playing an important

role in the provision of employment. The employment share by manufacturing sector has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11 and the share of construction sector has increased from 6.7 percent in 2009-10 to 7.0 percent in 2010-11. The Share of wholesale and retail trade has decreased from 16.3 percent to 16.2 percent while, the share of community / social and personel service sector has decreased from 11.2 percent to 10.8 percent in 2010-11.

169

Pakistan Economic E Sur rvey 2011-12 2


Table-12.1 11: Employme ent Shares by Industry (%) ) Major Indu ustry Divisions s 2008-09 2009-10 Total Male Fem male Total Male Female Total 100 100 10 00 100 100 1 100 Agriculture e/ forestry/ 45.1 37.3 74 4.0 45.0 36.6 7 74.9 hunting & fishing Manufactu uring 13.0 13.3 11 1.9 13.2 13.9 11.0 Constructio on 6.6 8.3 0 0.4 6.7 8.5 0 0.3 Wholesale & retail trade 16.5 20.5 1.6 16.3 20.2 2 2.1 Transport/ storage & 5.2 6.6 0 0.2 5.2 6.6 0 0.3 communication Communit ty/social & 11.2 11.1 11 1.6 11.2 11.2 11.2 personal se ervice *Others 2.4 2.9 0 0.3 2.4 3.0 0 0.2 Source: Pa akistan Bureau of Statistics, Labour L Force Survey S 2010-11 1

Total 100 45.1 13.7 7.0 16.2 5.1 10.8 2.1

2010-11 Male Fe emale 100 100 36.2 7 75.4 14.5 8.9 20.4 6.6 10.8 2.6 10.9 1 0.2 1.6 0.1 1 11.5 0.3

Fig-12.4: In ndustry-wise Employment E S Share


11% 5% 2% 45% Agriculture / forestry / hunting g & fishing Manufacturi ing Construction n Wholesale & retail trade 16% Transport / s storage & commun nication Community y / social & persona al service 7% 14% Others

Employm ment Status The struc cture of empl loyment as shown s in Tab ble 12.12 su uggests that the emplo oyee and se elfemployed d category acc count for 36 percent p and 39 9.9 percent of the to otal employ yed workfor rce respective ely. This is followed by unpaid fam mily helpers at a 27.7 perc cent and em mployers at 1.4 percent. 0f the unpa aid family helpers, fema ales
Table12.12 2: Employmen nt Status by Sex S (%) 20 008-09 Total M Male Fema ale Employers s 1.2 1.5 0 0.1 Self emplo oyed 33.3 38.7 13 3.1 Unpaid fam mily Helpers 29.7 20.2 65 Employees s 35.8 39.6 21 1.8 Total 100 100 100 Source: La abour Force Su urvey 2010-11

decreas sed from 65 5 percent to 63.4 percen nt and males from 20.2 pe ercent to17.3 percent. The e data indicat tes that unpaid d family helpers have decr reased from 15.10 million in 2008-10 to t 14.91 milli ion in 2010-11. In the ru ural populatio on the numb ber of unpaid d family help pers is much h larger than n the urban areas. This s indicates that there is a possibi ility that th he services are not pro operly counted d in the rural areas.
2009-10 Male Fem male 1.6 0.1 40 13.6 18.7 66.3 39.7 20 100 100 2010-11 Male Fe emale 1.8 0.1 40.5 15.6 17.3 63.4 40.4 20.9 100 100

Total 1.3 34.2 29.1 35.4 100

Total 1.4 4 39.9 9 27.7 7 36.0 0 100 0

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Table 12.13: Employment Status by Region 2008-09 2009-10 Total Urban Rural Total Urban Employers 0.60 0.46 0.14 0.50 0.67 Self employed 16.91 4.59 12.32 18.21 4.90 Unpaid family Helpers 15.10 1.84 13.26 15.48 1.82 Employees 18.18 8.36 9.82 18.85 8.73 Total 50.79 15.25 35.54 53.21 15.95 Source: Labour Force Survey 2010-11, Pakistan Bureau of Statistics

(Million)
Rural 0.17 13.30 13.67 10.12 37.26 Total 0.77 18.77 14.91 19.39 53.84 2010-11 Urban 0.53 5.01 1.83 8.62 15.99 Rural 0.24 13.76 13.08 10.77 37.85

Formal and Informal Sectors The informal sector covers a wide range of labour market activities and plays an important and sometimes controversial role. It provides jobs and reduces unemployment but in many cases jobs are low paid. This sector employs 73.8 percent of Pakistans total labour force. The employment ratio in rural informal sector (76.5 percent) is higher compared to that in the urban areas (71.2 percent). Table 12.14 illustrates that the female employment rate in the rural informal sector is showing an increasing trend while in the urban informal sector; the employment rate has decreased (from 67.2 percent in 2008-09 to 63.1percent in 2010-11). According to the Labour Force Survey (LFS) 2008-09, the male employment rate in the

rural informal sector stood at 76.2 percent which remained constant in 2010-11. However, in the urban informal sector employment has increased from 70.6 percent to 72.4 percent during this period. The overall percentage of persons working in the informal sector shows an increase in both the rural (from 76.3 percent to 76.5 percent) and urban areas (from 70.4 percent to 71.2 percent). The formal sector did not show any significant changes with respect to employment level during the 2008-2011 period. The total employment in this sector reduced marginally from 26.7percent to 26.2 percent. However in urban areas there was a significant reduction from 29.4 percent to 28.8 percent during this period.

Table 12.14: Formal and informal Sector-Distribution of non-Agriculture Workers (%) Sector 2008-09 2009-10 2010-11 Total Male Female Total Male Female Total Male Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - Formal 26.7 26.6 27.6 26.7 26.7 26.9 26.2 25.9 - Informal 73.3 73.4 72.4 73.3 73.3 73.1 73.8 74.1 Rural 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - Formal 23.8 24.0 22.2 23.7 23.8 22.3 23.5 23.8 - Informal 76.2 76.0 77.8 76.3 76.2 77.7 76.5 76.2 Urban 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - Formal 29.4 29.1 32.8 29.6 29.4 31.6 28.8 27.6 - Informal 70.6 70.9 67.2 70.4 70.6 68.4 71.2 72.4 Source: Labour Force Survey 2010-11 Pakistan Bureau of Statistics.

Female 100.0 28.9 71.1 100.0 21.0 79.0 100.0 36.9 63.1

Unemployment Unemployment is the situation in which people, willing and able to work at the prevailing wage rate are unable to find jobs. In Pakistan the labour force is classified to include all persons who are

ten years of age and above and during the period are without work, currently available and seeking work. On the basis of the existing population of 180.71 million with a labour force participation rate of 32.83 percent, the total labour force is approximately 57.24 million. 171

Pakistan Economic E Sur rvey 2011-12 2


Table 12.1 15: Unemployment rate by area a Area/sex Unemployed labo our force (in million) m Tot tal R Rural Urban 2008-09 2.93 1.76 1.17 2009-10 3.12 1.89 1.23 2010-11 3.40 1.85 1.55 Source: Pa akistan Bureau of Statistics, Labour L Force Survey S 2010-11 1

Total

Un nemployment rate (%) Rural Urban 5.5 5 4.7 7.1 5.6 6 4.8 7.2 6.0 0 4.7 8.8

mployment ra ate has incre eased from 5.6 5 The unem percent in n 2009-10 to o 6.0 percent in 2010-11. In rural area as unemploym ment rate has decreased fro om 4.8 percen nt in 2009-10 to 4.7 perc cent in 2010-11 due to su upportive poli ices of gover rnment. Often n it is perceiv ved that the unemployment rate of ru ural areas is greater g becau use in rural areas a there is s a lower chance of emp ployment co ompared to the t urban are eas where em mployment op pportunities are a relatively better due to o greater eco onomic activi ity. Contrary to this percep ption, the situ uation seems to be the opp posite. As is evident from m the data in the t above tab ble, the unemp ployment rate e in urban are eas has increa ased from 7.2 2 percent in 2009-10 to 8.8 8 percent in n 2010-11. The T apparent t reason of this t

eality is that the t industrial sector is faci ing an hard re acute shortage s of energy e resour rces and ther refore there is a reduction n in job oppo ortunities. It is i not only af ffecting econ nomic develo opment but is s also hamper ring social life. l The comparison among a provinc ces shows th hat the unem mployment ra ate in Punjab b is high (a as shown in Table 12.16) as compar red to other r provinces. The number of unemployed people e in Sindh has h increased from 0.44 million m in 2008 8-09 to 0.70 million m in 2010-11 while in Khyber-P Pakhtunkhwa (KPK) a fall fa in unemployment has been observ ved. Howeve er, in Baluch histan numb ber of une employed people p increas sed from 0.0 06 million in n 2008-09 to o 0.07 million n in 2010-11.

Fig-12.5: Un nemployment Rates R over the e Years 10 9 8 7 6 5 4 2003 2004 2005 2006 2007 2 2008

Tota al

Rural

Urban

2009

2010

2 2011

Table-12.1 16: Unemploy yed Pakistan n and Province es Province /A Area Unempl loyment 2008-09 2009 9-10 Total l Male Female T Total Male e Female Pakistan 2.93 1.87 1.06 3.12 1. .91 1.21 Rural 1.76 1.06 0.70 1.89 1. .12 0.77 Urban 1.17 0.81 0.36 1.23 0. .79 0.44 4 Punjab 1.87 1.21 0.66 1.94 1. .18 0.76 Rural 1.14 0.70 0.44 1.16 0. .68 0.48

M Million 2010-11 Male 2.22 1.14 1.08 1.31 0.76

Total 3.40 1.85 1.55 2.10 1.25

Fem male 1.18 0.71 0.47 0.79 0.49

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Population, Labour Force and Employment


Table-12.16: Unemployed Pakistan and Provinces Province /Area Unemployment 2008-09 2009-10 Total Male Female Total Male Female Urban 0.73 0.51 0.22 0.78 0.50 0.28 Sindh 0.44 0.28 0.16 0.57 0.35 0.22 Rural 0.14 0.06 0.08 0.24 0.12 0.12 Urban 0.30 0.22 0.08 0.33 0.23 0.10 KPK 0.56 0.36 0.20 0.55 0.35 0.20 Rural 0.44 0.29 0.15 0.45 0.29 0.16 Urban 0.12 0.07 0.05 0.10 0.06 0.04 Balochistan 0.06 0.02 0.04 0.06 0.03 0.03 Rural 0.04 0.01 0.03 0.04 0.02 0.02 Urban 0.02 0.01 0.01 0.02 0.01 0.01 Source: Labour Force Survey 2010-11 Million 2010-11 Male 0.55 0.54 0.10 0.44 0.32 0.25 0.07 0.05 0.03 0.02

Total 0.85 0.70 0.15 0.55 0.53 0.41 0.12 0.07 0.04 0.03

Female 0.30 0.16 0.05 0.11 0.21 0.16 0.05 0.02 0.01 0.01

Employment Expansion policies Employment expansion policies are based on accelerating the rate of growth of the economy along with a special emphasis on the development of the relatively more labour intensive sectors. The specific policies are as follows: Micro Credit Facilities: The Khushali Bank was established to provide loans of up to Rs.30, 000 per person to unemployed people to set up their own business. Moreover, the SME Bank was established to provide financial assistance and business support to small and medium enterprises. Presidents Rozgar Scheme by National Bank of Pakistan (NBP): The National Bank of Pakistan has developed a full range of products under the Presidents Rozgar Scheme with the brand name of NBP KAROBAR. Under this scheme, a loan up to size of Rs. 100,000 is given for a maximum period of five years with a grace period of three months for establishing the business. National Vocational and Technical Education Commission: The National Vocational and Technical Education Commission (NAVTEC) was established with a view to overcoming skill gaps, and the non availability and lack of standardization of proper curricula. NAVTEC initiated two major training programs (Presidents Funnee Maharat Program and the Prime Ministers Hunarmand Pakistan Program) in the country under the President and the Prime Ministers directives. These programs remained focused on young men and women

throughout the country to provide them quality technical training. A stipend of Rs 2,000 per month is paid to the participants Skill Development Councils: Five Skill Development Councils (SDCs) one each at Islamabad, Karachi, Lahore, Peshawar and Quetta has been established. These Councils are fulfilling the diversified training needs of the industrial and commercial sectors. The SDCs assess the training needs of their geographical areas; prioritize them on the basis of market demand and facilitate the training of workers through the public and private sector. Overseas Employment: Overseas employment also provides an opportunity to developing countries to reduce poverty and to improve income distribution through growth in employment linkages. In 2011 the total number of registered Pakistani workers in different countries was 456,893. The Bureau Emigration and overseas employment is making concerted efforts to boost overseas employment.

Information Technology: The development of


the IT and telecom sector has created considerable employment opportunities, both directly or indirectly, for educated unemployed in a wide range of areas like call centres, telecom engineering, telecom sales, customer services, finance and accounting etc. This is one of the fastest growing sectors of the economy.

173

Pakistan Economic Survey 2011-12 National Internship Program: The first phase of the National Internship Program (NIP) has been completed. Under the first phase, 25,826 applicants were offered internship at the Federal, Provincial and District government levels. The second phase of the NIP was launched in February 2008. A total of 71,915 applications were received. So far 21,138 applications have been verified by HEC and NADRA and are being placed in ministries, divisions, departments and provincial governments and at district level. Investing in Increasing Water Resources: Agriculture is the largest sector of Pakistans economy and provides employment to nearly 45 percent of the countrys work force. More than two thirds of the countys population lives in the rural areas and depends directly or indirectly on the agriculture sector for their livelihood. GDP growth originating in agriculture is more effective in raising the income of the poor and increasing overall employment than other sectors of the economy. The major constraint in Pakistans agriculture has been the lack of availability of water resources. The government is making a heavy investment to develop water resources which will not only be helpful in increasing water availability and electricity but will also expand the employment opportunities in the country. Employee Projection Policies: Efforts are being made to establish an efficient, equitable and rightsbased labour market that provides mechanisms to allow productivity growth in the economy and result in real wage increases. The Zakat fund provides a monthly subsistence allowance and a rehabilitation grant is given to all the needy Muslims. The Bait-ul-Mall Fund has different projects such as Individual Financial Assistance, Free Skill Development and the Food Support Programme for helping the needy people. The Public Sector Benevolent Fund and Group Insurance provide benefits to government employees especially in the form of education scholarships to their children and other financial aid at the time of emergency. Export of Manpower The government of Pakistan is making sincere efforts to boost overseas employment which will not only reduce the unemployment burden in the country but will also increase remittances and thereby help to improve the economy of Pakistan. In this regard, MoUs have been signed with several labour importing countries like Malaysia, Kuwait, and Qatar. The number of emigrants was 0.43 million in 2008 which increased to 0.46 million in 2011, as shown in Table 12.18

Table 12.17: Number of Pakistani workers registered for overseas employment through Bureau of Emigration & Overseas Employment during the period 2008-2011 S.# Countries 2008 2009 2010 2011 1 UAE 221765 140889 113312 156353 Kuwait 6250 1542 153 173 3 Malaysia 1756 2435 3287 2092 4 Oman 37441 34089 37878 53525 5 Qatar 10171 4061 3039 5121 6 Saudi Arabia 138283 201816 189888 222247 7 UK 756 556 430 308 Source: Bureau of Emigration and Overseas Employment

Saudi Arabia being a Muslim state is attractive for millions of Pakistani workers seeking jobs abroad. Due to this fact Saudi Arabia has become the largest market for Pakistani workers in the world besides the Gulf States such as United Arab

Emirate (UAE), Oman and Kuwait. The number of emigrants in Saudi Arabia has increased from 0.14 million in 2008 to 0.22 million in 2011. Presently Pakistan is exporting skilled, semi-skilled and unskilled labour. Table 12.18 presents labour export statistics during the 2008-2011 period.

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Population, Labour Force and Employment


Table 12.18: Workers Registered For Overseas Employment Year Highly Qualified Highly Skilled Skilled Semi-Skilled Un-Skilled Total 2008 9713 33173 177791 4209 205428 430314 2009 4954 3260 182657 2465 210192 403528 2010 7081 31650 165726 5181 153266 362904 2011 6974 3018 171672 73247 201982 456893 Total 28722 71101 697846 85102 770868 1653639 Source: Bureau of Emigration and Overseas Employment

Conclusion Historically, high population growth rate has been a major factor in Pakistans overall economic development. The government is committed to allocating funds and developing innovative policy measures to address the issue of managing population growth and the labour force. Improvements in health facilities and promotion of population welfare activities through the Ministry

of Population Welfare have contributed to a significant decline in the crude birth and fertility rates, thereby leading to a reduction in the average growth rate of the population. This has been accompanied by an increased labor participation rate. Despite these improvements Pakistan is still lagging behind neighboring countries. Therefore, it is imperative to put further efforts for development of better human resources.

175

Chapter 13

Transport and Communications


Introduction The technological advances in global communications and transportation have significantly catalysed the emergence of the global economy leading to integration of fragmented national markets of goods and services into a single global market. With these rapid developments, regions with adequate means of communications and transportation have grown economically and those lacking in these fields have lagged behind. The availability of an efficient transport and communications network is a prerequisite for a meaningful economic cooperation amongst nations, particularly in the areas of trade and tourism for attracting foreign investment and realizing the potential gains from an outward oriented trade strategy. Besides human capital (skill and education) a strong efficient and affordable means of transport and communications of the country contributes to the national economic growth by lowering domestic production cost, integrating markets, promoting economic opportunities and establishing links among the people. The transport and communications sector generates a large number of employment opportunities, and acts as a significant
Years 2007-08 Category Total Low Type High Type Total Low Type High Type Total Low Type Punjab 104115 33864 70251 104114 32949 71165 105085 32179 Sindh 80863 26301 54562 80863 25591 55272 81618 24993

tool in the fight against poverty. The sector is also a major contributor to governments revenue through taxes and duties on its production and imports, fees on ownership and operation of vehicles and licensing of modern communications facilities. Sustainable economic development is dependent on a robust and low cost transport system. Enhanced export competitiveness is also contingent upon the efficient performance of the sector. The government is committed to implementing a comprehensive and modernizing transport and logistic sector through continuous reforms in all of its sub sectors. The transport system consists broadly of roads, railways, air transport and ports shipping services. 13.1: Road Transport

Roads are the most important segment of Pakistans transport sector. Roads carry over 96 percent of inland freight and 92 percent of passenger traffic and are undoubtedly the backbone of the economy. The current road network is about 260,000 kms catering to eleven million vehicles of all types. The Province wise distribution of roads is given in the following Table:
GB & AJK 1552 505 1047 1552 491 1061 1565 480

Table 13.1: Estimated Length of Roads in Provinces (kms) KPK 42369 13781 28588 42369 13409 28960 42765 13095 Balochistan 29451 9579 19872 29452 9321 20131 29727 9103 TOTAL 258350 84030 174320 258350 81761 176589 260760 79850

2008-09

2009-10

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Pakistan Economic Survey 2011-12


Table 13.1: Estimated Length of Roads in Provinces (kms) Years 2010-11 Category Punjab Sindh KPK 29670 42550 13000 29550 42975 13140 29835 Balochistan 20624 29500 9000 20500 29625 9125 20500 GB & AJK 1085 1535 450 1085 1580 465 1115 TOTAL 180910 259463 78597 180866 261595 79655 181940

High Type 72906 56625 Total 105253 80625 Low Type 32147 24000 High Type 73106 56625 2011-12 Total 106455 80960 Low Type 32590 24335 High Type 73865 56625 Source: National Transport Research Centre (NTRC)

13.1-a: National Highway Authority The NHA road network is around 12,000 kms, which is merely 4.6 percent of the overall road network but it takes 80 percent of Pakistans commercial traffic. Despite overall budgetary constraints during the fiscal year, and the effects of heavy floods in 2010 and law and order challenges NHA performed well. This performance in terms, of NHA projects is summarized below: a. Completed Projects NHA has completed 12 projects of flyovers,
Table 13.2: Province wise break up of NHA Projects Province Projects 1 Punjab 2 Sindh 3 KPK, GB & AJK 4 Balochistan Total Source: NHA

bridges, interchanges and road up gradation during the last one year at a cost of Rs 19.6 billion. b. Ongoing Projects At present, 46 development projects on roads covering 2,985 kms are ongoing at a cost Rs 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers, interchanges. Province wise break up of these projects is given below:

14 13 12 7 46

Road length (Km) 315 714 738 1218 2985

Cost (Rs. Billion) 48.2 59.5 73.1 64.5 245.3

c. New Development Projects During the financial year, NHA has launched/ awarded 16 new development projects covering a length of above 500 kms including construction of

a number of bridges, flyovers and interchanges costing Rs. 70,951 million. NHA is simultaneously constructing 12 bridges across the rivers. These are; on river Chenab 4, on rivers Sutlej 2, on river Swan 1 and on river Indus 5.

Box1 2011 Pakistan Floods Preliminary Damages and Needs Assessment Survey. Report Jointly Prepared by the Asian Development Bank and the World Bank. Pakistan experienced severe flooding after torrential monsoon rains hit southern Sindh and the adjoining areas of Punjab and north-eastern Balochistan in August 2011. Floods caused severe damage to infrastructure in the affected areas, coupled with the damages of 2010 floods that were still in the recovery phase, the losses in transport and communication sector are estimated at Rs. 26,468 million. Transport and Communications The damages in the transport and communications sector involve various categories of roads, railways, bridges, and

178

Transport and Communications


telecommunications infrastructure. Preliminary estimates indicate that approximately 8,385 km of the road network and 190 km of railway lines were damaged by the flood including bridges and allied structures. Most of the damages are on provincial highways and district roads in Sindh. Out of the estimated total damage and losses, the road subsector sustained the highest damage and losses of $299 million, followed by the railway subsector losses amounting to $3 million. The floods have impaired the road conditions which will continue to deteriorate faster if repairs, rehabilitation and restoration works remain deferred for a longer period. The indirect losses due to damage in the road sector would cause an increase in the road user cost during a phased recovery period. The telecommunication infrastructure losses includes damages to cellular sites, exchange centers, equipment, power system and supporting civil works amounting to $1.9 million. Recovery and Reconstruction Needs The reconstruction needs of the sector have been estimated at $ 388 million, including $ 5 million for railways and excluding $ 2 million required in the telecommunication subsector as these were private assets with insurance coverage. Most of the reconstruction needs are in the road subsector amounting $ 383 million. The recovery strategy varies across each subsector based on the nature of the responsible agency and the importance of the infrastructure. For telecommunications, the private sector operations have mobilized and repairs carried out and telecom services restored. For roads, diversion routes were created and services restored. Emergency repairs on railway lines have been undertaken. As a short term measure, the National Highways Authority (NHA) has tasked the regional maintenance units to undertake the emergent works through pre-qualified contractors and using proceeds of the annual road maintenance funds. All reconstruction costs for railways and 10 percent of the road reconstruction costs are included in the short-term recovery phase for works to be completed within 12 months. The remaining road reconstruction will require careful prioritization to ensure efficient utilization of available resources since most of the restoration works are not complex and thinly spread across wider geographic area.

13.2

Pakistan Railways

An effective railway system of the country facilitates commerce and trade, reduces transportation cost and promotes rural development and national integration. Pakistan Railways has entered into the Public-Private Partnership business in; Passenger Trains, Rehabilitation of Locomotives, Management Operation of Terminal Facilities including Dry Ports. The Ministry of Railways has also adopted a Track Access Policy for private sector participation to operate freight and passenger trains on Pakistan Railways infrastructure. The Ministry of Railways is also in process of allowing private sector to operate on Pakistan Railways network under Public Private Partnership (PPP) frame work. The Ministry of Railways has also created a Real Estate Development and Marketing Company as subsidiary of Ministry of Railways. The company will manage to commercialize the surplus lands of Pakistan Railways in order to overcome its financial challenges. In addition to the above, six factories including Locomotive Factory Risalpur,

Carriage Factory Islamabad, and four Concrete Sleeper Factories in Kohat, Khanewal, Sukkur and Kotri, are being corporatized for eventual privatization subject to approval of the government. Restructuring of Pakistan Railways The Cabinet Committee of Restructuring (CCOR) has approved a restructuring framework for Pakistan Railways. New Board of Directors of PR has been constituted by including academia, management professionals, rail experts and executive functionaries. The process for recruitment of a professional Chief Executive Officer and other technocrats is being undertaken. Repair of locomotives has been given a priority for restoration of Railway services and freight operations are also being prioritized for revenue generation. Financial viability is being ensured through improving revenue and support by GOP. It has been decided that adjustment of fares and freight pricing will be determined according to market conditions and cost of doing business. An asset management company is being established for optimum utilization of PRs assets. Private Sector involvement is the focus moving forward, 179

Pakistan Economic Survey 2011-12 Chamber of Commerce and Industries, Lahore has been engaged for their freight transportation from Karachi to Lahore. Commercial management of rail operations and outsourcing of noncore functions is being initiated with an aim to improve efficiency of rail operations.
2010-2011 64.9 20618.8 2.6 1757.3 7791.0 18464.0 18,739.9 July-Feb 2012 25.0 16810.2 0.9 279.3 7791.0 17698.0 9359.0

Table 13.3: Railways Passenger Traffic and Freight S. No. Subject 2009-2010 1. Number of Passenger carried 74.9 (Million) 2. Passenger Traffic KM (Rs. Million) 23522.5 3. Freight carried Tones (Rs. Million) 5.8 4. Freight Tones Km (Rs. Million) 4846.9 5. Route Km 7791.0 6. Freight Wagons 16499.0 7. Gross Earning (Rs. Million) 21,886.9 Source: Ministry of Railways

Achievements during the Fiscal Year Track: During the last financial year, 16 kms of track was rehabilitated on the Pakistan Railways network besides doubling of more than 15 kms of track. Service Buildings: Construction of D Class railway station at new Multan city was carried out at a cost of Rs. 39.8 million which has facilitated the local population to a large extent. Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out at a cost of Rs. 24.0 million to improve facilities for the passengers. Signaling: Signaling system of four railway stations damaged during the riots of 2007 was rehabilitated during the period. Rolling Stock: During February of the current fiscal year, 52 new design passenger coaches were imported from China at a cost of Rs. 4.1 billion. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at the Pakistan Railway Carriage Factory Islamabad during last year. Establishment of new Dry Port: A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through Public Private Partnership at a cost of Rs. 494.0 million.

Table 13.4: Earning of Pakistan Railways (Rs. Million) Fiscal Year Earning % Change 2007-08 19,973 2008-09 23,160 16.0 2009-10 21,886 -5.5 2010-11 18,612 -15.0 2011-12 9359.0 (July-Feb) Source: Ministry of Railways

13.3 Pakistan International Airlines (PIA) A restructuring plan of PIA has been finalized which addresses corporate governance, human resource rationalization, financial and operational restructuring, engineering improvement, procurement and logistics, marketing and fleet, airport services and dispatch reliability among others. Increased fuel cost has been a major downside risk to the financial strength of PIA; and, effective measures have been put in place to mitigate the effect. Various other cost minimization and revenue enhancement measures have been put in place to reduce the revenueexpenditure gap in the medium term. Fleet renewal and addition is being planned. Route rationalization, code sharing and alliances are being pursued for moving to a new business model. Dispatch reliability will be improved through various initiatives including expansion of reliability system, use of reliability tools and standardized data exchange on maintenance. Strategic Business Units (SBUs) are being established for outsourcing of non-core functions of PIA. Rationalization of employment in PIA is being addressed through attrition and no new

180

Transport and Communications hiring is being undertaken except for operational staff. A financial restructuring plan has been finalized which includes equity injection, rollover of loan and government guaranteed loans among others. A holistic view needs to be developed for revitalization of PIA entailing industry dynamics, aviation policy and strategic needs. This is the focus of the government. Pakistan International Airlines Corporation earned increased revenue amounting to Rs. 116.02 billion in year 2011 as compared to 107 billion last year. Passenger revenue increased upto Rs. 7.76 million. New destinations including Zahedan and Madina also added in increasing the revenue. A purchase agreement of five Boeings 777 has been signed. Chairman PIAC inaugurated the state of the art PIA Boeing-777 Flight Simulator installed at the PIA Training Centre, Karachi on October 30, 2011. The acquisition of this full flight simulator has resulted in improved training standards, better coordinated crew scheduling and planning. Following new destinations have been introduced during the year 2011: Karachi Madina (Twice weekly with B747/A310 w.e.f July 2011) Quetta Zahedan (Twice weekly with ATR w.e.f Jan 2011) Following new routes were introduced during the year 2011. Peshawar - Kuala Lumpur Sialkot Riyadh & Sialkot - Dammam.
Table 13.6: Cargo Handled at Karachi Port Period 2007-08 2008-09 2009-10 2010-11 2011-12 (Jul-Mar) Source: Karachi Port Trust Imports 25,517 25,367 27,892 28,589 19,196 Exports 11,676 13,365 13,528 12,843 8,586 (000 M/Tones) Total 37,193 38,732 41,420 41,432 27,782 Table 13.5: PIA Performance Description Revenue Hours Flown Route KMS Revenue KMS Flown (000) Revenue Passenger carried (000) Revenue Passenger Kms (mil) Available Seats Kms (mil) Passenger Load Factor % Revenue Tonne Kms (mil) Available Tonne Kms (mil) Revenue Load Factor (%) Operating Revenue (mil) Operating Expense (mil) PIA Fleet (No. of Planes) Passenger Revenue (Rs. bn) Passenger Yield (2010: 6.12) Source: PIA * : PIA Data is on calendar year basis 2011* 141,727 460,719 84,898 5,953 15,664 21,725 72.10 1,678 2,972 56.45 117,356 132,970 39 104.41 6.67

13.4 Ports and Shipping 13.4 (a) Karachi Port Trust (KPT) The Karachi Port Trust (KPT) came into being under the 1886 Act. With a 11.5 kilometers long approach channel, a depth of 12 meters and a turning basin of 600 meters, the Karachi Port provides safe navigation for vessels up to 75,000 metric tones deadweight. The KPT consists of two wharves; the East and West Wharf. The East wharf has 17 multipurpose berths and the West Wharf has 13 berths. Each of the Wharves has two dedicated container terminals and oil piers to handle liquid cargo. The KPT handled 27.8 million tones of cargo during the first 9 months of the current fiscal year. The data on cargo handled during the last five years is given in the following table:

181

Pakistan Economic Survey 2011-12 13.4 (b) Pakistan National Shipping Corporation Shipping is a highly competitive market driven industry; its profitability is dependent on optimum utilization of vessels, strict cost controls and maximization in cargo lifting. The economic downturn has affected every sector of the maritime industry and the PNSC was no exception. Despite this PNSC remained profitable during the period under review. The Commercial performance of the PNSC translated into financial gains. The PNSC remained profitable during the first nine months of fiscal year 2011-12. The consolidated revenue of the PNSC Group during July-March 2011-12 were Rs. 6640 million. One dry Combi vessel was sold for demolition as it had completed its useful commercial life. The Commercial and Financial performance of the PNSC (un-audited) from July-March 2011-12 is given in the following tables.
Table 13.7: Commercial Performance (In Metric Tons) Cargo Lifted Jul-Mar 2011-12 Liquid Cargo 5,804,294 Dry Cargo 205,379 Total (Dry + Liquid) 6,009,673 Source: PNSC Table 13.8: Financial Performance (Rs. in 000) Jul-Mar 2011-12 Revenue 6,639,971 Fleet Expenses 5,173,907 Gross Profit 1,466,064 Other Income 327,412 Expenses 1,541,464 Profit before tax 252,012 Source: PNSC Table 13.9: PNSC-Fleet Deadweight Tonnage (In MT) Year No. of ships Total DWT 2007 14 536,821 2008 14 536,821 2009 11 477,238 2010 10 633,273 2011 11 646,666 2012 10 628,409 Source: PNSC

The Corporation intends to acquire four vessels on commercial loan / joint venture-basis. Acquisition of two vessels is in process, while two more will be acquired in next financial year. 13.4 (c) Gwadar Port The Gwadar Port was inaugurated on the 20th of March, 2007 and started commercial operations from March 2008. The government has decided to import all bulk cargo comprising of Urea, Wheat and Coal through Gwadar Port. The total cargo handled at the port up till now is 4.1 million tones. Gwadar Port has earned total revenue since its start of operation amounting to Rs. 53.4 million. 13.4 (d) Port Qasim Authority Port Qasim Authority was established in 1973 as a second deep sea port of Pakistan. Port Qasim caters around 40 percent shipping requirements of the country. PQA handled a cargo volume of 19.7 million tones during July-March 2011-12. The volume of import cargo during July-March 201112 stood at 14.7 million tones, while the exports handled during the same period was 4.9 million tones.
Table 13.10: Cargo Handled at Gwadar Port (000 Tones) Year Imports Exports Total 2008 231.6 231.6 2009 1218.1 1218.1 2010 705.9 705.9 2011 462.5 462.5 2012 541.2 541.2 Source: Gwadar Port Authority

Table- 13.11: Cargo Handled at Port Qasim (00 Tones) Period Import Export Total 2007-08 21,502 4,922 26,424 2008-09 19,445 5,584 25,030 2009-10 19,226 6,380 25,626 2010-11 19.511 6,657 26,168 2011-12 14,722 4,942 19,664 (Jul-Mar) Source: Port Qasim Authority

182

Transport and Communications


Box Item2 Draft National Transport Policy (NTP) To address the Transport Sector issues and implement governments policies and strategies for sustainable growth, Ministry of Communications has prepared a draft National Transport Policy in consultation with all stakeholders. It covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports & Shipping and (iv) Aviation, NTP also includes the National Transport Corridor Improvement Program (NTCIP) to make it more productive and environment friendly. The broad objective of the draft National Transport Policy are: To Provide safe, reliable, effective, efficient, affordable, accessible, sustainable and fully integrated transport system that will best meet the needs of freight & passenger access and mobility requirements and will be aimed at improving levels of service and cost effectiveness in a fashion that supports governments goal of increasing public welfare through economic growth, and social improvement, poverty reduction and infrastructure and development while being environmentally and economically sustainable and energy efficient. National Trade Corridor Improvement Programme National Trade Corridor Improvement Programme (NTCIP) has been launched in the country to revamp the whole transport sector including ports, roads, railway, aviation etc. and a frame work to develop and improve the North South corridor has been formulated. The framework takes a holistic and integrated approach to reduce the cost of doing business in Pakistan by improving the trade and transport logistics chain and bringing it up to key standards. The strategy also takes into account the regional and domestic scenarios, particularly with respect to rail, road and shipping sub-sectors, enhancing regional connectivity to improve links with the Central Asian States, China, Iran, Afghanistan and India. With the development of the North-South and East West trade links, energy and industrial corridors with these states would also be developed. Progress on Studies in 2011-12 ` ` ` ` ` ` Study on Aviation Safety Audit by Civil Aviation Authority/Ministry of Defence has been completed Work is underway for preparing a Ports Master Plan by the Ministry of Ports & Shipping with the help of international consultants. Study on Financial Restructuring of Pakistan Railways is ongoing while consultancy firm is being hired for preparation of Pre-Feasibility of Peshawar-Jalalabad Railway Link Pakistan Railways Revitalization Strategy (PRRS) has been prepared for the approval of Cabinet The Trucking Policy approved in October 2007 is being updated Procurement of consultants is on fast track for preparing an Implementation Strategy for the Trucking Policy.

13.5

Communications

The 21st century can safely be named the IT Century as no institution can run without the help of IT in the future. The advancement of IT has brought enormous benefits to individuals, businesses and organization. The world has developed into an information economy and the application of new technologies has become the centerpiece of activities.

Rapid development of Information and Communication Technology (ICT) infrastructure and its adoption is now a prerequisite for making national progress in the economy and in daily life as well. Modernization and development of telecom infrastructure has been correlated with increase in economic activities. The Information Technology (IT) revolution is probably the most important force shaping communities today.

183

Pakistan Economic E Sur rvey 2011-12 2 13.5-a Te elecom Sector r At the end d of fiscal yea ar 2011-12, te eledensity in the t country st tood at 68.3 percent show wing 6.7 perce ent growth as s compared to o the previous s year. Since the t mobile se ector contribu utes over 95 percent to the t total teledensity of th he country, an increase in mobile pe enetration from m 60.4 percen nt in 2010-11 1 to 64.9 perc cent in 2011-12 resulted in i improveme ent of 4.3 per rcentage poin nts in total tel ledensity. Fix xed Local Loo op teledensity y has been de eclining over the t years due to mobile su ubstitution and d today it stan nds at 1.93 percent p in 20 011-12 as co ompared to 2.1 2 percent last l year sho owing a dec crease of 0. .17 percent. Wireless W Local Loop su ubscribers ha ave been increasing but the proport tionate rise in population n keeps the teledensity t of f WLL servic ces at 1.6 perc cent over the last three con nsecutive year rs.
Fig-13.1: Teledensit ty
80.00 70.00 60.00
Percentage

Fi ig-13.2: Cellul lar Subscriber rs


12 20.0 10 00.0 8 80.0 Million 6 60.0 4 40.0 2 20.0 33.9 63.2 2 88.0 94.3 9 99.2 108.89

32 118.3

Source: P PTA

Cellula ar Market Sh hare The mobile m marke et over the years y has be ecome more stable s due to o intense competition. Market M shares are now more m balanced d among the e five operato ors with alm most insignific cant changes s over the yea ar. At the end d of March 20 012, Mobilin nk had a mark ket share of f 30.25 perc cent followe ed by Teleno or with 24.80 percent and Ufone with 19.54 percent t.
Fig-1 13.3: Cellular Subscribers S Mar rket Share M March 12
Zong 13.24% Warid 12.17% Mobilink 30.25%

(71.66) Local Loop L C Cellular Mobile (64.1 10) (68.3) W Wireless Local Loop p (61.99) 1.81 (58.80) 1.93 2.1 2.17 2.70 (45.02) 3.04 (26.23) 3.37 22.20 0.66 1.08 1.4 40 1.60 1.6 1.6 1.65 54.70 40.90 58.22 60.4 64.7 68.20

50.00 40.00 30.00 20.00 10.00 0.00

20 005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Mar-12

Source: PTA

Cellular Mobile M Secto or Pakistans s cellular sec ctor faced a tough t econom mic and busin ness environm ment during the last fiscal year due to taxes, pow wer crisis, sec curity situatio on, extensive subscriber and natur ral calamiti ies. Despite all a these fac ctors, the ce ellular indus stry managed to double its growth rate from the t orld previous fiscal year. According to the Wo Economic c Forums s Global Informati ion Technolog gy Report 20 010-11, Pakis stan ranks no o. 1 in the Int ternet and Telephony T Co ompetition. The T total of mobile m subscrib bers reached 118.3 million n at the end of f March 2012 2.
Telenor 80% 24.8 Ufo one 19.5 54%
Source: PTA

Network Coverage e ndicators of a successful and One of the key in ced cellular market is the geograp phical advanc coverag ge of land area by the e cellular mobile m operato ors in the co ountry. Pakis stan has a unique u topogra aphy ranging from steep mountains m to raging r deserts s. Despite such difficult ter rrain, more th han 92 percent t of the land d area is unde er the umbre ella of cellular r mobile serv vices a laud dable effort by b the

184

Transport and d Communica ations mobile co ompanies. At A the end of o March 2012, there are 33,027 3 cell si ites across Pak kistan.
Fig-13.4: Total Cel ll Sites
35,000 30,000 25,000 20,000 13,725 15,000 10,000 5,000 0 2 2006-07 2007-08 2008-09 2 2009-10 2010-11 Mar-12 Source: PT TA 21,518 28,159 30,126 31,303 33,027

D Inte ernational Long Distance Long Distance D and International (LDI) is an nother pillar of o Pakistan telecom t secto or, responsibl le for carryin ng internation nal traffic to and a from Pak kistan. LDI licensees l ar re responsible for rece eiving interna ational traffic c from oth her countries s and handin ng these over r to their resp pective LL/m mobile operato or for nation-wide lon ng distance and interna ational teleph hony service. PTA awarde ed 14 license es for Long g Distance and Interna ational service es and curren ntly 13 of the em are operat tional. PTCL is the largest LDI operato or in the coun ntry as it also owns the inte ernational bac ckhaul of Pak kistan. The other o major players incl lude Link Direct, D Wateen n, WorldCall l and Teleca ard. Interna ational traffic in Pakistan is s increasing ev very year owing to lower tariffs and availability of interna ational connec ctivity through h fiber optic and satellite links. During g 2011 total in nternational traffic t (Incom ming + Outgoi ing) stood at 5,126 5 million n minutes.
Fig-1 13.6: LDI Intern national Incoming and Outgoin ng Traffic
6000 5000 4000 (2,409) 2,628 1,609 800 872 1,8 3,092 3000 2000 1000 0
Oct-Dec 10 Jan-Mar r 11 Apr-Jun 11 Jul-Sep 11 Oct - Dec 11

Basic Ser rvices Basic Ser rvices compr rising of Loc cal Loop (fix xed and wire eless) and Long L Distanc ce Internation nal services form the basis b of tele ecommunicati ion infrastruct ture of Pa akistan. The technological revolution n, mainly wir reless service es, had a maj ajor impact on o Fixed Lo ocal Loop business sin nce mobility, coverage, quality q of se ervice and lo ow maintenan nce requirem ment shifted consumer c foc cus from fixed to wireless services. Th he figure belo ow shows the e declining tre end in local lo oop subscribe ers, especially y FLL service es over the ye ears. By the end e of Dec, 2011, Local Loop (F FLL & WL LL) subscriber rs reached 5.93 million al ll over Pakistan. Out of to otal 5.93 million subscribe ers 3.10 milli ion belong to FLL and 2.83 3million to WLL. W
Fig-13.5 5: Local Loop Subscribers
7.00 6.00 Million 5.00 4.00 3.00 2.00 1.00 0.00 2007-08 2008-09 2009-10 2010-11 Dec - 11
Source: PTA

Internation nalincomingTraffic Internation nalOutgoingTraffic (4,323) (3,751) (2 2,871)

) (5,126)

Million Minutes

3,934

999

1,123

1,231

1,192

Source: : PTA

WLL

FLL (5.93)

Broadb band The gr rowth of Bro oadband sub bscribers has been more th han 150 perc cent on averag ge for the las st four years. Such an asto ounding grow wth rate high hlights mendous pot tential in Pak kistans broad dband the trem market t. Broadband d subscribers have crosse ed the one million m mark in 2011 wit th the highes st net additio ons in a year. According to o the latest market m data, Broadband B sub bscribers reac ched 1.9 million at the end d of February y 2012 with the t penetratio on 1.1 percent t.

(5.60) 1.16

(6.14)

(6.08)

(5.72 5 )
.70 2.

2.62 2

2.66

2.83

4.44

3.53

3.42

3. .02

3.10

185

Pakistan Economic E Sur rvey 2011-12 2


Fig-13.7: Broadband d Subscribe Penetration n
2,200,000 2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 1.10

Teleco om Revenue
1.20 0 1.00 0 0.80 0

Subsc cribers Penet tration


0. .88

0.55

1,912,152

0.60 0 0.40 0

0.25 45,153 0.03 0.11 168,082

1,491 900,648 1,491

0 0.20
413,809 4

2006-07 2007-08 2008-09 2009-10 2010 11 2010-11 Feb-12

Source: PTA A

Telecom Economy Telecom Contribution n to Exchequ uer tant contribu utor The Telecom sector is an import depositing g over Rs. 100 billion on n average ea ach year to the t National l Exchequer. The Teleco om sector ma ade its highe est ever cont tribution to the t national exchequer in n 2011 as almost a Rs. 117 1 billion we ere deposited d by the telec com compan nies showing 7 percent growth during 2011. During the t first two quarters of 2012, 2 Rs. 58 8.1 billion ha ave been depo osited to the national n exche equer.
Fig-13.8 8: Telecom Contribution to Exchequer
Others 120.0 100.0 37.0 80.0 Rs. billion 60.0 40.0 20.0 0.0
2006-07 2007-08 2008-09 2009-10 2010-11

Revenu ue of the tele ecom sector reached r an all l time high du uring the 201 12, standing at Rs. 363 bi illion. Telecom revenue showed an increase of f 5.4 percent t as compare ed to the prev vious year. In n line with th he teledensity, the cellular sector also has the highest t share in te elecom reven nue. During 2011, cellular r revenue inc creased by 11 percent to reach Rs. 262,761 million n as compare ed to Rs. 236,047 million n in the pre evious year. The rise in total telecom m revenue is mainly attributed to o the increas se in revenue e of mobile services s only since the rest of the servi ices except WLL W have rep ported decreas se in their tot tal revenue. During D the firs st two quarter rs of 2012, Rs. R 197,686 million wor rth of revenu ue has been ge enerated by th he telecom sec ctor.
Fig g-13.9: Telecom m Revenue (Rs s. Million)
400,000 0 350,000 0 300,000 0 235,613 194,562 686 197,6 278,550 333,809 3 344,212 362,935

Subscribers

Rs. Million

250,000 0 200,000 0 150,000 0 100,000 0 50,000 0 -

2005-06 2006-07 2007-08 2008-09 2009 9-10 2010-11 Jul-Dec 2012

Source: PTA PTA Deposits D


(111.6) )

Activa ation Tax


(117. 0)

GST

(100.1)

(112.1) (109.1) )

Teleco om Investmen nt Advanc cement in technology and d new innova ations require e a continued investment stream into the telecom m sector. Alth hough compa anies have inv vested over US$ U 12 billio on in building g of infrastru ucture and oth her projects in i the last six x years, there is no denyin ng the fact tha at there are un ntouched land ds and grey areas that need new w or improved ructure. Most t of the teleco om companies s have infrastr establis shed their in nfrastructure and expand ded to every nook n and corner of the country. c How wever, due to the terrain/se ecurity situati ion, companie es are A recognizing g this reluctant to invest further. PTA fact has worked out with bo oth operators s and Univer rsal Service e Fund (U USF) to make investm ments in area as where the ere is no tel lecom service e. In 2011, th he telecom se ector invested d US$ 495.8 million; m with the cellular mobile m sector being

39.3 9.2 14.2

45.2 44.9 12.0 7.2 27.9 52.6 2.2 3.9 24.1


Jul - Dec 11

37.0 10.9 9.7 17.6 44.6 49.4 19.2

(58.1)

13.6 6.6 44.0

36.3

Source: PTA

Note: PTA's contributions compr rise of all its receipts including Initial and a Annual Licen nse Fee, Annual Spect trum Administrative Fee, F USF and R&D Fu und Contribution ns, Numbering Ch harges, License Application A Fee, etc. Others includ de custom duties, WH H Tax and other taxes.

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Transport and Communications the major contributor. In addition USF invested Rs. 3.5 billion during the 2011. Foreign Direct Investment by the telecom companies is more than 30 percent of the total FDI in the country during the last six years. As in the investment scenario explained above, telecom companies reduced FDI because they have already laid down the required infrastructure. In 2011, telecom sector attracted over US$ 79 million FDI in the country which is about 5 percent of the total FDI in Pakistan in 2011. Analysis of investment and FDI clearly reveals that the telecom sector of Pakistan needs an influx of new investment in the near future to boost these figures. The auction of 3G licenses is expected, that will bring more FDI into the country. An
Table 13.12: Telecom Investment 2005-06 2006-07 Cellular 1,420.9 2,584.5 LDI 50.5 602.8 LL 0.3 40.6 WLL 259.4 747.0 Total 1,731.1 3,974.8 Source: PTA

improved economic condition of the country will further encourage investors to bring capital into Pakistan.
Fig-13.10: Foreign Direct Investment
6,000 5140 5,000 US$ Million 4,000 3,000 1,905 2,000 1,000 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Source: PTA 2199 1,824 1,439 815 374 79 1574 3521 3720 5410 FDI in Telecom Total FDI

2007-08 2,337.7 403.9 342.1 52.8 3,136.4

2008-09 1,229.75 276.75 57.37 82.11 1,645.9

2009-10 908.8 183.1 22.5 23.0 1,137.5

US$ (Million) 2010-11 358.6 108.8 18.2 10.2 495.8

Regulatory Intervention by PTA Spectrum Auction for 3G & Defunct Instaphone License

WLL Spectrum Auction in 1.9 GHz and 3.5 GHz Frequency Band

The Government of Pakistan announced spectrum auction for 3G and Instaphone license on 24th November 2011. The Ministry of Information Technology issued a policy directive to PTA with the objective of redefining the policy framework and setting guiding principles for the auction of 3G frequency leading to introduction of relevant services. It was announced by the Federal government that the auction would be transparent and competitive; the allocation will be neutral; and, usable for any available or upcoming technology. Similarly the auction of three blocks of 10 Mhz each, out of currently available 3G spectrum (1.9 GHz/2.1Ghz band), shall be announced by PTA. The license of defunct Instaphone along with allocated frequency will also be auctioned.

During the de-regulation of the telecom sector in 2004-05, significant portion of the frequency spectrum in 1.9 GHz and 3.5 GHz bands was auctioned for WLL licensees. However, with unprecedented growth of wireless broadband services and introduction of new players in the market, it became imperative for the government to allocate more spectrum resources to WLL operators. In this regard, PTA has been entrusted with the task of carrying out the auction of the WLL spectrum as per guidelines provided in the Policy Directive issued by Ministry of IT on 16th December 2011 for spectrum auction of available frequency in 1.9 GHz and 3.5 GHz. The Information Memorandum for WLL auction is available on the PTA website. The base price for 3.5 GHz band is set at USD 28.2 million (covering all telecom regions) and the base price for 1.9 GHz

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Pakistan Economic Survey 2011-12 band is set at USD 88.75 million (covering all telecom regions). commitment in stimulating the mobile banking services in the country. The SBP and PTA would act as facilitators for third party service providers for mobile banking in Pakistan. Cellular Mobile Network Quality of Services Regulations, 2011

Mobile Banking

Introduction of efficient mobile banking services in the country can utilize the strengths of mobile networks to provide financial services to the large unbanked (rural, poor) population as well as increase the overall efficiency of the banking sector in Pakistan. The State Bank of Pakistan introduced the Branchless Banking Regulations in March 2008. Subsequently, the Ministry of IT issued the Policy Directive (May 2008) to support the technical implementation of mobile banking in the country. The government under the Policy Directive states that a relevant telecom sector policy framework is required to complement SBP Branchless Banking Regulations. For implementation of this Policy Directive, PTA drafted the Third Party Service Providers (Branchless Banking) Regulations 2011. In order to provide an enabling regulatory environment and develop cooperation for a simplified mobile banking framework that can allow license holders to take on branchless banking activity and harness the full potential of such services, the Pakistan Telecommunication Authority and the State Bank of Pakistan (SBP) signed a Memorandum of Understanding (MoU) on 11th January, 2012. With this MoU, both the institutions have shown their interest and

To ensure that mobile operators maintain quality of service the PTA has prepared the Cellular Mobile Network Quality of Services (QoS) Regulations, 2011. These regulations apply to all cellular mobile operators and identify the minimum quality of service standards and associated measurement, reporting and record keeping tasks (except packet switched or GPRS/EDGE services). The Regulations have been gazette notified. GPRS/EDGE Service Quality of Service Regulations, 2010

In order to maintain Mobile cellular Quality of Service, Pakistan Telecom Authority prepared GPRS/EDGE Key Performance Indicators (KPIs) following the international standards and consulting the industry. Further these KPIs have been incorporated in the regulations. These regulations are applicable to all cellular mobile communication service licensees for the purpose of laying down quality of service parameters for GPRS/EDGE services, to ensure consumer satisfaction in line with the criterion determined by the Authority from time to time.
(Nos.) Broadband Subscribers 168,082 413,809 688,373 1,491,491 1,912,152

Table 13.13: Pakistan Telecommunication Subscribers Category Years FLL Subscribers WLL Subscribers Mobile Phones 2007-08 2008-09 2009-10 2010-11 Jul-March 2011-12 Source: PTA 4,548,350 3,526,634 3,419,271 3,016,852 3,098,117 1,155,188 2,617,616 2,659,824 2,704,873 2,968,813 88,019,812 94,342,030 99,185,843 108,894,518 118,316,916

13.6

Electronic Media

13.6 (a) Pakistan Electronic Media Regulatory Authority The electronic media in Pakistan, remained dominated, since independence, by the state-run Pakistan Broadcasting Corporation and Pakistan 188

Television. Pakistan Television was launched in November 1964. As access to diverse sources of information was limited and people could not keep abreast of the rapidly growing developments around them, the government in 2002 opened up the electronic media to the private sector in the country. Pakistan Electronic Media Regulatory

Transport and Communications Authority (PEMRA) as a statutory body was set up with a view to facilitate through licensing and to regulate the growth of the electronic media in the private sector. PEMRA is mandated for regulating the establishment and operation of all broadcast media that is satellite TV, FM radio and distribution services like Cable TV, DTH (Direct To Home), IPTV (Internet Protocol TV), Mobile TV etc. in the country. Economic Contribution Investment friendly policies of the government have been conducive to the development of the electronic media industry in the private sector. According to estimates there has been a cumulative investment of approximately U.S. dollar 2.5 billion in the electronic media industry in Pakistan. New jobs to more than 200,000 people of diversified skills and qualifications have been provided. In addition, over 7 million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum, it is estimated that the cumulative
Table 13.14: PEMRA Performance Sr.No. i. ii. iii. iv. v. Category Licenses Issued in 2011-12 06 10 06 600 --04 02 Total Licenses Issued 89 26 157 3,000 6 01 04 02

investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year. This expansion in investment would in turn have a multiplier effect on increasing job opportunities for skilled media personnel and journalists, expanding work of media production houses, advertising agencies and proliferation of the performing arts. Present Status of Private Electronic Media During the last decade the country has witnessed a massive spurt in the number of TV channels and FM Radio stations in the private sector which is unmatched in the South Asian region. The unprecedented growth of TV channels, Cable TV and FM Radio stations has indeed contributed remarkably in raising the standards of public awareness and literacy. The massive growth which has taken place in the electronic media in the private sector in the last one decade is as follow:

Satellite TV Channels Landing Rights Permission to TV Channels FM Radio licenses Cable TV Licenses Multimedia, Multi Channels Distribution System (MMDS) vi. Internet Protocol Television (IPTV) vii. Mobile TV license viii. Mobile Audio Licenses Source: PEMRA

13.6-(b) Pakistan Television Corporation Limited (PTV) PTV has launched Sports Channel on 11-01-2012. To eliminate the disparity and uplift the socioeconomic conditions PTV is gradually extending its signals in remote and economically backward areas. Prime Minister inaugurated the Rebroadcast Station at Bhimber on 12-03-2012 RBS in NeelaBut, Jura, Athmaqam, Karan, Dhudhnial, Sharda , Kel and Mirpur, Palandri are in progress. RBS at Badin is in progress and National News Bureau at Larkana is almost completed. Prime Minister

inaugurated TV Centre at Multan on 30-12-2011. RBS at Besham and Kohat are ready for inauguration; RBCs at Buneer, Kund Bangla and Pooran are in progress. RBCs at Kharan, and Bar Khan are in progress. RBS Chilas, Gahkuch, Khaplu, Shigar are ready for inauguration and RBS at Aliabad/Karimabad, Jaglot/Bunji and Astore are in progress. PTV will launch English channel shortly. In fiscal year 2011-12 TV sets were 12,252 million in the country.

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Pakistan Economic Survey 2011-12 13.6-(c) Pakistan Broadcasting Corporation Pakistan Broadcasting Corporation is the largest radio network in the country with a listenership larger than all private radio channels in the country. Its mission is to entertain and educate people through music programmes, features and plays. Following are the prominent services of PBC:` National Broadcasting Services was launched on 28th August, 2008. NBS has seventeen hours daily transmission from 7 am to 12 midnight. The programmes are originated from Islamabad and provincial capitals. PBC World Service broadcasts daily Urdu programmes of 8 hours and 30 minutes duration for the audience living abroad. PBC External Services, broadcast programmes for 8 hrs daily in 11 foreign languages covering Afghanistan, Iran, China, India, Bangladesh, Nepal and Sri Lanka. Central Production Units (CPU) produce music, drama, features, documentaries and programmes for special occasions. CPU has over 2 million minutes recording in its archives which are being digitized. Pakistan Broadcasting Corporation has established different FM Stations to cater to the infotainment and educational needs of listeners in their respective languages all over the country. These stations are broadcasting programmes in their respective local/regional languages and in Urdu with a ratio of 70/30 respectively. Total broadcast hours of these FM Stations are 260 hours daily. PBC News is putting on air 117 News bulletins daily. These include National, Regional, External and Local News bulletins besides resume of National Assembly and Senate. In addition PBC news launched the broadcast of FATA News, special news bulletins from PBC Hyderabad on rain/ flood situation and ongoing rescue and relief activities in Urdu and Sindhi languages. ` PBC has nine approved development projects in hand for which an amount of Rs. 217.7 million has been allocated in 2012. The details of these projects are given below:1 2 3 Balancing and Modernization of equipment. 2 X 100 KW SW transmitters and HF aerial system Landhi Karachi. Up-gradation of PBC Larkana from 10 KW Medium Wave to 100 KW MW transmitter. Replacement of 100 KW MW transmitters at Multan, Hyderabad & Muzaffarabad. Establishment of PBA and IT Centre at Lehtrar Road, Islamabad. 100 KW MW transmitter at Gwadar. Establishment of 47 FM Radio Stations all over Pakistan. Replacement of 100 KW MW with 400 KW Medium Wave transmitter Peshawar under USAID programme. Replacement of 10 KW MW with 100 KW MW transmitters D.I. Khan under USAID programme and shifting of Broadcasting House.

4 5 6 7 8

10 Installation of 100 KW MW transmitter and BH at Turbat. 13.7 The Pakistan Post To provide trust worthy, efficient and time sensitive services to the customers, Pakistan Post has offered full blend of Express Mail and Financial Services. It provides services through a network of 12,035 (1,797 urban and 10,238 rural) post offices across the country. Some salient achievements of the Post Office department are given below: Benazir Income Support Programme (BISP) Complete web-based tracking and monitoring system for disbursement of funds for Benazir Income Support Programme (BISP) has evolved that includes continuous processing, monitoring and reconciliation of the specialized money orders scheme. During the 1st nine months of the current

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Transport and Communications fiscal year (July-March) total 8,621,193 BISP Money Orders along with required funds for Rs.17,242.4 million were received from BISP authorities, out of which 97 percent Money Orders amounting to Rs.16,642.0 million have been paid within prescribed period of time. Western Union Money Remittances Business During the first nine months of current fiscal year (July-March), Pakistan Post has received the foreign remittances amounting of Rs. 9,247.9 million. Establishment of Small & Smart Express Centers To provide quality services to the customers, 55 Small and Smart Express Centers have been set up in the urban areas. These Express Centers are fully computerized and automated and cater the requirements of the public. These canters facilitate the customers, particularly in trade, commerce and business. The services offer in these centers include: Urgent Mail Service, urgent Money Order Service, Expedited Mail Service, Fax Mail, Fax Money orders, Payment of incoming foreign remittances through Western Union, Acceptance of Utility Bills, Traditional Services, Booking of Inland and Foreign Parcels. Achievements of Saving Bank Pakistan Post has been doing Saving Bank work as an agency function on behalf of the Ministry of Finance under the government Savings Bank Act1873 on commission basis. During the period JulyMarch 2011-12 an amount of Rs. 160,266.9 million has been collected through National Savings Schemes and earned commission amounting to Rs. 801.3 million during this period. Postal Life Insurance Total Policies are 382,019, for a sum assured Rs. 49,507.9 million and a Premium Income is Rs. 1,993.8 million. Computerization Counter Automations System Over one hundred General Post Offices including renovated post offices through out Pakistan have been provided with counter computerization facilities for the better service quality to the customers through a LAN based system. Computerized Pension Payment System Over 1.4 million Civil and Military pensioners are being served by Pakistan Post about 1.3 million pensioners has been disbursing pension from Pakistan Post. The pensioners are receiving the pension in a hassle free environment. Pakistan Post is also disbursing pension to over 40,000 PTCL pensioners. Pakistan Post has also developed a separate system for PTCL pension disbursement. Conclusion With the continuing expansion of the transportation and communication sector throughout the country, Pakistan is preparing for the future in various areas from creating vast transport networks to building up a sustainable information technology infrastructure with the objective of setting the foundations for continued growth and success. Despite such challenges in areas of natural disaster recovery and difficult terrain to develop upon, transportation developments have continued, and expect to expand. Communications infrastructure has widened despite challenges with security, power outages and rough terrain in which to build upon. The cellular mobile sector has been a major contributor to the expanding market for telecommunication and the various technologies that come with it, bringing the country to high standards of telecommunication structures on par with the rest of the world. This area is expected to grow at an accelerated pace due to demand, however it is important that capital and investments come with it. Overall, the transportation and communication arena remains strong, is changing, expanding and seeking to meet with the needs of Pakistans citizen.

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Chapter 14

Energy
Energy is considered to be the lifeline of economic development. For a developing economy with a high population growth rate, it is important to keep a balance between energy supply and emerging needs. If corrective measures are not effectively anticipated significant constraints start emerging for development activities. The rise in global energy demand has raised questions regarding energy security and increased the focus on diversification, generation and efficient allocation. The answer lies in the attainment of optimal energy mix through fuel substitution by promoting energy efficiency and renewable energy and interregional co-operation. However, oil and natural gas will continue to be the worlds top two energy sources through 2040; accounting for about 60 percent of global demand. Gas being the fastest growing major fuel source over this period is expected to grow at 1.6 percent per year from 2010 to 2040 as estimated by The Outlook for Energy: A View to 2040 is given in Figure-14.1.

Figure 14.1: Global energy demand by fuel type (Quadrillion BTUs)


250

QuadrillionsBritishThermalUnits

2010
200 150 100

2040 2040
2010

From its peak in 2025, coal will decline by more than 10 percent of total Hydro/Geo
2010

2040

Latin America and China are the biggest users of hydro power, which makes up over 80 percent of total Hydro/Geo supplies

2040
50 0

2010

2010 2040 2010 2040 2010

2040

Source: The Outlook for Energy: Aview to 2040

Pakistans economy has been growing at an average growth rate of almost 3 percent for the last four years and demand of energy both at production and consumer end is increasing rapidly. Knowing that there is a strong relationship

between economic growth and energy demand, the government is making all possible efforts to address the challenges of rising energy demand (Box-1).

Other Renewable

Nuclear

Biomass /Waste

Oil

Coal

Gas

Hydro

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Box- 1 Reforms of Present Government addressing Energy Crises Oil Sector Reforms The Federal Government, in pursuance of its deregulation policy, has deregulated prices of Motor Spirit (MS), High Octane Blending Component (HOBC), Light Diesel Oil (LDO), Jet Propellant 1 (JP1), Jet Propellant 4(JP4) and Jet Propellant 8 (JP8) w.e.f. June 1st, 2011. Refineries and Oil Marketing Companies (OMCs) are allowed to fix and announce their ex-refinery price and ex-depot prices of above mentioned products on monthly basis. Under the deregulation framework POL prices have been linked with Pakistan State Oil (PSO) actual import price. In case of non availability of PSO import prices, the refineries will fix their ex-refinery price as per existing Import Parity Pricing (IPP) formula. Gas Sector Reforms To mitigate the gas shortage, government has designed different policies not only for exploration of new local gas reserves but also for import of gas like Liquefied Natural Gas (LNG) most mentionable are Liquefied Petroleum Gas (LPG) Policy 2011 and Liquefied Natural Gas (LNG) Policy 2011. Coal Sector Reforms Federal and Provincial Governments are endeavoring to harness the huge coal resources of Thar by utilizing it as a source of energy for power generation through international investment. As part of promotional activity to increase the share of coal, the Government of Sindh has leased out a coal block for an integrated mining project to many companies like M/s Engro Powergen (Pvt.) Limited, M/s Cougar Energy UK limited, M/s Oracle Coalfield Plc, UK, M/s Bin Daen Group, UAE and M/s China National Machinery Import & Export Corporation of China (CMC) for coal mining and installing coal-fired power plant Power Sector Reforms Government of Pakistan (GoP) initiated structural reforms in the power sector under the Power Sector Reform Plan (2010) finalized by Cabinet Committee on Restructuring (CCOR). Implementation of Power Sector Reform Plan 2010 has been expedited and upgraded under the Power Sector Recovery Plan 2011. The plans are based on the following key pillars: Improved governance structure: b) Supportive legal framework c) Financial sustainability; (d) Supply side management; (e) Demand side management and f) Promote private sector participation in the sector. Power Sector Subsidy The timely payment of tariff differential subsidy (TDS) is being ensured along with subsidies for KESC and FATA on monthly basis. All subsidy claims till December 2011 (Rs.56 billion) have been disbursed. GoP started 2012 with no outstanding claims of TDS against any power sector company. For 2012, overall subsidy is estimated to be Rs.91 125 billion. Monthly financial planning is being implemented for smooth financial flow. General Sales Tax (GST) exemption withdrawn for lifeline and agriculture consumers (Rs. 10 billion budgeted by GoP for 2012). GoP aims to phase out subsidies to power sector which have cost rupees one trillion in last 4 years. Resolution of Circular Debt Circular debt refers to the unpaid bills by Pakistan Electric Power Company (PEPCO) to key players especially Oil companies, Gas companies, Independent Power Producers (IPPs) and Water and Power Development Authority (WAPDA).

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Energy
Stock Issue Recovery of receivables of Distribution Companies (DISCOs) of Rs. 354 billion (Feb 2012) is essential to clear the circular debt against payables of Rs. 398 billion (April 2012). Unpaid power tariff differential subsidy (Rs. 301billon) until 30 June 2009 picked up by GoP through Power Holding Private Limited (PHPL) company. Stock of Rs.120bn of outstanding tariff differential subsidy (TDS) for FY10 was picked up by the Federal Government in May 2011. Debt swap of Rs. 150 billion has been done which covers sizeable proportion of circular debt. Flow Issue Efforts for 100 percent recovery of current bills are underway along with disconnection of defaulters after 45 days (reduced from 90 days) without any exemption/discrimination. A total of 210,301 disconnections carried out during July-Feb 2012. Two months security deposit shall be paid by new and defaulting consumers to get a reconnection. Refund of General Sales Tax (GST) on uncollected bills of more than 180 days has been approved

Supply Side Management 3,400 MW has been added since 2008. Most efficient plants are being dispatched to maintain to conserve fuel. Economic dispatch to conserve fuel is being implemented. Gas Supply to Karachi Electric Supply Corporation (KESC) has been increased to improve fuel mix and ensure maximum supply. Change Combined Cycle plants to coal (24 months). Mangla raising project is completed and the project is also inaugurated. Diamer Bhasha Dam of 4,500MW generation capacity inaugurated 1400MW Tarbela 4th extension initiated.

Demand Side Management Lines losses reduced from 20.4 percent (FY10) to 19.6 percent (FY11). Loss mapping in each Distribution Companies (DISCOs) is in progress to exactly pin-point the losses and their sources to achieve the target of 18.7 percent losses in FY12. Load Management conservation measures to save about 1000MW put in place. Promote Private Sector Participation in the Sector Expression of Interest (EOI) for private bidders issued for O&M contracting for Generation Companies (GENCOs). GoP in the process of finalizing Operations and maintenance (O&M) contracting wherever required for Distribution Companies (DISCOs). Work on coal fired plants has been expedited.

During 2011-12, energy outages in Pakistan continued to be the dominant constraint in its growth. Yet, traces of energy supply shortages can be traced to the independence of the country. Till the 1980s less than two-third of the energy requirements were met through its own domestic resources. In the 1990s Pakistan was still engaged in various efforts to bridge the wide gap between increasing demand and limited energy supply. Further in the early 2000s, the energy sector (especially its sub sector electricity) received greater attention because of the faster rate of growth in its demand. By 2011-12, electricity and gas shortages are considered to be the primary cause of constrained production activities in a number of industries. Energy intensive industries (Petroleum, Iron and Steel, Engineering Industries and Electrical) shaved off 0.2 percentage points from real GDP growth in 2010-11 and in 2011-12. Also, the estimated cost of power crises to the economy is

approximately Rs.380 billion per year, around 2 percent of GDP, while the cost of subsidies given to the power sector to the exchequer in the last four years (2008-2012) is almost 2.5 percent of GDP, (Rs. 1100 billion). The liquidity crunch in the power sector has resulted in under utilization of installed capacity of up to 4000MW. It has also affected investment in power sector. Flood was one of the factors which caused electricity and gas shortage as it damaged the distribution network (i.e., 90 percent of distribution transformers to the petroleum and gas fields). The total damage to the energy sector was of Rs 1.2 billion (US$ 14.2 million) according to Asian Development Bank Report, 2011 Pakistan Floods; Preliminary Damage and Needs Assessment. Lower accumulation of water reserves in dams along with high international prices of oil has compounded the pressure on

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electricity as there is still significant share of oil (furnace) in electricity generation (about 35.1 percent) which is vulnerable to the international prices. Further the oil refineries have also been running below capacity, thus constraining the supply of oil and other fuels. Likewise, in the gas sector, Pakistan faced severe shortages that exceeded approximately 2 billion cubic feet per day as local production was unable to keep pace with the requirements of the country. This was due mainly to the depletion of existing resources, unfavorable law and order situation and lukewarm interest of exploration and production companies etc. However, the geographical location of the country makes it a favourable potential market for the import of natural gas from its neighboring countries like Iran, India and Turkmenistan. The government has, therefore, taken the initiative to import gas from these countries. The initial projects in this regard are Iran-Pakistan Pipeline and Turkmenistan-Afghanistan-PakistanIndia gas pipeline. To mitigate the energy crisis, the government has notified the Liquefied Natural Gas (LNG) Policy 2011 which encourages private parties to develop LNG projects and sets them free to participate in any segment of the LNG value chain. In order to solve issues in power sector, the government has decided to construct five multi-purpose water storages in the country during the next 10 -12 years. The Diamer Basha Dam Project - the world's highest Roller Compacted Concrete Dam - is the most mentionable achievement. Also Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA1000) electricity trade. To ensure energy security and sustainable development in the country, the government is also taking all possible measures to diversify its energy mix. In this the regard government has given due attention to fast track the development of Alternative / Renewable Energy (ARE) resources in the country. The Alternative Energy Development Board (AEDB) has updated the Renewable Energy (RE) Policy, 2006, in consultation with the provinces and other stakeholders. The policy includes all (Alternative Renewable Energy (ARE) technologies including Wind, Solar, Hydro, Biogas, Cogeneration, Waste-toEnergy, and Geothermal; providing extremely attractive financial and fiscal incentives to both local and foreign investors while offering them a level playing field. It is expected that with the approval of the policy and governments keen interest in energy sector, the situation will improve significantly in near future.

Pakistans Energy Sector1


Figure 14.2: Pakistans Energy Sector Consumption and Supply 2010-112
Energy Consumption (38.8 million TOE) by Share of Sources
Oil Products (29 %) Gas (43.2 %) LPG (1.3%) Electricity (16.2 %) Coal (10.4 %)

Energy Consumption (38.8 million TOE) by Share of Sectors

Transformation (17.8 million TOE) Diversions (7.4 million TOE) Statistical Differ (0.5 million TOE)

Energy Supply (64.5 million TOE) by Share of Sources

Natural Gas (47.6%)

LPG (0.5%)

Oil (32.0%)

Coal (6.7%)

Electricity (13.1%)

Crude Oil (15.7%)

Petroleum Products (16.3%)

Data on variables of energy is given on calendar year instead of fiscal year TOE (tonne of oil equivalent) is a unit of energy. It is considered as an amount of energy released by burning one tonne of crude oil approximately equal to 42 GJ. [1 TOE = 41.868 GJ = 11, 630 Kilowatt Hours =39.683 million Btu]
2

196

Energy followed by oil (29.0 percent). As shown in Fig14.3, the major consumption source of natural gas witnessed an increase in share by almost 4 percentage points during 2010-11 compared to 2005-06. This is due to the substitution effect to a cheaper source from an expensive source. Since oil is the more expensive fuel because of Pakistans imports at the high international prices the share of oil consumption declined by 3.0 percentage points during the period under review.

14.1 Energy Consumption Pakistans total energy consumption stood at 38.8 million tonnes of oil equivalent in 2010-11. The relative importance of the various sources of energy consumption of Liquid Petroleum Gas (LPG), electricity and coal has been broadly similar since 2005-06. The share of gas consumption stood at the highest equal to 43.2 percent of the total energy mix of the country,

Figure 14.3: Energy Consumption by Sources in %: A Comparison between 2005-06, 2008-09 & 20010-11
50.0 45.0 40.0 35.0 Share in percentage 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2005-06 2008-09 2010-11 Oil 32.0 29.0 29.0 Gas 39.3 43.7 43.2 1.8 LPG 1.8 1.5 1.3 1.3 Electricity 16.2 15.3 16.2 Coal 10.6 10.4 10.4 16.2 16.2 10.6 10.4 32.0 29.0 43.2 39.3

Source: Hydrocarbon Development Institute of Pakistan

The consumption of petroleum products showed a continuous declining trend since 2001-02. However due to positive changes in years 2004-05, 2007-08 and 2009-10, the overall average for last ten years became positive 1.1 percent per annum. The longer term trend suggests that composition of
Table:14.1: Annual Energy Consumption
Fiscal Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Petroleum Products Tonnes Change (%) (000) 16,960 -3.9 16,452 -3.0 13,421 -18.4 14,671 9.3 14,627 -0.3 16,847 15.2 18,080 7.3 17,911 -0.9 19,132 6.8 Gas (mmcft) 824,604 872,264 1,051,418 1,161,043 1,223,385 1,221,994 1,275,212 1,269,433 1,277,821

annual energy consumption is shifting from petroleum products to other energy sources due to volatile prices of oil. Thus consumption of gas, electricity and coal has increased at an average of 5.1 percent, 4.8 percent and 7.7 percent per annum for last ten years as shown in Table 14.1.
Electricity (Gwh) 50,622 52,656 57,491 61,327 67,603 72,712 73,400 70,371 74,348 Change (%) 4.2 4.0 9.2 6.7 10.2 7.6 0.9 -4.1 5.7 Coal M.T* Change (%) (000) 4,409 9.0 4,890 10.9 6,065 24.0 7,894 30.2 7,714 -2.3 7,894 2.3 10,111 28.1 8,390 -17.0 8,139 -3.0

Change (%) 7.4 5.8 20.5 10.4 5.4 -0.1 4.4 -0.5 0.66

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Table:14.1: Annual Energy Consumption
Fiscal Year Petroleum Products Tonnes Change (%) (000) 18,887 -1.3 1.1 Gas (mmcft) Change (%) Electricity (Gwh) Change (%) Coal M.T* Change (%) (000) 7,717 -5.2 7.7 -19.1

2010-11 1,240,671 -2.91 77,099 3.7 Avg. 10 5.1 4.8 years July-Mar 2010-11(e) 13,802 939,950 56,194 5,850 2011-12** 13,879 0.6 957,275 1.8 54,595 -2.8 4,730(e) Source: Hydrocarbon Development Institute of Pakistan *: Million Ton : Not Available e: Estimated **: Consumption of electricity for AJK and KESC for the months Jan to Mar 2012 is not available

14.2-a Petroleum Product During the first three quarters of current fiscal year the overall consumption of petroleum products increased to 13,879 million tonnes in the period July-March 2011-12 compared to 13,802 million tonnes in corresponding period of 2010-11 thus posting a positive growth of 0.6 percent. The major decline was in the agriculture sector (40.8 percent) followed by the government sector (20.3 percent). Similarly the power sector and household sector had also shown negative growth in the consumption of petroleum products for the period under discussion posting -5.2 percent and -8.0 percent respectively. Although petroleum products

considered as necessary inputs of the power sector, yet the negative growth in power as well as household sector can be attributed to changes in demand behavior toward relatively cheaper alternatives. The industry sector had shown positive growth of 24.2 percent in the consumption of petroleum products during the period of JulyMarch 2011-12 when compared with July-March 2010-11, mainly due to recovery in economic activity. The transport sector usually consumes high quantity of petroleum products but surprisingly this sector showed a relative small growth of 3.5 percent during the period under consideration.

Table 14.2: Consumption of Petroleum Products (000 tones) Year House Change Industry Change Agriculture Change Transport Change Power Change Other Change Total holds (%) (000 (%) (000 (%) (000 (%) (000 (%) Govt (%) 000 (000 tonnes) tonnes) (a) tonnes) tonnes) (000 tonnes) tonnes) tonnes) 2001-02 335 -25.7 1,612 -16.2 226 -11.4 8,019 -1.7 6,305 -2.8 464 24.7 16,960 2002-03 283 -15.5 1,604 -0.5 197 -12.8 8,082 0.8 6,020 -4.5 266 -42.7 16,452 2003-04 231 -18.4 1,493 -6.9 184 -6.6 8,464 4.7 2,740 -54.5 309 16.2 13,421 2004-05 193 -16.5 1,542 3.3 142 -22.8 9,025 6.6 3,452 26 317 2.6 14,671 2005-06 129 -33.2 1,682 9.1 82 -42.3 8,157 -9.6 4,219 22.2 359 13.2 14,627 2006-07 106 -17.8 1,596 -5.1 97 18.3 7,982 -2.1 6,741 59.8 325 -9.5 16,847 2007-08 121 14.1 1,071 -32.9 109 12.7 9,384 17.6 7,084 5.1 311 -4.5 18,080 2008-09 97 -19.5 969 -9.5 70 -36.2 8,837 -5.8 7,750 6.9 367 18.2 17,911 2009-10 90 -7.5 985 1.6 58 -16.9 8,861 0.3 8,814 16.4 323 -12.0 19,131 2010-11 85 -5.6 1,355 37.6 41 -29.3 8,892 0.3 8,139 -7.7 374 15.8 18,887 Avg. 10 -14.6 -2.0 -14.7 1.1 6.7 2.2 years July-Mar 2010-11 67.3 919.2 35.8 6,599.1 - 5,913.4 267.4 - 13,802 2011-12* 61.9 -8.0 1,141 24.2 21.2 -40.8 6,832.9 3.5 5,608.8 -5.2 213.1 -20.3 13,879 Source: Hydrocarbon Development Institute of Pakistan (a) High Speed Diesel (HSD) consumption in agriculture is not available separately and is included under transport sector. Agriculture sector represents only Light Diesel Oil (LDO) *: Oil/POL product consumption for the month March 2012 is missing

The share of Punjab in consumption has declined from 59.3 percent during the last fiscal year to 57 198

percent in 2010-11. There was an increase in the share of Sindh to 24 percent this year as compared

Energy to 21.4 percent last year. The share of Balochistan and Khyberpakhtunkhwa (KPK) remained constant over the last four years with Balochistan having a relatively higher share than KPK in the consumption of petroleum products as is evident from the figure below

Figure 14.4: Share of Provinces in Consumption of Petroleum Products


Percentage Share in Total Consumption 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

Punjab

Sindh Balochistan KPK


2008 2009

A.J. Kashmir
2010 2011

Source: Directorate General of Petroleum Concessions (DGPC)

Years

14.2-b Natural Gas The consumption pattern of gas by different users since 2001-02 is presented in Table 14.3. The analysis of the sectoral consumption of gas indicates that during July-March 2011-12, the consumption of gas in the cement sector was 1.4 billion cubic feet compared to 0.6 billion in the corresponding period during 2010-11 thus posting a positive growth of 133 percent during the period under review. The industrial sector experienced a

decline in consumption of gas and posted a negative growth of 12.5 percent during 2010-11. This sector also showed negative growth of 6.8 percent during July-March 2011-12 when compared to the same period during 2010-11. The transport sectors is the most significant sector; posting a positive growth in gas consumption of 14.2 percent during 2010-11 as compared with 2009-10 and a positive growth of 10.8 percent during July-March 2011-12 as compared with the same period during 2010-11.

Table 14.3: Consumption of Gas (Billion Cft)


Year
Household Change (%) Commercia Change l (%) Cement Change (%) Fertilizer Change (%) Power Change (%) Industrial Change (%) Transport (CNG) Change (%) Total

2001-02 144 2.1 22 4.8 2002-03 154 6.9 23 4.5 2003-04 155 0.6 24 4.3 2004-05 172 11.0 27 12.5 2005-06 171 -0.6 29 7.4 2006-07 186 8.8 31 6.9 2007-08 204 9.7 34 9.4 2008-09 214 4.9 36 4.8 2009-10 219 2.4 37 4.1 2010-11 232 5.9 36 -1.3 Avg. 10 5.2 5.7 years July-Mar 2010185.9 27.2 11(P) 2011-12 205.4 10.5 29.4 8.1 (P) Source: Hydrocarbon Development Institute of Pakistan P: Provisional

7 3 8 13 15 15 13 7 2 1

0.0 -57.1 166.7 62.5 15.4 0.0 -15.1 -42.6 -73.4 -27.8 2.9

178 181 185 190 198 194 200 201 220 228

1.7 1.7 2.2 2.7 4.2 -2.0 3.1 0.5 9.4 3.6 2.7

315 336 470 507 492 434 430 404 367 337

12.1 6.7 39.9 7.9 -3.0 -11.8 -1.0 -6.0 -9.2 -8.0 2.8

151 165 193 226 279 307 323 319 334 292

8.6 9.3 17.0 17.1 23.5 10.0 5.1 -1.1 4.5 -12.5 8.1

7 11 16 24 39 56 72 88 99 113

66.6 53.6 40.1 54.1 59.1 45.2 27.6 22.5 12.2 14.2 39.5

825 872 1,051 1,161 1,223 1,222 1,275 1,269 1,278 1,241

0.6 1.4

133.3

166.9 159.0

-4.8

254.4 263.5

3.6

223.6 208.5

-6.8

81.4 90.2

10.8

940.0 957.3

199

Pakistan Economic E Sur rvey 2011-12 2


Like petro oleum product ts, the share of o Punjab in the consumpti ion of natural gas in 2010-11 is higher (53.2 %) follow wed by Sindh (35.3%). Baloc chistan and KP PK respectively have smaller shares of 7.1 percent and a nt. 4.4 percen
Figure e 14.5: Share of f Provinces in Con nsumption of Natural Gas

Sin ndh's Share e, 35.3

KP PK's Shar re, 4.4

Balochistan's Share, 7.1

14.2-c Ele ectricity


The elect tricity consum mption during g 2010-11 was w 77,099 GW Wh as compa ared to 74,348 8 GWh in 200 0910, howev ver during the e period July-March 2011-12 its consum mption decrea ased to 54,595 5 GWh from 56, 194 GWh in correspond ding period 20 010-11 posting a ring July-Mar rch decrease of almost 3 percent. Dur a 2011-12 agriculture, commercial, industrial and d sector also sh how negative growth of -13 3.6, household -11.9, -10 0.1 and -7.0 percent resp pectively (Ta able 14.4).

Punjab's s Share, 53. .2

Sou urce: Directorate General of Petro oleum Concession ns (DG GPC)

Table 14.4: Co onsumption of Elect tricity by Sectors Year T Traction Househ hold Comme ercial Indu ustrial Agr riculture Street Light Other Govt. Total (GWh) ( Change GWh Change C GWh Change GWh Change GWh Change GW Wh Change GWh G (0 000) (%) (000) (%) (000) (%) (000) (%) (000) (%) (%) 2001-02 11 23.2 1.8 3.0 7.1 15.1 5.6 5.6 14.3 212 -0.5 3.5 0.0 50622 2002-03 10 23.6 1.7 3.2 8.5 16.2 7.3 6 6.0 7.1 244 15.1 3.4 -2.9 52656 2003-04 9 25.8 9.3 3.7 15.6 17.4 7.4 6 6.7 11.7 262 7.4 3.7 8.8 57491 2004-05 12 27.6 7.0 4.1 10.8 18.6 6.9 7 7.0 4.5 305 16.4 3.8 2.7 61327 2005-06 13 30.7 11.2 4.7 14.6 19.8 6.5 7 7.9 12.9 353 15.7 4.0 5.3 67603 2006-07 12 33.3 8.5 5.4 14.9 21.1 6.6 8 8.2 3.8 387 9.6 4.4 10.0 72712 2007-08 8 33.7 1.2 5.6 3.7 20.7 -1.9 8 8.5 3.7 415 7.2 4.5 2.3 73400 2008-09 5 32.3 -4.2 5.3 -5.4 19.3 -6.8 8 8.8 3.5 430 3.6 4.3 -4.4 70371 2009-10 2 34.2 5.9 5.6 5.7 19.8 2.6 9 9.7 10.2 458 6.5 4.5 4.7 74348 2010-11 1 35.9 5.0 5.8 3.6 21.2 7.1 9 9.0 -7.2 456 -0.4 4.8 6.7 77099 Avg. 10 years 4.7 7.9 4.1 6.4 8.1 3.3 July-March 2010-11 (e) 25.8 4.2 15.8 6 6.6 321 3.5 56,194 2011-12* 1 24.0 -7.0 3.7 -11.9 14.2 -10.1 5.7 -13.6 323 0.6 6.7 91.4 54,595 Source: Hydroc carbon Development Institute of Pakistan n (e): Estimated *: * The electricity con nsumption data of AJ JK and KESC for the e month January to March M 2012 is not ava ailable

The sha are of the provinces in electric city consumpt tion for the la ast four year is shown in the t figure bel low. It shows that this shar re has remain ned

almost constant in all provinces over time e. On average e Punjab has 62 percent, Sindh S 20.2 pe ercent, KPK 11.4 1 percent and Baloch histan 5.5 pe ercent share in n electricity consumption. c

Figure 14.6: Share of Prov vinces in Cons sumption of E Electricity


Percentage Share in Total Consumption 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 006 20

Pu unjab

S Sindh K' KPK A.J. Kashmi ir'


2 2007 2008 2009

Balochis stan'
2010 2011

S Source: Directorate e General of Petrol leum Concessions s (DGPC)

Years

200

Energy was consumed by the brick kiln industry during the period 2010-11. The longer term trend analysis shows that for the last ten years, on average, the cement sector and brick kilns have been the highest consumers of coal. The reason for the high share of consumption of coal in the cement industry is due to switching over to coal from furnace oil which has increased the utilization of indigenous as well as imported coal (Table 14.5).

14.2-d Coal Pakistan has huge coal resources estimated at over 185 billion tonnes; including 175 billion tonnes, identified at Thar coalfields in the Sindh province. Pakistans coal generally ranks from lignite to subbituminous. The major user of coal are the cement sector and brick kilns; about 60 percent of total coal was consumed by cement while 39 percent
Table 14.5: Consumption of Coal by Sectors
Year

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11(P) Avg. 10 years Jul-Mar 2010-11 44.6 3,305.5 2,500.0 2011-12(P) 56.0 25.6 2,274.0 -31.2 2,400.0 Source: Ministry of Petroleum Natural Resource & Hydrocarbon Development Institute of Pakistan : Not available P: Provisional

Household Power Brick Kilns Cement Total (000 (000 metric Share (%) (000 metric Share (%) (000 metric Share (%) (000 metric Share (%) metric tonnes) tonnes) tonnes) tonnes) tonnes) 1 0.0 249 5.7 2,578 58.5 1,581 35.9 4,409 1 0.0 204 4.2 2,607 53.3 2,078 42.5 4,890 1 0.0 185 3.0 2,589 42.7 3,289 54.2 6,065 180 2.3 3,907 49.5 3,807 48.2 7,894 149 1.9 4,222 54.7 3,343 43.3 7,714 1 0.0 164 2.1 3,278 41.5 4,451 56.4 7,894 1 0.0 162 1.6 3,761 37.2 6,187 61.2 10,111 1 0.0 113 1.3 3,275 39.0 5,002 59.6 8,390 126 1.5 3,005 36.9 5,008 61.5 8,139 97 1.3 3,004 38.9 4,617 59.8 7,717 0.0 2.5 45.2 52.3 5,850.0 4,730.0

-4.0

14.3 Supply of Energy Primary energy supply has increased by 2.3 percent during current year when compared with last year. The availability of energy per capita in

2011 remained 0.372 TOE compared to 0.371 TOE in 2010 posting a positive growth rate of 0.16 percent (Table 14.6). Due to population growth rate of almost 2 percent, the balance between energy supply and emerging needs was outset.

Table 14.6: Primary Energy Supply and Per Capita Availability Year Energy Supply Per Capita Million TOE Change (%) Availability (TOE) Change (%) 2001-02 45.07 1.5 0.32 -1.25 2002-03 47.06 4.4 0.32 0.00 2003-04 50.85 8.1 0.34 6.25 2004-05 55.58 9.3 0.36 5.88 2005-06 58.06 4.5 0.37 2.78 2006-07 60.62 4.4 0.38 2.70 2007-08 62.92 3.8 0.39 2.63 2008-09 62.55 -0.6 0.38 -2.56 2009-10 63.09 0.9 0.36 -5.26 2010-11 64.52 2.3 0.36 0.00
Source: Hydrocarbon Development Institute of Pakistan.

: Not Available estimated

201

Pakistan Economic Survey 2011-12 Analysis of the composition of final energy supplies in the country suggests that the supply of coal during last ten years grew at an average rate of 7.5 percent per annum followed by gas, electricity, petroleum products and crude oil with average growth rates of 5.7 percent, 3.4 percent, 2.1 percent and 0.4 percent, respectively.

Table 14.7: Composition of Final Energy Supplies Year Crude Oil Petroleum Gas Electricity Coal Products Million Change (Mln.T.) Change (bcf)(a) Change (000Gwh) Change (Million Change Barrels (%) (%) (%) (b) (%) Tonnes) (%) 2001-02 75.2 2.1 18.1 1.6 923.8 7.7 72.4 6.3 4.4 7.3 2002-03 76.0 1.1 17.5 -2.9 992.6 7.4 75.7 4.6 4.9 11.4 2003-04 80.3 5.7 14.9 -14.9 1,202.7 21.2 80.9 6.9 6 22.4 2004-05 85.3 6.2 16.2 8.3 1,344.9 11.8 85.7 5.9 7.9 31.7 2005-06 87.5 2.6 16.5 2.2 1,400.0 4.1 93.8 9.5 7.7 -2.5 2006-07 85.3 -2.5 18.6 12.9 1,413.6 1.0 98.4 4.9 7.9 2.6 2007-08 90.5 6.1 19.8 6.1 1,454.2 2.9 95.9 -2.5 10.1 27.8 2008-09 86.1 -4.8 19.8 0.1 1,460.7 0.4 91.8 -4.3 8.4 -16.8 2009-10 76.8 -10.9 20.2 1.9 1,482.8 1.5 95.6 4.1 8.2 -2.4 2010-11 75.3 -1.9 21.3 5.5 1,471.6 -0.8 94.7 -0.9 7.7 -6.1 Avg. 10 0.4 2.1 5.7 3.4 7.5 Year July-Mar 2010-11(e) 56.6 16.0 - 1,110.0 69.0 5.9 2011-12 (e) 53.9 -4.9 14.8 -7.8 1,164.9 4.9 64.8 -6.1 4.7 -20.3 Source: Hydrocarbon Development Institute of Pakistan (HDIP) (a): Billion cubic feet, (b): Giga Watt hour , (e): Estimated *: Coal and electricity data is estimated on the basis of six months **: Hydel generation for the month of March 2012 is missing. Thermal Generation from WAPDA for the months of Feb to Mar 2012 is missing

The main hurdle in the supply of energy was accumulation of the massive circular debt. The major problems which cause accumulation of circular debt were the partial transfer of tariff as determined by National Electric Power Regulatory Authority (NEPRA), heavy line losses (present level of line losses are almost 20 percent), incomplete corporatization, weak governance and costly fuel mix putting an extra financial burden on meeting the cost of fuel oil due to constant increase in the oil prices, etc. The government has made all possible attempts to address this issue. The government has transferred bank loan liabilities of Rs 216.0 billion (as of 30-06-2009) and Rs. 85.114 billion from the books of power companies and placed these amounts with the Power Holding (Pvt) Ltd (PHPL) in November, 2011. The government has repaid these loans to the bank along with markup.

During 2010-11 the Finance Division released Rs. 65 billion as well as Rs. 120 billion as tariff subsidy to Pakistan Electric Power Company (Pvt) Ltd (PEPCO) over and above the budgetary allocation to overcome its operational shortfall and relax the Circular Debt. With the approval of the Cabinet, funds amounting to Rs. 142.0 billion have been raised from the banks in March 2012 and paid to Independent Power Producers (IPPs) by PEPCO. Another transaction for raising funds to the tune of Rs. 20 billion is in process for payment of overdue of Independent Power Producers (IPPs) / Gas Companies/ Pakistan State Oil (PSO) etc to overcome/reduce the Circular Debt. The power sector was allowed to transfer the cost of power to the consumers through the

202

Energy tariff increases of 6%, 12% and 6% at the start of the three quarters on 1st Jan, 1st April and 1st October 2010. ` To enable the Power Sector to meet its cash shortfall, the following Tariff Differential Subsidies have been released during the period:

Table 14.8: Tariff Differential Subsidies (Rs. in billion) 2008-09 2009-10 109.173 178,841 Source: Corporate Finance Wing

2010-11 346.096

2011-12 (upto Mar-12) 93.250

Because of the policy implementation by the government the inter circular debt has shown a

declining trend over the period July-Mar 2011-12 as shown in figure below:

Figure 14.7: Inter Corporate Circular Debt for period July-March 2011-12
350,000 300,000 250,000 RsinMillion 200,000 150,000 100,000 50,000 0 Jul Aug Sept Oct Nov Dec Jan Feb Mar Source: Corporate Finance Wing Intercircular Debt

July-March 2011-12

14.3-a Crude Oil The total supply of crude oil for the fiscal year 2010-11 was 75.3 million barrels, equal to 10.1 million TOE, out of which 68.1 percent was imported and 31.9 percent was locally extracted. The balance recoverable reserves of crude oil in the country as on December 31st, 2011 have been estimated at 247.53 million barrels in the country. The average crude oil production during July 2011 to Mar 2012 remained 66032 barrels per day as against 65997 barrels per day during the corresponding period of last year, showing an increase of 0.05 percent. During the period under review, 39669 (60 percent) barrels per day were

produced in northern region and 26364 (40 percent) barrels per day in southern region, as against 34762.28 (53 percent) barrels and 31234.22 (47.33 percent) barrels produced per day respectively in the same period last year. During July 2011 to March 2012, production of crude oil has increased by 14.11 percent from northern region whereas production decreased in southern region by 16 percent, as compared to same period last year overalls 0.05 percent oil production increased in the country. The company wise detail of production of crude oil during July-March 201112 and corresponding period of the last fiscal year is as given below:

203

Pakistan Economic Survey 2011-12


Table 14.9: Production of Crude Oil (BOPD) Region Northern Region Dewan Petroleum (Pvt) Ltd Oil & Gas Development Company Limited (OGDCL) Orient Petroleum International Inc (Opii) Pakistan Oilfields Limited (POL) Pakistan Petroleum Limited (PPL) MOL Pakistan Oil & Gas Co Mari Gas Company Limited (MGCL) Southern Region Oil & Gas Development Company Limited (OGDCL) BP Pakistan Exploration & Production Inc (BP) Pakistan Petroleum Limited (PPL) BHP Petroleum Pakistan (BHP) OMV (Pakistan) Exploration (OMV) eni Pakistan Limited (eni) Mari Gas Company Limited (MGCL) Petroliam Nasional Berhad (PETRONAS) Total: Source: Ministry of Petroleum & Natural Resources 2010-11 35,367.74 207.38 18,526.47 680.38 3,327.12 5,138.52 7,487.87 30,498.44 18,315.59 8,362.90 1,140.31 2,169.09 52.16 332.98 17.55 107.86 65,866.18 July-Mar 2010-11 34,762.28 211.21 18,236.27 658.18 3,401.00 4,925.16 7,330.47 31,234.22 18,615.34 8,625.89 1,233.66 2,228.26 54.28 355.34 7.30 114.15 65,996.50 July-Mar 2011-12 39,668.59 193.48 21,036.58 886.16 2,844.97 6,130.21 8,411.34 165.84 26,363.50 16,498.27 6,646.82 402.24 2,306.30 49.23 327.89 63.46 69.29 66,032.09 Change (%) -1.71 1.85 -1.57 -3.26 2.22 -4.15 -2.10 2.41 1.64 3.14 8.19 2.73 4.06 6.72 -58.40 5.83 0.20

The share of Sindh in the total production was 46 percent during 2010-11 with a declining trend seen over the last four years. Initially the share of Punjab in the production of crude oil declined in 2009 after which it has became almost static. The share of KPK in crude oil production increased

from 5.3 percent in 2005-06 to 32.6 percent which is the second highest amongst the provinces in 2010-11. Balochistans share remained very small and constant at around 0.1 percent during the last four years as shown in the figure below:

Figure 14.8: Share of Provinces in Production of Crude Oil


70 PercentageShareinTotalProduction 60 50 40 30 20 10 0 2006 2007 2008 2009 Years 2010 2011

Sindh

Punjab

KPK

Balochistan

Source: Directorate General of Petroleum Concessions (DGPC)

204

Energy 14.3-b Petroleum Products Petroleum products are produced from the processing of crude oil at petroleum refineries and the extraction of liquid hydrocarbons at natural gas processing plants. These products are further classified into Energy and Non-Energy products. Energy products include Motor Spirit, Kerosene, High Octane Blending Component (HOBC), High Speed Diesel Oil (HSD), Light Diesel Oil (LDO), Furnace Oil (FO), Aviation Fuels, Naphtha and Liquefied Petroleum Gas (LPG), while NonEnergy products include Lube Oil, Solvent Oil, Mineral Turpentine (MTT), Jute Batch Oil (JBO), Asphalt, Process Oil, Benzyne Toulene Xylene (BTX), Wax and Sulphur etc. During 2011 the
3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Percentage Share

total production of petroleum products (energy and non-energy) remained 9.40 million tonnes compared to 9.53 million tonnes during 2009-10; thus posting a negative growth of 1.36 percent. Out of 9.40 million tonnes 8.91 million tonnes are energy products while 0.49 million tonnes are nonenergy products. In these products diesel has the highest share of 34.9 percent followed by Furnace Oil (FO) having 25.9 percent. Motor Spirit and High Octane Blending Component (HOBC) together have 13.3 percent while Aviation Fuels, Naphtha and Liquefied Petroleum Gas (LPG) hold 8.8 percent, 8.6 percent and 1.9 percent respectively. Non-Energy products together have 5.3 percent share in the total production of petroleum products.
3.19

Fig-14.9: Share of Refineries in Petroleum Products Productions during 2011


1.70 0.07 Non-Energy Products Energy Products 0.42 Energy Products 0.02 Non-Energy Products 0.01 Energy Products 0.00 Non-Energy Products Energy Products 1.92 0.39 Non-Energy Products Energy Products 1.58 0.02 Non-Energy Products Energy Products 0.00 Non-Energy Products 0.10 Energy Products 0.00 Non-Energy Products

Refineries

Attock Refinery BYCO Petroleum Dhodak Refinery National Refinery Ltd Pakistan Ltd Ltd Ltd

Pak-Arab Refinery Ltd

Pakistan Refinery ENAR Petroleum Ltd Refining Facility (EPRF)

Source: Oil Refineries, Directorate General of Petroleum Concession, Directorate General of Oil and Directorate General of Gas

The total import of petroleum products were 12.37 million tonnes while total export of petroleum products were 1.57 million tonnes in 2010-11. This is shown in Table 14.10. During the period July-

March 2011-12 there was a negative growth of 27 percent in the export of petroleum products and a positive growth of 37.7 percent in the import of petroleum products.
(Million Tonnes) Quantity in million Tones 0.79 0.12 0.64 0.004 0.02 1.57

Table 14.10: Imports and Exports of Petroleum Products Imports Exports Quantity in Products Products million Tones 100 Octane Aviation Fuel (100LL) 0.80 Naphtha High Speed Deisel (HSD) 3.78 High Speed Deisel (HSD) High Sulphur Furnance Oil 5.60 Jet Propellant (Aviation Fuel) JP-1 Low Sulphur Furnance Oil 1.06 Furnance Oil Motor Spirit 1.13 Motor Spirit Total 12.37 Total Source: Hydrocarbon Development Institute of Pakistan

205

Pakistan Economic Survey 2011-12 14.3-c Natural Gas The consumption of increasing natural gas is rapidly. As on December 31st 2011, the balance recoverable natural gas reserves have been estimated at 24.001 Trillion Cubic Feet. The average production of natural gas during JulyMarch 2011-12 was 4236.06 million cubic feet per day (Mmcfd) as against 4050.64 (Mmcfd) during the corresponding period of last year, showing an
Table- 14.11: Production of Natural Gas (Mmcfd) Company BHP Petroleum Pakistan (BHP) eni Pakistan Limited (eni) Dewan Petroleum (Pvt) Ltd Hycarbex-American Energy, Inc Mari Gas Company Limited (MGCL) Oil & Gas Development Company Limited (OGDCL) OMV (Pakistan) Exploration (OMV) Orient Petroleum International Inc (Opii) Pakistan Oilfields Limited (POL) Pakistan Petroleum Limited (PPL) Tullow Oil Plc (Tullow) Petroleum Exploration (Pvt) Limited (PEL) BP Pakistan Exploration & Production Inc (BP) Petroliam Nasional Berhad (PETRONAS) MOL Pakistan Oil & Gas Co Total: Source: Ministry of Petroleum & Natural Resources 2010-11 392.13 478.24 28.56 509.86 862.12 443.52 13.38 21.23 760.36 0.38 26.87 176.83 13.24 305.04 4,031.76 July-Mar 2010-11 399.77 486.89 28.88 502.02 853.74 446.43 13.01 21.46 765.58 0.50 27.57 189.61 13.52 301.85 4,050.83 July-Mar 2011-12 446.08 468.88 27.09 6.36 552.68 1,026.18 402.32 17.44 20.59 786.33 24.43 130.50 12.94 313.78 4,235.60 Change (%) 11.58 -3.70 -6.20 10.09 20.20 -9.88 34.05 -4.05 2.71 -11.39 -31.17 -4.29 3.95 4.56

increase of 4.57 percent. Natural gas is used in general industry to prepare consumer items, to produce cement and to generate electricity. In the form of CNG, it is used in transport sector and most importantly to manufacture fertilizer to boost the agricultural sector. Currently 27 private and public sector companies are engaged in oil and gas exploration & production activities. Company wise total natural gas production is as under:

Historically, indigenous natural gas is one of the types of fuel used by thermal power plants while the other type of fuel being imported is furnace oil. With the significant increase in international prices of furnace oil, initially the power sector retained the lion's share in the allocation of natural gas. However, the gas companies did not sign longterm agreements with the public sector utilities and subsequently, the allocation of gas to the public sector plants were allocated on as-and-whenavailable basis. This pattern continued for a considerable period up to the mid eighties. However, with the passage of time, natural gas became a scarce resource because of major use in the domestic, fertilizer and transport sectors. Thus

the allocation of natural gas for the power sector has declined significantly. (i). Liquefied Petroleum Gas (LPG): LPG currently contributes only 0.5 percent to the total primary energy supply in the country. However, 87 percent of its demand is met through local production. The rest is imported. This lower share is mainly due to local supply constraints and the higher price of LPG in relation to competing fuels like fuel wood, dung etc. Currently, in Pakistan, out of 27 million households, approximately 6 million are connected to the natural gas network while the rest are relying on LPG and conventional fuels such as coal, firewood, kerosene, biomass etc. LPG has thus

206

Energy become a popular domestic fuel for those who live in areas where the natural gas infrastructure does not exist. The annual total supply of LPG remained 467,476 tonnes; 1, 281 tonnes were produced daily during 2012, out of this 46 percent is produced in the private sector while 54 percent is produced in the public sector. The three main sources of LPG are; refineries 32 percent, gas producing fields 55 percents and imports 13 percent. The details are given in the figure below:

Fig-14.10: LPG Supplies by Source during 2011


140 120 Annual (000 Tonnes) 100 80 60 40 20 0
National Refinery Ltd BPP (Naimat Basal) OGDC (Chanda) OPL (Ratana) PPL (Adhi) PPL (Hala) JJVL POL Attock Refinery Ltd BYCO Petroleum Pakistan Ltd Pak-Arab Refinery Ltd Pakistan Refinery Ltd OGDC (Dhodak) OGDC (Kunnar) OGDC (Dakhni) OGDC (Bobi) Imports Imports

117.4 90.2 60.1 38.3 9.3 5.7 9.6 20.3 6.1 7.3 0.4 10.6 20.7 5.7 5.9 45.6 14.4

Sector

Sources of LPG

Fields

Source: Oil Refineries, Directorate General of Petroleum Concessions (DGPC), Directorate General of Oil (DGO) and Directorate General of Gas (DGG)

(ii).Compressed Natural Gas (CNG): CNG as an alternative fuel for automobiles was introduced in 1992 to reduce the dependency on expensive imported fuel and to protect the environment. During the past few years, a tremendous growth in this sector was witnessed on account of the price differential between CNG and petrol which led to increase in conversion of vehicles into CNG. As a result to meet the growing demand a significant increase in CNG stations was witnessed. According to an estimate presently there are 3,331 CNG stations operating in the country. (iii).Liquefied Natural Gas (LNG): Realizing the widening gap between demand and supply of natural gas the government is encouraging LNG import through the private sector. Various investors have shown an interest.

In this regard OGRA has issued provisional licenses for construction of a LNG terminal, operation, sales and marketing of Regassified liquid natural gas (RLNG) / Liquid natural gas LNG. It is expected that RLNG volume of 1400 MMsfcd will be added to the system. In Pakistan import of LNG is considered to be beneficial for power companies as these companies are importing considerably more expensive furnace oil as input for power. In this context, the government has signed a Memorandum of Understanding (MoU) with Qatar for the import of 500 mmcfd and is exploring other avenues with Algeria and Malaysia which are prospective suppliers of LNG. 14.3-d Electricity During 2010-11, electricity generation was 94,653 GWh. The contribution of Hydel in electricity generation increased to 33.6 percent in 2010-11 as 207

Pakistan Economic E Sur rvey 2011-12 2 d to 29.4 per rcent in 2009-10. Since oil compared became an expensive input, its sha are in electric city generation n declined to 35.1 percent as compared d to almost 38 8 percent last year. The sam me was the ca ase for gas. It ts share was 27.3 percent as compared d to 29.4 perc cent of last year. The share of co oal remained stagnant at 0.1 percent. The electric city generation n by source e and comp pany is show wn below:
1 Electricty Generation G by So ource Figure 14.11: mported, Im Nuclear,3. 0.3% 1% Coal,0.1 6% Gas,27.3% Hydel,33.6 6 %

Power Company (K KAPCO) and d the Hub Power P Compa any (HUBCO O) have 8.3, 3.6, 6.2 an nd 9.1 Inde percent t, respectively. ependent P Power Produc cers (IPPs) have contributed almos st 25 percent t as shown in the figure be elow:
Fig-14.12: Electricity E Gen neration By Companies
Rouch, 3.2 % Uch, 4.5 5% HUBC CO, 9.1% % KAPC CO, 6.2% % Liberty, 1.4% O Other IPPs 15.0%

WAPDA A, 48.7% % Sou urce: Hydrocarbon n Development Ins stitute of Pakistan Oil,35.1% % Source: : Hydrocarbon Dev velopment Institut te of Pakistan

PAEC, 3.6%

KESC, K 8.3%

eneration is provided by y three sourc ces Power ge thermal, hydel and nuclear. There T are 13 ctric facilitie es with inst talled capac city hydroelec 6,481 MW W are owned d and operate ed by the Wa ater and Dev velopment Authority A (W WAPDA) wh hile thermal power plants are a owned by both public and a ompanies. Th he public sec ctor operates 13 private co thermal plants p with installed cap pacity of 4,9 900 MW. Abo out one third of power ge eneration (5,9 987 MW) is provided by y private sec ctor compan nies (Independ dent Power Producers IPPs). Also, KESC operates plants p with to otal capacity of 1,955 MW W. Out of the t total 19,252 MW of o the nation nal installed n capacity, , dependab ble generation generation n is about 17, ,523 MW in the t summer and a about 14,640 in the winter, dep pending on the t annual hy ydrology. During 2010-11, the t Water and Pow wer Developm ment Authorit ty (WAPDA A) remained the t main cont tributor to ele ectricity gener ration with 48 8.7 percent coming fro om this so ource. Karac chi Electricity y Supply Co orporation (K KESC), Pakist tan Atomic Energy E Comm mission (PAE EC), Kot Ad ddu 208

Accord ding to National Transmis ssion and Dis spatch Compa any Ltd, during d July-March 201 11-12, demand d was 18,86 60 MW and supply rem mained 12,755 MW thus cre eating a defic cit of almost 6, 6 000 MW. The T solution to t electricity or o power crisis can be addr ressed in shor rt-term, mediu um-term and longterm. In short-te erm various s technical and admini istrative meas sures must be b implement ted to improv ve operational and manage erial efficienc cy. In this co ontext for rec coveries and theft contro ol, the govern nment has adopted a stric ct measures like legislat tion of high penalties on n electricity theft, requisitioning of ra angers/ frontiers corps to assist in theft ft control and d recoveries, prepaid p mete ers for govern nment departm ments, curbing g of bogus bi ills by Distrib bution Comp panies (DISCOs) audit and vigilan nce and mon nitoring of load manage ement activity y. Likewise, in order to better utilize u hydrop power resourc ces in the co ountry, Wate er and Power Developme ent Authorit ty (Wapda) has awarde ed a Rs164 million cont tract to consu ulting firms MWH M (USA) and Nespak (Pakistan) to carry out a feasibility f stu udy to upgra ade the 1,000 0-MW (megaw watts) Mangl la Power Sta ation. Beside es upgradati ion of Mangla a Power Hous se, 22-MW Ja abban Power House is also o being rehab bilitated at a cost c of Rs. 3. .7 billion. In I addition, the contrac ct for rehabil litation and up-gradatio on of 243 3-MW Warsak k Power Hous se will also be finalized sh hortly.

Energy Also Laraib Energy Limited (Laraib) is the owner and developer of 84 MW hydroelectric powers generating complex known as the New Bong Escape Hydroelectric Power Complex (the Project) on the Jhelum River in Azad Jammu and Kashmir (AJ&K). The Project has the distinction of being Pakistan and AJ&Ks first hydropower IPP. By developing a bankable framework this trendsetting project has paved the way for rapid and full scale development of Pakistan and AJ&Ks hydropower potential. Finally, the United States and Pakistan signed implementation agreements to upgrade three Pakistani thermal power stations at Jamshoro, Muzaffargarh, and Guddu. The rehabilitation, commissioned by the Pakistani companies, will restore approximately 305 MW of lost power generation capacity and bring a measure of relief to the people of Pakistan over the course of the next 12 months. 14.3-e Nuclear Energy Pakistan Atomic Energy Commission (PAEC) is responsible for planning, construction and operation of nuclear power plants in the country. PAEC is currently operating three nuclear power plants i.e. Karachi Nuclear Power Plant (KANUPP) and Chashma Nuclear Power Plant Unit-1 and 2 (C-1 & C-2). The construction of two more units C-3 and C-4 of being 340 MW each is in progress. KANUPP, located at Karachi, completed its design life of 30 years in 2002. After refurbishments and safety retrofits, it is now operating on extended life. C-1 located at Chashma is performing very well since its commercial operation. Third nuclear power plant that is also located at Chashma being an improved version of C-1 had also started commercial operation on 18 May 2011, three months ahead of its schedule. Performance of the operating nuclear power plants of Pakistan is shown in the Table 14.12: The under construction nuclear power plants C-3 and C-4 are of 340 MWe each. The first concrete of these plants has been poured and commercial operation of C-3 and C-4 is expected in 2016 and 2017, respectively. The government has mandated to Pakistan Atomic Energy Commission (PAEC) for the installation of 8,800 MW nuclear power capacities by the year 2030. Technical and engineering infrastructure is in place to provide technical support to existing, under construction and future nuclear power plants. It also has a network of in-house educational and training institutions that encompass all major facets of nuclear science and technology.

Table 14.12: Performance of the Operating Nuclear Power Plants in Pakistan Electricity sent to Grid Gross Capacity Commercial Plants Grid Data July-March 2012 Lifetime (billion (MW) Data (million KWh) KWh) KANUPP 137* 18-Oct-71 7-Dec-72 329.1 12.07 C-1 325 13-Jun-00 15-Sep-00 1477.3 22.17 C-2 325 14-Mar-11 18-May-11 1790.7 2.22 Source: Pakistan Atomic Energy Commission * KANUPP re-licensed at 98 MW (gross) after completing design life

14.3-f Coal Pakistan has huge coal reserves which are estimated at over 185 billion tonnes; including 175 billion tonnes identified at Thar coalfields in Sindh province. Pakistans coal generally ranks from lignite to sub-bituminous. The total production of coal during 2010-11 was 7.7 million tonnes as

compared to 8.1 million tonnes in 2009-10; showing a negative growth of 5.1 percent. In 201011 the import of coal was 4,267 million tonnes compared to 4,658 million tonnes in 2009-10; a decline of 8.4 percent. The long trend shows that there was an increase of production of coal; an average 7.7 percent change occurred in last ten years.

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Table 14.13: Production of Coal, Share and Percentage Change Imports Domestic Production Total Fiscal Year Tones (000) % Share Tones (000) % Share Tones (000) % Change 2001-02 1,081 24.5 3,328 75.48 4,409 9.0 2002-03 1,578 32.3 3,312 67.73 4,890 10.9 2003-04 2,789 46.0 3,275 54.01 6,064 24.0 2004-05 3,307 41.9 4,587 58.11 7,894 30.2 2005-06 2,843 36.9 4,871 63.14 7,714 -2.3 2006-07 4,251 53.9 3,643 46.15 7,894 2.3 2007-08 5,987 59.2 4,124 40.79 10,111 28.1 2008-09 4,652 55.4 3,738 44.55 8,390 -17.0 2009-10 4,658 57.2 3,481 42.77 8,139 -3.0 2010-11 4,267 55.3 3,450 44.71 7,717 -5.2 Avg. 10 years 46.3 53.7 7.7 July-Mar 2010-11 3,500e 59.8 2,350e 40.2 5,850e 2011-12 2,700c 57.1 2,030c 42.9 4,730c -19.15 Source: Hydrocarbon Development Institute of Pakistan e: Coal data is estimated on the basis of six months c: Coal import is estimated on the bais of six months data while the production from FATA is not available

The Federal and Provincial governments are endeavoring to harness the huge coal resources of Thar by utilizing these as a source of energy for power generation through international investment. As part of the promotional activity to increase the share of coal, the Government of Sindh has leased out a coal block for an integrated mining project. The details are as under:1. Government of Sindh has entered into a joint venture with M/s Engro Powergen (Pvt.) Limited for Coal Mining in Block-II and established a Company under Companies Act, 1984 viz. Sindh Engro Coal Mining Company for development of coal mines and installing 600-1000 MW Power Plant 2. M/s Cougar Energy UK limited has been allocated Block-III in Thar coalfield for extraction of under ground Coal Gasification and establishing a 400 MW power plant 3. M/s Bin Daen Group, UAE has been allocated Block-IV in Thar coalfield for coal mine and installing 1000 MW Power Plant 4. One block has been allocated to Planning Commission of Pakistan for a Pilot Project of

50 MW based on Underground Gasification Project in Block-V

Coal

5. M/s Oracle Coalfield Plc, UK has been allocated Block-VI in Thar coalfield for developing coal mine and installing power plant of 300 MW extendable up to 1000 MW 6. M/s China National Machinery Import and Export Corporation of China (CMC) conducted a feasibility study for 400 MW integrated coal mining and coal fired power plant at Sonda-Jerrick in district Thatta 7. The Government of Sindh is entering into a Joint Venture with M/s Al-Abbas Group company and allocated an area in Badin coalfield for developing coal mine and installing Coal-fired Power Plant of 300-600 MW 14.4 Performance of Major Oil and Gas Companies ` During 1st July 2011 to 31st March 2012, so far eight (8) oil and gas discoveries have been made in the country. Details are as under:

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Energy
Table 14.14: Oil and Gas Discoveries during July-March 2011-12 Discovery Discovery Date Status Company Mulaki-1 Maru South-1 July-11 August-11 Oil & Gas Gas United Energy Pakistan (UEP) Oil and Gas Development Company Limited (OGDCL) Mari Gas Company Limited (MGCL) Oil and Gas Development Company Limited (OGDCL) United Energy Pakistan (UEP) United Energy Pakistan (UEP) Oil and Gas Development Company Limited (OGDCL) United Energy Pakistan (UEP) Total Depth in Meters 2,080.0 720.0 Current Production Oil Gas (Mmcfd) (BOPD) 92.26 14.68

Halini-1 Zin X-1

October-11 December-11

Oil Gas

5,350.0 2,300.0

649.29

Gharo-1 Mohano-1 Suleman-1

February-12 February-12 March-12

Oil Oil Gas

1,334.7 1,727 4,575

501.74 187.65

0.04 0.07

Pir Apan-1

March-12

Gas

2,155

327.28

10.6 25.39

Total 1758.22 Source: Ministry of Petroleum & Natural Resources

The Councils of Common Interest (CCI) approved Tight Gas (Exploration & Production) Policy, 2011 that offers 40 percent higher price than the price announced in Exploration & Production Policy, 2009, with an incentive of additional 10 percent price if the discoveries are made within a period of 2 years to attract exploration companies to invest in tight gas fields. Tight gas reserves are estimated at 24 trillion cubic feet. Initially 100150 Mmcfd would be added depending on its success rate. Economic Coordination Committee (ECC) has approved Low BTU Gas Pricing Policy, 2012. Petroleum Policy 2009 is reviewed and Petroleum (Exploration & Production) Policy, 2012 is being promulgated shortly. The Ministry of Petroleum & Natural Resources is also working on Shale Gas Policy

to encourage the investors to exploit these reservoirs. 14.4-a Oil and Gas Development Company Limited (OGDCL): OGDCL is the local market leader in terms of reserves, production and acreage. It is the first Pakistani Exploration and Production Company to list its shares on the London Stock Exchange. Equipped with a forward looking professionally developed Business and Strategic Plan, competent professionals to implement the same and robust balance sheet OGDCL is ready to take on the challenges of an internationally listed company. OGDCL had spaded 7 wells (1 Exploratory / Appraisal & 6 Development wells) during the period July to December 2011. In the previous year during the corresponding period 7 wells (2 Exploratory / Appraisal & 5 Development wells) were spaded. The details of the Oil, Gas, LPG and sulphurs production is given below:

` `

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Pakistan Economic Survey 2011-12


Table 14.15: Physical Performance of OGDCL S. # Name of Activity 1 July-Dec 2010 7 2 5 July-Dec 2011 7 1 6 Change (%)

Total i Exploratory Wells ii Development / Appraisal Wells 2 Production i Oil (Barrels) 6,656,408 (36,176) 6,611,728 (35,933) -0.7 ii Gas (MMcft) 152,934 (831) 158,933 (864) 3.8 iii LPG (MT) 21,646 (118) 17,613 (96) -22.9 iv Sulphur (MT) 12,435 (67.5) 12,750 (69.2) 2.5 Source: Ministry of Petroleum &Natural Resources (MP&NR), Oil & Gas Development Company Ltd (OGDCL) Figures in braces show daily average production

14.4-b Oil & Gas Regulatory Authority (OGRA): The Oil and Gas Regulatory Authority (OGRA) is mandated by the government to regulate the oil and gas sector to promote competition and attract investment. In March 2006, it was also given the task to compute and notify prices of petroleum products as per the Federal Government approved formula. OGRA computes and notifies ex-refinery price of High Speed Diesel (HSD) and Superior Kerosene Oil (SKO) including ex-depot prices of SKO and IFEM (In land Freight Equalization Margin) on monthly basis. Furthermore, OGRA has been assigned to monitor the pricing of petroleum products. OGRA has also been assigned to submit quarterly reports on pricing of petroleum products indicating the trend in international markets and petroleum products pricing announced

by Oil Marketing Companies (OMCs)/refineries along with analysis/findings and suggestions, if any, on regular basis to ECC. 14.4-c Sui Northern Gas Pipelines Limited (SNGPL): During 2010-11 SNGPL earned a profit after tax of Rs. 2,361 million and paid an amount of Rs. 1,228 million in corporate taxes. During the current year SNGPL extended its transmission network to a length of 7,613 Km. 14.4-d Sui Southern Gas Company Limited (SSGCL): SSGCL earned a profit after tax of Rs. 4,795 million during 2010-11. During the current year SSGCL extended its transmission network to a length of 3,337 Km.
2010-11 SNGPL 2010-11 SSGCL 218 66 2 80 202 28 231 827 120,159 179 844 121,182

Table 14.16: Physical Performance of SNGPL and SSGCL S. No Name of Activity 1

Sector-Wise Gas Consumption (mmcf) Power 321 Fertilizer 116 Cement 2 CNG/Transport 231 General Industry 302 Commercial 72 Domestic 416 Total 1,460 2 New Connections (Nos.) Domestic 256,172 Industrial 231 Commercial 1,246 Total 257,649 Source: Sui Northern Gas Pipeline Ltd (SNGPL), Sui Southern Gas Pipeline Ltd (SSGC)

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Energy

14.5 Performance of Power Sector Authorities 14.5-a National Electric Power Regulatory Authority (NEPRA) The National Electric Power Regulatory Authority is exclusively responsible for regulating the electric power services and safeguarding the interests of investors and consumers. NEPRA grants licenses for generation, transmission and distribution of electric power; determines tariff rates, charges and other terms and conditions for supply of electric power; prescribes and enforces performance standards and addresses the complaints of electricity consumers. As a regulator NEPRA extends advice/recommendations to the concerned entities, including the government, to make the power more efficient and sustainable. During the period July-December 2011, NEPRA announced the Upfront Tariff for Wind Power Producers. Upfront tariff for coal based technologies is also in the pipeline and will be announced after consultations with the Private Power and Infrastructure Board (PPIB). NEPRA processed 25 applications for grant of generation licenses for power plants with a cumulative capacity of approximately 600 MW; out of which 15 were granted generation licenses while the others were at an advanced stage of processing and

expected to be finalized soon. Besides these, one distribution license was also granted. Since NEPRA determines electricity tariffs in accordance with the Tariff Standards and Procedure Rules, 1998 during the period July-December 2011, 13 tariff determinations and 149 tariff adjustments were issued relating to different Generation Distribution Companies. Pursuant to amendment in Section 31 of NEPRA Act (XL of 1997), through promulgation of Ordinance No.XVIII of 2009 dated July 31, 2009, Ordinance No.XXIX of 2009 dated November 26, 2009 and Ordinance No.XIV of 2010 dated April 20,2010, NEPRA was mandated to determine the overall electricity tariff on a quarterly basis and intimate the same to the Federal Government for notification in the official Gazette. The ordinance lapsed in August 2010. Thereafter, tariff determination on an annual basis and adjustment on account of variation in fuel cost component of consumer-end-tariff is being determined by NEPRA on a monthly basis in pursuance of the Finance Bill 2008. The status of complaints during July-December 2011 has been summarized below:

Table 14.17: Physical Performance of NEPRA (July December 2011)


DISCOS Complaint Sent to DISCOS (1) Redressed by DISCOS (2) Under Process (3) Consumer advised to Total Disposed approach DISCOS off (4) 31 29 6 22 62 116 56 3 52 69 446 (5) = (2) + (4) 95 58 16 45 96 278 159 4 111 83 945 Total Complaints (6) = (1) + (4) 111 58 17 46 99 283 161 4 111 84 974

PESCO 80 64 16 IESCO 29 29 0 GEPCO 11 10 1 FESCO 24 23 1 LESCO 37 34 3 MEPCO 167 162 5 HESCO 105 103 2 QESCO 1 1 0 KESCO 59 59 0 SEPCO 15 14 1 Total 528 499 29 Source: National Electric Power Regulatory Authority (NEPRA)

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Pakistan Economic Survey 2011-12 14.5-b Water and Power Development Authority (WAPDA) The installed capacity in the PEPCO system is 20,986 MW as of June 2011; with hydro 6627 MW and thermal 14,359 MW. The hydropower capacity accounts for 31.6 percent, thermal 65.3 percent and Nuclear 3.1 percent. Of this 4829 MW is owned by ex-WAPDA GENCOs, 448 MW by rental, 650 by PAEC and rest by IPPs. There is 55-MW of isolated generation capacity in Pasni and Punjgoor areas. WAPDA is executing, on priority basis, the projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, 7100 MW-Bunji, 4320 MW-Dasu, 740-MW Munda Dam and most mentionable 4500 MW-Diamer Bhasha Dam
Box-2 (Diamer Basha Dam Project) Project The project is located on Indus River, about 315 km upstream of Tarbela Dam, 165 km downstream of Gilgit and 40 km downstream of Chilas. The proposed dam would have a maximum height of 270 m, and impound a reservoir of about 7,500,000 acre feet (9.25109 m3), with live storage of more than 6,400,000 acre feet (7.89109 m3). Mean annual discharge of Indus River at the site is 50,000,000 acre feet (6.21010 m3). Salient Features

projects, to cope with the increasing demand of power. Almost 96 percent work on the main dam at Mangla, spillway and allied facilities had been completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam had been completed. In an attempt to reduce the energy crises, Prime Minister Yousaf Raza Gilani laid the foundation stone of the Diamer Bhasha Dam in GilgitBaltistan on October 18, 2011. The dam is being built about 40 kilometres from Chilas on the Indus River and will have a capacity of producing 4,500 megawatts of electricity. Some salient features of the dam are given in Box-2:

Total installed capacity 4500 MW Availability of about 6,400,000 acre feet (7.89109 m3) annual surface face water storage for supplementing irrigation supplies during low flow periods. Reduction of dependence on thermal power, thus saving foreign exchange. Creation of massive infrastructure leading to overall socio-economic uplift of the area and standard of living of people. Minimum operation level having expected length equal to 1060 m.

i). Electricity Generation & Power Transmission Due to alarming increase in fuel prices, the need for cheaper hydro power has gained more importance. Unfortunately the composition of electricity generation shows that the hydro 214

potential has not been utilized fully. The hydro potential which is located in the north is still largely untapped. The hydro generation accounted for 31.9 percent during July-March 2011-12 accounted 33 percent in total electricity generation while during 2011-11 it came up to 35.6 percent compared to 31.9 percent during 2009-10. The

Energy trend of hydro-thermal energy generation for the last five years is given in the following table.

Table 14.18: Electricty Generation Year Hydro (Gwh) % age Thermal (Gwh) % age Total (Gwh) % Change 2006-07 31,942 36.4 55,895 63.6 87,837 6.8 2007-08 28,667 33.2 57,602 66.8 86,269 -1.8 2008-09 27,763 32.9 56,614 67.1 84,377 -2.2 2009-10 28,492 31.9 60,746 68.1 89,238 5.8 2010-11 32,259 35.6 58,316 64.4 90,575 1.5 July-Mar 2010-11 24,105 36.0 42,823 64.0 66,928 2011-12 22,411 33.0 45,534 67.0 67,945 1.5 Source: Pakistan Electric Power Company (Pvt) Limited (PEPCO), National Transmission & Distribution Company Limited (NTDC) Total energy includes import from Iran, Gwh : Giga watt hours

To carry power from power generation station to the consumers network, the role of transmission and primary lines network is very essential. Not only the length of network-lines is important but the transformation capacity of the grid-stations is also of equal value. The length of transmission lines was 7367 KM for 220kV and 23995 KM for 132-kV level at the end of June 2010. This has gone up to 7427 KM for 220 kV and 26321 KM for 132 level at the end of June 2011, showing a combined increase of 2386 KM. The transformation capacity of 220 kV substations was 15014 MVA3 at the end of June 2010, which as 16494 MVA by the end of June 2011 showing an increase of 1480 MVA. It has further gone up 17671 MVA by the end of December 2011

showing an increase of 1177 MVA over June 2011. Similarly, the 132 kV transformation capacity which was 26569 in June 2010 has gone up to 30137 MVA by June 2011 and up to 31016 MVA by the end of December 2011 thus showing an appreciable increase of 4447 MVA over June 2010 figures. ii). Growth in Consumers. The number of consumers has been increasing due to rapid expansion of electric network to villages and other un-electrified areas. During July-March 2011-12 the number of consumers has been increased to 20.85 million as compared to 20.12 million in the comparable period of last year. The trend of increase in number of consumers during the last five years is given in the following table:
Total 16,986,554 17,955,366 18,255,559 19,582,224 20,309,483 20,123,497 20,854,444

Table 14.19: Number of Consumers Year Domestic Commercial Industrial Agriculture Others 2006-07 14,354,368 2,151,971 233,162 236,255 10,798 2007-08 15,226,711 2,229,403 242,401 245,640 11,211 2008-09 15,481,734 2,256,837 250,593 254,891 11,504 2009-10 16,673,015 2,362,312 263,507 271,268 12,122 2010-11 17,322,140 2,421,221 273,067 280,603 12,452 July-March 2010-11 17,157,541 2,404,136 270,445 279,021 12,354 2011-12 17,808,962 2,466,049 284,049 282,639 12,745 Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority

MVA is MegaVolt Ampere. To convert it into MW one should know the power factor of the system because MVA = PF x MW. However, if the PF is unity then MVA = MW. A PF of UNITY suggests that the load is purely resistive with neither capacitive nor inductive components in the load or source. Of course this can mean such components have been balanced artificially.

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Pakistan Economic Survey 2011-12 iii). Village Electrification The village electrification program is an integral part of the total power sector development program in order to provide basic necessity of life to all the people of Pakistan, raise the productive capacity and socio-economic standards of the population living in rural areas.
Table 14.20: Village Electrification Year Addition Progressive Growth During the Total (%) Year 14,203 117,456 2006-07 10,441 127,897 8.9 2007-08 9,868 137,765 7.7 2008-09 15,062 152,827 10.9 2009-10 11,705 164,532 7.7 2010-11 July-Mar 7,283 160,110 2010-11 6,558 171,090 6.9 2011-12 Source: Water and Power Development Authority

Between the period 30th June 2011 to March 2012, 6,558 was the progressive number of electrified villages. The trend of village electrification during past 05-years period is provided in Table 14.20: iv). Electricity Consumption by Economic Group The consumption of electricity by economic group identifies the domestic sector as the largest user for the past many years. Even during the current year 2011-12, the consumption pattern, more or less, remained the same with domestic share of 43 percent, industrial 26 percent and agricultural about 12 percent. During July-March 2011-12, consumption of electricity has increased in every economic group including domestic, commercial, industrial and public lighting which is a positive indication. The consumption trend of electricity by economic group for the past 05-years is given below:

Table 14.21: Consumption of Electricity by Economic Group (Million Kwh) Year Domestic Comm- Industrial AgriPublic Bulk Traction Supply Total ercial culture Lighting Supply to KESC 2006-07 28,990 4,290 17,603 8,097 316 3,267 12.0 4,905 67,480 2007-08 28,751 4,358 17,299 8,380 340 3,332 8.0 4,072 66,540 2008-09 27,787 4,203 16,035 8,695 347 3,198 5.0 5,014 65,284 2009-10 29,507 4,466 16,371 9,585 372 3,367 2.3 5,208 68,878 2010-11 30,973 4,683 17,700 8,847 3,644 3,644 2.0 5,449 74,942 July-Mar 2010-11 22,691 3,450 13,255 6,485 261 2,680 0.5 3,976 52,799 2011-12 23,137 3,483 14,023 6,298 280 2,716 0.5 4,319 54,257 Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority

v). Power Losses The National Transmission & Dispatch Company Limited (NTDC) and Distribution Companies (DISCOs) have invoked various technical and administrative measures to improve operational and managerial efficiency to reduce power losses. The measures have given positive signs resulting in the reduction of power losses and increase in revenue. Certain measures such as renovation, rehabilitation, capacitor installation and strengthening the distribution system network are a continuous process for controlling/reducing wastage of power/energy. The Transmission and Distribution losses for the past five years are given

below which indicate steady trend of efficiency increase:


Table 14.22: Transmission & Distribution Losses of Net System Energy Year Transmission & Distribution (T & D) Losses (%) 2006-07 21.5 2007-08 21.3 2008-09 21.1 2009-10 20.9 2010-11 20.8 July-Mar 2010-11 19.8 2011-12 19.5
Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority

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Energy 14.5-c Private Power and Infrastructure Board (PPIB) The Private Power and infrastructure Board (PPIB) is a One Window facilitator to the private investors in the fields of power generation on behalf of the Government of Pakistan (GoP). PPIB is currently processing thirty eight (38) multiple fuel (Oil, Coal, Gas, Cogeneration and Hydel) Independent Power Producer (IPP) projects with a cumulative capacity of around 10,457 MW. Out of these thirty eight projects, a total of twelve (12) new IPPs having a cumulative capacity of over 2400 MW have been commissioned since March 2009; while other companies are aggressively working to achieve the financial close/ commissioning of their respective projects. The year wise actual/expected capacity additions of IPPs upto year 2019 are as follows:
Table 15.23 Actual/expected capacity additions of IPPs upto year 2019 Year (MW) Project already 2,409 commissioned 2013 459 2014 126 2015 529 2016 552 2017 1,682 2018 4,152 2019 548 Total 10,457 Source: Private Power and Infrastructure Board

II (BQPS-II) 560 MW combined cycle plant have been successfully commissioned and the steam turbine will be successfully operative shortly which will further boost up the profitability of the Company and take the overall KESC generation fleet efficiency to 40 percent. 14.6 Alternative Sources of Energy The government in its bid to diversify its energy mix, has been giving due attention to fast track the development of Alternative / Renewable Energy (ARE) resources in the country. With this very objective in view the Government of Pakistan in May 2010 gave the Alternative Energy Development Board (AEDB) the mandate to implement Alternative / Renewable Energy (ARE) commercial projects on its own or through joint venture or partnership with public or private sector entities in addition to its mandates under the ordinance. Along with the AEDB, the Pakistan Council of Renewable Energy Technologies (PCRET) has also been acquiring and updating know how for the promotion and mass propagation of Renewable Energy Technologies in the field of Solar, Micro-hydel, Wind etc. The main function of PCRET is to develop, acquire, adapt, promote and disseminate Renewable Energy Technologies in the country. Measures taken by AEDB during this fiscal year AEDB initiated a number of supportive measures that were required to be taken for laying a strong foundations of the ARE sector in Pakistan. In this regard: ` New wind corridors in areas outside Sindh have also been identified. Resource assessment of these corridors is underway and a number of wind measuring masts are being installed in all four provinces. National Grid Code for wind power projects has been amended. Grid Integration Plan 2010 -2015 for wind power projects is developed by AEDB to support National Transmission and Dispatch Company (NTDC). Regional Environmental Study has been conducted by AEDB to support wind power

14.5-d Karachi Electric Supply Company Limited (KESC) The Karachi Electric Supply Company Power Utility has posted earnings before Interest, Tax, Depreciation and Amortization (EBITDA) of Rs. 5.0 billion compared to Rs. 2.7 billion during the same period last year. This growth has largely been driven by the improvement in Transmission and Distribution (T&D) losses; which have come down to 29.6 percent - a reduction of 1.6 percent Year on Year and 2.9 percent on Quarter on Quarter basis. This was also made possible with the improvement in efficiency of the generation fleet through investment in state of the art new plants. During the 3rd Quarter of 2012, all the three Gas Turbines each of 116 MW of the Bin Qasim Power Station-

217

Pakistan Economic Survey 2011-12 projects. Guidelines for environmental assessment have also been developed. ` Asian Development Bank has been taken onboard to provide guarantee to the wind power project developers in order to mitigate the country risk. Local manufacturing of micro wind turbine has been started. Manufacturing for large wind turbines is also being initiated. The turbine towers for the first project are being manufactured in Pakistan. Issues related to financing of projects have been resolved and now leading financing agencies like International Finance Corporation (IFC), Asian Development Bank (ADB), Organization of the Petroleum Exporting Countries (OPIC) and Economic Cooperation Organization (ECO) Trade Bank etc. are offering financing to wind power projects in Pakistan. Measures taken by Pakistan Council of Renewable Energy Technologies (PCERT) during this fiscal year The Council had also strived to strengthen its developmental efforts by introducing various projects in the public sector for the development and promotion of suitable technologies to produce materials and devices in the field of Renewable Energy despite the number of hurdles in the development and promotion of renewable energy technologies. Some of the notable projects and their status are as under:

Table 15.24: Projects by Pakistan Council of Renewable Energy Technologies (PCERT) No. Type Present Status Micro-hydel Plants (MHP) in Gilgit 485 units generating 8 MW (electrifying 70,000 1. Baltistan, AJK & Khyber Pakhtonkhwa houses) and Canal-falls Biogas Plants Cooking, lighting 4000 units. Producing 18000 M3/day 2. Irrigation and power generation 3. Solar Water Heaters Manufacturing through private sector with PCRET Technical services Solar Dryers Manufacturing through private sector with PCRET Technical services Solar Cooker Manufacturing through private sector with PCRET Technical services PV Modules Production Manufacturing through private sector with PCRET Technical services Wind Turbines 100% subsidy Designed & developed 05 different models of SWH for commercialization. Designed & Developed 03 different models of 20,100 & 500 Kg capacities Designed & developed box and dish type solar cookers for commercialization Developed Solar Cell production capacities up to pilot scale. 155 units of 0.5-10 KW capacity electrifying 1600 houses.

Target 2011-15 5 MW (electrifying 25000 houses)

Target 2016-20 20 MW (electrifying 100,000 Houses)

50,000 units. 50,000 units. Producing 0.300 Producing 0.300 3 million M3/day million M /day 10,000 units (125-260 25000 units 125-260 liters each) liters/day 50,000 units 100,000 units 5 MW 1000 units 10 MW electrifying 50,000 houses 100,000 units 200,000 units 20 MW 1000 Nos. 10 MW electrifying 50,000 houses

4.

5.

Source: Pakistan Council of Renewable Energy Technology (PCERT)

(i) Mega Wind Power Projects In addition to the above mentioned projects, AEDB also issued Letters of Intent (LoIs) to 43 IPPs pursuing development of wind power projects. Land was allocated to 19 IPPs for 50 MW wind power projects each in Gharo Keti Bander Wind Corridor. Projects with a cumulative capacity of approx. 950 MW are at various stages of development on these lands. (ii) Biodiesel Main achievements in this fiscal year are: 218

` ` `

Pilot Energy plantations for Biodiesel cultivated on 650 acres under study; Biodiesel production initiated with PSO; First Biodiesel refinery with the capacity of 18,000 Tons / annum Capacity has been set up at Karachi. SRO 474(1)12008 exempts custom duties and sales tax on Biodiesel production equipment and material. Amendments in OGRA Ordinance for Bio fuels pricing approved.

Energy ` Proposal for undertaking a feasibility study to set up 10,000 tons per annum Biodiesel production facility is in search of funding. Barriers to implementing Biodiesel Policy identified at the National Stakeholders Conference. Task force for barrier removal established. Registration of Jatropha seeds under process rice husk, sugarcane trash, biogas, wheat chaff and other crops as multi-fuel sources. AEDB has issued a letter of intent to M/s Pak Ethanol (Pvt) Ltd. to set up a 9 MW biogas power project at Pak Ethanol (Pvt) Ltd, Matli, and Sindh. (iv) Small Hydro Productive Use of Renewable Energy (PURE) Project is being implemented to install 103 hydro power plants in Khyber Pakhtonkhwa (KPK) and Gilgit Baltistan (GB), with the total cost of US$ 19.5 million. Another project for 250 plants is under preparation for the same areas. Eight hydro projects have been initiated under the Renewable Energy Development Sector Investment Program (REDSIP) with the support of the Asian Development Bank (ADB). These projects are being implemented in KPK and Punjab with an estimated cost of US $ 290 million. Another 2 small hydro power projects have been initiated under REDSIP. The Government of Punjab has issued LOIs to private investors for establishment of 10 small hydro projects with a cumulative capacity of 142MW at different locations in Punjab. AEDB has initiated a program with the assistance of Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) support to assist the provinces to solicit private investments in small hydro sector; under this program prefeasibility study for 25 hydro sites in AJK, Sindh, Punjab and KPK with the cumulative capacity of 284.14MW has been completed. Public sector Hydro power projects are initiated in (a) KPK (worth U$ 150.99 Million, of 17.0MW, 36.6MW and 2.6 MW), (b) Punjab (worth U$ 138.74 Million, of 5.38MW, 4.04MW, 2.82MW, 4.16 MW and 7.64MW) and (c) Gilgit Baltistan (worth U$ 71.12 Million, of 26MW and 4MW (v) Solar In Solar Energy, 6 LOIs for cumulative capacity of 148 MW On-Grid Solar PV power plants have been issued by AEDB. Additionally 3 LoIs of 70 MW capacities have been issued by Punjab Power Development Board (PPDB). The sponsors are preparing feasibility studies. Solar Village Electrification Program was initiated under the Prime Ministers directive. Three thousand Solar Home Systems have been installed in 49 villages of district Tharparkar, Sindh. Another 51 villages 219

(iii) Biogas Projects Pakistan produces a huge amount of municipal waste (up to 50,000 tons / day) and agricultural waste in the form of Biogas, Cotton Sticks, and Rice Husk etc. Converting this waste into energy can generate up to 5,000MW of power. Pakistan offers lucrative opportunities in this sector in which a number of projects are already being implemented. So far Pakistan Council of Renewable Energy Technologies (PRET) has installed 4015 biogas plants (with net generation capacity of 17980 M3/day) on cost sharing basis throughout the country. During the period in reference, 234 biogas plants have been installed. PCRET has installed 1000 biogas plants of 5 cubic meters each with annual production of 1.941 Million cubic meter gas, 1.567 Million kg of manure and 4.7 Million kg of carbon dioxide abatement. In addition the Council has installed 30 commercial size biogas plants ranging from 50-250 M3 by executing technological support for irrigation and power generation. A World Bank funded project for carrying out a detailed study for Biomass / Waste-to-Energy projects in 20 cities of Pakistan has been initiated. Another Waste to Energy Study, funded by U.S Trade and Development Agency (USTDA) is being carried out for Karachi to generate 5-10MW power. AEDB has issued a LoI to set up a 12MW Biomass to Energy power project in Sindh, based exclusively on Biogas / Agricultural Waste. The project is jointly sponsored by investors from US and local entrepreneurs, the SSJD Bio Energy. Another LoI has been issued to M/s Lumen Energia Pvt Ltd. to set up a 12MW power plant at Jhang based on agricultural waste like cotton stalk,

Pakistan Economic Survey 2011-12 in Sindh and 300 villages in Balochistan have been approved for electrification using solar energy and will be implemented shortly. AEDB is also doing the Parliamentarian Sponsored Village Electrification Program and has so far prepared and submitted 27 feasibilities for approval. Funds for three schemes have so far been released under People Work Programs-II PWP-II and the schemes are being implemented. These governments policies aim to meet the demand fully with an emphasis on exploration of indigenous resources including hydel, coal, domestic gas and renewable and imported energy in a timely manner. Sectoral deficiencies are being improved. Institutions are strengthened and private sectors involvement is being enhanced to promote the culture of public private partnership leading to lessen the burden on public resources. In this context the government held two National Energy Conferences in 2011 and 2012. To address the present energy crises the following recommendations were made: ` ` Equitable load shedding among all provinces. Reduction in number of working days for government offices along with implementation of street-light conservation plan as recommended by the Ministry of Water and Power. Closing down of all commercial centers throughout the country at 8pm except for weekends. For saving energy the government has decided to have different office hours during winter and summer time. Allocation of additional gas to the power sector (ideally 207mmcfd giving 1000MW) Subsidy for solar agri tube wells through easy financing ` The government will also cut power supply to advertisement billboards and would replace all the regular bulbs with energy-savers. To ensure the smooth supply of power the government will allocate additional gas to power companies. To limit the use of energy by government offices, prepaid meters in all federal and provincial government buildings will be installed. Also cases related to power thefts will be registered and immediate action against the culprits will be taken. Provinces to help in prompt registration of FIRs, designating special magistrates and nominating focal persons. e.g., Home Secretary at the provincial and the District Coordination Officer (DCO) at the district level for expeditious disposal of electricity theft cases. Upfront tariff for all types of fuels by NEPRA and tariff increase of 12 percent Expedite conversion IPPs/GENCOs to coal of steam based

` `

Conclusion Energy needs are indelibly linked to Pakistans economic and sustainable growth capabilities. Pakistanis have been in increasing in demand across the various areas of energy sources. With a growing economy and the desire for vast production and consumption across the country, the energy demands remain high. With energy shortages as a main challenge, the government is working tirelessly to ensure such problems are remedied. Given the need for energy, the Government of Pakistan is doing the utmost to promote renewable energies, various energy sources and energy efficiency. There are various projects that speak to the endless possibilities of building up Pakistans renewable energy sources. These hope to continue and expand in coming years

` `

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Chapter 15

Social Safety Nets


Background Since 2007-08 the economy has been under considerable pressure due to both domestic and external developments. The global financial crisis hit the country hard when it was already facing a balance of payments crisis stemming from high food and fuel prices in the world markets. The combined effects of the global food and fuel crises adversely affected the economy resulting in unsustainable current account and fiscal deficits and unprecedented high inflation. Moreover, the unstable law and order situation in the country and struggle against extremism put severe strains on the governments finances. These adverse developments led to the signing of an IMF Standby Arrangement Programme. The catastrophic floods of 2010 and 2011 further exacerbated the situation. The floods led to a huge loss of life in 2010, affecting approximately 20 million people directly and a much larger proportion indirectly. Moreover, the huge damage to crops and infrastructure also severely affected the economy at large, which disrupted the supply chain and business activities in the affected areas. This supply shock resulted in high inflation. The floods of 2010 were followed by the rains of 2011, which though of lower intensity compounded the negative impact on the economy and added to the pressures on prices and the welfare of the people. This chapter describes the impact of prices on household expenditures and welfare of the people in Pakistan and the steps taken by the government to mitigate some of the adverse effects through the series of safety nets that have been put in place to protect the poor and vulnerable. The Effect of Prices on the Welfare of the Poor The inflationary pressure on the economy has increased during the last four years due to a combination of the external and domestic shocks described above. Inflation which had increased rapidly during 2007-08 by 17.0 percent for the consumer price index overall and 23.7 percent for food items respectively has started to come down. According to Pakistan Bureau of Statistics during the period July-March 2011-12 it was 10.8 percent for the consumer Price Index overall and 11.2 percent for food. The rise in price indices was mainly driven by food inflation, which rose rapidly during this period. Prices of basic food commodities like wheat, wheat flour, eggs, fresh fruits, chicken, potatoes, rice, vegetable and cooking oil rose sharply during 2008-10. While a sharp increase in world food prices and international oil prices since 2007 were mainly responsible for the escalation of prices, a number of domestic factors also contributed to the price hike. The government has brought down inflation in the current fiscal year due to a stringent demand management policy, better supply chain arrangements, tight monetary policy and regularly monitoring of the price and supply position of all essential items by taking all the provincial governments on board.

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Pakistan Economic Survey 2011-12


Fig-15.1: Consumer Price Index and Food Inflation
30 27 17.6 24 21 12.5 12.0 18 15 12 4.4 3.6 3.5 2.4 9 6 3 0 201112 (Jul Mar) 200001 200102 200203 200304 200405 200506 200607 200708 200809 200910 201011 3.1 2.9 4.6 6.0 9.3 7.8 10.3 17.0 CPI 23.7 Food

10.1 12.6

13.7

18.3 10.8 11.2

Source: Pakistan Bureau of Statistics

7.9 6.9

It has been observed that South Asias poor are particularly vulnerable to food price rises while its economies suffer from higher than average overall inflation when compared to the remainder of developing Asia. ADB estimated the price elasticity of poverty with respect to food prices, which measures the percentage increase in poverty when food prices increased by 1 percent using the

latest POVACL (World Bank) database. The analysis simulates the effect of rising food prices by 10 percent, 20 percent and 30 percent on the change in percentage of poor and the total headcounts of poor in South Asia. Table 15.1 shows the impact of the food prices on poverty for South Asian countries vs. Developing Asia

Table 15.1: Impact of food price increases on Poverty for South Asia vs. Developing Asia ($1.25-a-day Poverty Line) Change in percentage of poor Change in number of poor (in percentage points) with an (in millions) with an increase in food increase in food prices by: prices by: 10% 20% 30% 10% 20% 30% Bangladesh 2.5 5.0 7.5 3.8 7.7 11.5 Bhutan 1.8 3.5 5.3 0.01 0.02 0.03 India 2.7 5.4 8.1 29.5 59.0 88.5 Nepal 2.0 4.1 6.1 0.6 1.1 1.7 Pakistan 2.2 4.5 6.7 3.47 6.9 10.4 Sri Lanka 1.2 2.4 3.6 0.24 0.47 0.71 South Asia average 2.1 4.1 6.2 37.6 75.2 112.8 Percentage of increase in total 58.4% 58.4% 58.4% poor in developing Asia by South Asia Developing Asia 1.9 3.9 5.8 64.4 128.8 193.2 Source: Food price escalation in south Asia - A serious and growing concerns, Asian Development Bank, February 2012

The progress on poverty alleviations its correlates and Millennium Development Goals is presented in Box-1 222

Social Safety Nets


Box-1 Poverty Alleviation and Millennium Development Goals The UNDPs Human Development Report, 2011 ranks Pakistan at 145th with HDI value of 0.504. The report shows gradual increase in the value of HDI from 0.503 in 2010 and 0.499 in 2009, through Pakistans rank has slipped a little during 2011. Other composite indices place Pakistan at a lower rank. The Inequality Adjusted Poverty Index is 0.346 and multi-dimensional poverty index for Pakistan is 0.264. These indices weight inequality and non-income dimensions of poverty more. Pakistan Social and Living Standards Measurement Survey 2010-11 shows mixed results in terms of the education enrolment indicators. Literacy rate (10+) has improved from 57 percent in 2008-09 to 58 percent and adult literacy improved from 54 percent to 55 percent in the same period, while Primary and Middle school Gross Enrollment Rate also registered a one percentage point improvement. However, slippage on the primary and secondary Net Enrollment Rate is an area of concern for policy makers, particularly after devolution of the subject to the provinces. Immunization of children also improved during 2011. The PSLM also reported trends in terms of the water supply and sanitation indicators. Whereas the sanitation situation at household level has registered an improvement (in terms of 66 percent of population using flush toilets compared to 63 percent in 2008-09), the access to drinking water to urban and rural population of Pakistan is 94 percent and 84 percent respectively, with an average of 87 percent in 2011. A committee of poverty experts has been constituted in Planning and Development Division to estimate Poverty Headcount as well as poverty correlates. The committee is working on its task in a professional ways considering all dimensions of poverty and report of the committee will be available shortly. Source: Planning & Development Division

Profile of Consumption Expenditure The trends in household consumption expenditure provide an effective insight into understanding the dynamics of poverty in the country. Table-15.2 reveals the per capita consumption expenditure in urban/rural areas and by quintiles. The average per capita expenditures for the richest class in the urban areas are more than four and half times those

of the poor class. Analysis along similar lines for rural areas indicates that these averages are more than three and half times those of the poor class. The average per capita expenditure is almost the same for poor in rural and urban areas whereas for the rich class it is higher in urban areas than in the rural areas, indicating that more wealth is concentrated in urban areas compared to rural areas.

Table-15.2 Per Capita Monthly Household Consumption Expenditure by Quintiles & Region Per Capita Monthly Household Consumption Expenditure Quintiles 2007-08 2010-11 Urban Rural Total Urban Rural 1st 906 868 874 1441 1426 2nd 1216 1208 1210 1985 1966 3rd 1547 1522 1529 2469 2468 4th 2032 1998 2011 3217 3195 5th 4334 3566 3984 6679 5312 Ratio of highest to lowest 4.78 4.11 4.56 4.63 3.73 quintiles Source: Federal Bureau of Statistics

Total 1428 1970 2468 3203 6073 4.25

Table 15.3 compares the percentage of monthly consumption expenditure by commodity groups. The consumption expenditure pattern for different

commodity groups shows consistent trend from 2007-08 to 2010-11. The share of food expenditure is relatively higher compared to the other 223

Pakistan Economic Survey 2011-12 commodity groups. It had increased from 43.05 percent in 2005-06 to 44.22 percent in 2007-08. Since the international food price hike of 2008 and the domestic shocks following the floods it increased further to 48.91 percent in 2010-11. Further analysis reveals that consumption expenditure in apparel, textile, and footwear, housing, education, transport, communication and recreation and entertainment has, as expected,
Commodity Groups Food, drinks & tobacco Apparel, textile, foot4.90 wear Transport & 7.12 communication Cleaning & laundry 3.54 Recreation & 1.04 entertainment Education 5.20 Housing (rent & 22.74 other costs) Fuel & lighting 7.39 Miscellaneous 12.91 Source: Federal Bureau of Statistics Urban 35.17 2005-06 Rural 49.56 6.42 5.39 3.61 0.32 2.41 8.94 8.41 14.94

shown a decreasing trend since 2007-08 while consumption expenditure on fuel and lighting, cleaning and laundry has shown a slightly increasing trend as compared to 2007-08. Food price inflation and slow growth over a number of years resulting from the combination of international and domestic shocks has led to a greater share of expenditures going to the essential food, fuel, lighting etc.
2007-08 Rural 48.87 6.06 5.92 3.49 0.42 2.94 9.99 8.09 14.23 2010-11 Rural 54.71 5.45 5.51 3.83 0.19 2.51 8.67 8.01 11.13

Table 15.3: Percentage of Monthly Consumption Expenditure by Commodity Groups


Total 43.05 5.73 6.17 3.58 0.65 3.67 15.19 7.95 14.02 Urban 37.85 4.71 6.55 3.77 1.09 5.26 22.11 6.82 11.85 Total 44.22 5.49 6.18 3.60 0.70 3.92 15.10 7.55 13.23 Urban 41.08 4.66 6.69 3.55 0.77 4.82 21.04 7.06 10.32 Total 48.91 5.11 6.01 3.71 0.44 3.49 13.93 7.60 10.78

Table 15.4 shows the percentage share of expenditure on major food items. Out of the total food expenditure 17 food items contributed 82.52 percent. These items contribute 84.61 percent in rural areas and 78.80 percent in urban areas. Comparison of the same 17 food items with the year 2007-08 shows that the overall expenditure level has slightly increased in both urban and rural

areas. For food items the major share of consumption expenditure is incurred on wheat, milk, vegetable ghee, vegetables and sugar comprising 58 percent out of 82.52 percent. Wheat continues to be the major expenditure item in both rural and urban areas and its percentage share in aggregate has increased between 2007-08 and 2010-11.

Table 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11 2007-08 2010-11 Food Items Urban Rural Total Urban Rural Wheat 12.07 16.55 14.93 12.82 16.25 Rice 4.21 4.28 4.25 3.56 3.74 Pulses 2.25 2.41 2.35 2.53 2.60 Vegetable ghee 6.76 9.81 8.71 5.75 8.59 Tea 1.87 2.04 1.98 2.06 2.17 Milk (fresh) 19.87 20.58 20.33 19.33 19.47 Butter 0.39 1.49 1.09 0.32 1.22 Mutton 2.55 1.12 1.64 3.80 3.10 Beef 3.73 2.90 3.20 2.29 1.12 Chicken 4.47 3.45 3.82 4.48 3.32 Fish 0.95 0.54 0.69 0.62 0.44 Fruits 4.71 3.27 3.79 4.30 3.01 Vegetable 7.81 7.95 7.90 8.10 8.91

Total 15.02 3.67 2.57 7.58 2.13 19.42 0.90 3.35 1.54 3.74 0.51 3.47 8.62

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Social Safety Nets


Table 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11 2007-08 2010-11 Food Items Urban Rural Total Urban Rural Salt 0.22 0.20 0.20 0.16 0.16 Spices 2.07 1.76 1.88 2.63 2.20 Sugar 4.09 5.14 4.76 5.91 7.74 Gur 0.09 0.43 0.31 0.13 0.57 Total 78.11 83.92 81.83 78.80 84.61 Source: Federal Bureau of Statistics

Total 0.15 2.35 7.09 0.41 82.52

Pro-Poor Expenditures The governments commitment to follow a sustained poverty reduction strategy and a minimum of 4.5 percent of GDP to social and poverty related expenditures is clearly reflected in the allocations to the pro-poor sectors shown in Table 15.5. The government prioritized 17 propoor sectors through the Medium Term Expenditure Framework (MTEF) in the PRSP-II, which provides a link between the policy priorities and the budget realties. Expenditure on pro-poor

sectors in 2007-08 stood at 5.57 percent of GDP. In 2008-09, these were 7.46 percent of GDP and in 2009-10, 7.57 percent of GDP. These expenditures were well above the requirement under the law. During 2010-11, total expenditures for these sectors were increased further and amounted to Rs 1245.541 billion, which is 6.9 percent of GDP. Already Rs. 919.564 billion expenditures have been made in these sectors during July-December of the current fiscal year. Box-2 present an overview of social protections programs in Pakistan.
(Rs. Million) 2010-11 2011-12* 99,567 30,367 28,506 11,788 322,334 156,990 106,017 46,842 4,861 2,247 55,171 24,934 49,115 27,510 115,511 41,732 3,669 1,616 19,109 12,724 230,945 463,091 0 0 5,049 2,222 21,300 2,902 373 101 14,223 7,151 169,791 87,347 1,245,541 919,564 6.9 -

Table 15.5: Budgetary Poverty Related Expenditures by Sectors Sectors 2007-08 2008/09 Roads, Highways & Bridges 84,825 99,613 Water Supply and Sanitation 19,817 22,204 Education 182,646 240,378 Health 61,127 83,714 Population Planning 13,322 5,345 Social Security & Welfare 18,942 29,129 Natural Calamities 7,728 10,083 Agriculture 83,493 88,912 Land Reclamation 3,130 2,738 Rural Development 23,334 16,362 Subsidies 54,872 220,567 Food Support Programme 4,370 12,420 Peoples Works Programme-I 1,420 3,329 Peoples Works Programme-II 2,748 28,000 Low Cost Housing 597 583 Justice Administration 7820 9,193 Law and Order 2,429 104,658 Total 572,620 977,228 Total as % age of GDP 5.57 7.46
Source: Ministry of Finance * July-December

2009-10 98,456 25,459 259,525 94,399 7,048 54,571 12,548 104,815 1,990 20,391 234,926 0 8,417 31,754 1,828 10,996 143,639 1,110,762 7.57

An overview of social protection programmes of the country is presented in Box-2, which also

indicates targeted group of beneficiaries and financing arrangements for these programmes.

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Pakistan Economic Survey 2011-12


Box-2 Social Protection Programs in Pakistan
S. No. 1. 2. Pakistan Bait-ul-Mal 3. Peoples Works Program 4. 5. 6. 7. 8 Peoples Rozgar Scheme Commercial Bank Financed Subsidy on Wheat, Sugar & Public Funds Fertilizer Utility Stores Public Funds Zakat & Ushr Special levy on bank balances & agricultural output Child Labour and Children Public Funds in Bondage Public Funds Public Funds Program Benazir Income Support Program (BISP) Microfinance Financing Public Funds Donor Funded Geographical Managed By Coverage Cash as Income Support Married females belonging to ultra Nationwide Federal poor households Government Cash as loan for establishing Provide financial services, credit to Nationwide RSPs/MFIs business the poor for self employment and move them out of poverty Cash as income support grant for Disabled persons, invalids, widows, Nationwide Federal daughters weddings, food orphans and household living below Government supplement in education the poverty line Cash for Work Provision of electricity, gas, farm to Nationwide Federal market roads, good, water supply Government and other facilities to the rural poor Financing for Selected businesses* Unemployed educated persons Nationwide National Bank of Pakistan In kind as social welfare Poor people of the country Nationwide Federal Government In kind as social welfare Poor people of the country Nationwide Federal Government Cash Deserving/ Nationwide Government & Needy among Muslims Zakat & Ushr Committees Protection survival development Working children facing abuse and Nationwide Federal & and rehabilitation services exploitation Provincial Government, FATA, GB Type of Benefit Target Group

9.

Contributory Cash Formal Sector Employees Nationwide Federal (Employers) Government Contributory Cash General Population Nationwide Federal 11. (individuals) Government Workers Welfare Fund Contributory Housing, schools, health facilities Formal Sector employees Nationwide Federal 12. (Employers) Government *: Community Transport, Community Utility Sores, Community Mobile Utility Stores and PCO/Tele-Centers with a maximum of Rs 200,000/- three new products including Commercial Vehicle, Shopkeepers and Primary Healthcare Equipments to Medical Graduates, Science Graduates and B-Pharmacy qualified individuals. The maximum limit ranges from Rs 500,000/- to Rs 700,000/10.

Employees Old-Age Benefit Scheme Social Health Insurance

Social Safety Programmes Recognizing the need to protect the poor and the vulnerable, the government has launched several safety net programs. The following social safety net programs in particular minimize the adverse effects of poverty on the targeted population of the country. I. Pakistan Poverty Alleviation Fund The Pakistan Poverty Alleviation Fund (PPAF) is a flagship element of countrys poverty reduction strategy. It is sponsored and supported by the government with an endowment of Rs. 1,000 million and funded by the multilateral and bilateral donors like World Bank, International Fund for Agricultural Development, KfW Financial Cooperation Germany, US Department of Agriculture, Italian Government etc. The funding provided to PPAF is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization, 226

and capacity building institutional assistance for the partner organizations of PPAF. The overall operational and financial outreach during the half year ended December 2011 remained satisfactory. Total disbursements for core operations during the period were Rs. 8,490 million. Loan (micro credit and enterprise development facility) disbursements were Rs. 6,766 million; water and infrastructure disbursements were Rs. 365 million; disbursements for education and health were Rs. 361 million; capacity building disbursements were Rs. 438 million; social mobilization disbursement were Rs. 220 million; and disbursements for livelihood enhancement and protection were Rs. 339 million. In addition to disbursement for core operations, Rs. 576 million (Rs. 273 million from donors' funding and Rs. 203 million from PPAF's own resources) was disbursed for project and flood relief activities. By the end of December 2011, the total cumulative disbursements were Rs. 100 billion. Credit and

Social Safety Nets enterprise development accounted for 59 percent of total disbursements followed by relief, rehabilitation and reconstruction activities (20 percent); community physical infrastructure (10 percent); human and institutional development (including social mobilization) (7 percent); livelihood enhancement and protection (1 percent); and health & education (3 percent). PPAF interventions are being carried out nationwide with 50% of the resources deployed in Punjab, 19 percent in Sindh, 16 percent in Khyber Pakhtunkhwa, 4 percent in Balochistan; 9 percent in Azad Jammu and Kashmir; 1 percent each in Gilgit Baltistan and Islamabad Capital Territory. By the end of December 31, 2011, PPAF funding had been disbursed in urban and rural areas of 129 districts of the country (about 297,000 community organizations / groups) through 114 partner organizations of which 12 were focusing exclusively or predominantly on women. On cumulative basis, PPAF has financed 5,352,838 micro credit loans. More than 27,417 infrastructure, health and education projects were initiated and a total of 488,249 staff and community members were trained. In earthquake affected areas, PPAF provided financing to 122,000 households to build earthquake resistant homes and trained over 108,000 individuals in seismic construction and related skills. II. Pakistan Bait-ul-Mal Pakistan Bait-ul-Mal (PBM) is making a significant contribution towards poverty reduction through its various poorest of the poor focused services such as providing assistance to destitute, widows, orphans, invalid, infirm and other needy irrespective of their gender, caste, creed and religion. The following are the ongoing core projects/schemes: a. Individual Financial Assistance (IFA): It is one of its major social dispensation programme to provide financial assistance to destitute and needy widows, orphans, invalid, infirm and other needy persons, to provide for free medical treatment for indigent sick persons, to provide stipend and financial assistance to brilliant but poor students. Under this head PBM has provided financial assistance of Rs. 734.901 million up to February 2012 and 13,171 beneficiaries from all over the country have benefitted from this scheme. b. Child Support Programme (CSP): This is a cash transfer programme, in which cash incentive is provided to the parents for sending their children to schools. Rs. 300 per month is paid to the families with one child and Rs.600 per month to the families with two or more children of school age. Currently the programme is running in 12 districts. An amount of Rs. 66.754 million has been disbursed up to February 2012. c. National Centres for Rehabilitation of Child Labour (NCsRCL): PBM has a proactive child labour rehabilitation policy and number of initiatives has been taken for the better`ment of working children. Efforts have been made to withdraw them from work places with a view to their mainstreaming into education by undertaking programmes for non-formal education. 159 centres have been established throughout the country on which Rs. 248.681 million has been spent up till February 2012. d. Vocational / Diversified Vocational Dastkari Schools (V/DVDS): PBM has established Vocational / Diversified Vocational Dastkari Schools (VDS/DVDS) where poor widows, orphans and needy girls are given training in a variety of skills to make them self-sufficient to earn their livelihoods in a respectable manner. PBM has established 144 VDS and 15 DVDS throughout the country on which Rs. 93.876 million has been spent up till February 2012. e. Pakistan Sweet Homes (PSHs): PBM has established Sweet Homes for Orphans having accommodation for 100 children in each home. A total of 28 Pakistan Sweet Homes (Orphanages) have been established so far on which Rs. 133.475 million has been spent up till February 2012. f. Langer Programme: PBM is also working for provision of assistance to needy persons. It provided ration bags to those affected by natural disasters such as the floods of of Sindh and of KPK. In this regard an amount of Rs. 185.306 million expenditures were incurred up to February 2012.

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Pakistan Economic Survey 2011-12 g. Institutional Rehabilitation through NGOs: It provides grant-in-aid to registered nongovernmental organization (NGOs) for their projects aimed at institutional rehabilitation of the poor and deserving persons of the society. PBM has disbursed an amount of Rs. 24.383 million in this regard up to February 2012. h. Jinnah Burn and Reconstructive Surgery Centre, Lahore: On 21st May, 2004, Pakistan Bait-ul-Mal, Health Department, Government of Punjab and Jinnah Hospital, Lahore signed a memorandum of understanding for construction of single purpose state-of-the-art burn and reconstructive surgery centre in Lahore. Pakistan Bait-ul-Mal has so far released Rs. 610 million for construction of the centre out of which Rs. 350 million have been released up to February 2012. III. Benazir Income Support Programme Benazir Income Support Programme (BISP) was
Box-3 Eligibility for BISP Eligible households are identified through a targeting process, which consists of household surveys and the application of a Proxy Means Test Formula (PMT) that determines welfare status of a family on a scale between 0100. Based on PMT, Nationwide Poverty Scorecard Survey was undertaken in 2010 with following features: ` ` ` ` Resulted in the creation of the largest and most reliable data bank of socio-economic conditions of the country (details at family level) for planning social sector policies and strategies First ever census of its kind in South Asia Covered almost 27 million households in the country Use of GPS devices to map the data of the entire country for informed decision making (to cope with natural disasters and other emergencies)

established by the Government of Pakistan in July 2008 with the primary objective of providing immediate relief to the poor enabling them to absorb the shock of rising prices of food and fuel. BISP has evolved over the past few years into the countrys main social safety net. It is committed to the fulfillment of the dream of making Pakistan a welfare state through poverty alleviation and women empowerment. It has made remarkable progress by providing much needed relief to over 4 million recipients including flood and bomb blast victims all across Pakistan. An amount of over Rs 122 billion up to March, 2012 has been disbursed to its recipients. The number of recipients is expected to increase to 7 million once the on-going processing of data collected during the nation-wide poverty scorecard targeting survey is completed. The BISP has launched the following pro-poor activities. Box-3 describes the eligibility criteria for BISP.

Families meeting the BISP eligibility criteria listed below are selected for monthly cash transfers: Proxy Means Test (pmt) Score of 16.17 or below anywhere in Pakistan ` ` One woman beneficiary per family Woman is CNIC holder

Source: Benazir Income Support Programme

Nation-wide Poverty Scorecard Targeting Survey: This survey was launched in October 2010 in all districts of the country, including AJK and Gilgit-Baltistan, with an initial target to cover almost 25 million households. The new system of 228

targeting was aimed at a much higher degree of objectivity, using international best practices, to minimize inclusion and exclusion errors. The use of Global Positioning System (GPS) devices was also made mandatory in this phase to uphold the

Social Safety Nets dignity of households by conducting the survey at their doorsteps. The survey will be completed by June 30, 2012 and over 27 million households will be covered nationwide during this exercise. The task for data entry is entrusted to NADRA and data entry of all collected survey forms has been completed. During 2011-12, over 6.43 million eligible families have been identified through poverty scorecard census. It is expected that this figure will reach almost 7 million families by June 30, 2012. Payment to Recipients: During the 2011-12, Rs 24.1 billion has been distributed among approximately 3.5 million - recipients up to March 2012. This included over Rs. 3.95 billion paid
Box-4 Innovative Payment Mechanisms used by BISP BISP is using alternate payment mechanisms including Benazir Debit Card, Smart Card and Mobile banking to efficiently make payments of the cash grants to its beneficiaries. 1. Benazir Debit Cards: In order to improve the efficiency of the payment delivery mechanisms and to provide multiple payment mechanism to its beneficiaries for more timely and efficient services, BISP has signed agreements with several commercial banks during the current fiscal year to introduce Benazir Debit Cards for cash transfers in over 122 districts in Pakistan by June 30, 2012. Launched in Feb 2012 (in phases), 650,000 Debit Cards have been distributed and through these cards Rs. 1.95 billion have been transferred to the beneficiaries. BISP has planned to distribute Benazir Debit Cards to over 3.5 million beneficiaries by June 30, 2012. Beneficiaries are able to collect their cash benefits from ATM machines and/or bank designated franchises 2. Smart Card: BISP had signed a contract in early 2010 with United Bank Ltd. (UBL) for making payments to beneficiaries through smart cards in four of the test phase districts (Mianwali, Mirpurkhas, Multan and Sanghar). The beneficiaries were issued Smart Cards, and they collect their cash benefits through bank designated franchises. Over 183,000 beneficiaries are benefiting from this payment mechanism 3. Phone-to-Phone Banking: Another Alternate Payment Mechanism already in place is the Phone-to-Phone Banking (P-to-P Banking). It has been implemented in 7 districts. Beneficiaries are provided free mobile phones and SIMs. An amount of Rs. 1.7 billion has been disbursed under this payment mechanism to around 137,000 beneficiaries in the piloted districts.

through Smart Cards to 182,789 recipients and Rs. 826.38 million paid to about 1.3 million recipients through mobile phone banking. The rest of the cash transfers were made through the Pakistan Post money orders. In order to further improve the efficiency of the payment delivery mechanisms, BISP has signed agreements with several commercial banks during the current fiscal year to launch the Benazir Debit Cards in over 100 districts of Pakistan by June 30, 2012. So far 92,000 Debit Cards have been distributed and an amount of Rs.1.02 billion has been disbursed to the beneficiaries. A total of 4,803,126 Debt Cards are planned to be distributed by June 30, 2012. Box-4 contains the innovative payment mechanism used by BISP.

Source: Benazir Income Support Programme

Graduation Initiatives: Besides cash transfers, BISP has also launched various graduation programmes for its recipients to enable them to exit from the poverty trap. During 2011-12, the following progress has been made by these programmes: Waseela-e-Haq: Under this programme, microfinance in the form of returnable soft loans

up to Rs. 300,000 are provided to recipients, selected through a monthly computerized random draw, for setting up small businesses. During the reporting period, 29 draws were held and a total of 34,807 recipients were pre-qualified. An amount of Rs. 943 million was disbursed to 6,281 recipients while 2,680 new recipients started their own businesses. It is planned to hold another 5 draws by

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Pakistan Economic Survey 2011-12 June 30, 2012 to pre-qualify 10,000 additional recipients. Waseela-e-Rozgar: Under this programme, BISP provides technical and vocational training to one member per recipient family to help them to secure their livelihood. BISP signed MOUs with several public sector training organizations and initiated training for the recipients and their nominees. On the other hand, a large number of private sector training institutions were also selected all across Pakistan through a competitive process. Training has commenced in the first quarter of 2012 in most of these institutions and so far 964 persons have been trained while 4,044 persons are currently enrolled. It is expected that by June 30, 2012 the total number of trained persons will be approximately 20,000. In addition, BISP organized vocational trainings for a batch of 173 recipients from Rawalpindi division during the 1st quarter of 2012 through the funds provided by a Chinese civil society organization. Waseela-e-Sehat: Life insurance cover of Rs. 100,000 for the bread winners of BISP beneficiary families was launched from January 1, 2011. Over 3.5 million beneficiary families now have their bread earners covered under life insurance scheme launched by BISP in collaboration with State Life Insurance Corporation of Pakistan (SLIC). Over 900 cases have already been processed by SLIC during 2011-12. A comprehensive Health Insurance Scheme covering entire family of BISP beneficiary has also been piloted in District Faisalabad in April 2012. The same is planned to be extended in other districts of Pakistan in coming years. Waseela-e-Taleem: BISP designed a coresponsibility cash transfer programme titled Waseela-e-Taleem for the primary education of the children of its recipients whereby 3 million children will be imparted education during 20122016. The programme is scheduled to be launched in 5 districts during the current fiscal year. IV. Zakat Zakat plays an important role in poverty alleviation. Zakat funds are utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled for their subsistence or rehabilitation. These poor segments of society are provided Zakat funds either directly through respective local Zakat Committee or indirectly through institutions i.e. educational, vocational, social institutions and hospitals, etc. As a consequence of the 18th constitutional amendment, the subject of Zakat has been devolved to the Provinces/Federal Areas. Up to February, 2012 a total amount of Rs.3,668.794 million was distributed in bulk amongst the provinces and other administrative areas. In addition to this, an amount of Rs.4,131.474 million has also been released in March 2012 as a reserve fund available within the Central Zakat Fund to Provinces/Federal Areas to provide financial assistance to mustahequeen. After devolution of the subject of Zakat the Provinces/Federal Areas are directly managing the distribution of Zakat and the beneficiaries. V. Peoples Works Program-I & II: Peoples Works programme (PWP) I & II are the welfare programmes comprising of small development schemes for provision of electricity, gas, farm to market roads, telephone, education, health, water supply, and sanitation facilities to the rural poor. PWP-I & II incurred expenditures of Rs 8.4 billion and Rs 31.8 billion during 2009-10 and Rs. 5.049 billion and Rs 21.30 billion during 201011 where as Rs 2.222 billion expenditure have been incurred between July-December 2011-12 on PWP-I and Rs 2.902 billion expenditures on PWPII. VI. Employees Old Age Benefits Institutions Employees Old Age Benefits Institution (EOBI) provides monetary benefits to old age workers through various programmes such as Old Age Pension, Invalidity Pension, Survivors pension and Old Age Grants. During the period of July, 2011 to March 2012, Rs.7,961.208 million has been utilized for 350,485 beneficiaries, which is 17.8 percent higher compared to the corresponding

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Social Safety Nets period of last year. Furthermore, it is planned that 331,513 more beneficiaries will take benefit from the EOBI up to June 2012, an additional amount of Rs. 3,791.792 million is allocated for these beneficiaries. VII. Workers Welfare Fund Workers Welfare Fund (WWF) is also providing assistance to poor labourers all over the country. It provides funds for housing facilities for industrial workers and for other welfare programmes such as the Marriage Grant, Death Grant and scholarships etc. During the current fiscal year from July to March Rs. 77.021 million in expenditures has been incurred for scholarships. There are 1,456 beneficiaries of this program, who are children of poor workers. Another Rs. 636.930 million have been disbursed as Marriage Grants from which 9,138 families of the workers have benefited. WWF has also disbursed Rs. 341.200 million for Death Grants for 1,079 cases of mishaps of workers all over the country. Further, Rs 2,539.900 million expenditures have been incurred during July-April 2012 for 46 housing schemes which will benefit 15,000 families of workers. VIII. Microfinance Initiatives Microfinance has been widely recognized as an effective strategy to combat poverty by providing financial services, especially credit, to the poor, to allow them to become economically active. The credit programs offer a small loan to the beneficiaries for self-employment purposes that can start or enhance their income streams, and eventually making them self-reliant and move out of poverty. Although micro credit has been the main thrust in the past, today microfinance is seen as encompassing a wide range of financial services such as credit, savings and insurance. Microfinance services help the poor in accumulating assets and building income generating capacities that can provide better access to social services such as health and education, food security, and access to basic necessities of life. In addition, savings help them to manage their resources over time and to enable them to plan and finance their investments. Insurance becomes useful in order to mitigate the effects of unexpected shocks such as natural disasters. This has been very evident in 2010 and 2011, in the wake of floods and rains, crop failures, hike in prices, terrorism and macroeconomic shocks. The microfinance industry provides services in three broad categories namely, micro-credit, micro-savings and micro-insurance. Details of the industry are provided in Table-15.6 below:

Table-15.6: Active Borrowers, Active Savers and Active Policy holders by Peer Group Micro-credit Micro-Savings Micro-Insurance Active Value (PKR Active Value (PKR Policy Sum insured Details Borrowers Million) Savers Million) Holders (PKR Million) (Million) 2009-10 1.98 25.1 2.8 9.6 3.81 53.7 2010-11 2.03 27.5 3.6 12.7 2.7 33.6 Increase/ 0.05 2.40 0.80 3.10 -1.11 -20.10 decrease (Net) Increase/ 2.53 9.56 28.57 32.29 -29.13 -37.43 decrease (%) Source: Pakistan Microfinance Network (PMN).

The objective of the microfinance initiative is to provide liquidity to the microfinance providers in response to tighter liquidity conditions and spikes in inflation. It is provided as a package through microfinance banks (MFBs), microfinance institutions (MFIs), Rural Support Programmes

(RSPs), and others including Commercial Financial Institutions (CFIs) and Non-government Organizations (NGOs). Table 15.7 presents the number of Micro-credit beneficiaries with Outstanding Loans Portfolio (OLP) and Disbursements by loan providers.

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Table 15.7: MFP Total for Pakistan MF sector (year ended December 31, 2011) First Microfinance Bank Limited Khushhali Bank Kashf Microfinance Bank Pak Oman Micofinance Bank Tameer Bank Total for MFBS AKHUWAT ASA Pakistan ASASAH Community Support Concern Centre for Womens Cooperative Development DAMEN Kashf Foundation Orangi Charitable Trust SAFWCO Total for MFIs National Rural Support programme Punjab Rural Support programme Sindh Rural Suport Organization Sarhad Rural Support Programme Thardeep Rural Support programme Total for RSPs BRAC Jinnah Welfare Society Narowal Rural Development programme Orix Leasing Organization for Participatory Development Rural Community Development society Sungi Development Foundation Swabi WWS Total for Other Active Borrowers 1969,236 Outstanding Loans portfolio (PKR) Million 26,741.14 MFBs 139,435 440,461 19,912 11,917 132,728 744,453 MFIs 42,069 142,814 14,975 13,184 7,214 21,036 265,825 39,289 31,117 587,523 RSPs 329,975 61,446 38,236 2802 44,317 476,776 Others 97,547 15,825 2443 16,022 20,907 7049 979.86 231.02 26.67 179.18 301.98 47.95 96,186 15,735 1949 12,010 799 19,982 1,653.09 380.87 137.89 260.03 17.29 446.54 3,704.93 675.55 521.85 19.44 407.08 5,328.85 326,718 53,895 62,369 3020 46,725 492,727 5,674.51 916.40 979.41 43.51 669.60 8,283.43 355.16 1,580.14 170.81 160.47 127.51 459.31 2,645.16 482.49 309.07 6,290.42 43,307 149,224 10,080 12,862 4,107 24,591 150,555 25,595 28,219 448,540 569.43 2,809.73 184.73 315.14 214.08 605.31 3,306.42 439.52 467.45 8,911.82 2,625.52 4,823.72 694.67 128.23 5,070.42 13,342.56 152,683 374,633 20,942 6601 150,747 705,606 3,601.61 5,279.69 626.21 150.08 6,881.06 16,538.64 Number of Loans disbursed 1800,262 Disbursements (PKR) Million 36.72

672 19 160,484

11.68 0.96 1,779.30

6641 87 153,383

86.37 6.95 2,989.03

Conclusion Sustained growth on a consistent basis is needed to reduce poverty in the country. Macroeconomic stability is, of course, a pre-requisite for the sustained economic growth but it is not sufficient to reduce poverty. Rather, it is the foundation on 232

which to build a thriving economy. No single policy can completely address the needs of poverty reduction. Food-based interventions may play a supplementary and short term role in eliminating poverty. A multi-pronged approach is needed, which includes interventions to enhance incomes

Social Safety Nets and ensure growth combined with safety nets programs to cater to the marginalized and those that cannot be included directly. This requires interventions in the production system, transfer of resources and employment programmes as well as effective safety net programs. The new growth strategy introduced by the Planning Commission focuses on enhanced growth through increase in productivity in a regulatory environment that enhances competition and promotes innovation. It focuses on markets, competition and youth and on vibrant cities that maximize the efficiency of production and commerce by taking advantage of all growth linkages. Furthermore, successfully targeted social safety net programs, fair and broad based fiscal regimes, efficient labour markets that promote job creation, and high quality education opportunities for the youth are also interventions undertaken by the government to reduce poverty on a permanent basis. Government at all level is highly committed to poverty alleviation programs and all efforts are being made to ensure continuity of these programmes.

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Chapter 16

Environment
Pakistan continued to face challenges in achieving environmentally sound development. This has become increasingly difficult in the backdrop of the consecutive floods and rains across the country as well as other exogenous and endogenous factors. The quality of the natural environment is not only an extremely important issue from the point of view of individual survival but it will also emerge as one of the principal human security issues in Pakistan. The environmental challenges include climate change impacts, loss of biological diversity, deforestation and degradation of air and water quality. The fast growing population poses a significant challenge for Pakistan. The existing environment management capacity cannot sustain such a large population with a good quality of life. This chapter discusses the various environment related issues and challenges faced by Pakistan, and the initiatives taken by the government to address and combat those challenges. The first section provides a review of government policies and programs intended to put a focus on environmental issues in Pakistan and actively combat the adverse impacts of climate change. The second section describes the state of the environment in Pakistan, and identifies key challenges and shortcomings in terms of air and water pollution and forestlands. Mangrove ecosystems and coastal resources are discussed next, followed by an overview of the 2011 floods and institutional responses to the disaster. The final section concludes the chapter. Climate Change: The Evolution of Policies and Programmes As a result of concerted efforts of the government, the word environment has been gradually achieving a greater and wider audience and acceptance in the country. Awareness about environmental issues has been rising and institutions have been built to address these issues. Civil society institutions working on environmental issues are strengthening and their influence has increased. The government, therefore, has effectively engaged to arrest the processes of environmental degradation through various programmes during the last three years. Some highlights of the governments efforts to combat the adverse effects of climate change are listed below. ` The National Climate Change Policy 2011 has been developed which provides a framework for addressing the issues that Pakistan face or will face in future due to the changing climate. With the devolution of Ministry of Environment, Provinces now have more powers in policy formulation and implementation. Improvements in weather forecasting which helps in sound and timely decision making in agricultural practices and better management of natural resources and disaster response. The National Marine Disaster contingency plan was implemented by the Maritime Security Agency (MSA) by carrying out Barracuda-I and Barracuda-II exercises. EURO - II standards for vehicle emissions were adopted for new manufacturing vehicles 235

Pakistan Economic Survey 2011-12 industries. Drinking water quality standards, Ambient air quality standards and Noise standards were also adopted.. ` 17 Laboratories have been adopted with Provincial Agencies/Departments under Pakistan Environmental Protection Agency, (Certification of laboratories) Regulation 2000 for carrying out analysis of the industrial effluents, waste waters and other analytical research requiring Lab facilities in the country. The Cartagena Protocol on bio safety was ratified. Swiss Model of Vertical Shaft Brick Kiln (VSBK) was identified as an environment friendly and energy efficient brick manufacturing technology. Demonstrations for the model were held in collaboration with Bricks Manufacturing Associations. Pakistan Clean Air Programme (PCAP) has been approved. ` Awareness raising workshops for the policy and decision makers in order to make grounds for SEA Capacity building through trainings on SEA. Case studies on SEA from Pakistan were presented at international forums. EIA regulation were reviewed and revised. Extensive training programmes were held to build capacity; seminars and workshops were organized to raise awareness.

` ` ` `

Comment [MM1]: Please verify this rephrasing is reflecting the reality in Pakistan

` `

A National Impact Assessment Program (NIAP) is being jointly implemented by the Planning Commission/Planning and Development Division (Environment Section), Ministry of Disaster Management (Pakistan Agency and Environment Wing), Provincial EPAs and IUCN Pakistan. The Netherlands Commission for Environmental Assessment is providing technical support for NIAP and it is funded by the Embassy of the Kingdom of Netherlands. The objective of the program is to contribute to sustainable development in Pakistan through strengthening of the Environmental Impact Assessment (EIA) process and introducing Strategic Environmental Assessment (SEA) in the national development planning. The NIAP is housed in the Planning Commission of Pakistan since the Program Coordination Unit is primarily responsible for creating ownership for the program within the public sector, coordinating amongst the Program partners and ensuring post-program sustainability of the efforts. The NIAP has achieved the following targets for SEA and EIA: ` Formulation of SEA task force where SEA pilots are under consideration.

In response to the environmental and climate change related policies, a number of projects have been funded by the government to improve the capacity of relevant institutions to deal with increasing environmental degradation. In addition, there are number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment of the country. These projects include the National Environmental Information Management System, National Impact Assessment Program and the Pakistan Wetlands Program. After, the devolution of the Ministry of Environment on 28th June, 2011 the Ministry of Disaster Management took over the responsibilities of the environment sector at the federal level. Due to the limited resources at its disposal, government efforts alone are not sufficient to address challenges resulting from climate change. A much larger participation and support from other stakeholders including industry, civil society, and the public at large as well as the donors is needed to effectively respond to climate issues. Pakistan is a signatory to major environmental conventions and protocols. As signatory to the United Nations Framework Convention on Climate Change (UNFCCC) and a member state of the World Bank, Pakistan qualifies for financial and technological assistance. At the UNFCCC Cancun conference the developed countries have committed to create a sizable Green Climate Fund with fast start finance. In order to benefit from international financial mechanisms, the Government of Pakistan expects to take the following measures:

Comment [MM2]: should this be "dissolution" or "dismantling"?

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Environment ` Continue to assess how best to position Pakistan vis-a-vis other groups of developing countries in order to secure adaptation funding; Ensure the access and effective use of the opportunities available internationally for adaptation and mitigation efforts e.g. through Global Climate Fund (GCF), Clean Development Mechanism (CDM), Adaptation Fund (AF), Global Environment Facility (GEF),World Banks Forest Carbon Partnership Fund (FCPF), etc.; Establish a Pakistan Climate Change Trust Fund for financing climate change related projects; ` Continue to push for transparent delivery of new and additional fast start funding by developed countries; Develop public-corporate-civil society partnership for financing and implementation of climate change adaptation and mitigation projects; Create domestic carbon market opportunities by introducing appropriate investment framework linked with regional banking institutions.

The Millennium Development Goals (MDGs) are the centerpiece of development efforts of the Government of Pakistan. The status of the MDGs with reference to environment sector indicators is presented below, (Table 16.1).
Year 2004-05 2010-11 4.9 5.17 11.3 2740 48@ 92@ 10 4 3

Table 16.1The MDG targets and achievements Name of Sector/Sub-Sector MDG Targets 2015 6.0 12.0 920 90 93 ----

Forests cover including State and private forests/farmlands (%) Area protected for conservation of wildlife (%) 11.3 No. of petrol & diesel vehicles using CNG fuel (000) 380 Access to sanitation (national)% 42 Access to clean water (national)% 65 Number of continuous air pollution monitoring stations. 0 Number of regional offices of Environmental Protection 0 Agencies Functional Environmental Tribunals 2 Source: Environment Section, P&D Division, @ = Source (WHO/UNICEF) Box1 ClimateChange

Climate change is an area that has become increasingly important in recent years and raises issues of global justice and equity. Whereas the richer industrialized countries are primarily responsible for greenhouse gas emissions, it is the poorer developing countries who would most heavily bear the costs of climate change. It is major concern for Pakistan because of its large population and economic dependence on primary natural resources. Pakistans agrarian economy is heavily dependent on river water provided by melting glaciers Pakistani cities are facing problems of urban congestion, deteriorating air and water quality and waste management while the rural areas are witnessing rapid deforestation, biodiversity and habitat loss, crop failure, desertification and land degradation. In this regard, the National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate. The policy provides a comprehensive framework for the development of an action plan for national efforts on adaptation and mitigation. The goal of the policy is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of the economy and to steer Pakistan towards climate resilient development The main objectives of Pakistans climate change policy 2011 include ` To pursue the sustained economic growth by appropriately addressing the challenges of climate change

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` ` ` ` ` ` ` ` ` ` To integrate climate change policy with other related national policies To facilitate and strengthen Pakistans role as a responsible member of the international community in addressing climate change challenges To focus on pro-poor gender sensitive adaptation while also promoting mitigation to the extent possible in a cost effective manner To ensure water, food, and energy security of the country in the face of challenges posed by climate change To minimize the risks arising from expected increase in frequency and intensity of extreme events: floods, droughts, tropical storms, etc. To strengthen inter-ministerial and inter-provincial decision making and coordination mechanism on climate change To facilitate effective use of the opportunities, particularly financial, available both nationally and internationally To foster the development of appropriate economic incentives to encourage public and private sector investment in both adaptation and mitigation measures To enhance the awareness, skill and institutional capacity of relevant stakeholders To promote conservation of natural resources and long term sustainability

The climate change threats to Pakistan are: ` ` ` ` ` ` ` ` ` ` Considerable increase in frequency and intensity of extreme weather events, coupled with erratic monsoon rains causing frequent and intense floods and droughts Projected recession of Hindu Kush-Karakoram-Himalayan (HKH) glaciers due to global warming and carbon soot deposits from trans-boundary pollution sources, threatening water inflows into Indus River System (IRS) Increased siltation of major dams caused by more frequent and intense floods Increased temperature resulting in enhanced heat- and water-stressed conditions, particularly in arid and semiarid regions, leading to reduced agricultural productivity Further decrease in the already scanty forest cover from too rapid change in climatic conditions to allow natural migration of adversely affected plant species Increased intrusion of saline water in the Indus delta, adversely affecting coastal agriculture, mangroves and breeding grounds of fish Threat to coastal areas due to projected sea level rise and increased cyclonic activity due to higher sea surface temperatures Increased stress between upper riparian and lower riparian regions on sharing the water resources Increased health risks and climate change induced migration The above threats are the cause of major survival concerns for Pakistan, particularly in terms of the countrys water, food, and energy security considerations

State of the Environment Air With an estimated 37 percent of its population living in cities, Pakistan is the most urbanized country in South Asia. Rapid urbanization has been accompanied by environmental problems such as pollution, waste management, congestion and the destruction of fragile ecosystems. Urban air pollution remains one of the most significant environmental problems facing cities. A substantial body of research demonstrates that high

concentrations of suspended particulate matter adversely affect human health; prolong a wide range of respiratory diseases and increases the probability of heart ailments. The higher concentration of Suspended Particulate Matter (SPM) in the air is a major issue in Pakistan. The main sources of SPM are vehicular emission, industrial emissions, burning of solid waste, pollens, brick kilns and natural dust. SPM can originate through natural phenomenon, such as unpaved roads and places uncovered by
Comment [MM3]: chapter on labor force/population mentions that urban unemployment higher than rural.

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Environment green grasses or trees. Fine sized particles of soil may be raised in the form of dust cloud by driven motor vehicles and by strong wind. Another origin of fine particles is anthropological activities. These include emissions from the motor vehicle and industrial activity. Climatic and geographical conditions also affect the level of SPM in ambient air. These include the type of soil, temperature, wind speed, relative humidity and quantity of precipitations. Several studies of air, water and noise pollution have been carried out by the Pakistan Environmental Protection Agency (Pak-EPA). In June 2011, Pak-EPA conducted a study to monitor the vehicular emissions in Islamabad. Vehicles were examined at 13 different locations of Islamabad. A total of 576 diesel, petrol and CNG driven vehicles were tested in 13 days. Nearly 43.5 percent of the total vehicles tested were found noncompliant of National Environmental Quality Standards (NEQS). During this study, noise level was also monitored and found within safe limit except at two places where the noise level was recorded to be over the safe limit for a short period of time. Ambient air quality data recorded by real time automatic monitoring stations in the five capital cities confirmed the presence of high concentration of suspended particulate matter. The level of PM (Particulate Matter size below 2.5 micron), which is mainly due to the combustion source, was reported to have reached an alarming level (2-6 times higher than the safe limit). The National Environmental Quality Standards (NEQS) for PM 2.5 is 25 micron/m3 annual average. The table and figure below show annual mean value of PM 2.5 in five capital cities.

Table 16.2: Annual Mean Value of Suspended Particulate Matter (PM 2.5) from June 2011-March 2012 Sr. No. City Level (g */m3) 1. Islamabad 87.05 2. Lahore 153.5 3. Karachi 52.91 4. Peshawar 74.53 5. Quetta Source: Pakistan Environment Protection Agency. * g = g stands for microgram 63.92

Comment [MM4]: if i'm not mistaken, this should be the greek letter mu and not a u. please verify.

The level of other pollutants in the ambient air like carbon monoxide (CO), Sulphur dioxide (SO2), Oxides of nitrogen (NOx), Ozone (O3) and Hydrocarbons (HC) are within safe limits according to National Environmental Quality
Fig-16.1: PM 2.5
180.00 160.00 140.00 Concentration 120.00 100.00 80.00 60.00 40.00 20.00 0.00 Islamabad Lahore Cities 87.05 153.50

Standards (NEQS) for ambient air. Sometimes the concentration of NOx and SO2 goes higher than the safe limit at Lahore and Peshawar, but this happens for short periods of time and represents a short time exposure to the public.

74.53 52.91

63.62

Karachi

Peshawar

Quetta

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Pakistan Economic Survey 2011-12 Motorcycles and rickshaws, due to their two stroke (2-strokes) engines, are the most inefficient in burning fuel and contribute most to emissions. 2stroke vehicles are responsible for emission of very fine inhalable particles that settle in lungs and cause respiratory diseases. The 2-stroke vehicles
Table 16.3Motor Vehicles on the Road Year Total 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Source: National Transport Research Centre

industry is fast growing in Pakistan and has increased by 117 percent in 2010-11 when compared with the year 2001-02. Rickshaws have grown by more than 11.1 percent while motorcycles and scooters have posted a growth of 120.4 percent over 2001-02, (Table 16.3).
Motorcycles/Scooter 2481.1 2656.2 2882.5 3064.9 3791.0 4463.9 5037.0 5368.0 5412.1 5468.8 (000 Nos.) Rickshaws 80.8 80.9 81.0 81.5 77.8 79.0 89.3 88.4 89.1 89.8

2561.9 2737.1 2963.5 3146.4 3868.8 4542.9 5126.3 5456.4 5501.2 5558.6

The use of coal in the power sector has been decreasing. This may be due to the fact that a number of plants have now been converted to natural gas. Likewise, there has been a reduction in coal usage for domestic purposes. Bricks kilns are
Table 16.4: Consumption of Coal Year Power 2001-02 249.4 2002-03 203.6 2003-04 184.9 2004-05 179.9 2005-06 149.3 2006-07 164.4 2007-08 162.2 2008-09 112.5 2009-10 125.5 2010-11 96.5 Source: Hydrocarbon Development Institute of Pakistan - : Not Available

another source of pollution in many areas. Use of low-grade coal and old tyres in bricks kilns generate dense black smoke (soot) and other kind of emissions. The use of coal has increased by 64.2 percent for bricks kilns in 2010-11 when compared with year 2001-02 (Table 16.4).
Brick Kilns 2577.5 2607.0 2589.4 3906.7 4221.8 3277.4 3760.7 3274.8 3035.2 4231.5 (000 M/Tons) Household 1.1 1.1 1.0 1.0 1.0 0.8 -

In the past few years, the CNG Sector has seen tremendous growth. 3,331 CNG stations are currently operational making Pakistan one of the largest users of CNG in the world. The use of CNG as an alternate fuel in the transport sector has helped to reduce air pollution to a considerable

extent including reduction of suspended particulate matter (SPM) emitted from the public transport as well as private vehicles. Since the country is facing a shortage of CNG, other alternative sources such as LNG are being considered as a part of environment friendly component.

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Environment
Table 15.5Growth in CNG Sector As on CNG Stations (No.) December 2000 150 December 2001 218 December 2002 360 December 2003 475 December 2004 633 December 2005 835 December 2006 1,190 16th May, 2007 1,450 February 2008 2,063 December 2009 3,051 June 2011 3,331 Source: OGRA, Ministry of Petroleum & Natural Resources Converted Vehicles (No.) 120,000 210,000 330,000 450,000 660,000 1,050,000 1,300,000 1,400,000 1,700,000 2,000,000 2,740,000

Water and Sanitation Although 70.9 percent of earths surface is covered with water nearly 97 percent of this is saltwater. Most of the remaining 3 percent are in the polar ice caps, glaciers, atmosphere or underground reservoirs and hard to reach. Only 0.4 percent is available for direct use. Freshwater is a precious natural resource and fundamental to the survival of humans and most other land-based life forms. Water Pollution Water pollution has been a serious concern affecting not only humans but also plants and animals. The ecosystem of rivers, lakes, streams, and seas are deteriorating due to contamination of water from various sources. This situation is leading to many health problems including serious illnesses transmitted by polluted drinking water such as cholera, typhoid fever, hepatitis A and B, dysentery, etc. Dumping of solid and liquid industrial waste, improper disposal of human and animal waste, and residues of agriculture practices like fertilizer and pesticides are all major contaminants of drinking water. These pollutants are discharged directly into rivers and irrigation canals and also transmitted by rain water runoff and get mixed with ground water aquifer. Drinking Water and Sanitation Globally, access to drinking water was at 87 percent in 2011. In order to meet the MDG target, an additional 2 percent is needed by 2015. In Pakistan, statistics on access to drinking water is

impressive; according to the Pakistan Bureau of Statistics (PBS) report Pakistan Standard Living Measurement (PSLM) 2010-11, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent respectively, with an average of 87 percent in 2011.Hence access to the source of drinking water is satisfactory. According to Pakistan Council of Research in Water Resources (PCRWR), the majority of the population in the country is exposed to the hazards of drinking unsafe and polluted water from both surface and ground water sources. As derived from the National Water Quality Monitoring Programme carried out by the PCRWR, the 4 major contaminants in drinking water sources of Pakistan were bacteriological (68 percent), arsenic (24 percent), nitrate (13 percent) and fluoride (5 percent). Similarly, the five years trend analysis has revealed that out of a total 357, only 45 water sources (13 percent) were found safe and the remaining 312 (87 percent) were unsafe for drinking purpose. In Pakistan about 68 percent of the drinking water consumption is from groundwater for both urban and rural areas. Pak-EPA has conducted a 4 month study to monitor the water quality of Rawal Lake and its tributary. Samples were collected on monthly basis and analyzed at the Central Laboratory for Environmental Analysis and Networking (CLEAN). Parameters like biological oxygen demand (BOD), conductivity and total suspended solid were found to be higher than surface water standards. BOD was found to be 2 to 8 times and 241

Comment [MM5]: the subsequent paragraphs are suggesting that manys ources are polluted? if those paragraphs are true, then we need to add this sentence to the claim that access to drinking water is excellent.

Pakistan Economic Survey 2011-12 TSS 1.2 to 6.2 times higher than surface water guidelines. Globally, improved sanitation coverage was just above the 60 percent mark in 2008, up from 54 percent in 1990, with over 2,500 million people still without access. Half of the people living in developing regions have no access to improved sanitation1. Municipal sewage is a major source of surface water pollution. About 2 million wet tons of human excreta are annually produced in the urban sector of which around 50 percent go onto pollute water bodies. The National Conservation Strategy states that almost 40 percent of all disease related deaths are connected to water borne diseases. Other sources of water pollution are industrial effluents, solid waste, hospital waste, chemical fertilizers and pesticides. In Pakistan sanitation facilities are improving. However, much improvement is needed for rural areas sanitation facilities. According to PBS Pakistan Standard Living Measurement 2008-09, 14 percent of all garbage collection facilities provided to the population are executed through municipalities, 7 percent through privately managed collection systems, and the remaining 79 percent have no system. The most basic requirement for proper sanitation is safe disposal of excreta away from a dwelling unit, by using a sanitary latrine. There is a great variation in latrine coverage between provinces. Urban Sindh has the best coverage followed by urban Khyber Pakhtukhwa. In most of the urban and rural population water is supplied from the ground water except for the cities of Karachi, Hyderabad, and part of Islamabad, which mainly uses surface water. Therefore, deteriorating ground water quality in Pakistan has serious implications for the environment and health of Pakistans population. Different national and international reports have identified Pakistan as one of the most water stressed countries in the world, facing lack of
1

water availability for irrigation, industry and human consumption. According to a World Bank report, water supply in Pakistan fell from 5000 cubic meters to 1000 cubic meters in 2010, and is likely to further reduce to 800 cubic meters per capita by 2020 due to growing population pressure, rapid urbanization and industrialization. The government is committed to provide safe drinking water through clean drinking water initiatives and installation of water filtration plants. However, the execution and monitoring of government efforts are being hindered by limited resources, increasing population, fast growing urban development, industrialization, high operational and maintenance and poor cost recovery, lack of private sector participation, and low institutional capacities. Strategy and Action Plans (Water & Sanitation) ` Develop legal and policy frameworks regarding promotion of safe drinking water in Pakistan. This promotion would include desalinization of sea water. Develop a water quality database to assist in decision making. Establish a water quality monitoring and surveillance system based on enforceable water quality guidelines and standards. Conduct cyclic 4 seasonal water quality monitoring for major rivers and water reservoirs. Address arsenic pollution of groundwater in Sindh and Punjab through specific initiatives including investigative studies and awareness raising programmes. Develop legal and policy frameworks regarding promotion of safe drinking water in Pakistan. Make installation of water treatment plants an integral component of drinking water supply schemes. Develop an integrated approach that will guide the allocation of water, allocation of investment and pricing of water services, both in rural and urban areas.

Comment [MM9]: How did access to water remain at 90-95% with this precipitous drop in availability?

Comment [MM10]: don't capitalize unless that's the name of the initiative. Comment [MM6]: tonnes, right?

Comment [MM7]: 40 percent of disease related deaths, right?

Comment [MM8]: This heading also talks about drinking water, while the previous section also talks about sanitation. Makes sense to combine into one sub-heading?

` `

UN-2011

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Environment ` ` ` ` ` ` ` ` Promote and devise methods for harvesting rain water using low-cost structures. Clarify national sanitation policy in order to make it explicit and consistent. Encourage and promote public toilets in all urban centres. Develop systems for safe sewage disposal. Awareness raising and bringing an attitudinal change. Generate resources (locally and nationally) and ensure participation of stakeholders. Guide appropriate technical choices. Establish public-private-civil collaborative arrangements. society Forests and REDD+ (Reducing Emissions from Deforestation and Degradation plus) Increasing GHG emissions are contributing to global warming and leading to accelerated climate change. The REDD+ initiative facilitates trade between developed countries who are net emitters of GHG and the developing countries who are net non-emitters, since they do not have heavy industry that produce carbon but have forests that can stock excess carbon in the air. Under REDD+ mechanism, the emitters may trade their carbon to be consumed/stocked by forests in developing countries at a per ton cost to be calculated as per Certified Emission Reduction (CER). This process builds a nexus between climate change and forest carbon credits. Therefore, the concept of REDD+ was developed as an incentive based mitigation response from the Montreal Climate Change Negotiations (COP 11) in 2005 to address 17-25 percent reported global share from deforestation and forests degradation. This will involve enhancing existing forests and increasing forest cover. This concept has three important phases: ` Readiness phase (2010-2012): enacting national strategies supported by appropriate capacity building Pilot phase or Investments phase: learning by doing through pilot projects. This is underway in some countries, before the enactment of international rules. Implementation or Operations phase (20132020): performance-based payments are made, either by direct funding or via links to the global carbon market, leading to the global implementation of REDD+.
Comment [MM11]: toilets, surely?

Comment [MM12]: right?

According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, in Pakistan 92 percent people had gained access to source of drinking water by 2010 while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015. Moreover, 48 percent people have been using improved sanitation by 2010 while this ratio was 27 percent and 37 percent in 1990 and 2000 respectively. The MDG target for access to sanitation is 90 percent by 2015. Forest Currently Pakistan has only 5.17 percent of total land area covered with forest placing Pakistan among countries with low forest cover. The countrys forest area is divided into state-owned forests, communal forests and privately owned forests. Major forest types existing in Pakistan are temperate and subtropical conifer forests, scrub forests, riverine forests (irrigated plantations), liner plantation (roadside, canal-side) and mangrove forests. The existing forest resources in the country are under severe pressure to meet the fuel-wood and timber needs of a rapidly growing population. In addition to this, the wood based industries including housing, sports, matches and furniture are continuously growing.

Comment [MM13]: first paragraph on page 10 put the global access to water at 87 percent in 2011. It droped 5% in a year? Comment [MM14]: on page 12, the MDG target for 2015 is stated to be 87+2= 89 percent? these reports need to be consistent.

REDD+ Potential and Pakistan: Pakistan has a low forest cover with diversified forest types from coastal mangrove and riverine ecosystem to alpine Chir Pine forests within placed diversified community. There is a decline in overall forest cover in Pakistan, with the amount of forests declining by just under 2 percent in the 1990s, but by more than 2 percent in just five years, from 2000 to 2005. This decline needs to be taken into account to get maximum benefits from

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Pakistan Economic Survey 2011-12 REDD+. The government is striving to reverse these negative trends and aiming to increase Pakistans forest cover to 6 percent by 2015. The total carbon stock of conifer forests could be estimated as 58 mega tons on the basis of biomass estimations by Asia Least cost Greenhouse Gas Abatement Strategy (ALGAS). On the bases of FAO Deforestation data 1990-2005 and ALGAS, 389 mega tons of carbon potential could be estimated for all types of forests in Pakistan with an estimated annual return of US$ 54 million at a rate of US$ 15 per tonne of carbon credits2. Other estimates by Leadership for Environment and Development (LEAD) 2010 3 points to potential earnings of between $94.74 million and $315.8 million per year if deforestation is halted completely. This estimate reflects the limited data available and provides only an indicative estimate. The actual potential could be far greater, depending on the carbon price and the sectors included under REDD+. Pakistans efforts with regard to the REDD+ initiative need to be significantly enhanced on a priority basis in order to achieve the global target and meet the basic requirements of REDD+ readiness phase. As Pakistan faces a high rate of deforestation and aims to reverse this trend, the active engagement in REDD+ is a unique opportunity to support this national priority. However, this needs to be driven by a focused strategic plan and supported by a scaling up of national technical and institutional capacity to deal with REDD+ mechanism. Mangroves Ecosystem and Coastal Resources The coastal belt of Pakistan extends up to 1,050 km along Sindh and Balochistan provinces. The total population in and around mangrove forests on the coast of Pakistan is estimated to be around 1.2 million people, nearly 900,000 of whom reside in the Indus Delta 4 . At least three quarters of the Deltas rural population depend, directly or indirectly on fishing as their main source of income. Pakistans commercial marine fisheries operate in and around the mangrove creeks on the coast of Sindh province. The annual value of fish caught from mangrove dependent fish species in the Indus Delta is estimated at around $20 million. Shrimps are also particularly important, with a domestic value of $70 million and an export value of about one and a half times this figure, and the export of mud crabs contributes an additional $3 million to the regional economy. Beside these economic benefits, the mangrove forest benefits the ecosystem by providing nurseries for many species of fish and shrimp, stabilize shorelines and reduce coastal erosion, and protect coastal habitations from storm damage. It provides grazing grounds to at least 8,000 camels, 5,000 buffaloes and over 1,000 goats, in addition to providing other forest products like fuel wood, honey, and medicinal plants to local communities. It is estimated that one hectare of properly managed mangroves can yield 100 kg of fish, 25 kg of shrimp, and 15kg of crab meat annually. Mangrove Forest Degradation The most prominent and most sensitive ecosystem of the region is characterized by mangroves forest that form a number of direct and indirect linkages with the socioeconomic status and occupations adopted by the community. The figures from Sindh Forest Department (SFD) and IUCN-Pakistan estimated that 196,000 ha of mangrove forest in Pakistan has been lost up to 2007. According to the change analysis done by WWF-Pakistan at Keti Bunder site through satellite imaging, the mangrove cover has experienced a drastic decline of 20 percent, from 1992 to 2007. Moreover, the creeks are also perceived to widen in future due to exacerbation of soil erosion along the Arabian Sea, which forces the mangrove forest towards instability and this instability trend has been continuous from 1992 to 2007, with a very nominal percentage of dense mangrove forests remaining stable during this time period. Similarly WWF-Pakistan also reported that the 0.5 million

Comment [MM15]: what's this? per tonne?

Iqbal. K.M.J., and Ahmad. M., (2011) SDPI, Policy Paper Series # 38 September 2011 LEAD (2010) REDD+ Policy Brief 4. LEAD-Pakistan 4 (Salman 2002), and Sindh Forest Department 2012.
3

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Environment hectares of fertile land in Thatta district alone is affected by sea intrusion. The other major threats to mangrove ecosystem includes shortage of fresh water and resultant silt depositions, industrial and municipal pollution, dumping of waste, oil spills and leakages, and encroachment of settlements around mangrove forests. The Government of Pakistan has taken steps to halt the deforestation of mangroves by establishing protected areas and new plantations by forest department with the help of nongovernmental organizations like WWF-Pakistan and IUCN. Floods of 2011 and Policy Responses In a Damage and Need Assessment Report jointly prepared by the Asian Development Bank and the World Bank, it has also been pointed out that in addition to causing loss of life, displacement of millions, and huge losses to the economy, the floods in 2011 have resulted in environmental damages, heightened environmental health risks and affected forests, wetlands and other natural systems. The floods have also caused contamination of drinking water, proliferation of disease vectors caused by stagnant water ponds, and accumulation of solid wastes factors that would further exacerbate health risks for the affected population, particularly women and children. Environmental degradation and its effects on human health was already a significant development challenge in Pakistan, which has some of the highest prevalence rates in all of South Asia for child mortality, diarrhea and acute respiratory illnesses associated with environmental factors. The conditions created by the floods could result in a significant increase of these and other illnesses. No estimates are available for damages to other environmental resources such as wetlands and mangroves at this stage. To fill such damage data gaps, follow-up environmental studies have been proposed to address safe disposal of debris, leakage/spillage of hazardous and/or toxic substances and assess damage to cultural heritage sites. The floods were initiated by a natural phenomenon; however, anthropogenic interventions exacerbated them, particularly as destruction and degradation of natural ecosystems reduced their capacity to protect from flood. Also, development of settlements and croplands in floodplains as well as blocking of natural drainage routes created the conditions for the current human tragedy. To avoid such disasters in the future, strengthening the resilience of the Indus Watershed is urgently needed, involving an approach that combines structural and non-structural measures that are strategic, feasible, and affordable to minimize vulnerability to extreme weather events. Such an approach also calls for improved management of the Indus Basins major natural resources through strengthened coordination of flood-related actions within and among the provinces. Towards this end, the following priority actions are proposed to be undertaken: ` ` ` Addressing environmental health priorities, including drinking water, sanitation, hygiene and indoor air quality Reviewing/updating the flood protection strategy and master plan, and preparing a storm water drainage master plan; and Preparing land use plans and building regulation, and strengthening legal and institutional frameworks.

Comment [MM16]: this sentence is not adding anything new

The environmental damage caused by floods has been estimated at Rs. 2,762.7 million (US $ 31.8 million) and environmental recovery / reconstruction needs has been estimated at Rs. 2,873.6 million (US $ 33.02 million). Environmental Considerations in Policy Response The 2011 floods have caused wide-ranging damage to different sectors of the economy. The reconstruction and recovery needs are diverse and multi-faceted and work has to be undertaken on an urgent basis. However, these interventions, particularly those related to irrigation, agriculture, transport, health, education, housing, and water supply and sanitation are likely to cause negative environmental impacts. In order to ensure the sustainability of the reconstruction and recovery process, these negative environmental impacts ought to be addressed as an integral part of all sectoral plans.

Comment [MM17]: I don't know if I understand the message here: reconsutruction efforts are going to create a carbon footprint. Is that the negative environmental impact being referred to here? Even if it is, it's hard to see the "social" impact here.

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Pakistan Economic Survey 2011-12 The national environmental legislation (Pakistan Environment Protection Agency 1997), as well as the international financial institutions (IFIs) safeguards require that environmental and social assessments are carried out and management plans/frameworks are prepared prior to undertaking the interventions such as those recommended in the floods Damage and Need Assessment. However, details of the specific activities associated with the individual reconstruction and recovery plans in the majority of sectors are not currently known, hence the potentially adverse environmental and social impacts of these activities cannot be identified. Instead, it is proposed that a broad Environmental and Social Screening and Assessment Framework (ESSAF) be prepared for the overall reconstruction and recovery needs. The ESSAF will define the environmental and social screening and assessment requirements of individual projects or interventions, and will guide the implementing agencies in identifying the appropriate type and level of environmental and social assessment to be carried out prior to undertaking each project or intervention in compliance with national as well as IFIs safeguard requirements. The ESSAF will also define the requirements for preparing appropriate environmental and social documents, and obtaining approvals/clearances of these documents from the relevant agencies. To ensure implementation of ESSAF, it is further proposed that each line agency (Provincial Disaster Management Authority / District Disaster Management Authority) appoints an environmental and social focal person within the department. Conclusion The Government of Pakistan has undertaken various steps to combat the negative impacts of climate change. This chapter provided an account of institutional change, including raising awareness, developing strategy and policies, and implementing programmes to actively address and reverse adversities faced due to global warming and the resultant climate change. The state of Pakistans atmosphere, including air and water quality, state of forestry, and coastal resources were described, identifying the key challenges that remain in these areas as well as new strategies that have been adopted (REDD+) by the government. The chapter identifies that it will be crucial to carefully evaluate disaster response and rebuilding strategies to make sure that they are environmentally sustainable.

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Annex 1

Contingent Liabilities
Introduction Contingent liabilities are possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the government. Contingent liabilities should be examined in the same manner as a proposal for a loan, taking into account, inter alia, the credit-worthiness of the borrower, the amount and risks sought to be covered by a sovereign guarantee, the terms of the borrowing, justification and public purpose to be served, probabilities that various commitments will become due and possible costs of such liabilities. Hence, such off balance sheet transactions cannot be overlooked in order to gain a holistic view of a countrys fiscal position and unveil the hidden risks associated with the obligations made by the government outside the budget. Similarly, reported debt levels of a sovereign may be understated owing to the non-inclusion of contingent liabilities, explicit or implicit, which may materialize in future.
Table 1 Guarantees Outstanding as of March 31, 2012 (Rs. Billion) Outstanding Guarantees extended 487 to PSEs -Domestic Currency 256 -Foreign Currency 231 Memo: Foreign Currency (US$ Million) 2,544 Source: Debt Policy Coordination Office

Sector Enterprises (PSEs) and unfunded losses of State Owned Entities. Total outstanding stock of government guarantees as of March 2012 stood at Rs. 487 billion. The Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 stipulates that the issuance of guarantees, including those for Rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed from time to time as well as renewal of existing guarantees, should not exceed 2.0 percent of the estimated gross domestic product in any financial year. As of March 2011, Government of Pakistan issued new guarantees aggregating to Rs. 146.6 billion or 0.7 percent of GDP [as shown in Table 2].
Table 2: Guarantees Issued Details Issuance Fiscal Year (Rs. Billion) 2007 140.7 2008 138.8 2009 276.3 2010 224.0 2011 62.4 2012* 146.6

As % of GDP 1.6 1.4 2.2 1.5 0.3 0.7

Source: Budget Wing & Debt Policy Coordination Office * : July - March 2012

The outstanding contingent liabilities as of March 31, 2011 stood at Rs.487 billion against the endJune 2011 position of Rs. 559 billion (Table 3).

In the case of Pakistan, these include, for instance, explicit and implicit guarantees issued to Public 259

Pakistan Economic Survey 2011-12


Table 3: Guarantees Stock Guarantees Outstanding Guarantees (1+2) 1- Domestic Currency (Rs. Billion) 2- Foreign Currency (Rs. Billion) Foreign Currency (US$ Million) Source: Debt Policy Coordination Office * July-March 2012

2010 603 329 274 3,246

2011 559 301 258 2,999

2012* 487 256 231 2,544

Guarantees issued against commodity operations are not included in the stipulated limit of 2 percent of GDP as the loans are secured against the underlying commodity and are essentially self liquidating and thus should not create a long term liability for the government. The quantum of these guarantees depends on the supply-demand gap of various commodities, their price stabilization

objectives, volume procured, and domestic and international prices. The guarantees were issued against the commodity financing operations undertaken by TCP, PASSCO, and provincial governments. As of April 2012, the outstanding stock of Rs. 303.9 billion against the end-June 2011 position of Rs. 397.5 billion indicates a retirement of Rs. 93.6 billion on behalf of commodity financing operations.

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Executive Summary
The Government remained focused on maintaining macroeconomic stability, growth, mobilizing domestic resources and increasing exports, balanced regional development and providing safety nets for the vulnerable groups. Despite numerous challenges, the economy performed better in 2011-12 than many developed and developing economies. These included sharp increase in fuel and commodity prices, recessionary trend globally and weak inflows. Domestically, economy was struck by heavy rains in Sindh and parts of Balochistan costing $ 3.7 billion. Notwithstanding these challenges, the Gross Domestic Product growth this year is estimated at 3.7 percent as compared to 3.0 percent last year. In comparison, the global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. International Monetary Fund has maintained its growth forecast of 2.1 percent for United States in the year 2012, negative 0.3 percent for Euro area, 0.8 percent for United Kingdom, 5.7 percent for Emerging and Developing Economies after factoring China (8.2 percent) and India (6.9 percent) and 2.0 percent for Japan. Despite global slowdown, Pakistan has managed to maintain its exports during July-April 2012 to last years level which saw a phenomenal growth. Remittances remained buoyant and estimated at close to $ 13 billion, an increase of 16 percent. Recessionary trend globally have, however, impacted capital flows to Pakistan. Current account balance was affected due to sharp increase in oil prices and import of 1.2 million metric tons of fertilizer. Tax measures enforced by the Government in April 2011 has yielded dividend. July-April 2012 growth in FBR tax revenues demonstrated a growth of 24 percent with Rs. 1445 billion as compared to 1250 billion last year. Efforts are underway to reach the ambitious target of 1952 billion. Non-tax receipts have been less due to non disbursement of anticipated coalition support funds and delaying the expected auction of 3 G license to a later part of summer. Growth and Stabilization The economy is now showing signs of modest recovery. GDP growth for 2011-12 has been estimated 3.7 percent as compared to 3.0 percent in the previous fiscal year 2011. The Agriculture sector recorded a growth of 3.1 percent against 2.4 percent last year. The Large Scale Manufacturing (LSM) growth is 1.1 percent during July-March 2011-12 against 1.0 percent last year. Overall, the commodity producing sectors and especially the Agriculture sector have performed better. The Services sector recorded growth of 4.0 percent in 2011-12. Flood Impact Assessment This performance has been achieved despite severe monsoon rains triggered floods of an unprecedented scale in Southern Pakistan, engulfing 23 districts of Sindh Province and adjoining areas of northern Balochistan causing damages to crops, infrastructure and human settlements, thus adversely affecting national economy. According to the World Bank and the Asian Development Bank (ADB) Damage and Needs

Pakistan Economic Survey 2011-12 Assessment (DNA) Report, approximately, 9.6 million people were affected in Sindh and Balochistan as a result of these rains. The total damages estimated to Agriculture, Energy, Transport and Communication, Health, Environment as well as the Forestry, Water Supply and Sanitation amount to Rs. 324.5 billion (US$ 3.7 billion).The rehabilitation and Cost of recovery is estimated at Rs. 239 billion (US$ 2.8 billion). This is in addition to damages of $ 10 billion to the economy during 2010 floods. Commodity Producing Sector: The commodity producing sector has performed better in the outgoing fiscal year as compared to last year. Its growth rate this year was 3.3 percent against 1.5 percent during last year. Agriculture Sector is a key sector of the economy and accounts for 21 percent of GDP. The supportive policies of the government resulted in a growth of 3.1 percent against 2.4 percent last year. Major Crops registered an accelerating growth of 3.2 percent compared to a negative growth of 0.2 percent last year. The major crops including Cotton, Sugarcane and Rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, preliminary estimates of wheat production showed a negative growth due to late receding of flood waters in lower Sindh which hampered the timely cultivation of the wheat crop. Livestock has witnessed a marginally higher growth of 4.0 percent against the growth of 3.97 percent last year. Fisheries sector showed a growth of 1.8 percent. Forestry recorded a growth of 0.95 percent as compared to the contraction of 0.40 percent last year. Manufacturing Sector: The growth of the manufacturing sector is estimated at 3.6 percent compared to 3.1 percent last year. Small scale manufacturing maintained its growth of last year at 7.5 percent and slaughtering growth is estimated at 4.5 percent against 4.4 percent last year. Large Scale Manufacturing (LSM) has shown a growth of 1.1 percent during July-March 2011-12 against 1.0 percent last year. The Construction Sector has shown 6.5 percent growth as compared to negative growth of 7.1 percent last year. Mining and Quarrying sector recorded a positive growth of 4.4 percent during July-March of the fiscal year 2011ii 12 against negative growth of 1.3 percent last year. Electricity and gas distribution witnessed a negative growth of 1.6 percent against - 7.3 percent last year. Services Sector: The Services sector has registered a growth rate of 4.0 percent during JulyMarch of the fiscal year 2011-12 against 4.4 percent last year. It is dominated by Finance and Insurance at 6.5 percent, Social and Community Services 6.8 percent and Wholesale and Retail Trade 3.6 percent. Consumption: Real private consumption grew at 11.6 percent in fiscal year 2011-12 as compared to 3.7 percent growth last year and real government consumption grew at 8.2 percent as compared to 5.2 percent last year. Private consumption expenditure has reached 75 percent of GDP; whereas public consumption expenditures are 13 percent of GDP. Private consumption has increased on the back of sustained growth in remittances. Total consumption has reached 88.4 percent of GDP in fiscal year 2011-12 as compared to 83 percent last fiscal year. Furthermore, increase in rural income due to higher production of crops and sharp increase in commodity prices also supported the consumption demand. Per capita real income grew at 2.3 percent in 2011-12 as compared to 1.3 percent growth last year. In dollar terms, it increased from $ 1258 in 2010-11 to $ 1372 in 2011-12. Real Investment has declined from 13.1 percent of GDP last year to 12.5 percent of GDP in 201112; fixed investment has declined to 10.9 percent of GDP in 2011-12 from 11.5 percent of GDP last year. Similarly Private investment also contracted to 7.9 percent of GDP in 2011-12 as compared to 8.6 percent of GDP last year. Public investment as a percent of GDP is 3.0 percent in 2011-12 against the 2.9 percent last year. National savings are 10.7 percent of GDP in 2011-12 as compared to 13.2 percent in 2010-11. Foreign Direct Investment stood at $ 668 million during July-April 2011-12 as against $ 1293 million last year. The capital flows were affected because of global financial crunch and euro zone crisis. Oil and Gas Exploration remained the major

Executive Summary sector for foreign investors. The share of Oil and Gas Exploration in total FDI during July-April 2011-12 stood at 70 percent. Workerss Remittances witnessed a strong growth of 25.8 percent in 2011 over the previous year 2010. During July-April 2011-12, workers remittances grew by 20.2 percent at $ 10.9 billion. The buoyancy in remittances is largely attributed to the governments efforts to divert remittances from informal to formal channel. Data on remittances suggests that the monthly average for the period of July-April 2011-12 stood at $ 1.09 billion compared to $ 0.90 billion during the corresponding period last year. The upsurge in the remittances is attributed to the governments efforts of redirecting these flows from informal to formal channels. Fiscal Development: The Medium Term Budgetary Framework has improved the budget preparation process. Medium-term fiscal framework and budget policies have been incorporated into a medium-term Budget Strategy Paper on rolling basis, which include medium-term indicative budget ceilings for the recurrent and development budgets, and provides an opportunity to discuss the budget between technical and political levels prior to the presentation of the annual budget. The political level involvement includes Cabinet, Standing Committees on Finance & Revenue, and political parties. The Output Based Budget (OBB) has also been institutionalized in the federal government which presents policies of the ministries in the shape of goals, outcomes, outputs and medium-term budgets. The OBB also presents key performance indicators for the outputs to introduce government wide monitoring system. 18th amendment in the Constitution of the Islamic Republic of Pakistan was an historic step forward abolishing the concurrent list transferring additional functions to the Provinces. It was combined with a path breaking 7th National Finance Commission Award in 2010. In addition, the Government resolved long standing demands of the Khyber Pakhtunkhwa relating to Net Hydel Profit and Royalty and Gas Development Surcharge of Sindh and Balochistan. The award also acknowledged multiple criteria for transfer of resources. Share of Balochistan has increased from 5.1 to 9.0 percent. Likewise, Khyber Pakhtunkhwa has been assigned 1 percent of the total divisible pool to mitigate the impact of campaign against extremism. This has allowed transfer of 70 percent of the divisible pool to the provinces and FATA and Gilgit-Baltistan. During the last two years, Federal Government has transferred over Rs. 800 billion additional over 2009-10 resource transfer of Rs. 633 billion. This should help the provinces to earmark more resources to social sectors and development of infrastructure. Government continued its efforts to broaden the tax base and simplifying the tax structure. Efforts are underway to move towards two main taxes, i.e. income tax and sales tax. As a result, Special Excise Duties and Regulatory Duties have been abolished. A three years plan to phase out Federal Excise Duties is under implementation. Capital Gain Tax has been levied on sales of securities in the stock exchange. Sales tax exemptions and zero ratings have been withdrawn on all items including textile, leather, fertilizer, pesticides, sports goods and tractors except food items, health, education and agriculture produce. The Government has strengthened automated e-filing and electronic payment and refund system to ensure expeditious settlement of refund claims expeditiously. For this, a centralized sales tax refund cheque issuance system is now operational in the Federal Board of Revenue. Broadening the tax base identifying potential taxpayers has remained a key focus for which a dedicated unit has been established in the FBR. These efforts are now paying dividend. Federal Board of Revenue target for 2011-12 was set at Rs. 1952 billion. During first ten months, tax collection stood at Rs. 1,426.0 billion against Rs. 1,149.8 billion in the comparable period of last year, showing an increase of 24 percent. It does not include Rs. 19 billion collected by Sindh province on GST on services. Efforts are being made to manage the fiscal deficit within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises. The government is committed to simplification of tax regime, broadening the tax and mobilizing domestic resources. The operational expenditure of the federal ministries was reduced by 20 percent. A iii

Pakistan Economic Survey 2011-12 general ban was placed on recruitment and purchase of durable goods. Official transport assigned to entitled officers of BPS-20 to 22 was monetized to reduce expenditure on POL and repair and maintenance as well as drivers. Subsidy expenditure was rationalized. As a result of these efforts, overall fiscal deficit was at 5.0 percent of GDP in July-April 2012 against 5.5 percent of GDP of the comparable period of last year. It is noteworthy that containing the deficit during the period under review was quite challenging as the burden of financing fell directly on domestic sources due to the non materialization of external inflows. Unlike the past, it was for the first time in many years that Public Sector Development Program did not face any cut. Despite huge financial constraints, the Government made a special effort to fully fund the PSDP. Accordingly, Rs. 304 billion were released that facilitated in completion of 200 projects. The Government efforts can be gauged from the fact that Rs. 2.2 trillion were provided during the last four years for PSDP. Money and Credit: The SBP lowered the discount rate by cumulative 200 bps points to 12 percent during the first half of fiscal year 2011-12 in line with inflationary trend in the country. During the first eleven months of the current fiscal year (June 2011-11th May 2012) broad money (M2) witnessed an expansion of 9.1 percent as compared to 11.47 percent as compared to last year. The deceleration in money supply is primarily driven by the significant fall in the Net Foreign Assets of the banking system along with increased government borrowing and a one-off settlement of circular debt. Net Domestic Assets (NDA) during July 2011 - 11th May 2012 stood at Rs. 880.9 billion against Rs. 481.6 billion during the same period last year. The expansion in NDA is mainly contributed by a rise in demand for private sector credit and government borrowings. Conversely, Net Foreign Assets (NFA) witnessed a contraction. During July2011-11th May, 2012, credit to the private sector witnessed a net increase of Rs. 234.8 billion compared to Rs. 107.8 billion in the same period last year. Year-on-year growth in private sector credit was up 7.5 percent by 11th May, 2012. The weighted average lending rate (including zero mark-up) on outstanding loans stood at 12.8 percent while the weighted average deposit rate (including zero mark-up) stood at 6.98 percent in March 2012. This resulted in a spread of 5.8 percent. The decline in the weighted average lending rate is due to the lag involved in contracting fresh loans in the new declining interest rate environment and the decline in banks return on government securities. It is pertinent to mention that since the SBP was following a tight monetary policy till August 2011 and the interest rates were moving up, the banking spread remained high. Capital Markets: The KSE 100 index stood at 12,496 on June 20, 2011. It crossed the barrier of 14,000 and closed at 14,618 on 7th May, 2012, the highest level seen in last four years showing a growth of 17 percent over the closing index of last financial year. The Government has now levied Capital Gain Tax on securities. The net investment by the foreign investors in Pakistans Stock Markets during July-March, 2011-12 reflected a net outflow of US$176 million. This indicates that bullish trend observed in Pakistani equity market is due to the restoration of the confidence of local investors and institutions. During fiscal year 201112, the leading stock markets indices of the world observed mixed trends with negative growth of 18.1 percent in China to 19.03 percent positive growth in case of Philippines. Pakistani Stock market performed well as compared to markets of the world during the current fiscal year. This was mainly due to the steps taken by the government to boost the confidence of the equity market investors which included reforms in the Capital gains tax, etc. The Government has enacted Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 which will further strengthen the countrys stock markets. The law requires stock exchanges to be demutualized within 119 days of its promulgation in accordance with timelines specified for completion of various milestones involved in demutualization exercise. Corporatization, demutualization of stock exchanges would entail converting their structure from non- profit, mutually owned organization to for-profit entities owned by shareholders.

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Executive Summary Demutualization would result in increased transparency at stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial, regulatory functions and separation of trading rights and ownership rights. Demutualization is wellestablished global trend and almost all stock exchanges worldwide operate in demutualized set up. The enactment of this law has brought Pakistan capital market at par with other international jurisdictions like India, Malaysia, Singapore, USA, UK, Germany, Australia, Hong Kong, Turkey among others. It will help expand market outreach, attract new investors, improve liquidity and enable stock exchange to attract international strategic partners. Inflation: Price stability remained the priority of the government. The Government has constituted a National Price Monitoring Committee headed by the Finance Secretary with representatives of Federal Ministries and Provincial departments. The Committee meets every month. In addition, the Cabinet and the Economic Committee of the Cabinet monitors the prices of essential items and take corrective measures to ensure that prices remain under check. These efforts have yielded results. Inflation has declined for the third consecutive year. CPI was 10.8 percent during July-April, 2012 from a high of 25 percent in October 2008. It was in single digit in December 2012. This has been achieved despite sharp increase in international oil prices, effect of upward adjustment in the administered prices of electricity and gas, supply disruptions due to devastating floods of 2010 and heavy rains of 2011 and bank borrowings. Food and non-food inflation averaged 11.1 percent and 10.7 percent respectively against 18.8 percent and 10.8 percent in the same period of last year. Trade and Payments: The Government pursued vigorously to secure concessional duties package on 75 items from the European Union. The World Trade Organization approved the package this year. It is expected that this will boost Pakistans exports to EU, one of the major trading partner of Pakistan. Exports witnessed a strong performance last year attaining the highest level ever of $ 25 billion showing a growth of 30 percent. It reflected both the price and quantity effect. Despite euro zone crisis, impacting the demand for Pakistan goods, Pakistan has successfully maintained its exports at last years until April this year. Exports during July-April 2012 were $ 20.5 million compared to $ 20.46 billion last year. The Afghan Transit Trade Agreement (APTTA) has encouraged formal trade between Pakistan and Afghanistan and the volume has risen to around $ 2.5 billion annually. Efforts are underway to formalize Free Trade Agreements and Preferential Trade Agreements with many countries. It will help boosting Pakistans exports. Efforts are also in hand to normalize trade relations with India. Imports grew by 14.5 percent and stood at $ 33.1 billion during July-April 2012. The current account deficit stood at $ 3.4 billion in the same period. It was largely as a result of high oil prices and import of fertilizers. Continued support from current transfers in the form of workers remittances helped in containing current account balance. Pakistan has witnessed some geographical diversification in exports. During 2005-06, 47.2 percent of the countrys exports were concentrated in five markets (USA, UK, Germany, Hong Kong and U.A.E.) of the world and remaining share of all other countries was 52.8 percent. This concentration is on continuous decline since 200506 and recently the share of these five markets stood at 35.7 percent whereas the share of all other countries increased to 64.3 percent during JulyDecember 2011-12. This improvement in geographical diversification was mainly the result of Strategic Trade Policy Framework (STPF-200912) introduced by the government and the resulting increase in exports to China, Afghanistan and Bangladesh. Pakistans foreign exchange reserves reached to $ 16.5 billion at the end-April 2012 compared to $ 17.0 billion at end-April 2011. The exchange rate averaged at Rs. 85.50/US$ during July-April 201011, whereas it averaged at Rs. 88.55/US$ during July-April 2011-12. The Pak Rupee depreciated by 3.4 percent during July-April 2011-12 over the depreciation of 2.2 percent in July-April 2010-11 period. Public Debt: Pakistans public debt stood at Rs. 12,024 billion as of March 31, 2012. During v

Pakistan Economic Survey 2011-12 first nine months of the ongoing fiscal year, total public debt registered an increase of Rs. 1,315 billion which includes Rs. 391 billion consolidated by the Government into public debt against outstanding previous years subsidies related to food and energy sectors. Public debt as a percent of GDP stood at 58.2 percent by end-March 2012. During July-March 2012, $179 million was added to the EDL stock. At the end of March 2012, servicing of the public debt stood at Rs.720.3 billion against the budget amount of Rs. 1034.2 billion. Population, Labour Force and Employment: Pakistan is endowed with demographic dividend with a bulging young population. They can be a productive asset of the country if put to proper training and skill development. Pakistan is also facing rapid urbanization. The population in urban areas has increased from 65.3 million in 2010-11 to 67.5 million in 2011-12. Accordingly, cities development is one of the key pillars of Pakistans growth framework. According to the Labour Force Survey 2010-11, Pakistan has a labour force of 57.2 million people which is 0.9 million more than the last year. Out of this potential labour force, the total number of people were employed during 2010-11were 53.8 million, which is 0.6 million more than the last year. The total labour force working in the agricultural sector remained unchanged during the period 2008-2011. In manufacturing sector, the participation rate has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11. Efforts are being made to develop an efficient, equitable and rights based labour market that provides the mechanisms for productivity growth in the economy which results in real wage increases. The government is making sincere efforts to boost overseas employment which will not only reduce the unemployment burden in the country but will also enhance remittances. In this regard, MoUs have been signed with number of labour importing countries such as Malaysia, Kuwait, and Qatar etc. Emigrants sent abroad in 2010 were 0.4 million and 0.5 million in 2011. Saudi Arabia, Gulf State including United Arab Emirate (UAE), Oman and Kuwait are the largest market of Pakistani workers. Transport and Communication: The transport and communication sector is a major contributor to government revenues. Sustainable economic development is dependent on a robust and low cost transport system. Enhanced export competitiveness is also contingent upon the efficient performance of this sector. The government is committed to implementing a comprehensive and modernizing transport and logistics sector through continuous reforms in all of its sub sectors. The Ministry of Communications has prepared a draft National Transport Policy which covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports and Shipping and (iv) Aviation. This policy also includes the National Transport Corridor Improvement Program (NTCIP) to make it more productive and environment friendly. The National Highway Authority completed 12 projects of flyovers, bridges, interchanges and the upgrading of roads during the last one year at a cost of Rs. 19.6 billion. At present, 46 development projects of roads covering 2,985 kms are ongoing costing Rs. 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers and interchanges. NHA has also launched and awarded 16 new development projects covering over 500 kms, including construction of a number of bridges, flyovers and interchanges costing Rs. 71 billion. NHA is simultaneously constructing 12 bridges across the rivers. These are: on river Chenab 4, on river Sutlej 2, on river Swan 1 and on river Indus 5. The Cabinet Committee of Restructuring (CCOR) approved a restructuring framework for Pakistan Railways (PR). New Board of Directors of PR has been instituted, involving academia, management professionals, rail experts and executive functionaries. The Government arranged Rs. 6 billion loan for repair of locomotives and freight operations are also being prioritized for revenue generation. PR is being provided Rs. 2.3 billion per month from the budget to finance pay and pensions of Railway employees. An Asset Management Company is being established for optimum utilization of PRs assets. Private sector involvement is the focus moving forward, the Chamber of Commerce and Industries Lahore has been engaged for their freight transportation from

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Executive Summary Karachi to Lahore. Commercial management of rail operations and outsourcing of non-core functions is being initiated with an aim to improve efficiency of rail operations. Private Sector is also running a passenger train. During the financial year, 16 kms of track was rehabilitated on the Pakistan Railways network besides doubling the previous 15 kms of track. Construction of a D Class railway station at new Multan City, renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out. Signaling system of four railway stations damaged during the riots of 2007 was rehabilitated during the period. During February 2012, 52 new design passenger coaches were imported from China. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at the Pakistan Railway Carriage Factory Islamabad during the last year. A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through publicprivate partnership. Teledensity in the country has increased by 68.3 percent in April 2012, showing 6.7 percent growth as compared to the previous year. Mobile penetration rose to 64.9 percent in 2011-12 against 60.4 percent in 2010-11. Fixed Local Loop teledensity now stands at 1.93 percent. Total mobile subscribers has reached 118.3 million by the end of March 2012. Subscribers of Local Loop (FLL + WLL) are 5.9 million, out of which 3.10 million belong to FLL and 2.8 million belong to WLL. Broadband subscribers reached 1.9 million at the end of February 2012. There has been a cumulative investment of approximately US$ 2.5 billion in the electronic media industry in Pakistan. More than 200,000 new jobs with diversified skills and qualifications have been provided. Additionally, over 7 million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum in this sector, it is estimated that the cumulative investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year. Energy: Energy is considered to be the lifeline of economic development. Pakistans economy has been growing at an average growth rate of almost 3 percent for the last four years and demand of energy both at the production and consumer end is increasing rapidly. The Energy Committee headed by the Finance Minister presented a well articulated Energy Recovery Plan to the Cabinet in November 2011 which was approved after due deliberations. The Plan focused on: (i) improving governance structure: it included dissolution of PEPCO and replaced by Central Power Purchase Authority, constituting new Boards of Directors (BODs) of 8 DISCOs and NTDC comprising professionals, issuance of explicit guidelines of professionalizing the BOD, hiring professional CEOs for DISCOs, GENCOs and CPPA, and business plans for each DISCO and GENCO to be developed by the newly hired CEO and approved by the new Board; (ii) Supportive legislative framework: NEPRA law was amended authorizing NEPRA to notify fuel adjustment, Cabinet has approved amendment making electricity theft a serious crime; (iii) Financial Sustainability of the System: the Government has increased electricity tariff by 90 percent and Rs. 1.25 per kwh very recently to recover the full cost of electricity supply which is still Rs. 3 per kwh below the determined tariff; (iv) Resolution of Circular Debt: the Government has provided Rs. 1122 billion from the budget during the last four years to resolve circular debt issue. However, extremely low collection than required (90 percent of the billed amount) by DISCOs always leaves a high balance as receivables; (v) Supply Side Management: reduction in transmission and distribution losses as well as running the most efficient plants; (vi) Demand Side Management: Standard Operating Procedure (SOP) issued for recovery of private receivables, a limit of 45 days for payment overdue has been set for disconnection, Loss mapping in each DISCO initiated to identify losses and their sources, Government facilitating recovery of dues of Provincial and Federal Government departments, and Media campaign for prudent use of electricity; (vii) Promoting Private Sector Participation (viii) changing fuel mix and (ix) changing energy mix moving towards hydel and coal based generation. In addition, the Government has launched a major vii

Pakistan Economic Survey 2011-12 energy conservancy program that includes two holiday a week, closing the markets at 8:00 pm, lighting alternate pole of the Municipalities and using air conditioners in offices after 11:00 p.m. The contribution of Hydel in electricity generation increased to 33.6 percent in 2011. Karachi Electricity Supply Corporation (KESC) contributed 8.3 percent, Pakistan Atomic Energy Commission (PAEC) 3.6 percent, Kot Addu Power Company (KAPCO) 6.2 and the Hub Power Company (HUBCO) 9.1 percent to total electricity generation. Independent Power Producers (IPPs) have contributed almost 25 percent. The Government is implementing a number of priority hydel projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, and Patrind in the private sector. Almost 96 percent of the work on the main dam at Mangla, spillway and allied facilities are completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam have been completed. 7100 MW-Bunji, 4320 MW-Dasu, 80 MW Kurram Tungi Dam, 740-MW Munda Dam and 4500 MW-Diamer Bhasha Dam are in the pipeline. Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA-1000) electricity trade. In addition, a number of thermal projects are under implementation including 747 Guddu refurbishment. Pakistan has huge coal reserves estimated at over 185 billion tones. Thus the long term trend shows that there was an increase of production of coal; an average 7.7 percent change occurred during the last ten years. Federal as well as Sindh Governments are actively pursuing to provide necessary infrastructure at Thar for exploiting these coal reserves for power generation. Two blocs have been leased out on pilot basis. Efforts are underway to provide the missing transmission link between Matiari and Thar. The Government is also working on different gas pipelines as well as import of LNG and LPG to address the gas shortages. In this regard, Liquified Natural Gas (LNG) Policy 2011 has been notified which encourages private parties to develop LNG projects and sets them free to participate in any segment of the LNG value chain. The gas sector viii supply increased by 4.9 percent in July-March 2011-12 as compared with the corresponding period of last year. The average production of natural gas during July-March 2011-12 was 4236.1 million cubic feet per day (mmcfd) as against 4050.6 (mmcfd) during the corresponding period of last year showing an increase of 4.6 percent. Social Safety Nets: The government is committed to a sustained poverty reduction strategy and to allocate a minimum of 4.5 percent of GDP to social and poverty related expenditures. The government prioritized 17 pro-poor sectors through the Medium Term Expenditure Framework (MTEF) which provides a link between the policy priorities and the budget realties. Expenditure on pro-poor sectors in 2007-08 stood at 5.6 percent of GDP, 7.5 percent in 2008-09, 7.6 percent in 200910. Total expenditures in 2010-11 were 6.9 percent of GDP. This was first year of the 7th National Finance Commission Award when 70 percent of the divisible pool was transferred to the provinces as well as transition was taking place as a result of 18th amendment. The floods of 2010 and heavy rains of 2011 significantly hurt the efforts to improve standard of living of the people. The floods and rains affected approximately 20 million people directly and a much larger proportion indirectly; the loss to infrastructure and livelihood sources further impacted the people of these areas. The Benazir Income Support Programme, a flagship program of the Government, has made a remarkable progress by providing much needed relief to over 4 million recipients all over Pakistan. Over the last 4 years, BISP was provided over Rs. 178 billion out which Rs. 153 billion were contributed from domestic resources. A total amount of Rs. 122 billion has been disbursed to its recipients up to March 2012. The number of recipients is expected to be increased to 7 million once the on-going processing of data collected during the nation-wide poverty scorecard targeting survey is completed. BISP has launched a number of programmes including (i) Payment to Recipients, (ii) Graduation Initiatives, (iii) Waseela-e-Haq, (iv) Waseela-e-Rozgar, (v) Waseela-e-Sehat and (vi) Waseela-e-Taleem to

Executive Summary mitigate the impact of stabilization program as well as inflation. The Pakistan Poverty Alleviation Fund (PPAF) is yet another element of the countrys poverty reduction strategy. The PPAF is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization, and capacity building. The overall disbursements for core operations during the period of JulyDecember 2012 were Rs. 8.5 billion. Pakistan Bait-ul-Mal is making a significant contribution towards poverty reduction through its various services by providing assistance to destitute, widows, orphans, invalid, infirm and other needy persons irrespective of their gender, caste, creed and religion through its ongoing core projects/schemes. A total of Rs. 1.8 billion has been utilised upto February 2012 on schemes such as individual Financial Assistance, child support program, vocational schools, sweet homes etc. After devolution of the subject of Zakat, the Provinces/Federal Areas are directly managing the distribution of Zakat to the beneficiaries. Zakat funds have been utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled for their subsistence and rehabilitation. Up to March 2012, a total amount of Rs.7.8 billion was distributed amongst the provinces and other administrative areas. Peoples Works Programme (PWP) I & II are welfare programmes comprising small development schemes providing village electrification, gas, farm to market roads, education, health and other services to create jobs at the local level. PWP-I & II have been provided over Rs. 38 billion during 2011-12. Employees Old Age Benefits Institution provides monetary benefits to the old age workers through various programmes such as the Old Age Pension, Invalidity Pension, Survivors Pension and Old Age Grants. During the period of July-March 2012, Rs. 8 billion has been disbursed to 350,485 beneficiaries. Workers Welfare Fund is also facilitating the poor labourers in industrial sector by providing funds for housing facilities and marriage grant, death grant and scholarships etc. During (July-March) 2011-12, Rs. 2.5 billion has been incurred for these schemes. Government has also taken various micro-finance initiatives in collaboration with all stakeholders to generate employment opportunities and to eliminate poverty. The Government has provided huge subsidies during the last four years to the vulnerable and poor to mitigate the impact of stabilization, floods and international prices. These include: Rs. 1122 billion for the power sector, Rs. 104 billion for the petroleum sector in addition to foregone income of Rs. 136 billion from Petroleum Levy by adjusting it downward to keep the petroleum prices lower than the international market, Rs. 110 billion on fertilizer and Rs. 137 billion for food items such as sugar, wheat and subsidized items through Utilities Stores. In addition, Federal Government provided Rs. 42 billion to the flood affectees through Watan Card as well as Citizens Compensation Damages Program. Environment: Pakistan continued to face challenges to achieve environmentally sound development. This has become increasingly difficult to achieve in the backdrop of back to back flooding and rains across the country as well as other exogenous and endogenous factors. The quality of the natural environment is not only an extremely important issue from the point of view of individual survival but it will also emerge as one of the principal human security issues in Pakistan. The environmental challenges include climate change impacts, loss of biological diversity, deforestation and degradation of Air and Water quality. A number of projects have been funded by the government to improve the capacity of relevant institutions to deal with increasing environmental degradation. In addition, there are a number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment of the country. Government efforts alone, because of the limited resources at its disposal, are not enough and demand a much larger participation and ix

Pakistan Economic Survey 2011-12 support from other stakeholders including industry, civil society, and the public at large as well as the donors. National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate. The level of access to drinking water is quite impressive in Pakistan. According to Pakistan Bureau of Statistics report (PBS) Pakistan Social and Living Standards Measurement Survey 201011, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent, with an average of 87 percent in 2011. Sanitation facilities are also improving. According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, 92 percent people had access to drinking water by 2010 in Pakistan while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015. Going forward, the government will continue to pursue policy of macroeconomic stability, growth and creating jobs, mobilizing domestic resources, incentivizing the private sector, and strengthening the social safety nets.

State of Economy in 2008


It is important to appreciate the state of economy inherited by the democratically elected Government and the challenges it faced as the Government presents 5th budget for the first time in the history of Pakistan. By the time this Government assumed responsibilities in March 2008, a combination of large exogenous price shocks (oil and food), global financial turmoil, huge expenditure on security and policy lapses during the political transition had set a stage for full blown crisis. More specifically: ` Real GDP growth slowed down in 2007-08 reflecting weaker performance of the agricultural and manufacturing sectors. Headline CPI 12-month inflation rose to 25 percent in October 2008, with core inflation (excluding energy and food) increasing to 18 percent. External current account deficit widened to about $14 billion or 8 percent of GDP in 2007/08. Fiscal deficit rose to 7.6 percent of GDP in 2007/08 mainly because of a substantial increase in energy and food subsidies and import prices Gross reserves declined from $ 16 billion to $ 11 billion Domestic pressures and the global financial crisis led to rising dollarization and an outflow of deposits from the system in 2008 which contributed to a deterioration of liquidity conditions Karachi KSE-100 index dropped by one third, prompting the Karachi Stock Exchange Board to impose a floor on the decline of all stock prices on August 27, 2008.

` `

The Government had no choice but to go to IMF to strengthen international reserves and ensure fiscal stabilization. Just when the economy was transitioning from stabilization to growth, Pakistan was struck by the great floods of 2010. It caused severe damages to infrastructure, roads, bridges, power stations, refineries, schools, hospitals, crops and livestock. A large number of human lives were x

Executive Summary lost. The total loss was estimated to be around $ 10 billion. It was followed by yet another spell of severe rains in Sindh and parts of Balochistan in 2011 causing a loss of additional $ 3 billion. The security development in the country during 2008-09, particularly in the North-West, required beefing up of security forces and mobilization of additional resources to deal with the situation. In addition, humanitarian crisis spawned by the security situation displacing over 3 million people resulted in huge budgetary costs. Achievements since FY2008 Inspite of huge challenges during the last four years including global economic contraction especially in the advanced economies, financial turmoil, great floods of 2010, extraordinary rains in 2011, persistently rising energy prices, continuing security situation, the Government succeeded in: ` Maintaining macroeconomic stability by pursuing tight monetary policy and fiscal discipline Revival of Growth: Economy is recovering from the floods and exogenous shocks and real GDP growth is estimated at around 3.7 percent on the back of pick up in agriculture and large scale manufacturing growth as compared to 3 percent last year Inflation: Average inflation seems remain close to the targeted 11 percent, declining from the peak of 25 percent External Sector: Pakistans external account registered an unexpected improvement during FY11 providing much needed breathing space to the economy. The exports surged to $ 25.4 billion showing a growth of 28.4 percent whereas the imports registered an increase of 14.7 percent. As a result, the trade deficit, which had been a major factor in the deterioration of the external account in the past, remained in check, and contracted by 8.7 percent as compared to the preceding year. FY11 current account balance posted a small surplus of $ 0.3 billion as ` compared to 8.5 percent deficit in 2008. This year, exports have maintained last year trend during July-April 2012 despite adverse global environment Strong flow of remittances: The rising trend in remittances continued for the fourth consecutive year in FY12 as remittances are estimated close to US$ 13 billion as compared to $ 6.2 billion in FY08 Build up of Foreign Exchange Reserves: The improvement in the overall external balance despite the contraction in financial account surplus helped build up foreign exchange reserves during FY11. Thus, by the end of June 2011, Pakistans overall foreign exchange reserves stood at a record level of US$ 18.2 billion. Currently, these are at $ 16.4 billion despite repayment to the IMF as well as discharging all our obligations

Several New Initiatives of the Government This Government has undertaken several new initiatives during the last four years. The most significant initiatives include: ` 7th National Finance Commission Award: The Award was path-breaking as (i) it moved away from population as the sole basis for horizontal distribution of resource and gave due weightage to population, poverty/ backwardness, revenue collection, revenue generation and inverse population density; (ii) it increased share of Balochistan to 9.09 percent (iii) 70 percent share of the divisible pool is now being transferred to the Provinces and Special Areas (iv) transfer to the provinces increased from Rs. 633 billion in FY10 under 6th NFC Award to Rs. 999 billion in FY11 and Estimated Rs. 1,204 billion in FY12 18th Amendment in the Constitution abolishing the concurrent list and transfer of 17 federal ministries to the provinces Autonomy to Gilgit-Baltistan Aghaz-e-Haqooq-e-Balochistan

` `

xi

Pakistan Economic Survey 2011-12 ` Additional Resources to less developed areas in 4 years: It included (i) Rs 32 billion to Gilgit-Baltistan in 2 years (ii) Rs 71 billion to AJK and (iii) Rs 110 billion to FATA Public Sector Development Program: PSDP over a period of 4 years was Rs 2.2 trillion. Current years PSDP outlay is Rs 730 billion as compared to Rs 480 billion last year. It was spent to complete 657 projects in 4 years Peoples Works Program: Rs 130 billion were earmarked under Peoples Works Program-II (Rs 110 billion) and Rs 20 billion under PWP-I in 4 years for implementation of hundreds of schemes for electrification, gas supply, road, water supply and sanitation Citizens Damages Compensation Program: Federal Government provided Rs 42 billion to the flood affectees Subsidies: Over the 4 years, Government has provided so far (i) over Rs 1122 billion towards tariff differential subsidy to maintain the notified tariff lower than the determined tariff (ii) Rs 104 billion in petroleum subsidy (iii) Rs 110 billion for fertilizer subsidy and (iv) Rs 137 billion in food subsidy. In addition, the Government lost Rs 136 billion in revenue by adjusting the petroleum levy downward Benazir Income Support Program: Additional resources of Rs 178 billion allocated for disbursement through BISP to vulnerable groups including Rs 153 billion from the budget ` ` Benazir Employees Stock Option Programme: Under this scheme, 12 percent shares of 80 State Owned Enterprises were transferred to 500,000 employees of those SOEs making them shareholder Internship Program: The Government also provided 100,000 internship to Master degree holders paying them Rs 10,000 per month Railways: Railway was provided Rs 119 billion over the last 4 years; Rs 85 billion under current budget and Rs 34 billion for development budget Energy Sector: Government injected professionalism in power sector by restructuring Board of Directors of some PSEs, initiated alternate energy program, put hard budget constraint and resolved circular debt issue partially Tax Simplification: The government took many steps to (i) simplify the taxation system (ii) minimum tax slab increased from Rs 100,000 to Rs 350,000 (iii) expanding the tax base by bringing new tax payers in the net (iv) improve the tax administration (v) Special Excise duties were eliminated (vi) gradual elimination of federal excise duty (vi) abolishing regulatory duties on 392 items (vii) elimination of zero ratings on key sectors Doubling the FBR Tax Revenues: As a result of these efforts, FBR revenue has moved from Rs 1 trillion in 2007-08 to around Rs 2 trillion in 2011-12.

xii

Pakistan Economic Survey 2011-12

Economic Advisers Wing, Finance Division, Government of Pakistan, Islamabad.

Contents

1. Growth and Stabilization ..................................................................................................... 1 2. Agriculture ........................................................................................................................... 2 3. Large Scale Manufacturing .................................................................................................. 3 4. Fiscal Development ............................................................................................................. 4 5. Money and Credit ................................................................................................................ 5 6. Capital Markets .................................................................................................................... 6 7. Inflation ................................................................................................................................ 7 8. Trade and Payments ............................................................................................................. 7 9. Public Debt .......................................................................................................................... 8 10. Education ............................................................................................................................. 8 11. Health and Nutrition ............................................................................................................ 9 12. Population, Labour Force and Employment ....................................................................... 10 13. Transport and Communications .......................................................................................... 11 14. Energy ................................................................................................................................. 14 15. Social Safety Nets ............................................................................................................... 15 16. Environment........................................................................................................................ 16 17. Flood Impact Assessment ................................................................................................... 17

HIGHLIGHTS
Growth and Stabilization ` Real GDP growth for 2011-12 has been estimated at 3.7 percent as compared to 3.0 percent in the previous fiscal year 2011. ` The commodity producing sector has performed much better in outgoing fiscal year as compared to last year; its growth rate is 3.28 percent against 1.47 percent last year. ` Agriculture registered the growth of 3.13 percent against 2.38 percent last year. ` Major Crops registered an accelerating growth of 3.18 percent compared to a negative growth of 0.23 percent last year. The major crops including Cotton, Sugarcane and Rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, Wheat registered a negative growth of 6.7 percent mainly due to 2.6 percent decline in area under cultivation, sowing was also delayed because of late receding rain water in lower Sindh which resulted in a decline in both the acreage as well as the yields. ` Minor Crops growth declined by 1.26 percent, due to rains affect in Sindh resulted in destruction of minor crops. ` Livestock witnessed a marginally higher growth of 4.04 percent against the growth of 3.97 percent last year. ` Fisheries sector witnessed a growth of 1.78 percent against the growth of 1.94 percent last year. ` Forestry recorded growth at 0.95 percent as compared to the contraction of 0.40 percent last year. ` Industrial sector contains 25.4 percent of GDP having sub sectors: manufacturing, construction, mining & quarrying and electricity and gas distribution. ` Manufacturing Sector registered growth at 3.56 percent compared to the growth of 3.06 percent last year. ` Small scale manufacturing maintained its growth of last year at 7.51 percent and slaughtering growth is estimated at 4.46 percent against 4.38 percent last year. ` Large Scale Manufacturing has also witnessed a slight improvement. It has shown a growth 1.05 percent in July-March 2011-12 as against 0.98 percent last year. ` Construction Sector has shown 6.46 percent growth as compared to negative growth of 7.09 percent in last year. ` Mining and Quarrying sector recorded positive growth of 4.38 percent during the year 2011-12 against the negative growth of 1.28 percent last year. ` Electricity and gas distribution witnessed a growth of -1.62 percent against the growth of -7.25 percent last year. ` The Services sector has registered a growth rate of 4.02 percent in 2011-12 against the growth of 4.45 percent in the last year. This performance is dominated by Finance and 1

Highlights of the Pakistan Economic Survey 2011-12 Insurance at 6.53 percent, Social and Community Services 6.77 percent and Wholesale and Retail Trade 3.58 percent. The contribution of transport, storage and communication is estimated at 1.25 percent. ` Private consumption expenditure has increased to 75 percent of GDP; whereas public consumption expenditures is 13 percent of GDP. Total consumption has reached 88.35 percent of GDP in fiscal year 2011-12 as compared to 83 percent in the last fiscal year. ` Real private consumption grew at 11.6 percent in 2011-12 as compared to 3.7 percent last year. Whereas, real government consumption grew at 8.2 percent in 2011-12 as compared to 5.2 percent last year. ` Per capita real income grew at 2.33 percent in 2011-12 as compared to 1.33 percent growth in last year. In dollar term it increased from $ 1258 to $ 1372 in 2011-12. ` Total investment has declined from 13.1 percent of GDP to 12.5 percent of GDP in 2011-12 as compared to last year. ` Fixed investment has declined to 10.9 percent of GDP in 2011-12 from 11.5 percent of GDP as compared to last year. ` Private investment witnessed a contraction of 7.9 percent of GDP in 2011-12 as compared to 8.6 percent of GDP last year. ` Public investment as a percent of GDP increased to 3.0 percent in 2011-12 against the 2.9 percent last year. ` National Savings are 10.7 percent of GDP in 2011-12 as compared to 13.2 percent in 2010-11. ` Foreign Direct Investment in Pakistan stood at $ 666.8 million during July-April 2011-12 as against $ 1292.9 million last year. ` Workers Remittances has increased to $ 10,876.99 million in July-April of 2011-12, as against $ 9,046.61 million in the comparable period of last year, posted a positive growth of 20.23 percent. Agriculture ` The agriculture growth this year stood at 3.1 percent as compared to 2.4 percent during 2010-11. ` Cotton production has increased to 13,595 thousand bales in 2011-12 from 11,460 thousand bales in 2010-11 showing an increase of 18.6 percent. ` Wheat production has decreased to 23,517 thousand tons in 2011-12 from 25,214 thousand tons in 2010-11 showing a decrease of 6.7 percent. ` Rice production has increased to 6,160 thousand tons in 2011-12 from 4,823 thousand tons in 2010-11 showing an increase of 27.7 percent. ` Sugarcane production has increased by 4.9 percent to 58.0 million tons in 2011-12 from 55.3 million tons last year.

Highlights of the Pakistan Economic Survey 2011-12 ` Gram production has decreased to 291 thousand tons in 2011-12, from 496 thousand tons in 2010-11 showing a decrease of 41.3 percent. ` Maize production has increased to 4,271 thousand tons in 2011-12 from 3,707 thousand tons in 2010-11, showing an increase of 15.2 percent. ` In minor crops, the production of mung and potatoes increased by 22.0 percent and 17.5 percent, respectively. However, the production of chillies, onion and masoor decreased by 78.3 percent, 15.4 percent and 12.8 percent, respectively. ` Agriculture credit disbursement of Rs. 197.4 billion during July-March 2011-12 is higher by 17.0 percent, as compared to Rs. 168.7 billion over the same period last year. ` The total availability of urea during Rabi 2011-12 was 3,526 thousand tonnes comprising of domestic production 2,160 thousand tonnes and imported supplies of 1,202 thousand tonnes.The total offtake was 2,710 thousand tonnes, leaving a stock of 800 thousand tonnes for next season. Likewise the total estimated availability of urea during Kharif 2012 will be around 3487 thousand tonnes comprising 800 thousand tonnes of opening stock, 2280 thousand tonnes of domestic production and 407 thousand tonnes of imported supplies.The total offtake is estimated around 3200 thousand tonnes during Kharif 2012 leaving a stock around 287 thousand tonnes. ` The Rabi 2011-12 started with 224 thousand tonnes of DAP as opening stock. The total availability of DAP was 758 thousand tonnes including 271 thousand tonnes of imported supplies and 263 thousand tonnes of domestic production. The offtake of DAP during Rabi 2011-12 was about 572 thousand tonnes leaving behind 177 thousand tonnes of opening stock for Kharif 2012.Likewise estimated DAP availability during Kharif 2012 will be around 838 thousand tonnes comprising 177 thousand tonnes of opening stock, 361 thousand tonnes of domestic production and 300 thousand tonnes of imported supplies. The estimated demand is around 620 thousand tonnes during Kharif 2012, which reflects comfortable situation. Large Scale Manufacturing ` During the first nine months of the current fiscal year 2011-12, Large Scale Manufacturing (LSM) posted a growth of 1.05 percent as compared to growth of 0.98 percent during the same period last year. ` The groups wise showing increase included: Pharmaceutical (10.9 percent), Paper and Board (8.4 percent), Wood Product (7.4 percent), Food Beverages and Tobacco (6.5 percent), Nonmetallic mineral Products (2.9 percent), Leather Product (1.8 percent) and Textile (0.8 percent). ` Items wise contribution in Large Scale Manufacturing indicates growth in Generating Sets (143.9 percent), Blankets (109.9 percent), Electric Transformer (31.2 percent), Heavy Machinery & equipments (21.0 percent), Sugarcane Machine (19.2 percent), Sugar (15.3 percent), Liquids/Syrups (14.1 percent), Tea blended (13.3 percent), Tablets (10.7 percent), Jeeps & Cars (8.8 percent), Footwear (6.2 percent), LPG (3.4 percent), Cement (2.9 percent) and Sugar (15.3 percent).

Highlights of the Pakistan Economic Survey 2011-12 ` Automotive Industry such as Buses, Cars, LCVs and two/three wheelers managed significant growth at 23 percent, 9.1 percent, 5.7 percent and 3.1 percent respectively as compared to 24.7 percent, 16.4 percent, 23.3 percent and 12.6 percent during the same period last year. ` Mining and quarrying sector 4.4 percent in 2011-12 as against -1.3 percent last year. The main contribution to this modest performance came from Chromite, Flourite, Bauxite, Chalk and Natural gas which posted a positive growth of 591.5 percent, 111.3 percent, 82.2 percent, 82.2 percent and 4.0 percent respectively during the current financial year. Fiscal Development ` Fiscal deficit is recorded at 5.0 percent during July-March 2011-12 as compared to 5.5 percent last year. ` The government is focused on prudent expenditure management and better resource mobilization to create fiscal space for providing support to growth. Additional efforts are being made to manage the fiscal deficit within the acceptable level through austerity measures and reforms in public sector enterprises. ` The government has also announced various tax policy measures through Presidential Ordinance to generate additional revenues. Through a combination of Presidential Ordinance and withdrawal of SRO base exemptions, amendments have been made in the Sales Tax Act 1990, Income Tax Ordinance 2001 and Federal Excise Act 2005. The following tax measures have been taken through these amendments:i. ii. Levy of 15 percent surcharge on income and advance taxes Increase the rate of special excise duty from 1 percent to 2.5 percent, however Special excise duty was abolished in 2011-12.

iii. Withdrawal of special regime of assessable price for levy of GST at 8 percent on actual value of sugar. iv. Removal of SRO based exemptions from fertilizer, pesticides, tractor and elimination of zero rating from plants, machinery and equipment. v. Restriction of zero rating to registered person for export of textile, leather, carpets, sports goods and surgical goods.

vi. The withdrawal of exemptions and the left over amount of 15 percent flood relief surcharge contributed an additional amount of around Rs 50 billion during JulyMarch, 2011-12. ` Tax collection by the FBR was targeted at Rs 1952.3 billion for fiscal year 2011-12. Revenue collections of FBR stood at Rs 1426.0 billion during July-April 2011-12, thereby reflecting 24.0 percent growth over Rs 1149.8 billion collected during the corresponding period last year. Among the four federal taxes, the highest growth 33.7 percent has been recorded in sales tax receipts, followed by customs 17.7 percent, and direct tax 22.6 percent. It does not include Rs. 19 billion collected by Sindh province on GST on Services. 4

Highlights of the Pakistan Economic Survey 2011-12


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For July-April, 2012, direct taxes have been a major source of FBR tax revenue collection, contributing 37.0 percent of total receipts. Net collection was estimated at Rs. 528.9 billion.

` Indirect taxes grew by 24.9 percent during July-April, 2012 and accounted for 62.9 percent of the total FBR tax revenue. Net collection was estimated at Rs.897.2 billion. ` Total expenditure of Rs. 3721.2 billion was estimated for the full year, comprising of Rs. 2976.3 billion of current expenditure (80% of total), and Rs. 744.9 billion of development expenditure and net lending (20 % of total). ` During July-March, 2011-12 total expenditures amounted to Rs 2641.9 billion against Rs 2262.6 billion in the same period last year. Current expenditures stood at Rs 2154.1 billion and development expenditures and net lending recorded at Rs 428 billion during July-March, 2011-12. ` Total revenues reached to Rs 1747.0 billion during July-March, 2011-12 against Rs 1495.3 billion in the same period of last year. Within Revenues tax revenues stood at Rs 1379.2 billion including Rs. 1,321.5 billion of Federal and Rs 57.6 billion of provinces, and non tax revenues remained at Rs. 367.9 billion during the same period of fiscal year 2011-12. Money and Credit ` SBP lowered the discount rate by cumulative 200 bps points to 12 percent during first half of fiscal year 2011-12, to assist in boosting the private sector credit and investment. ` Broad Money (M2) witnessed an expansion of 9.09 percent during July-11th May, 2011-12 as compared to 11.47 percent during the same period in 2010-11. ` Net Domestic Assets (NDA) during July-11thMay, 2012 stood at Rs 880.9 billion against Rs 481.6 billion during the same period last year, reflecting an increase of 14.89 percent over the last year. ` On the other hand Net Foreign Assets (NFA) of the banking system during the period under review declined to Rs 272.2 billion as compared to an increase of Rs 181.1 billion in the same period of 2010-11. ` The credit to private sector witnessed a net increase of Rs. 234.8 billion during July 2011-11thMay, 2012 as compared to Rs 107.8 billion in the same period last year. ` The weighted average lending rate (including zero mark-up) on outstanding loans stood at 12.80 percent while the weighted average deposit rate (including zero mark-up) stood at 6.98 percent in March 2012. ` Government borrowing from the banking system for budgetary support and commodity operations stood at Rs 1,003.3 billion during July-11thMay, 2011-12 as compared to Rs. 506.5 billion in the comparable period of the last year. Government has borrowed Rs.442.3 billion from the State Bank of Pakistan, while Rs 642.1 billion borrowed from the scheduled banks. ` During July 2011-11th May, 2012 loans for commodity finance registered a net retirement of Rs 81.6 billion against the retirement of Rs 101.1 billion in the same period of fiscal year 2010-11. The retirement was primarily concentrated in the second quarter of fiscal year 5

Highlights of the Pakistan Economic Survey 2011-12 2011-12 as the government released Rs 78 billion to procurement agencies for the settlement of accumulated subsidies. ` During July 2011-11thMay, 2012 credit to public sector enterprises registered a sharp decline from Rs 10.6 billion in 2010-11 to Rs 142.6 billion. Capital Markets ` The Pakistan Stock Markets remained range bound during first half with predominately declining trend (9.2 percent). However, the KSE -100 index resumed momentum during the 3rd and 4th quarters of the FY 12. ` The robust performance of Pakistani stock markets during 2nd half of 2011-12 was due to certain encouraging measures like considerable reduction in discount rate by the central bank during later period of the first half of CFY and increase in foreign exchange reserves. Further, the market sentiment was boosted by the promulgation of the Capital Gain Tax Ordinance. ` Under the CGT Ordinance the National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the CGT on listed securities. In addition, no question relating to the source/nature of money will be asked by the tax authorities if the money remain invested in the stock market for a period of 45 days (till June 30, 2012) and 120 days (till June 30, 2014) before and after the promulgation of CGT Ordinance. ` The investment by foreign investors in the capital markets during the period from July, 2011 to March, 2012 depicted a net outflow of US$ 176.303 million. This reflects that present bullish sentiments in the equity markets are due to restoration of the confidence of the local investors. ` The Pakistani Stock markets performed well during the current fiscal year as compared with the other world indices. This was mainly due to the steps taken by the current government to boost the confidence of the equity market investors which includes reforms in the Capital gains tax, etc. ` The Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, was promulgated with the signing of the bill by the President of Pakistan on May 7, 2012. The demutualization bill was approved on March 27, 2012, in a joint session of the Parliament. ` The demutualization law provides a framework for the corporatization, demutualization and integration of the stock exchanges. The law requires the stock exchanges to be demutualized within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualization exercise. ` The government conducted seven auctions of Pakistan Investment Bonds (PIBs) during 2011-12 (Jul-Mar) raising Rs. 159.246 billion. ` During the period July - March, 2012 a total of six debt securities were issued through private placement including two Sukuk Issues of Rs.108.393 billion by Pakistan Domestic Sukuk Company Limited.

Highlights of the Pakistan Economic Survey 2011-12 ` In one of the major moves towards the development of a vibrant debt market in Pakistan, the Securities and Exchange Commission of Pakistan has recently approved notification of the Debt Securities Trustee Regulations (DST Regulations). The main objective of the DST Regulations is to protect the interests of debenture holders. Inflation ` The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 10.8 percent during (July-April) during current fiscal year 2011-12, against 13.8 percent in the comparable period of last year. ` The food inflation on average basis is estimated at 11.1 percent and non-food 10.7 percent, against 18.8 percent and 10.8 percent in the corresponding period of last year. ` The rise in non-food inflation has resulted from the upward adjustment in energy, gas, electricity and fuel prices. ` Core inflation is estimated at 10.4 percent during July-April 2011-12. ` The Wholesale Price Index (WPI) during July-April, 2011-12 on annual average basis has recorded at 11.2 percent against 21.0 percent last year. ` The Sensitive Price Indicator (SPI) recorded at 8.5 percent during July-April, 2011-12 against 18.1 percent of last year. ` The increase in overall inflation has driven by rise in world commodity and fuel prices, disruption in domestic supply chain by the floods. ` However, inflation has been contained during current fiscal year as compared to last year due to tight monetary policy, better supply management and regular monitoring of prices and supply chain by the Cabinet and National Price Monitoring Committee. Trade and Payments ` In absolute terms, exports have increased from $20460 million in July-April 2010-11 to $ 20474 million in the period thereby witnessing a growth of 0.1 percent during the first ten months (July-April) of the fiscal year 2011-12. ` Imports during the first ten months (July-April) of the fiscal year 2011-12 increased by 14.5 percent compared with the same period of last year, reaching to $33.15 billion. ` Workers Remittances reached to $ 10877 million during July-April 2011-12 as against $ 9046 million in the comparable period of last year, depicting an increase of 20.2 percent. ` Current Account Deficit stood to $ 3394 million in July-April 2011-12. ` Services account deficit reached to $ 2,347 million during July-April 2011-12 as compared to $ 1,225 million during the same period last year. ` Financial Account surplus during July-April 2011-12 stood at $ 1200 million as compared to $ 690 million in corresponding period last year. ` Exchange rate of Pak Rupee depreciated by 3.4 percent during July-April 2011-12. 7

Highlights of the Pakistan Economic Survey 2011-12 ` Foreign Exchange Reserves stood at $ 16.5 billion at the end of April, 2012. Of which, reserves held with the State Bank of Pakistan stood at $ 12.04 billion and by banks $ 4.45 billion. Public Debt ` During first nine months of current fiscal year (2011-12), total public debt registered an increase of Rs.1,315 billion and stood at Rs.12,024 billion. ` Public debt as a percent of GDP stood at 58.2 percent by end-March 2012 as compared to 55.5 percent of GDP during the same period last year. ` The bulk of the increase in public debt in the first nine months of 2011-12 has been recorded under domestic debt that accounted for 91 percent of the total increase. ` The total domestic debt is posted at Rs 7,206.9 billion at the end-March 2012; representing an increase of Rs.1,190.5 billion in the first nine months of the current fiscal year. ` The domestic debt grew by 19.8 percent in first nine months of current fiscal year. The focus on deficit financing through internal sources owing to lower external receipts has been the major cause. ` As at the end of March 2012, servicing of the public debt stood at Rs.719 billion against the budget amount of Rs.1034.2 billion. ` Domestic debt comprises permanent debt, floating debt and unfunded debt having shares of 21.6 percent, 54.5 percent and 23.9 percent respectively in total domestic debt. ` Pakistan External Debt and Liabilities (EDL) stock was recorded at $60.3 billion as of March 2012. During July-March 2012, $179 million was added to the EDL stock. ` As a percentage of GDP in dollar terms, the EDL was down by 200 basis points in JulyMarch, 2012 compared to fiscal year 2010-11 (28.5 percent) and approximately to 26.5 percent. Education ` According to the Pakistan Social and Living Standard Measurement (PSLM) Survey 2010-11 and last PSLM 2008-09, the literacy rate for the population (10 years and above) is 58 percent during 2010-11, as compared to 57 percent in 2008-09 . Literacy remains much higher in urban areas than in rural areas and much higher for men than for women. Province wise data suggest that Punjab leads with 60 percent literacy followed by Sindh with 59 percent, Khyber Pakhtunkhwa with 50 percent and Balochistan with 41 percent.
`

The Gross Enrolment Rates (GER) at the primary level excluding katchi (prep) for the age group 5-9 years at National level during 2010-11 increased slightly to 92 percent from 91 percent in 2008-09. Amongst the provinces, Punjab shows a marginal increase from 97 percent in 2008-09 to 98 percent in 2010-11. Sindh remained stable with 84 percent, Khyber Pakhtunkhwa improved from 87 percent to 89 percent and Balochistan declined slightly from 75 percent to 74 percent in 2010-11

Highlights of the Pakistan Economic Survey 2011-12


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The Net primary level enrolment rates at the National/Provincial (excluding katchi abadies) level for the age group 5-9 years. The NER at the National level during 2010-11 slightly decreased to 56 percent from 57 percent in 2008-09. Punjab shows a decrease from 62 percent in 2008-09 to 61 percent in 2010-11. Sindh also shows decrease from 54 percent to 53 percent in 2010-2011, Khyber Pakhtunkhwa witnessed a decrease from 52 percent to 51 percent and Balochistan improved from 44 percent in 2008-9 to 47 percent in 2010-11 The overall number of enrolments during 2010-11 were 39900.3 thousands as compared to 38202.0 thousands during the same period last year. This shows an increase of 4.4 percent. It is estimated to increase to 41596.5 thousands during 2011-12. The number of institutes stood at 227.8 thousand during 2010-11 as compared to 228.4 thousand during the same period 2009-10. However, the number is estimated to increase to 228.3 thousand during 2011-12. The number of teachers during 2010-11 were 1409.4 thousand as compared to 1386.1 thousand during the same period 2009-10 showing an increase of 1.7 percent. This number is estimated to increase further to 1445.0 thousand during the year 2011-12.

` A total of 134,118 youth received vocational and technical training under the Presidents Funni Maharat Programme and Prime Ministers Hunermand Pakistan Programme. ` HEC is also playing its role in running different scholarship programmes to enhance the academic qualification at various levels on merit basis in line with requirement. During the period 2008-12 a number of 3996 scholarships were awarded under different programmes,3572 scholars proceeded to avail these programmes on merit basis and a number of 1650 scholars completed their studies. Health and Nutrition ` At present, there are 972 hospitals, 4,842 dispensaries, 5,374 basic health units and 909 maternity and child health centres in Pakistan. ` With availability of 149,201 doctors, 10,958 dentists, 76,244 nurses and 108,137 hospital beds in the country during 2011-12 compared to 144,901 doctors, 10,508 dentists, 73,244 nurses and 104,137 hospital beds last year, the population and health facilities ratio worked out 1,206 persons per doctors, 16,426 persons per dentist and 1,665 persons per hospital bed. ` During 2011-12, 30 basic health units and 7 rural health centres have been constructed, while 15 rural health centres and 35 basic health units have been upgraded. ` ` 4,300 doctors, 450 dentists, 3,000 nurses and 4,500 paramedics have completed their academic courses and 4,000 new beds have been added in the hospitals. 9,500 Lady Health Workers (LHWs) have been trained and deployed mostly in the rural areas. Moreover, some 7 million children have been immunized and 20 million packets of ORS has been distributed.

` In addition to ongoing various health programmes such as cancer treatment, AIDS prevention, Malaria Control Programme, this year special focus was given by Federal as well as Provincial Government to Dengu Epidemic Control Programme.

Highlights of the Pakistan Economic Survey 2011-12 ` The total outlay of health sector is budgeted Rs.55.1 billion which included Rs.26.2 billion for development and Rs. 28.9 billion for current expenditure which is equivalent to 0.27 percent of GDP during 2011-12 as compared to 0.23 percent in 2010-11. Population, Labour Force and Employment ` Population of Pakistan is estimated 180.71 million during the year 2011-12. Population Growth Rate is 2.03 percent in 2011-12 while it was 2.05 percent in 2010-11 ` Urban population has increased to 67.55 million from 65.3 million in 2010-11 while rural population has increased to 113.16 million from 111.82 million in 2010-11 ` Total Fertility Rate (TFR) reported 3.4 children per women in 2011-12 as compared to 3.5 in 2010-11.

` Contraceptive Prevalence Rate has decreased from 30 percent to 27 percent in 2011. ` Life Expectancy rate has increased from 65.8 years to 66.1 years for female and 63.9 years to 64.3 years for male in 2011-12 ` Crude Birth Rate has improved from 27.5 per thousand to 27.2 per thousand and Crude Death Rate has decreased from 7.3 per thousand to 7.20 per thousand in 2011-12. ` Infant Mortality Rate decreased to 69.0 per thousand in 2011-12 from 70.5 per thousand in 2010-11. ` The total labour force has increased from 56.33 million in 2009-10 to 57.24 million in 201011. ` The minimum wage of labour has been increased to Rs. 8,000 from Rs. 7,000 as announced by the Prime Minister of Pakistan on 1st May, 2012. ` The total number of people employed during 2010-11 was 53.84 million, 0.63 million more than the preceding year. ` Total unemployment rate has increased from 5.6 percent in 2009-10 to 6.0 percent in 201011. ` The number of unemployed people increased from 1.94 million to 2.1 million in Punjab, in Sindh from 0.57 million to 0.70 million in 2010-11. In KPK the situation is different the unemployed people decreased from 0.55 million to 0.53 million and in Baluchistan unemployed people also increased from 0.06 million to 0.07 million in 2010-11.The unemployment rate is high in Punjab as compared to other provinces while in KPK unemployment decreased. ` Agriculture sector is the largest provider of employment to 45 percent of total labour force. The employment share by manufacturing sector has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11. The share of wholesale and retail trade has decreased from16.3 percent to 16.2 percent while, the share of community/social and personal service sector decreased from 11.2 percent to10.8 percent in 2010-11.

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Highlights of the Pakistan Economic Survey 2011-12 ` Informal sector employs 73.8 percent of total labour force in 2010-11as compared to 73.3 percent in 2009-10.The employment ratio in rural informal sector is (76.5 percent) is higher as compared to that in the urban sector (71.2 percent) in 2010-11. ` The Government of Pakistan is making sincere efforts to boost overseas employment. The number of emigrant was 0.36 million in 2010 which has increased to 0.45 million in 2011 which include 0.20 million unskilled, 0.17 million skilled, 0.073 million semi skilled, 0.0030 million highly skilled and 0.0069 million highly qualified workers. Transport and Communications ` The roads in Pakistan carry over 96 percent of inland freight and 92 percent of passenger traffic and undoubtedly the backbone of Pakistans economy. ` Pakistans current road network is about 260,000 km which caters services to eleven million vehicles of all type. ` NHA road network is around 12,000 km, which is merely 4 percent of the overall road network but takes 80 percent of Pakistans commercial traffic. ` NHA has completed 12 projects of flyovers, bridges, interchanges and road up gradation during the last one year at a cost of Rs 19.6 billion. ` At present, 46 development projects having length of 2,985 km are ongoing at a cost Rs 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers, interchanges. ` During the current financial year, NHA has launched/ awarded 16 new development projects covering a length of above 500 km inclusive construction of a number of bridges, flyovers and interchanges costing Rs. 70,951 million. NHA is simultaneously constructing 12 Bridges across the rivers. These are; on river Chenab 4, on rivers Sutlej 2, on river Swan 1 and 5 on river Indus. ` Heavy rains and floods severely damaged the Transport and Communication system during last two years ` Preliminary estimates indicate that road network approximately 8,385 km and 190 km railway lines were damaged including bridges and allied structures. ` The telecommunication infrastructure includes damages to cellular sites, exchange centres, equipment, power system and supporting civil works is amounting to $1.9 million. ` Ministry of Railways has also adopted a Track Access Policy for private sector participation to operate freight and passenger trains on Pakistan Railways infrastructure. ` Ministry of Railways has created a Real Estate Development and Marketing Company as subsidiary of Ministry of Railways. ` Six factories including Locomotive Factory Risalpur, Carriage Factory Islamabad, and four Concrete Sleeper Factories in Kohat, Khanewal, Sukkur and Kotri, are being corporatized for eventual privatization subject to approval of the government.

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Highlights of the Pakistan Economic Survey 2011-12 ` Cabinet Committee of Restructuring has approved a restructuring framework for Pakistan Railways. ` During the last financial year, 16 kms of track was rehabilitated on Pakistan Railways network besides doubling more than 15 kms of track. ` Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out at a cost of Rs. 24.0 million to improve facilities for the passengers. ` 52 new design passenger coaches were imported from China at a cost of Rs. 4.1 billion. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at Pakistan Railway Carriage Factory Islamabad during last year. ` A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through Public Private Partnership at a cost of Rs. 494.0 million. ` Pakistan International Airlines Corporation earned increased revenue amounting to Rs. 116.02 billion in year 2011 as compared to 107.0 billion last year. A purchase agreement of five Boeings 777 has been signed. ` Two new destinations have been introduced during the year 2011: Karachi Madina and Quetta Zahedan ` Three new routes were introduced during the year 2011: Peshawar - Kuala Lumpur, SialkotRiyadh and SialkotDammam. ` Karachi Port Trust handled cargo 27.8 million tones during the first 9 months of the current fiscal year. ` The consolidated revenues of PNSC group during July-March 2011-12 were Rs. 6,640 million as compared to Rs. 6772 million last year. ` The Corporation intends to acquire four vessels through commercial loan / joint venturebasis. Acquisition of two vessels is in process, while two more vessels will be acquired in next financial year. ` Total cargo handled on Gawadar port up till now is 4.1 million tones while Gwadar Port earned total revenue since its start of operation amounting to Rs. 53.4 million. ` Port Qasim Authority handled a cargo volume 19.7 million tones during July-March 201112. ` The volume of import cargo during July-March 2011-12 stood at 14.7 million tones, and exports handled 4.9 million tones during July-March 2011-12. ` Ministry of Communications has prepared a draft National Transport Policy which covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports & Shipping and (iv) Aviation. This policy also includes the National Transport Corridor Improvement Program (NTCIP). This programme has been launched in the country to revamp the whole transport sector including ports, roads, railway, aviation etc. and provides a frame work to develop and improve the North South corridor. ` Teledensity of the country has increased by 68.3percent in April 2012, showing 6.7percent growth as compared to the previous year. 12

Highlights of the Pakistan Economic Survey 2011-12 ` Mobile penetration rose 64.9percent in 2011-12 against 60.4percent in 2010-11 which shows an improvement of 4.3 percentage points in total teledensity. ` Due to mobile substitution, Fixed Local Loop teledensity has been declining over the years and it stands now at 1.93 percent compared to 2.1 percent last year showing a decrease of 0.17 percent. ` Total mobile subscribers reached 118.3 million by the end of March 2012 as compared to 108.9 million last year. ` Subscribers of Local Loop (FLL + WLL) reached at 5.93 million, out of which 3.10 million belong to FLL and 2.83 million belong to WLL. ` Broadband subscribers reached 1.9 million at the end of February 2012. ` Revenues of the telecom sector during the 2011-12, standing at Rs. 363 billion compared to the last year 344.2 billion show an increase of 5.4 percent. ` In 2011, telecom sector invested US$ 495.8 million with cellular mobile sector being the major contributor. ` In 2011, telecom sector attracted over US$ 79 million Foreign Direct Investment (FDI) in the country which is about 5 percent of the total FDI landed in Pakistan in 2011. Auction of 3G licenses is expected which will bring more FDI in the country. ` The Pakistan Telecommunication Authority and the State Bank of Pakistan have signed a Memorandum of Understanding (MoU) both the institutions have shown their interest and commitment in stimulating mobile banking services in the country. ` There has been a cumulative investment of approximately US $ 2.5 billion in the electronic media industry in Pakistan. New jobs to more than 200,000 people of diversified skills and qualifications have been provided. In addition, over seven million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum, it is estimated that the cumulative investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year. ` PBC External Services, broadcast programmes for 08 hrs daily in 11 foreign languages covering Afghanistan, Iran, China, India, Bangladesh, Nepal and Sri Lanka. ` Central Production Units (CPU) produce music, drama, features, documentaries and programmes for special occasions. CPU has over 2 million minutes recording in its archives which are being digitized. ` PBC News is putting on air 117 News bulletins daily. These include National, Regional, External and Local News bulletins besides resume of National Assembly and Senate. PBC news launched broadcast FATA News, special news bulletins from PBC Hyderabad on rain/ flood situation and ongoing rescue and relief activities in Urdu and Sindhi languages. ` Pakistan Post provides services through a network of 12,035 (1,797 urban and 10,238 rural) post offices across the country. ` Money Orders of Benazir Income Support Programme amounting to Rs.16,642.0 million have been paid within prescribed period of time. ` 55 Small and Smart Express Centres have been set up in the urban areas. 13

Highlights of the Pakistan Economic Survey 2011-12 ` During the period July-March 2011-12 an amount of Rs. 160,266.9 million has been collected through National Savings Schemes and earned commission amounting to Rs. 801.3 million during this period. Energy ` Primary energy supply during current year is 64.52 million TOE compared to 63.09 million TOE last year thus showing an increase of 2.3 percent. The availability of energy per capita in 2011 remained 0.372 Tone Oil Equivalent TOE compared to 0.371 Tone Oil Equivalent (TOE) in 2010 posting a positive growth rate of 0.16 percent. ` The average crude oil production during July-March 2011-12 remained 66032 barrels per day as against 65997 barrels per day during the corresponding period of last year, showing an increase of 0.05 percent. ` The industrial sector had shown positive growth of 24.2 percent in the consumption of petroleum products during July-March 2011-12 when compared with last year,. ` Transport sector surprisingly showed a relative small growth of 3.5 percent in the consumption of petroleum products as consumption of petroleum product in transport sector remained 6,832.9 million tones during July-March 2011-12 compared to 6,599.1 million tones during corresponding period last year. ` The consumption of petroleum products in the power sector was 8,139 million tones compared to 8,814 million tones last year which hampered the growth in this sector, thus posting negative growth of 5.2 percent in this sector. ` The gas sector supply increased by 4.9 percent in July-March 2011-12 as the average production of natural gas was 4236.06 million cubic feet per day (mmcfd) during this period while it was 4,050.83 million cubic feet per day (mmcfd) in corresponding period last year. ` Natural gas in the form of CNG posted a positive growth 10.8 percent during July-March 2011-12. ` The contribution of Hydel in electricity generation increased to 33.6 percent in 2010-11. Water and Power Development Authority (WAPDA) remained the main contributor to electricity generation with 48.7 percent coming from this source. Karachi Electricity Supply Corporation (KESC), Pakistan Atomic Energy Commission (PAEC), Kot Addu Power Company (KAPCO) and the Hub Power Company (HUBCO) have 8.3, 3.6, 6.2 and 9.1 percent, respectively. Independent Power Producers (IPPs) have contributed almost 25 percent. ` WAPDA is executing, on priority basis, the projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, 7100 MW-Bunji, 4320 MW-Dasu, 740-MW Munda Dam and most mentionable 4500 MW-Diamer Bhasha Dam projects, to cope with the increasing demand of power. ` Almost 96 percent work on the main dam at Mangla, spillway and allied facilities had been completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam has been completed.

14

Highlights of the Pakistan Economic Survey 2011-12 ` Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA-1000) electricity trade. ` The household sector consumed 44 percent of the total electricity generated followed by industrial (26 percent), government (12.3 percent), agriculture (10.4 percent) and commercial (6.8 percent) during July-March 2011-12. ` The major users of coal are the cement sector and brick kilns; about 60 percent of total coal is consumed by cement while 39 percent is consumed by the brick kiln industry during current year as compared to 62 percent consumption of coal in cement industry and 37 percent in brick kiln industry last year. Alternative Sources of Energy National Grid Code for wind power projects has been amended. Grid Integration Plan 2010 -2015 for wind power projects is developed by AEDB to support National Transmission and Dispatch Company (NTDC). Productive Use of Renewable Energy (PURE) Project is being implemented to install 103 hydro power plants in Khyber Pakhtunkhwa (KPK) and Gilgit Baltistan (GB), with the total cost of US$ 19.5 million. AEDB has initiated a program with the assistance of Deutsche Gesellschaft fr Internationale Zusammenarbeit (GIZ) to assist the provinces to solicit private investments in small hydro sector; under this program pre-feasibility study for 25 hydro sites in AJK, Sindh, Punjab and KPK with the cumulative capacity of 284.14MW has been completed. Public sector Hydro power projects are initiated in (a) KPK (worth U$ 150.99 Million, of 17.0MW, 36.6MW and 2.6 MW), (b) Punjab (worth U$ 138.74 Million, of 5.38MW, 4.04MW, 2.82MW, 4.16 MW and 7.64MW) and (c) Gilgit Baltistan (worth U$ 71.12 Million, of 26MW and 4MW. AEDB has issued a LoI to set up a 12MW Biomass to Energy power project in Sindh, based exclusively on Biogas / Agricultural Waste. The project is jointly sponsored by investors from US and local entrepreneurs, the SSJD Bio Energy. Another LoI has been issued to M/s Lumen Energia Pvt Ltd. to set up a 12MW power plant at Jhang based on agricultural waste like cotton stalk, rice husk, sugarcane trash, biogas, wheat chaff and other crops as multi-fuel sources Three thousand Solar Home Systems have been installed in 49 villages of district Tharparkar, Sindh. Another 51 villages in Sindh and 300 villages in Balochistan have been approved for electrification using solar energy and will be implemented.

Social Safety Nets ` Sanitation situation at household level has registered an improvement, in terms of 66 percent of population using flush toilets compared to 63 percent in 2008-09. ` Benazir Income Support Programme launched by the government with the primary objective of providing immediate relief to poor. It has made remarkable progress by providing much needed relief to over 4 million recipients including Internally Displaced Persons, flood affectees and bomb blast victims all over Pakistan. 15

Highlights of the Pakistan Economic Survey 2011-12 ` Rs 122 billion up to March, 2012 have been disbursed to its beneficiaries. BISP has an allocation of Rs 50.00 billion for the fiscal year 2011-12. ` BISP recipients are expected to be increased to 7 million once the on-going processing of data collection during the nation-wide poverty scorecard targeting survey is completed. ` BISP has launched a number of programms of society safety including (i) Payment to Recipients, (ii) Graduation Initiatives, (iii) Waseela-e-Haq, (iv) Waseela-e-Rozgar, (v) Waseela-e-Sehat and (vi) Waseela-e-Taleem. ` Pakistan Poverty Alleviation Fund is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization, and capacity building. The overall disbursements for core operations during the period of July- December 2012 are Rs. 8,490 million. ` Pakistan Bait-ul-Mal is making a significant contribution in poverty reduction by providing assistance to destitute, Widows, Orphans, and other needy. Rs. 1777.5 million has been utilised upto February 2012 on various schemes. ` Zakat funds have been utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled. Up to March, 2012 Rs. 7800.268 million have been distributed in bulk amongst the provinces. ` Peoples Works programme (PWP) I & II are providing electricity, gas, farm to market roads and other services to the rural poor. PWP-I & II incurred expenditures of Rs. 5.0 billion and Rs 21.3 billion during 2010-11 respectively where as Rs 2.2 billion expenditure have been incurred between July-December 2011-12 on PWP-I and Rs 2.9 billion expenditures on PWP-II. ` Employees Old Age Benefits Institution provided benefits to the old age workers through Old Age Pension, Invalidity Pension, Survivors Pension and Old Age Grants and Rs. 7961.2 million has been utilized during July- March 2011-12. ` Workers Welfare Fund utilised Rs. 2539 millions during July-March 2011-12 for housing facilities and Marriage Grant, Death Grant and Scholarships etc. for the industrial workers. ` Government has also taken various micro-finance initiatives in collaboration with all stakeholders to generate employment opportunities and to eliminate poverty. Environment ` A number of projects have been funded by the government to deal with increasing environmental degradation. In addition, there are number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment in the country. ` Climate change is an area that has become increasingly important in recent years. In this regard, the National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate. The goal of the policy is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of the economy and to steer Pakistan towards climate resilient development. 16

Highlights of the Pakistan Economic Survey 2011-12 ` Urban air pollution remains one of the most significant environmental problems, facing the cities. A substantial body of research demonstrates that high concentrations of suspended particulate matter adversely affect human health; prolong a wide range of respiratory diseases and increased the probability of heart ailments. ` The higher concentration of suspended particulate matter (SPM) in the air is a major issue in Pakistan. The main sources of SPM are vehicular emission, industrial emissions, burning of Solid waste, pollens, brick kilns and natural dust. Motorcycles and rickshaws, due to their two stroke (2-strokes) engines, are the most inefficient in burning fuel and contribute most to emissions. ` The situation of access to drinking water is quite impressive in Pakistan. According to Pakistan Bureau of Statistics report (PBS) Pakistan Social and Living Standards Measurement (PSLM) Survey 2010-11, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent, with an average of 87 percent in 2011. In Pakistan sanitation facilities are improving. However, much improvement is needed for rural areas sanitation facilities. According to PSLM Survey 2007-08,the garbage collection facilities to the population is only 14 percent done through municipalities, 7 percent through privately managed and remaining 79 percent have no system.

` According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, 92 percent people had gained access to drinking water in Pakistan by 2010 while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015. Moreover, 48 percent people have been using improved sanitation by 2010 while this ratio was 27 percent and 37 percent in 1990 and 2000 respectively. The MDG target for access to sanitation is 90 percent by 2015. ` Damage and Need Assessment Report jointly prepared by the Asian Development Bank and the World Bank regarding floods 2011, it has been pointed out that in addition to causing loss of life, displacement of millions, and huge losses to the economy, the floods in 2011 have also resulted in environmental damages, heightened environmental health risks and affected forests, wetlands and other natural systems. ` The Environmental damage caused by floods has been estimated at Rs. 2762.7 million (US $ 31.8 million) and Environmental recovery/reconstruction needs has been estimated at Rs. 2873.6 million (US $ 33.02 million). Flood Impact Assessment ` Severe monsoon rains triggered floods in Southern Pakistan at an unprecedented scale, both in terms of volume and intensity, engulfing all 23 districts of Sindh Province and adjoining areas of northern Balochistan Province. ` Approximately, 9.6 million people were affected in Sindh and Balochistan as a result of the floods; 520 people died and more than 1180 people were injured. ` According to World Bank and Asian Development Bank report, 27,000 sq.Km area damaged in Sindh province out of the total 27,370 sq. Km. ` The flood caused total or partial damages to an estimated 998,376 housing units in Sindh and Balochistan. 17

Highlights of the Pakistan Economic Survey 2011-12 ` The highest damage occurred in the agriculture, livestock and fisheries sector, has been estimated at Rs.160 billion (US$ 1.84 billion). ` The total damage caused by 2011 floods has been estimated [direct damage and indirect losses] amounting to Rs.324.5 billion (US$ 3.7 billion). ` The total cost of recovery and reconstruction needs has been estimated at Rs.239 billion (US$ 2.7 billion).

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Special Section

Pakistan: Flood Impact Assessment


Severe monsoon rains triggered floods in southern Pakistan of an unprecedented scale, both in terms of volume and amount of land flooded. Despite forecasts of below-average rainfall, heavy downpours began in mid-August, engulfing all 23 districts of Sindh province1 and adjoining areas of northern Balochistan province causing damage to crops, infrastructure and human settlements, thus affecting the national economy. The maximum rainfall during the year was from 1st July to 30th September, 2011.The peak rainfall was received in Mithi, Sindh. Being sandy area the rate of soil infiltration was very high and rate of runoff water was minimal.2 In Balochistan, flash flooding as well as overflowing local rivers and irrigation and drainage channels caused damages in 14 districts, the worst of which (5 districts) were confined in the southern and northern parts of the province According to the World Bank and Asian Development Bank (ADB) Damage and Needs Assessment (DNA) report, approximately, 9.6 million people have been affected in Sindh and Balochistan as a result of the floods; 520 people were killed and more than 1,180 people were injured. The impact of the flooding in 2011 cannot be seen in isolation. In 2010, 20 million people
1

were affected by the largest floods in living memory3, many of the victims of the 2010 floods were still in the recovery phase when the 2011 floods struck. The 2011 floods compounded the damage of the previous disaster. In severely affected areas, food insecurity and malnutrition were already at critical levels before this years new wave of rains and flooding. Continuing rains and damaged infrastructure impeded the delivery of aid. Essential infrastructure including roads, bridges and markets had been severely damaged and many remained impassable. A large number of farmers lost their livestock on way to safe havens and through nonavailability of fodder and exertion. There was hardly a place in the severely affected area that was free of standing water. The sector wise breakdown of flood damages and respective reconstruction cost estimates are given in Table-1. These indicate that the agriculture sector received a major blow followed by housing, education, and financial, private sector and industries; economic growth is likely to decline. The minimum reconstruction cost amounts to a total of Rs. 239 billion (US$ 2747 million).

where cumulative rain fall varied from 400mm to around 1300mm [Source: Rapid Crop Damage Assessment,FAOand Supparco] 2 The other areas that received excessive rainfall were Mirpur Khas (866mm), Badin (647mm), Shaheed Benazir Abad (650mm), Umerkot (552mm), Dadu (485mm) and Padidan (423mm).

In comparison, the 2011 floods were driven by high intensity unprecedented rainfall on the eastern side of the Indus River. Both events demonstrate changing climate and weather pattern in the region and their intensity of recurrence.

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Pakistan Economic Survey 2011-12


Table 1: Flood Damages and Reconstruction Cost by Sectors Sectors Damages Reconstruction Cost Rs. million US$ million Rs. million US$ million Irrigation and Flood Management 4,763 55 9,526 109.5 Housing 85,465 982.4 91,510 1051.8 Agriculture, Livestock & Fisheries 160,107 1840 26,590 305.6 Transport & Communication 26,468 304 33,902 388 Energy 1,240 14 292 3.4 Social & Gender 44 1 65 0.7 Financial, Private Sector and Industries 27,254 313 8,178 94 Education 12,014 138.1 22,589 259.7 Health 1,258 14 864 9.9 Water Supply & Sanitation 1,204 14 1,900 22 Governance 1,953 22 4,768 54.8 Environment 2,763 32 2,874 33 Disaster Risk Management 1,827 21 Social Protection 34,126 392.3 Total 324,533 3730 239,011 2747 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.

As mentioned above, despite being substantially lower in intensity, because of their location and timing, the 2011 floods had a significant negative effect on the economy with lingering long term impact. Summary of Damage and Needs by Sector Housing The floods caused total or partial damage to an estimated 998,376 housing units in Sindh and Balochistan. An estimated 514,283 houses have been completely destroyed 4 and another 484,093 partially damaged 5 . Sindh province has suffered the overwhelming majority of damage to housing stock with 99 percent of the total affected housing stock in this province. Out of the 992,679 houses affected in Sindh, 512,462 houses [493,606 kacha houses and 18,856 pucca houses] have been completely destroyed and the remaining 480,217 houses [403,790 kacha houses and 76,427 pucca houses] have been partially destroyed. In Balochistan, the total number of houses damaged is estimated to be 5,697 kacha houses, out of which 1,827 houses have been completely destroyed and
4

the remaining 3,876 houses have been partially destroyed. In general, pucca houses have withstood the floods better but have still been vulnerable to collapsing of roofs, undermining of foundations, and scouring/erosion at the base of walls and corners. Furthermore, standing water has subjected submerged portions of walls to hydraulic pressure, often causing walls to overturn or tilt laterally. At places subsidence of the ground under waterlogged foundations has resulted in cracking and collapse of walls. For kacha buildings, the impact has often been extreme and irreversible. The damage to housing structures is estimated at Rs. 85,465 million (US$ 982.4 million) for completely destroyed and partially damaged houses. The reconstruction cost (completely destroyed and partially damaged houses) is estimated at Rs. 91,510 million (US$ 1051.8 million).6

This primarily includes washed away, fully collapsed, or structurally damaged houses with foundation failure or erosion of supporting walls. 5 This mostly includes cases of repairable damage.

These estimates are based on replacement of a destroyed house with a core unit of 500 sq. ft covered area, calculated on the basis of currently prevailing prices of materials and labour.

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Pakistan: Flood Impact Assessment Health The floods caused by heavy rains in 2011 resulted in damage to the public health infrastructure in Sindh and Balochistan provinces. Basic health units and rural health centers suffered the most damage; accounting for 74 (52 percent) of the total 141 damaged facilities. In Sindh, of the total of 708 health facilities of various categories in the 11 districts where health sector facilities were affected, 113 (16 percent) were damaged out of which 28 (4 percent) were fully damaged, and 85 (12 percent) were partially damaged. In Balochistan, of the total of 193 health facilities in the 3 affected districts, 28 (15 percent) were damaged out of which 13 (7 percent) were fully damaged and 15 (8 percent) were partially damaged. The damage caused to the health sector in Sindh province constitutes 7 percent of its total health facilities (1,486). In Balochistan; 1 percent of the total health facilities (2,075) were damaged. The total damage to this sector is estimated at Rs.1,258 million (US $ 14.3 million). Out of which, the direct losses for all health facilities was calculated as Rs. 431.85 million (US$4.9 million) [Sindh: Rs. 404.85 million (US$4.6 million) and Balochistan Rs. 27 million (US$0.3 million).On the other hand, there is no data available for calculating the indirect losses. However, the estimated amount required to meet short-term needs has been taken as proxy of indirect losses i.e., Rs. 826 million (US$9.4 million). The total cost of reconstruction for this sector is estimated at Rs. 863.7 million (US $ 9.8 million) for the fully and partially damaged health facilities. Education The total number of educational institutions affected by the floods is 4,096 (Sindh: 3,892; Balochistan: 204). The damaged institutions are 6.7 percent of the total institutions in the affected districts in the two provinces. In Sindh, 1,032 schools for females are damaged (385 are fully damaged and 647 are partially damaged) or 26.5 percent of the total of 3,892 damaged schools, and a total of 2,860 schools for males are damaged (1,022 are fully damaged and 1,838 are partially damaged). This means that 73.5 percent of the total of 3,892 damaged are male schools. In Balochistan, 51 damaged schools are females schools (3 are fully damaged and 48 are partially damaged).These make up 25 percent of the total of 204 damaged schools, while the 153 damaged schools for males (17 are fully damaged and 136 are partially damaged) make up 75 percent of the total of 204 damaged schools. The total damage and loss in both the provinces is estimated at Rs. 12,013 million including indirect loss of Rs. 1,856 million and direct loss of Rs.10,157 million. In Sindh, total damage and loss is estimated at Rs. 11,751 million including indirect loss of Rs 1,771 million and direct loss of Rs. 9,980 million. In Balochistan, indirect and direct losses are Rs. 85.1 million and Rs. 177.1 million respectively. The total cost of reconstruction to this sector for all the damaged institutions in Sindh and Balochistan is estimated at Rs.22,589 million. Agriculture, Livestock, and Fisheries Agriculture is a key sector of Pakistans economy and accounts for 21 percent of GDP, 45 percent of employment and 60 percent of exports. Sindh has 30 percent and Balochistan 8 percent share in the national agricultural GDP. The livelihood of more than 60 percent of the total population is directly or indirectly dependent on agriculture sector. Furthermore, the agriculture sector has strong backward and forward linkages and as a result has a large impact on the overall economic performance. The sectors performance has been weak over the last few years recording a growth of around 2 percent per year, mainly due to poor performance of the crop subsector. The performance of the livestock subsector has remained healthy and its share in agriculture GDP has surpassed the crop sector standing at around 55 percent. Due to limited rainfall, less than 240 mm in an average year, crop production is dependent on irrigation and more than 80 percent of land is irrigated. There are two main cropping seasons, namely, Kharif (summer) and Rabi (winter). The Kharif season starts in April and ends in October, and the main crops during this season are cotton, rice, sugarcane, maize, pulses, fruits and vegetables. The Rabi season, which starts in October and ends in April, is dominated by wheat production which is the main staple food in 249

Pakistan Economic Survey 2011-12 Pakistan. Other Rabi crops include fodder, vegetable, and fruits. Commercial production of fruit and vegetable, particularly for the main urban markets has increased rapidly in recent years, particularly close to major cities or where agroclimatic conditions are favorable. Important fruits include mangoes, citrus, dates and banana in the tropical and subtropical areas like Sindh, as well as a range of semi-temperate fruits like grapes, peaches, apples in Balochistan. Important vegetables include potato, tomato, chilies and onions. Livestock is an integral part of the farming system and is the main asset for many farmers. Buffalo and cattle are mainly kept for milk, with draft power, meat and hides being other important products. Most households also have sheep, goat and poultry for domestic consumption as well as for sale. Fodder, wheat straw, maize thinnings and Stover are used for livestock. Animals are also grazed on rangelands (particularly in Balochistan), pastures and crop stubble. Concentrate feed is widely used in commercial poultry farms and for lactating cattle. In addition to the settled agricultural population, there are also a significant number of transhumants (Gujars) who move within the country as well as in the region and specialize in the rearing of sheep and goat. Their animals are mostly for sale to the large urban centers particularly during Eid times when it is traditional to sacrifice sheep or goats. Pakistan has a significant fisheries sector producing about 1.00 million tons of fish products annually. About two thirds of this are from marine sources (70 percent from Sindh) and mostly comprise prawn and demersal species. The rest is from inland sources. Inland fisheries were largely restricted to the main rivers and canals. However, in recent years there has been a rapid increase in aquaculture with many farmers using small ponds and other water bodies. Supplies of fingerlings come from a few large government hatcheries but there has been a rapid increase in private sector activity in the area particularly in Sindh. The heavy monsoon rains during this year caused renewed and devastating flooding in southern 250 Sindh and northern parts of Balochistan provinces. The subsequent breaches in the drainage canal [Left Bank Outfall Drain (LBOD)] at several locations resulted in submerging of vast areas. While it was mostly the right side of the river Indus hit by floods last year, this time it was mostly the left side. In Sindh, the central and southern districts of Badin, Dadu, Hyderabad, Kamber Shahdadkot, Khairpur, Larkana, Matiari, Mirpurkhas, Neushero Feroze, Sangar, Shaheed Benazirabad, Tando Allahyar, Tando Mohammad Khan, Thatta, Tharparkar, Umerkot have been the worst affected. The Provincial Disaster Management Authority (PDMA) and the Sindh Department of Agriculture Extension estimate that standing crops of cotton, rice, sugar cane, sorghum, vegetables and pulses have been destroyed on about 0.84 million hectares of land. Similarly the livestock sub sector also suffered heavy losses. The Directorate of Animal Husbandry, Sindh has reported that approximately 115,500 livestock have perished and about 5 million surviving livestock have been directly affected. The floods have heavily impacted the agriculture sector, with damages to crops, livestock, fisheries, poultry and on-farm water distribution infrastructure. The total loss estimated is US$ 1,840.3 million, of which 89 percent is in the form of direct damage and 11 percent is in the form of indirect losses. Sindh suffered most with 94 percent of total damage and Balochistan with 6 percent. The losses were largest in the crops subsector, which accounted for 91.5 percent, including estimates of damages to Kharif crops; food and seed stocks; on-farm irrigation water facilities; and support services for crops, as well as indirect damages to the forthcoming Rabi 2011-12 and Kharif 2012 crops. The most affected crops are cotton with 74 percent damages to the overall planted area in the affected districts. In terms of the damage to different crops it is estimated that land area under rice 33 percent, sugarcane 34 percent, vegetables 79 percent and fruits 32 percent was affected adversely.

Pakistan: Flood Impact Assessment


Table-2: 2011 Kharif Area Affected by Flood Province Crop Area Area Damaged (000Ha) Damaged Cotton Rice Sugarcane Maize Vegetables Fruit Other (000 ha) Balochistan 21.42 1.29 14.30 1.78 0.17 3.88 Sindh 859.62 494.94 163.85 88.40 99.24 13.19 Total 881.04 496.23 178.15 88.40 101.02 13.36 3.88 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.

The flood also substantially affected the livestock population causing death and loss in productivity mainly in Sindh. The deaths were mainly in small ruminants and productivity losses were mainly in large ruminants. Animals standing in mud and stagnant water for extended periods contracted various diseases. The losses in productivity occurred due to acute fodder shortage, debilitation and emaciation. Sources of livestock feed were fully inundated and the availability of fodder in local markets was very low. Facing an acute

shortage of feed, these livestock were left stranded. The productivity of milking animals dropped from an average of 7 or above litres to 2-3 litres (50-70 percent), and many young calves died due to the reduction of the milk in their mothers. The loss in productivity accounts for more than 50 percent of the total loss. Fisheries losses are estimated at around $3.4 million (0.2 percent) that accounts for private fish farms/ponds and hatcheries. A total of about 881 thousand ha or 53 percent of the fisheries areas was affected.
Fishery/Pond Damaged n/a 393 393

Table-3: Livestock, Poultry and Fisheries Damages in Flooded Areas Province Large Animals Small Animals Poultry Perished (000head) (000heads) (Million Nos.) Balochistan 0.10 0.20 0.0 Sindh 33.8 81.2 1.14 Total 33.87 81.4 1.14

Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011

The summaries of preliminary loss estimates are shown in Table 4. Livestock damages, which include loss of animals, distress sales, and destruction of animal health support services, as

well as indirect damages due to reduced milk production, accounts for 8.3 percent of total losses. Fisheries losses are estimated at around $ 3.36 million (0.2 percent of the total losses).
Fisheries/ Pond n/a 3.36 3.36 Total

Table-4: Estimated Direct and Indirect Losses (US$ million) Province Livestock Crop Direct Indirect SubDirect Indirect Sub-Total Total Balochistan 0.41 7.94 8.35 87.84 7.58 95.42 Sindh 45.51 99.28 144.79 1499.19 89.20 1,588.39 Total 45.92 107.22 153.14 1,587.03 96.78 1,683.31

103.77 1,736.54 1,840.31

Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

The total reconstruction cost to this sector is estimated at Rs.26,590 million (US$ 306 million) which focused on the restoration of normalcy in the agriculture sector; to support small and medium farmers through provision of seeds,

fertilizers, tools and implements along with support for land preparation, livestock based assistance package, partial subsidies for fishing communities as well as the partial rehabilitation of on-farm water management infrastructure.

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Pakistan Economic Survey 2011-12 Energy Power generation is provided by thermal plants, hydroelectric facilities and a small nuclear facility (300 MW). The 13 hydroelectric facilities (installed capacity 6,481 MW) are owned and operated by the Water and Power Development Authority (WAPDA), a public sector entity. Thermal power plants are owned by public and private companies. The public sector operates 13 thermal power plants (installed capacity 4,900 MW). About a third of Pakistans generation (5,987 MW) is provided by private sector companies (independent power producers or IPPs). Also, KESC operates plants with a total capacity of 1,955 MW. Out of the total 19,252 MW of the national installed generation capacity, dependable generation is about 17,523 MW in the summer and about 14,640 MW in the winter, depending on the annual hydrology. Damage to the energy sector was modest, estimated at Rs. 1.2 billion (US$ 14.2 million). This comprised of direct damage of Rs. 456.5 million (US$ 5.2 million) and Rs. 783 million (US$ 9 million) of indirect damage. In the power sector the total damage was Rs. 281.5 (US$ 3.2 million) whereas in the petroleum sector total damage was Rs. 958 million (US$ 11 million):- out of which Rs. 783 million (US$ 9 million) relates to indirect losses as shown in table below. In the power sector the majority of the direct damage is in distribution network with about 90 percent of the damages being to distribution transformers. Damages to the petroleum sector are also very heavy, effecting only two upstream public owned (70 percent shares) gas fields.

Table-5: Damage and Losses in Energy Sector Entity Direct Damage Indirect Damage Total Damage Total Damage (Rs. million) (Rs.million) (Rs.million) (US$ million) Transmission 19.7 19.7 0.226 Distribution 261.8 261.8 3.0 Total Power 281.5 281.5 3.226 Upstream Oil and Gas 175 783 958 11.0 Total Damage 456.5 783 1,239.5 14.226 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

The immediate need for the power sector is Rs. 281.5 million (US$ 3.226 million) covering the direct damages suffered by the Public Sector Powers (PSPs). The needs for the petroleum sector

are only Rs. 10 million (US$ 0.115 million) as shown in Table 6 for damages not covered by insurance. Insurance cover for public sector companies has not been factored into the needs assessments.

Table-6: Recovery and Reconstruction Needs Assessment Summary Sector Reconstruction and Total Total rehabilitation/repair cost (Rs. million) (US$ million) (Rs. million) Power 281.5 281.5 3.226 Petroleum 10.0 10.0 0.115 Total 291.5 291.5 3.341 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

Transport & Communication The 796,095-square kilometer area of Pakistan and its almost 180 million inhabitants are connected through a transport and communications (T&C) network of 259,618 km of roads; 7,791 km of railways; 42 airports; and 34,950 km of 252

telecommunication lines and other infrastructure. The 11,800 km long national highways and motorways network is the spine of the primary transport corridor. This is supported by the provincial highways network of 37,400 km that fans out to the districts through 161,000 km of

Pakistan: Flood Impact Assessment district roads (including farm-to-market and access roads) in rural areas and 54,000 km of municipal roads in urban areas. In the two flood-affected provinces, the national highway system traverses 1,975 km in Sindh and 4,630 km in Balochistan. About 13,700 km of provincial highways and 31,900 km of district roads are located in Sindh and 11,800 km of provincial highways and 20,200 km of district roads are in Balochistan. The railway network of 7,791 km railway lines and 1,100 stations serve the long-distance main north south corridor and connections to other regions including Balochistan. Approximately 1,899 km of railway lines are in Sindh while 1,202 km are in Balochistan. Six international airports in major cities serve as hubs connecting to 19 regular and 17 feeder and other airports. The telecommunication infrastructure consists of 3,155 exchanges; 34,950 km of optical fiber transmission lines for the landline networks; and 25,554 transmission towers for the cellular telephone networks. The rains and floods during August and September 2011 damaged the Transport and Communications (T&C) infrastructure in the province of Sindh and Balochistan. Based on the data received on the damages to the T&C Sector, a total of 5 districts in Balochistan and 18 in Sindh have been affected by the floods and the longer than usual spell and higher intensity of rains. It affected the network of national and provincial highways, district and municipal roads. Damages to the road infrastructure were caused by submergence, high surface runoffs and ingress of water in roadway formation; floods have caused damages to railway tracks, bridges, stations and residential buildings under the administrative control of Pakistan Railways. There were no reports of damages by Civil Aviation Authority in the aviation sub-sector. In the communication sector, damages were reported to the buildings, equipments and transmission network of cellular and landline operators. The reported damage is classified into two broad categories: Completely Destroyed (CD) and Partially Damaged (PD). For roads and railways, the data is segregated into lengths of roads, railway lines and number of affected structures. For telecommunication infrastructure, the reported damage is more specific. Four national highways were affected at various places; three in Sindh and one in Balochistan. On these highways, seven bridges were also reported to be partially damaged; all located in Sindh. About 1,955 km of provincial highways in Sindh, representing 15 percent of the provincial highway assets and 5,773 km of district roads were affected (including municipal and urban roads). On the contrary, damages in Balochistan are lower and comprised about 426 km provincial highways and district roads (about 1 percent of this road stock). A summary of loss and damage in Transport and Communication is given below:Total (Rs.million) 24,824 1,203 26,027 277 277 165 26,468

Table-7: Transport and Communication Damage and Loss Figures. Province Direct Damages Indirect Losses (Rs. million) (Rs. million) Roads Sindh 14,850 9,974 Balochistan 1,095 108 Subtotal 15,945 10,082 Railways Sindh Balochistan Subtotal Telecommunication Total 277 277 165 16,386 10,082

Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

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Pakistan Economic Survey 2011-12 drinking water; ii) contamination of water resources that are used for other domestic usage; iii) stagnant water ponds resulting in proliferation of disease vectors such as mosquitoes; iv) solid waste and debris accumulation; v) agricultural lands affected by pollution and salt; vi) damage to soil through erosion; vii) damages to wetlands and mangroves; and viii) damages to protected areas and cultural assets. The floods that recently affected Sindh and Balochistan have already impacted millions of people and are likely to have economic, social and environmental consequences for years to come. The 2011 floods have caused damages to the forests, plantation, nurseries, department infrastructure, and cultural heritage sites. These damages have been estimated to be Rs. 2,762.66 million (US$ 31.75 million). The reconstruction and restoration costs of the damages estimated at Rs. 2,873.59 million (US$ 32.79 million) are shown in table below.

The total reconstruction cost to this sector is estimated at Rs.33,902 million (US$ 388 million) including US$5 million for railways and US$ 2 million for telecommunication sub-sector and remaining US$ 383 million for the roads subsector. Environment Pakistan suffers a loss of 8.84 percent of its GDP each year from environment-related disease. Almost half of this cost is caused by mortality (4.13 percent of GDP) while the rest stems from the malnutrition caused by environment-related disease (4.71 percent of GDP). Approximately 90 percent of typhoid and diarrheal illness in Pakistan is attributable to inadequate drinking water, sanitation and hygiene. Up to 83,500 deaths a year are linked to these causes. Morbidity linked with waterborne diseases amounts to 74.5 million cases per year. The environmental damages caused by the 2011 floods included: i) contamination of resources for

Table-8: Total Cost to Address Environmental Needs Associated with the Floods S.No Description Rs. in million US $ million 1 Field investigations to determine damage to agriculture land caused by 20.0 0.23 pollution and salts 2 3 4 5 6 7 8 9 10 Study to estimate debris quantity and disposal arrangements 5.00 Rehabilitation of forests and plantation 589.18 Study to estimate damage to wetlands and mangroves 5.00 Rehabilitation of cultural sites 16.41 Study to estimate damage to cultural heritage sites 2.00 Storm water drainage master plan 714.00 Land use plans and building regulations in urban areas 604.00 Monitoring and evaluation, and information databases 442.00 Strengthening the Legal and Institutional Framework 476.00 Total 2873.59 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011 0.06 6.77 0.06 0.19 0.02 8.20 6.94 4.85 5.47 32.79

Social and Gender Impact Barely one year has passed since the floods of 2010 devastated the lives of an estimated 20 million people nationwide. The flooding in 2011 was relatively localized; the impact on people and livelihoods was severe, but infrastructure damages were less so. In Sindh, 19 social welfare infrastructure units serving a population of 37,006 people were partially or fully damaged. In 254

Balochistan, 18,403 people were reported affected with no damage to social welfare infrastructure. According to the report, 9.6 million people were affected including 744,000 displaced in the aftermath of the 2011 flood. Total deaths are reported as 520. The direct damage estimated costs are Rs. 39 million. Indirect costs are assessed as Rs. 4.6 million. According to the United Nation office for the Coordination of Humanitarian

Pakistan: Flood Impact Assessment Affairs (UN OCHA), the situation remains alarming with poor coverage of all essential sectors. Failure to meet Rabi cultivation will have severe consequences on farm dependent households. The UN reported that 2.5 million children and 1.2 million women were affected by the floods in 2011, while 744,000 people were displaced. With 46 percent of health facilities damaged, the vulnerability of women and children have increased in the affected areas. The children who are pushed out of schools are estimated at over 733,000. 60 percent schools were damaged in Sindh alone. Acute Respiratory Infections (ARI) and skin infections represent major health risks in flood affected areas. Women are at high risk due to disruption in the provision of pre and post natal care. Migration has taken place largely due to nonavailability of fodder in flood affected areas. Approximately, 10-15 percent of the affected population is engaged in non-farm livelihoods, including fisheries, which are severely affected by the rains. Water Supply and Sanitation The government of Sindh had indentified seventeen (17) districts as flood affected where damages needed to be assessed. However, flood damage data was forthcoming only from thirteen (13) districts. From the Balochistan province flood damages were reported from Kalat, Lasbela, Nasirabad and Jaffarabad districts, and that too for the water supply sector only. The most obvious result from the data compilation is the finding regarding the relative damage distribution amongst the districts and talukas. In the Sindh province that has been largely affected in the 2011 floods the Shaheed Benazirabad (Nawabshah) district by far shows the most extensive damages both in the public water supply and sanitation sectors. Badin, Sanghar and Mirpurkhas districts also show significant damages to the water supply related infrastructure and facilities. More damages are reported in the sanitation sector as compared to the water supply sector. Shaheed Benazirabad (Nawabshah) district is the worst hit accounting for 42 percent of the overall damage cost in the public sanitation sector. Governance Infrastructure Governance related institutions in the flood-hit districts of Sindh have suffered damage to their assets, which in turn eroded their already limited capacities. In Balochistan, reported damage to the governance sector was limited. Flooding caused by rains led to disruption of social and economic life and created a crisis. Demand of governance and related services in a crisis is much higher and ever more challenging to respond to effectively and promptly. Governance sector institutions in Pakistan, even before the disaster, faced many challenges. Governance institutions in the 17 affected districts of Sindh have reported damage to 648 facilities including offices and residences. Aggregate covered area damaged or destroyed has been estimated to be slightly below 3 million square feet. In Balochistan, the 5 affected districts have reported damage to 18 buildings. The worst hit district in Sindh is Mirpurkhas where estimate of aggregate affected covered area is 845,000 sq feet, followed by Sanghar (299,000), Tharparkar Total damages (both direct and indirect) for water supply and sanitation are estimated at Rs.1,160 million and Rs. 43.6 million in Sindh and Balochistan, respectively. Direct damages in Sindh are Rs. 456.6 million in 378 reported schemes in the flood affected districts. These damages include Rs. 147.6 million for public water supply and Rs. 253 million for public sanitation. An amount of Rs 56 million for community infrastructure damage is also included. In Balochistan, water supply and sanitation damages have been assessed at Rs. 43.6 million, in a total of 80 schemes. Indirect losses for Sindh have been calculated to at Rs 703.6 million. No such loss is calculated for Balochistan due to lack of data. Indirect losses which is derived from higher expenditures related to (i) supplying potable water (tankers, cost of hand pumps, water tanks, purification and disinfection processes), and (ii) cleaning, wells, sewers and pipes; and for the loss of revenue from interrupted water supply services. The total reconstruction cost for water supply and sanitation is estimated at Rs.1,831.7 million and Rs.68.5 million for Sindh and Balochistan respectively.

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Pakistan Economic Survey 2011-12 (246,000), Shaheed Benazirabad (201,000), Dadu (186,000), Umerkot (171, 000), Khairpur (161,000), and Hyderabad (140,000). The civil administration in Sindh suffered heaviest damage to its facilities. A total of 257 buildings were reported to have been partially damaged and 86 as completely destroyed. Partial damage to 11 Prison and 71 Police facilities and complete damage to 3 Prison and 66 Police buildings have been reported. Additionally, 14 court buildings have been partially damaged and 10 have been reported as completely destroyed along with 21 Auqaf buildings which are reported as completely damaged and 10 as partially damaged. NADRA, Post Offices and other governance institutions shared the remaining disaster damage.

Table-9: Government infrastructure, Damage and Loss (Rs. in million) Provinces Direct damage Indirect Damage Total Sindh 1,555.83 369.23 1,925.06 Balochistan 15.61 12.65 28.26 Total 1,571.44 381.88 1,953.32 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

In case of governance institutions service and productivity losses create complex issues. Disruption of services or functions and inability to respond to much bigger demand can and do impede relief and reconstruction. States of rule of law, justice, security, property and citizenship records and management capacities of public accounting and local level public management become exposed to risk of deterioration because of damage and serious inadequacy in the face of much higher volume of work demanded by recovery and reconstruction needs. Disruption of governance services and functions affect the condition of the population already suffering from the direct effects of the disaster. The economic loss to the population is complex to estimate as it would involve estimating economic value of security, justice and protection. Indirect loss to

governance institutions is estimated on notional costs of continued services and functions despite loss to their facilities, records and reduced staff productivity/availability in the damage quantification. The value of reconstruction needs is based on the current government notified rates for contractors. It was challenging to gather information in precise categories on the types of construction required, pre-flood condition and the nature of damages. Consequently, suitable assumptions and broad classifications had to be used. In order to improve accuracy of the estimates- statistically and factually- sound assumptions have been used. Computations have been made in spreadsheet with stated assumptions, criteria and parameters clearly identified.

Table-10: Recovery and Reconstruction Needs Assessment Summary (Rs. in Million) Reconstruction and Capacity Building Total Province Rehabilitation/Repair costs Sindh 4,716.113 12.580 4,728.693 Balochistan 36.572 3.700 40.272 Total 4,752.685 16.280 4,768.965 Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011

Irrigation and Flood Management Sindhs agriculture accounts for 17.4 percent of the provincial GDP and 50 percent of the employment. The Sindh irrigation system consists of Guddu, Sukkur and Kotri Barrages on the Indus River. These barrages divert water into fifteen canals 256

four at Guddu, seven at Sukkur and four at Kotri Barrage commanding 2.5 million ha. A total of 2,240 km of drains and 5,835 tube wells complement the irrigation system. In Balochistan only about 767,120 ha land in 3 out of the 26 districts is irrigated by Indus Basin Irrigation

Pakistan: Flood Impact Assessment System. The main canals are the Pat Feeder, Kirther and Uch canals. In remaining parts of the province there are many small basins where spate irrigation, karezes, small irrigation schemes, small dams and tube wells are the main sources of irrigation. The damages reported are in 38 irrigation divisions of Sindh province (Rs. 3,936 million or US$ 45.2 million), and 14 irrigation divisions of Balochistan province (Rs. 827 million or US$ 9.5 million). In Sindh, fifteen divisions suffered damages exceeding US$ 2.5 million each. In Balochistan, three divisions have reported damages exceeding US$ 1.0 million. The damage estimates reflect the reconstruction requirement at depreciated value as most of the infrastructure is more than 15 years old. Indirect losses such as damage to crops due to flooding and disruption of irrigation supplies, siltation and water-logging of agricultural land are not covered in irrigation and flood sector. The reconstruction cost estimated for Sindh province is Rs. 7,872 million (US$ 90.5 million) and for Balochistan it is Rs. 1,654 million (US$ 19 million). The proposed irrigation, drainage and flood protection sector reconstruction strategy is to restore all damaged infrastructures, and strengthen vulnerable and damaged sections before 2012 monsoon. Social Protection and Livelihoods The total affected population in flood hit districts of Sindh and Balochistan are based on the total affected area. Pakistan Social and Living Standards Measurement Survey (PSLM) data was used to calculate post-flood poverty levels; this was combined with damage to housing and agriculture to estimate the number of severely affected poor and vulnerable households who require assistance to cope with the negative impact of the floods. The total is in the range of 801,897 to 851,439, representing 52-54 percent of the total affected population. The majority of these are in Sindh (786,917 to 836,311) and the rest in Balochistan. Districts with over 50 percent, or more, severely affected households are Badin, Dadu, Khairpur, Matiari, Mirpurkhas, Sanghar, Tando Allah Yar, Tando Muhammad Khan, and Thatta in Sindh, and Kalat, Jaffarabad, and Lasbela in Balochistan.

Table-11: Summary Estimates of Cash Grants to Severely Affected Poor Households (Rs. in Million) Provinces No. of Severely Affected House Holds Cash Grant of Rs. 6,680 per (HHs) month for 6 months Sindh 836,311 33,519.35 Balochistan 15,127 606.31 Total 851,439 34,125.66 Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

Government Response In the immediate aftermath of the floods, the government responded through the mobilization of national, provincial and district resources including the deployment of civil and armed forces personnel. Several infantry platoons of the army as well as medical and engineering teams were deployed in disaster affected areas to carry out search and rescue operations, which were further supported by helicopters and dozens of navy and coast guard personnel and boats. To support the national and provincial Disaster Risk Management (DRM) institutions, the Prime Ministers Flood Relief Committee was also formed to monitor rescue and relief activities. Small-scale engineering works were also undertaken to strengthen flood mitigation infrastructure to avoid

further damage and loss of lives. During peak of this humanitarian crisis, almost 700,000 people were being housed in approximately 3,500 relief camp managed by the government, international partners, NGOs and civil society organizations. In January 2012, NDMA reported to World Bank and Asian Development Bank Damage and Needs Assessment, a report regarding the distribution of over 316,000 tents in the affected areas and 3.7 million ration packs, out of which 48,000 ration packs were distributed in Balochistan. To provide immediate cash assistance to the flood affected population in Sindh, the provincial government, with the support from the federal government, has disbursed approximately Rs. 10.3 billion through the Pakistan Card-based cash transfer scheme (Rs. 10,000 per family).

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Pakistan Economic Survey 2011-12 The Government continued to mobilize shelter materials, non-food items (NFIs), bottled water and food rations. Provision of temporary shelter in public buildings had been arranged for those uprooted by the floods in 13 districts out of 23 in Sindh, which accommodated 194,969 people. Initially the federal and provincial governments responded to the disaster through own resources, which however, were overwhelmed in the wake of the growing humanitarian crisis. Despite providing assistance during the unprecedented floods of 2010, the international community immediately responded to the appeal by the Government of Pakistan for international support for rescue and relief activities following 2011 floods. In December 2011, forty-six countries pledged a commitment of approximately US$ 260 million including support in cash and in-kind. Furthermore, an emergency flood relief cell, established at the Ministry of Foreign Affairs, closely liaised with the members of the diplomatic community and international organizations to coordinate international assistance. The United Nations (UN) undertook an Initial Rapid Needs Assessment to focus on the immediate relief phase for the following clusters: (i) emergency shelter; (ii) food security; (iii) health and; (iv) water sanitation and hygiene. Based on these cluster assessments, the UN launched a US$ 356 million Rapid Response Plan in September 2011. As of April 2012, approximately, US$ 171 million or 48 percent were received in response to the UNs appeal. In January 2012, the UN launched the Early Recovery Framework seeking a further US$ 439 million to continue flood response until September 2012.

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Annex 2

Tax Expenditure
A Note on Tax Expenditure 2011-12 Estimates of tax expenditures are being prepared by FBR and reported in the Pakistan Economic Survey since last few years as part of the budget process. The Tax Expenditure for the year 2011-12 works out to Rs. 185.496 billion. Details of Direct Taxes have been indicated first in the report, followed by Sales Tax and Customs Duty. Federal Excise Duty has not been included due to very restrictive base and exemptions. Detailed are as follows: Income Tax The cost of exemptions, exclusions, substractions, deductions, rebates and credit etc that cause loss of Direct Taxes revenue comes to Rs. 69.608 (billion) has been reflected in Table -1 below:
(Rs. in billion) Estimated Revenue Loss 2010-11 2011-12 0.087 0.171 0.979 6.0