4. Inflationary Pressures
0
5
10
15
20
25
2007 2008 2009 2010 2011 2012
ConsumerPrices(%Change)
Pakistan
South Asia
Pakistan had higher price levels in comparison to its neighbors. While South Asian economies
also maintained high subsidies, however they were better targeted and prudently financed
5. Current Vs. Development Expenditure 2001-2012
0
2
4
6
8
10
12
14
16
18
20 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
%ofGDP
Current Expenditure
Development
Expenditure
Debt servicing, defense, law & order have not allowed government’s current expenditures to
come down. This also implied lesser expenditure availability for MDGs
6. Spending on Education & Health
0
0.5
1
1.5
2
2.5
3 2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
%ofGNP
Education Spending
Health Spending
Education and health expenditures are compromised first once current expenditures increase.
The also impact longer run productivity of the economy
7. External Performance - I
-15
-10
-5
0
5
10
15
20
25
30 1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
%ofGDP
Current account
balance
Exports of goods and
services
Imports of goods and
services
9. Real Sector Outlook
Indicators 2012-13
(Provisional)
2013-14
(Projected)
Economic Growth (%)
GDP Growth 3.6 4.4
Agriculture 3.3 3.8
Manufacturing 3.5 4.5
Services 3.7 4.6
Investment and Savings
(as percent of GDP)
Investment 14.2 15.1
National Savings 13.5 14.0
Foreign Savings -0.7 1.1
Inflation (% Growth) 7.7 8.0
GNP Per Capita (PKR) 1368 1464
Source: Economic Survey of Pakistan and Planning Commission’s Annual Plan 2013-14
10. Fiscal Sector Outlook
Indicators 2012-13
PKR Billion
2013 (July-Dec)
PKR Billion
Total Revenue 2982 1685
Tax Revenue 2,199 1172
Total Expenditure 4,816 2225
Current Expenditure 3,660 1888
Interest 991 598
Defense 541 295
Development Exp. 1140 326
Fiscal Deficit 1834 540
Fiscal Deficit (% of GDP) 8.0 2.1
External financing 1676 43
Domestic financing 1836 584
Source: Finance Division, Government of Pakistan
11. Balance of Payments
Indicators 2012-13
USD Million
2013-14
(Jul-Jan)
USD Million
Exports (fob) 24802 14712
Imports (fob) 40157 24433
Workers’ Remittances 13922 9033
Current account
balance
-2496 -2055
Foreign Direct
Investment
1456 523
Long term loans 2274 1043
Foreign Exchange
Reserves
11,019 7,988
Source: State Bank of Pakistan
Less than 1.5 month import bill available to provide for Letter of Credits, & imports for food,edible &crude
12. Monetary Sector Flows
Indicators 2012-13
PKR Million
Up to 21-Feb-14
PKR Million
Net Foreign Assets -263,300 -146,167
Net Domestic Assets 1,479,317 579,390
Net Government
Borrowing
1,479,183 415,047
Credit to Private Sector -19,041 280,689
Credit to Public Sector
Enterprises
31,096 58,143
Broad Money (M2) 1,216,017 433,223
Percent Growth 15.91% 4.89%
Source: State Bank of Pakistan
13. • Three Year Under Extended Fund Facility (EFF), with focus
on structural reforms
• Access to 425 % of Quota; Amount $6.6 billion
IMF Program
14. • Level of Net International Reserves; Size of Budget
Deficit; Borrowings from SBP*; Stock of SBP
foreign currency swap/forward position*; net
domestic assets of SBP at end of each Quarter
Structural Benchmarks (not met in the 2nd Review)
• Amend Law for SBP Autonomy (March 2014);
Privatise 26% of PIA to strategic Investor (Dec
2014); Issue Tax Notices to 75,000 Non-Filers
(March 2014); Eliminate SROs (June 2014)
Performance Benchmarks
15. 2013-14
MACROECONOMIC STABILIZATION
Balance of Payments
• Improve Balance of Payments from Deficit of $2.3 billion to surplus
of $ 4.6 billion
• Raise FE reserves from $6 billion to $ 9.6 billion by end of 2013-14
BUDGET
• Reduce fiscal deficit to 5.8 % of the GDP from 8% of GDP
Macroeconomic Stabilization Targets
16. Balance of Payments
• Depreciate the Rupee (REER to fall by 8%)
• Interest Rates to rise with Rate of Inflation
• Higher inflow of Aid from World Bank, ADB, etc., due to Program
Budget
• Taxation Proposals in Budget of over Rs 200 billion (GST, direct
taxes etc)
• Subsidy reduced by substantial Jump in Power Tariff
• Higher taxation of Gas
• Cut Development Expenditure by 25 %
Policy Targets
17. At the End of First Six Months of 2013-14
Projected FE Reserves by IMF at end – December of $ 5.4 billion; Actual
Reserves of $ 3.4 billion.
Therefore, program is already off-track
Projected depreciation of Rupee in the Program of almost14 percent in
2013-14; Already 6 percent in the first six months
Budgetary Position is better at 2.2 percent of the GDP in first six months of
2013-14; but almost Rs. 500 billion printing by the Central Bank (SBP)
FBR revenue growth of 17 per cent; as compared to target growth rate of 23
per cent
‘Core` Inflation rate close to 9 percent; compared to annual projection of
below 8 percent in the program
Six Monthly Position (2013-14)
18. • Level of Foreign Exchange Reserves by end June 2014 will
hinge on the following large capital inflows:
i. CSF of $ 900 million
ii. Privatisation receipts of $ 800 million
iii. 3-G Action of $ 1200 million
iv. Higher Program Assistance of $1000 million by Donors
v. Euro bond flotation of $ 1000 million
vi. $ 1100 million from IMF subject to meeting program Criteria
• Size of the Current Account Deficit, Projected at $ 2.3
billion for 2013-14; Already $ 2 billion in first seven
months
• Therefore, considerable uncertainty about the level of FE
reserves
Some Risks
19. • FDI in textile sector
– Chinese example
• Critical question of energy supplies to energy
• Building value chains
– Bangladesh example
Will GSP+ Deliver?
21. • Eliminating SROs and related exemptions
• Tax administration and human interference
• Debate on including new sources of income in the tax net
– Agriculture
– Services
– Capital and money markets
Taxation Reforms
22. • Correct energy prices
– To cover full cost of production
– To correct incentives for private sector
• Eliminate untargeted, hidden and cross subsidies
– Retain only for life line block
• Check technical losses and theft
– Transmission and distribution losses
– Kunda methods
Energy Reforms
23. • Restructuring liabilities and outstanding debt
• Empowering management with autonomy
– NBP and Finance Secretary [Conflict of Interest]
• Private participation in state enterprises
– Public Private Partnerships
– Privatization
Public Sector Enterprises
24. • Trade in goods (Afghanistan, China and India)
• Trade in services (Afghanistan and China)
• Trade in energy (Iran and India)
Regional Trade
25. • Pakistan’s economy not comfortably positioned, even in the presence of
an IMF program: Dr. Hafiz A. Pasha
• Implications of gift payments by Saudi government not known
• Improvement in the economic situation will also hinge on
o The Security Situation
o Electricity situation – as summer months approach
• If Pakistan manages to build up reserves of $7 billion or so (1½ month’s
import cover) by June 2014 then conditions will improve in 2014-15 and
beyond as net receipts will take place from IMF: Economy of Tomorrow
Report
• Pakistan can then start a program of economic revival and try to
achieve 6 per cent growth rate by 2016-17: Economy of Tomorrow
Report
Way Forward
