47. Pakistan Economic Survey 2011-12 - Consultancy Services in ...

Highlights of the Pakistan Economic Survey 2011-12For 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 percentof 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 developmentexpenditure and net lending (20 % of total). During July-March, 2011-12 total expenditures amounted to Rs 2641.9 billion against Rs2262.6 billion in the same period last year. Current expenditures stood at Rs 2154.1 billionand 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 1495.3billion in the same period of last year. Within Revenues tax revenues stood at Rs 1379.2billion including Rs. 1,321.5 billion of Federal and Rs 57.6 billion of provinces, and non taxrevenues 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 offiscal 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-11 th May, 2011-12 ascompared to 11.47 percent during the same period in 2010-11. Net Domestic Assets (NDA) during July-11 th May, 2012 stood at Rs 880.9 billion against Rs481.6 billion during the same period last year, reflecting an increase of 14.89 percent over thelast year. On the other hand Net Foreign Assets (NFA) of the banking system during the period underreview declined to Rs 272.2 billion as compared to an increase of Rs 181.1 billion in thesame period of 2010-11. The credit to private sector witnessed a net increase of Rs. 234.8 billion during July2011-11 th May, 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 at12.80 percent while the weighted average deposit rate (including zero mark-up) stood at 6.98percent in March 2012. Government borrowing from the banking system for budgetary support and commodityoperations stood at Rs 1,003.3 billion during July-11 th May, 2011-12 as compared to Rs.506.5 billion in the comparable period of the last year. Government has borrowed Rs.442.3billion from the State Bank of Pakistan, while Rs 642.1 billion borrowed from the scheduledbanks. During July 2011-11 th May, 2012 loans for commodity finance registered a net retirement ofRs 81.6 billion against the retirement of Rs 101.1 billion in the same period of fiscal year2010-11. The retirement was primarily concentrated in the second quarter of fiscal year5

Highlights of the Pakistan Economic Survey 2011-122011-12 as the government released Rs 78 billion to procurement agencies for the settlementof accumulated subsidies. During July 2011-11 th May, 2012 credit to public sector enterprises registered a sharp declinefrom 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 predominatelydeclining trend (9.2 percent). However, the KSE -100 index resumed momentum during the3 rd and 4 th quarters of the FY 12. The robust performance of Pakistani stock markets during 2 nd half of 2011-12 was due tocertain encouraging measures like considerable reduction in discount rate by the central bankduring 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 TaxOrdinance. Under the CGT Ordinance the National Clearing Company of Pakistan Limited (NCCPL) hasbeen appointed as an intermediary entity to compute, determine, collect and deposit the CGTon listed securities. In addition, no question relating to the source/nature of money will beasked by the tax authorities if the money remain invested in the stock market for a period of45 days (till June 30, 2012) and 120 days (till June 30, 2014) before and after thepromulgation of CGT Ordinance. The investment by foreign investors in the capital markets during the period from July, 2011to March, 2012 depicted a net outflow of US$ 176.303 million. This reflects that presentbullish sentiments in the equity markets are due to restoration of the confidence of the localinvestors. The Pakistani Stock markets performed well during the current fiscal year as compared withthe other world indices. This was mainly due to the steps taken by the current government toboost the confidence of the equity market investors which includes reforms in the Capitalgains tax, etc. The Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, waspromulgated with the signing of the bill by the President of Pakistan on May 7, 2012. Thedemutualization bill was approved on March 27, 2012, in a joint session of the Parliament. The demutualization law provides a framework for the corporatization, demutualization andintegration of the stock exchanges. The law requires the stock exchanges to be demutualizedwithin 119 days of its promulgation in line with pre-defined timelines specified forcompletion of various milestones involved in the demutualization exercise. The government conducted seven auctions of Pakistan Investment Bonds (PIBs) during2011-12 (Jul-Mar) raising Rs. 159.246 billion. During the period July - March, 2012 a total of six debt securities were issued throughprivate placement including two Sukuk Issues of Rs.108.393 billion by Pakistan DomesticSukuk Company Limited.6

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 $ 4.45billion.Public Debt During first nine months of current fiscal year (2011-12), total public debt registered anincrease 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 to55.5 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 recordedunder 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; representingan 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 focuson deficit financing through internal sources owing to lower external receipts has been themajor cause. As at the end of March 2012, servicing of the public debt stood at Rs.719 billion against thebudget amount of Rs.1034.2 billion. Domestic debt comprises permanent debt, floating debt and unfunded debt having shares of21.6 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 March2012. 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 July-March, 2012 compared to fiscal year 2010-11 (28.5 percent) and approximately to 26.5percent.Education According to the Pakistan Social and Living Standard Measurement (PSLM) Survey 2010-11and last PSLM 2008-09, the literacy rate for the population (10 years and above) is 58percent during 2010-11, as compared to 57 percent in 2008-09 . Literacy remains muchhigher in urban areas than in rural areas and much higher for men than for women. Provincewise data suggest that Punjab leads with 60 percent literacy followed by Sindh with 59percent, Khyber Pakhtunkhwa with 50 percent and Balochistan with 41 percent.The Gross Enrolment Rates (GER) at the primary level excluding katchi (prep) for the agegroup 5-9 years at National level during 2010-11 increased slightly to 92 percent from 91percent in 2008-09. Amongst the provinces, Punjab shows a marginal increase from 97percent in 2008-09 to 98 percent in 2010-11. Sindh remained stable with 84 percent, KhyberPakhtunkhwa improved from 87 percent to 89 percent and Balochistan declined slightly from75 percent to 74 percent in 2010-118

Highlights of the Pakistan Economic Survey 2011-12The 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 slightlydecreased to 56 percent from 57 percent in 2008-09. Punjab shows a decrease from 62percent in 2008-09 to 61 percent in 2010-11. Sindh also shows decrease from 54 percent to53 percent in 2010-2011, Khyber Pakhtunkhwa witnessed a decrease from 52 percent to 51percent and Balochistan improved from 44 percent in 2008-9 to 47 percent in 2010-11The overall number of enrolments during 2010-11 were 39900.3 thousands as compared to38202.0 thousands during the same period last year. This shows an increase of 4.4 percent. Itis estimated to increase to 41596.5 thousands during 2011-12. The number of institutes stoodat 227.8 thousand during 2010-11 as compared to 228.4 thousand during the same period2009-10. 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 1386.1thousand during the same period 2009-10 showing an increase of 1.7 percent. This number isestimated 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 President’sFunni Maharat Programme and Prime Minister’s Hunermand Pakistan Programme. HEC is also playing its role in running different scholarship programmes to enhance theacademic qualification at various levels on merit basis in line with requirement. During theperiod 2008-12 a number of 3996 scholarships were awarded under differentprogrammes,3572 scholars proceeded to avail these programmes on merit basis and a numberof 1650 scholars completed their studies.Health and Nutrition At present, there are 972 hospitals, 4,842 dispensaries, 5,374 basic health units and 909maternity and child health centres in Pakistan. With availability of 149,201 doctors, 10,958 dentists, 76,244 nurses and 108,137 hospitalbeds in the country during 2011-12 compared to 144,901 doctors, 10,508 dentists, 73,244nurses and 104,137 hospital beds last year, the population and health facilities ratio workedout 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, while15 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 theiracademic 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 ruralareas. Moreover, some 7 million children have been immunized and 20 million packets ofORS has been distributed. In addition to ongoing various health programmes such as cancer treatment, AIDSprevention, Malaria Control Programme, this year special focus was given by Federal as wellas Provincial Government to “Dengu Epidemic Control Programme”.9

Highlights of the Pakistan Economic Survey 2011-12 Cabinet Committee of Restructuring has approved a restructuring framework for PakistanRailways. During the last financial year, 16 kms of track was rehabilitated on Pakistan Railwaysnetwork besides doubling more than 15 kms of track. Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations wascarried 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 CarriageFactory Islamabad by June 30, 2013. In addition, 22 passenger coaches have beenrehabilitated at Pakistan Railway Carriage Factory Islamabad during last year. A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore throughPublic 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 offive Boeings 777 has been signed. Two new destinations have been introduced during the year 2011: Karachi – Madina andQuetta – Zahedan Three new routes were introduced during the year 2011: Peshawar - Kuala Lumpur,Sialkot–Riyadh and Sialkot–Dammam. Karachi Port Trust handled cargo 27.8 million tones during the first 9 months of the currentfiscal year. The consolidated revenues of PNSC group during July-March 2011-12 were Rs. 6,640million 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 innext financial year. Total cargo handled on Gawadar port up till now is 4.1 million tones while Gwadar Portearned 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 2011-12. The volume of import cargo during July-March 2011-12 stood at 14.7 million tones, andexports handled 4.9 million tones during July-March 2011-12. Ministry of Communications has prepared a draft National Transport Policy which coversall 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 transportsector including ports, roads, railway, aviation etc. and provides a frame work to developand improve the North South corridor. Teledensity of the country has increased by 68.3percent in April 2012, showing 6.7percentgrowth 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 whichshows an improvement of 4.3 percentage points in total teledensity. Due to mobile substitution, Fixed Local Loop teledensity has been declining over the yearsand it stands now at 1.93 percent compared to 2.1 percent last year showing a decrease of0.17 percent. Total mobile subscribers reached 118.3 million by the end of March 2012 as compared to108.9 million last year. Subscribers of Local Loop (FLL + WLL) reached at 5.93 million, out of which 3.10million 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 tothe 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 themajor contributor. In 2011, telecom sector attracted over US$ 79 million Foreign Direct Investment (FDI) inthe country which is about 5 percent of the total FDI landed in Pakistan in 2011. Auction of3G licenses is expected which will bring more FDI in the country. The Pakistan Telecommunication Authority and the State Bank of Pakistan have signed aMemorandum of Understanding (MoU) both the institutions have shown their interest andcommitment in stimulating mobile banking services in the country. There has been a cumulative investment of approximately US $ 2.5 billion in the electronicmedia industry in Pakistan. New jobs to more than 200,000 people of diversified skills andqualifications have been provided. In addition, over seven million people have beenaccommodated through indirect employment. With the current growth rate of more thanseven percent per annum, it is estimated that the cumulative investment in the electronicmedia 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 languagescovering Afghanistan, Iran, China, India, Bangladesh, Nepal and Sri Lanka. Central Production Units (CPU) produce music, drama, features, documentaries andprogrammes for special occasions. CPU has over 2 million minutes recording in itsarchives 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. PBCnews launched broadcast FATA News, special news bulletins from PBC Hyderabad onrain/ 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 millionhave 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 beencollected 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 millionTOE last year thus showing an increase of 2.3 percent. The availability of energy per capitain 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 dayas against 65997 barrels per day during the corresponding period of last year, showing anincrease of 0.05 percent. The industrial sector had shown positive growth of 24.2 percent in the consumption ofpetroleum products during July-March 2011-12 when compared with last year,. Transport sector surprisingly showed a relative small growth of 3.5 percent in theconsumption of petroleum products as consumption of petroleum product in transport sectorremained 6,832.9 million tones during July-March 2011-12 compared to 6,599.1 milliontones during corresponding period last year. The consumption of petroleum products in the power sector was 8,139 million tonescompared to 8,814 million tones last year which hampered the growth in this sector, thusposting 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 averageproduction of natural gas was 4236.06 million cubic feet per day (mmcfd) during this periodwhile 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-March2011-12. 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 toelectricity generation with 48.7 percent coming from this source. Karachi Electricity SupplyCorporation (KESC), Pakistan Atomic Energy Commission (PAEC), Kot Addu PowerCompany (KAPCO) and the Hub Power Company (HUBCO) have 8.3, 3.6, 6.2 and 9.1percent, respectively. Independent Power Producers (IPPs) have contributed almost 25percent. WAPDA is executing, on priority basis, the projects such as 969 MW-Neelum Jhelum, 1410MW-Tarbela 4 th Extension, 7100 MW-Bunji, 4320 MW-Dasu, 740-MW Munda Dam andmost mentionable 4500 MW-Diamer Bhasha Dam projects, to cope with the increasingdemand of power. Almost 96 percent work on the main dam at Mangla, spillway and allied facilities had beencompleted and resettlement work is in progress. Likewise 99.7 percent work on Satpara and72.1 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 ofCentral Asia-South Asia (CASA-1000) electricity trade. The household sector consumed 44 percent of the total electricity generated followed byindustrial (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 isconsumed by cement while 39 percent is consumed by the brick kiln industry during currentyear as compared to 62 percent consumption of coal in cement industry and 37 percent inbrick kiln industry last year.Alternative Sources of Energy• National Grid Code for wind power projects has been amended. Grid Integration Plan2010 -2015 for wind power projects is developed by AEDB to support NationalTransmission and Dispatch Company (NTDC).• Productive Use of Renewable Energy (PURE) Project is being implemented to install103 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 fürInternationale Zusammenarbeit (GIZ) to assist the provinces to solicit privateinvestments in small hydro sector; under this program pre-feasibility study for 25hydro sites in AJK, Sindh, Punjab and KPK with the cumulative capacity of284.14MW 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 byinvestors from US and local entrepreneurs, the SSJD Bio Energy. Another LoI hasbeen issued to M/s Lumen Energia Pvt Ltd. to set up a 12MW power plant at Jhangbased on agricultural waste like cotton stalk, rice husk, sugarcane trash, biogas, wheatchaff and other crops as multi-fuel sources• Three thousand Solar Home Systems have been installed in 49 villages of districtTharparkar, Sindh. Another 51 villages in Sindh and 300 villages in Balochistan havebeen 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 percentof population using flush toilets compared to 63 percent in 2008-09. Benazir Income Support Programme launched by the government with the primary objectiveof providing immediate relief to poor. It has made remarkable progress by providing muchneeded relief to over 4 million recipients including Internally Displaced Persons, floodaffectees 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 anallocation 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 ofdata collection during the “nation-wide poverty scorecard targeting survey” is completed. BISP has launched a number of programms of society safety including (i) Payment toRecipients, (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 operationsduring the period of July- December 2012 are Rs. 8,490 million. Pakistan Bait-ul-Mal is making a significant contribution in poverty reduction by providingassistance to destitute, Widows, Orphans, and other needy. Rs. 1777.5 million has beenutilised 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 inbulk amongst the provinces. Peoples Works programme (PWP) I & II are providing electricity, gas, farm to market roadsand other services to the rural poor. PWP-I & II incurred expenditures of Rs. 5.0 billion andRs 21.3 billion during 2010-11 respectively where as Rs 2.2 billion expenditure have beenincurred between July-December 2011-12 on PWP-I and Rs 2.9 billion expenditures onPWP-II. Employees Old Age Benefits Institution provided benefits to the old age workers throughOld Age Pension, Invalidity Pension, Survivors Pension and Old Age Grants and Rs. 7961.2million has been utilized during July- March 2011-12. Workers Welfare Fund utilised Rs. 2539 millions during July-March 2011-12 for housingfacilities and Marriage Grant, Death Grant and Scholarships etc. for the industrial workers. Government has also taken various micro-finance initiatives in collaboration with allstakeholders to generate employment opportunities and to eliminate poverty.Environment A number of projects have been funded by the government to deal with increasingenvironmental degradation. In addition, there are number of projects funded by the donors inwhich the government is a partner. These are being currently implemented to improve overallenvironment in the country. Climate change is an area that has become increasingly important in recent years. In thisregard, the National Climate Change Policy 2011 provides a framework for addressing theissues that Pakistan faces or will face in future due to the changing climate. The goal of thepolicy is to ensure that climate change is mainstreamed in the economically and sociallyvulnerable sectors of the economy and to steer Pakistan towards climate resilientdevelopment.16

Highlights of the Pakistan Economic Survey 2011-12 Urban air pollution remains one of the most significant environmental problems, facing thecities. A substantial body of research demonstrates that high concentrations of suspendedparticulate matter adversely affect human health; prolong a wide range of respiratory diseasesand increased the probability of heart ailments. The higher concentration of suspended particulate matter (SPM) in the air is a major issue inPakistan. The main sources of SPM are vehicular emission, industrial emissions, burning ofSolid waste, pollens, brick kilns and natural dust. Motorcycles and rickshaws, due to theirtwo stroke (2-strokes) engines, are the most inefficient in burning fuel and contribute most toemissions. The situation of access to drinking water is quite impressive in Pakistan. According toPakistan Bureau of Statistics report (PBS) Pakistan Social and Living StandardsMeasurement (PSLM) Survey 2010-11, access to drinking water to urban and ruralpopulation of Pakistan is 94 and 84 percent, with an average of 87 percent in 2011. InPakistan sanitation facilities are improving. However, much improvement is needed for ruralareas sanitation facilities. According to PSLM Survey 2007-08,the garbage collectionfacilities to the population is only 14 percent done through municipalities, 7 percent throughprivately 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 ratiowas 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achievethe ratio of 93 percent by 2015. Moreover, 48 percent people have been using improvedsanitation by 2010 while this ratio was 27 percent and 37 percent in 1990 and 2000respectively. The MDG target for access to sanitation is 90 percent by 2015. Damage and Need Assessment Report jointly prepared by the Asian Development Bank andthe World Bank regarding floods 2011, it has been pointed out that in addition to causing lossof life, displacement of millions, and huge losses to the economy, the floods in 2011 havealso resulted in environmental damages, heightened environmental health risks and affectedforests, wetlands and other natural systems. The Environmental damage caused by floods has been estimated at Rs. 2762.7million (US $ 31.8 million) and Environmental recovery/reconstruction needs has beenestimated at Rs. 2873.6 million (US $ 33.02 million).Flood Impact Assessment Severe monsoon rains triggered floods in Southern Pakistan at an unprecedented scale, bothin terms of volume and intensity, engulfing all 23 districts of Sindh Province and adjoiningareas of northern Balochistan Province. Approximately, 9.6 million people were affected in Sindh and Balochistan as a result of thefloods; 520 people died and more than 1180 people were injured. According to World Bank and Asian Development Bank report, 27,000 sq.Km area damagedin 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 andBalochistan.17

Highlights of the Pakistan Economic Survey 2011-12 The highest damage occurred in the agriculture, livestock and fisheries sector, has beenestimated at Rs.160 billion (US$ 1.84 billion). The total damage caused by 2011 floods has been estimated [direct damage and indirectlosses] 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).18

Executive SummaryThe Government remained focused on maintainingmacroeconomic stability, growth, mobilizingdomestic resources and increasing exports,balanced regional development and providingsafety nets for the vulnerable groups. Despitenumerous challenges, the economy performedbetter in 2011-12 than many developed anddeveloping economies. These included sharpincrease in fuel and commodity prices,recessionary trend globally and weak inflows.Domestically, economy was struck by heavy rainsin Sindh and parts of Balochistan costing $ 3.7billion. Notwithstanding these challenges, theGross Domestic Product growth this year isestimated at 3.7 percent as compared to 3.0 percentlast year.In comparison, the global recovery is threatened byintensifying strains in the euro area and fragilitieselsewhere. International Monetary Fund hasmaintained its growth forecast of 2.1 percent forUnited States in the year 2012, negative 0.3percent for Euro area, 0.8 percent for UnitedKingdom, 5.7 percent for Emerging andDeveloping Economies after factoring China (8.2percent) and India (6.9 percent) and 2.0 percent forJapan.Despite global slowdown, Pakistan has managed tomaintain its exports during July-April 2012 to lastyear’s level which saw a phenomenal growth.Remittances remained buoyant and estimated atclose to $ 13 billion, an increase of 16 percent.Recessionary trend globally have, however,impacted capital flows to Pakistan. Currentaccount balance was affected due to sharp increasein oil prices and import of 1.2 million metric tonsof fertilizer.Tax measures enforced by the Government inApril 2011 has yielded dividend. July-April 2012growth in FBR tax revenues demonstrated agrowth of 24 percent with Rs. 1445 billion ascompared to 1250 billion last year. Efforts areunderway to reach the ambitious target of 1952billion. Non-tax receipts have been less due to nondisbursement of anticipated coalition support fundsand delaying the expected auction of 3 G license toa later part of summer.Growth and StabilizationThe economy is now showing signs of modestrecovery. GDP growth for 2011-12 has beenestimated 3.7 percent as compared to 3.0 percent inthe previous fiscal year 2011. The Agriculturesector recorded a growth of 3.1 percent against 2.4percent last year. The Large Scale Manufacturing(LSM) growth is 1.1 percent during July-March2011-12 against 1.0 percent last year. Overall, thecommodity producing sectors and especially theAgriculture sector have performed better. TheServices sector recorded growth of 4.0 percent in2011-12.Flood Impact AssessmentThis performance has been achieved despite severemonsoon rains triggered floods of anunprecedented scale in Southern Pakistan,engulfing 23 districts of Sindh Province andadjoining areas of northern Balochistan causingdamages to crops, infrastructure and humansettlements, thus adversely affecting nationaleconomy.According to the World Bank and the AsianDevelopment Bank (ADB) Damage and Needsi

Pakistan Economic Survey 2011-12Assessment (DNA) Report, approximately, 9.6million people were affected in Sindh andBalochistan as a result of these rains. The totaldamages estimated to Agriculture, Energy,Transport and Communication, Health,Environment as well as the Forestry, Water Supplyand Sanitation amount to Rs. 324.5 billion (US$3.7 billion).The rehabilitation and Cost of recoveryis estimated at Rs. 239 billion (US$ 2.8 billion).This is in addition to damages of $ 10 billion to theeconomy during 2010 floods.Commodity Producing Sector: The commodityproducing sector has performed better in theoutgoing fiscal year as compared to last year. Itsgrowth rate this year was 3.3 percent against 1.5percent during last year.Agriculture Sector is a key sector of the economyand accounts for 21 percent of GDP. Thesupportive policies of the government resulted in agrowth of 3.1 percent against 2.4 percent last year.Major Crops registered an accelerating growth of3.2 percent compared to a negative growth of 0.2percent last year. The major crops includingCotton, Sugarcane and Rice witnessed growth inproduction of 18.6 percent, 4.9 percent and 27.7percent respectively. However, preliminaryestimates of wheat production showed a negativegrowth due to late receding of flood waters inlower Sindh which hampered the timely cultivationof the wheat crop. Livestock has witnessed amarginally higher growth of 4.0 percent against thegrowth of 3.97 percent last year. Fisheries sectorshowed a growth of 1.8 percent. Forestry recordeda growth of 0.95 percent as compared to thecontraction of 0.40 percent last year.Manufacturing Sector: The growth of themanufacturing sector is estimated at 3.6 percentcompared to 3.1 percent last year. Small scalemanufacturing maintained its growth of last year at7.5 percent and slaughtering growth is estimated at4.5 percent against 4.4 percent last year. LargeScale Manufacturing (LSM) has shown a growthof 1.1 percent during July-March 2011-12 against1.0 percent last year. The Construction Sector hasshown 6.5 percent growth as compared to negativegrowth of 7.1 percent last year. Mining andQuarrying sector recorded a positive growth of 4.4percent during July-March of the fiscal year 2011-12 against negative growth of 1.3 percent last year.Electricity and gas distribution witnessed anegative growth of 1.6 percent against - 7.3 percentlast year.Services Sector: The Services sector hasregistered a growth rate of 4.0 percent during July-March of the fiscal year 2011-12 against 4.4percent last year. It is dominated by Finance andInsurance at 6.5 percent, Social and CommunityServices 6.8 percent and Wholesale and RetailTrade 3.6 percent.Consumption: Real private consumption grew at11.6 percent in fiscal year 2011-12 as compared to3.7 percent growth last year and real governmentconsumption grew at 8.2 percent as compared to5.2 percent last year. Private consumptionexpenditure has reached 75 percent of GDP;whereas public consumption expenditures are 13percent of GDP. Private consumption hasincreased on the back of sustained growth inremittances. Total consumption has reached 88.4percent of GDP in fiscal year 2011-12 as comparedto 83 percent last fiscal year. Furthermore, increasein rural income due to higher production of cropsand sharp increase in commodity prices alsosupported the consumption demand.Per capita real income grew at 2.3 percent in2011-12 as compared to 1.3 percent growth lastyear. In dollar terms, it increased from $ 1258 in2010-11 to $ 1372 in 2011-12.Real Investment has declined from 13.1 percentof GDP last year to 12.5 percent of GDP in 2011-12; fixed investment has declined to 10.9 percentof GDP in 2011-12 from 11.5 percent of GDP lastyear. Similarly Private investment also contractedto 7.9 percent of GDP in 2011-12 as compared to8.6 percent of GDP last year. Public investment asa percent of GDP is 3.0 percent in 2011-12 againstthe 2.9 percent last year. National savings are 10.7percent of GDP in 2011-12 as compared to 13.2percent in 2010-11.Foreign Direct Investment stood at $ 668 millionduring July-April 2011-12 as against $ 1293million last year. The capital flows were affectedbecause of global financial crunch and euro zonecrisis. Oil and Gas Exploration remained the majorii

Executive Summarysector for foreign investors. The share of Oil andGas Exploration in total FDI during July-April2011-12 stood at 70 percent.Workers’s Remittances witnessed a stronggrowth of 25.8 percent in 2011 over the previousyear 2010. During July-April 2011-12, worker’sremittances grew by 20.2 percent at $ 10.9 billion.The buoyancy in remittances is largely attributedto the government’s efforts to divert remittancesfrom informal to formal channel. Data onremittances suggests that the monthly average forthe period of July-April 2011-12 stood at $ 1.09billion compared to $ 0.90 billion during thecorresponding period last year. The upsurge in theremittances is attributed to the government’sefforts of redirecting these flows from informal toformal channels.Fiscal Development: The Medium TermBudgetary Framework has improved the budgetpreparation process. Medium-term fiscalframework and budget policies have beenincorporated into a medium-term Budget StrategyPaper on rolling basis, which include medium-termindicative budget ceilings for the recurrent anddevelopment budgets, and provides an opportunityto discuss the budget between technical andpolitical levels prior to the presentation of theannual budget. The political level involvementincludes Cabinet, Standing Committees on Finance& Revenue, and political parties. The OutputBased Budget (OBB) has also beeninstitutionalized in the federal government whichpresents policies of the ministries in the shape ofgoals, outcomes, outputs and medium-termbudgets. The OBB also presents key performanceindicators for the outputs to introduce governmentwide monitoring system.18 th amendment in the Constitution of the IslamicRepublic of Pakistan was an historic step forwardabolishing the concurrent list transferringadditional functions to the Provinces. It wascombined with a path breaking 7 th NationalFinance Commission Award in 2010. In addition,the Government resolved long standing demandsof the Khyber Pakhtunkhwa relating to Net HydelProfit and Royalty and Gas DevelopmentSurcharge of Sindh and Balochistan. The awardalso acknowledged multiple criteria for transfer ofresources. Share of Balochistan has increased from5.1 to 9.0 percent. Likewise, Khyber Pakhtunkhwahas been assigned 1 percent of the total divisiblepool to mitigate the impact of campaign againstextremism. This has allowed transfer of 70 percentof the divisible pool to the provinces and FATAand Gilgit-Baltistan. During the last two years,Federal Government has transferred over Rs. 800billion additional over 2009-10 resource transfer ofRs. 633 billion. This should help the provinces toearmark more resources to social sectors anddevelopment of infrastructure.Government continued its efforts to broaden thetax base and simplifying the tax structure. Effortsare underway to move towards two main taxes, i.e.income tax and sales tax. As a result, SpecialExcise Duties and Regulatory Duties have beenabolished. A three years plan to phase out FederalExcise Duties is under implementation. CapitalGain Tax has been levied on sales of securities inthe stock exchange. Sales tax exemptions and zeroratings have been withdrawn on all items includingtextile, leather, fertilizer, pesticides, sports goodsand tractors except food items, health, educationand agriculture produce. The Government hasstrengthened automated e-filing and electronicpayment and refund system to ensure expeditioussettlement of refund claims expeditiously. For this,a centralized sales tax refund cheque issuancesystem is now operational in the Federal Board ofRevenue. Broadening the tax base identifyingpotential taxpayers has remained a key focus forwhich a dedicated unit has been established in theFBR. These efforts are now paying dividend.Federal Board of Revenue target for 2011-12 wasset at Rs. 1952 billion. During first ten months, taxcollection stood at Rs. 1,426.0 billion against Rs.1,149.8 billion in the comparable period of lastyear, showing an increase of 24 percent. It does notinclude Rs. 19 billion collected by Sindh provinceon GST on services.Efforts are being made to manage the fiscal deficitwithin acceptable level through an expendituremanagement strategy, austerity measures andreforms in public sector enterprises. Thegovernment is committed to simplification of taxregime, broadening the tax and mobilizingdomestic resources. The operational expenditure ofthe federal ministries was reduced by 20 percent. Aiii

Pakistan Economic Survey 2011-12general ban was placed on recruitment andpurchase of durable goods. Official transportassigned to entitled officers of BPS-20 to 22 wasmonetized to reduce expenditure on POL andrepair and maintenance as well as drivers. Subsidyexpenditure was rationalized. As a result of theseefforts, overall fiscal deficit was at 5.0 percent ofGDP in July-April 2012 against 5.5 percent ofGDP of the comparable period of last year. It isnoteworthy that containing the deficit during theperiod under review was quite challenging as theburden of financing fell directly on domesticsources due to the non materialization of externalinflows.Unlike the past, it was for the first time in manyyears that Public Sector Development Program didnot face any cut. Despite huge financialconstraints, the Government made a special effortto fully fund the PSDP. Accordingly, Rs. 304billion were released that facilitated in completionof 200 projects. The Government efforts can begauged from the fact that Rs. 2.2 trillion wereprovided during the last four years for PSDP.Money and Credit: The SBP lowered the discountrate by cumulative 200 bps points to 12 percentduring the first half of fiscal year 2011-12 in linewith inflationary trend in the country. During thefirst eleven months of the current fiscal year (June2011-11 th May 2012) broad money (M2) witnessedan expansion of 9.1 percent as compared to 11.47percent as compared to last year. The decelerationin money supply is primarily driven by thesignificant fall in the Net Foreign Assets of thebanking system along with increased governmentborrowing and a one-off settlement of circulardebt. Net Domestic Assets (NDA) during July2011 - 11 th May 2012 stood at Rs. 880.9 billionagainst Rs. 481.6 billion during the same periodlast year. The expansion in NDA is mainlycontributed by a rise in demand for private sectorcredit and government borrowings. Conversely,Net Foreign Assets (NFA) witnessed a contraction.During July2011-11 th May, 2012, credit to theprivate sector witnessed a net increase of Rs. 234.8billion compared to Rs. 107.8 billion in the sameperiod last year. Year-on-year growth in privatesector credit was up 7.5 percent by 11 th May, 2012.The weighted average lending rate (including zeromark-up) on outstanding loans stood at 12.8percent while the weighted average deposit rate(including zero mark-up) stood at 6.98 percent inMarch 2012. This resulted in a spread of 5.8percent. The decline in the weighted averagelending rate is due to the lag involved incontracting fresh loans in the new declininginterest rate environment and the decline in banksreturn on government securities. It is pertinent tomention that since the SBP was following a tightmonetary policy till August 2011 and the interestrates were moving up, the banking spreadremained high.Capital Markets: The KSE 100 index stood at12,496 on June 20, 2011. It crossed the barrier of14,000 and closed at 14,618 on 7 th May, 2012, thehighest level seen in last four years showing agrowth of 17 percent over the closing index of lastfinancial year. The Government has now leviedCapital Gain Tax on securities. The net investmentby the foreign investors in Pakistan’s StockMarkets during July-March, 2011-12 reflected anet outflow of US$176 million. This indicates thatbullish trend observed in Pakistani equity market isdue to the restoration of the confidence of localinvestors and institutions. During fiscal year 2011-12, the leading stock markets indices of the worldobserved mixed trends with negative growth of18.1 percent in China to 19.03 percent positivegrowth in case of Philippines. Pakistani Stockmarket performed well as compared to markets ofthe world during the current fiscal year. This wasmainly due to the steps taken by the government toboost the confidence of the equity market investorswhich included reforms in the Capital gains tax,etc.The Government has enacted Stock Exchanges(Corporatization, Demutualization and Integration)Act, 2012 which will further strengthen thecountry’s stock markets. The law requires stockexchanges to be demutualized within 119 days ofits promulgation in accordance with timelinesspecified for completion of various milestonesinvolved in demutualization exercise.Corporatization, demutualization of stockexchanges would entail converting their structurefrom non- profit, mutually owned organization tofor-profit entities owned by shareholders.iv

Executive SummaryDemutualization would result in increasedtransparency at stock exchanges and greaterbalance between interests of various stakeholdersby clear segregation of commercial, regulatoryfunctions and separation of trading rights andownership rights. Demutualization is wellestablishedglobal trend and almost all stockexchanges worldwide operate in demutualized setup. The enactment of this law has brought Pakistancapital market at par with other internationaljurisdictions like India, Malaysia, Singapore, USA,UK, Germany, Australia, Hong Kong, Turkeyamong others. It will help expand market outreach,attract new investors, improve liquidity and enablestock exchange to attract international strategicpartners.Inflation: Price stability remained the priority ofthe government. The Government has constituted aNational Price Monitoring Committee headed bythe Finance Secretary with representatives ofFederal Ministries and Provincial departments. TheCommittee meets every month. In addition, theCabinet and the Economic Committee of theCabinet monitors the prices of essential items andtake corrective measures to ensure that pricesremain under check. These efforts have yieldedresults. Inflation has declined for the thirdconsecutive year. CPI was 10.8 percent duringJuly-April, 2012 from a high of 25 percent inOctober 2008. It was in single digit in December2012. This has been achieved despite sharpincrease in international oil prices, effect ofupward adjustment in the administered prices ofelectricity and gas, supply disruptions due todevastating floods of 2010 and heavy rains of 2011and bank borrowings. Food and non-food inflationaveraged 11.1 percent and 10.7 percentrespectively against 18.8 percent and 10.8 percentin the same period of last year.Trade and Payments: The Government pursuedvigorously to secure concessional duties packageon 75 items from the European Union. The WorldTrade Organization approved the package thisyear. It is expected that this will boost Pakistan’sexports to EU, one of the major trading partner ofPakistan. Exports witnessed a strong performancelast year attaining the highest level ever of $ 25billion showing a growth of 30 percent. It reflectedboth the price and quantity effect. Despite eurozone crisis, impacting the demand for Pakistangoods, Pakistan has successfully maintained itsexports at last year’s until April this year. Exportsduring July-April 2012 were $ 20.5 millioncompared to $ 20.46 billion last year. The AfghanTransit Trade Agreement (APTTA) hasencouraged formal trade between Pakistan andAfghanistan and the volume has risen to around $2.5 billion annually. Efforts are underway toformalize Free Trade Agreements and PreferentialTrade Agreements with many countries. It willhelp boosting Pakistan’s exports. Efforts are also inhand to normalize trade relations with India.Imports grew by 14.5 percent and stood at $ 33.1billion during July-April 2012. The current accountdeficit stood at $ 3.4 billion in the same period. Itwas largely as a result of high oil prices and importof fertilizers. Continued support from currenttransfers in the form of workers’ remittanceshelped in containing current account balance.Pakistan has witnessed some geographicaldiversification in exports. During 2005-06, 47.2percent of the country’s exports were concentratedin five markets (USA, UK, Germany, Hong Kongand U.A.E.) of the world and remaining share ofall other countries was 52.8 percent. Thisconcentration is on continuous decline since 2005-06 and recently the share of these five marketsstood at 35.7 percent whereas the share of all othercountries increased to 64.3 percent during July-December 2011-12. This improvement ingeographical diversification was mainly the resultof Strategic Trade Policy Framework (STPF-2009-12) introduced by the government and the resultingincrease in exports to China, Afghanistan andBangladesh.Pakistan’s foreign exchange reserves reached to $16.5 billion at the end-April 2012 compared to $17.0 billion at end-April 2011. The exchange rateaveraged at Rs. 85.50/US$ during July-April 2010-11, whereas it averaged at Rs. 88.55/US$ duringJuly-April 2011-12. The Pak Rupee depreciated by3.4 percent during July-April 2011-12 over thedepreciation of 2.2 percent in July-April 2010-11period.Public Debt: Pakistan’s public debt stood atRs. 12,024 billion as of March 31, 2012. Duringv

Pakistan Economic Survey 2011-12first nine months of the ongoing fiscal year, totalpublic debt registered an increase of Rs. 1,315billion which includes Rs. 391 billion consolidatedby the Government into public debt againstoutstanding previous year’s subsidies related tofood and energy sectors. Public debt as a percent ofGDP stood at 58.2 percent by end-March 2012.During July-March 2012, $179 million was addedto the EDL stock. At the end of March 2012,servicing of the public debt stood at Rs.720.3billion against the budget amount of Rs. 1034.2billion.Population, Labour Force and Employment:Pakistan is endowed with demographic dividendwith a bulging young population. They can be aproductive asset of the country if put to propertraining and skill development. Pakistan is alsofacing rapid urbanization. The population in urbanareas has increased from 65.3 million in 2010-11to 67.5 million in 2011-12. Accordingly, citiesdevelopment is one of the key pillars of Pakistan’sgrowth framework.According to the Labour Force Survey 2010-11,Pakistan has a labour force of 57.2 million peoplewhich is 0.9 million more than the last year. Out ofthis potential labour force, the total number ofpeople were employed during 2010-11were 53.8million, which is 0.6 million more than the lastyear. The total labour force working in theagricultural sector remained unchanged during theperiod 2008-2011. In manufacturing sector, theparticipation rate has increased from 13.2 percentin 2009-10 to 13.7 percent in 2010-11. Efforts arebeing made to develop an efficient, equitable andrights based labour market that provides themechanisms for productivity growth in theeconomy which results in real wage increases.The government is making sincere efforts to boostoverseas employment which will not only reducethe unemployment burden in the country but willalso enhance remittances. In this regard, MoUshave been signed with number of labour importingcountries such as Malaysia, Kuwait, and Qatar etc.Emigrants sent abroad in 2010 were 0.4 millionand 0.5 million in 2011. Saudi Arabia, Gulf Stateincluding United Arab Emirate (UAE), Oman andKuwait are the largest market of Pakistani workers.Transport and Communication: The transportand communication sector is a major contributor togovernment revenues. Sustainable economicdevelopment is dependent on a robust and low costtransport system. Enhanced export competitivenessis also contingent upon the efficient performanceof this sector. The government is committed toimplementing a comprehensive and modernizingtransport and logistics sector through continuousreforms in all of its sub sectors. The Ministry ofCommunications has prepared a draft NationalTransport Policy which covers all modes oftransport sectors i.e. (i) Roads, (ii) Railways, (iii)Ports and Shipping and (iv) Aviation. This policyalso includes the National Transport CorridorImprovement Program (NTCIP) to make it moreproductive and environment friendly.The National Highway Authority completed 12projects of flyovers, bridges, interchanges and theupgrading of roads during the last one year at acost of Rs. 19.6 billion. At present, 46development projects of roads covering 2,985 kmsare ongoing costing Rs. 245 billion in differentsections/packages. These projects includeconstruction of roads, river bridges, tunnels,flyovers and interchanges. NHA has also launchedand awarded 16 new development projectscovering over 500 kms, including construction of anumber of bridges, flyovers and interchangescosting Rs. 71 billion. NHA is simultaneouslyconstructing 12 bridges across the rivers. Theseare: on river Chenab 4, on river Sutlej 2, on riverSwan 1 and on river Indus 5.The Cabinet Committee of Restructuring (CCOR)approved a restructuring framework for PakistanRailways (PR). New Board of Directors of PR hasbeen instituted, involving academia, managementprofessionals, rail experts and executivefunctionaries. The Government arranged Rs. 6billion loan for repair of locomotives and freightoperations are also being prioritized for revenuegeneration. PR is being provided Rs. 2.3 billion permonth from the budget to finance pay and pensionsof Railway employees. An Asset ManagementCompany is being established for optimumutilization of PR’s assets. Private sectorinvolvement is the focus moving forward, theChamber of Commerce and Industries Lahore hasbeen engaged for their freight transportation fromvi

Executive SummaryKarachi to Lahore. Commercial management ofrail operations and outsourcing of non-corefunctions is being initiated with an aim to improveefficiency of rail operations. Private Sector is alsorunning a passenger train.During the financial year, 16 kms of track wasrehabilitated on the Pakistan Railways networkbesides doubling the previous 15 kms of track.Construction of a D Class railway station at newMultan City, renovation of Khudian Khas,Usmanwala, Raiwind and Kanganpur railwaystations was carried out. Signaling system of fourrailway stations damaged during the riots of 2007was rehabilitated during the period. DuringFebruary 2012, 52 new design passenger coacheswere imported from China. Remaining 150passenger coaches will be manufactured atPakistan Railway Carriage Factory Islamabad byJune 30, 2013. In addition, 22 passenger coacheshave been rehabilitated at the Pakistan RailwayCarriage Factory Islamabad during the last year. Anew dry port was set up at Prem Nagar nearRaiwind industrial area, Lahore through publicprivatepartnership.Teledensity in the country has increased by 68.3percent in April 2012, showing 6.7 percent growthas compared to the previous year. Mobilepenetration rose to 64.9 percent in 2011-12 against60.4 percent in 2010-11. Fixed Local Loopteledensity now stands at 1.93 percent. Totalmobile subscribers has reached 118.3 million bythe end of March 2012. Subscribers of Local Loop(FLL + WLL) are 5.9 million, out of which 3.10million belong to FLL and 2.8 million belong toWLL. Broadband subscribers reached 1.9 millionat the end of February 2012.There has been a cumulative investment ofapproximately US$ 2.5 billion in the electronicmedia industry in Pakistan. More than 200,000new jobs with diversified skills and qualificationshave been provided. Additionally, over 7 millionpeople have been accommodated through indirectemployment. With the current growth rate of morethan seven percent per annum in this sector, it isestimated that the cumulative investment in theelectronic media industry will reach above $ 3.0billion by the end of the current financial year.Energy: Energy is considered to be the lifeline ofeconomic development. Pakistan’s economy hasbeen growing at an average growth rate of almost 3percent for the last four years and demand ofenergy both at the production and consumer end isincreasing rapidly. The Energy Committee headedby the Finance Minister presented a wellarticulated Energy Recovery Plan to the Cabinet inNovember 2011 which was approved after duedeliberations.The Plan focused on: (i) improving governancestructure: it included dissolution of PEPCO andreplaced by Central Power Purchase Authority,constituting new Boards of Directors (BODs) of 8DISCOs and NTDC comprising professionals,issuance of explicit guidelines of professionalizingthe BOD, hiring professional CEOs for DISCOs,GENCOs and CPPA, and business plans for eachDISCO and GENCO to be developed by the newlyhired CEO and approved by the new Board; (ii)Supportive legislative framework: NEPRA lawwas amended authorizing NEPRA to notify fueladjustment, Cabinet has approved amendmentmaking electricity theft a serious crime; (iii)Financial Sustainability of the System: theGovernment has increased electricity tariff by 90percent and Rs. 1.25 per kwh very recently torecover the full cost of electricity supply which isstill Rs. 3 per kwh below the determined tariff; (iv)Resolution of Circular Debt: the Government hasprovided Rs. 1122 billion from the budget duringthe last four years to resolve circular debt issue.However, extremely low collection than required(90 percent of the billed amount) by DISCOsalways leaves a high balance as receivables; (v)Supply Side Management: reduction intransmission and distribution losses as well asrunning the most efficient plants; (vi) DemandSide Management: Standard Operating Procedure(SOP) issued for recovery of private receivables, alimit of 45 days for payment overdue has been setfor disconnection, Loss mapping in each DISCOinitiated to identify losses and their sources,Government facilitating recovery of dues ofProvincial 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 mixmoving towards hydel and coal based generation.In addition, the Government has launched a majorvii

Pakistan Economic Survey 2011-12energy conservancy program that includes twoholiday a week, closing the markets at 8:00 pm,lighting alternate pole of the Municipalities andusing air conditioners in offices after 11:00 p.m.The contribution of Hydel in electricity generationincreased to 33.6 percent in 2011. KarachiElectricity Supply Corporation (KESC) contributed8.3 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 electricitygeneration. Independent Power Producers (IPPs)have contributed almost 25 percent. TheGovernment is implementing a number of priorityhydel projects such as 969 MW-Neelum Jhelum,1410 MW-Tarbela 4 th Extension, and Patrind in theprivate sector. Almost 96 percent of the work onthe main dam at Mangla, spillway and alliedfacilities are completed and resettlement work is inprogress. Likewise 99.7 percent work on Satparaand 72.1 percent on Gomal Zam dam have beencompleted. 7100 MW-Bunji, 4320 MW-Dasu, 80MW Kurram Tungi Dam, 740-MW Munda Damand 4500 MW-Diamer Bhasha Dam are in thepipeline. Pakistan is one of the beneficiaries ofTetra-partner power import project under the headof Central Asia-South Asia (CASA-1000)electricity trade. In addition, a number of thermalprojects are under implementation including 747Guddu refurbishment.Pakistan has huge coal reserves estimated at over185 billion tones. Thus the long term trend showsthat there was an increase of production of coal; anaverage 7.7 percent change occurred during the lastten years. Federal as well as Sindh Governmentsare actively pursuing to provide necessaryinfrastructure at Thar for exploiting these coalreserves for power generation. Two blocs havebeen leased out on pilot basis. Efforts areunderway to provide the missing transmission linkbetween Matiari and Thar.The Government is also working on different gaspipelines as well as import of LNG and LPG toaddress the gas shortages. In this regard, LiquifiedNatural Gas (LNG) Policy 2011 has been notifiedwhich encourages private parties to develop LNGprojects and sets them free to participate in anysegment of the LNG value chain. The gas sectorsupply increased by 4.9 percent in July-March2011-12 as compared with the correspondingperiod of last year. The average production ofnatural gas during July-March 2011-12 was 4236.1million cubic feet per day (mmcfd) as against4050.6 (mmcfd) during the corresponding periodof last year showing an increase of 4.6 percent.Social Safety Nets: The government is committedto a sustained poverty reduction strategy and toallocate a minimum of 4.5 percent of GDP tosocial and poverty related expenditures. Thegovernment prioritized 17 pro-poor sectors throughthe Medium Term Expenditure Framework(MTEF) which provides a link between the policypriorities and the budget realties. Expenditure onpro-poor sectors in 2007-08 stood at 5.6 percent ofGDP, 7.5 percent in 2008-09, 7.6 percent in 2009-10. Total expenditures in 2010-11 were 6.9 percentof GDP. This was first year of the 7 th NationalFinance Commission Award when 70 percent ofthe divisible pool was transferred to the provincesas well as transition was taking place as a result of18 th amendment.The floods of 2010 and heavy rains of 2011significantly hurt the efforts to improve standard ofliving of the people. The floods and rains affectedapproximately 20 million people directly and amuch larger proportion indirectly; the loss toinfrastructure and livelihood sources furtherimpacted the people of these areas.The Benazir Income Support Programme, aflagship program of the Government, has made aremarkable progress by providing much neededrelief 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 werecontributed from domestic resources. A totalamount of Rs. 122 billion has been disbursed to itsrecipients up to March 2012. The number ofrecipients is expected to be increased to 7 milliononce the on-going processing of data collectedduring the “nation-wide poverty scorecardtargeting survey” is completed. BISP has launcheda number of programmes including (i) Payment toRecipients, (ii) Graduation Initiatives, (iii)Waseela-e-Haq, (iv) Waseela-e-Rozgar, (v)Waseela-e-Sehat and (vi) Waseela-e-Taleem toviii

Executive Summarymitigate the impact of stabilization program aswell as inflation.The Pakistan Poverty Alleviation Fund (PPAF) isyet another element of the country’s povertyreduction strategy. The PPAF is dedicated formicro credit, enterprise development, communitybased infrastructure and energy projects, livelihoodenhancement and protection, social mobilization,and capacity building. The overall disbursementsfor core operations during the period of July-December 2012 were Rs. 8.5 billion.Pakistan Bait-ul-Mal is making a significantcontribution towards poverty reduction through itsvarious services by providing assistance todestitute, widows, orphans, invalid, infirm andother needy persons irrespective of their gender,caste, creed and religion through its ongoing coreprojects/schemes. A total of Rs. 1.8 billion hasbeen utilised upto February 2012 on schemes suchas individual Financial Assistance, child supportprogram, vocational schools, sweet homes etc.After devolution of the subject of Zakat, theProvinces/Federal Areas are directly managing thedistribution of Zakat to the beneficiaries. Zakatfunds have been utilized for assistance to theneedy, indigent, poor, orphans, widows,handicapped and disabled for their subsistence andrehabilitation. Up to March 2012, a total amount ofRs.7.8 billion was distributed amongst theprovinces and other administrative areas.Peoples Works Programme (PWP) I & II arewelfare programmes comprising smalldevelopment schemes providing villageelectrification, gas, farm to market roads,education, health and other services to create jobsat the local level. PWP-I & II have been providedover Rs. 38 billion during 2011-12.Employees Old Age Benefits Institution providesmonetary benefits to the old age workers throughvarious programmes such as the Old Age Pension,Invalidity Pension, Survivors Pension and Old AgeGrants. During the period of July-March 2012, Rs.8 billion has been disbursed to 350,485beneficiaries.Workers Welfare Fund is also facilitating the poorlabourers in industrial sector by providing fundsfor housing facilities and marriage grant, deathgrant and scholarships etc. During (July-March)2011-12, Rs. 2.5 billion has been incurred for theseschemes. Government has also taken variousmicro-finance initiatives in collaboration with allstakeholders to generate employment opportunitiesand to eliminate poverty.The Government has provided huge subsidiesduring the last four years to the vulnerable andpoor to mitigate the impact of stabilization, floodsand international prices. These include: Rs. 1122billion for the power sector, Rs. 104 billion for thepetroleum sector in addition to foregone income ofRs. 136 billion from Petroleum Levy by adjustingit downward to keep the petroleum prices lowerthan the international market, Rs. 110 billion onfertilizer and Rs. 137 billion for food items such assugar, wheat and subsidized items through UtilitiesStores. In addition, Federal Government providedRs. 42 billion to the flood affectees through WatanCard as well as Citizens Compensation DamagesProgram.Environment: Pakistan continued to facechallenges to achieve environmentally sounddevelopment. This has become increasinglydifficult to achieve in the backdrop of back to backflooding and rains across the country as well asother exogenous and endogenous factors. Thequality of the natural environment is not only anextremely important issue from the point of viewof individual survival but it will also emerge as oneof the principal human security issues in Pakistan.The environmental challenges include climatechange impacts, loss of biological diversity,deforestation and degradation of Air and Waterquality.A number of projects have been funded by thegovernment to improve the capacity of relevantinstitutions to deal with increasing environmentaldegradation. In addition, there are a number ofprojects funded by the donors in which thegovernment is a partner. These are being currentlyimplemented to improve overall environment ofthe country. Government efforts alone, because ofthe limited resources at its disposal, are not enoughand demand a much larger participation andix

Pakistan Economic Survey 2011-12support from other stakeholders including industry,civil society, and the public at large as well as thedonors. National Climate Change Policy 2011provides a framework for addressing the issues thatPakistan faces or will face in future due to thechanging climate.The level of access to drinking water is quiteimpressive in Pakistan. According to PakistanBureau of Statistics report (PBS) Pakistan Socialand Living Standards Measurement Survey 2010-11, access to drinking water to urban and ruralpopulation of Pakistan is 94 and 84 percent, withan average of 87 percent in 2011. Sanitationfacilities are also improving. According to a reportreleased by the WHO/UNICEF Joint MonitoringProgram (JMP) 2012, 92 percent people had accessto drinking water by 2010 in Pakistan while thisratio was 85 percent and 89 percent in 1990 and2000 respectively. The MDG target is to achievethe ratio of 93 percent by 2015.Going forward, the government will continue topursue policy of macroeconomic stability, growthand creating jobs, mobilizing domestic resources,incentivizing the private sector, and strengtheningthe social safety nets.State of Economy in 2008It is important to appreciate the state of economyinherited by the democratically electedGovernment and the challenges it faced as theGovernment presents 5 th budget for the first time inthe history of Pakistan.By the time this Government assumedresponsibilities in March 2008, a combination oflarge exogenous price shocks (oil and food), globalfinancial turmoil, huge expenditure on security andpolicy lapses during the political transition had seta stage for full blown crisis. More specifically: Real GDP growth slowed down in 2007-08reflecting weaker performance of theagricultural and manufacturing sectors. Headline CPI 12-month inflation rose to 25percent in October 2008, with core inflation(excluding energy and food) increasing to 18percent.External current account deficit widened toabout $14 billion or 8½ percent of GDP in2007/08. Fiscal deficit rose to 7.6 percent of GDP in2007/08 mainly because of a substantialincrease in energy and food subsidies andimport prices Gross reserves declined from $ 16 billion to $11 billionDomestic pressures and the global financialcrisis led to rising dollarization and an outflowof deposits from the system in 2008 whichcontributed to a deterioration of liquidityconditionsKarachi KSE-100 index dropped by one third,prompting the Karachi Stock Exchange Boardto impose a floor on the decline of all stockprices on August 27, 2008.The Government had no choice but to go to IMFto strengthen international reserves and ensurefiscal stabilization. Just when the economy wastransitioning from stabilization to growth, Pakistanwas struck by the great floods of 2010. It causedsevere damages to infrastructure, roads, bridges,power stations, refineries, schools, hospitals, cropsand livestock. A large number of human lives werex

Executive Summarylost. The total loss was estimated to be around $ 10billion. It was followed by yet another spell ofsevere rains in Sindh and parts of Balochistan in2011 causing a loss of additional $ 3 billion.The security development in the country during2008-09, particularly in the North-West, requiredbeefing up of security forces and mobilization ofadditional resources to deal with the situation. Inaddition, humanitarian crisis spawned by thesecurity situation displacing over 3 million peopleresulted in huge budgetary costs.Achievements since FY2008Inspite of huge challenges during the last fouryears including global economic contractionespecially in the advanced economies, financialturmoil, great floods of 2010, extraordinaryrains in 2011, persistently rising energy prices,continuing security situation, the Governmentsucceeded in: Maintaining macroeconomic stability bypursuing tight monetary policy and fiscaldiscipline Revival of Growth: Economy isrecovering from the floods and exogenousshocks and real GDP growth is estimatedat around 3.7 percent on the back of pickup in agriculture and large scalemanufacturing growth as compared to 3percent last year Inflation: Average inflation seems remainclose to the targeted 11 percent, decliningfrom the peak of 25 percent External Sector: Pakistan’s externalaccount registered an unexpectedimprovement during FY11 providing muchneeded breathing space to the economy.The exports surged to $ 25.4 billionshowing a growth of 28.4 percent whereasthe imports registered an increase of 14.7percent. As a result, the trade deficit,which had been a major factor in thedeterioration of the external account in thepast, remained in check, and contracted by8.7 percent as compared to the precedingyear. FY11 current account balance posteda small surplus of $ 0.3 billion ascompared to 8.5 percent deficit in 2008.This year, exports have maintained lastyear trend during July-April 2012 despiteadverse global environmentStrong flow of remittances: The risingtrend in remittances continued for thefourth consecutive year in FY12 asremittances are estimated close to US$ 13billion as compared to $ 6.2 billion inFY08 Build up of Foreign Exchange Reserves:The improvement in the overall externalbalance despite the contraction in financialaccount surplus helped build up foreignexchange reserves during FY11. Thus, bythe end of June 2011, Pakistan’s overallforeign exchange reserves stood at a recordlevel of US$ 18.2 billion. Currently, theseare at $ 16.4 billion despite repayment tothe IMF as well as discharging all ourobligationsSeveral New Initiatives of the GovernmentThis Government has undertaken several newinitiatives during the last four years. The mostsignificant initiatives include: 7 th National Finance Commission Award:The Award was path-breaking as (i) it movedaway from population as the sole basis forhorizontal distribution of resource and gavedue weightage to population, poverty/backwardness, revenue collection, revenuegeneration and inverse population density; (ii)it increased share of Balochistan to 9.09percent (iii) 70 percent share of the divisiblepool is now being transferred to theProvinces and Special Areas (iv) transfer tothe provinces increased from Rs. 633 billion inFY10 under 6 th NFC Award to Rs. 999 billionin FY11 and Estimated Rs. 1,204 billion inFY12 18 th Amendment in the Constitutionabolishing the concurrent list and transfer of 17federal ministries to the provinces Autonomy to Gilgit-Baltistan Aghaz-e-Haqooq-e-Balochistanxi

Pakistan Economic Survey 2011-12Additional Resources to less developed areasin 4 years: It included (i) Rs 32 billion toGilgit-Baltistan in 2 years (ii) Rs 71 billion toAJK and (iii) Rs 110 billion to FATAPublic Sector Development Program: PSDPover a period of 4 years was Rs 2.2 trillion.Current year’s PSDP outlay is Rs 730 billionas compared to Rs 480 billion last year. It wasspent to complete 657 projects in 4 yearsPeoples’ Works Program: Rs 130 billion wereearmarked under Peoples Works Program-II(Rs 110 billion) and Rs 20 billion under PWP-Iin 4 years for implementation of hundreds ofschemes for electrification, gas supply, road,water supply and sanitationCitizens’ Damages Compensation Program:Federal Government provided Rs 42 billion tothe flood affecteesSubsidies: Over the 4 years, Government hasprovided so far (i) over Rs 1122 billiontowards tariff differential subsidy to maintainthe notified tariff lower than the determinedtariff (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 revenueby adjusting the petroleum levy downwardBenazir Income Support Program: Additionalresources of Rs 178 billion allocated fordisbursement through BISP to vulnerablegroups including Rs 153 billion from thebudget Benazir Employees Stock OptionProgramme: Under this scheme, 12 percentshares of 80 State Owned Enterprises weretransferred to 500,000 employees of thoseSOEs making them shareholder Internship Program: The Government alsoprovided 100,000 internship to Master degreeholders paying them Rs 10,000 per month Railways: Railway was provided Rs 119billion over the last 4 years; Rs 85 billionunder current budget and Rs 34 billion fordevelopment budget Energy Sector: Government injectedprofessionalism in power sector byrestructuring Board of Directors of some PSEs,initiated alternate energy program, put hardbudget constraint and resolved circular debtissue partiallyTax Simplification: The government tookmany steps to (i) simplify the taxation system(ii) minimum tax slab increased from Rs100,000 to Rs 350,000 (iii) expanding the taxbase by bringing new tax payers in the net (iv)improve the tax administration (v) SpecialExcise duties were eliminated (vi) gradualelimination of federal excise duty (vi)abolishing regulatory duties on 392 items (vii)elimination of zero ratings on key sectorsDoubling the FBR Tax Revenues: As a resultof these efforts, FBR revenue has moved fromRs 1 trillion in 2007-08 to around Rs 2 trillionin 2011-12.xii

ECONOMIC ANDINDICATORS1960s 1970s 1980s 1990s 2000s 1999-00 2000-01Average (Annual)GROWTH RATE (%) (Constant fc)GDP 6.8 4.8 6.5 4.6 4.8 3.9 2.0- Agriculture 5.1 2.4 5.4 4.4 3.2 6.1 -2.2- Manufacturing 9.9 5.5 8.2 4.8 7.0 1.5 9.3- Commodity Producing Sector 6.8 3.9 6.5 4.6 4.3 3.0 0.8- Services Sector 6.7 6.3 6.7 4.6 5.3 4.8 3.1GROWTH RATES (%)(Current MP)Total Investment - 21.8 4.2 8.1 15.0 10.2 8.6- Fixed Investment 14.8 20.5 3.7 7.8 15.0 10.5 8.5- Public Investment 14.0 25.3 2.6 7.3 11.7 5.5 11.1- Private Investment 20.9 17.0 5.1 8.8 16.9 14.3 7.2As % of Total Investment- National Savings - 67.5 79.2 75.4 91.0 90.8 95.9- Foreign Savings - 32.5 20.8 24.6 9.3 9.2 4.1As % of GDP (Current MP)Total Investment - 17.1 18.7 18.3 18.9 17.4 17.2- Fixed Investment - 15.9 17.0 16.6 17.4 16.0 15.8- Public Investment - 10.3 9.2 7.5 4.8 5.6 5.7- Private Investment - 5.6 7.8 9.1 12.6 10.4 10.2National Savings - 11.2 14.8 13.8 16.9 15.8 16.5Foreign Savings - 5.8 3.9 4.5 2.1 1.6 0.7Domestic Savings - 7.4 7.7 14.0 15.5 17.1 17.8GDP DEFLATOR (Growth %) - - 2.3 8.3 8.7 2.8 8.0CONSUMER PRICE INDEX (CPI)(Growth %) 3.2 12.5 7.2 9.7 7.7 3.6 4.4FISCAL POLICYAs % of GDP (MP)Total Revenue 13.1 16.8 17.3 17.1 14.2 13.5 13.3- Tax Revenue - - 13.8 13.4 10.6 10.7 10.6- Non-Tax Revenue - - 3.5 3.7 3.7 2.8 2.7Total Expenditure 11.6 21.5 24.9 24.1 18.7 18.8 17.4- Current Expenditure - - 17.6 19.4 15.4 16.5 15.5Defence - - 6.5 5.6 3.2 4.0 3.2Interest Payment - - 3.8 6.8 4.9 6.9 6.0Others - - 7.3 7.0 7.3 5.6 6.3- Development Expenditure - - 7.3 4.7 3.5 2.5 2.1Overall Deficit 2.1 5.3 7.1 6.9 4.5 5.4 4.3MONEY & CREDIT (Growth %)- Monetary Assets (M2) 16.3 21.0 13.2 16.8 15.0 9.4 9.0- Domestic Assets 15.0 20.5 15.4 12.2 14.1 9.0 3.7STOCK EXCHANGE (Growth %)- KSE 100 Index - - 0.1 4.1 27.2 44.2 -10.2- Aggregate Market Capitalizati - - 2.5 13.4 29.1 36.9 -13.4- : Not available P : Provisional R : Revised

SOCIAL INDICATORS2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12R P3.1 4.7 7.5 9.0 5.8 6.8 3.7 1.7 3.1 3.0 3.70.1 4.1 2.4 6.5 6.3 4.1 1.0 4.0 0.6 2.4 3.14.5 6.9 14.0 15.5 8.7 8.3 4.8 -3.6 5.5 3.1 3.61.4 4.3 9.2 9.5 5.1 6.6 1.3 1.8 3.6 1.5 3.34.8 5.2 5.9 8.5 6.5 7.0 6.0 1.7 2.6 4.5 4.03.2 10.7 14.4 32.6 36.1 15.7 15.6 2.6 -0.6 2.3 9.73.2 8.2 14.7 34.3 38.0 15.9 15.4 0.9 -2.2 0.1 9.0-22.2 4.0 19.3 23.7 30.3 30.9 15.2 -0.5 -5.4 -0.4 18.617.3 9.8 13.1 38.3 40.5 11.5 15.3 1.4 -1.1 0.3 5.8110.7 123.1 107.8 91.6 82.4 77.3 61.5 68.5 85.5 100.8 85.7-11.3 -22.5 -7.8 8.4 20.4 22.7 38.5 31.5 14.5 -0.8 14.316.8 16.9 16.6 19.1 22.1 22.5 22.1 18.2 15.4 13.1 12.515.5 15.3 15.0 17.5 20.5 20.9 20.5 16.6 13.8 11.5 10.94.2 4.0 4.0 4.3 4.8 5.6 5.4 4.3 3.6 2.9 3.011.3 11.3 10.9 13.1 15.7 15.4 15.0 12.3 10.2 8.6 7.918.6 20.8 17.9 17.5 18.2 17.4 13.6 12.5 13.1 13.2 10.7-1.9 -3.8 -1.3 1.6 4.5 5.1 8.5 5.7 2.0 -0.1 1.818.1 17.6 15.7 15.4 16.3 15.6 11.5 9.8 9.3 13.3 8.92.5 4.4 7.7 7.0 10.5 7.7 16.2 20.3 11.9 18.2 9.73.5 3.1 4.6 9.3 7.9 7.8 12.0 20.8 11.7 13.9 10.814.2 14.9 14.3 13.8 14.2 14.9 14.6 14.5 14.0 12.5 8.510.9 11.5 11.0 10.1 10.6 10.2 10.6 9.5 10.1 9.5 6.73.3 3.4 3.3 3.7 3.6 4.7 4.4 5.1 3.9 3.1 1.818.3 18.5 16.7 17.2 18.5 19.1 22.2 19.9 20.3 19.2 12.815.9 16.3 13.5 13.3 13.6 14.9 18.1 16.0 16.8 16.1 10.43.4 3.3 3.3 3.3 3.2 2.8 2.7 2.6 2.5 2.5 1.76.2 4.8 4.0 3.4 3.4 4.4 5.1 5.2 4.3 4.0 3.16.3 8.2 6.2 6.6 7.0 7.7 10.6 8.3 9.7 9.9 5.72.8 2.2 3.1 3.9 4.8 4.9 4.4 3.8 3.5 2.8 2.04.3 3.7 2.4 3.3 4.3 4.3 7.6 5.3 6.3 5.9 4.315.4 18.0 19.6 19.3 15.2 19.3 15.3 9.6 12.5 15.9 8.12.2 0.5 23.7 22.4 15.8 14.2 33.6 15.4 12.7 13.1 13.729.5 92.2 55.2 41.1 34.1 37.9 -10.8 -41.7 35.7 28.5 10.120.2 83.0 88.0 45.2 35.8 45.3 -6.0 -43.9 28.8 21.4 5.6(Contd.)

ECONOMIC ANDINDICATORS1960s 1970s 1980s 1990s 2000s 1999-00Average (Annual)TRADE AND PAYMENTS (Growth %)- Exports (fob) - 13.5 8.5 5.6 9.9 8.8- Imports (fob) - 16.6 4.5 3.2 13.7 -0.1- Trade Deficit - 20.5 0.9 -0.6 60.2 -32.3- Workers Remittances - - 1.9 -5.3 26.8 -7.2- Current Account Deficit - - 21.2 12.2 -4.6 -52.9As % of GDP (MP)- Exports(fob) - - 9.8 13.0 12.4 11.2- Imports(fob) - - 18.7 17.4 16.7 13.1- Trade Deficit - - 8.9 4.4 4.0 1.9- Current Account Deficit - - 3.9 4.5 4.0 1.6COMMODITY SECTORSAgricultureTotal Cropped Area Mln. Hectare - - 20.3 22.4 22.9 22.7Wheat Production Mln. Tonnes - - 12.5 17.0 20.8 21.1Rice " " - - 3.3 3.9 5.2 5.2Sugarcane " " - - 33.1 44.6 50.4 46.3Cotton " Mln. Bales - - 6.3 9.7 11.6 11.2Fertilizer Offtake Mln.N/Tonne - - 1.4 2.3 3.3 2.8Credit Disbursed Bln. Rs - - 11.2 23.8 112.9 39.7ManufacturingCotton Yarn Mln. Kg. 5.6 3.4 10.0 1884.4 2236.2 1672.0Cotton Cloth Mln.Sq.Mtr. 3.1 -5.2 -1.1 487.8 763.3 435.0Fertilizer Mln. Tonnes 27.5 13.2 10.7 4.9 5.4 4.4Sugar " 34.3 2.2 14.4 3.6 3.4 2.4Cement " 10.7 2.5 8.6 11.2 16.4 9.3Soda Ash 000 Tonnes 12.0 2.6 6.7 269.0 292.6 248.9Caustic Soda 000 Tonnes 24.4 5.0 6.6 147.2 195.0 141.3Cigarettes Bln.Nos. 10.7 4.9 -0.4 55.4 60.0 47.0Jute Goods 000 Tonnes - 3.4 9.5 101.1 105.0 85.5INFRASTRUCTUREEnergyCrude Oil Extraction Mln. Barrels - 2.8 10.9 26.1 23.3 20.4Gas (supply) Mcf - 165.4 385.2 908.0 1186.8 818.3Electricity (Installed 000 MW - 1.3 3.1 12.9 18.7 17.4Capacity)Transport & CommunicationsRoads 000 Km 70.5 74.1 123.8 279.3 255.6 248.3Motor Vehicles on Road Mln.Nos. - 0.4 1.4 4.6 6.4 4.0Post Offices 000 Nos. 7.1 9.0 11.8 15.8 12.3 12.8Telephones Mln.Nos. 0.1 0.2 0.6 3.3 4.2 3.1Mobile Phones Mln.Nos. - - - - 30.3 0.3- : Not available P : Provisional R : Revised* : July-March

SOCIAL INDICATORS2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12R P9.1 2.3 19.1 13.8 16.2 13.8 4.5 18.0 -6.4 2.9 28.9 2.4 *6.2 -7.5 20.1 20.1 37.8 31.4 8.0 31.6 -10.3 -1.7 14.9 14.9 *-10.1 -76.8 51.0 172.1 260.3 89.8 15.0 56.1 -15.7 -8.6 -8.8 42.4 *10.4 119.8 77.4 -8.6 7.7 10.4 19.4 17.4 21.1 14.0 25.8 21.5 *-55.1 360.8 136.5 -58.5 -233.4 -222.2 -30.3 94.3 -33.2 -57.4 -105.4 -12.4 12.6 13.1 12.7 13.2 13.0 11.9 11.6 11.8 10.9 11.8 7.4 *14.2 13.0 13.6 13.9 17.1 19.4 18.5 24.4 19.6 19.6 19.2 14.2 *1.8 0.4 0.5 1.2 4.0 6.5 6.6 9.0 7.8 8.7 7.4 6.9 *0.7 +1.9 +3.8 +1.3 1.6 4.4 5.1 8.7 5.7 2.2 +0.1 1.3 *22.0 22.1 21.8 22.9 22.8 23.1 23.6 23.9 24.0 23.8 22.8 22.819.0 18.2 19.2 19.5 21.6 21.3 23.3 20.9 24.0 23.3 25.2 23.54.8 3.9 4.5 4.8 5.0 5.5 5.4 5.6 6.9 6.9 4.8 6.243.6 48.0 52.1 53.4 47.2 44.7 54.7 63.9 50.0 49.4 55.3 58.010.7 10.6 10.2 10.0 14.3 13.0 12.9 11.7 11.8 12.9 11.5 13.62.7 2.9 3.0 3.2 3.7 3.8 3.7 3.6 3.7 4.4 3.9 2.944.8 52.4 58.9 73.6 108.7 137.4 168.8 211.6 233.0 248.1 263.0 197.41721.0 1809.0 1925.0 1939.0 2290.0 2556.3 2727.6 2809.4 2913.0 2787.3 2939.5 2225.3490.0 568.0 582.0 683.0 925.0 903.8 1012.9 1016.4 1016.9 1009.4 1020.3 769.63.8 3.8 5.3 5.6 5.9 6.1 6.5 6.2 6.4 6.7 6.8 5.02.9 3.2 3.7 4.0 3.0 2.9 3.5 4.7 3.2 3.1 4.2 4.59.7 8.9 10.8 12.8 16.4 18.5 22.8 26.7 28.4 31.3 28.8 21.4218.0 215.2 280.3 286.3 297.3 318.7 330.6 365.0 365.3 409.6 378.0 268.1145.0 150.3 164.4 187.5 206.7 219.3 242.2 248.3 245.3 182.3 172.0 128.658.6 55.1 49.4 55.3 61.0 64.1 66.0 67.4 75.6 65.3 65.4 45.789.4 81.7 95.5 103.9 104.8 104.5 118.1 129.0 137.4 106.2 93.2 70.421.0 23.2 23.5 22.6 24.1 23.9 24.6 25.6 24.0 23.7 24.0 18.2857.4 923.8 992.6 1202.7 1344.9 1400.0 1413.6 1454.2 1460.7 1482.8 1471.6 1165.017.5 17.7 17.8 19.2 19.4 19.4 19.4 19.4 19.8 20.9 22.5 22.3250.0 251.7 252.2 256.0 258.2 259.0 261.8 258.4 260.2 260.8 259.5 261.64.5 5.1 5.3 5.7 6.0 7.1 8.1 8.8 9.4 9.8 10.4 10.912.2 12.3 12.3 12.1 12.3 12.3 12.3 12.4 12.3 12.0 12.0 12.03.3 3.7 4.0 4.5 5.1 5.1 4.8 4.5 3.5 3.4 3.2 3.00.7 1.7 2.4 5.0 12.8 34.5 63.2 88.0 94.3 99.2 104.0 118.3(..Contd.)

ECONOMIC ANDINDICATORS1960s 1970s 1980s 1990s 2000s 1999-00 2000-01Average (Annual)HUMAN RESOURCESPopulation @Population Million - - 96.3 124.6 150.9 137.5 140.4Labour Force Million - - 11.6 35.1 45.5 40.4 E 40.3Employed LabourForce Million - - 11.2 33.1 42.4 37.2 37.2Un-employed LabourForce Million - - 0.4 2.0 3.6 3.2 3.2Un-employment Rate % per annum - - 1.4 5.7 6.8 6.0 E 6.0Crude Birth Rate Per 1000 Person - - - - 27.4 32.7 -Crude Death Rate Per 1000 Person - - - - 7.9 9.1 -Infant Mortality Rate Per 1000 Person - - - - 79.6 85.0 -SOCIAL DEVELOPMENTEducationPrimary Schools 000 Nos. - - 88.8 143.5 155.2 162.1 147.7Male " - - 64.6 96.4 96.6 107.0 93.4Female " - - 24.2 47.1 58.6 55.0 54.3Middle Schools " - - 6.8 15.3 31.9 18.4 25.5Male " - - 4.6 8.8 16.7 10.9 13.4Female " - - 2.2 6.5 15.2 7.6 12.0High Schools " - - 5.4 10.6 18.6 12.6 14.8Male " - - 3.9 7.4 12.2 9.2 10.2Female " - - 1.5 3.2 6.3 3.4 4.6Secondary/VocationalInstitutions Nos. - - 508.6 572.2 1623.8 612.0 630.0Male - - 282.2 328.7 874.8 379.0 394.0Female - - 235.2 243.5 749.0 233.0 236.0Literacy Rate Percent - - 29.5 40.7 52.6 47.1 49.0Male - - 39.0 51.6 65.7 59.0 -Female - - 18.7 28.6 41.4 35.4 -Expenditure on Educationas % of GNP - - 0.8 2.3 2.1 2.1 1.6Health @Registered Doctors (000 Nos.) 2.0 6.3 28.1 68.9 110.5 88.1 93.0Registered Nurses " - 2.9 9.9 24.1 49.0 36.0 37.6Registered Dentists " 0.2 0.7 1.4 2.8 13.1 3.9 4.2Hospitals Numbers 380.0 521.0 651.0 823.0 912.6 879.0 876.0Dispensaries (000 Nos.) 1.7 2.8 3.5 4.3 4.6 4.6 4.6Rural Health Centres " - 0.1 0.3 0.5 0.6 0.5 0.5TB Centres Numbers - 90.0 122.0 245.0 283.3 264.0 274.0Beds in Hospitalsand Dispensaries 000 Nos. 25.5 38.4 55.6 83.8 99.1 92.2 93.9Expenditure on Healthas % of GNP - 0.6 0.8 0.7 0.6 0.7 0.7- : Not available @ : Calendar Year E : EstimatedP : ProvisionalR : Revised

SOCIAL INDICATORS2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12R P143.2 146.8 149.7 152.5 155.4 158.2 161.0 163.8 173.5 177.1 180.740.6 43.0 44.1 45.9 46.8 50.5 50.8 52.2 53.7 58.1 59.339.5 39.4 40.5 42.4 43.2 47.3 48.1 49.5 50.8 54.7 55.83.6 6.6 3.5 3.6 3.6 3.1 2.7 2.7 2.9 3.5 3.57.8 7.8 8.3 7.7 7.6 6.2 5.2 5.2 5.5 6.0 6.028.7 27.3 27.3 28.0 26.1 26.1 26.1 24.3 28.0 27.5 27.28.2 8.0 8.0 8.1 8.2 7.1 7.1 7.3 7.4 7.3 7.285.0 83.0 83.0 82.0 77.0 76.7 76.7 68.2 72.0 70.5 69.0149.1 150.8 155.0 157.2 157.5 158.7 157.4 156.7 157.5 155.5 154.6 E93.8 94.7 97.3 98.5 97.7 97.8 92.5 93.3 96.9 94.5 93.6 E55.3 56.1 57.6 58.7 59.8 60.9 64.9 63.4 60.6 61.0 61.0 E26.8 28.0 28.7 30.4 39.4 40.1 40.8 40.9 41.3 42.0 42.6 E14.0 14.5 14.9 15.6 20.1 22.6 20.2 20.5 21.8 22.3 22.1 E12.8 13.5 13.9 14.8 19.3 17.5 20.6 20.4 19.5 19.7 20.5 E15.1 15.6 16.1 16.6 22.9 23.6 24.0 24.3 24.8 25.2 25.8 E10.4 10.8 11.0 11.3 14.8 14.6 15.0 15.1 14.2 14.4 14.3 E4.6 4.8 5.1 5.3 8.1 9.0 9.0 9.2 10.6 10.8 11.5 E607.0 585.0 624.0 747.0 3059.0 3090.0 3125.0 3159.0 3192.0 3224.0 3271.0 E368.0 355.0 396.0 419.0 1584.0 1599.0 1618.0 1636.0 1010.0 1018.0 712.0 E239.0 230.0 228.0 328.0 1475.0 1491.0 1507.0 1523.0 2182.0 2206.0 2559.0 E50.5 51.6 53.0 53.0 54.0 55.0 56.0 57.0 57.7 58.0 -- - 65.0 65.0 67.0 69.0 69.0 69.5 69.0 -- - 40.0 42.0 42.0 44.0 45.0 45.2 46.0 -1.9 1.7 2.1 2.1 2.2 2.4 2.4 2.1 2.0 1.8 -97.2 102.6 108.1 113.2 118.0 123.1 128.0 133.9 139.5 144.9 149.240.0 44.5 46.3 48.4 51.2 57.7 62.6 65.4 69.3 73.2 76.24.6 5.0 5.5 6.1 6.7 7.4 78.2 9.0 9.8 10.5 10.9907.0 906.0 906.0 916.0 919.0 924.0 945.0 948.0 968.0 972.0 972.04.6 4.6 4.6 4.6 4.6 4.7 4.7 4.8 4.8 4.8 4.80.5 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6272.0 285.0 289.0 289.0 289.0 288.0 290.0 293.0 293.0 304.0 304.097.9 98.3 98.7 99.9 101.5 102.1 103.2 103.0 103.7 104.1 108.20.7 0.7 0.6 0.6 0.5 0.6 0.6 0.5 0.5 0.2 0.3

Annex 2Tax ExpenditureA Note on Tax Expenditure 2011-12Estimates of tax expenditures are being preparedby FBR and reported in the Pakistan EconomicSurvey since last few years as part of the budgetprocess. The Tax Expenditure for the year 2011-12works out to Rs. 185.496 billion. Details of DirectTaxes have been indicated first in the report,followed by Sales Tax and Customs Duty. FederalExcise Duty has not been included due to veryrestrictive base and exemptions. Detailed are asfollows:Income TaxThe cost of exemptions, exclusions, substractions,deductions, rebates and credit etc that cause loss ofDirect Taxes revenue comes to Rs. 69.608 (billion)has been reflected in Table -1 below:Table-1: Income Tax Expenditure for 2010-11 and 2011-12(Rs. in billion)S. No Tax Expenditure ItemsEstimated Revenue Loss2010-11 2011-121. Pensions & Gratuity 0.087 0.1712. Income from Funds, Boards of Education, Universities and0.979 6.077Computer Training Institutes etc.3. Donations and Contributions to Charitable Organizations 0.649 0.6244. Independent Power Producers 0.870 46.9395. Income from certain Trusts, Welfare and Charitable Institutions1.360 0.205and Non-Profit Organizations6. Profits on Debt/interest from government securities and certain0.049 1.461foreign currency accounts/books, profit on debt earned by certainnon-resident individuals and institutions7. Export of Information Technology 0.724 0.8228. Capital Gains 21.840 2.1089. Other Sectors/enterprise specific exemptions 19.950 11.201Total 46.508 69.608Sales TaxSales Tax exemptions are provided at the importstage and on domestic supply of goods andservices. Previously, Sales Tax exemptions wereavailable on certain items including tractors,fertilizers & pesticides etc. However, the Federalgovernment rationalized these exemptions duringlast year. From 15-03-2011 onwards, tractors,pesticides and fertilizers have been madechargeable to Sales Tax, resulting in reduction inthe cost of exemptions.Tax Expenditure in respect of Sales Tax isestimated at Rs. 24.300 billion for fiscal year 2011-12. Details have been worked out and are indicatedin Table-2 below:261

Pakistan Economic Survey 2011-12Table-2: Tax Expenditure of Sales Tax for 2010-11 and 2011-12(Rs. in billion)S. No Sectors Estimated Revenue Loss2010-11 2011-121. Fertilizer 9.138 02. Tractors 6.489 4.2803. Pharmaceutical Products 5.505 5.8004. Others 12.630 14.220Total: 33.762 24.300Customs DutyUnder the Customs law, exemptions orconcessions are granted to goods that are importedinto Pakistan through SROs, special classificationin Chapter 99 of Pakistan Customs Tariff, and/orthrough specific rate of tariff. On the basis of theseprovisions, the tax expenditure in respect ofCustoms Duty has been estimated at Rs. 91.588(billion) for 2011-12. The details are given in thefollowing Table-3:Table-3: Tax Expenditure of Customs Duty for 2010-11 and 2011-12SRO. No & date558(I)/200401-07-2004570(I)/200506-06-20051296(I)/200631-12-2005894(I)/200631-08-20061274(I)/200629-12-2006659(I)/200730-06-20071261(I)/200731-12-2007565(I)/200605-06-2006567(I)/200605-06-2006678(I)/200412-06-2004575(I)/200605-06-2006655(I)/200622-06-2006656(I)/200622-06-2006809(I)/200919-09-2009Tax Expenditure ItemsConcession of Customs Duty on goods imported from SAARCand ECO countries.Exemption from Customs Duty on imports from Sri LankaExemption from Customs Duty on imports from ChinaExemption from Customs Duty on imports from Iran under Pak-Iran PTAExemption from Customs Duty on imports under SAFTAagreementExemption from Customs Duty on imports from ChinaExemption from Customs Duty on imports from MalaysiaConditional exemption of Customs Duty on import of rawmaterials and components etc. for manufacturers of differentsectors.General and conditional exemption of Customs Duty.Exemption of Customs Duty and Sales Tax to Oil Explorationand Production (E&P) companies on import of machineryequipment & vehiclesExemption of Customs Duty and Sales Tax on import ofmachinery, equipment, apparatus and other itemsExemption from Customs Duty for vendors of AutomotiveSectorExemption from Customs Duty for OEMs of Automotive Sector(Rs. in billion)Estimated Revenue Loss2010-11 2011-120.073 0.0550.148 0.1960.031 0.00020.004 0.00090.116 0.15110.867 13.7622.895 2.7504.653 7.39130.277 21.8302.581 2.81013.712 9.8339.315 12.85119.073 19.196Exemption from Customs Duty on import of machinery &equipment by Industrial units registered with Ministry of Textile1.196 0.756IndustryTotal 94.941 91.588262

Tax ExpenditureConsolidated SummaryBased on the aforementioned estimates forindividual taxes, the overall tax expenditure for2011-12 has been estimated to be around Rs.185.496 billion. The consolidated summary of thetax expenditure for fiscal year 2011-12 is given inTable-4:Table-4: Tax Expenditure of Federal Taxes for 2010-11 and 2011-12(Rs. in billion)S. No. Type of Tax Tax Expenditure2010-11 2011-121 Income Tax 46.508 69.6082 Sales Tax 33.762 24.3003 Customs Duty 94.941 91.588Total 175.211 185.496Note: The estimates for 2010-11 are for the full year while for the year 2011-12, they pertain to 10 months i.e.1.7.2011 to 30.4.2012.263

Special SectionPakistan: Flood Impact AssessmentSevere monsoon rains triggered floods in southernPakistan of an unprecedented scale, both in termsof volume and amount of land flooded. Despiteforecasts of below-average rainfall, heavydownpours began in mid-August, engulfing all 23districts of Sindh province 1 and adjoining areas ofnorthern Balochistan province causing damage tocrops, infrastructure and human settlements, thusaffecting the national economy. The maximumrainfall during the year was from 1 st July to 30 thSeptember, 2011.The peak rainfall was received inMithi, Sindh. Being sandy area the rate of soilinfiltration was very high and rate of runoff waterwas minimal. 2In Balochistan, flash flooding as well asoverflowing local rivers and irrigation anddrainage channels caused damages in 14 districts,the worst of which (5 districts) were confined inthe southern and northern parts of the provinceAccording to the World Bank and AsianDevelopment Bank (ADB) Damage and NeedsAssessment (DNA) report, approximately, 9.6million people have been affected in Sindh andBalochistan as a result of the floods; 520 peoplewere killed and more than 1,180 people wereinjured. The impact of the flooding in 2011 cannotbe seen in isolation. In 2010, 20 million peoplewere affected by the largest floods in livingmemory 3 , many of the victims of the 2010 floodswere still in the recovery phase when the 2011floods struck. The 2011 floods compounded thedamage of the previous disaster.In severely affected areas, food insecurity andmalnutrition were already at critical levels beforethis year‘s new wave of rains and flooding.Continuing rains and damaged infrastructureimpeded the delivery of aid. Essentialinfrastructure including roads, bridges and marketshad been severely damaged and many remainedimpassable. A large number of farmers lost theirlivestock on way to safe havens and through nonavailabilityof fodder and exertion. There washardly a place in the severely affected area thatwas free of standing water.The sector wise breakdown of flood damages andrespective reconstruction cost estimates are givenin Table-1. These indicate that the agriculturesector received a major blow followed by housing,education, and financial, private sector andindustries; economic growth is likely to decline.The minimum reconstruction cost amounts to atotal of Rs. 239 billion (US$ 2747 million).1 where cumulative rain fall varied from 400mm toaround 1300mm [Source: Rapid Crop DamageAssessment,FAOand Supparco]2 The other areas that received excessive rainfall wereMirpur Khas (866mm), Badin (647mm), ShaheedBenazir Abad (650mm), Umerkot (552mm), Dadu(485mm) and Padidan (423mm).3 In comparison, the 2011 floods were driven by highintensity unprecedented rainfall on the eastern side ofthe Indus River. Both events demonstrate changingclimate and weather pattern in the region and theirintensity of recurrence.247

Pakistan Economic Survey 2011-12Table 1: Flood Damages and Reconstruction Cost by SectorsSectors Damages Reconstruction CostRs. million US$ million Rs. million US$ millionIrrigation and Flood Management 4,763 55 9,526 109.5Housing 85,465 982.4 91,510 1051.8Agriculture, Livestock & Fisheries 160,107 1840 26,590 305.6Transport & Communication 26,468 304 33,902 388Energy 1,240 14 292 3.4Social & Gender 44 1 65 0.7Financial, Private Sector and Industries 27,254 313 8,178 94Education 12,014 138.1 22,589 259.7Health 1,258 14 864 9.9Water Supply & Sanitation 1,204 14 1,900 22Governance 1,953 22 4,768 54.8Environment 2,763 32 2,874 33Disaster Risk Management - - 1,827 21Social Protection - - 34,126 392.3Total 324,533 3730 239,011 2747Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.As mentioned above, despite being substantiallylower in intensity, because of their location andtiming, the 2011 floods had a significant negativeeffect on the economy with lingering long termimpact.Summary of Damage and Needs by SectorHousingThe floods caused total or partial damageto an estimated 998,376 housing units in Sindh andBalochistan. An estimated 514,283 houses havebeen completely destroyed 4 and another 484,093partially damaged 5 . Sindh province has sufferedthe overwhelming majority of damage to housingstock with 99 percent of the total affected housingstock in this province. Out of the 992,679 housesaffected in Sindh, 512,462 houses [493,606 kachahouses and 18,856 pucca houses] have beencompletely destroyed and the remaining 480,217houses [403,790 kacha houses and 76,427 puccahouses] have been partially destroyed. InBalochistan, the total number of houses damaged isestimated to be 5,697 kacha houses, out of which1,827 houses have been completely destroyed andthe remaining 3,876 houses have been partiallydestroyed.In general, pucca houses have withstood the floodsbetter but have still been vulnerable to collapsingof roofs, undermining of foundations, andscouring/erosion at the base of walls and corners.Furthermore, standing water has subjectedsubmerged portions of walls to hydraulic pressure,often causing walls to overturn or tilt laterally. Atplaces subsidence of the ground under waterloggedfoundations has resulted in cracking andcollapse of walls. For kacha buildings, the impacthas often been extreme and irreversible.The damage to housing structures is estimated atRs. 85,465 million (US$ 982.4 million) forcompletely destroyed and partially damagedhouses. The reconstruction cost (completelydestroyed and partially damaged houses) isestimated at Rs. 91,510 million (US$ 1051.8million). 64 This primarily includes washed away, fully collapsed,or structurally damaged houses with foundation failureor erosion of supporting walls.5 This mostly includes cases of repairable damage.6 These estimates are based on replacement of adestroyed house with a core unit of 500 sq. ft coveredarea, calculated on the basis of currently prevailingprices of materials and labour.248

Pakistan: Flood Impact AssessmentHealthThe floods caused by heavy rains in 2011 resultedin damage to the public health infrastructure inSindh and Balochistan provinces. Basic healthunits and rural health centers suffered the mostdamage; accounting for 74 (52 percent) of the total141 damaged facilities. In Sindh, of the total of708 health facilities of various categories in the 11districts where health sector facilities wereaffected, 113 (16 percent) were damaged out ofwhich 28 (4 percent) were fully damaged, and 85(12 percent) were partially damaged. InBalochistan, of the total of 193 health facilities inthe 3 affected districts, 28 (15 percent) weredamaged out of which 13 (7 percent) were fullydamaged and 15 (8 percent) were partiallydamaged. The damage caused to the health sectorin Sindh province constitutes 7 percent of its totalhealth facilities (1,486). In Balochistan; 1 percentof the total health facilities (2,075) were damaged.The total damage to this sector is estimated atRs.1,258 million (US $ 14.3 million). Out ofwhich, the direct losses for all health facilities wascalculated as Rs. 431.85 million (US$4.9 million)[Sindh: Rs. 404.85 million (US$4.6 million) andBalochistan Rs. 27 million (US$0.3 million).Onthe other hand, there is no data available forcalculating the indirect losses. However, theestimated amount required to meet short-termneeds has been taken as proxy of indirect lossesi.e., Rs. 826 million (US$9.4 million). The totalcost of reconstruction for this sector is estimated atRs. 863.7 million (US $ 9.8 million) for the fullyand partially damaged health facilities.EducationThe total number of educational institutionsaffected by the floods is 4,096 (Sindh: 3,892;Balochistan: 204). The damaged institutions are6.7 percent of the total institutions in the affecteddistricts in the two provinces. In Sindh, 1,032schools for females are damaged (385 are fullydamaged and 647 are partially damaged) or 26.5percent of the total of 3,892 damaged schools, anda total of 2,860 schools for males are damaged(1,022 are fully damaged and 1,838 are partiallydamaged). This means that 73.5 percent of the totalof 3,892 damaged are male schools. InBalochistan, 51 damaged schools are femalesschools (3 are fully damaged and 48 are partiallydamaged).These make up 25 percent of the total of204 damaged schools, while the 153 damagedschools for males (17 are fully damaged and 136are partially damaged) make up 75 percent of thetotal of 204 damaged schools.The total damage and loss in both the provinces isestimated at Rs. 12,013 million including indirectloss of Rs. 1,856 million and direct loss ofRs.10,157 million. In Sindh, total damage and lossis estimated at Rs. 11,751 million includingindirect loss of Rs 1,771 million and direct loss ofRs. 9,980 million. In Balochistan, indirect anddirect losses are Rs. 85.1 million and Rs. 177.1million respectively. The total cost ofreconstruction to this sector for all the damagedinstitutions in Sindh and Balochistan is estimatedat Rs.22,589 million.Agriculture, Livestock, and FisheriesAgriculture is a key sector of Pakistan‘s economyand accounts for 21 percent of GDP, 45 percent ofemployment and 60 percent of exports. Sindh has30 percent and Balochistan 8 percent share in thenational agricultural GDP. The livelihood of morethan 60 percent of the total population is directly orindirectly dependent on agriculture sector.Furthermore, the agriculture sector has strongbackward and forward linkages and as a result hasa large impact on the overall economicperformance. The sector’s performance has beenweak over the last few years recording a growth ofaround 2 percent per year, mainly due to poorperformance of the crop subsector. Theperformance of the livestock subsector hasremained healthy and its share in agriculture GDPhas surpassed the crop sector standing at around 55percent. Due to limited rainfall, less than 240 mmin an average year, crop production is dependenton irrigation and more than 80 percent of land isirrigated. There are two main cropping seasons,namely, Kharif (summer) and Rabi (winter). TheKharif season starts in April and ends in October,and the main crops during this season are cotton,rice, sugarcane, maize, pulses, fruits andvegetables. The Rabi season, which starts inOctober and ends in April, is dominated by wheatproduction which is the main staple food in249

Pakistan Economic Survey 2011-12Pakistan. Other Rabi crops include fodder,vegetable, and fruits. Commercial production offruit and vegetable, particularly for the main urbanmarkets has increased rapidly in recent years,particularly close to major cities or where agroclimaticconditions are favorable. Important fruitsinclude mangoes, citrus, dates and banana in thetropical and subtropical areas like Sindh, as well asa range of semi-temperate fruits like grapes,peaches, apples in Balochistan. Importantvegetables include potato, tomato, chilies andonions.Livestock is an integral part of the farming systemand is the main asset for many farmers. Buffaloand cattle are mainly kept for milk, with draftpower, meat and hides being other importantproducts. Most households also have sheep, goatand poultry for domestic consumption as well asfor sale. Fodder, wheat straw, maize thinnings andStover are used for livestock. Animals are alsograzed on rangelands (particularly in Balochistan),pastures and crop stubble. Concentrate feed iswidely used in commercial poultry farms and forlactating cattle. In addition to the settledagricultural population, there are also a significantnumber of transhumants (Gujars) who move withinthe country as well as in the region and specializein the rearing of sheep and goat. Their animals aremostly for sale to the large urban centersparticularly during Eid times when it is traditionalto sacrifice sheep or goats.Pakistan has a significant fisheries sectorproducing about 1.00 million tons of fish productsannually. About two thirds of this are from marinesources (70 percent from Sindh) and mostlycomprise prawn and demersal species. The rest isfrom inland sources. Inland fisheries were largelyrestricted to the main rivers and canals. However,in recent years there has been a rapid increase inaquaculture with many farmers using small pondsand other water bodies. Supplies of fingerlingscome from a few large government hatcheries butthere has been a rapid increase in private sectoractivity in the area particularly in Sindh.Sindh and northern parts of Balochistan provinces.The subsequent breaches in the drainage canal[Left Bank Outfall Drain (LBOD)] at severallocations resulted in submerging of vast areas.While it was mostly the right side of the riverIndus hit by floods last year, this time it wasmostly the left side. In Sindh, the central andsouthern districts of Badin, Dadu, Hyderabad,Kamber Shahdadkot, Khairpur, Larkana, Matiari,Mirpurkhas, Neushero Feroze, Sangar, ShaheedBenazirabad, Tando Allahyar, Tando MohammadKhan, Thatta, Tharparkar, Umerkot have been theworst affected. The Provincial DisasterManagement Authority (PDMA) and the SindhDepartment of Agriculture Extension estimate thatstanding crops of cotton, rice, sugar cane,sorghum, vegetables and pulses have beendestroyed on about 0.84 million hectares of land.Similarly the livestock sub sector also sufferedheavy losses. The Directorate of AnimalHusbandry, Sindh has reported that approximately115,500 livestock have perished and about 5million surviving livestock have been directlyaffected.The floods have heavily impacted the agriculturesector, with damages to crops, livestock, fisheries,poultry and on-farm water distributioninfrastructure. The total loss estimated is US$1,840.3 million, of which 89 percent is in the formof direct damage and 11 percent is in the form ofindirect losses. Sindh suffered most with 94percent of total damage and Balochistan with 6percent. The losses were largest in the cropssubsector, which accounted for 91.5 percent,including estimates of damages to Kharif crops;food and seed stocks; on-farm irrigation waterfacilities; and support services for crops, as well asindirect damages to the forthcoming Rabi 2011-12and Kharif 2012 crops. The most affected crops arecotton with 74 percent damages to the overallplanted area in the affected districts. In terms of thedamage to different crops it is estimated that landarea under rice 33 percent, sugarcane 34 percent,vegetables 79 percent and fruits 32 percent wasaffected adversely.The heavy monsoon rains during this year causedrenewed and devastating flooding in southern250

Pakistan: Flood Impact AssessmentTable-2: 2011 Kharif Area Affected by FloodProvince Crop AreaDamaged(000’ ha)Area Damaged (000’Ha)Cotton Rice Sugarcane Maize Vegetables Fruit OtherBalochistan 21.42 1.29 14.30 - - 1.78 0.17 3.88Sindh 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 3.88Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.The flood also substantially affected the livestockpopulation causing death and loss in productivitymainly in Sindh. The deaths were mainly in smallruminants and productivity losses were mainly inlarge ruminants. Animals standing in mud andstagnant water for extended periods contractedvarious diseases. The losses in productivityoccurred due to acute fodder shortage, debilitationand emaciation. Sources of livestock feed werefully inundated and the availability of fodder inlocal markets was very low. Facing an acuteshortage of feed, these livestock were left stranded.The productivity of milking animals dropped froman average of 7 or above litres to 2-3 litres (50-70percent), and many young calves died due to thereduction of the milk in their mothers. The loss inproductivity accounts for more than 50 percent ofthe total loss. Fisheries losses are estimated ataround $3.4 million (0.2 percent) that accounts forprivate fish farms/ponds and hatcheries. A total ofabout 881 thousand ha or 53 percent of thefisheries areas was affected.Table-3: Livestock, Poultry and Fisheries Damages in Flooded AreasProvinceLarge Animals(000head)Small Animals(000heads)Poultry Perished(Million Nos.)Fishery/PondDamagedBalochistan 0.10 0.20 0.0 n/aSindh 33.8 81.2 1.14 393Total 33.87 81.4 1.14 393Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011The summaries of preliminary loss estimates areshown in Table 4. Livestock damages, whichinclude loss of animals, distress sales, anddestruction of animal health support services, aswell as indirect damages due to reduced milkproduction, accounts for 8.3 percent of total losses.Fisheries losses are estimated at around $ 3.36million (0.2 percent of the total losses).Table-4: Estimated Direct and Indirect Losses (US$ million)Province Livestock Crop Fisheries/ TotalDirect Indirect Sub- Direct Indirect Sub-Total PondTotalBalochistan 0.41 7.94 8.35 87.84 7.58 95.42 n/a 103.77Sindh 45.51 99.28 144.79 1499.19 89.20 1,588.39 3.36 1,736.54Total 45.92 107.22 153.14 1,587.03 96.78 1,683.31 3.36 1,840.31Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011The total reconstruction cost to this sector isestimated at Rs.26,590 million (US$ 306 million)which focused on the restoration of normalcy inthe agriculture sector; to support small andmedium farmers through provision of seeds,fertilizers, tools and implements along withsupport for land preparation, livestock basedassistance package, partial subsidies for fishingcommunities as well as the partial rehabilitation ofon-farm water management infrastructure.251

Pakistan Economic Survey 2011-12EnergyDamage to the energy sector was modest,estimated at Rs. 1.2 billion (US$ 14.2 million).Power generation is provided by thermal plants,This comprised of direct damage of Rs. 456.5hydroelectric facilities and a small nuclear facilitymillion (US$ 5.2 million) and Rs. 783 million(300 MW). The 13 hydroelectric facilities(US$ 9 million) of indirect damage. In the power(installed capacity 6,481 MW) are owned andsector the total damage was Rs. 281.5 (US$ 3.2operated by the Water and Power Developmentmillion) whereas in the petroleum sector totalAuthority (WAPDA), a public sector entity.damage was Rs. 958 million (US$ 11 million):- outThermal power plants are owned by public andof which Rs. 783 million (US$ 9 million) relates toprivate companies. The public sector operates 13indirect losses as shown in table below. In thethermal power plants (installed capacity 4,900power sector the majority of the direct damage isMW). About a third of Pakistan’s generationin distribution network with about 90 percent of(5,987 MW) is provided by private sectorthe damages being to distribution transformers.companies (independent power producers or IPPs).Damages to the petroleum sector are also veryAlso, KESC operates plants with a total capacity ofheavy, effecting only two upstream public owned1,955 MW. Out of the total 19,252 MW of the(70 percent shares) gas fields.national installed generation capacity, dependablegeneration is about 17,523 MW in the summer andabout 14,640 MW in the winter, depending on theannual hydrology.Table-5: Damage and Losses in Energy SectorEntityDirect Damage(Rs. million)Indirect Damage(Rs.million)Total Damage(Rs.million)Total Damage(US$ million)Transmission 19.7 - 19.7 0.226Distribution 261.8 - 261.8 3.0Total Power 281.5 - 281.5 3.226Upstream Oil and Gas 175 783 958 11.0Total Damage 456.5 783 1,239.5 14.226Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011The immediate need for the power sector is Rs.281.5 million (US$ 3.226 million) covering thedirect damages suffered by the Public SectorPowers (PSPs). The needs for the petroleum sectorTable-6: Recovery and Reconstruction Needs Assessment SummarySectorReconstruction andrehabilitation/repair cost(Rs. million)are only Rs. 10 million (US$ 0.115 million) asshown in Table 6 for damages not covered byinsurance. Insurance cover for public sectorcompanies has not been factored into the needsassessments.Total(Rs. million)Total(US$ million)Power 281.5 281.5 3.226Petroleum 10.0 10.0 0.115Total 291.5 291.5 3.341Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011Transport & CommunicationThe 796,095-square kilometer area of Pakistan andits almost 180 million inhabitants are connectedthrough a transport and communications (T&C)network of 259,618 km of roads; 7,791 km ofrailways; 42 airports; and 34,950 km oftelecommunication lines and other infrastructure.The 11,800 km long national highways andmotorways network is the spine of the primarytransport corridor. This is supported by theprovincial highways network of 37,400 km thatfans out to the districts through 161,000 km of252

district roads (including farm-to-market and accessroads) in rural areas and 54,000 km of municipalroads in urban areas.In the two flood-affected provinces, the nationalhighway system traverses 1,975 km in Sindh and4,630 km in Balochistan. About 13,700 km ofprovincial highways and 31,900 km of districtroads are located in Sindh and 11,800 km ofprovincial highways and 20,200 km of districtroads are in Balochistan. The railway network of7,791 km railway lines and 1,100 stations serve thelong-distance main north south corridor andconnections to other regions including Balochistan.Approximately 1,899 km of railway lines are inSindh while 1,202 km are in Balochistan. Sixinternational airports in major cities serve as hubsconnecting to 19 regular and 17 feeder and otherairports. The telecommunication infrastructureconsists of 3,155 exchanges; 34,950 km of opticalfiber transmission lines for the landline networks;and 25,554 transmission towers for the cellulartelephone networks.The rains and floods during August and September2011 damaged the Transport and Communications(T&C) infrastructure in the province of Sindh andBalochistan. Based on the data received on thedamages to the T&C Sector, a total of 5 districts inBalochistan and 18 in Sindh have been affected bythe floods and the longer than usual spell andhigher intensity of rains. It affected the network ofnational and provincial highways, district andTable-7: Transport and Communication Damage and Loss Figures.ProvinceDirect Damages(Rs. million)Indirect Losses(Rs. million)RoadsPakistan: Flood Impact Assessmentmunicipal roads. Damages to the roadinfrastructure were caused by submergence, highsurface runoffs and ingress of water in roadwayformation; floods have caused damages to railwaytracks, bridges, stations and residential buildingsunder the administrative control of PakistanRailways. There were no reports of damages byCivil Aviation Authority in the aviation sub-sector.In the communication sector, damages werereported to the buildings, equipments andtransmission network of cellular and landlineoperators.The reported damage is classified into two broadcategories: Completely Destroyed (CD) andPartially Damaged (PD). For roads and railways,the data is segregated into lengths of roads, railwaylines and number of affected structures. Fortelecommunication infrastructure, the reporteddamage is more specific. Four national highwayswere affected at various places; three in Sindh andone in Balochistan. On these highways, sevenbridges were also reported to be partially damaged;all located in Sindh. About 1,955 km of provincialhighways in Sindh, representing 15 percent of theprovincial highway assets and 5,773 km of districtroads were affected (including municipal andurban roads). On the contrary, damages inBalochistan are lower and comprised about 426 kmprovincial highways and district roads (about 1percent of this road stock). A summary of loss anddamage in Transport and Communication is givenbelow:-Total(Rs.million)Sindh 14,850 9,974 24,824Balochistan 1,095 108 1,203Subtotal 15,945 10,082 26,027RailwaysSindh 277 - 277Balochistan - - -Subtotal 277 - 277Telecommunication 165 - 165Total 16,386 10,082 26,468Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011253

Pakistan Economic Survey 2011-12The total reconstruction cost to this sector isestimated at Rs.33,902 million (US$ 388 million)including US$5 million for railways and US$ 2million for telecommunication sub-sector andremaining US$ 383 million for the roads subsector.EnvironmentPakistan suffers a loss of 8.84 percent of its GDPeach year from environment-related disease.Almost half of this cost is caused by mortality(4.13 percent of GDP) while the rest stems fromthe malnutrition caused by environment-relateddisease (4.71 percent of GDP). Approximately 90percent of typhoid and diarrheal illness in Pakistanis attributable to inadequate drinking water,sanitation and hygiene. Up to 83,500 deaths a yearare linked to these causes. Morbidity linked withwaterborne diseases amounts to 74.5 million casesper year.The environmental damages caused by the 2011floods included: i) contamination of resources fordrinking water; ii) contamination of waterresources that are used for other domestic usage;iii) stagnant water ponds resulting in proliferationof disease vectors such as mosquitoes; iv) solidwaste and debris accumulation; v) agriculturallands affected by pollution and salt; vi) damage tosoil through erosion; vii) damages to wetlands andmangroves; and viii) damages to protected areasand cultural assets.The floods that recently affected Sindh andBalochistan have already impacted millions ofpeople and are likely to have economic, social andenvironmental consequences for years to come.The 2011 floods have caused damages to theforests, plantation, nurseries, departmentinfrastructure, and cultural heritage sites. Thesedamages have been estimated to be Rs. 2,762.66million (US$ 31.75 million). The reconstructionand restoration costs of the damages estimated atRs. 2,873.59 million (US$ 32.79 million) areshown in table below.Table-8: Total Cost to Address Environmental Needs Associated with the FloodsS.No Description Rs. in million US $ million1 Field investigations to determine damage to agriculture land caused bypollution and salts20.0 0.232 Study to estimate debris quantity and disposal arrangements 5.00 0.063 Rehabilitation of forests and plantation 589.18 6.774 Study to estimate damage to wetlands and mangroves 5.00 0.065 Rehabilitation of cultural sites 16.41 0.196 Study to estimate damage to cultural heritage sites 2.00 0.027 Storm water drainage master plan 714.00 8.208 Land use plans and building regulations in urban areas 604.00 6.949 Monitoring and evaluation, and information databases 442.00 4.8510 Strengthening the Legal and Institutional Framework 476.00 5.47Total 2873.59 32.79Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011Social and Gender ImpactBarely one year has passed since the floods of2010 devastated the lives of an estimated 20million people nationwide. The flooding in 2011was relatively localized; the impact on people andlivelihoods was severe, but infrastructure damageswere less so. In Sindh, 19 social welfareinfrastructure units serving a population of 37,006people were partially or fully damaged. InBalochistan, 18,403 people were reported affectedwith no damage to social welfare infrastructure.According to the report, 9.6 million people wereaffected including 744,000 displaced in theaftermath of the 2011 flood. Total deaths arereported as 520. The direct damage estimated costsare Rs. 39 million. Indirect costs are assessed asRs. 4.6 million. According to the United Nationoffice for the Coordination of Humanitarian254

Pakistan: Flood Impact AssessmentAffairs (UN OCHA), the situation remainsalarming with poor coverage of all essentialsectors. Failure to meet Rabi cultivation will havesevere consequences on farm dependenthouseholds.The UN reported that 2.5 million children and 1.2million women were affected by the floods in2011, while 744,000 people were displaced. With46 percent of health facilities damaged, thevulnerability of women and children haveincreased in the affected areas. The children whoare pushed out of schools are estimated at over733,000. 60 percent schools were damaged inSindh alone. Acute Respiratory Infections (ARI)and skin infections represent major health risks inflood affected areas. Women are at high risk due todisruption in the provision of pre and post natalcare. Migration has taken place largely due to nonavailabilityof fodder in flood affected areas.Approximately, 10-15 percent of the affectedpopulation is engaged in non-farm livelihoods,including fisheries, which are severely affected bythe rains.Water Supply and SanitationThe government of Sindh had indentifiedseventeen (17) districts as flood affected wheredamages needed to be assessed. However, flooddamage data was forthcoming only from thirteen(13) districts. From the Balochistan province flooddamages were reported from Kalat, Lasbela,Nasirabad and Jaffarabad districts, and that too forthe water supply sector only. The most obviousresult from the data compilation is the findingregarding the relative damage distribution amongstthe districts and talukas. In the Sindh province thathas been largely affected in the 2011 floods theShaheed Benazirabad (Nawabshah) district by farshows the most extensive damages both in thepublic water supply and sanitation sectors. Badin,Sanghar and Mirpurkhas districts also showsignificant damages to the water supply relatedinfrastructure and facilities. More damages arereported in the sanitation sector as compared to thewater supply sector. Shaheed Benazirabad(Nawabshah) district is the worst hit accounting for42 percent of the overall damage cost in the publicsanitation sector.Total damages (both direct and indirect) for watersupply and sanitation are estimated at Rs.1,160million and Rs. 43.6 million in Sindh andBalochistan, respectively. Direct damages in Sindhare Rs. 456.6 million in 378 reported schemes inthe flood affected districts. These damages includeRs. 147.6 million for public water supply and Rs.253 million for public sanitation. An amount of Rs56 million for community infrastructure damage isalso included. In Balochistan, water supply andsanitation damages have been assessed at Rs. 43.6million, in a total of 80 schemes. Indirect losses forSindh have been calculated to at Rs 703.6 million.No such loss is calculated for Balochistan due tolack of data. Indirect losses which is derived fromhigher expenditures related to (i) supplying potablewater (tankers, cost of hand pumps, water tanks,purification and disinfection processes), and (ii)cleaning, wells, sewers and pipes; and for the lossof revenue from interrupted water supply services.The total reconstruction cost for water supply andsanitation is estimated at Rs.1,831.7 million andRs.68.5 million for Sindh and Balochistanrespectively.Governance InfrastructureGovernance related institutions in the flood-hitdistricts of Sindh have suffered damage to theirassets, which in turn eroded their already limitedcapacities. In Balochistan, reported damage to thegovernance sector was limited. Flooding caused byrains led to disruption of social and economic lifeand created a crisis. Demand of governance andrelated services in a crisis is much higher and evermore challenging to respond to effectively andpromptly. Governance sector institutions inPakistan, even before the disaster, faced manychallenges.Governance institutions in the 17 affected districtsof Sindh have reported damage to 648 facilitiesincluding offices and residences. Aggregatecovered area damaged or destroyed has beenestimated to be slightly below 3 million squarefeet. In Balochistan, the 5 affected districts havereported damage to 18 buildings. The worst hitdistrict in Sindh is Mirpurkhas where estimate ofaggregate affected covered area is 845,000 sq feet,followed by Sanghar (299,000), Tharparkar255

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 heaviestdamage to its facilities. A total of 257 buildingswere reported to have been partially damaged and86 as completely destroyed. Partial damage to 11Prison and 71 Police facilities and completedamage to 3 Prison and 66 Police buildings havebeen reported. Additionally, 14 court buildingshave been partially damaged and 10 have beenreported as completely destroyed along with 21Auqaf buildings which are reported as completelydamaged and 10 as partially damaged. NADRA,Post Offices and other governance institutionsshared the remaining disaster damage.Table-9: Government infrastructure, Damage and Loss(Rs. in million)Provinces Direct damage Indirect Damage TotalSindh 1,555.83 369.23 1,925.06Balochistan 15.61 12.65 28.26Total 1,571.44 381.88 1,953.32Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011In case of governance institutions service andproductivity losses create complex issues.Disruption of services or functions and inability torespond to much bigger demand can and doimpede relief and reconstruction. States of rule oflaw, justice, security, property and citizenshiprecords and management capacities of publicaccounting and local level public managementbecome exposed to risk of deterioration because ofdamage and serious inadequacy in the face ofmuch higher volume of work demanded byrecovery and reconstruction needs. Disruption ofgovernance services and functions affect thecondition of the population already suffering fromthe direct effects of the disaster. The economic lossto the population is complex to estimate as itwould involve estimating economic value ofsecurity, justice and protection. Indirect loss togovernance institutions is estimated on notionalcosts of continued services and functions despiteloss to their facilities, records and reduced staffproductivity/availability in the damagequantification.The value of reconstruction needs is based on thecurrent government notified rates for contractors. Itwas challenging to gather information in precisecategories on the types of construction required,pre-flood condition and the nature of damages.Consequently, suitable assumptions and broadclassifications had to be used. In order to improveaccuracy of the estimates- statistically andfactually- sound assumptions have been used.Computations have been made in spreadsheet withstated assumptions, criteria and parameters clearlyidentified.Table-10: Recovery and Reconstruction Needs Assessment Summary(Rs. in Million)ProvinceReconstruction andRehabilitation/Repair costsCapacity BuildingTotalSindh 4,716.113 12.580 4,728.693Balochistan 36.572 3.700 40.272Total 4,752.685 16.280 4,768.965Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011Irrigation and Flood ManagementSindh’s agriculture accounts for 17.4 percent of theprovincial 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 -four at Guddu, seven at Sukkur and four at KotriBarrage commanding 2.5 million ha. A total of2,240 km of drains and 5,835 tube wellscomplement the irrigation system. In Balochistanonly about 767,120 ha land in 3 out of the 26districts is irrigated by Indus Basin Irrigation256

System. The main canals are the Pat Feeder,Kirther and Uch canals. In remaining parts of theprovince there are many small basins where spateirrigation, karezes, small irrigation schemes, smalldams and tube wells are the main sources ofirrigation.Pakistan: Flood Impact Assessmentmillion). The proposed irrigation, drainage andflood protection sector reconstruction strategy is torestore all damaged infrastructures, and strengthenvulnerable and damaged sections before 2012monsoon.Social Protection and LivelihoodsThe damages reported are in 38 irrigation divisionsThe total affected population in flood hit districtsof Sindh province (Rs. 3,936 million or US$ 45.2of Sindh and Balochistan are based on the totalmillion), and 14 irrigation divisions of Balochistanaffected area. Pakistan Social and Living Standardsprovince (Rs. 827 million or US$ 9.5 million). InMeasurement Survey (PSLM) data was used toSindh, fifteen divisions suffered damagescalculate post-flood poverty levels; this wasexceeding US$ 2.5 million each. In Balochistan,combined with damage to housing and agriculturethree divisions have reported damages exceedingto estimate the number of severely affected poorUS$ 1.0 million. The damage estimates reflect theand vulnerable households who require assistancereconstruction requirement at depreciated value asto cope with the negative impact of the floods. Themost of the infrastructure is more than 15 yearstotal is in the range of 801,897 to 851,439,old. Indirect losses such as damage to crops due torepresenting 52-54 percent of the total affectedflooding and disruption of irrigation supplies,population. The majority of these are in Sindhsiltation and water-logging of agricultural land are(786,917 to 836,311) and the rest in Balochistan.not covered in irrigation and flood sector.Districts with over 50 percent, or more, severelyaffected households are Badin, Dadu, Khairpur,The reconstruction cost estimated for SindhMatiari, Mirpurkhas, Sanghar, Tando Allah Yar,province is Rs. 7,872 million (US$ 90.5 million)Tando Muhammad Khan, and Thatta in Sindh, andand for Balochistan it is Rs. 1,654 million (US$ 19Kalat, Jaffarabad, and Lasbela in Balochistan.Table-11: Summary Estimates of Cash Grants to Severely Affected Poor Households (Rs. in Million)ProvincesNo. of Severely Affected House Holds Cash Grant of Rs. 6,680 per(HHs)month for 6 monthsSindh 836,311 33,519.35Balochistan 15,127 606.31Total 851,439 34,125.66Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011Government ResponseIn the immediate aftermath of the floods, thegovernment responded through the mobilization ofnational, provincial and district resources includingthe deployment of civil and armed forcespersonnel. Several infantry platoons of the army aswell as medical and engineering teams weredeployed in disaster affected areas to carry outsearch and rescue operations, which were furthersupported by helicopters and dozens of navy andcoast guard personnel and boats. To support thenational and provincial Disaster Risk Management(DRM) institutions, the Prime Minister‘s FloodRelief Committee was also formed to monitorrescue and relief activities. Small-scaleengineering works were also undertaken tostrengthen flood mitigation infrastructure to avoidfurther damage and loss of lives. During peak ofthis humanitarian crisis, almost 700,000 peoplewere being housed in approximately 3,500 reliefcamp managed by the government, internationalpartners, NGOs and civil society organizations. InJanuary 2012, NDMA reported to World Bank andAsian Development Bank Damage and NeedsAssessment, a report regarding the distribution ofover 316,000 tents in the affected areas and 3.7million ration packs, out of which 48,000 rationpacks were distributed in Balochistan. To provideimmediate cash assistance to the flood affectedpopulation in Sindh, the provincial government,with the support from the federal government, hasdisbursed approximately Rs. 10.3 billion throughthe Pakistan Card-based cash transfer scheme (Rs.10,000 per family).257

Pakistan Economic Survey 2011-12The Government continued to mobilize sheltermaterials, non-food items (NFIs), bottled water andfood rations. Provision of temporary shelter inpublic buildings had been arranged for thoseuprooted by the floods in 13 districts out of 23 inSindh, which accommodated 194,969 people.Initially the federal and provincial governmentsresponded to the disaster through own resources,which however, were overwhelmed in the wake ofthe growing humanitarian crisis. Despite providingassistance during the unprecedented floods of2010, the international community immediatelyresponded to the appeal by the Government ofPakistan for international support for rescue andrelief activities following 2011 floods. InDecember 2011, forty-six countries pledged acommitment of approximately US$ 260 millionincluding 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 diplomaticcommunity and international organizations tocoordinate international assistance.The United Nations (UN) undertook an InitialRapid Needs Assessment to focus on theimmediate relief phase for the following clusters:(i) emergency shelter; (ii) food security; (iii) healthand; (iv) water sanitation and hygiene. Based onthese cluster assessments, the UN launched a US$356 million Rapid Response Plan in September2011. As of April 2012, approximately, US$ 171million or 48 percent were received in response tothe UN‘s appeal. In January 2012, the UNlaunched the Early Recovery Framework seeking afurther US$ 439 million to continue flood responseuntil September 2012.258

Chapter 2AgricultureThe agriculture sector continues to be an essentialcomponent of Pakistan’s economy. It currentlycontributes 21 percent to GDP. Agriculturegenerates productive employment opportunities for45 percent of the country’s labour force and 60percent of the rural population depends upon thissector for its livelihood. It has a vital role inensuring food security, generating overalleconomic growth, reducing poverty and thetransforming towards industrialization. The presentgovernment is determined to improve the qualityof life of the people and to banish hunger andmalnutrition from the country by makingagriculture an efficient, productive and profitablesector of the economy.In order to improve governance in the public sectorthe government took bold steps and brought in the18 th Amendment to the Constitution of 1973.Accordingly, Ministries performing tasks whichwere provincial subjects were devolved from theFederal level, including the Ministry of Food andAgriculture. However, realizing the food securityconcerns across the country the government tooktimely steps to establish the Ministry of NationalFood Security and Research to tackle the FoodSecurity issues.The newly created Ministry, under the aegis ofthe present government, has planned to taketwo major steps in order to solve the foodsecurity issues on a permanent basis. The firststep is the establishment of the National FoodSecurity Council representing Federal,Provincial and local level Governments.Secondly, through a Letter of Intent the Ministry,in collaboration with World Food Programme, islaunching the Zero Hunger Programme worth US $1.6 billion to address the food security objective.Under this Programme the Ministry shall donate upto 500,000 metric tons of wheat per year and theWorld Food Programme intends to negotiate withlocal producers to exchange part of the donatedwheat for High Energy Biscuits (HEB) and similarproducts manufactured in Pakistan factories fordistributions through WFP operations to primaryschool children, siblings of malnourished childrenand the vulnerable populations especially childrenat risk of malnutrition. The fund will also beconverted to fortified wheat flour for distributionsaimed at combating food insecurity in Pakistan.The WFP will also cooperate in the capacitybuilding of the Ministry’s officials in areasaddressing food security and monitoring progress.Flooding in 2011, affected crops like rice, cottonand sugarcane, although in the current year, 2011-12, they performed well and provided support andcontinued to support food security objectives thisyear. The agriculture sector recorded a growth of3.1 percent in 2011-12. The profitability ofagriculture sector during 2011-12, remained highbecause the farmers received good prices for rice,cotton and sugarcane, which allowed for greaterfinancial resources passed on to the rural economy.Recent performanceDuring 2011-12, the overall performance ofagriculture sector exhibited a growth of 3.1 percentmainly due to positive growth in agriculture relatedsubsectors, except minor crops. Major cropsaccounted for 31.9 percent of agricultural valueadded and experienced a growth of 3.2 percent infiscal year 2011-12 with negative growth of 0.2percent in 2011. The significant growth in majorcrops is contributed by rice, cotton and sugarcane17

Pakistan Economic Survey 2011-12by 27.7 percent, 18.6 percent and 4.9 percent, respectively.Table 2.1: Agriculture growth percentages from 2005-2012Year Agriculture Major Crops Minor Crops Livestock Fishery Forestry2005-06 6.3 -3.9 0.4 15.8 20.8 -1.12006-07 4.1 7.7 -1.0 2.8 15.4 -5.12007-08 1.0 -6.4 10.9 4.2 9.2 -13.02008-09 4.0 7.8 -1.2 3.1 2.3 -3.02009-10 0.6 -2.3 -7.7 4.3 1.5 2.22010-11 2.4 -0.2 2.7 4.0 1.9 -0.42011-12(P) 3.1 3.2 -1.3 4.0 1.8 1.0Source: Pakistan Bureau of StatisticsP:ProvisionalMinor crops contributed 10.1 percent valueaddition in agriculture and exhibited a negativegrowth of 1.3 percent in 2011-12 against 2.7percent 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 sectorgrew by 1.8 percent as against last year’s growth of1.9 percent. Forestry sector posted a positivegrowth of 1.0 percent this year as compared tonegative growth of 0.4 percent last year.Pakistan has two crop seasons, "Kharif" being thefirst sowing season from April-June and it isharvested during October-December. Rice,sugarcane, cotton, maize, mung, mash, bajra andjowar are “Kharif" crops. "Rabi", the secondsowing season, begins October-December and isharvested in April-May. Wheat, gram, lentil(masoor), tobacco, rapeseed, barley and mustardare "Rabi" crops. These crops make Pakistan anagricultural country and its performance isdependent upon timely availability of irrigationwater. During 2011-12, the availability of water asa basic input for Kharif 2011 (for the crops such asrice, sugarcane and cotton) has been 10 percentless than the normal supplies but 13 percent higherthan last year’s Kharif 2010 season. The wateravailability during Rabi season (for major cropsuch as wheat), is estimated at 29.4 MAF, which is19.2 percent less than the normal availability, but15 percent less than last year’s Rabi crop (Table2.2).Table 2.2: Actual Surface Water Availability(Million Acre Feet)Period Kharif Rabi Total%age incr/decr.Over the Avg.Average system usage 67.1 36.4 103.5 -2003-04 65.9 31.5 97.4 - 5.92004-05 59.1 23.1 82.2 - 20.62005-06 70.8 30.1 100.9 - 2.52006-07 63.1 31.2 94.3 - 8.92007-08 70.8 27.9 98.7 - 4.62008-09 66.9 24.9 91.8 -11.32009-10 67.3 25.0 92.3 -10.82010-11 53.4 34.6 88.0 -15.02011-12 60.4 29.4 89.8 -13.4Source: Indus River System AuthorityI. Crop SituationMajor crops, such as wheat, rice, cotton andsugarcane account for 91 percent of the valueadded in the major crops. The value added in majorcrops accounts for 32 percent of the value added inthe agriculture. Thus, four major crops (wheat,rice, cotton, and sugarcane) on average, contribute29 percent to the value added in overall agricultureand 6.0 percent to GDP. The minor crops accountfor 10.1 percent of the value added in overall18

Agricultureagriculture. Livestock contributes 55.1 percent to (41.9 percent). The productionperformance ofagricultural value added–much more than the major crops is documented in Table 2.3.combinedcontributionn of major and minor cropsTable 2.3: Production of Major Crops(in thousands oftons)YearCotton(000 bales)SugarcaneRiceMaizeWheat2005-062006-072007-082008-092009-102010-112011-12(P)13,01912,85611,65511,81912,91411,46013,59544,66654,74263,92050,04549,37355,30958,0385,5475,4385,5636,9526,8834,8236,1603,1103,08883,6053,59333,2613,70774,27121,27723,29520,95924,03323,31125,21423,517(-8.7)(-1.2)(-9.3)(1.4)(9.4)(-11.3)(18.6)(-5.5)(22.6)(16.8)(-21.7)(-1.3)(12.0)(4.9)(10.4)(-2.0)(2.3)(25.0)(-1.0)(-30.0)(27.7)(11.2)(-0.7)(16.7)(-0.3)(-9.2)(13.7)(15.2)(-1.6)(9.5)(-10.0)(14.7)(-3.0)(8.2)(-6.7)Source: Pakistan Bureau of StatisticsP: Provisional (July-March), Figures inparentheses are growth/decline ratesa) Major Crops:i) Cotton:Cottonis an importantcashcrop whichsignificantly contributes to the national economyby providing raw material to the local textileindustry, surh as cotton lint as an export item.Itaccounts for 7.8 percent of value added inagriculture and 1.6 percent of GDP. During 2011-12, the crop was cultivated on anarea of 2835thousand hectares, 5.4 percent more than last year(2689 thousand hectares). The production isreported at 13.6 million bales during the period(July-March) 2011-12,higher by 18.6 percent overthe last year’s production which was 11.5 millionbales. The increase in cultivated area andproductionis attributed to the useof BT cotton,control over widespread attack of cotton leaf curlvirus (CLCV) and sucking pestss which helpedincrease in yield per hectare ascompared to lastyear. The area, production and yield of cotton forthe lastfive years isgiven in Table 2.4 and Figure2.1.Figure 2.1: Cotton Production (000 bales)1400013500130001250012000115001100007-08 08-09 09-10 10-11 11-12(P)Source: PBSTable 2.4:YearArea, Production and Yield of CottonArea(0000 Hectare) % Change2007-082008-092009-102010-112011-12(P)30542820310626892835- 0.7-7.710.1-13.45.4Source: Pakistan Bureau of StatisticsP: Provisional (July-March)Production(000 Bales) % Change11655 - 9.3118191.4129149.311460 -11.313595 18.6Yield(Kgs/Hec)% Change649-8.77139.9707-0.87242.481512.619

Pakistan Economic Survey 2011-122World Cotton OutlookThe production and consumption ofmajor cottongrowing countries are given in Table 2.5.Table 2.5: Production and Consumption of Major Cotton Growing Countries2009-102010-11 EProductionChinaIndiaUSAPakistanBrazilUzbekistanOthersWorld TotalConsumptionChinaIndiaPakistanEast Asia/AustraliaEurope & TurkeyBrazilUSAOthersWorld Total6.925.182.652.071.190.853.2922.1710.104.302.391.861.551.020.773.3625.366.405.763.941.911.960.914.2225.109.594.482.201.751.490.960.853.1724.49Source: Pakistan Central Cotton Committee, M/O Textile IndustryE: Estimated, P: Provisional(inMillions of Tons)2011-12 P7.405.693.392.352.000.885.2826.969.384.562.331.631.460.900.703.0123.96Fig-2.2: Sugarcane Production (000Tons)650006000055000500004500007-08 08-09 09-10 10-11 11-12(P)Source: PBSii) Sugarcane:The sugarcane crop is the second major cash cropand is used as a raw material in the production ofrefined sugar and gur.Its share in value addedd inagriculture and GDPis 3.7 and 0.8 percent,respectively. Sugarcane was cultivated on anareaof 1,046 thousand hectares, 5.9 percent higherthanlast year’s level of 988 thousand hectares.Sugarcane production for the year 2011-12 isestimated at 58.0 million tons, in contrast to lastyear’s production of 55.3 milliontons. This showsan increase of 4.9 percent over the production oflast year. The main factors contributing to theproduction are lucrative market prices oflastyear’s produce andtimely availability of inputsencouraged the farmers to growmore sugarcanecrop. However, the yield per hectare, if comparedwith last year, posted a negative growth. Thefloods of 2010 enhanced thesoil fertility ofSugarcane crop, and as a result,yield per hectareposted a growth of 6.9 percent as compared tonegative 0.9 percentthis year. However,productivity gain could not be sustained becausewater receded veryslowly in sugarcane area oflower Sindh. The area, production and yield ofsugarcane for the last five years are given in Table2.6 andFigure 2.2.20

AgricultureTable 2.6: Area, Production and Yield of SugarcaneYearAreaProductionYield(000 Hectare) % Change (000 Tons) % Change (Kgs/Hec.)% Change2007-082008-092009-102010-112011-12(P)12411029943988104620.6-17.1-8.44.85.9639205004549373553095803816.8 -21.7 -1.3 12.0 4.9 5150748635523575598155486-3.2-5.67.76.9-0.9Source: Pakistan Bureauu of StatisticsP: Provisional (July-March)iii) Rice:Rice ranks as second amongst the staple food graincrops in Pakistan and it has been a major sourceofforeign exchange earnings in recentyears. Pakistangrows a high quality of rice to fulfill the domesticdemand and also for exports. Rice accounts 4.9percent of the value added in agriculture and 1.0percent of GDP. The sown area for rice is 2571thousand hectares, 8.7 percent more than lastyear’s 2365 thousand hectares. The production ofthe crop is an estimated 6160 thousand tons, 27.7percent more than the4823 thousandtons producedlast year. This increasee in area is due to 8.7 percentincrease in area sown. The yield per hectare hasshown improved growth of 17.5 percent ascomparedto -14.6 percent last year. The area,production and yield of rice for the last five yearsare shown in Table 2.7 and Figure 2.3.Figure 2.3: Rice Production (000 Tons)Table 2.7: Area, Production and Yield of RiceYearAreaProductionYield(000 Hectare) % Change (000 Tons) % Change (Kgs/Hec.)% Change2007-082008-092009-102010-112011-12(P)25152963288323652571-2.617.8-2.7-18.08.7556369526883482361602.325.0-1.0-30.00 27.77 221223462387203923965.06.11.7-14.617.5Source: Pakistan Bureauu of StatisticsP: Provisional (July-March)iv) Wheat:Wheat is the basic staple food for most of thepopulationand largest grain sourceof the country.Its importanceis always recognizedwhenformulating agricultural policies. It contributes12.5 percent to the value added in agriculture and2.6 percent to GDP. Wheat is cultivated in an areaof 8666 thousand hectares in 2011-12, showingadecrease of 2.6 percent over last year’s area of75007000650060005500500007-08 08-09 09-10 10-11 11-12(P)4500Source: PBS8901 thousand hectares. The production of23.5milliontons is estimated during July-March 2011-12. The yield per hectare in 2011-12 posted anegative growth of 4.2 percent as compared to 11percentgrowth last year. This is due to the fact thatthe sowing of wheat was delayed due to standingwater and other climatic factors. Recentlythegovernment has increased the procurement price toRs. 1050. This step would help the farmers to21

Pakistan Economic Survey 2011-122increase its production and its impact will berealized inthe later part of 2011-12.The overall decrease in area is due to problemsfarmers faced in the disposal of the wheatproduced during last year. Farmersthen began toincrease predispositionof growing early sown BTcotton andreducing the area of BTcotton sowninrain affected districts of Sindh This phenomenonn isdemonstrated in Table 2.8 and Figure 2.4.Fig 2.4: Wheat Production (0000 Tons)27000250002300021000190001700007-08 08-09 09-10 10-11 11-12 (P)Source: PBSTable 2.8: Area, Production and Yield of WheatYearArea(000 hectares) % Change2007-082008-092009-102010-112011-12(P)85509046913289018666-0.35.81.0-2.5-2.6Source: Pakistan Bureau of StatisticsP:Provisional(July-March)ProductionYield(000 tons)2095924033233112521423517% Change-10.0 14. .7-3.0 8.2 -6.7 (Kgs /Hec.)24512657255328332714% Changes-9.88.4-3.911.0-4.2v) Other Major CropsDuring 2011-12, the production of maize increasedby 15.2 percent, whilerapeseed and mustard roseby 5.7 percent. This is in contrast to crops likegram, thelargest Rabi pulses crop in Pakistan,where production stood at 291 thousand tons,against 496 thousand tons of last year, showingareduction of about 41.3 percent during 2011-12mainlybecause of unfavorable weather conditions.The other crops like bajra, tobacco, jawarandbarley also, witnessed a declinee in production of12.1 percent, 8.7 percent, 2.8 percent and1.4percent, respectively, in 2011-12 as compared tothe corresponding period last year. The area andproduction of majorcrops are given in Table 2.9.Table 2.9: Area and Production of Other Major Kharif and Rabi Crops2010-112011-12 (P)CropsArea ProductionAreaProduction(000 hectares) (000 tons)(000 hectares)(000 tons)KharifMaizeBajraJawarRabiGramBarleyRapeseed & Mustard974548229370734614149671176108345821410547720351TobaccoSource: Pakistan Bureauu of StatisticsP: Provisional (July-March)1031055752134742713041372917018694% Change InproductionoverLast year15.2-12.1-2.8-41.3-1.45.7-8.722

Agricultureb) Minor Cropsi) OilseedsThe major oilseed crops grown in the countryinclude sunflower, canola, cottonseed, rapeseedand mustard. Although the cotton crop is grown forits lint, cottonseed contributes 50 to 60 percent oflocal edible oil production. At present, totalrequirement of edible oil in the country is 2.045million tons. During the year 2010-11, the totalavailability of edible oil was 3.079 million tons; ofwhich local production contributed 0.696 milliontons (34 percent of the requirement); while importsof edible oil or oilseeds was 2.383 million ton. Theimport bill reached Rs. 224 billion (US$ 2.611billion) in 2010-11.It is estimated that 10 percent of the totalavailability of edible oil is consumed in industrieslike cosmetics, paints and other allied products.Around 200,000 tons of edible oil is exported,mainly to Afghanistan. This does not includesmuggling through porous borders which is notaccounted for.During the year 2011-12 (July-February) 1.467million tons of edible oil worth Rs. 145 billion(US$ 1.654 billion) was imported. Localproduction during 2011-12 was 0.636 million tons.The area and production of oilseed crops during2010-11 and 2011-12 is shown in Table 2.10.Table 2.10: Area and Production of Major Oilseed CropsCrops 2010-11 2011-12 (P)Area Production Area Production(000 Acres) Seed(000 Tons)Oil(000 Tons)(000 Acres) Seed(000 Tons)Oil(000 Tons)Cottonseed 6,450 2,934 352 6,958 3,212 385Rapeseed/ Mustard 439 157 50 575 203 61Sunflower 1,108 643 244 877 473 179Canola 223 131 50 27 30 11Total 8,230 3,865 696 8,437 3,918 636Source: Pakistan Oilseed Development BoardP: Provisional (July-Feb)ii) Other Minor Crops:The production of mung and potato has increasedby 22.0 percent and 17.5 percent, respectivelyduring, 2011-12. However, the production ofchillies, onion, masoor (lentil) and mash decreasedby 78.3 percent, 15.4 percent 12.8 percent and 3.5percent, respectively. The area sown for masoor,onion and chillies decreased by 13.8 percent, 14.9percent and 65.7 percent, respectively. There wasan increase of area sown for mung and potatoes by2.5 percent and 16.2 percent, respectively. Thearea and production of minor crops are given inTable 2.11.Table: 2.11 Area and Production of Minor CropsCrops2010-11 2011-12(P)%Change InArea Production Area ProductionProduction(000 hectares) (000 tons) (000 hectares) (000 tons)Masoor 26.1 13.3 22.5 11.6 -12.8Mung 137.4 76.2 140.8 93.0 22.0Mash 24.5 11.3 24.5 10.9 -3.5Potato 159.3 3491.8 185.1 4104.4 17.5Onion 147.6 1939.6 125.6 1640.0 -15.4Chillies 63.6 171.7 21.8 37.2 -78.3Source: Pakistan Bureau of StatisticsP: Provisional (July-March)23

Pakistan Economic Survey 2011-12II. Farm Inputsi) Fertilizer:Fertilizer is Pakistan’s most important andexpensive input in agricultural production. Thecontribution of balanced fertilizer use towardsincreased yield varies from 30 to 60 percent indifferent crop production areas of the country. Onekg of fertilizer nutrient produces about 8 kg ofcereals (wheat, maize and rice), 2.5 kg of cottonand 114 kg of stripped sugarcane. All of Pakistan’ssoils are deficient in nitrogen (N), 80 to 90 percentare deficient in phosphorus (P), and 30 percent arelacking in potassium (K). The wide spreaddeficiency of micronutrients is also appearing indifferent areas. Lands used for single crops aredepleting soil fertility because lands are using onlycertain essential plant nutrients and are intenselycultivated. When these soils go without beingreplenished, future crops are threatened from lossof micronutrients and other essential plantnutrients.The domestic production of fertilizers from July-March, 2011-12 declined by 1.4 percent whencompared to the last year’s production. Thefertilizer industry experienced a curtailment ofnatural gas (the raw material for urea) and someurea plants produced less than their productioncapacity. However, a timely import of ureaaddressed the absence in supply and totalavailability of fertilizer increased by 16.3 percent.Despite the increased supply of urea, totalconsumption of fertilizer reduced by 4.9 percent.Nitrogen consumption increased by 0.3 percentwhile that of phosphate decreased by 22.3 percentand potash by 36 percent. Details of fertilizerproduction are presented in Table 2.12.The major reason for reduced fertilizerconsumption was the effect of heavy anddestructive rains in the Sindh province during themonsoon season in 2011, which adversely affectedcrop lands. Another reason for the reduction inconsumption of fertilizer was the increase in priceof all fertilizers. The prices of urea went up by 81.4percent in July-March, 2011-12 as compared to thesame period of the last fiscal year. The prices ofDAP, CAN and NP also increased by 38.8 percent,75.5 percent and 45.7 percent, respectively, overthe same period last year.Table: 2.12 Production and Off-take of Fertilizers(‘000’ Nutrient Tons)YearDomestic %%%%ImportTotalOff-takeProduction ChangeChangeChangeChange2007-08 2822 - 876 - 3698 - 3581 -2008-09 2907 3.0 568 -35.1 3475 -6.0 3711 3.62009-10 3082 6.0 1444 154.2 4526 30.2 4360 17.52010-11 3076 -0.2 645 -55.4 3721 0.6 3933 -9.82010-11 P 2287 - 532 - 2819 - 3064 -2011-12 P 2255 -1.4 1024 92.6 3279 16.3 2913 -4.9Source: National Fertilizer Development CentreP : Provisional (Jul-March)ii) Improved Seed:Quality seed is also an essential input forimproving yield in Pakistan. Seed has a uniqueposition among the other various agriculturalinputs because the effectiveness of all other inputsdepend primarily on the potential of the seeds.Seed is a high technology product and is aninnovation readily adapted for Pakistan’s climate.Improving access to good quality seed is a criticalrequirement for sustainable agricultural growth andfood security. Effective use of improved andcertified seed can result in higher agriculturalproduction, which leads to increased net incomesof farming families. This is the desired positiveimpact of improved seed for greater ruraldevelopment. Hence the availability of quality seedof improved varieties is essential to achieveproduction targets.24

During July-March, 2011-12 about 361.0 thousandtons of improved seed of various Kharif/Rabiseason crops were procured. The procurement ofseeds for various Kharif crops (cotton, paddy,maize, mung bean, etc) is currently underway. Thedetails of this procurement are demonstrated inTable 2.13.The Federal Seed Certification and RegistrationDepartment (FSC&RD) is engaged in providingseed certification coverage to public and privatesector seed companies of the country. It providesseed quality control services through its 28 seedtesting laboratories as well as monitoring of seedquality in the market. The activities andachievements of the department during 2011-12are described below:During the year 2011-12, forty-five (45) newseed companies were registered, making thetotal number of registered seed companies inthe country 774, which includes four publicsector and five multinational companies.Twenty-two (22) new crop varieties wereapproved {(5) wheat, (11) cotton, (3) oilseeds,(2) pulses and (1) fodder}.During 2011-12, different crops offered by thevarious seed agencies, totaling 502.6 thousandAgricultureacres, were inspected for certificationpurposes.A total quantity of 361.0 thousand MT seeds ofvarious corps were sampled and tested forpurity, germination and seed health purposes.Pre and post control trials of all pre-basic,basic seed lots and 20 percent of certified seedlots were carried out in the fields to determinethe quality of seed distributed by various seedagencies.Under the provision of the Seed Act, five caseswere filed in different courts of law against theseed dealers found selling substandard seeds.During 2011-12, a total of 13.7 MT ofimported seed of various crops and hybrids,with a total value of Rs. 3287.6 million, wastested under the Seed (Truth in Labelling)Rules. 1991 at the port of entries i.e. Lahoreand Karachi.Almost 718 samples of seed and propagatingmaterial of various vegetable and fruit cropswere tested at the Central Seed TestingLaboratory, Islamabad for detection of fungaland viral disease using latest diagnosistechniques and protocols.Table 2.13: Seed Availability*(Metric Tons)Crop Local Imported TotalWheat 319890.0 0.0 319890.0Cotton 1649.8 0.0 1649.8Paddy 22749.6 2657.1 25406.7Maize 1372.9 3739.3 5112.2Pulses 1189.0 0.0 1189.0Oilseeds 23.5 328.7 352.2Fodders 11.4 1473.6 1485.0Vegetables 256.0 564.6 820.6Potato 145.0 4963.6 5108.6Total 347287.2 13726.9 361014.1Source: Federal Seed Certification & Registration Department* : July-March 2011-12iii) IrrigationUniversally an efficient irrigation system is a prerequisitefor higher agricultural production as ithelps in increasing crop intensity, an aim Pakistanhopes to achieve throughout the country. Despitethe existence of a good irrigation canal network inPakistan, large amounts of water are wasted in the25

Pakistan Economic Survey 2011-12irrigation process because of improper lining ofwaterways. Rainfall recorded during the monsoonand winter season is presented in Table 2.14.Table 2.14: Rainfall* Recorded During 2011-12(in Millimetres)Monsoon Rainfall*(Jul-Sep) 2011Winter Rainfall*(Jan-Mar) 2012Normal 137.5mm 70.5mmActual 236.5mm 34.2mmShortage (-)/excess (+) + 99.0mm -36.3mm% Shortage (-)/excess (+) +72.0 % -51.4%Source: Pakistan Meteorological Department* : Area weightedDuring the monsoon season, (July-September),the normal average rainfall 137.5 mm, whilethe actual rainfall received in 2011 was 236.5mm, indicating an increase of 99.0 percent.During the winter, (January-March), normalaverage rainfall during this period is 70.5 mmand the actual rainfall received in 2012 was34.2 mm,, indicating a decrease of 51.4percent under the normal rainfall average.The canal head withdrawals in April-September2011 increased by 13 percent and stood at 60.4million acre feet (MAF) as compared to 53.4 MAFduring the same period last year. During thesecond planting season, October-March, 2011-12,the canal head withdrawals declined to 29.4 MAF,compared to 34.6 MAF during the same period lastyear. The Province-wise details are given in Table2.15.Table 2.15: Canal Head Withdrawals (Below Rim Station)Kharif Kharif % Change inProvinces (Apr-Sep) (Apr -Sep) Kharif 20112010 2011 over 2010Rabi(Oct-Mar)2010-11Million Acre Feet (MAF)% Change inRabi 2011-12Over 2010-11Rabi(Oct –Mar)2011-12Punjab 29.00 34.29 18 18.73 17.61 -6Sindh 22.61 23.29 3 14.51 10.13 -30Balochistan 1.21 1.86 54 0.88 1.12 27KPK 0.60 0.96 60 0.48 0.56 17Total 53.41 60.40 13 34.59 29.42 -15Source: Indus River System AuthorityTo address the water sector issues, strategiesand future water sector policy, an integratedwater resource management approach, guidingprinciples of equity, efficiency, participatorydecision making, sustainability andaccountability have been adopted. The strategyis focused on priority investments in the watersector to achieve additional water storages andreorganization for effective and responsiveinstitutional reforms. Water availability iscontinuously diminishing. The challenge is toformulate an effective implementation of acomprehensive set of measures for thedevelopment an efficient management of waterresources. The focus areas of investment in thewater sector are:a. Augmentation of surface water resources byconstruction of storage small/medium dams.b. Conservation measures, or the lining ofirrigation channels, included modernizing andrehabilitating irrigation systems, lining ofwaterways and enhancing efficiency byrehabilitating and improving the operation ofthe existing system.c. Protection of infrastructure from onslaught offloods and water logging and Salinity.d. Introduction of high efficiency irrigationsystems i.e. sprinkler and drip.26

It is expected about Rs. 30.00 billion would beutilized on the water sector’s programmes underthe Ministry of Water and Power for 2011-12. TheTable: 2.16: Major Water Sector Projects under ImplementationProjects Location TotalApp.cost(Rs. Inmillion)LiveStorage(MAF)Gomal Zam Dam KhyberPakhtunkhwaAgriculturefollowing major water sector projects aredemonstrated in Table 2.16.IrrigatedArea(Acres)Latest Status(Expected up to June 2012)12,829 0.892 1, 91,139 75 % Physically completedGreater Thal Canal * Punjab 30,467 - 1,739,000Phase-I, completed(3 Phases)Rainee Canal * Sindh 18,862 - 412,400(3 Phases)94 % Physically completedPhase-IKachhi Canal * Balochistan 31,204 - 713,000(3 Phases)62 % Physically completedPhase-IRaising ofAJ&K62,553(O) 2.90 All overPhysically completedMangla Dam97,000 (B R)PakistanSatpara Dam Skardu 4,397 0.05 15,536 Physically completedMulti- purposeRight Bank OutfallDrain (RBOD)RBOD-IRBOD-IIRBOD-IIISindhSindhBalochistan14,70729,0146,53588% Physically Completed65% Physically Completed75% Physically CompletedSource: 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 threecanals is un-approved, submitted for approval to P&D DivisionWater Sector Programmes during (2011-12)These programmes are:Completion of phase-I of the Greater ThalCanal, substantial completion (60 percent) ofKachhi Canal in Balochistan and Rainee Canal(92 percent) in Sindh for irrigating 2.9 millionacres.Completion of Mangla Dam Raising Projectfor additional storage of 2.9 MAF andadditional power generation of 644 GWh.Completion of Satpara Dam in Gilgit Baltistanfor irrigation of 15,536 acres of agricultureland and 17.3 MW power generations.Substantial completion of Gomal Zam DamProject in Tribal/ Khyber Pakhtunkhwa (KPK)area for irrigation of 1, 91,139 acres ofagriculture land and generation of 17.4 MWpowerRs. 1,800 million is expected to be utilized onlining various irrigation channels in Punjab,Sindh and Khyber Pukhtunkhwa during theyear 2011-12.An amount of Rs. 1,600 million is expected tobe utilized during the year 2011-12 onimprovement of existing irrigating system inPunjab, Sindh, KPK and Balochistan.More than Rs. 2.00 billion is expected to beutilized on construction of new small tomedium sized dams across Pakistan; (Winder,Darwat, Nai Gaj and Naulong dam).In Balochistan, about Rs. 3.00 billion areexpected to be spent on the construction ofnew small, delay action dams andimprovement of existing irrigation system andflood schemes.In the drainage sector, continued fast trackimplementation of the RBOD-1, II & IIIprojects hope to protect and reclaim 4.90million acres of irrigated land.27

Pakistan Economic Survey 2011-12iv) Agricultural Credit:The role of credit is instrumental in the agriculturesector where Pakistani farmers often lack financesnecessary for carrying out vital farming activities.This issue, if not addressed, can cause a multitudeof problems, ranging from the exploitation of poorfarmers at the hands of informal sources of credit,to a slowdown in the adoption of modern farmingtechniques and inputs, resulting in slowdevelopment of this chief sector of our economy.The Government of Pakistan and the SBP iscognizant of the centrality of access to agriculturecredit in the growth of the agriculture sector, andthey have been making all efforts for thepromotion and development of agricultural financein the country at affordable prices. As a result, theflow of credit to agriculture sector from banks isshowing improvement. A well-established networkof lending institutions operates to meet thefinancial 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 agriculturecredit throughout the country. These include; ABL,Habib Bank Limited (HBL), Muslim CommercialBank (MCB), United Bank Limited (UBL), twospecialized banks, viz, Zarai Tarqiti Bank Limited(ZTBL), Punjab Provincial Corporative BankLimited (PCBL), and 14 private domestic banks.Furthermore, five microfinance banks (MFBs) arealso providing financing to farmers. These banksprovide credit to the farming community for alltypes 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 arrayof factors, such as the rising pressure from thequickly expanding population. Credit on foodresources and high prices of agriculture inputs, andthe reasonable prices of agricultural commoditiesare attracting investment into Pakistan’sagriculture sector. The Agricultural CreditAdvisory Committee (ACAC) has allocated anindicative agriculture credit disbursement target ofRs. 285 billion for 2011-12 as compared to thetarget of Rs. 270 billion; (fixed for last year andthe actual credit disbursement of Rs. 263 billionduring 2010-11). Out of the total amount ofagricultural credit disbursed, Rs. 195.1 billion wasallocated to Commercial Banks, Rs. 70.1 billion toZTBL, Rs. 12.2 billion went to the MicrofinanceBanks, (five MFBs included since July 2011), andRs. 7.6 billion was allocated to the PunjabProvincial Cooperative Bank Limited (PPCBL).During July-March, 2011-12 five major banks, as agroup, disbursed Rs 107.7 billion or 76.3 percentof their whole year’s targets. ZTBL disbursed Rs37.9 billion or 54 percent of its targets andDomestic Private Banks (DPBs) disbursed Rs 37.3billion or 69 percent of their targets. MFBsdisbursed Rs 8.5 billion or 69.9 percent of theirtarget and the PPCBL disbursed Rs 6.0 billion or79.1 percent of its allocated target.During the period July-March, 2011-12, bankdisbursement to the agriculture sector surged by 17percent 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 Rs168.7 billion during corresponding period last year.The details are presented in Table 2.17.Table 2.17: Supply of Agricultural Credit by InstitutionsYearZTBLCommercialBanksPPCBLDomesticPrivateBanksMFBsRs. Billion(Rs. in Billion)Total%Change2006-07 56. 5 80.4 8.0 24.0 0.0 168.8 22.82007-08 66.9 94.7 5.9 43.9 0.0 211.6 25.32008-09 75.1 110.7 5.6 41.6 0.0 233.0 10.12009-10 79.0 119.6 5.7 43.8 0.0 248.1 6.52010-11 65.4 140.3 7.2 50.2 0.0 263.0 6.02010-11 P 37.4 93.3 4.4 33.7 0.0 168.7 -2011-12 P 37.8 107.6 6.0 37.3 8.5 197.4 17.0Source: State Bank of Pakistan.P: Provisional (July – Mar)28

AgricultureBox-1Credit Disbursement to Farm and Non-Farm SectorThe sector-wise classification reveals that the share of the non-farm sector showed healthy growth and its share inoverall agriculture credit disbursement rose to 36.3 percent in March, 2012. During the period under review Rs125.64 billion was disbursed to the farm sector while credit disbursement to non-farm sector stood at Rs 71.73billion. Last year, an amount of Rs 110.46 billion or 65.5 percent was extended to farm sector and Rs 58.23 billionor 34.5 percent was disbursed to non-farm sector.2011-12 2010-11SectorJuly-March 2011 July-March 2010A Farm Credit 125.64 110.461 Subsistence Holding 70.83 65.97i Production 68.60 63.97ii Development 2.23 2.822 Economic Holding 33.82 28.68i Production 33.04 27.94ii Development 0.78 0.743 Above Economic Holding 20.98 15.81i Production 19.07 15.09ii Development 1.91 0.72B Non-Farm Credit 71.73 58.231 Small Farms 19.02 12.672 Large Farms 52.71 45.56Total (A+B) 197.36 168.69Source: SBPIII. ForestryDuring the year 2011-12, forests have contributed92 thousand cubic meters of timber and 262thousand cubic meters of firewood as compared to91 thousand cubic meters timber and 261 thousandcubic meters firewood in 2010-11.IV. Livestock and PoultryA. LivestockThe livestock sector occupies a unique position inthe National Agenda of economic development ofthe present government. The sector provides a netsource of foreign earnings. Historically livestockhas been the subsistence sector dominated by smallholders to meet their needs of milk, food securityand daily cash income. Therefore, livestock isconsidered a more secure source of income for thesmall farmers and landless poor; and, is a source ofemployment generation at the rural level. It alsohelps to reduce income variability, especially incases of crop failure due to a variety of causes.Livestock is central to the livelihood of the ruralpoor in the country and can play an important rolein poverty alleviation. It can uplift thesocioeconomic condition of Pakistan’s ruralmasses. The livestock population for the last threeyears is given in Table 2.18.Livestock contributed approximately 55.1 percentto the agricultural value added and 11.6 percent tonational GDP during 2010-12, against 54.6 percentand 11.6 percent during the same period last year.Gross value added of the livestock sector atconstant factor cost has increased from Rs. 672billion (2010-11) to Rs. 700 billion (2011-12);showing an increase of 4.0 percent as compared toprevious year.29

Pakistan Economic Survey 2011-12Table 2.18: Livestock Population(Million Nos.)Species 2009-10 1 2010-11 1 2011-12 1Cattle 34.3 35.6 36.9Buffalo 30.8 31.7 32.7Sheep 27.8 28.1 28.4Goat 59.9 61.5 63.1Camels 1.0 1.0 1.0Horses 0.4 0.4 0.4Asses 4.6 4.7 4.8Mules 0.2 0.2 0.2Source: Ministry of National Food Security & Research1 : Estimated Figure based on inter census growth rate of Livestock Census 1996 & 2006The major products of livestock are milk and meat. The production of these products for the last threeyears is given in Table 2.19.Table 2.19: Milk and Meat ProductionSpecies Units 2009-10 1 2010-11 1 2011-12 1Milk (Gross Production) 000 Tons 44,978 46,440 47,951Cow " 15,546 16,133 16,741Buffalo " 27,848 28,694 29,565Sheep 2 " 36 36 37Goat " 739 759 779Camel 2 " 808 818 829Milk (Human Consumption) 3 000 Tons 36,299 37,475 38,690Cow " 12,437 12,906 13,393Buffalo " 22,279 22,955 23,652Sheep " 36 36 37Goat " 739 759 779Camel " 808 818 829Meat 4 000 Tons 2,965 3,095 3,232Beef " 1,655 1,711 1,769Mutton " 603 616 629Poultry meat " 707 767 834Source: Ministry of National Food Security & Research1: The figures for milk and meat production for the indicated years are calculated by applying milk productionparameters to the projected population of respective years based on the inter census growth rate of livestock census1996 & 20062 : The figures for the Milk production for the indicated years are calculated after adding the production of milkfrom 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 offal’s.The production of other livestock products over the last three years is demonstrated in Table 2.20.Table:2.20 Estimated Livestock Products ProductionSpecies Units 2009-10 1 2010-11 1 2011-12 1Eggs Million Nos 11,839 12,457 13,144Hides 000 No's 13,040 13,481 13,938Cattle " 6,496 6,741 6,995Buffalo " 6,445 6,640 6,84230

AgricultureTable:2.20 Estimated Livestock Products ProductionSpecies Units 2009-10 1 2010-11 1 2011-12 1Camels " 99 100 101Skins 000 No's 47,402 48,478 49,582Sheep Skin " 10,495 10,620 10,745Goat Skin " 23,061 23,685 24,237Fancy Skin " 13,846 14,173 14,509Lamb skin " 3,117 3,154 3,192Kid skin " 10,728 11,019 11,318Wool 000 Tons 42.0 42.5 43.0Hair " 22.6 23.2 23.8Edible Offal’s " 334 344 353Blood " 56.8 58.3 59.8Guts 000 No's 47,886 48,974 50,089Casings " 13,879 14,347 14,832Horns & Hooves 000 Tons 48.1 49.5 50.9Bones " 713.4 735.1 757.5Fats " 228.1 234.8 241.7Dung " 1,008 1,039 1,071Urine " 311 320 329Head & Trotters " 208.2 214.0 220.1Ducks, Drakes & Ducklings Million No’s 0.6 0.6 0.5Source: Ministry of National Food Security & Research1 ; The figures for livestock product for the indicated years were calculated by applying production parameters tothe projected population of respective yearsConsequent of 18 th Constitutional Amendment, thesubjects of animal health and production have beendelegated to the provinces. The Ministry ofNational Food Security and Research created a“Livestock Wing”, delegating the following roles:1. Co-ordination of foreign aid and technicalassistance in the livestock sector and relatedfields.2. Animal Quarantine Departments/ stations/facilities located anywhere in Pakistan.3. Veterinary drugs, vaccines and animal feedadditives.a. Import and export.b. Procurement from abroad for federalrequirement and for interprovincialsupplies.4. Livestock, poultry and livestock products;a. Import and export.b. Laying down national grades.The population growth, increase in per capitaincome and the potential for export is fueling thedemand of livestock and livestock products. Therise in production cost has increased the retailer’sand consumer’s price index for milk, yogurt, meat,eggs, and other items. The overall livestockdevelopment strategy resolves to foster “privatesector-led development”, with the public sectorproviding an enabling environment through policyinterventions and playing a capacity building rolefor improved livestock husbandry practices. Theemphasis will be on improving per unit animalproductivity and moving from subsistence tomarket oriented and then to commercial livestockfarming in the country to meet the domesticdemand and surplus for export.The Livestock Wing with its redefined mandatecontinued regulatory measures that includedallowing import of high yielding animals, semenand embryos for crossbreeding. It also includedduty free import of veterinary dairy and livestockmachinery/equipment, allowing import of feedinputs, and vaccines at zero rates. In order toreduce input costs in livestock/poultry feedproduction, certain feed ingredients, growthpromoters and vitamin premixes have been zerorated. Sales tax exemption has been allowed to31

Pakistan Economic Survey 2011-12uncooked poultry meat; processed milk, yogurt,cheese and flavoured milk, butter and cream inorder to encourage establishment of a value addedindustry in the country. More than 9500 exoticanimals, 318,768 semen doses and 4300 embryosof high yielding animals have been imported in thecountry from July 2010 to December 2012. Newslaughterhouses, milk processing and meatprocessing units have been established in theprivate sector. The export of the meat (beef,mutton and camel meat) has increased from US$108.54 million (2010-11) to US $123.61 millionin 2011-12, showing an increase of 13.9 percent.The future plan for the livestock sector is topersuade the policies to achieve 5 percent or moregrowth in meat and 8 percent or more in milkproduction through shifting from subsistencelivestock farming to market-oriented andcommercial farming. The focus will be toencourage and promote high yielding animal’sproduction and their crossbreeding throughArtificial insemination services. The future roadmap has clear mile stones in the shape of enteringinto global Halal Food Trade Market, controllingtrans-boundary animal diseases of trade andeconomic importance, as well as a socio-economicuplifting mechanism of poor, small-scale livestockfarmers.PoultryThe poultry sector is one of the most organized andvibrant segments of the agriculture industry ofPakistan. This sector generates direct and indirectemployment and income for about 1.5 millionpeople. Its contribution in agriculture and livestockis 6.4 percent and 11.5 percent, respectively.Poultry meat contributes 25.8 percent of the totalmeat production in the country. The currentinvestment in the poultry industry is about Rs200.00 billion. The poultry sector has shown arobust growth of 8 to 10 percent annually, whichreflects its inherent potential. The production ofcommercial and rural poultry and poultry productsfor the last three years is given in Table 2.21.Table 2.21: Domestic/Rural & Commercial PoultryType Units 2009-10 1 2010-11 1 2011-12 1Domestic Poultry Million No’s 77.35 78.51 79.68Cocks " 9.58 9.84 10.10Hens " 36.76 37.42 38.09Chicken " 31.02 31.25 31.48Eggs 2 " 3676.00 3742.00 3809.00Meat 000 Tons 102.40 104.43 106.51Duck, Drake & Duckling Million No's 0.59 0.56 0.54Eggs 2 " 26.28 25.18 24.13Meat 000 Tons 0.80 0.77 0.73Commercial PoultryLayers Million No's 30.41 32.54 44.10Broilers " 493.40 542.74 34.82Breeding Stock " 8.39 8.81 597.02Day Old Chicks " 515.36 566.89 9.25Eggs 2 Million No’s 8137.00 8690.00 623.58Meat 000 Tons 603.47 662.18 9281.00Total PoultryDay Old Chicks Million No’s 546.00 598.00 655.00Poultry Birds " 610.00 663.00 721.00Eggs " 11839.00 12857.00 13114.00Poultry Meat 000 Tons 707.00 767.00 834.00Source: Ministry of National Food Security & Research1 ; 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

AgriculturePoultry Development policy envisions sustainablesupply of wholesome poultry meat, eggs and othervalue added products to the local and internationalmarkets at competitive prices. It is aimed atfacilitating and supporting private sector-leddevelopment for sustainable poultry production.The strategy revolves around improving theregulatory framework; disease control and geneticimprovement in rural poultry; high tech poultryproduction under environmentally controlledhousing; processing and value addition; improvingbio-security; need based research and developmentand farmers training and education. It envisagespoultry sectors growth of 15-20 percent annually.MEGA DEVELOPMENT PROJECTSThe Ministry of Livestock and DairyDevelopment, before devolution concluded thefollowing (7) projects in the Livestock sector at anestimated cost of Rs. 8.8 billion. The achievementsof these projects are summarized below:Strengthening of Livestock Services Project(SLSP)Field studies on (5) models of service deliverywere conducted (CAHEW, WLEW, DFCM,Wool Producers Association, PRSM);Introduced PPR vaccine production in thecountry; Distribution of 2200 Motor-Cycles to fieldstaff of provincial livestock departments onhire purchase basis to strengthen and improvethe veterinary health coverage; and Established the National EpidemiologyNetwork for Livestock Disease Surveillanceand Reporting.Livestock Production and Development forMeat ProductionCompleted more than 13,000 feed-lot fatteningoperations (beef and mutton) in which morethan 163,000 beef animals and 200,000 muttonanimals have been produced.Milk Collection Processing and DairyProduction and Development Programme Formed 207 Milk Producer Groups (MPG) inall the four provinces, Azad Jammu &Kashmir and Gilgit Baltistan Installed 150 milk cooling tanks Provided 63.3 tons of fodder seeds and 663tons of animal ration/feed on cost basis to themembers of MPGs Registered 1,004 Red Sindhi, Sahiwal andNiliRavi livestock breeders for production ofquality breeding animals.Prime Minister’s Special Initiative for Livestock(PMSIL) A total of 290 veterinary clinics have beenestablished providing veterinary services at 70percent reduced cost to rural farmers at theirdoor steps i.e. 100 percent achievement Quality medicines/vaccines are available torural farmer at 30 percent reduced cost ascompared to market prices A total of 3,150 community organizations(COs) have been formed and 3000 ruralcommunity persons have been trained byimparting one month training in basicveterinary services through the governmentlivestock institutes A total of 4,265 rural livestock female farmershave been trained in better animal husbandrypractices to enhance their income throughenhanced milk productivityNational Programme for the Control andprevention of Avian InfluenzaEstablished 40 surveillance and 66 rapidresponse units (RRUs)Processed 0.4 million samples of blood, tissuesand swabs for screening against AvianInfluenzaEstablishment of the Bio security Laboratory-3is under processDisbursed Rs. 23.5 million as compensation toAvian Influenza affected farmersPakistan is maintaining Avian Influenza (birdflu) free status since June 200833

Pakistan Economic Survey 2011-12Improving Reproductive Efficiency of Cattleand Buffaloes in smallholder productionsystems Civil work of Embryo Transfer TechnologyCentre at Okara has been completed For strengthening and improvement ofProvincial Semen Production Units (SPU) 6Semen Quality Analyzer (SQA-VB with TestKit) were given to SPU’s in Korangi, Quetta,Khairimurat, Qadirabad, Harichand, andKaraniwalaEmbryo Transfer Technology Centre hasproduced 502,996 semen doses and 2,031embryos from elite exotic animals for crossbreeding purposes and carried out 178,318artificial inseminations, embryo transfer hasbeen carried out in 168 animals Provided training to artificial inseminationtechniciansUp gradation and Establishment of AnimalQuarantine Stations in PakistanA total of (5) Animal Quarantine Stations(AQS) have been up-graded in order tofacilitate import/export of livestock and itsproducts A total of 2 new AQS are being established atKhunjrab and Khokhrapar.V. Fisheriesi) Fishery plays an important role in Pakistan’seconomy and is considered to be a source oflivelihood for coastal inhabitants. Apart frommarine fisheries, inland fisheries (based inrivers, lakes, ponds, dams) are also a veryimportant activity throughout the country.Fisheries share in GDP is 0.3 percent.Although the contribution is very small it addssubstantially to the national income via exportearnings. A total of 84,498 million tons of fishand fish preparation were exported during theJuly-March, 2011-12. Pakistan’s major buyersare China, Thailand, Malaysia, Middle East,Sri Lanka and Japan. Pakistan earned US$222.8 million from these exports.ii) During July-March, 2011-12 the total marineand inland fish production was estimated at951,324 million tons, out of which 681,700million tons was from marine production andthe remaining came from inland waters. InJuly-March, 2010-11 the production wasestimated to be 937,082 million tons, where672,652 m. tons was marine and the remainingwas produced by inland fishery sector.iii) The government is taking a number of steps toimprove the fisheries sector. A number ofinitiatives have been taken by the federal andprovincial fisheries departments which alsoinclude strengthening of extension services,introduction of new fishing methodologies,development of value added products,enhancement of per capita consumption offish, and the upgrading of socio-economicconditions of the fishermen’s community.iv) Modernized Fishing Fleets: A project for theimprovement of fish holds of local fishingboats was approved and four local fishingboats have been modified by the federalgovernment (Marine Fisheries Department) asdemonstration boats at a total cost of Rs. 5.0million with the aim of assisting boat ownersto modify their boats on similar lines. As aresult of introducing modular boats by theMFD, boat owners have started modifying boatusing their own expenses. So far, 502 boatshave been modified. This shows success in thefishermen community because they haveaccepted and are using the technology of liningof fish holds with fiberglass coatings.(v) Resumption of Export to the EU CountriesThe European Union (EU) has expressedsatisfaction with most of the steps taken by thegovernment of Pakistan. However, with regardto the Hazard Analysis Critical Control Point(HACCP) of processing plants, the EU hasnow asked for an inspection report. MFD, inconsultation 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 theEuropean Union was suspended in April 2007.The Government has made adequate andeffective efforts to resume of export to the EU.34

AgricultureIn this connection, two laboratories of theMarine Fisheries Department achievedaccreditation under ISO/IEC-17025international standards and now the test reportof these laboratories are recognized all over theworld. Thus, the requirement of EU and SPShas been fulfilled. As mentioned above, duringthe tenure of the present government, morethan 500 fishing boats have been upgraded; thegovernment of Sindh contributed 75 percent,while 25 percent contribution was made by theowner to upgrade present standards.Landing sites and auction halls at Karachi FishHarbour have also been upgraded; processingplants have rectified the deficiencies. Theknowledge and skills of MFD inspectors underofficial watch have been enhanced. Traininghas also been provided to the fishermen onhygienic preservation and handling of a catchonce it is onboard the fishing vessels.v) Conservation and management of marineresourcesMFD in collaboration with fisheriesdepartment of the government of Sindh,Fisherman’s Cooperative Society Ltd, KarachiFisheries Harbour Authority and otherstakeholders undertook research/experimentalsurveys to test different sizes of the cod-end oftrawl-net being used by local fishermen. Theoptimal mesh size, on the basis of results of thesurveys, will be selected and notified forimplementation by the fishermen to ensurejuveniles and/or undersized fish cannot escapefrom the trawl-net.ConclusionsThe agriculture sector continues to play a crucialrole in Pakistan’s economy. Currently itcontributes 21 percent to GDP, and providesemployment to 45 percent of the country’s labourforce, while 60 percent of the rural populationderives its livelihoods from this sector. Despite thefloods of 2011, the sector recorded a growth of 3.1percent in 2011-12. The profitability of agriculturesector during 2011-12, remained high because thefarmers received good prices for rice, cotton andsugarcane, which allowed for greater financialresources passed on to the rural economy.Recognizing the vital role the sector plays inensuring food security, generating overalleconomic growth, reducing poverty and thetransforming towards industrialization, the presentgovernment is determined to support the sector bypromulgating policy that will continue to makeagriculture an efficient, productive and profitablesector of the economy.35

Annex 1Contingent LiabilitiesIntroductionContingent liabilities are possible obligation thatarises from past events and whose existence will beconfirmed only by the occurrence or nonoccurrenceof one or more uncertain future eventsnot wholly within the control of the government.Contingent liabilities should be examined in thesame manner as a proposal for a loan, taking intoaccount, inter alia, the credit-worthiness of theborrower, the amount and risks sought to becovered by a sovereign guarantee, the terms of theborrowing, justification and public purpose to beserved, probabilities that various commitments willbecome due and possible costs of such liabilities.Hence, such off balance sheet transactions cannotbe overlooked in order to gain a holistic view of acountry’s fiscal position and unveil the hiddenrisks associated with the obligations made by thegovernment outside the budget. Similarly, reporteddebt levels of a sovereign may be understatedowing to the non-inclusion of contingent liabilities,explicit or implicit, which may materialize infuture.Table 1 Guarantees Outstanding as of March 31,2012 (Rs. Billion)Outstanding Guarantees extended487to PSEs-Domestic Currency 256Memo:-Foreign Currency 231Foreign Currency (US$ Million) 2,544Source: Debt Policy Coordination OfficeIn the case of Pakistan, these include, for instance,explicit and implicit guarantees issued to PublicSector Enterprises (PSEs) and unfunded losses ofState Owned Entities. Total outstanding stock ofgovernment guarantees as of March 2012 stood atRs. 487 billion.The Fiscal Responsibility and Debt Limitation(FRDL) Act 2005 stipulates that the issuance ofguarantees, including those for Rupee lending,bonds, rates of return, output purchase agreementsand all other claims and commitments that may beprescribed from time to time as well as renewal ofexisting guarantees, should not exceed 2.0 percentof the estimated gross domestic product in anyfinancial year. As of March 2011, Government ofPakistan issued new guarantees aggregating to Rs.146.6 billion or 0.7 percent of GDP [as shown inTable 2].Table 2: Guarantees Issued DetailsFiscal YearIssuance As % of(Rs. Billion) GDP2007 140.7 1.62008 138.8 1.42009 276.3 2.22010 224.0 1.52011 62.4 0.32012* 146.6 0.7Source: Budget Wing & Debt Policy Coordination Office* : July - March 2012The outstanding contingent liabilities as of March31, 2011 stood at Rs.487 billion against the end-June 2011 position of Rs. 559 billion (Table 3).259

Pakistan Economic Survey 2011-12Table 3: Guarantees StockGuarantees 2010 2011 2012*Outstanding Guarantees (1+2) 603 559 4871- Domestic Currency (Rs. Billion) 329 301 2562- Foreign Currency (Rs. Billion) 274 258 231Foreign Currency (US$ Million) 3,246 2,999 2,544Source: Debt Policy Coordination Office* July-March 2012Guarantees issued against commodity operationsare not included in the stipulated limit of 2 percentof GDP as the loans are secured against theunderlying commodity and are essentially selfliquidating and thus should not create a long termliability for the government. The quantum of theseguarantees depends on the supply-demand gap ofvarious commodities, their price stabilizationobjectives, volume procured, and domestic andinternational prices. The guarantees were issuedagainst the commodity financing operationsundertaken by TCP, PASSCO, and provincialgovernments. As of April 2012, the outstandingstock of Rs. 303.9 billion against the end-June2011 position of Rs. 397.5 billion indicates aretirement of Rs. 93.6 billion on behalf ofcommodity financing operations.260

Chapter 1Growth and StabilizationIntroductionThe resilience of the economy of Pakistan has beentested several times by one crisis after another. Theeconomy has witnessed numerous domestic andexternal shocks from 2007 onwards. The sharp risein international oil and food prices, the internalsecurity hazards brought on by the campaignagainst extremism and the repeated naturaldisasters in the form of successive floods havebuffeted the macroeconomic strategy with shockafter shock. Domestically, two floods, the difficultsecurity situation and the energy crisis havecombined to drastically impact economic growth.The campaign against extremism with itsassociated destruction of physical infrastructure,the displacement of thousands of people from theaffected areas and the associated rise inexpenditure to support the moved people has alltaken their toll. The growth in our export marketshas slowed down compared to last year. GrossDomestic Product (GDP) growth has been stuck ata level, which is half of the level of Pakistan’slong-term trend potential of about 6.5 percent perannum and is lower than what would be requiredfor sustained increases in employment and incomeand a reduction in poverty.Amidst the critical challenges of the floods andheavy rains of 2010 and 2011, skyrocketing oilprices and global contraction, the government’sstrategy continued to focus on regainingmacroeconomic stability. There have been somesuccesses. Pakistan has been able to withstand thepressures and improve its performance in some keyareas such as the check on inflation, the increase inexports and revenue generation and maintenance ofcomfortable foreign exchange reserve levels. Thefocus on reforms and austerity through the controlof public expenditures despite the difficulties hascontinued.The economy is now showing signs of modestrecovery. The commodity producing sectors andespecially the agriculture sector are doing better.Some improvement is also witnessed in the LargeScale Manufacturing (LSM) sector. The Servicesector also gained from healthy trade activities andthe improvements in the commodity producingsectors. The smooth functioning of the supplychains is playing a key role in improving theeconomic situation and ensuring the availability ofessential items. Pakistan has the potential to growat 6 to 7 percent in the next couple of years.The GDP growth for 2011-12 was projected at 4.2percent on the back of 3.4 percent growth inAgriculture, 2 percent growth in LSM and 5percent in Services sectors. However, the torrentialrains in Sindh province during August 2011compelled the government to revise its GDPgrowth target to 3.6 percent from 4.2 percent onthe basis of 2.5 percent growth in Agriculture, 1.5percent in LSM, and 4.4 percent growth in servicessector.The revised growth targets have been met andmarginally exceeded. The economy has shownresilience. GDP growth for 2011-12 has beenestimated 3.7 percent based on nine month data ascompared to 3.0 percent (revised) in the previousfiscal year 2011. The Agriculture sector recorded agrowth of 3.13 percent against a target of 3.4percent and previous year’s growth rate of 2.38percent. The Large Scale Manufacturing sectorgrew by 1.78 percent as compared to the target of2.0 percent and against the growth of 1.15 percent1

Pakistan Economic Survey 2011-12in the last year. Although the Services sectorrecorded steady growth of 4.02 percent ascompared to 4.45 percent in 2010-11, this waslower than the target of 5.0 percent set for theoutgoing year. Figure-1.1 presents an overview ofGDP growth over the previous years.Fig-1.1 GDP Growth (%)10.09.08.07.06.05.04.03.02.01.00.02.03.14.77.59.05.86.83.71.73.1 3.03.72000-012001-022002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12The 3.7 percent growth based on the nine monthsdata 2011-12, up from 1.7 percent in 2008-09 and3.0 percent last year, indicates the potential growthtrajectory. The country has enormous potential togrow at much higher rates which is demonstratedby the achievement of the 3.7 percent growth thisyear despite the numerous internal and externalshocks that the economy has been forced towithstand.Some of Pakistan’s economic problems arestructural in nature. The objectives of sustaininghigh growth, low inflation, and external paymentviability can not be achieved without removingcertain structural barriers. To this end the majorstructural reforms of the government have includedtax legislation, trade reforms, further privatizationof State Owned Enterprises (SOEs), financialsector reforms, human resource development andsocial protection. The EU approval of duty waiveron textile items is being pursued aggressively,which would help in improving the exports andproviding support to the business environment. Inrecent times, Pakistan has also undergone politicaland constitutional changes. Civil societies andother organizations are now playing a more activeand independent role and this coupled withgovernment reforms are helping economic growth.Global DevelopmentsThe International Monetary Fund (IMF) haswarned that the euro zone debt crisis is escalatingand dragging down the entire world economy. Inthis scenario China has remained a bright spot. Itsgrowth rate, although down to a forecast of 8.2percent for this year compared to 9.2 percent lastyear, has remained relatively high. If China canmaintain its growth, it’s good for the world,providing support for commodities markets andgrowth in other countries.The IMF maintained its forecast of 2.1 percentgrowth for the US in the year 2012 and 2.4 percentfor the year 2013. For Japan the growth rateprojected for 2012 is 2.0 percent and for 2013 it is1.7 percent. Overall, economic activity inadvanced economies is likely to expand by 1.7percent on average in 2012 and 2013. Growth inemerging economies is projected at 5.7 percent in2012. The IMF expects growth in oil exportingcountries in the Middle East and North Africa toslow to 3.9 percent in 2012, from 4.9 percent in2011. Net oil importers in the Middle East andNorth Africa region are expected to record 2.6percent growth in 2012, after sluggish growth of1.4 percent in 2011. GDP growth across the GulfCooperation Council (GCC) countries is expectedto be moderate at a rate of 4 percent in 2012.Unfortunately, Europe is now caught in a viciouscycle of high debt and low growth. Highlyburdened by debt, most of the economies in theregion may not attain respectable levels of growthto improve their fiscal position. This will imply2

Growth and Stabilizationpotential debt servicing difficulties and limit theirabilities to unshackle their growth potential.Almost 17 percent of total exports of Pakistan areto the Euro zone as are a reasonable portion of itstotal import from this region. Problems in this areacan impact on Pakistan’s trade and hence itsoverall growth.Asia on the other hand, continues to move ahead,with China and India leading the growth. There issome hope that perhaps Asia has created somedistance from the OECD, and has therefore, notbeen dragged down so far. However, if the OECDcontinues its downward slide, the export-led Asiangiants could see their growth prospects diminish.Table-1.1: Comparative Real GDP Growth Rates (%)Region/Country 2009 2010 2011 2012 2013 (P)World GDP -0.5 5.3 3.9 3.5 4.1Euro Area -4.1 1.9 1.4 -0.3 0.9United States -2.6 3.0 1.7 2.1 2.4Japan -6.3 4.4 -0.7 2.0 1.7Germany -4.7 3.6 3.1 0.6 1.5Canada -2.5 3.2 2.5 2.1 2.2Developing Countries 2.7 7.5 6.2 5.7 6.0China 9.2 10.4 9.2 8.2 8.8Hong Kong SAR -2.7 6.8 5.4 2.6 4.2Korea 0.2 6.1 4.5 3.5 4.0Singapore 0.6 2.8 3.3 2.7 3.9Vietnam 5.3 6.8 5.9 5.6 6.3ASEANIndonesia 4.6 6.2 6.5 6.1 6.6Malaysia -1.6 7.2 5.1 4.4 4.7Thailand -2.3 7.8 0.1 5.5 7.5Philippines 1.1 7.6 3.7 4.2 4.7South AsiaIndia 6.6 10.6 7.2 6.9 7.3Bangladesh 5.9 6.4 6.1 5.9 6.4Sri Lanka 3.5 8.0 8.2 7.5 7.0Pakistan 1.7 3.1 3.0 3.7 4.3Middle EastSaudi Arabia 0.1 4.6 6.8 6.0 4.1Kuwait -5.2 3.4 8.2 6.6 1.8Iran 3.9 5.9 2.0 0.4 1.3Egypt 4.7 5.1 1.8 1.5 3.3AfricaAlgeria 2.4 3.3 2.5 3.1 3.4Morocco 4.9 3.7 4.3 3.7 4.3Tunisia 3.1 3.1 -0.8 2.2 3.5Nigeria 7.0 8.0 7.2 7.1 6.6Kenya 2.6 5.6 5.0 5.2 5.7South Africa -1.5 2.9 3.1 2.7 3.4Source: World Economic Outlook (IMF), April 2012.P: Projected.Pakistan’s economy is very closely linked to therest of the world due to its high external sectorexposure. Several countries of the euro zone areimportant trading partners of Pakistan. As such,any untoward development in these countries couldhave a substantial negative impact on the economyof Pakistan. A contraction or stagnation ineconomic activity in the global economy, canpotentially affect the level of our exports, ForeignDirect Investment (FDI) and home remittancesadversely. Similarly further increase in oil prices3

Pakistan Economic Survey 2011-122can create hurdles in the ongoing economicactivities of the country. The increase in oil pricesBox-1Rise in Oil Prices and Economic ActivitiesRising oil prices affect an economy through directandindirect channels. The direct channel works throughh thesupply side whereas theindirect channel works throughthe demand side. The variables ultimately affected by oilprice hikes include consumption, investment, exchangerate, balance of payments, and unemployment. The firstnine months of the fiscalyear 2011-122 depict that oil billhas reached $11.14 billion indicating a rise of 38 percentover $8.01 billion for the same period of last year.Soaring oil prices are causing massivetrade imbalances;the trade deficit has reached to $16.1 billion which is $4.8billion higher than the correspondingperiod of previousperiod.is already seriously hampering economic activities(Box-1).120.00LSM Growth rate YOYOil Prices100.0040.0020.000.00In the firststage, rising oil prices make input expensivewhich effect producers’ price and lower the real profits offirms and investment for future projects. Decomposing the investment in differentsectors reveals further that the fallin investment was more in the manufacturing sectorcompared to construction, transportation and communicationsectors. Thus Large ScaleManufacturing (LSM) growth was more adversely impacted as shownin the Fig-1.2.Rs. Per LiterFig1.2: Impact of Oil Prices on LSMSector80.0060.00July-07Jan-08July-08Jan-09July-09Jan-10July-10Jan-11July-11Jan-12Mar-1220.0015.0010.005.0000.000-5.00-10. 00Growth (%)The increasing oil prices also crippled our economicgrowth due to the backward and forward linkages withagricultureand the services sector. Thus oil price shockshampered capacity utilization and lowered the availabilityof inputs thus adding to the capacity utilization issues. Inresponse, firms attempt to minimize the cost ofproductionthrough the minimization of the variablecostresulting inlarge layoffs.Another important aspect is the energymix for electricitygeneration-in Pakistan which is creating huge financialpressures and massive electricity shutdowns. Pakistan isgenerating almost 40 percent of electricity (Fig-1.3) fromthermal resources (imported input), which is the leastcost-effective option due to the ever increasing furnace oilprices.Fig-1.3: Electricity GenerationOthers 3%Gas 24%Hydel33 %Oil 40%Heavy reliance on imported oil has resulted in circular debt and electricity shortages, which iseroding our exportcompetitiveness and creating fiscal imbalances. So just the oil price hike by itself has been a major challenge forPakistan’s economic growth.Sectoral Analysis of GrowthIt is essential to look into the performance ofvarious components of Gross National Product(GNP) to understand what is happening to overallgrowth. The growthperformance of variouscomponents of GDP over the last five years ispresented in Table-1.2. importanceof various sectors andsub-These data highlights therelativeesectorss and the inter- relationshipbetween them.4

Growth and StabilizationTable 1.2: Growth Performance of Components of Gross National Product(% Growth at Constant Factor Costs of 1999-2000)Sectors/Sub-Sectors 2007-08 2008-09 2009-10 2010-11 R 2011-12 PCommodity Producing Sector 1.3 1.8 3.56 1.47 3.281. Agriculture 1.0 4.0 0.62 2.38 3.13-Major Crops -6.4 7.8 -2.28 -0.23 3.18-Minor Crops 10.9 -1.2 -7.72 2.68 -1.26-Livestock 4.2 3.1 4.28 3.97 4.04-Forestry 9.2 2.3 2.20 -0.40 0.95-Fishing -13.0 -3.0 1.47 1.94 1.782. Mining & Quarrying 4.4 -0.5 2.23 -1.28 4.383. Manufacturing 4.8 -3.6 5.46 3.06 3.56-Large Scale 4.0 -8.1 4.79 1.15 1.78-Small Scale 7.5 7.5 7.51 7.51 7.51-Slaughtering - - 4.33 4.38 4.464. Construction -5.5 -11.2 16.34 -7.09 6.465. Electricity & Gas Distribution -23.6 59.0 6.16 -7.25 -1.62Services Sector 6.0 1.7 2.63 4.45 4.026.Transport,Storage and Communication 3.8 3.6 1.89 0.87 1.257. Wholesale & Retail Trade 5.3 -1.4 4.49 3.53 3.588. Finance & Insurance 11.1 -7.6 -12.16 -1.41 6.539. Ownership of Dwellings 3.5 3.5 3.51 1.79 3.5110. Public Administration & Defence 1.2 3.6 2.52 14.17 2.6111. Social, Community & Public Services 9.8 8.9 7.83 6.90 6.7712. GDP (Constant Factor Cost) 3.7 1.7 3.07 3.04 3.67Source: Pakistan Bureau of StatisticsP : Provisional, R : Revised, - : Included in Small ScaleCommodity Producing SectorThe commodity producing sector (CPS) comprisesof agriculture and industry. It is the most importantsector of the economy, with relatively strongerforward and backward linkages for economicdevelopment and prosperity of the country. Itaccounted for 46.5 percent of GDP during theoutgoing fiscal year. This is a decline from 49.1percent of GDP in 2001-02, indicating that theshare of the non-commodity producing sector hasincreased. The commodity producing sector hasperformed much better in outgoing fiscal yearcompared to last year; its growth rate this year was3.28 percent against only 1.47 percent in last year.The recovery in both agriculture and industrialsector, though moderate, has helped to achieve thislevel. However, the growth of the commodityproducing sector remained far below its potentialdue to largely unforeseen climatic factors.Agriculture SectorAgriculture is a key sector of the economy. Itprovides food items and raw materials forindustrial units and accounts for 21 percent ofGDP, 45 percent of employment and 60 percent ofexports. In the inevitable process of structuraltransformation its share shrank to 21.1 percent infiscal year 2011-12 compared to 24.1 percent tenyears earlier in 2001-02. Despite its decliningshare, it is the single largest sector of Pakistan’seconomy. Moreover, an overwhelming majority ofthe population depends directly or indirectly onincome generated by this sector. The agriculturesector has strong backward and forward linkages.As a result its growth has a larger impact on theoverall economic performance. The performanceof the agriculture sector remained weak due torecent catastrophic floods.However, the government’s supportive polices inthis sector resulted in a growth of 3.13 percent5

Pakistan Economic Survey 2011-12against the growth of 2.38 percent last year and0.62 percent in fiscal year 2009-10. The improvedperformance is mainly attributed to a sharp pick-upin the production of rice; cotton, and sugarcane.Livestock also registered a significant growth. Theagriculture sector consists of various sub-sectorswhich include crops, livestock, fisheries andforestry. The crop sub-sector is further divided intomajor crops, namely, wheat, cotton, rice,sugarcane, maize and gram and minor cropsnamely, pulses, potatoes, onions, chilies and garlicetc.Major Crops: Major crops account for 31.87 ofagricultural value added and registered anaccelerating growth of 3.18 percent compared to anegative growth of 0.23 percent last year and -2.28percent in fiscal year 2009-10. The major cropsincluding cotton, sugarcane and rice witnessedgrowth in production of 18.6 percent, 4.9 percentand 27.7 percent respectively. However, wheatregistered a negative growth of -6.7 percent. Themain reason for the negative growth of wheat is the2.6 percent decline in area under cultivation. Inlower Sindh, in particular, sowing was delayedmainly because of late receding rain water whichresulted in a decline in both the acreage as well asthe yields. Moreover, in Punjab also the extendedfog season delayed the planting of seed beyond theoptimal period. The other major crops bajra, jowar,maize, sesamim, gram, barley, rapeseed andmustard and tobacco showed mixed trends buttheir share in the overall sector is small.Minor Crops: Minor crops contributed 10.11percent to value addition in overall agriculture.Production in this sub-sector declined by -1.26percent. This negative growth is far below the 2.68percent positive growth last year. The main reasonfor this negative growth of minor crops is theheavy 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 andliving standards as well as changing dietarypatterns across regions have brought a paradigmstructural shift. This shift is visible in Pakistanalso. The share of livestock in agriculture hasincreased to 55 percent. Livestock includes cattle,buffalos, sheep, goat, camel, horses, asses, mulesand poultry and their products. The demand forlivestock has grown at a phenomenal pace. Theincrease in prices has provided incentive forgreater production and spurred growth. Theimportance of this sector may be recognized by thefact that the majority of people living in rural areasdepend directly or indirectly on the livestock anddairy sector. This sub-sector is highly labourintensive. It has also emerged as a major source ofincome for the small farmers as well as thelandless rural poor.Livestock has witnessed a marginally highergrowth of 4.04 percent against the growth of 3.97percent last year. The production of milk, poultryproducts and other livestock items has increased atthe rate of 3.3 percent, 7.1 percent and 2.24 percentrespectively.Fisheries: The fisheries sector witnessed a growthof 1.78 percent against the growth of 1.94 percentlast year. Components of fisheries such as marinefishing and in-land fishing, contributed to anoverall increase in value addition in the fisheriessub-sector. The gross value addition of marine fishincreased by 1.35 percent and that of inland fish by1.96 percent.Forestry: The growth of the forestry sub-sector isrecorded at 0.95 percent as compared to thecontraction of -0.40 percent last year. Forests are akey component of our environment anddegradation of forests can pose severe socioeconomicchallenges for the coming generations.The main components of forestry, timber and firewood, grew at 0.90 percent and 0.46 percentrespectively.Manufacturing Sector: The manufacturing sectorcontributes much to the progress of our economy.The manufacturing sector has remained understress for the last several years, due to energyshortages, poor law and order situation. The heavyfloods also depressed the supply chain and affectedmarket demand. The share of the manufacturingsector in GDP was 17.7 percent in 2001-02. Thishas increased in 2011-12 to 18.6 percent of GDP.The manufacturing sector has been hard hit byinternational and domestic factors, which causedthe slowing down of its output. The growth of the6

Growth and Stabilizationmanufacturing sector was 3.56 percent comparedto 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 growthof last year at 7.51 percent and slaughtering growthis estimated at 4.46 percent against 4.38 percentlast year. Large Scale Manufacturing (LSM) hasalso witnessed a slight improvement. It has showna growth of 1.78 percent against the growth of 1.15percent last year. The major LSM industries whichregistered notable growth include; refrigerators7.56 percent, sugar 27.09 percent, beverages 10.60percent, liquid/syrup 15.93 percent, injection 6.53percent, soaps and detergents 8.15 percent, buses25.0 percent, electric bulbs 15.02 percent, electrictransformers 27.72 percent etc. On the whole 38major industries group recorded positive growth.The industries which reported negative growthinclude; cooking oil -1.61 percent, motor tyres -25.73 percent, T.V. sets -22.19 percent anddeepfreezers -49.47 percent etc.Construction Sector: The construction sector hasshown 6.46 percent growth as compared tonegative growth of -7.09 percent in last year. Theincrease in growth is due to rapid execution ofwork on the rehabilitation of the flood affectedareas, increased investment in small scaleconstruction and rapid implementation of PSDPschemes which are near completion.Mining and Quarrying: Extraction of mineralsand ores through efficient mining and quarryingprovides convenient and economical access to rawmaterials and a competitive edge to the country.The mining and quarrying sector recorded positivegrowth of 4.38 percent during the year 2011-12against the negative growth of -1.28 percent lastyear. The contribution of this sector in GDP hasexpanded remarkably and now accounts for 9.45percent of the industrial value addition. The outputof chromite, bauxite, gypsum, chalk and fluorideincreased by 591.54 percent, 82.15 percent, 24.43percent, 82.18 percent and 111.28 percentrespectively. This growth was also made possiblein some part due to the increase in natural gasproduction. The extraction of bentonite, however,registered substantial decline of -47.82 percent.Much of the country’s mining reserves exist inremote areas. Infrastructure improvements arenecessary to sustain and achieve higher growthrates in future. Improvement in the securitysituation in the country would also lead to greaterproduction.Services Sector:The importance of the services sector has beenrecognized all over the world. This sector hasemerged as the main driver of economic growth.The services sector also plays a vital role insustaining economic activities in Pakistan. Theeconomy has gone through a major transformationin its economic structure. The share of the servicessector has increased to 53.5 percent in 2011-12. Indeveloped countries the share of services sector inGDP is around 75 percent. This share is 65 percentin Singapore, 52 percent in India and 42 percent inIndonesia.The services sector consists of the following subsectors:Transport, Storage and Communication;Wholesale and Retail Trade; Finance andInsurance; Ownership of Dwellings; PublicAdministration and Defense; and Social Services.The Services sector has registered a growth rate of4.02 percent in 2011-12. This performance isdominated by Finance and Insurance at 6.53percent, Social and Community Services 6.77percent and Wholesale and Retail Trade 3.58percent. The contribution of transport, storage andcommunication is estimated at 1.25 percent. Therecovery in agriculture and industry have resulted apositive impact on the performance of the wholesale and retail trade. Our services sector has a greatpotential to grow at a rapid pace. In order todevelop the services sector, Pakistan hasrecognized the needs to liberalize operating rightsand has separated regulators from operators.Finance and Insurance Sector: The finance andinsurance sector comprises the State Bank ofPakistan; all scheduled banks (domestic andforeign), Development Financial Institutions(DFIs), all insurance (life and general) companies,Modaraba/Leasing companies, Money Changersand stock exchange brokers. The financial subsectorconsists of all resident corporationsprincipally engaged in financial intermediations or7

Pakistan Economic Survey 2011-12in auxiliary financial activities related to financialintermediation. Pakistan’s financial sector isintegrated with the world economy and this isreflected in its performance. Finance and Insurancesector recorded positive growth of 6.53 percent in2011-12 as against contraction of -1.41 percent lastyear.Transport, Storage and Communication: Therole of Transport, Storage and Communication(TS&C) sector is very important in boosting theeconomic activities of the country. The currentglobal economic crisis and the level of integrationof these sub-sectors in the globalized economyincluding the presence of multi national enterprises(MNEs) in the markets of all countries of the worldputs a greater need for major investments inphysical and qualitative terms to meet expecteddemand. Information and CommunicationTechnologies (ICTs) are perhaps the most criticaltool for a dynamic and flexible services sector. TheTS&C sub-sector grew at 1.25 percent ascompared to 0.87 percent last year. WaterTransport has declined by -3.14 percent during2011-12, and Air Transport by a massive -27.93percent. Sub-sectors that showed a positive growthare; pipeline transport 34.64 percent, road transport2.88 percent, storage 2.10 percent andcommunication 0.93 percent.Wholesale and Retail Trade Sector: Thewholesale and retail trade sector is based on themargins taken by traders on the transaction ofcommodities traded. In 2011-12, this sector grewat 3.58 percent as compared to 3.53 percent in thelast year.Public Administration and Defense: PublicAdministration and Defense posted a growth of2.61 percent as compared to 14.17 percent lastTable 1.3: Sectoral Contribution to the GDP growth (% Points)year. The positive change in the wage componentof public sector employees, and an increase indefense and security related expenditures werelargely responsible for this growth.Ownership of Dwellings: Ownership ofDwellings has recorded a growth of 3.51 percentduring the year 2011-12 compared to 1.79 percentlast year. Social Services grew by 6.77 percentagainst the last year’s growth of 6.90 percent. Therise in the growth of Ownership of Dwelling andsocial services is mainly due to the fast track workon reconstruction and rehabilitation of floodaffected areas by government, NGOs and privatesectors.Contribution to Real GDP Growth(Production Approach)As in previous years the improvements ineconomic growth in the fiscal year 2011-12 camemainly from the services sector. The servicessector contributed 58.58 percent to overalleconomic growth; while the commodity producingsector (CPS) contributed only 41.4 percent. Theagriculture sector contributed 17.98 percent toeconomic growth compared to 23.43 percentcontribution by the industrial sector.The overall growth of 3.67 percent is sharedbetween the Commodity producing sector andServices sector. Within the commodity producingsector, agriculture contributed 0.66 percentagepoints to overall GDP growth, while industrycontributed 0.86 percentage points. The servicessector contributed the remaining 2.15 percentagepoints. The percentage share of agriculture,manufacturing and services in overall growth was17.98 percent, 23.43 percent and 58.58 percentrespectively. The sectoral contribution to the GDPgrowth is shown below in Table-1.3.Sector 2007-08 2008-09 2009-10 2010-11 2011-12Agriculture 0.23 0.86 0.13 0.50 0.66Industry 0.38 -0.03 1.57 0.18 0.86- Manufacturing 0.92 -0.69 0.10 0.57 0.66Services 3.08 0.89 1.37 2.36 2.15Real GDP (Fc) 3.68 1.72 3.07 3.04 3.67Source: Pakistan Bureau of Statistics8

Growth and StabilizationContribution to Real GDP Growth(Aggregate Demand Side Analysis)Consumption is the largest and relatively smoothcomponent of aggregate demand; the other twocomponents are investment and net exports. Inevery economy of the world consumption may bedisaggregated into the public and private sectorconsumption. Similarly investment may beclassified 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 likeother developing countries is a consumptionoriented society, having a high marginal propensityto consume. As a result private consumption is themajor sub-component of aggregate demand.Private consumption expenditure has increased to75 percent of GDP, whereas public consumptionexpenditures are 13 percent of GDP. Totalconsumption has reached 88.35 percent of GDP infiscal year 2011-12 compared to 83 percent in thelast fiscal year. Private consumption has increasedon the back of sustained growth in remittances.Furthermore, increase in rural income due tohigher production of crops and the sharp increasein commodity prices also supported theconsumption demand.The share of investment in GDP growth remainednegative. A number of factors may be responsiblefor this decline. These include: slow down inglobal business activities affecting foreign directinvestment, the decline in the external demand ofthe domestic production, serious energy shortages,unstable law and order situation and higher interestrates in the recent years. The contribution of netexports has also been negative. The balancebetween investment and consumption has beendisturbed from 2008-09 onwards due to domesticand external shocks. The composition of aggregatedemand highlights an alarming factor. Thecontribution of fixed investment to economicgrowth has become negative since 2008-09.Domestic demand continued to be the mostsignificant driving force for economic growth, withprivate consumption being the major driver forsustaining aggregate demand.Table-1.4: Composition of GDP GrowthPoint ContributionFlows 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12Private Consumption 0.8 3.4 -1.9 8.3 -1.5 2.3 8.5Public Consumption 3.9 -1.1 3.8 -4.2 5.1 0.4 0.9Total Consumption [C] 4.7 2.3 1.9 4.1 3.6 2.7 9.4Gross Fixed Investment 2.9 2.2 1.3 -2.7 -1.5 -1.3 -1.5Change in Stocks 0.1 0.1 0.0 0.1 0.1 0.1 0.1Total Investment [I] 2.9 2.3 1.3 -2.7 -1.4 -1.2 -1.4Exports (Goods & Serv.) [X] 1.8 0.4 -1.0 -0.6 2.2 2.4 -2.1Imports (Goods & Serv.) [M] 3.2 -0.7 0.6 -2.7 0.9 0.9 1.7Net Exports [X-M] -1.5 1.1 -1.6 2.2 1.3 1.5 -3.8Aggregate Demand (C+I+X) 9.4 5.0 2.2 0.9 3.5 3.0 5.9Domestic Demand (C+I) 7.6 4.6 3.2 1.4 2.2 1.5 8.0GDP MP 6.2 5.7 1.6 3.6 3.5 3.0 4.2Source: Pakistan Bureau of StatisticsComposition of Gross Domestic ProductThe economy of Pakistan, like all developingeconomies, is in the process of structuraltransformation during the last few decades. Therehas been a clear shift away from the CommodityProducing Sector (CPS) which accounted foralmost 62 percent of the GDP in 1969-70 to 46.46percent in 2011-12, a decline of 15.54 percent. Thedecline in the share of CPS is offset by the increasein the share of the services sector. A furtherbreakdown of the CPS shows that the share of theagriculture sector has been falling over time. In1969-70, agriculture accounted for 38.9 percent of9

Pakistan Economic Survey 2011-12GDP. This has gradually declined to 21.1 percentin 2011-12. The decline in the share of agriculturein GDP indicates that the non-agriculture sectorsgrew more quickly as compared to the agriculturesector.Scientific development and revolutionaryinnovations in the business climate haveencouraged the manufacturing and services sectorsmore than the agriculture sector. Structural, socialand cultural problems of the agriculture sector, thehigher risk and vulnerability to natural calamitieshave encouraged investors to switch to the nonagriculturesectors. The contribution of agricultureto overall GDP will continue to decline asdevelopment takes place. This is an inevitableconsequence of the process of growth anddevelopment.It has been observed during the last two decadesthat the major momentum to economic growth hascome from the services sector which has emergedas the main driver of the economic growth. Withinthe services sector, almost all the sub-sectors haveincreasing contributions. The share ofmanufacturing in GDP has remained stagnant, ataround 14.7 percent, for 30 years until 1999-2000.Its contribution to GDP has increased after 1999-2000 from 14.7 percent to 18.65 percent in2011-12.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 2011-12 PCommodity Producing Sector 49.3 48.7 47.1 47.6 46.7 46.461. Agriculture 25.9 22.4 21.8 21.2 20.9 21.1- Major Crops 9.6 8.4 7.3 6.9 6.5 6.71- Minor Crops 3.5 2.7 2.5 2.2 2.3 2.13- Livestock 11.7 10.6 11.3 11.4 11.5 11.61- Fishing 0.4 0.3 0.4 0.4 0.4 0.37- Forestry 0.7 0.4 0.3 0.3 0.2 0.24Industrial Sector 23.3 26.3 25.3 26.4 25.8 25.402. Mining & Quarrying 2.3 2.7 2.5 2.5 2.4 2.403. Manufacturing 14.7 18.3 18.2 18.6 18.7 18.65- Large Scale 9.5 12.9 12.1 12.3 12.1 11.90- Small Scale 5.2 4.1 4.7 4.9 5.1 6.744. Construction 2.5 2.1 2.1 2.6 2.5 2.155. Electricity & Gas Distribution 3.9 3.2 2.5 2.8 2.2 2.19Services Sector 50.7 51.3 52.9 52.4 53.3 53.546. Transport, Storage & Communication 11.3 10.4 10.2 10.1 10.0 14.127. Wholesale and Retail Trade 17.5 18.7 16.8 17.0 17.2 17.128. Finance and Insurance 3.7 4.0 5.7 4.9 4.5 4.799. Ownership of Dwellings 3.1 2.9 2.8 2.7 2.7 2.7210. Public Admn. & Defence 6.2 5.9 6.1 6.0 6.6 6.6211. Other Services 9.0 9.5 11.3 11.8 12.3 12.6512.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0 100.0Source: Economic Adviser’s Wing, Finance DivisionP: ProvisionalFig-1.4 presents the structural shift in theeconomy. During the last 10 years the sectoralshare of the agriculture sector has decreased from23 percent to 21.1 percent. The sectoral share ofthe manufacturing sector has increased from 18percent to 18.6 percent and the share of otherindustries has remained more or less stagnantaround 7 percent of the GDP over the last 10 years.The share of the services sector has increased from50.9 percent to 53.5 percent in the same period. Itmay be concluded that on the whole structuraltransformation has been slow during the decadeunder discussion. The share of the commodity10

Growth and Stabilizationproducing sector and the services sector has increased marginally.Fig-1.4: Contribution to GDPOtherIndustries7.3%2001-02Agriculture24.1%OtherIndustries6.8%2011-12Agriculture21.1%Services50.9%Manufacturing,17.7%Services53.5%Manufacturing 18.6%The government has approved the Framework ofEconomic Growth which lays out a wide-rangingstrategy for long term competitiveness and growth.The strategy focuses on governance, institutions,markets, connectivity and cities. The governmentis making efforts to accelerate theoperationalization of the growth strategy byinitiating specific policies and programs in keystrategic areas. The salient features of the newgrowth strategy are summarized in Box-2.Box-2New Growth Strategy New growth strategy is an approach to accelerate economic growth and sustain it. It identified a coherentapproach 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, andmarkets in attractive and well-connected locations. It focuses on the ‘software’ of economic growth (issuesof economic governance, institutions, incentives, human resources, etc.), and provides an environment inwhich the ‘hardware’ of growth (physical infrastructure) could be expanded and made more productive atevery level.Targeting Growth Around 68 percent of Pakistan’s population is in the youth category (under 30 years) with the size of theworkforce increasing by over 3 percent annually. To absorb this youth bulge productively, Pakistan's realGDP 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 5–6percent 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, developingcompetitive markets, urban management and connecting people and places are the way forward foraccelerating growth to above 7 percent. This is precisely what fast growing economies have done. This isalso the direction towards which Pakistan is now aimed to move.Thrust of Growth StrategyPakistan is facing several external and internal challenges. In order to achieve economic growth in this scenario thenew growth framework has the following characteristics. It does the following:Puts emphasis on productivity and efficiency beyond brick and mortar perspectiveSeeks to build a better government and markets, taking the view that good government complements11

Pakistan Economic Survey 2011-12efficient, 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 frequenttransactions. Focuses on urban development as a crucible for the nurturing of innovation entrepreneurship andproductivity Includes youth through community development and the provision of market opportunities whilecontinuing to impart skills and education.Source: Planning and Development DivisionPer Capita Income:Per capita income is defined here as GrossNational Product at market price in dollar termdivided by the country’s population. Per capitaincome is widely used and recognized as one of theimportant indicators of economic growth andgeneral well-being of a society. Per Capita Incomein dollar terms grew at a modest rate of 9.1percentin 2011-12 compared to 17.8 percent growth lastyear.The per capita income in dollar terms has increasedfrom $ 582 in 2002-03 to $ 1,372 in 2011-12. Themajor factors, which contributed in the rise of percapita income, include acceleration in real GDPgrowth, inflows of workers remittances and thestable exchange rate. Fig 1.5 shows theimprovement in per capita income during the lastten years.Fig-1.5: Per Capita Income ($)160014001200100080060040020005826637248239041015 9901068125813722002-032003-042004-052005-062006-072007-082008-092009-102010-112011-12Investment and SavingsInvestment plays an important role in the economicgrowth of a country. It raises the productivecapacity of the economy, affects the employmentlevels, and promotes technological progressthrough embodiment of new techniques.Investment spending is usually volatile, because itdepends on multiple factors. That is why it isresponsible for much of the fluctuations of theGDP. Investment has been hard hit by internationaland domestic factors during the last few years.Total investment has declined from 22.1 percent ofGDP in 2007-08 to 12.5 percent of GDP in 2011-12. Fixed investment has decreased to 10.9 percentof GDP in 2011-12 from 20.5 percent of GDP in2007-08. Private investment witnessed acontraction of 7.9 percent in 2011-12 compared to15.0 percent of GDP in 2007-08. Public investmentas a percent of GDP also declined to 3.0 percent in2011-12 against the 5.4 percent in 2007-08. Thecomposition of investment between the private andpublic sector has also changed during the periodunder review.The contribution of national savings to domesticinvestment is indirectly the mirror image of foreign12

Growth and Stabilizationsavings required to meet investment demand. Therequirement of foreign savings needed to financethe saving investment gap, reflects the currentaccount deficit in the balance of payments.National savings are 10.7 percent of GDP in 2011-12 compared to 13.6 percent in 2007-08. Domesticsavings have also declined from 11.5 percent ofGDP in 2007-08 to 8.9 percent of GDP in 2011-12.Net foreign resource inflows are financing thesaving investment gap. Theoretically, there are twoways of improving the savings investment gap.One is through increasing savings and the other isthrough decreasing investment. Pakistan needs togear up both savings and investment to enhance theemployment generating ability of the economy aswell as increase resource availability forinvestment.Public sector investment is crucial for catalyzingeconomic development. It creates spillover effectsfor private sector investment because private sectordevelopment is facilitated through public sectordevelopment spending particularly oninfrastructure. However, curtailment ofdevelopment expenditures limits private sectordevelopment. Public sector investment decreasedfrom 5.4 percent of GDP in 2007-08 to just 3.0percent in 2011-12. Saving and Investment aspercentage 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 2010-11 2011-12 PTotal Investment 16.6 19.1 22.1 22.5 22.1 18.2 15.4 13.1 12.5Changes in Stock 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6Gross Fixed15.0 17.5 20.5 20.9 20.5 16.6 13.8 11.5 10.9Investment-Public Investment 4.0 4.3 4.8 5.6 5.4 4.3 3.6 2.9 3.0-Private Investment 10.9 13.1 15.7 15.4 15.0 12.3 10.2 8.6 7.9Foreign Savings -1.3 1.6 3.9 5.1 8.5 5.7 2.2 -0.1 1.8National Savings 17.9 17.5 18.2 17.4 13.6 12.5 13.2 13.2 10.7Domestic Savings 15.7 15.4 16.3 15.6 11.5 9.8 9.3 13.3 8.9Source: EA Wing CalculationsP: ProvisionalForeign Direct InvestmentPakistan has a very fertile market for foreigninvestors given its very large consumer base of 180million people. People need food, energy and otheramenities to live and thrive. There is a greatpotential in the power and infrastructure sector andin natural resources. There seems to be huge scopefor investment in hydel and coal based powerprojects, alternative energy like wind power, andnatural gas transmission from foreign lands. Thecountry also needs infrastructure, world classeducation systems, exploration of its naturalresources and mechanization of industries. Foreigninvestors can exploit all such opportunities.Global foreign direct investment will be close to $800 billion during 2012; less than the $ 1 trillionachieved in 2007. The Euro crisis has dampenedenthusiasm. However, prospects from East Asiaare looking good. The United States is focusing oneconomic revival and its stock markets areresponding positively. China, India, Turkey, Braziland Indonesia also appear to be moving in apositive direction.Foreign Direct Investment (FDI) in Pakistan stoodat $ 666.7 million during July-April 2011-12 asagainst $ 1292.9 million last year. This is a declineof 48.4 percent. Oil & Gas Exploration remainedthe major sector for foreign investors. The share ofOil and Gas Exploration in total FDI during July-April 2012 stood at 69.8 percent.Pakistan will certainly attract foreign directinvestment with the resolution of the energyshortages and improvement in the law and ordersituation. The Board of Investment (BOI) under thePrime Minister’s Secretariat is making efforts toprovide an increasingly investment friendlyenvironment to investors. Efforts are being made tofacilitate foreign investors in Pakistan withimproved infrastructure and a better working13

Pakistan Economic Survey 2011-12environment so that the favorable business climatemay induce investors to initiate new investmentprojects. In particular, efforts are also going on toencourage the setting up of fruit processingindustries and more export processing zones in thecountry, so that sustained high economic growththrough exports may be achieved.Workers RemittancesRemittances from overseas Pakistanis have been animportant source of foreign exchange during thelast four years. These have not only providedcritical support to the balance of payments buthave helped in stimulating the domestic economyand helped to alleviate poverty. Significant flowsof remittances also helped Pakistan to partiallycounter the adverse effects of the oil price shocks,reduce the unemployment problem, and improveTable-1.7: Country Wise Workers’ Remittances US$ Millionthe standard of living of recipient households.The upsurge in the remittances may be attributed tothe government’s efforts for redirecting these flowsfrom informal to formal channels. Bilateralarrangements of commercial banks with foreignentities under Pakistan Remittance Initiatives (PRI)have helped facilitate movement in this direction.Furthermore, initiatives under the PRI such asintroduced Xpress money, Inter bank FundTransfer (IBFT) facility have also helped toimprove the remittance flow to Pakistan. Increasein remittances is also the result of the higherdemand of Pakistani workers. An overview ofcountry wise remittances is presented in Table 1.7.Country 06-07 07-08 08-09 09-10 10-11July-April*11-12USA 1459.64 1762.03 1735.87 1771.19 2068.87 1922.35U.K. 430.04 458.87 605.59 876.38 1199.67 1263.67Saudi Arabia 1023.56 1251.32 1559.56 1917.66 2670.07 2987.86U.A.E. 866.49 1090.30 1688.59 2038.52 2597.74 2386.26Other GCC Countries 757.33 983.39 1202.65 1237.86 1306.18 1226.61EU Countries 149.00 176.64 247.66 252.21 354.76 304.59Total 5493.65 6451.24 7811.43 8905.90 11200.97 10,876.99Source: SBP* : ProvisionalWorkers’ Remittances totaled $ 10,876.99 millionin July-April of 2011-12, as against $ 9,046.61million in the comparable period of last year. Thisis an increase of 20.23 percent. Remittances fromSaudi Arabia recorded massive growth of 43.25percent, followed by U.K. (27.52 percent), USA(14.57 percent), Other GCC countries (15.34percent) and UAE (14.10 percent) during theperiod under review. Monthly data on remittancessuggests that the monthly average for the period ofJuly-April 2011-12 stood at $ 1,087.70 millioncompared to $ 904.66 million during thecorresponding period last year.Prospects of Economic GrowthPakistan’s economy is resilient. This resiliencecomes from the potential as well as the growth inremittances and in the informal economy. Despitepositive developments including the easing ofinflation and reduction in fiscal deficit, Pakistan’seconomy remains in an unsteady state with slowgrowth, fragile macroeconomic fundamentals, andheightened vulnerability to balance of paymentsshock. Key problems affecting the economyinclude energy shortages and a host of structuralimpediments that have held back investment andgrowth. Necessary reforms are under process toremove the structural impediments.Reinitiating the privatization process will attractforeign investment for Pakistan. Foreigninvestment may also be attracted from the MiddleEast in agriculture and livestock sectors. Many ofthese countries need an assured supply of itemslike wheat, rice, milk, poultry meat, edible oil,flowers, fruit and vegetables and are ready toinvest on the basis of long-term supply contracts.14

Growth and StabilizationSavings are the mover of growth. Policies arebeing implemented which give savings incentivessuch as, tax breaks and compulsory savings inemployee provident funds. The government isaware that several long term savings instrumentsmay need to be developed to increase householdsavings. There is also need to expand the networkof National Savings Schemes, microfinanceinstitutions, banks and postal savings to far flungareas of the country. These have been and are thefocus of the government’s attention.Measures to stimulate growth will not yield fullpotential unless the structural weaknessesresponsible for the decline in the investment areaddressed. This decline is due largely to theunstable security situation. The shortage and highcost of energy, and the rising cost of doingbusiness in Pakistan are also contributing to thedecline. The government is making efforts toaddress these negative factors in order to improveinvestment climate in the country.Pakistan’s middle class has expanded and iscurrently estimated at 35 percent of the population.Having substantial size and composition primarilyurban and associated with professional white-collaroccupations the middle class may play a major rolein boosting economic growth. A vibrant middleclass not only generates demand of goods andservices but also the savings required to fundproductive investments. Moreover, the middleclass households provide a breeding ground for theprofessional and skilled labour force. Such humancapital is essential for growth in the long run. Withthe existence of such a vibrant middle class theconsumer goods industry can provide a strongimpetus to economic growth. Despite an overallslump in the economy, the consumer goodsindustry in Pakistan has registered a steady growthand has a great potential for further expansion.There is rising trend of youth entrepreneurship inPakistan. Many young entrepreneurs havesucceeded in establishing various businesses thatare booming. This has produced a strongdemonstration effect for others to follow. Theseyoung entrepreneurs have the potential to cause aparadigm shift in the economic fortunes ofPakistan. The opening up of trade with India isanother major initiative that can boost economicgrowth by providing greater market access as wellas easy and cheaper availability of raw materialsfor domestic producers.15

Chapter 3Manufacturing and Mining3.1 IntroductionThe manufacturing sector posted a growth rate of3.56 percent during the current fiscal year July-March 2011-12 compared to 2.96 percent of thesame period last year. A modest improvement wasseen in Large Scale Manufacturing (LSM) in July-March 2011-12 as the Quantum Index ofManufacturing (QIM) increased by 1.05 percentagainst the target of 2.0 percent compared togrowth of 0.98 percent during the same period lastyear. Due to revision of the base year as well asnew industries being added, it is not prudent tocompare the performance of the LSM sector on therevised base against the official growth target of2.0 percent (Box-1).Box-1The methodology to compute Quantum Index of Manufacturing (QIM) has been revised during the current fiscalyear. This includes rebasing, addition of new industries and revision of weights. Important Changes can be gaugedfrom the table below.Previous QIMRebased QIM• Base Year 1999-00 • Base Year 2005-06• Weight derived from the Census of • Weight derived from the Census ofManufacturing Industries (CMI) 2000-01Manufacturing Industries (CMI) 2005-06using UN International Standard IndustriesClassification (ISIC) Rev 3.1• Cumulative weight of 75.075 percent for 100items is being used for computation of QIMCMI 2000-01Sources No of Items Weights (%)MOIP /1 35 44.446OCAC /2 11 5.232BOS /3 54 25.397All 100 75.075/1 : Ministry of Industries and Production/2 : Oil Companies Advisory Committee/3 : Bureau of Statistics (Provincial)Comparison of Weights• Cumulative weight of 70.332 percent for 112items is being used for computation of QIMCMI 2005-06Sources No of Items Weights (%)MOIP /1 36 49.556OCAC /2 11 5.410BOS /3 65 15.366All 112 70.33237

Pakistan Economic Survey 2011-12The production data received from the OilCompanies Advisory Committee (OCAC)comprising of 11 items, Ministry of Industries andProduction 36 items and the Provincial Bureau ofStatistics 65 items respectively have contributed inLSM growth as -0.26 percent, 0.75 percent and0.55 percent.Fig 3.1: LSM Growth rates (Y-o-Y)15.010.05.00.0-5.0-10.0Jul-10Aug-10Sept-10Oct-10Growth rateNov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11June-11July-11Aug-11Sept-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Source: Pakistan Bureau of StatisticsThe growth rate in Large Scale Manufacturing(LSM) has recovered, largely due to goodperformance among the sub categories such asfood, beverages and tobacco, paper and board,textile, non-metallic mineral products,pharmaceutical and leather products compared tonegative growth seen during the second quarter ofthe current fiscal year. The Year to Year positivegrowth during the start of current fiscal year (July-Sep) can be partially attributed to export demandwhich has increased the production in the shortrun. Dismal performance was seen in the winterseason (Oct-Dec) which was due to persistent gasshortages. Moreover, agro-based industries whichwere recovering from the impact of the floods of2010, was again hit by another natural calamity inthe form of heavy rains in Sindh during August2011. The cotton crop is most vulnerable to floodsand almost all major sugarcane producing districtswere affected but losses to sugarcane were loweras the crop is relatively resilient to flooding. Thefloods also damaged industrial supply networksand rural demand and this coupled with severepower and natural gas shortages led to a number ofkey industries (textile, fertilizer, steel, glass etc)not operating at expected levels.LSM production began to revive in December2011 as the impact of flood began to subside. Aremarkable growth of 6.0 percent was witnessed inFeb-2012. This could also be attributed to thebeneficial effect of specific policies on large scaleindustry. Effective fiscal policy helped inrevitalizing the growth to some extent due toreduction in duties on beverages, automobiles,cement and air conditioners. This step wasnecessitated in view of the costly input prices andthe need to absorb the volatility in the productionof these industries. In addition, the growth in agrobasedindustries was based on increase in cotton(Punjab) and sugarcane production during thecurrent fiscal year. In March 2012, the year to yearperformance of the sector turned negative byregistering a decline of 3.7 percent owing toprolonged power and gas shortages.Group-wise PerformanceThe group-wise analysis (Table 3.1) indicatessome of the groups in the Large Scale38

Manufacturing and MiningManufacturing (LSM) experienced a positivegrowth during the first nine months (July-March)of the current fiscal year. The groups showingsubstantial increase include pharmaceutical (10.89percent), paper and board (8.38 percent), woodproduct (7.39 percent), food beverages and tobacco(6.53 percent), non-metallic mineral products (2.87percent), leather product (1.76 percent) and textile(0.77 percent).Fig 3.2: LSM growth rate (Annual Basis)12.0010.008.006.004.002.000.00-2.00-4.00-6.00-8.009.496.020.331.51 1.05-5.982006-07 2007-08 2008-09 2009-10 2010-11 2011-12(July-Mar)Source: Pakistan Bureau of StatisticsThe sectors showing a decline in production duringJuly-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 (5.68percent), chemicals (4.70 percent), automobiles(0.84 percent) and fertilizers (0.42 percent).The performance of LSM production for theremaining period of 2011-12 augurs well due to theimprovement in some other external factors suchas higher textile export, better marketing strategiesin smaller food processing industries and thegovernment’s supportive policies for tractors,wheat milling and pharmaceutical industry.The group wise growth and the contribution ofeach of the LSM for the period July-March 2010-11 versus July-March 2011-12 is presented inTable-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 2010-11S.No Groups Weights% ChangeJuly-March% Point ContributionJuly-March2010-11 2011-12 2010-11 2011-121 Textile 20.91 0.7 0.8 0.15 0.162 Food, Beverages & Tobacco 12.37 14.0 6.5 1.73 0.813 Coke & Petroleum Products 5.51 -4.6 -5.7 -0.25 -0.314 Pharmaceuticals 3.62 1.3 10.9 0.05 0.395 Chemicals 1.72 -2.5 -4.7 -0.04 -0.086 Automobiles 4.61 11.9 -0.8 0.55 -0.047 Iron & Steel Products 5.39 -10.3 -28.5 -0.56 -1.538 Fertilizers 4.44 -9.2 -0.4 -0.41 -0.029 Electronics 1.96 -14.4 -7.9 -0.28 -0.1510 Leather Products 0.86 17.4 1.8 0.15 0.0211 Paper & Board 2.31 -2.3 8.4 -0.05 0.1912 Engineering Products 0.40 -9.5 -10.2 -0.04 -0.0413 Rubber Products 0.26 9.2 -24.6 0.02 -0.0614 Non-Metallic Mineral Products 5.36 -9.6 2.9 -0.51 0.1515 Wood Products 0.59 6.9 7.4 0.04 0.04Source: Pakistan Bureau of Statistics39

Pakistan Economic Survey 2011-12Growth was mainly derived from consumer goods.Food and pharmaceuticals showed the strongestcontribution. In addition, intermediate goods suchas building materials, fertilizers and petroleumproducts posted a modest contribution in overallLSM performance.Some important items wise contribution in LargeScale Manufacturing growth witnessed ingenerating sets (143.88 percent), blankets (109.87percent), electric transformer (31.15 percent),juices, syrups and squashes (26.68 percent), heavymachinery & equipment (20.99 percent), sugarcanemachine (19.24 percent), electric tubes (17.86percent), kerosene oil (14.56 percent),liquids/syrups (14.09 percent), footwear (6.15percent) and LPG (3.44 percent).An Item wise review of production of selecteditems in Large Scale Manufacturing during July-March 2011-12 is presented in Table 3.2.Table-3.2 : Production of selected industrial items of Large Scale ManufacturingJuly-MarchS.No. Items Unit Weight% Change(Jul-Mar)2011-12% PointContribution(Jul-Mar) 2011-122010-11 2011-121 Deep Freezers (Nos.) 0.16 67380 35316 -47.59 -0.082 Jeep & Cars (Nos.) 2.80 101532 110430 8.76 0.253 Refrigerators (Nos.) 0.24 690236 737146 6.80 0.024 Upper Leather (000 sq.m.) 0.39 19324 18350 -5.04 -0.025 Cement (000 tones) 5.30 20814 21410 2.86 0.156 Liquids/Syrups (Milion Liters) 1.10 62.456 71.259 14.09 0.167 Phosphatic fertilizer (000 N tones) 0.40 385.313 359.344 -6.74 -0.038 Tablets (Milion Nos) 1.90 15848.369 17550.617 10.74 0.209 Cooking oil (000 tones) 2.20 228.649 228.834 0.08 0.0011 Nitrogenous fertilizer (000 N tones) 4.04 1667.918 1674.972 0.42 0.0212 Cotton Cloth (Million sq.m.) 7.20 764.480 769.600 0.67 0.0513 Vegetable Ghee (000 tones) 1.10 816.924 829.434 1.53 0.0214 Cotton Yarn (000 tones) 13.00 2200.41 2225.31 1.13 0.1515 Sugar (000 tones) 3.50 3892.141 4485.592 15.25 0.5316 Tea Blended (000 tones) 0.40 50.783 57.511 13.25 0.0517 Petroleum products (Milion Liters) 5.50 8427.809 8046.298 -4.53 -0.2518 Cigarettes (Billion Nos.) 2.10 47.458 45.674 -3.76 -0.0819 Coke (000 tones) 0.10 218.824 138.616 -36.65 -0.0420 Pig iron (000 tones) 1.58 326.675 195.81 -40.06 -0.63Source: Pakistan Bureau of StatisticsThe country has been faced with energy shortagesdue to which the utilization capacity remained low(Box-2). Nevertheless capacity in the localindustry and expected domestic demand based onhigh consumption trends remained the drivingforce in helping to stimulate revival. However,alternate energy sources in the long run could helpto further foster growth in the industrial sector.40

Manufacturing and MiningBox-2LSM Data Annual Installed & Utilized Capacity of 37 ItemsS.No Items Unit of Annual 2010-11 (July-June) 2010-11 (July-Jan)Measure Installed Capacity % Age Capacity % AgeCapacity UtilizationUtilization1 Sugar Th. Tones 6,800 4,169 61.31 2,266 74.982 Cigarettes Min Nos 96,187 65,403 68.00 34,521 61.523 Cotton Yarn Th. Kgs 3,240,400 3,939,480 90.71 1,734,630 91.774 Cotton Cloth Th. M2 12,644,000 9,008,980 71.25 5,320,100 72.135 Jute Hessian Tones 24,000 18,218 75.91 10,986 78.476 Jute Sacking Tones 120,000 62,630 52.19 34,261 48.947 Jute Others Tones 36,000 12,326 34.24 7,041 33.538-11 Paper & Paper TonesBoard900,000 434,740 48.30 288,309 54.9212 Chip Board Tones 95,000 27,464 28.91 16,844 30.4013 Sodah Ash Tones 500,000 378,048 75.61 214,135 73.4214 Caustic Soda Tones 230,650 172,031 74.59 99,665 74.0815-21 Fertilizer Tones 7,264,700 6,026,611 82.96 3,532,812 83.3722 Glass Sheet Th.M2 71,000 13,342 18.79 8,107 19.5723 Cement Th. Tons 41,484 28,716 69.22 16,421 67.8624 Bicycles Nos 700,000 343,205 49.03 135,307 33.1425 Coke Tones 970,000 301,701 31.10 106,647 18.8526 Pig Iron/H. Metal Tones 1,230,000 433,104 35.21 158,230 22.0527 Cast / Rolled Billet Tones 660,000 3,913 0.59 1,403 0.3628 Hr. Coils/ Plates Tones 792,000 358,597 45.28 117,235 25.3829 Cr. Coils Tones 210,000 87,946 41.88 16,628 13.5730 Glav. Products Tones 100,000 2,720 2.72 - 0.0031-33 Cars/LCVs/Jeeps Nos 280,000 153,997 55.00 94,076 57.6034-35 Trucks/Buses Nos 25,000 3,300 13.20 1,715 11.7636 Tractors Nos 75,000 70,855 94.47 14,896 34.0537 Motor Cycles Nos 2,935,525 1,638,457 55.81 962,665 56.22Source: Ministry of Industries and Production3.2 Textile IndustryThe textile industry plays a pivotal role inPakistan's economy. The contribution of the textileindustry in total exports is around 54 percent of thetotal export earnings of the country. It is a labourintensiveindustry and offers entry-level jobs forunskilled labour. Job creation, especially in theclothing sector, has been particularly strong forwomen, who previously had limited incomeopportunities outside the household or the informalsector. The textile and clothing industry accountsfor 46 percent of the total manufacturing andprovides employment to 38 percent of themanufacturing labour force. The availability ofbasic raw material for the textile industry i.e.cotton, has played a significant role in the growthof the industry because of which Pakistan has beenable to prove its strength in the world by sustainingits position and growth.Global OverviewThe international statistics report on export oftextile and clothing trade indicates some signs ofrecovery in this sector after the global financialmeltdown in 2008-09. The exports of textile andclothing trade has increased from US$ 524.0billion in 2009 to US$ 602.2 billion in 2010; anincrease of 14.7 percent. The export of Pakistantextile and clothing trade has also shown positivesigns, increasing from US$ 9.9 billion in 2009 toUS$ 11.8 billion in 2010, an increase of about 20percent.In 2010 China became the major exporter oftextiles, pushing the European Union into second41

Pakistan Economic Survey 2011-12place. India recorded a 40 percent increase in itsexports of textiles in 2010 to become the thirdlargest exporting nation, just ahead of the UnitedStates. China’s share in world exports of clothingincreased to 37 percent in 2010, rising from 18.3percent in 2000, while its share in the country’stotal exports declined to 8.2 percent, from 14.5percent in 2000. Among the major exporters ofclothing, India registered a decline of 3.1 percent.Table 3.3: Export of Textile and Clothing(US $ Billions)2000 2004 2005 2006 2007 2008 2009 2010World Textile 157.3 195.5 202.7 220.4 240.4 250.2 209.9 250.7World Clothing 197.7 260.6 276.8 309.1 345.8 361.9 315.1 351.5Total:- 355.0 456.1 479.5 529.5 586.2 612.1 524.0 602.2Pakistan Textile 4.5 6.1 7.1 7.5 7.4 7.2 6.5 7.8Pakistan Clothing 2.1 3.0 3.6 3.9 3.9 3.9 3.4 3.9Total 6.7 9.1 10.7 11.4 11.2 11.1 9.9 11.8% Age of World Trade 1.88 2.01 2.23 2.15 1.91 1.81 1.88 2.00Source: Ministry of TextileDomestic OverviewDomestically Pakistan is facing problems ofshortage of electricity, gas and law and ordersituation. The unscheduled/scheduled loadshedding along with increasing rates of gas andelectricity have obstructed the viability of thetextile industry as exporters are unable to meettheir commitments. Besides this, high interest ratesof bank financing have also hindered newinvestments in the textile industry and layoffs andclosures have become common in the industry.Performance of Textile IndustryThe textile industry of Pakistan has the potential toperform better both in production as well as inexport by virtue of its inherent competitiveness onaccount of its conventional products. However, tosustain its position and increase its share and tomove into high value added products, largeinvestments in machinery equipment and newtechnology are essential. The training of workers,improvement in labour productivity, research anddevelopment, product diversification and brandingare the immediate areas to focus on. The exportperformance of this industry is reported in Table3.4.Table 3.4: Export of Pakistan Textiles(US$ Millions)2006-07 2007-08 2008-09 2009-10 2010-112011-12(Jul-Mar)Cotton & Cotton Textiles 10390 10071 9308 9754 13104 8513Synthetic textiles 430 490 319 446 670 395Wool & Woolen Textiles 233 216 145 137 132 95Total Textiles 11053 10777 9772 10337 13906 9063Total Exports 17011 19224 17782 19290 24827 16913Textile as %age 65% 56% 55% 54% 56% 54%Source: Ministry of Textile3.2.1 Ancillary Textile IndustryThe ancillary textile industry includes cottonspinning, cotton cloth, cotton yarn, cotton fabric,fabric processing, home textiles, towels, hosieryand knitwear and readymade garments. Thesecomponents are being produced both in the largescaleorganized sector as well as in theunorganized cottage/small and medium units. Theperformance of these various ancillary textileindustries is discussed below.42

(i) Cotton Spinning SectorThe spinning sector is the most important segmentin the hierarchy of textile production. At present,as per the record of Textile CommissionerOrganization (TCO), it is comprised of 521 textileunits (50 composite units and 471 spinning units)with 9.99 million spindles and 116 thousand rotorsin operation with capacity utilization of 89 percentand 60 percent respectively, during July –March,2011-12.Manufacturing and MiningClothing SectorThe pattern of cloth production is different fromthat of the spinning sector. Usually production ofcloth in the mill sector is reported and the nonmillssector is not reported. For the non-millssector, therefore, estimated numbers are taken asproxy. The production of cotton cloth hasincreased substantially. This sector served as themain strength for the down stream sectors such asbed wear and made-ups and garments. Thefollowing table presents the production and exportperformance of the cloth sector.Table 3.5: Production and Exports of Clothing sectorProduction(M. Sq. Mtrs.)July-Mar2010-2011July-Mar2011-2012% ageChangeMill Sector 764.480 769.600 0.67Non Mill Sector 5971.650 5975.850 0.07Total 6736.130 6745.450 0.14Cloth ExportsQuantity (M.Sq Mtr.) 1294.863 1412.963 9.12Value (M.US$) 1716.300 1709.961 -0.369Source: Ministry of Textile(ii) Textile Made-up SectorThis is the most dynamic segment of the textileindustry. The major product groups are towels,tents and canvas, cotton bags, bed-wear, hosieryand knitwear, and readymade garments includingfashion apparels. Export performance of the madeupsector is presented in Table 3.6.Table 3.6: Exports of Made-Ups2011-2012(July – Mar)2010-2011(July-Mar)%ChangeHosiery KnitwearQuantity (M.Doz) 75.383 100.451 -24.96Value (M.US$) 1216.120 1276.722 -4.75Readymade GarmentsQuantity (M.Doz) 19.741 25.455 -22.45Value (M.US$) 1216.120 1276.722 -4.75TowelsQuantity (M.Doz) 101.508 149.224 -31.98Value (M.US$) 488.273 580.448 -15.88Tents/CanvasQuantity (M.Doz) 18.139 9.221 96.71Value (M.US$) 67.406 29.260 130.37Bed WearsQuantity (M.Doz) 188.385 243.051 -22.49Value (M.US$) 1356.656 1556.984 -12.87Other Made upValue (M.US$) 418.802 508.768 -17.68Source: Ministry of Textile43

Pakistan Economic Survey 2011-12a) Hosiery IndustryThere are about 12,000 knitting machines all overthe country. There is greater reliance on thisindustry due to the substantial value addition inknitwear. This sector has tremendous exportpotential also. However the sector remained underpressure from its competitors.Table 3.7: Export of Knitwear(July – Mar)2011-2012(July – Mar)2010-2011%ChangeQuantity(000 Doz)75.383 100.451 -24.96Value(M.US$)1534.662 1726.139 -11.09Source: Ministry of Textileb) Readymade Garment IndustryThe garment industry provides highest valueaddition in the textile sector. The industryconsisted of small, medium and large scale unitsmost of them having 50 machines and below.Large units are now coming up in the organizedsector of the industry.During July-March 2011-12, readymade garmentsworth $ 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 quantityterms the decline in the exports of readymadegarments was 22.5 percent.c) Towel IndustryDuring July-March 2011-12, exports in this sectorstood at $ 488 million as against $ 580 million inthe comparable period of last year; showing adecrease of 15.9 percent. Quantity exporteddeclined by 31.9 percent.d) CanvasThis is the highest raw cotton consuming sector.The production capacity is more than 100 millionsq. meters. This value-added sector also has greatpotential for export. Nearly 60 percent of itsproduction is exported while 40 percent isconsumed locally mostly by the armed forces.Pakistan is the cheapest source of tents and canvas.Table 3.8: Exports of Tent & Canvas Industry(July– Mar)2011-2012(July – Mar)2010-2011%ChangeQuantity(000 Doz)18.139 9.221 96.71Value(M.US$)67.406 29.460 130.37Source: Ministry of Textileiv) Art Silk and Synthetic weaving industryThe art silk and synthetic weaving industry hasdeveloped as a cottage industry over the time basedon power looms. Units comprising of 0-10 loomsare spread all over the country. The majorconcentration is in Karachi, Faisalabad,Gujranwala and Jalalpur Jattan as well as in the unsettledareas (Bara, Swat, Khyber Agency andWaziristan). During 2011-12 (July-March),production of synthetic fabric recorded at1,311,550 million square meters as compared to1,478,571 million square meters during the sameperiod last year, showing a decrease of 11.3percent.v) Woolen IndustryThe main products manufactured by the woolenindustry are woolen yarn 6.864 M.kgs, acrylic yarn6.960 M.kgs, fabrics 3,445 (M.sq.meter), shawls13.353 million, blanket 657,235, and carpets 3.5(M.Sq.meter). The exports of carpets during theperiod July to Mar 2011-12 is as below Table 3.9.Table 3.9: Exports of Carpets and Rugs (Woollen)(July – Mar)2010-2011(July – Mar)2011-2012%ChangeQuantity(M.Sq.Mtr)2.123 2.512 13.61Value (M.US$) 96.078 95.305 0.80Source: Ministry of Textilevi) Jute IndustryThe main products manufactured by the juteindustry are jute sacks and Hessian cloth, whichare used for packing and handling of wheat, riceand food grains. During 2011-12 (July-March), nochange has been recorded in spindles installedcapacity whereas single addition has been recordedin the looms installed capacity compared to last44

Manufacturing and Miningyear. However, negative growth was observed inthe working capacity of both spindles and loomsduring the current fiscal year. Table 3.10 shows theinstalled and working capacity of the industryduring the period under review.Table 3.10: The installed and working capacity ofjute industry(July – Mar)2010-11(July – Mar)2011-12%ChangeSpindlesInstalled36076 36076 0%SpindlesWorked27697 24279 -12%LoomsInstalled1851 1852 0.1%LoomsWorked1129 1047 -7%Source: Ministry of TextileThe production of jute goods for the period of July– Mar. 2010-11 and 2011-12 was 92,666 M. tonand 98,753 M. ton respectively, showing anincrease of 6.6 percent.3.3 Other IndustriesAlthough Pakistan’s exports are mostlyconfined to cotton and textile products in theinternational market, there are other industriesas well which progressed rapidly and alsocontributed to the manufacturing sector.3.3-1 Engineering SectorThe engineering industry in Pakistan has enjoyedsome success as a result of some really hard work.The increasing competition that the internationalmarket presents has been challenging. EngineeringDevelopment Board (EDB) is the apex governmentbody entrusted with strengthening the engineeringbase of Pakistan. Its main objective is to maintaininternational standard in the field of engineeringgoods and services. The EDB has taken initiativesto boost the production of the surgical industry andelectric fan Industry.The current capacity in the surgical sector is underutilized. During 2011-12 (July-March), exports ofsurgical goods and medical instruments reachedUS$ 221 million compared to US$ 186.7 millionduring the same period last year. The EDB isplanning to prepare a growth strategy with activeparticipation of all stakeholders in order to touchthe export target of US$ 500 million by 2015.The electric fan industry is mainly clustered inGujrat and comprises of more than 2,000 small andmedium enterprises. The industry is not onlyfulfilling local demand for domestic fans ofvarious categories but is also earning handsomeforeign exchange besides providing ampleemployment opportunities. A number of measureshave been taken during 2011-12 and are currentlyunderway to facilitate the industry to producedomestic fans at par with internationally acceptedstandards. The Fan Development Institute (FDI) isalso being updated with the cooperation of thePakistan Council for Science and IndustrialResearch (PCSIR).In addition to projecting the engineering image ofPakistan, the EDB has initiated the compilation ofthe Engineering Goods and Services exportersDirectory of Pakistan 2012. The directory shallhave the complete profile of the Exporters andshall be circulated to Pakistan’s Foreign Missions,Foreign Chambers of Commerce and the EDB’sInternational support partners in the potentialmarkets.3.3-2 Automobile IndustryThe four sectors of the automobile industry haveshown mixed trends of growth during the yearJuly-March 2011-12. The industry seems to be lessbuoyant in comparison with the correspondingperiod of last year 2010-11. Buses, cars, LCVs andtwo/three wheelers managed to grow by 23percent, 9.1 percent, 5.7 percent and 3.1 percentrespectively compared to 24.7 percent, 16.4percent, 20.5 percent and 12.6 percent respectivelyduring the same period last year. A larger declinewas witnessed in tractor production which wasrecorded at 48 percent compared to negativegrowth of 2.2 percent.During the start of the current fiscal year,production of tractors declined substantially byalmost 70 percent after the imposition of the 16percent general sale tax (GST) in April 2011.Following the government’s announcement to cutGST from 16 percent to 5 percent production45

Pakistan Economic Survey 2011-12figures have started to recover. The two othercomponents of the automotive industry such asjeeps and trucks also showed dismal performanceby registering negative growth of 44 percent and6.8 percent respectively. The table given belowpresents the comparative analysis of the sector.Table 3.11: Production of Automotive IndustryProductsInstalled 2010-112011-12% ChangeCapacity (July-March) (July-March)Cars 240,000 100,870 110,059 9.1LCVs 43,900 14,159 14,971 5.7Jeeps 5,000 662 371 -44.0Buses 5,000 357 439 23.0Trucks 28,500 2,031 1,893 -6.8Tractors 65,000 51,664 26,840 -48.0Two/Three Wheelers 1,800,000 602,268 620,741 3.1Source: Pakistan Automotive Manufacturing Association (PAMA)The potential demand for vehicles in the economyis helping to grow the industry but it is highlydependent on the long term policy commitments.The term of the current Auto-industryDevelopment Program is expiring on June 30 th2012. The government’s commitment with theindustry would reflect in a new program whichmay bring new hope and opportunities for growth.It may be added that the forthcoming opening upof trade with India would bring new opportunitiesas well as challenges for the auto-industry and thusa transformation is inevitable.3.3-3 Fertilizer IndustryThe fertilizer industry, being provider of one of thekey inputs for crop production, has significantimportance in the country’s economy. At thebeginning of 2011-12, it was assumed that thecountry will attain self-sufficiency at least in ureaavailability because of the operationalizing of twonew plants. This has added annual productioncapacity of 1.8 million tonnes to the nationalinstalled capacity taking it to 6.3 million tonnes perannum. However, due to the curtailment of naturalgas (the raw material for urea manufacturing),some urea plants produced substantially less thantheir production capacity. As a result 1.6 milliontonnes of urea had to be imported by thegovernment during 2011-12 to meet the deficit.Hence, in addition to spending foreign exchangefor imports, the government had to pickup theprice difference to equalize the prices of domesticand imported urea; and for this purpose, it isestimated that the government spent around Rs. 45billion as fertilizer subsidy in 2011-12.The fertilizer sector is the second largest consumerof gas after the power sector. Natural gas is used asfeedstock as well as fuel in the manufacturing ofnitrogenous fertilizers. Three companies namelySui Northern Gas Pipeline Limited, Sui SouthernGas Company Limited and Mari Gas CompanyLimited are providing gas to the fertilizer sector.The intensity of the prevailing energy crisisspecifically in relation to the supply of natural gasto supply curtailment (20 percent on Sui Networkplants and 12 percent on Mari Network) to thefertilizer industry since May, 2010, has meant thatthe winter load shedding has increased fromnormal 45 days to 60 days. And on the SNGPLsystem the rotational load management (shedding)of 15 days for fertilizer plants has also beenobserved. This policy of gas supply is adverselyaffecting domestic production of fertilizer andresulting in a price hike and increase in the importbill. Smooth supplies of natural gas to urea plantsare essential to run the plants at 100 percent oftheir installed capacity for making urea available(as per requirement) at stable/affordable prices andfor avoiding its import.3.3-4 Cement IndustryThe cement production capacity in Pakistan hasincreased to 44 million tonnes in 2011-12 from 30million tonnes in 2006-07 due to the establishmentof new cement plants. Pakistan’s cement is beingexported to Afghanistan, India, Africa, and Middle46

Manufacturing and MiningEast. Export of cement is exempted from the SalesTax and Federal Excise Duty (FED). However, a16 percent sales tax and the Rs. 500 per tonFederal Excise Duty are being charged on thedomestic consumption. The import of coal used asfuel for the cement plants is allowed at 0 percentcustoms duty and 16 percent sales tax. As per theinvestment policy of the government, the import ofplant machinery and equipment for themanufacturing sectors is allowed at 5 percentcustoms duty. The key factors hindering the overallproduction capacity of cement industry are theenergy crises and demand and supply mechanism.Table-3.12 presents the production and utilizationcapacity along with the total production of cement.Table 3.12: Supply (Million tonnes)Years ProductionCapacityCapacityUtilization(% age)Local Market(Cement)Export (Cement+ Clinker)TotalProduction2006-07 30 80 % 21 3 242007-08 37 82 % 22 8 302008-09 42 75 % 20 11 312009-10 45 77 % 23 11 342010-11 41 76 % 22 9 312011-12(July-Dec)44 70% 11 4 15Source: Ministry of Industries3.5: Privatization ProgrammePakistan’s privatization program was initiated inthe early 1990s to demonstrate the government’shigh priority to private sector development.Pakistan’s privatization program was the mostsuccessful program in the whole of South Asia,Central Asia and the Middle East as it successfullymanaged to complete approximately 167privatization transactions, generating revenue ofover US$ 9 billion.The last privatization transaction completed by thePrivatization Commission was Hazara Phosphateand Fertilizers Limited (HPFL) in November 2008.Thereafter, the privatization program entered intoan extended lean period due to domestic and globalchallenges. Domestically, unstable law and ordersituation and negative economic outlook adverselyaffected the investment climate in the country.Internationally, the global financial crisis of 2008and the on-going Euro zone sovereign debt crisisaffected the flow of investment into the country. Itmay be noted that the privatization program cannotbe conducted in isolation and is highly dependenton both the domestic and international regulatory,financial, economic and political environment.Despite the challenges, the government had reinvigorated the privatization program by focusingon a policy of “Privatization for the People.”Under this program a renewed focus is placed ondomestic capital market listings. Despite manychallenges, the Privatization Commission isactively pursuing a capital market road map, whichincludes a secondary public offering of PakistanPetroleum Limited and an Exchangeable Bond forthe Oil and Gas Development Company Limited.The transactions will be launched in the near futuresubject to market conditions.The Privatization Commission, besides conductingprivatization through the capital markets, is alsoexercising the traditional privatization mode i.e.the strategic sale of two entities, the NationalPower Construction Company (NPCC) and HeavyElectrical Complex (HEC). The transactions are atan advanced stage and the privatization process isexpected to be completed soon subject to marketconditions.In addition, the Ministry has also initiated alandmark program for empowerment of employeesof public sector entities in the form of the BenazirEmployees Stock Scheme (BESOS), offering 12percent stock options to employees of 78 publicorganizations. It is expected that approximately500,000 employees of 78 SOEs will benefit fromthis scheme. So far, Trusts have been registered in64 entities. Out of these, Unit Certificates have47

Pakistan Economic Survey 2011-12been distributed to 142,756 employees of 50entities. The total dividend received from theTrusts of 11 entities stands at Rs. 6.79 billion(approx.) out of which 50 percent has beendistributed among employees of respective entitiesand the remaining 50 percent has been transferredto the Central Revolving Fund (CRF) of thePrivatization Commission (PC). Buyback claimsreceived till date stand at Rs. 4.45 billion, out ofwhich Rs. 1.160 billion has been paid.3.6: Small and Medium EnterprisesSME-led economic growth has become thehallmark of economic prosperity and general wellbeingin the world. SMEs are globally recognizedas critical for economic development and povertyalleviation. In Pakistan, nearly 99 percent ofeconomic establishments are SMEs; absorbing 80percent of unskilled labor. These SMEs arecollectively providing undeniable support toeconomic growth by contributing 40 percent toGDP and 30 percent to the exports from themanufacturing sector. To further boost itssignificance in the economic development processthe government has introduced various initiativesto promote SME-led economic growth with thedual aim to accelerate industrial development andexport diversification. Most important of theseinitiatives include approval of the first SME Policyof Pakistan and Infrastructural Developmentthrough Public Sector Development Program. Inaddition to these, SMEDA as a government agencyfor SME development has been involved in variousactivities such as providing over the counterservices to SMEs, helpdesk facilitation, humanresource development, technological up gradationand infrastructural support.Parallel to infrastructural support, SMEDA, incollaboration with international agencies like JapanInternational Cooperation Agency (JICA), DeutsheGesellshaft Fur Internationale Zusammenarbeit(GIZ), Senior Experts Services (SES, Germany),Asian Productivity Organization (APO) and localexperts, is providing technical assistance to SMEsin the relevant industrial units to upgrade theirskills and improve systems.During July-March 2011-12, 27 industrial unitshave been the direct beneficiaries of thisprogramme; whereas, 16 technical trainingworkshops, seminars and awareness sessions wereconducted. Major sectors facilitated under theIndustry Support Programme are: textiles(spinning, weaving processing, garments,sportswear and apparel), auto parts, electric fanssector and furniture sector across the country.The factors that impede development of the SMEsector in Pakistan are well-known. However, lackof support of concrete data and quantifiableresearch are making the task of securing attentionof policy makers and key government stakeholdersdifficult. During 2011-12, SMEDA took theinitiative of bridging this information gap throughpublication of the SMEDA Research WorkingPapers Series.3.7: Mineral SectorThe production of minerals are important for thegrowth of mineral based industries due to their usein the other sectors of the economy such as energyminerals-coal; agriculture minerals- rockphosphate, gypsum; construction mineralslimestone,natural stones, pozzolana etc. The mostsignificant benefits to be derived from anexpansion of the mineral sector activities are:expansion of employment opportunities; expandingbusiness opportunities for local industries; increaserevenue flow to the provincial and federalgovernments; technology transfer; and regionalinfrastructure development.Pakistan has a widely varied geologicalframework, ranging from Pre-Cambrian to thepresent that includes a number of zones hostingseveral metallic minerals, industrial minerals,precious and semi-precious stones.The government has extended special incentivesfor mineral development through public andprivate investment and facilitating private sector tocontribute in this sector. To revive industrialgrowth, a 100 MW power plant was established byusing Thar coal deposits based on undergroundcoal gasification, which would convert into 1000MW power plant. Efforts are for exploration andevaluation of coalfields in Sindh and Balochistan.These studies are aimed at enhancing the coalresource base, supplement power generation, and48

Manufacturing and Miningsubstitute furnace oil in different industrial units inthe country.The indigenous problems faced by this sector areinadequate provision of the geological data base,limited mining experience and inadequate capitalresources and finally the lack of infrastructure andsecurity in geological promising areas.The future programmes in the sector are: Reko DiqCooper Gold Prospects; utilization of indigenousIron ore resources at Nokkundi and Dilband area;exploring the hidden resources throughprivate/multinational investment and, upgradation/strengthening of Geosciences advanceResearch labs.49

Chapter 4Fiscal DevelopmentThe importance of a prudent fiscal policy cannotbe overruled as it supports economic activitythrough sustainable growth and poverty alleviation.The effective implementation of the policyendeavors to mobilize resources through taxes andpublic savings, which can fund much neededpublic goods and services. It also helps to correctfiscal imbalances as well as promote investmentand growth by optimal allocation of resources andthrough improving the tax system. Consequently, awell structured fiscal policy ensures rapideconomic growth and development in the country.The global financial crisis and the policy responsesof the governments around the world exemplifiedthe potential role for fiscal policy to stabilize theglobal economy and to avert an employmentcollapse of the type witnessed during the greatdepression. However the current global economicenvironment is characterized by a fragile financialsystem, high public deficits and mounting debts.Global output is expected to increase by only 3.5percent in 2012 as compared to 4 percent in 2011on account of the significant rise in sovereignvulnerabilities and deteriorated financial conditionsin the advanced countries 1 . Going forward, theemerging and developing countries are alsoexpected to witness sluggish growth due to theworsening external environment and theweakening of internal demand. Accordingly,sustained adjustment, ample liquidity and easymonetary policy and most importantly restorationof confidence are urgently required for sustainedeconomic recovery.Pakistan’s economy, which largely remainedimpervious to the global financial crisis due to itslower exposure to international finance, facedmultifaceted challenges on external and internalfronts mainly campaign against extremism,unstable law and order situation, lingering energyshortages and non materialization of externalinflows. Additionally the unprecedented calamityof floods in 2010 and torrential rain in Sindh in2011 contributed further stress on the economy.However, the fiscal situation was well contained.Efforts to manage the fiscal deficit withinacceptable level through an expendituremanagement strategy, austerity measures andreforms in public sector enterprises (Box-1) haveyielded results. The fiscal deficit declined from 7.6percent in FY08 to 5.9 percent in 2010-11. In2011-12 the fiscal deficit was projected to be 4percent of GDP (Rs. 851 billion). Nevertheless,during the course of the period the projection forfiscal deficit has been revised to 4.7 percent.However, achievement of this revised targetdepends crucially on the realization of theenvisaged surpluses from provincial governments,the non-tax revenues which depends on inflowsinto the Coalition Support Fund, and strict controlover expenditures.1Global Economic Outlook , April, 201251

Pakistan Economic Survey 2011-12Box-1Snapshot of Current Economic Reforms in PakistanThe 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 reformII.III.IV.Improving domestic resource mobilization through, Harmonization of tax administration Strengthening risk based audits Improving efficiency of tax administration Broadening of tax baseAchieving economic efficiency through devolution through, Transfer of concurrent subjects to provinces Equitable resource transfer to provincesStrengthening social safety nets through, Benazir income support program Bait-ul-Mal Disaster managementIn order to maintain the budgetary allocation of thedevelopment program a number of steps have beeninitiated such as curtailing the expenditure ontraveling allowance, stationery, entertainment,advertisement, repair/maintenance and utilities by20 percent of the budget estimates. It is also worthmentioning that as a part of the austerity measures,the federal government has implemented the“Compulsory Monetization of Transport Facilityfor Civil Servants in BS-20 to BS-22” which willbe help to save Rs. 1.3 billion per annum. Fromthese measures an amount of Rs. 5.366 billion isexpected to be saved during the financial year2011-12. In addition, to create more fiscal spacethrough the expansion of the tax base, various taxmeasures have been taken such as an exclusive anddedicated directorate general has been createdspecifically for broadening of tax base (BTB). Inthis regard a nationwide BTB campaign is inprogress. Similarly sales tax exemptions and zeroratings have been withdrawn for all major itemsexcept food items, health, education andagricultural produce (Box-2).Box-2Revenue MeasuresThe government introduced reform initiatives through presidential ordinance and withdrawal of SRO basedexemptions; amendments were made in the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal ExciseAct, 2005. These measures were effective from 15 th and 16 th March, 2011 to meet the growing need of floodaffected people and to reach the assigned target. These reforms include:15 percent surcharge on income and advance taxesIncrease in the rate of special excise duty from 1 percent to 2.5 percent, however special excise duty wasabolished in 2011-1252

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 fromplants, machinery and equipment Restriction of zero rating to registered person for export of textile, leather, carpets, sports goods andsurgical goods.Source: FBRThese measures yielded a total of Rs. 29.4 billionduring 2010-11. The withdrawal of exemptionsand the left over amount of 15 percent flood reliefsurcharge contributed an additional amount ofaround Rs. 50 billion during July-March, 2011-12.Fiscal Policy DevelopmentTax as a major source of revenue and growth playsa vital role in building up institutions and markets.A good tax system not only helps in equitabledistribution of economic benefits for social justicebut also attracts investment at all levels of businessactivities. The absence of an efficient tax systemdiscourages well documented investment andcompels the country to rely on continuousborrowing from internal and external sources tofinance the budgetary deficit, which may crowdout private investment. For more than a decadenow the low tax to GDP ratio has been a majoreconomic issue confronting Pakistan. The overalltax to GDP ratio has varied between 9.5 to 11.4percent mainly due to structural deficiencies in thetax and administration system. Pakistan ischaracterized as having the lowest tax to GDP rationot only amongst the peer countries but also in theregion.Table 4.1: Fiscal Indicators as Percent of GDP^YearOverallExpenditureRevenueReal GDPFiscalTotalNon-GrowthTotal Current DevelopmentTaxDeficitRev.TaxFY01 2.0 4.3† 17.4 15.3 2.1 13.1 10.5 2.6FY02 3.1 4.3† 18.5 15.7 2.8 14.0 10.7 3.3FY03 4.7 3.7 18.8 16.2 2.6 14.8 11.4 3.4FY04 7.5 2.3 16.5 13.7 2.8 14.2 11.0 3.2FY05 9.0 3.3† 16.8 13.3 3.5 13.8 10.1 3.7FY06 5.8 4.3*† 18.4 13.6 4.8 14.1 10.5 3.6FY07 6.8 4.4 20.6 15.8 5.0 14.9 10.2 4.7FY08 3.7 7.6 22.2 18.1 4.4 14.6 10.3 4.4FY09 1.7 5.3 19.9 16.0 3.8 14.5 9.5 5.1FY10 3.1 6.3 20.3 16.8 3.5 14.0 10.1 3.9FY11 3.0 5.9 19.2 16.1 2.8 12.5 9.5 3.1FY12B 3.7 4.0 18.0 14.4 3.6 13.9 10.4 3.5Notes ^: The base of Pakistan’s GDP has been changed from 1980-81 to 1999-2000, therefore, wherever GDP appearsin 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 : BudgtedHowever, the government is committed to increasethis ratio by introducing various additional taxmeasures such as: monitoring and risk based audit,strengthening electronic payment, close watch onAfghan transit trade and recovering arrears etc.These measures helped the FBR to collect Rs.1,558 billion during 2010-11 against Rs. 1,008billion in 2007-08. FBR Tax collection has showna significant growth of 54.6 percent since 2007-08.For the current fiscal year 2011-12, the target ofRs. 1,952.0 billion has been set; which is expectedto be achieved as the total collection during first53

Pakistan Economic Survey 2011-122ten months of 2011-122 stood at Rs.1,426.0 billionexcludingRs 19 billion of sales tax on servicescollected by the Sindh Revenuee Board (SRB)againstRs. 1,149. .8 billion inthe comparableperiod of last year. This is anincrease of24.0percent.Fig-4.1: Fiscal Deficit232221Total Revenues2019181716ExpendituresFiscal Deficit151413Revenue12FY00FY01FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09FY10FY11FY12BDespite the numerous challenges the country hasfaced since 2001 including the continued andintensifiedsecurity issues, the fiscal position lastyear in terms of keyfiscal indicators such asrevenues, expenditures and the fiscal deficitindicates a notable change. Table 4.1 suggests thatas a percentage of GDP the total expendituresremained in a narrowband during the last fiveyears. Despite the large demands for governmentspending on subsidies (electricity subsidies),interest payments, security and flood related issues(rehabilitation and reconstruction)the governmenthas successfullybroughtdown the totalexpenditures from 22.22 percent of GDP in 2007-08to 19.2 percent in 2010-11. These are expectedtodecline to18.0 percent in fiscal year 2011-12.Every effort has beenmade to protect the PSDPprogram, which not only gives impetus to povertyreduction but alsocreates employmentopportunities. During the current fiscal year Rs.300 billion were allocated bythe federalgovernment to the PSDP and nocut has beenimposed. During the first nine months of thecurrent fiscal year (July-March, 2012) about Rs.219 billion committed for the Public SectorDevelopment Program(PSDP) hasbeen released.This accounts 73 per cent of the total allocationofRs. 300 billion.On therevenue side the tax toGDP ratio eitherremained stagnant or showed a secular decline.Consequently the budget deficit widened duringthe past four years. However, it was well containedduring fiscal year 2010-11 despite the challengesfaced due to theflood andsecurity relatedexpenditures.On theother hand the expenditure to GDP ratiowitnessed a similar pattern to that for totalexpenditures; showing an overall decline since2007-08. The decline in total expendituree (3.0percentage points of GDP) is shared by currentexpenditure (2 percentage points of GDP)anddevelopment expenditure (1.6 percentage points ofGDP) during the past four years. During July-March,2011-12 period total expenditures stood atRs. 2,641.9 billion against Rs. 3,721.2 billion setfor thefiscal year2011-12. During the periodunder review totalrevenues were Rs. 1, ,747.0billion against thebudgeted estimates ofRs.2,870.5billion.The fiscal deficit has declined from 7.6 percent in2007-08 to 5.9 percent in 2010-11 on account ofreduction in development expenditure. The fiscaldeficit witnessed considerable deviation from itsoriginal target due to some structural deficiencies54

Fiscal Developmentin the taxsystem, large additional subsidies to theelectricitysector andsupport topublic sectorenterprises (PSEs). However, the government iscommittedto containn the fiscal deficit throughseveral measures as well as to put the economy ona high growth trajectory. These include austeritymeasures,broadening of the tax base through taxmeasures,elimination of subsidiess (specially thepower sector subsidies), restructuring public sectorenterprises and powersector reforms. However,the massive floods in 2010 and 2011 have put anenormousstrain on public finances due to theunexpected expenditures to meet the rehabilitationand reconstruction needs and resulted in theupward adjustment in the fiscal deficit target from4 percent to 4.7 percent of GDP.Structure of Tax RevenuesAn efficient tax system is vital for raisingsufficientrevenues to finance essentialexpenditures without recourse toexcessive publicsector borrowing. At present the country has anarrowtax base, massive tax evasion andadministrative weaknesses due to the challengesfaced in the implementation ofan efficient andeffective tax system. Although revenue collectionhas increased in recent years, thetax to GDP ratiosvaried between 8.6 and 9.8 percent (Table 4.2).Fig-4.2: FBR Tax Rev as % of GDP10.09.5Percent9.08.58.02001-02 2002-03 2003-042004-05 2005-06 2006-072007-08 2008-09 2009-10 2010-11 2011-12BTable 4.2:Year2000-012001-022002-032003-042004-052005-062006-07Structure of Federal Tax Revenue (Rs. Billion)Total (FBR)Tax Revas % Directof GDPTaxes392.3404.1460.6520.9590.4713.5847.29.49.29.69.28.99.49.7124.6[31.8]142.5[35.3]151.9[33.0]165.1[31.7]183.4[30.1]225.0[31.5]333.7Customs65.0{24.3}47.8{18.3}68.8{22.3}91.0{25.6}115.4{28.4}138.4{28.3}132.3Indirect TaxesSalesExcise153.6 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 71.8Total267.7[68.2]261.6[64.7]308.7[67.0]355.8[68.3]407.0[68.9]488.5[68.5]513.555

Pakistan Economic Survey 2011-12Table 4.2: Structure of Federal Tax Revenue (Rs. Billion)YearTax Rev as % DirectIndirect TaxesTotal (FBR)of GDP Taxes Customs Sales Excise Total[39.4] {25.8} {60.3} {14.0} [60.6]2007-08 1,008.1 9.8387.9 150.7 377.4 92.1 620.2[38.5] {24.3} {60.9} {14.9} [61.5]2008-09 1,161.1 9.1443.5 148.4 451.7 117.5 717.6[38.2] {20.7} {62.9} {16.4} [61.8]2009-10 1,327.4 9.0526.0 160.3 516.3 124.8 801.4[39.6] {20.0} {64.4} {15.6} [60.4]2010-11 1,558.2 8.6602.5 184.9 633.4 137.4 955.7[38.7] {19.3} {66.3} {14.4} [61.3]2011-12B 1,952.0 9.5745.0 215.0 852.0 140.0 1207.0[38.2] {17.8} {70.6} {11.6} [61.8]Source: Federal Board of Revenue[ ]as % of total taxes{ } as % of indirect taxesUnder the present tax system, some sectors areunder-taxed and others are not taxed at all. Thisdistortion is being addressed. Moreover, theinternal tax system has undergone substantialchanges as the share of income tax has risensignificantly from around 32 percent in 2000-01 to38.2 percent in 2011-12. On the other hand thecomposition of taxes has been rationalized with agradual decrease in the dependence on foreigntrade taxes and a simultaneous increase in GST.Customs and excise duties have registered agradual decline on account of the tax and tariffreforms with excise and custom comprising only8.5 percent and 10.6 percent respectively in 2011-12. Pakistan’s tax to GDP ratio stood at around 8.6percent in 2010-11 and expected to be about 9.5percent of GDP in 2011-12. The indirect tax toGDP ratio stood at around 5.3percent and directtax to GDP ratio at around 3.3 percent in 2010-11.During July-April, 2011-12 indirect tax to GDPratio stood at 4.3 percent and direct tax to GDPratio recorded at 2.6 percent. The ratio can only beincreased substantially if the major contributors toGDP growth not included in the tax net can bebrought into the tax system.Tax ReformsThe low tax-to-GDP ratio restricts the country’sability to counter inflation, deliver quality publicservices or improve human resources to reach atake-off stage for economic development. Toaddress this issue and others including debtservicing and defense needs, the government hasplaced Tax Administration high on its reformagenda.Reform StrategyThe reform strategy had three main planks (a)policy reforms, (b) administrative reforms and (c)organizational reforms. The policy reforms includesimpler laws, universal self-assessment,elimination of exemptions, less dependence onwithholding taxes and effective dispute resolutionmechanism. The administrative reforms aim (i) totransform income tax organization on functionallines; (ii) re-engineer manual processes of all taxeswith the aim to reduce face to face contact betweentaxpayers and tax collectors, increase effectivenessof FBR, and improve skills and integrity of theworkforce and facilitation of taxpayers. Theorganizational reforms also included reorganizationof the FBR on functional lines,reduction in number of tiers and reduction in theworkforce.In pursuance of tax reforms FBR has been restructuredon functional lines. With a view tosupplement the level of skills in the FBR, thegovernment in March-April, 2001 appointedprofessional 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 recruitmentpolicy (with greater emphasis on skills that match56

Fiscal DevelopmentFBR needs), incentive and merit basedremuneration and promotion mechanism andextensive training. FBR through its reformprogram is strengthening audit and enforcementactivities.Broad objectives of reforms included overallincrease in the revenue collection/tax-GDP ratio,broadening of the tax base, strengthening audit andenforcement procedures, guarantee fairer and moreequitable application of tax laws, increase intransparency and integrity, facilitate and promotevoluntary compliance with tax laws and providetransparent and high quality tax services.To achieve reforms objectives, the FBR hasestablished Large Taxpayer Units (LTUs) andRegional Tax Offices (RTOs) to test the reorganizedstructure of income tax and sales tax andTaxpayers Education and Facilitation Centers toimprove voluntary compliance. Customs processeshave been re-engineered and CustomsAdministration Reform (CARE) was started whichhas minimized the time of clearance of goods andreduced the cost of doing business. Facility foronline filing of goods declarations and a websitefor information dissemination and helpline fortaxpayers have been established (see Box-3).Box-3Major Achievements under TARPGeneral• Gaining stakeholders respect.• Creating business friendly environment.• Introducing professionalism, integrity, teamwork, courtesy, responsiveness, transparency andfairness.• 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 hasbridged the gap between taxpayers and tax collectors.• Creation of an enabling environment for various stakeholdersIncome TaxAutomation• Self Assessment Scheme introduced.• Improved voluntary compliance and number of compliant taxpayers increased to more than 2.5million.• 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.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.57

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: FBRReview of Public ExpenditurePublic expenditures are significant for provision ofsocial services, economic stabilization and growth.However, in Pakistan, public expendituresremained under tremendous pressure during 2011-12 owing to flood related expenses, continuedsecurity related issues and higher subsidies. DuringJuly-March, 2011-12, actual disbursement againstthe budgeted subsidy of Rs. 166.4 billion set forthe current fiscal year 2011-12 stood at Rs. 103billion (excluding Rs. 391 billion on account ofdebt consolidation). It is expected to increasefurther on account of a settlement of circular debtissue. The permanent solution of the circular debtissue requires the rationalization of electricity tariffand improving the overall efficiency of the energysector.Table 4.3: Trends in Components of Expenditure (as % of GDP)YearTotalExpenditure(A)CurrentExpenditure(B)InterestPayments(C)Defence(D)DevelopmentExpenditure(E)Non InterestNon-Defence Exp(A-C-D)FiscalDeficitRevenueDeficit/Surplus(TR-TotalCE)Primarydeficit(TR-NIExp)1999-00 18.5 16.4 6.8 3.9 2.5 7.7 5.4 -3.0 1.72000-01 17.0 15.3 5.9 3.1 2.1 8.0 4.3 -2.2 2.02001-02 18.5 15.7 6.1 3.3 2.8 9.0 4.3 -1.7 1.62002-03 18.4 16.2 4.8 3.3 2.6 10.0 3.7 -1.4 1.22003-04 16.9 13.7 4.0 3.3 2.8 9.7 2.3 0.3 1.12004-05 17.2 13.3 3.4 3.2 3.5 10.5 3.3 0.5 0.02005-06 18.4 13.6 3.4 3.2 4.8 11.8 4.3 0.5 -0.82006-07 20.6 15.8 4.4 2.9 5.0 13.3 4.3 -0.9 -1.32007-08 22.2 18.1 5.0 2.7 4.4 14.5 7.6 -3.5 -2.62008-09 19.9 16.0 5.2 2.6 3.8 12.1 5.4 -1.5 -0.22009-10 20.3 16.8 4.5 2.5 3.5 13.3 6.3 -2.7 -1.82010-11 19.2 16.1 4.0 2.5 2.8 12.7 5.9 -3.5 -2.62011-12B 18.0 14.4 3.8 2.4 3.6 11.8 4.0* -0.5 -0.3B Budgeted* Budgeted number is revised to 4.7 percent of GDP58

Fiscal DevelopmentTotal expenditures (TE) stood at Rs. 3,455.1billion or 19.2 percent of GDP in 2010-11 ascompared to Rs. 3,006.7 billion or 20.3 percent ofGDP in 2009-10. It is worth mentioning thatdespite the unplanned expenditures due to floodrelated activities at the start of the current fiscalyear, the expenditures as percent of GDP remainedat 12.8 percent (Rs. 2,641.9 billion) during July-March 2011-12. Total expenditures are expected todecline by 18.0 percent.Current expenditures (CE) are expected to remainat 14.4 percent of GDP in fiscal year 2011-12.During fiscal year 2010-11, current expenditurewere Rs. 2,900.8 billion or 16.1 percent of GDPcompared to Rs. 2,481.0 billion or 16.8 percent ofGDP in 2009-10. The decline came from noninterest-non-defensespending. During July-March,2011-12 current expenditures stood at Rs. 2,154.1billion or 10.4 percent of GDP compared to Rs.1,909.8 billion or 10.6 percent of GDP in the sameperiod of fiscal year 2010-11.Development expenditures in fiscal year 2010-11remained at Rs. 506.1 billion or 2.8 percent ofGDP as compared to Rs. 517.9 billion or 3.5percent of GDP in 2009-10. In the current fiscalyear's budget, the allocation for developmentexpenditure is 3.6 percent of GDP. The share ofcurrent expenditure in total expenditure hasdeclined significantly from 89.9 percent to 84percent in 2010-11. These are expected to declinefurther by 4 percent due mainly to the substantialfall in interest payments. Defense expendituresaccounted for 15.5 percent of current expenditurein 2010-11. As a percentage of GDP defenseexpenditures were 2.5 percent in 2010-11 and arelikely to remain slightly below this level in 2011-12. However in absolute terms defense expenditurerose to Rs. 450.6 billion during 2010-11 from Rs.375.0 billion in 2009-10. Nevertheless the budgettarget is set at Rs. 495.2 billion for 2011-12 whichis around 2.4 percent of GDP.Fiscal Performance: July-March, 2011-12At present Pakistan is confronting unsustainablefiscal deficits and unabated debt service charges onaccount of both external and internal challengesincluding electricity and gas outages that haverestricted the overall growth of the economy.Similarly insufficient external inflows haveresulted in increased reliance of government ondomestic resources. It is, therefore, important torevamp the strategies of domestic and externalfinancial resource mobilization through tax andnon-tax instruments.Pakistan has witnessed a sharp deterioration infiscal indicators during the past few years due tothe revenue-expenditure gap. The fiscal situationwas further aggravated by the domestic andexternal imbalances together with the deterioratingsecurity environment, persistent inflationarypressures, unprecedented floods in 2010 andmassive rains in 2011.Table 4.4 Consolidated Revenue & ExpenditureBudgetEstimate2011-12Prov. ActualJuly-March2010-11Prov. ActualJuly-March2011-12Growth (%)July-March2011-12A. Total Revenue 2,870.5 1,495.3 1,747.0 16.8a) Tax Revenue 2,151.2 1,117.6 1,379.2 23.4Federal 2,074.2 1,074.8 1,321.5 23.0of which FBR Revenues 1,952.0 1,020.1 1,280.4 25.5Provincial Tax Revenue 77.0 42.8 57.6 34.6b) Non-Tax Revenue 719.3 377.7 367.9 -2.6B. Total Expenditure 3,721.2 2,262.6 2,641.9 16.8a) Current Expenditure 2,976.3 1,909.8 2,154.1 12.8Federal 2,016.3 1,345.7 1,478.7 9.9- Interest 791.0 507.4 624.5 23.1- Defence 495.2 335.1 348.0 3.8Provincial 960.0 564.1 675.4 19.7b) Development Exp. & net lending 744.9 352.7 428.0 21.359

Pakistan Economic Survey 2011-12Table 4.4 Consolidated Revenue & ExpenditureBudgetEstimate2011-12Prov. ActualJuly-March2010-11Prov. ActualJuly-March2011-12Growth (%)July-March2011-12PSDP 639.9 246.5 375.6 52.4Other Development 97.1 35.7 45.4 27.2c) Net Lending 7.9 70.5 6.9 -90.2C. Overall Fiscal Deficit 850.6 783.3 894.9 14.2As % of GDP 4.0 4.5 4.3 -4.4Financing of Fiscal Deficit 850.6 783.3 894.9 14.2i) External Sources 134.5 83.1 47.4 -43.0ii) Domestic 716.1 700.1 847.5 21.1- Bank 412.6 316.4 443.8 40.3- Non-Bank 303.5 383.8 403.7 5.2GDP at Market Prices 21,042 18,033 20,654 14.5Source: Budget Wing, Finance Division and FBRAccording to the consolidated revenue andexpenditure statement of the government, totalrevenues grew by 16.8 percent during July-March2011-12 and stood at Rs. 1,747.0 billion comparedto Rs. 1,495.3 billion in the same period of fiscalyear 2010-11. The increase is mostly due to asignificant rise in FBR tax collection, whichincreased by 25.5 percent during the period underreview. On the other hand non tax revenuedeclined by 2.6 percent as it stood at Rs. 367.9billion in July-March 2011-12 from Rs. 377.7billion in the same period last year. Totalexpenditures were recorded at Rs. 2,641.9 billionduring July-March; 2011-12 compared to Rs.2,262.6 billion in the same period last year posteda growth of 16.8 percent. External resources forfinancing the budget deficit amounted to Rs. 47.4billion - a net decline of 43 percent. Insufficientexternal financing shifted greater reliance ondomestic resources to finance the budget deficitduring July-March, 2011-12. The fiscal deficit as apercentage of GDP stood at 4.3 percent against 4.5percent during the same period of fiscal year 2010-11.FBR Tax CollectionFBR tax collection for the fiscal year 2011-12 wastargeted at Rs. 1,952 billion which was higher by25.3 percent over the actual collection of Rs. 1,558billion during 2010-11. During July-April, 2011-12net collection stood at Rs. 1,426.0 billion despitethe major challenges to the economy due to thedearth of electricity and gas. This reflects 24.0percent growth over Rs. 1,149.8 billion collectedduring the same period last year (Table:4.5).Direct TaxesThe gross and net collection of direct taxes hasregistered growth of 31.3 percent and 22.6 percentrespectively 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, 2010-11to Rs. 607.8 billion and Rs. 528.9 billionrespectively during July-April, 2011-12. Majorrevenue spinners of direct taxes are withholdingtax, voluntary payments and collection on demand.Indirect TaxesDuring July-April 2011-12, the gross and netcollection of indirect taxes has witnessed a growthof 23.1 percent and 24.9 percent respectively. Ithas accounted for 62.9 percent of the total FBR taxrevenues.Within indirect taxes, growth in sales tax increasedby 33.7 percent. The gross and net sales taxcollection 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 percentrespectively over the corresponding period of2010-11. Of the net collection, 44.8 percent of totalsales tax was contributed by sales tax on domestic60

Fiscal Developmentgoods and services during July-April, 2011-12,while the rest was derived from imports. Withinnet domestic sales tax collection, the majorcontribution came from POL products, telecomservices, natural gas, fertilizer, other services,sugar, cigarettes, beverages, cement and electricalenergy. On the other hand POL products, plastic,edible oil, fertilizers, iron and steel, vehicles,machinery, organic chemicals and oilseedscontributed significantly to the collection of salestax from imports.Table 4.5: FBR Tax RevenuesRs Billion2010-11 2011-12 July-April % Change AchievementChange (Actual) (B.E) 2010-11 2011-12 (Percentage)A. DIRECT TAXESGross 462.9 607.8 31.3Refund/Rebate 31.6 78.9Net 602.5 745.0 431.3 528.9 22.6 71.0B. INDIRECT TAXESGross 766.5 943.4 23.1Refund/Rebate 47.9 46.2Net 955.7 1,207.0 718.6 897.2 24.9 74.3B.1 SALES TAXGross 515.3 673.0 30.6Refund/Rebate 40.3 37.9Net 633.4 852.0 475.0 635.1 33.7 74.5B.2 FEDERAL EXCISEGross 102.2 95.8 -6.3Refund/Rebate 0.0 0.2Net 137.4 140.0 102.2 95.6 -6.5 68.3B.3 CUSTOMGross 149.0 174.6 17.2Refund/Rebate 7.6 8.1Net 184.9 215.0 141.4 166.5 17.8 77.4TOTAL TAX COLLECTIONGross 1,092.3 1,551.2 42.0Refund/Rebate -57.6 125.1Net 1,558.2 1,952.0 1,149.9 1,426.1 24.0 73.1Source: Federal Board of Revenue (FBR)Custom duty collection has registered a growth of17.2 percent and 17.8 in both gross and net terms.The gross and net collection has increased fromRs. 149.0 billion and 141.4 billion during July-April, 2010-11 to Rs. 174.6 billion and Rs. 166.5billion respectively during July-April, 2011-12.The major revenue spinners of custom duty havebeen automobiles, edible oil, petroleum products,machinery, plastic, iron and steel, paper andpaperboard, textile materials and organicchemicals.collection stood at Rs. 95.6 billion during July-April 2011-12 as against Rs. 102.2 billion duringthe same period last year. The major revenuespinners of FED are cigarettes, cement, beverages,natural gas, POL product and services.Provincial BudgetThe total outlay of the four provincial budgets for2011-12 stood at Rs. 1,435 billion; 21.7 percenthigher than the outlay of Rs. 1,179 billion last yearA negative growth of 6.5 percent has beenrecorded in the net collection of Federal ExciseDuties (FED) during July- April, 2011-12. The net61

Pakistan Economic Survey 2011-12Table 4.6: Overview of Provincial Budgets(Rs Billion)Punjab Sindh KPK Baluchistan TotalItems2010-11RE2011-12BE2010-11RE2011-12BE2010-11RE2011-12-BE2010-11RE2011-12BE2010-11RE2011-12BEA. Total Tax Revenue 502.6 625.4 310.6 359.4 160.2 195.4 100.5 111.5 1073.9 1291.7Provincial Taxes 39.0 48.6 32.7 35.0 3.3 3.6 1.2 1.3 76.2 88.5Share in Federal Taxes 463.6 576.8 277.9 324.4 156.9 191.8 99.3 110.2 997.7 1203.2B. Non-Tax Revenue 26.0 20.6 12.4 19.9 5.4 5.9 2.8 3.5 46.6 49.9C. All Others -7.5 21.2 11.3 17.9 37.6 23.9 3.8 -0.2 45.2 62.8Total Revenues (A+B+C) 521.1 667.2 334.3 397.2 203.2 225.2 107.1 114.8 1165.7 1404.4a) Current Expenditure 387.6 434.8 281.2 283.1 139.5 149 74.3 90.6 882.6 957.5b) DevelopmentExpenditure138.7 220.0 65.6 141.1 65.0 85.1 27.1 31.4 296.4 477.6i) Rev. Account 81.4 127.2 3.9 51.7 10.3 13.1 0.0 0.0 95.6 192.0ii) Cap. Acount 57.3 92.8 61.7 89.4 54.7 72.0 27.1 31.4 200.8 285.6Total Exp (a+b) 526.3 654.8 346.8 424.2 204.5 234.1 101.4 122.0 1179 1435.1Source: Provincial Finance, Budget WingPunjab witnessed the highest increase of 24.4percent in budgetary outlay, followed by Sindh(22.3 percent), Baluchistan (20.3 percent) andKPK (14.5 percent). The overall provincialrevenue receipts for 2011-12 are estimated at Rs.1,404 billion, which is up by 20.5 percentcompared to last year. During 2010-11 provincialrevenues witnessed a growth of 34 percentcompared to 20.4 percent in 2009-10.Table 4.7: 4- Years Overview of Provincial Budget Growth Rates (%)Rs. BillionItems 2007-08 2008-09 2009-10 2010-11 FY10 FY11A. Total Tax Revenue 504.1 612.0 697.3 1,073.9 13.9 54.0Provincial Taxes 50.3 57.3 68.6 76.2 19.7 11.1Share in Federal Taxes 453.8 554.7 628.8 997.7 13.4 58.7B. Non-Tax Revenue 59.6 58.0 56.7 46.6 -2.2 -17.8C. All Others 48.2 52.9 116.2 45.2 119.7 -61.1Total Revenues (A+B+C) 611.9 722.8 870.2 1,165.7 20.4 34.0a) Current Expenditure 497.5 688.9 704.8 882.6 2.3 25.2b) Development Expenditure 262.0 314.0 291.8 296.4 -7.1 1.6Total Exp (a+b) 759.5 1,002.9 1,357.7 1,179.0 35.4 -13.2Source: Provincial Finance, Budget WingThe accelerated growth in revenues was mainlydue to the increase in the provincial share infederal revenues under the 7 th NFC award. On theother hand the consolidated fiscal balancedeteriorated during July-March, 2011-12 and stoodat Rs. 65 billion compared to Rs. 115 billionrecorded in the same period of 2010-11. Thegrowth in total expenditure has outpaced thesignificant growth in revenues.Allocation of Revenues between the FederalGovernment and ProvincesFiscal decentralization, or the transfer of fiscalpower from the national government to the subnational governments, is considered to be aneffective tool to improve efficiency in the publicsector and to stimulate economic growth. Thisdevolution refers to the devolution ofresponsibilities for public spending and revenuecollection from the central to the localgovernments.In 2010 the government took a major step towardsfiscal decentralization by signing 7 th NationalFinance Commission (NFC) award between thefederal government and provincial governmentsand by passing 18 th Constitutional Amendment.This has not only allowed the transfer of morefunds but also widen the range of responsibilitiesfrom the federation to the provinces.62

Fiscal DevelopmentTable 4.8: Transfers to Provinces (NET)(Rs. Billion)2008-09 2009-10 2010-11 2011-12BDivisible Pool 477.4 574.1 834.7 1,043.9Straight Transfer 82.4 81.2 163.0 159.4Special Grants/ Subventions 40.6 82.0 54.1 55.4Project Aid 26.3 16.0 21.9 38.2Program Loans 0.0 0.0 0.0 16.6Japanese Grant 0.0 0.0 0.1 0.9Total Transfer to Province 626.8 753.3 1,073.7 1,313.7Interest Payment 18.5 18.7 18.5 15.6Loan Repayment 21.0 24.0 32.4 27.2Transfer to Province(Net) 587.3 710.6 1,022.8 1,270.9Source: Budget in Brief, 2011-12Under the 7 th NFC award, the financial autonomyof the provinces has been ensured by increasingtheir share in the divisible pool from 50 percent to56 percent in 2010-11 and 57.5 percent from 2011-12 onwards. The distribution of the resources hasbeen made on multi–weighted criteria whichconsist of population (82 percent),poverty/backwardness (10.3 percent), revenuecollection/generation (5.0 percent) and area orinverse population density (2.7 percent). While theshare of the federal government in the net proceedsof the divisible pool stood at 44 percent in 2010-11and 42.5 percent from 2011-12 onwards. Totaltransfers to provinces have been projected toincrease to Rs. 1,270.9 billion; an increase of 24.3percent in 2011-12 over the actual transfer of Rs.1,022.8 billion in 2010-11.Medium Term Budgetary FrameworkThe MTBF has improved the budget preparationprocess. Firstly, the medium-term fiscal frameworkand budget policies have been incorporated into amedium-term Budget Strategy Paper on rollingbasis, which include medium-term indicativebudget ceilings for the recurrent and developmentbudgets, and provides an opportunity to discuss thebudget between the technical and political levelsprior to the presentation of the annual budget. Thepolitical level involvement includes cabinet,Standing Committees on Finance & Revenue, andpolitical parties.Secondly, the Priorities Committee has beenupgraded. Before the reform program, thePriorities Committee meeting was headed by anAdditional Finance Secretary (Budget) and woulddiscuss only the development budget in detail. TheMTBF reform, has upgraded the committee whichis now chaired jointly by the Secretary Finance,Secretary Planning and Secretary EconomicAffairs Division. The committee now discussesboth the recurrent and development budgets withincreased focus on policy priorities.The Output Based Budget (OBB) has also beeninstitutionalized in the federal government whichpresents policies of the ministries in the shape ofgoals, outcomes, outputs and medium-termbudgets. The OBB also presents key performanceindicators for the outputs to introduce governmentwide monitoring system.Similarly the MTBF reform program has draftedthe Public Finance Act to legalize the MTBFreform program. Also, the reform program isworking with the Planning Commission toimplement strategic planning processes in lineministries and introduce an Apex Monitoring andEvaluation function in the government to monitorservice delivery and outcomes. The reformprogram is also interacting with PIFRA (Project toImprove Financial Reporting and Auditing) tointroduce SAP based budgeting in the lineministries.In addition to the above, the following importantdevelopments have been initiated as part of thereform program:63

Pakistan Economic Survey 2011-12The Priorities Committee, which would onlydiscuss project funding prior to the MTBF hasbeen upgraded and is chaired by SecretaryFinance, Secretary Planning and SecretaryEconomic Affairs Division. The upgradedPriorities Committee discusses policy prioritiesof the Principal Accounting Officers togetherwith medium-term budgets.The Budget Strategy Paper (BSP) is discussedwith Parliamentary Standing Committees onFinance and Revenue. This process improvesparliamentary input into the budgetingprocesses of the government. The Budget Strategy Paper (BSP) is discussedwith political parties, economic advisorycouncil and chambers. This allows greaterfocus on strategic economic and budgetingagenda of the government.ConclusionFiscal policy has the potential of playing a crucialrole in spurring economic growth and povertyalleviation. Pakistan’s economy has fared well interms of fiscal deficit in the recent past, reducingdeficit from 7.6 percent in FY08 to 5.9 percent in2010-11. In fiscal year 2011-12 the fiscal deficitwas projected to be 4 percent of GDP (Rs. 851billion). Nevertheless, during the course of theperiod the projection for fiscal deficit has beenrevised to 4.7 percent. Various external factorscontributed to this revision, for instance, growingburden from the campaign against extremism,domestic security concerns, energy shortages,unprecedented natural disasters, and upheaval inthe global economy. However, government effortsto contain the fiscal situation were effective andfiscal deficit has remained within acceptable levelthrough an expenditure management strategy,austerity measures and reforms in public sectorenterprises. The achievement of the revised deficittarget depends crucially on the realization of theexpected surpluses from provincial governments,the non-tax revenues which depend on inflows intothe Coalition Support Fund, and strict control overexpenditures.64

Chapter 5Money and CreditPakistan’s monetary policy aims at stabilizingeconomic growth through a number of channels. Itinfluences the future expectations of economicactivity and inflation. A sound fiscal position isimportant for achieving macroeconomic stability.This occurs through efficient resource allocationand the mobilization of domestic savings. Becauseof this, the central bank through its monetarypolicy and strategies plays an influential role.The global financial crisis that erupted in late 2007not only produced the severe worldwide economiccontraction, it has also hampered the ability ofcentral banks to successfully manage the economy.In reaction to the crisis, markets of developedeconomies responded in a variety of ways, such ascreating measures aimed at specific sectors, as wellas more general stimulus packages aimed atkeeping financial institutions buoyant. On the otherhand, economic activity in emerging anddeveloping economies remained relativelyvigorous on account of strong internal demand.The global economic activity rebounded in 2010on the back of better macroeconomic performanceand continued accommodative macroeconomicpolicies. Unfortunately, performance slowed laterin the year because countries with large public andprivate debt burdens faced serious problemsaccessing sovereign debt markets. Consequently,heightened concerns about long term debtsustainability in various parts of the world haveposed additional risks, not only to financialstability, but also for the ability to access safeassets.Box 1High Demand for Safe AssetsThere is a potential threat to global financial stability due to high demand for safe assets. The threat has been drivenup on account of heightened uncertainty, regulatory reforms and the extraordinary post-crisis responses of centralbanks in the advance economies. The supply of safe assets has contracted as the ability of the public and the privatesectors to produce such assets has declined. Similarly, the number of countries whose debt is considered safe hasfallen. Lack of safe asset scarcity will increase the price of safety and compel investors to move down the safetyscale. 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 safeassets. Hence policy makers should strike a balance between the desire to ensure the soundness of financialinstitutions and the costs associated with potential overly rapid acquisitions of safe assets to meet such goals.Global Financial Stability Report, April 2012. IMF.Pakistan’s financial sector has not witnessed adirect impact of the global financial crisis due to itslimited exposure in international financial markets.However, high inflationary pressures, heightenedsecurity risks, power shortages and a high cost ofdoing business posed numerous challenges forPakistan’s economy. Consequently, all thesefactors along with the global financial crisis causeda deceleration in the investment rate, a rise in65

Pakistan Economic Survey 2011-12unemployment and poverty, an increase in the debtburden, and a sharp fall in foreign exchangereserves. Moreover, the dearth of financial inflowsresulted in a sharp diversion of credit away fromthe private sector. As a consequence, monetarypolicy remained under enormous pressure to strikea balance between supporting growth and keepinginflation under watch.The devastating floods in 2010 and heavy rains inSindh in 2011 once again brought on a plethora ofchallenges. The government’s efforts to containthe fiscal deficit were undermined by thesignificant rise in federal and provincialgovernment’s expenditures in favor ofrehabilitation and reconstruction activities.Moreover, the less than expected external inflowsintensified fiscal stress. In addition, changes inkey export and import prices in the internationalmarkets and the fragile global economic recoveryare also affecting domestic economic conditions.Despite the challenges faced by the economy dueto flood and security related issues Pakistan holdsenormous potential and resilience. This wasevident when the fiscal deficit remained withinreasonable limits, (i.e 5.9 percent of GDP in 2010-11). The year to year CPI inflation was alsorecorded at 10.8 percent in March 2012 against 13percent in the same period of the previous year.Table 5.1: Policy RateEffective from Date21-Apr-09 14.017-Aug-09 13.025-Nov-09 12.530-Jan-10 12.527-Mar-10 12.502-Aug-10 13.030-Sep-10 13.530-Nov-10 14.001-Aug-11 13.510-Oct-11 12.030-Nov-11 until date 12.0Source: State Bank of PakistanMonetary Policy StanceThe continuation of sound monetary managementis central to taking on the multifaceted challengesfaced by any economy as it deals with major issuesof price stability, control of money supply andrationalization of administered interest rate. InPakistan, monetary management has mainlyfocused on controlling inflation. Inflation haspersistently remained in double digits in the lastfew years on account of difficult domestic andexternal economic environment. Similarly, theheavy reliance on domestic borrowings in theabsence of diversified and sustainable financingsources has constricted the availability of credit tothe private sector. Furthermore, dried up externalfinancing and insufficient funds from non-banksources resulted in short-term borrowing from thebanking system. Consequently, the bankingsector’s exposure to government papers hasincreased significantly.Given the difficult economic situation, the StateBank of Pakistan (SBP) followed a proactivepolicy response to shave-off additional demandfrom the economy. It has also accommodated thefiscal deficit. The SBP adopted an expansionarymonetary policy during the fiscal year 2011-12. Itslashed the discount rate by 50 bps points to 13.5percent from 14 percent on the back of animproved fiscal position. The decision continued toshow progress, as the consumer price index (CPI)and government borrowings from the Central Bankremained lower than its level at the end of June.However, the rate was further reduced by 150 bpspoints to 12 percent on October 8 th , 2011, in orderto boost to private sector credit and investment.Similarly, for a smooth functioning of a paymentsystem and financial stability, SBP has injectedsubstantial short term liquidity in the system.Nevertheless, risks to macroeconomic stability dueto fiscal weakness and decline in foreign inflowshave not retreated. The power crisis and theprecarious law and order situation are still animpediment to provide an environment conducivefor productive activities. Hence, there is a need fora cautious approach to keep the inflationexpectations around the medium term targets of 9.5percent for fiscal year 2012-13 and 8 percent forfiscal year 2013-14. On the other hand increase ingovernment borrowing to finance the budgetdeficit is adversely affecting the inflation outlook.Keeping the overall macroeconomic situation inview, the SBP has decided to keep the policy rateunchanged at 12 percent w.e.f. April 13, 2012.66

Money and CreditRecent Monetary andCredit DevelopmentDuring the first elevenmonths of the current fiscalyear, July– 11 th May 2012 broad money (M2), ormoney and close substitutes for money, witnessedan expansion of 9.09 percent as compared to 11. .47percent during the same period in2010-11. Thedeceleration in moneysupply is primarily drivenby the significant fall in the Net Foreign Assets ofTable 5.2: Profile of Monetary Indicators1. Net government sectorBorrowing(a+ +b+c)a. Borrowing for budgetary supportb. Commodity operationsc. Others2. Credit toNon-government Sector (d+ +e+f+g)d. Creditto Private Sectore. Credit to Public Sector Enterprises (PSEs)f. PSEs Special Account-Debt repayment with SBPg. Other Financial Institutions(SBP credit to NBFIs)3.Other Items(net)4.Net Domestic assets (NDA)5.Net Foreign Assets (NFA)6.MonetaryAssets(M2)Source: State Bank of PakistanNet Domestic Assets (NDA) from July – 11 th May2012 stood at Rs. 880.9 billion against Rs. 481.6billion during the same period last year, reflectingan increase of 14.9 percent over the last year. Theexpansionn in NDA is mainly due to a rise indemand for private sector credit and governmentborrowings.Conversely, Net Foreign Assets (NFA) witnessedasignificant contractionn on account of reduction inSBP’s foreign exchange reserves that arose fromthe wideningcurrentaccountdeficit anddeterioratingcapital and financialaccountsurpluses.NFA of thebanking system during theperiod under review declined to Rs. 272.2 billionas compared to an increase of Rs. 181.1 billioninthe same period of 2010-11.During July – 11 th May 2012, credit to publicsector enterprises (PSEs) registereda sharp declinefrom Rs. 10.6 billionin 2010-111 to Rs. 142.6billion. Credit to PSEswas mostly concentratedinelectricitygenerationn companies, however inNovember 2011 in order to partially resolve thethebanking system,along with increasedgovernment borrowing and a one-off settlement ofcircular debt. During the first half of the fiscal year2011-12, a significant decline in capital financialaccount inflows resulted in depletion of SBPforeignexchange reserves to finance the major partof current account deficit. The profile of monetaryindicators for fiscalyear 2010-11 and 2011-12 isdemonstrated in Table 5.2.Rs. BillionJul-14MayJul-11May2010-112011-12506.51,003.3603.31,084.4-101.1-81.64.20.5118.792.9107.8234.810.6-142.6-0.20.00.50.7-143.6-215.3481.6(9.20%) 880.9 (14.89%)circular debt issue the government borrowed Rs.391 billion from commercial banks throughh 12-month treasury bills and 5-year PakistanInvestment Bonds.Figure-5.1: Net Foreign Assets2001000-100-200-300-4002007-08662.62008- 09181.1(11.47%)2009-10Government BankBorrowingThe government borrowing from the bankingsystemfor budgetary supportand commodityoperations stood at Rs. 1,003.3 billion duringJuly2010-11-272.2608.7 (9.09%)Jul-14May 2011Jul-11May 201267

Pakistan Economic Survey 2011-122– 11 th May 2012 on account of rising subsidy oncommodities, public sector enterprises' losses andless than target revenue collection. Governmentborrowingfor budgetary support alone stood at Rs1,084.4 billion as compared to Rs. 603.3 billioninthe same period of the last year. TheSBP financinghas increased to Rs. 442.3 billion as comparedtoFigure 5.2: Government BorrowingsRs. 217.7 billion. Financing fromscheduled bankswitnessed a net increase of Rs. 642.1 billion duringthe period under review againstRs. 385.6 billionlast year. Non-bank and external financing forbudgetarysupportwas less than expected,compelling the government to borrow fromtheSBP and scheduled banks.800.00600.00500.0From SBPRs. Billion400.00200.000.00350.0200.0From Scheduled banksTotal borrowings-200.002007‐082008‐09 2009‐10 2010‐11 July‐14Mayy July‐ 11May2011 201250.0The heavyreliance onthe borrowing requirementof the government from the banking system hasalso led to the sluggish growth in the privatesector, under the crowding out effect. Accordingtothe recent SBP Amendment Act, 2012, thegovernment borrowingfrom the SBP is requiredtobe repaidat the endof each quarter and theexisting stock is to be retired withineight years.Commodity FinanceCommodity finance aims to provide short termadvances either to thegovernment, public sectorcorporations or privatesector for the procurementof the commodities such as cotton, wheat, rice,sugar andfertilizer.During July – 11 th May2012, loansfor commodityfinancing registered a net retirement of Rs. 81.6billion against the retirement of Rs. 101.1 billioninthe sameperiod of fiscal year 2010-11. Theretirementt was primarily concentrated in thesecond quarter of fiscal year 2012 as thegovernment released Rs. 78 billion to procurementagencies for the settlement of accumulatedsubsidies. On 11 th May, 2012 the stock ofgovernment borrowings for commodity operationsstood at Rs 315.9 billion (Figure 5.3).Rs BillionFigure 5.3: Commodity Finance450400350300250200150100500The government procurement target is 7.72 milliontons (MT) of wheat this year, andthe supportpricehas been raised toRs. 1050 per 40 kg for theforthcoming wheat crop. Additionally, decline ininternationalwheat prices has reduceddtheincentive for its export by the private sector.Therefore, a considerable rise in the creditrequirement for wheat procurement is expectedduring the rest of the months of current fiscal year2011-12.68

Money and CreditCredit to Private SectorThe credit availed bythe privatesector duringJuly-11 th May, 2011-122 stood at Rs 234.8 billionascomparedto Rs 107.8billion in the same periodlast year. On the otherhand year toyear growthinprivate sector credit was 7.5 percent up until 11May, 2012. There is a strong relationship betweenprivate sector credit and economic growth.However,heavy borrowing fromthe bankingsystem has restricted the credit expansion to theprivate sector.desiredd boost in private investment demand couldnot take place dueto energy shortages and anunfavorable law and order situation. Additionally,substantial government borrowing has crowded outthe private sector from receiving credit. This haslimitedthe availability of credit. Similarly, due torising non-performingloans (NPLs)bankspreferred to investin liquid assets rather thanextending credit to the private sector.Fig-5.4 : Growth of Private SectorThe private sector witnessed the highest flow ofcredit in the second quarter of fiscal year 2011-12standing at Rs. 282.2 billion.Despite thesubstantial credit flow, the cumulative privatesector credit (PSC) expansion during July – 11 thMay 20122 was limitedto Rs 234.8 billion becauseof more than usual seasonal retirements in the firstquarter offiscal year 2012.Credit to Private Sector (SectoralAnalysis)The revival of private investment in the economywas one of the main concerns for SBP to ease themonetary policy stance in 2011-12. However, thepercentages25.020.015.010.05.00.02005-062006-07072007-082008-092009-102010-112011-12(July-11May)Table 5. 3: Credit to Private SectorSectorsOverall Credit (1 to 5)1. Loans to Private Sector BusinessA. AgricultureB. Mining and QuarryingC. ManufacturingTextilesD. Electricity, gas and water supplyE. ConstructionF. Commerce and TradeG. Transport, storage andcommunicationsI. Other private business n.e.c2. Trust Funds and NPOs3. Personal4. Others5. Investment in Security& Shares of PrivateSectorSource: State Bank of PakistanEnd June StocksJuly-March(Flows)Jun-10 Jun-11 2010-11 2011-122,749.3 2,918.2 228.3 41.62,258.5 2,431.8 222.1 42.9169.517.51,263.6470.2215.567.1229.7105.123.613.1321.511.1180.517.91,385.4514.7269.467.7213.7106.229.418.0294.016.43.30.4205.3 105.5 28.1 -0.9 -18.1 -0.6 3.63.4-17.6 6.710.5-2.865.016.4-12.2-9.5-4.3-2.5-1.4-1.0-7.8-0.1145.1158.0 13.6 7.5Rs BillionGrowth Rates2010-11 2011-128.3 1.49.8 1.82.0 5.82.3 -15.716.2 4.722.4 3.213.1 -4.5-1.4 -14.0-7.9 -2.0-0.6 -2.315.1 -4.825.7 -5.4-5.5 -2.660.6 -0.69.44.7Sector wise growth incredit to the private sectorshows that loans to private sector businessesregistered a sharp decline. In flowterms, the creditexpansion during the period under review stood atRs. 42. .9 billion against Rs. 222. 1 billion in July—69

Pakistan Economic Survey 2011-12March 2011. However, the stocks reached Rs2474.7 billion in March 2011-12 against the endJune stock of Rs 2431.8 billion, reflecting anincrease of only 1.8 percent. All of the majorsectors, excluding agriculture, registered a declinein credit when compared to last year. Particularly,loans to textile sector are significantly lower thanlast year. The ample profitability of textile sectorin 2010-11, along with subsequent decline incotton prices in 2011-12 explains the relativelylower requirement for credit during July - May2012.The manufacturing sector advanced over 100percent (Rs 65.0 billion) of total PSC, followed bytextiles (38.2 percent), and agriculture (24.5percent). On the other hand, credit to trade andconstruction declined by 14 percent, followed byelectricity, gas and water supply (4.5 percent), andthen commerce and trade (2 percent).In agriculture, overall credit disbursement by fivemajor commercial banks 1 stood at Rs. 107.6 billionin July—March 2012 as compared to Rs. 93.3billion in July—March 2011 posting an increase ofRs. 14.4 billion or 15.4 percent. Total creditdisbursement to agriculture sector during July-March 2012 surged by 17 percent on year to yearbasis to Rs. 197.4 billion against totaldisbursement of Rs. 168.7 billion in the sameperiod of fiscal year 2010-11.Net decline in consumer financing during July -March 2012 stood at Rs8.5 billion as compared tothe decline of Rs 17.4 billion in the comparableperiod of 2010-11 , thereby registered a decline of3.9 percent as compared to the decline of 7.1percent during the period under review.Table 5.4: Consumer FinancingRs. BillionDescriptionJuly-March Growth (%)2010-11 2011-12 2010-11 2011-12Consumer Financing -17.40 -8.50 -7.10 -3.901) For house building -5.40 -5.20 -10.00 -10.902) For transport i.e. purchase of car -10.60 -5.60 -16.40 -11.003) Credit cards -3.40 -1.70 -12.20 -7.004) Consumers durable 0.03 0.10 13.90 37.105) Personal loans 0.40 2.70 0.40 3.006) Other 1.60 1.20 55.70 27.00Source: State Bank of PakistanLoans for consumer durables witnessed a netexpansion of 37.1 percent during July 2011 -March 2012 against 13.9 percent in the sameperiod last year. However, auto loans, mortgages,credit cards and personal loans have consistentlybeen on the decline since January 2008 on accountof multiple factors (e.g. fragile economicconditions, rising cost of credit and increasingdefault). The stock of consumer finance reduced toRs. 209.1billion in March 2012 from its peak ofRs. 371.3 billion exactly four years earlier.Each category within the consumer financesegment has registered a persistent increase in theloan infection ratio for the last three years. Thisincrease has been a combination of rising NPLsand declining credit to each category with theexception of consumer durables.Monetary AssetsThe component of monetary assets (M2) include:currency in circulation, demand deposit, timedeposits (excluding IMF A/C, counterpart), andresident’s foreign currency.1 Allied Bank, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited70

Money and CreditTable-5.5 Monetary Aggregates(Rs Million)Items End June July-11May2010 2011 2010-11 2011-12A.Currency in Circulation 1,295,385 1,501,409 1,550,840 1,705,749Deposit of which:B. Other Deposits with SBP 6,663 10,145 10,359 11,924C.Total Demand &Time Deposits incl.RFCDs 4,475,186 5,183,640 4,878,666 5,586,202of which RFCDs 345,438 374,945 368,012 416,962Monetary Assets Stock (M2) A+B+C 5,777,234 6,695,194 6,439,864 7,303,874Memorandum ItemsCurrency/Money Ratio 22.4 22.4 24.1 23.4Other Deposits/Money ratio 0.1 0.2 0.2 0.1Total Deposits/Money ratio 77.5 77.4 75.8 76.5RFCD/Money ratio 6.0 5.6 5.7 5.7Income Velocity of Money 2.7 2.9 2.7 2.7Source: State Bank of PakistanCurrency in CirculationDuring July – 11 th May 2012, currency incirculation (CIC), in flow terms, stood at Rs. 204.3billion as compared to Rs. 255.5 billion in thesame period last year. Similarly, the currency incirculation as percent of money supply (M2) hasdeclined to 23.4 percent in 2011-12 as against 24.1percent during the same period in 2010-11.Fig-5.5 : Currency in Circulation % M2 & GDPCIC/M2 CIC/GDP25.010.524.010.023.09.59.022.08.521.08.020.07.52006 2007 2008 2009 2010 2011 2012(July-11May)Broad money (M2) grew by 9.09 percent duringJuly – 11 th May 2012, as compared to an increaseof 11.47 percent during the same period last year.The decline in broad money (M2) came from thedecline in both currency in circulation and depositmoney.DepositsDuring July – 11 th May 2012, demand and timedeposits stood at Rs. 402.6 billion as against Rs403.5 billion during the same period last year.Hence the decline in currency in circulation isoffset by the increase in demand and time deposits.Similarly, resident foreign currency deposits(RFCDs) have increased to Rs. 42.0 billion ascompared to Rs. 22.6 billion during the sameperiod last year.Monetary ManagementEfficient monetary management is crucial inproviding a sound and secure financialenvironment that is favorable for the attainment ofboth macroeconomic stability and growth.Moreover, a well-developed financial systemfacilitates the exchange of goods and services by71

Pakistan Economic Survey 2011-12providing payment services. It also allocatessociety’s savings to its most productive use byacquiring and processing the information aboutenterprises and finds possible investment projects.Finally, it helps diversify and reduce liquidity andinter-temporal risk. A stable financial system isessential for an efficient, deep and liquid market.crisis led to the closing of many credit lines anderosion various of financial mechanisms.Pakistan’s financial markets witnessed a slowdownin deposit mobilization and profitability in thesector. Conversely, the financial sector remainedgenerally immune to the contagion of the unstablefinancial sector.The strains on the financial sector and the creditcrunch in the aftermath of the global financialTable 5.6: Summary of OMO'sRs. billionInjectionsAbsorptions2010-11 2011-12 2010- 11 2011-12July 75.05 408.45 20.50 -August 165.05 640.35 - -September 196.55 1025.10 54.40 -October 36.85 1058.65 171.50 -November 67.55 1381.45 102.50 -December 34.10 1418.90 128.55 24.00January 106.85 969.15 11.50 -February 119.40 1244.40 51.20 -March 230.85 1210.90 - 3.00Total 1,032.25 9357.35 540.15 27.00Source: State Bank of PakistanDuring the first half of fiscal year 2011-12 relianceon the banking system to fund the government’sfinances created further challenges to striking abalance between cautious liquidity operations andpayment system stability. Furthermore, the excessvolatility in short term interest rates increased thechallenges of monetary management, mainly dueto a sharper deterioration in the external currentaccount deficit, a declining trend of foreigninflows, and a higher currency to deposit ratio.However, other market interest rates, such asKIBOR and the weighted average lending rate(WALR), have largely followed the policy ratereductions. The average spread between the policyrate and the 6 month KIBOR has narrowed to 12bps after the cumulative 200 bps reduction in thepolicy rate.Table 5.7: Market Treasury Bills AuctionsRs. MillionJUL-JUNJul-MarchFY2010-11 Offered Accepted W.A.Rate*Offered AcceptedW.AFY1FY11 FY12 FY11 FY12 FY11Rate*23-Months 2,837,276 1,668,408 12.8 2,479,501 671,490 1,484,235 363,478 12.8 12.56-Months 2,226,878 1,614,552 13.0 1,101,412 1,501,433 809,208 883,012 13.0 12.712-Months 908,194 599,015 13.2 437,602 2,086,003 234,144 1,239,758 13.2 12.8Total 5,972,348 3,881,975 4,018,515 4,258,926 2,527,587 2,486,247Source: State Bank of PakistanAverage of maximum and minimum rates72

Money and CreditThe SBPaccepted Rs. 2486.2 billion from theprimary market of T-bills duringJuly 20111 -March 2012 as compared to Rs. 2527.6 billionduring thesame periodof fiscal year 2010-11. Themarket offered a total amount of Rs. 4259 billionduring thefirst nine months of current fiscal year2011-12.In an anticipation of a further cut inthe policy ratein October 2011 and onwards investment in longertenure papers increased. During the first ninemonths of 2011-12 months T-bills, accounted for49.9 percent of the total accepted amount followedby 35.5 percent in 6 months T-billsFigure-5.6: Contribution of T-billsPercent58.760.0040.0020.00FY 1132.0 35.514.69.349.90.003-Months 6-Months 12-MonthsFY1214.514.013.513.012.512.011.511.0Fig-5.7: WeightedAverage Interest Rates6-Months12-MonthsJun-08Aug-08Oct-08Dec-08Feb-09Apr-09Jun-09Aug-09Oct-09Dec-09Feb-10Apr-10Jun-10Aug-10Oct-10Dec-10Feb-11Apr-11Jun-11Aug-11Oct-11Dec-11Feb-12Apr-12Table 5.8: Pakistan Investment Bonds AuctionsOffered Accepted *W.A RatePIBsJul-JunFY 2010-113 Years5 Years10 Years15 Years20 Years30 YearsTotalSource:SBP81,96033,306176,8402,9667,87512,413315,36049,71216,668101,355460875225169,29514.013.314.114.114.214.2* : Average of Minimumm and Maximumm ratesOfferedAcceptedJul-MarchFY 11 FY12 FY 11 FY 1242,227 74,171 18,684 50,60718,662 57,277 6,674 41,938111,246 108,032 57,537 64,3702,031 2,446 BR 2,2626,500 200 525 011,113 210 BR 0191,779 242,336 83,420 159,177Rs. Million*W.A RateFY 11FY 1214.0 12.813.3 12.614.1 12.8Nil 13.514.2 0.0Nil 0.0During 2011-12, the SBP rose upto Rs. 159.2billion from the primary market of PakistanInvestment Bonds (PIBs) as compared to Rs. 83.4billion inthe same period last year. The marketoffereda total amount of Rs. 242.3 billion in thefirst nine months ofthe fiscal year 2011-12 againstRs. 191.8 billion in 2010-11.73

Pakistan Economic Survey 2011-122PercentagesFigure- 5.8: Contribution of PIBs75.060.045.030.015.00.03 YearsFY 10FY115 Years10 Yearspercentwhile the weighted average deposit rate(including zero mark-up) stood at 6.98 percent inMarch 2012. This resulted in a spread of5.82percent. The decline in the weighted averagelendingrate is due to the lag involved incontracting fresh loans in the new declininginterestt rate environment and the decline in banksreturn on government securities.It is pertinent to mention that since the CentralBank was followinga tight monetary policyuntilAugust2011 and the interest rates were movingup,the bankingspread remained high.Consequently, theree was a lackluster movement indepositrates.During the period under review, heavy investmentoccurred in 10 years PIBs which constituted almost40.4 percent of the total accepted amount.Table 5.9: Lending and Deposit Rates WeightedAverage (W.A.)LRDR SpreadDec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-1214.20 14.22 14.19 14.24 14.37 14.21 14.25 14.62 14.22 14.28 13.97 13.58 13.23 13.18 13.14 12.80 7.417.206.997.097.357.457.227.467.408.408.037.487.067.127.036.986.797.027.207.157.026.767.037.166.825.885.946.106.176.066.115.82Source: State Bank of PakistanThe weighted average lending rate (including zeromark-up) on outstanding loans stood at 12. .80Table 5.10: Highlights of the BankingSystemCY*05 CY06CY07Total AssetsInvestments (net)Advances (net)DepositsEquityProfit Before Tax (PBT)3,6608001,9912,832292944,353833 2,4283,255 4021245,1721,2762,6883,854544107Pakistan’s Financial SectorA well-developedfinancial sector plays animportant role in overall economic development,as it mobilizes savings for productive investment,facilitates capital inflows and remittances fromabroad, and stimulates investment in both physicaland human capital. It includes banks, stockexchanges, credit unions, insurance companies,microfinance institutions and money lenders.Hence a sound and stable financial sectorcontributes to economic and social development.Commercial BanksThe asset base of the banking system and its keyelements posted a strong growth trend, particularlyin terms of the deposit base. However, the assetmix ofthe bankingsystem shifted further towardinvestment, as banks continued to invest ingovernment papersand bonds of public sectorenterprises (PSEs). On a Year to year basis theasset base of the banking system registered anincrease of 15 percent and stood at Rs. 8207 billionin December 2011 as compared to Rs. 7138 billionin December 2010.CY08 CY09Dec-105,628 6,516 7,1381,087 1,737 2,1423,173 3,240 3,3494,218 4,786 5,450563 660 69763 81 111Rs billionSep-11 Dec-117,763 8,2072,845 3,0533,263 3,3415,769 6,238753 784116 17074

Money and CreditTable 5.10: Highlights of the Banking SystemRs billionCY*05 CY06 CY07 CY08 CY09 Dec-10 Sep-11 Dec-11Profit After Tax (PAT) 63 84 73 43 54 65 76 110Non-Performing Loans 177 177 218 359 446 548 613 607Non-Performing Loans (net) 41 39 30 109 134 182 210 202Base-IBase-IICapital Adequacy Ratio (all banks) 11.3 12.7 12.3 12.3 14.0 14.0 14.9 14.6Source: State Bank of Pakistan* Calendar yearThe deposits of the banking system increased toRs. 6238 billion in December 2011 from Rs. 5450billion in December 2010 thus posted a growth of14.4 percent year to year basis.With continuous growth in the non-performingloans (NPLs) since CY07, credit risk has been a15.51412.5119.58Fig-5.9: Capital Adequacy Ratio (percent)major challenge for banks. NPLs reached Rs. 607billion in December 2011 against Rs. 548 billionrecorded in December 2010. The capital adequacyratio also increased to 14.6 percent from 14 percentduring the period under review (Table 5.9).BOX-2Financial DevelopmentFinancial development in reference to the increase in the ratio ofmoney supply to GDP suggests that the more liquid money isavailable in the economy, the more opportunities exist in economyfor sustainable economic growth. Therefore, the development of thefinancial system (financial deepening) is interlinked with theeconomic 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 financialassets are growing faster than the non financial assets. In case ofPakistan, the financial market has shown great resilience in thewake of global financial crisis due to low integration with globalfinancial markets.Table5.11: Key Indicators of Pakistan'sFinancial DevelopmentYears M2/GDP DD+TD/M22000-01 36.7 75.42001-02 40.0 75.42002-03 43.1 76.22003-04 44.9 76.82004-05 45.1 77.62005-06 45.0 72.52006-07 46.6 74.12007-08 44.7 73.32008-09 39.2 72.02009-10 39.4 71.52010-11 37.1 71.8July-May2010-11 35.0 70.02011-12 34.9 70.1Table 5.11 suggests that the M2 to GDP ratio has shown a risingtrend since 2000-01 with growing economic activity and rose from 36.7 percent to 47 percent in 2006-07. The ratio75

Pakistan Economic Survey 2011-12started to decline gradually and stood at 37.1 percent in 2010-11. During July —May 2012 M2 to GDP ratio hasdeclined further to 34.9 percent as compared to 35 percent in the same period last year on account of the pressure tothe liquidity profile of the financial markets mainly due to the rising government’s borrowing needs. On the otherhand another significant ratio DD + TD/M2, which represents monetary depth, has also shown the declining trendsince 2004-05 by decreasing from 77.6 percent to 71.8 percent in 2010-11. This is the period when the monetarypolicy stance changed from accommodating to tightening. However, reduced policy rate by 200 bps to 12 percentduring the current fiscal year 2011-12, resulted in a slight increase of 70.1 percent during July 2011—May 2012from 70 percent during the same period last year.In an effort to improve financial deepening and competition in the banking system, SBP is already encouragingdepositors to put their savings in government securities through Investor’s Portfolio Securities (IPS) accounts whichmay lead to better returns on deposits over time. Moreover, in May 2008, SBP introduced a minimum percent flooron all categories of Savings/PLS Saving Products. Consequently, average deposit rate of all saving related productsincreased from 2.1 percent to 5.25 percent, with no significant change thereafter. The saving deposits category nowaccount for 38 percent of all bank deposits and 52 percent of total number of deposit accounts. 1Islamic BankingThe Islamic banking industry in Pakistan hasmaintained a strong and sustainable growthTable 5.12: Islamic Banksmomentum in the wake of fragile economicconditions. Over the past six years it has witnessedan average growth of 30 percent.Rs. BillionCY05 CY06 CY07 CY08 CY09 Dec-10 Dec-11Assets of the Islamic banks 71.5 119.3 205.9 276.0 366.3 477.0 641.0Deposits of the Islamic Banks 49.9 83.7 147.4 201.6 282.6 390.1 521.0Share in Banks Assets 1.95% 2.79% 3.98% 4.90% 5.60% 6.68% 7.80%Share in Bank Deposits 1.75% 2.62% 3.82% 4.78% 5.90% 7.16% 8.40%Source: Islamic Banking Department, State Bank of Pakistan*Provisional dataThe asset base of the industry reached Rs. 641billion reflecting 34 percent Year to year (YOY)growth, while the share in bank assets increased to7.8 percent from 6.7 percent during the periodunder review. The growth in assets is mainlyattributed to financing and investment that togethergrew by 40 percent year to year basis. On the otherhand deposits reached to Rs. 521 billion depictingYOY growth of 34 percent by end of Dec 2011.Thus it contributed 8.4 percent in banks depositsagainst 7.2 percent in Dec 2010. Similarlyoperating performance indicators also witnessedencouraging performance in 2011, as nonperformingfinancing (NPFs) declined while returnon assets (ROA) and return on equity (ROE) bothremained higher than that of overall bankingindustry average.The breakup of financing in CY11 indicates thatMurabaha dominates followed by DiminishingMusharaka and Ijara with all other modesconstituting a relatively small share.MicrofinanceThe Government of Pakistan and the SBP remaincommitted to promoting microfinance as a longterm strategy to broaden access to financialservices by the low income segments, thusimproving their livelihood and income generatingopportunities.1 Monetary Policy statement, April, 2011-1276

Money and CreditTable 5.13: Financing Products by Islamic banks%ageMode of Financing CY05 CY06 CY07 CY08 CY09 CY10 CY11Murabaha 44.4 48.4 44.5 36.5 42.3 44.9 43.8Ijara 29.7 29.7 24.0 22.1 14.2 12.7 10.4Musharaka 0.5 0.8 1.6 2.1 1.8 2.9 2.4Mudaraba 0.3 0.2 0.4 0.2 0.1Diminishing Muskaraka 12.8 14.8 25.6 28.9 30.4 29.5 32.0Salam 0.6 1.9 1.4 1.8 1.2 1.4 2.4Istisna 1.4 1.4 1.0 2.9 6.1 5.8 4.4Others 12.1 3.0 1.6 5.4 3.6 2.6 4.4Source : State Bank of PakistanThe overall microfinance sector witnessed loanportfolio growth of 13 percent over the year. Itsgross loan portfolio stood at Rs. 28.84 billion asthe quarter ended in December 2011 with 2.07million active borrowers. On the deposit side, thenumber of depositors of Micro Finance Banks(MFBS) increased to 1.44 million with a depositbase of Rs. 13.6 billion as of March 31, 2012.The overall performance of the sector remainedpositive in spite of the various challenges includingthe heavy floods/rains that adversely affectedvarious parts of the country especially Sindh, forthe second consecutive year. The loan portfoliogrowth is attributable to the recent microfinancesector strategy that stresses the need formicrofinance providers to diversify portfolio indifferent economic and geographic segments. TheNPLs of microfinance banks have also dropped totwo (2) percent as the quarter ended in March 2012against 5.29 percent in March 2011 depictingeffectiveness of the credit process. The sector wasable to expand its retail network to 1,739 businesslocations across the country.Table 5.14: Microfinance Industry IndicatorsYear InstitutionGross loan AverageNumber Number of Total No. ofTotal No. of Depositsportfolio Loan Sizeof MFBs Branches BorrowersDepositors(Rs. In '000) (Rs)(Rs. In '000)Dec-08 MFBs 7 271 542,641 6,461,462 11,907 254,381 4,115,667MFIs 20 1,186 1,190,238 11,952,000 14,940 - -Total 27 1,457 1,732,879 18,413,462 10,626 254,381 4,115,667Dec-09 MFBs 8 284 703,044 9,004,000 13,576 459,024 7,099,206MFIs 21 1,159 1,123,001 12,719,000 11,326 - -Total 29 1,443 1,826,045 21,723,000 12,131 459,024 7,099,206Dec-10 MFBs 8 284 717,141 10,528,000 20,151 780,294 10,289,000MFIs 21 1,252 1,342,395 14,966,000 17,180 - -Total 29 1,536 2,059,536 25,494,000 18,385 780,294 10,289,000Dec-11 MFBs 9 303 733,931 14,650,000 19,691 1,362,202 13,927,066MFIs 23 1,436 1,339,140 14,195,000 10,600 - -Total 32 1,739 2,073,071 28,845,000 13,914 1,362,202 13,927,066Source: State Bank of PakistanMicrofinance Policy InitiativesThe policy framework for microfinance hasevolved in tandem with sector growth. Itencourages private sector participation bysupporting a multi-institutional approach. Theregulatory instructions are developed in view ofthe present market situation and MFBs’preparedness allowing adequate room for furtherinnovation and market development. During thepast two consecutive years Pakistan was globallyranked first by the ”Economist Intelligence Unit”(EIU) of the Economist magazine, in terms of77

Pakistan Economic Survey 2011-12microfinance regulatory framework via its reportsreleased in 2010 and 2011.In September, 2011 the Waseela MicrofinanceBank was granted a license under the“Microfinance Institutions Ordinance, 2001” tooperate nationwide. In addition, the Auriga Groupacquired the district wide Network MicrofinanceBank with the intent of upscaling its operations asa nation wise MFB. Also in the same month, thegeneral provisioning requirement for MFBs waswithdrawn in cases where loans were backed byliquid securities, gold, or other cash collateral withappropriate margin. However, in case of all otherloans, microfinance banks shall maintain generalprovision of 1%.In March 2012, the State Bank has revisedPrudential Regulations No. 10 and 11 for MFBs tofacilitate lending to microenterprise segment. Forthese purposes, the term microenterprise shallmean projects or businesses in trading,manufacturing, services, and agriculture sectorsthat lead to livelihood improvement and incomegeneration. Microenterprises are undertaken bymicro-entrepreneurs who are either self-employedor employ few individuals; these businesses do notexceed 10 employees and they excluded seasonallabor.The revisions will facilitate lending of up to Rs.500,000 to eligible microenterprises. Moreover,MFBs that previously were unable to tap themicroenterprise market constraints of lending up toRs. 150,000 under the general loans category willnow be able to upscale their credit operations.Box-3Program’s initiatives:SBP is playing a pivotal role in promoting inclusive finance through implementation of government and donorfunded programs. These programs are managed with the objective of enhancing the provision of financial services tounbanked segments especially to the poor and marginalized population through sustainable models. The updates ongovernment 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 Government’s Department forInternational Development (DfID). SBP has successfully launched a number of market interventions under FIP since2008. Progress under each of these interventions is as follows:a. The Institutional Strengthening Fund (ISF) was launched to strengthen institutional and human resourcecapacity of MFB is in order to enhance scale and sustainability of microfinance services. So far funding supportof Rs. 819 million has been approved for 19 microfinance providers including top and middle tier MFBs andMFIs as well as the Pakistan Microfinance Network. The grant covers 22 projects addressing institutionalstrengthening needs of the grantee institutions for capacity building/ HR training, IT development, businessplan/ strategic reviews, market research, branchless banking, corporate governance, credit ratings, remittances,and treasury functions, and others.b. Microfinance Credit Guarantee Facility (MCGF) was launched to mobilize wholesale commercial funding formicrofinance providers through partial guarantees to commercial banks. So far, fourteen (14) guarantees with atotal exposure of Rs. 957 million have been issued for mobilizing Rs. 3,275million.c. Credit Guarantee Scheme (CGS) for Small and Rural Enterprises aims to facilitate credit to small and ruralbusinesses through partial guarantees. So far partner banks have booked guarantees of Rs. 1,107 billion againstsanctioned loans of Rs. 2.711 billion for 3,846 small and rural enterprises by the end of March 2012.d. Financial Innovation Challenge Fund (FICF): was launched in May 2011. It aims to foster innovations and testnew markets, lower cost of delivery, enable systems and procedures to be more efficient and provide new waysof meeting the unmet demand for financial services. A number of applications were received under the 1st78

Money and Creditround 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 educationabout financial concepts, products and services to the masses.b. Grass Root Level Training Programs on Microfinance is a series of 40 individual training programsexpected to benefit 1000 participants from various microfinance providers. So far 12 training Programshave been organized.Insurance SectorThe insurance industry in Pakistan is relativelysmall compared to its counterparts in the region.The insurance penetration and density remainedmodest as compared to other jurisdictions whilethe insurance sector remained underdevelopedrelative to its potential. As of December 2010, theindustry’s total premium revenue stands at Rs.100.58 billion.Fig-5.10: Insurance Penetration in PakistanBox-4Way Forward1. Development of New Insurance Law: SECP is considering embarking upon the initiative of revamping ofinsurance laws in Pakistan. The derived benefits will include a new regulatory and supervisory frameworkencompassing enhanced reserves and capital requirements, insurance industry’s risk-focused surveillancemechanisms, training and capacity building to support the implementation of the improvised insuranceregulatory framework. Under this new regime, certain new regulations will also be introduced where no suchframework 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.2. Voluntary Pension Schemes by Insurance companies: Although there are already nine (9) Pension Funds79

Pakistan Economic Survey 2011-12operating under the Voluntary Pension System Rules, 2005, none of the insurers have so far ventured in this areawhile registering itself under these rules. The SECP intends to make the existing Rules more conducive and equallyattractive for insurers by initiating a consultative process with the relevant stakeholders and encouraging theinsurance companies to offer voluntary pension products.3. Development of Crop Insurance in Pakistan: The agriculture sector contributes approximately 21 percent toPakistan's GDP and generates about 45 percent of employment. It also contributes to the economic growth of thecountry by supplying raw materials to the industry as well as for export purposes. With the proliferation ofnumerous initiatives launched by the public and private sector, including the access to financial services in ruralareas, it has become imperative that measures be taken to mitigate risks to which farmers are exposed. It is a knownfact that agricultural production can increase if the vagaries of nature and the risks associated with it can be bettermanaged. While, the majority of areas of our agricultural economy are exposed to adverse weather events such asfloods and droughts, crop diseases and other disasters, the immediate need is to provide it with a carefully designedtool to mitigate such inherent risks. As the apex regulator of the insurance industry, it is the endeavor of SECP todevelop and promote the agricultural insurance in order to ensure the well-being of the economy. Also, whileaugmenting the efforts of government whereby it formed a crop insurance scheme in year 2008 and the recentinterest 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, agricultureand livestock development departments/ agencies, together to articulate the development of crop insurance inPakistan. SECP will be working to help in building a market-based approach in the design and pricing of cropinsurance products.ConclusionPakistan’s financial institutions are doing theutmost to continue to respond to the globaleconomic and financial volatility. AlthoughPakistan was not heavily affected by the financialcrisis of 2007, it is taking every precaution in howit moves forward to support growth and monitorinflation. Efforts continue in avoiding highinflationary pressures, mitigating heightenedsecurity risks, eliminating power shortages andproviding a lower cost of doing business, in orderto boost Pakistan’s economy. With evidence of itspast resilience in rough economic times, the futureroles of money and credit in Pakistan remainoptimistic.80

Chapter 6Capital MarketsIntroductionThe capital market, like the money market plays asignificant role in the national economy. Adeveloped, dynamic and vibrant capital market cancontribute significantly in the speedy economicgrowth and development. It mobilizes funds frompeople for further investments in the productivechannels of an economy, activating idle monetaryresources and puts them in proper investments.Capital market also helps in capital formation.Capital formation is net addition to the existingstock of capital in the economy. Throughmobilization of ideal resources it generatessavings; the mobilized savings are made availableto various segments such as agriculture, industry,etc. This helps in increasing capital formation. Itraises resources for longer periods of time. Thus itprovides an investment avenue for people whowish to invest resources for a longer period oftime. It provides suitable interest rate return also toinvestors. Instruments such as bonds, equities,units of mutual funds, insurance policies, etc.definitely provide diverse investment avenues forthe public.The capital market enhances production andproductivity in the national economy. As it makesfunds available for long periods of time, thefinancial requirements of business houses are metby the capital market. It helps in research anddevelopment. This helps in increasing productionand productivity in the economy by generation ofemployment and development of infrastructure.The lack of an advanced and vibrant capital marketcan lead to underutilization of financial resources.The developed capital market also provides accessto foreign capital for domestic industry. Thus thecapital market definitely plays a constructive rolein the overall development of an economy.Capital markets consist mainly of Stock (equity)and Debt markets. The capital market provides anavenue for raising the long-term financing needs ofbusiness through equity and long term debt byattracting investors with a long term investmenthorizon.Pakistan Equity MarketsThe Karachi Stock Exchange (KSE) is the biggestand most liquid exchange in Pakistan with anaverage daily turnover of 254 million shares andmarket capitalization of US $ 41.0 billion as of thefirst week of May, 2012. The internationalmagazine 'Business Week' declared the KSE as thebest performing world stock market in 2002. Sincethen, international investors have given dueconsiderations to the KSE in making decisionsregarding foreign investment in equity markets.Since 1991, foreign investors have an equalopportunity together with local investors to operatein the secondary capital market on the KarachiStock Exchange. The establishment of the newpolicy for foreign investors and the privatizationinitiated in Pakistan has accelerated thedevelopment of the KSE, which had 591companies listed in 2012.The Karachi Stock Exchange trades the KSE-100Index. It is a highly-diversified index of 100largest capitalization companies’ stocks from allsectors of Pakistan’s economy. A constantlyrevised index is a good indicator of the overallexchange performance over a period of time. InMay, 2012, 92 percent of the KSE total market81

Pakistan Economic Survey 2011-12capitalization was represented by the KSE-100Index.The Lahore Stock Exchange is the second stockexchange established in Pakistan in 1971. Today,the LSE is the only domestic exchange to havemore than one trading floor and is also the onlyexchange in the region to have established aunified order book with another domestic stockexchange in the country. The institution wasestablished to facilitate the investors of Punjab andNorthern areas by providing them an access to thecapital market and enabling them to take part in theprogress of the corporate sector of thecountry. The Lahore Stock Exchange Twenty Fivecompany index, the LSE25, calculates theperformance of stocks of major companies.The third stock exchange, the Islamabad StockExchange, was incorporated as a guarantee limitedcompany in 1989 in Islamabad with the mainobject of setting up a trading and settlementinfrastructure, information system, skilledresources, accessibility and a fair and orderlymarket place. The purpose for establishment of thestock exchange in Islamabad was to cater to theneeds of less developed areas of the northern partof Pakistan. ISE10 index monitors the performanceof the ISE.Developments in 2011-12The Pakistan stock markets remained range boundduring the first half with a predominantly decliningtrend. The obscure movement of the stock marketstatistics was consequent to various challengesfaced by the country including escalating politicalupheaval, uncertainty due to worsening law andorder situation as well as rumours on the economicfront pertaining to reduction in military and civilaid from international donors, the Pak rupeedepreciation and increasing fiscal deficit of thegovernment. However, the KSE-100 indexresumed its momentum during the 3 rd quarter of2011-12 owing to certain encouraging measureslike considerable reduction in discount rate by theSBP during latter period of the first half of CurrentFinancial Year and increase in foreign exchangereserves. Further, the market sentiment wasboosted by the proposed promulgation of theCapital Gain Tax Ordinance under which theNational Clearing Company of Pakistan Limited(NCCPL) has been appointed as an intermediaryentity to compute, determine, collect and depositthe Capital Gain Tax (CGT) on listed securities.The subject Ordinance was finally promulgated onthe 24 th April, 2012.In Pakistan, securities trading remained exemptfrom CGT for 36 years till June 30, 2010. Theimposition of CGT on securities from July 1, 2010has not only impacted the tax revenue (less than 10percent of figure three years ago) but also reducedaverage traded value to the lowest level during thelast ten years. During the period of exemption, theinvestors kept making gains from the securitiestrading which remained undocumented due toexemption from requirement of filing of incometax returns relating to exempt income. In 2010,after the imposition of CGT, investors wererequired to file the income tax returns along withdeclaring the source/evidence of investments forwhich they did not have the documented details.Due to this the investors reduced investments inthe stock markets and the average daily turnoverreduced along with the reduction in the shareprices.To address the distress condition of share tradingin the stock market, some mechanism was requiredto provide relief to the investors who weresubjected to 100 percent documentation of thegains and increase in the tax revenue. This has nowbeen done with the promulgation of the CGTOrdinance under which NCCPL has beenappointed as an intermediary entity to compute,determine, collect and deposit the CGT on listedsecurities.NCCPL is a clearing company where all theamounts relating to the trading activity in the stockmarkets in Pakistan are settled. Therefore theNCCPL can capture and tax all the transaction inwhich capital gain arises under the income tax law.The NCCPL will compute tax for all type ofinvestors except the few financial intermediaries,foreign institutional investors and any other personspecified by FBR. The tax rate for CGT will be 8percent and 10 percent for investment holding upto six months and 12 months respectively till June30, 2014. NCCPL will be depositing the tax withthe FBR on an annual basis.82

Capital Marketsquarter. The average daily volume for the nineIn addition, no question relating to the2011-12 but volumes gathered pace in the 3 rdsource/nature of money will be asked by the tax months was 108.21 million shares.authorities if the money remains invested in thestock market for a period of 45 days (till June 30,2012) and 120 days (till June 30, 2014) before andafter the promulgation of CGT Ordinance with acondition that the investor files with FBR aThe investment by foreign investors in the capitalmarkets during the period from July 2011 to March2012 depicted a net outflow of USD 176.303million.statement of investment, wealth statement, incometax returns and statement that the due tax has beenpaid. Further the automated system of the NCCPLwill be audited on a quarterly basis and theFig-1: Net Inflow of Foreign Investment600,000400,000NCCPL will submit quarterly statements to FBR200,000relating to the CGT.0Performance of Karachi Stock ExchangeA total of 591 companies were listed at the KarachiStock Exchange (KSE) as of May 04, 2012 with a(200,000)(400,000)(600,000)(800,000)(1,000,000)total listed capital of Rs1,059.087 billion. The(1,200,000)aggregate market capitalization as on May 04,2012 stood at Rs. 3,730.489 billion whichremained below 18.1 percent of the provisionalestimates of GDP, fiscal year 2012.Market performance in terms of volumes alsoremained sluggish during the first half of theTable 6.1: Profile of Karachi Stock ExchangeDescription 2007-2008 2008-2009 2009-2010 2010-2011 2011-12(end March 2012)Total listed companies 652 651 652 639 591New companies listed 7 8 8 1 3Fund mobilized (Rs. in billion) 62.88 44.95 111.83 31.04 107.29Total Listed Capital(Rs. in million)Total Market Capitalization(Rs. in million)Total Shares Volume(million)Average Daily Share volume(million)Source: Karachi Stock ExchangeUS 000 $706,419.98 781,793.81 909,893.67 943,732.85 1,058,455.263,777,704.89 2,120,650.87 2,732,373.61 3,288,657.32 3,528,143.8463,316.12 28,332.78 42,959.12 28,018.14 23,633.28256.34 115.64 172.53 111.63 127.752007-082008-092009-102010-112011-12(Jul-Mar)The closing value of KSE 100-index as on May 07,2012 stood at 14,617.97 points registering agrowth of 17.04 percent as compared to July 01,2011 when the index stood at 12,484.17 points. Italso touched its highest level of 14,617.97 pointson May 07, 2012 and lowest level of 10,842.26points on August 23, 2011.83

Pakistan Economic Survey 2011-12Table 6.2: Leading Stock Market Indicators on KSE (KSE-100 Index: November (1991=1000)Months 2010-11 2011-12KSE Index(end month)MarketCapitalizationTurnoverOf sharesKSE Index(end month)MarketCapitalizationTurnoverOf shares(billion)(Rs. Billion) (billion)(Rs. Billion)July 10,519.02 2,992.5 1.5 12,190.37 3,247.4 1.2August 9,813.00 2,781.3 1.2 11,070.58 2,938.0 1.0September 10,013.31 2,810.3 1.2 11,761.97 3,125.8 1.4October, 10,598.40 2,943.1 2.2 11,868.88 3,119.1 1.8November 11,234.76 3,113.8 2.3 11,532.83 3,022.6 0.9December 12,022.46 3,324.4 2.9 11,347.66 2,960.1 0.8January 12,359.36 3,392.6 3.6 11,874.89 3,064.0 1.6February 11,289.23 3,109.9 1.8 12,877.88 3,317.7 3.9March 11,809.54 3,181.1 2.2 13,761.76 3,501.8 7.0April, 12,057.54 3,2241.8 1.6 13,990.38 3,548.9 6.6May 12,123.15 3,249.9 1.6June 12,496.03 3,315.8 1.7Source: Karachi Stock ExchangeFig-2: KSE Index1500014000130001200011000100009000Fig-3: Market Capitalization3900370035003300310029002700250084

Capital MarketsVarious steps are being taken by the SECP toencourage new listings. These include thefollowing:The management of unlisted public companiesis being approached through stock exchangesto motivate them for listing at the stockexchanges. An initial public offering (IPO)summit has also been organized to identifypotential IPOs and to attract them to list theircompanies on the stock exchanges. Various regulatory bodies such as PTA,OGRA, DGPC, PPIB, SBP and BOI have beenapproached so that their regulated entities canbe motivated for listing. Formation of a technical committee,comprising members from all the three stockexchanges and the commission to takenecessary steps for encouragement of newlisting. Such steps include review of theexisting regulatory framework for new listing;introduction of venture/SME board for listingof small capital based companies and venturecompanies; amendments in the listingregulations for reviewing the minimumallocation of capital to the general public;devising a procedure for allocation of capital tovarious categories of applications during IPOs,and bringing uniformity in the listingregulations of all the three stock exchanges ofPakistan.Sector wise PerformanceOil and gas Sector, food producers, chemicals,construction and materials were the outperformingsectors during the current year. Performance ofsome of the major sectors is mentioned below.Oil and GasIn this sector 12 companies are listed at theKarachi Stock Exchange. In addition to the oil andgas exploration companies, oil marketingcompanies and refineries are also listed in thissector. Due to global increase in prices and higherconsumption, Pakistan’s oil and gas sector has alsoshown good profits, and continued to be the majormarket player. In the year 2011 the total profitbefore tax was Rs. 196,116.97 million, whereasprofit after tax was Rs. 134,496.29 million. In theyear 2010 the profit after tax was Rs. 104,249.82million. As on March 31, 2012 the total marketcapitalization of this sector was Rs. 1,186,015million as against total paid up capital of Rs.74,537.225 million.ChemicalsWithin this sector 32 companies are listed, withtotal paid up capital of Rs. 95,480.23 million andthe market capitalization was Rs. 393,536.80million. The profit after tax of this sector was Rs.49,515.7 million. Six fertilizer manufacturingcompanies are included in this sector which hasearned good profits during the year. These includeEngro Chemicals, Fatima Fertilizer Company,Fauji Fetilizer Company and Fauji Fetilizer BinQasim etc.Construction and MaterialsThis sector comprises of 36 companies, with totallisted capital of Rs. 77,003.96 million and themarket capitalization of Rs.113,500.56. On theback of higher cement prices and increase in localdemand the sector also showed growth whichtranslated into good financial results compared tolast year. In 2011 the total loss after tax has comedown to Rs.404.275 million as against total loss ofRs. 6,107.25 million in year 2010.Automobile and PartsThe sector comprises of 16 companies with thetotal paid up capital of Rs. 6,940.80 million and thetotal market capitalization was Rs. 43,857.87million. The sector posted total profit of Rs.4,519.86 million in year 2011. Automobile salesalso picked up in spite of increase in prices oflocally manufactured cars.Personal GoodsThis is the largest sector with 188 companies(mostly related to the textile sector) with a listedcapital of Rs. 54,366.23 million and marketcapitalization of Rs. 54,366.23 million. The totalprofit after tax of this sector was Rs. 26,807.96million.Fixed Line CommunicationThe sector comprises of 5 companies whichincludes PTCL with capital of Rs. 51,000 million.85

Pakistan Economic Survey 2011-12The total paid up capital of this sector is Rs.68,858.86 million and the market capitalization ofRs. 51,638.25 million. The total profit after tax wasRs. 2,828.473 million in year 2011.Food ProducersThis sector comprises of 57 companies (mostlysugar 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 thissector was Rs.16, 462.50 million in year 2011.Commercial BanksThe sector comprises of 23 listed banks with listedcapital of Rs. 382,507 million and marketcapitalization of Rs. 774,521.13 million. The totalprofit after tax of this sector increased to Rs.104,213.46 million from Rs. 65,060.58 million inyear 2010.Pharmaceuticals and Bio TechThe sector comprises of 9 listed pharmaceuticalcompanies with paid up capital of Rs. 4,955.77million; whereas the market capitalization was Rs.33,509.46 million. The total profit after tax of thissector was Rs. 4,041.26 million.Performance of some Blue ChipsDuring July-March 2011-2012, the total paid upcapital of fifteen big companies (Oil & GasDevelopment Company Limited, PakistanPetroleum Limited, Nestle Pakistan Limited, FaujiFertilizer Company Limited, Habib Bank Limited,MCB Bank Limited, Pakistan Oilfields Limited,Unilever Pakistan Limited, National Bank ofPakistan, United Bank Limited, Allied BankLimited, FATIMA Fertilizer Limited, FajuiFertilizer Bin Qasim limited, Hub Power CompanyLimited and Pakistan Telecommunication Limited)was Rs. 215.87 billion, which constituted 20.7percent of the total listed capital at KSE.These fifteen companies earned a profit aftertaxation of Rs.248.19 billion in the fiscal year upto March 2012. Out of the total profit after tax, theshare of OGDCL and PPL was Rs. 94.98 billionrepresenting 38.3 percent of the fifteen bigcompanies. For the period ending March 31, 2012,earnings per share for the top rated companiesranged from a 1.46 in the case of PTCL to 307.98in respect of Unilever Pakistan. This indicates thatthe business environment in the current fiscal yearhas improved considerably for the blue chipcompanies (Table 6.3).Table 6.3: Price to Earnings Ratio of Top Fifteen CompaniesName of CompanyProfit AfterTax in(Rs. billion)Paid upCapital(Rs. billion)EPSMarket Price(Rs.)March 31,2012PE ratioMarketCapitalization(Rs. billion)Oil & Gas Development Company 63.53 43.01 14.77 167.66 11.35 721.09LimitedPakistan Petroleum Limited 31.45 11.95 26.31 182.79 6.95 218.43Nestle Pakistan Limited 4.67 0.45 102.94 4447.00 43.20 201.67Fauji fertilizer Company Limited 22.49 8.48 26.52 124.84 4.71 105.88Habib Bank Limited 20.74 11.02 18.82 111.37 5.92 122.74MCB Bank Limited 19.42 8.36 23.23 175.44 7.55 146.71Pakistan Oilfields Limited 10.82 2.37 45.72 365.24 7.99 86.40Unilever Pakistan Limited 4.09 0.66 307.98 5601.00 18.19 74.46National Bank of Pakistan 17.60 16.82 10.47 45.62 4.36 76.30United Bank Limited 15.50 12.24 12.66 76.68 6.21 93.18Allied Bank Limited 10.14 8.60 11.79 63.92 5.42 54.99FATIMA Fertilizer Limited 4.12 20.00 2.06 23.72 11.52 47.44Fajui Fertilizer Bin Qasim limited 10.77 9.34 11.53 41.57 3.61 38.83The Hub Power Company Limited 5.42 11.57 4.69 37.63 8.03 43.54Pakistan TelecommunicationLimitedSource: Karachi Stock Exchange7.43 51.00 1.46 12.31 8.45 62.7886

Performance of Lahore Stock ExchangeThe top market indicators witnessed anencouraging trend at the Lahore Stock Exchange(LSE). The turnover of shares on the LSE duringJul-March, 2011-12 was 0.587 billion sharescompared to 0.923 billion during the same periodlast year. The total paid-up capital with the LSEincreased from Rs. 888.2 billion in June, 2011 toCapital MarketsRs. 981.7 billion in March, 2012. The LSE25 indexwhich was at 3,051.1 points level in June, 2011,increased to 3,707.6 points in March, 2012. Themarket capitalization of the LSE has increasedfrom Rs. 3,166 billion in June, 2011 to Rs. 3,294.1billion in March, 2012. Two new companies werelisted with the LSE during Jul-Mar 2011-12 inaddition to listing of seven Open End Funds andone TFC and Bond during the same period.Table 6.4: Profile of Lahore Stock Exchange2006-07 2007-08 2008-09 2009-10 2010-112011-12(Jul-Mar)Total Number of Listed Companies 520 514 511 510 496 460New Companies Listed 10 2 9 25 9 2Fund Mobilized (Rs billion) 38.8 29.7 32.8 67.5 18.1 5.5 *Listed Capital (Rs billion) 594.6 664.5 728.3 842.6 888.2 981.7Turnover of Shares (billion) 8.2 6.5 2.7 3.4 1.1 0.6LSE 25 Index 4,849.9 3,868.8 2,132.3 3092.7 3,051.1 3,707.6Aggregate Market Capitalization (Rsbillion)3,859.8 3,514.2 2,018.2 2622.9 3,166.0 3,294.1* : Funds mobilized through Right issues.Source: Lahore Stock ExchangePerformance of Islamabad Stock ExchangeThe Islamabad Stock Exchange (ISE) witnessed amixed trend during the first nine months of 2011-12. The ISE-10 index started at 2,722.8 points onJuly 01, 2011 and closed at 2,821.9 points level atthe end of March, 2012 showing an increase of99.1 points (3.6 percent). The highest level of theindex 2,907.97 was witnessed on March 05, 2012as compared to the lowest level of 2,302.8 as onAugust 23, 2011. The average daily turnover ofshares in the ISE during Jul-March, 2011-12 was0.11 million shares as compared to 0.14 millionshares during 2010-11. ISE index howeverincreased to 2,942.01 points on May 07, 2012.Table 6.5: Profile of Islamabad Stock Exchange2006-07 2007-08 2008-09 2009-10 2010-112011-12(Jul-Mar)Number of Listed Companies 246 248 261 244 236 254New Companies Listed 12 7 15 2 - -Fund Mobilized (Rs. billion) 30.7 24.6 24.8 76.7 17.8 20.8Listed Capital (Rs. billion) 488.6 551 608.6 715.7 727.0 830.5Turnover of Shares (billion) 0.2 0.6 0.3 0.2 0.04 0.01ISE 10 Index 2,716 2,749.6 1,713 2,441.2 2,722.8 2,821.9Aggregate Market Capitalization (Rs billion) 3,060.6 2,872.4 1,705.1 2,261.7 2,621.1 2,824.4Source: Islamabad Stock ExchangeThe total funds mobilized during Jul-Mar, 2011-12in the three stock exchanges amounted to Rs. 133.6billion compared to Rs. 66.9 billion in the lastfiscal year. The total turnover of shares in the threestock exchanges during the first three quarters ofthe current fiscal year was 24.24 billion shares,compared to 29.16 billion shares during the lastfinancial year.Corporatization and Demutualization of StockExchangesThe Stock Exchanges (Corporatization,Demutualization and Integration) Act, 2012, was87

Pakistan Economic Survey 2011-12promulgated with the signing of the bill by thePresident of Pakistan on May 7, 2012. Thedemutualization bill was approved on March 27,2012, in a joint session of the Parliament.The demutualization law provides a framework forthe corporatization, demutualization andintegration of the stock exchanges and had beendrafted by the SECP after consensus with all thestakeholders. The law requires the stock exchangesto be demutualized within 119 days of itspromulgation in line with pre-defined timelinesspecified for completion of various milestonesinvolved in the demutualization exercise.At present, the Pakistan stock exchanges areoperating as non-profit companies with amutualized structure wherein the members havethe ownership as well as trading rights. Thisstructure inherently creates conflict of interest asmembers predominantly control the affairs of thestock exchange which results in lack oftransparency in the operations of the stockexchange and compromises investors’ interest.Also, due to lack of resources our exchanges havenot been able to grow to the expectations ofinvestors, as trading activity is mostly concentratedof these exchanges with the dominant share goingto the Karachi Stock Exchange.Corporatization and demutualisation of stockexchanges would entail converting the stockexchanges’ structure from non-profit, mutuallyowned organizations to for-profit entities owned byshareholders. Demutualization would result inenhanced governance and transparency at the stockexchanges and greater balance between interests ofvarious stakeholders by clear segregation ofcommercial and regulatory functions andseparation of trading and ownership rights.Demutualization will assist in expansion of marketoutreach, resulting in larger number of investors,improved liquidity and better price discovery. Ademutualized stock exchange will be in a betterposition to attract international strategic partnersand good quality issuers. Demutualization will alsofacilitate consolidation of brokers leading tofinancially strong entities.Demutualization is a well-established global trendand almost all stock exchanges worldwide operatein a demutualized set up. The enactment of this lawwill bring the Pakistan capital market at par withother international jurisdictions such as India,Malaysia, Singapore, the US, the UK, Germany,Australia, Hong Kong, and Turkey.Listing Guide BookIn order to facilitate the issuers/offerers ofsecurities and to create awareness among thegeneral public about the process of initial publicofferings (IPOs), a listing guide book (LGB) hasbeen published by the SECP. LGB not onlycontains general information about the purpose andbenefits of listing but also contains all major legalrequirements applicable to IPOs and listings.Box-1Measures 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 tomotivate them for listing at the stock exchanges. An IPO Summit has been organized to identifypotential IPOs and to attract them to list their companies on the stock exchangesVarious regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached sothat their regulatees can be motivated for listingFormation of a technical committee, comprising members from all the three stock exchanges and thecommission to take necessary steps for encouragement of new listing. Such steps includeo revision of the existing regulatory framework for new listingo introduction of SME board for listing of small capital based companies and venturecompanieso amendments in the listing regulations for reviewing the minimum allocation of capital to thegeneral public88

Capital Marketsoodevising a procedure for allocation of capital to various categories of applications duringIPOs, andbringing uniformity in the listing regulations of all the three stock exchangesof PakistanGlobal Stock MarketsDuring fiscal year 2011-12, the leading stockmarkets indices of the world observed mixedtrends. Some of the markets witnessed negativegrowth ranging from 18.1 percent (China) to 3percent (UK). Whereas major stocks whichobserved positive growth include, Philippines(19.03 percent), Pakistan (10.13 percent), US S&P500 (6.65 percent), Indonesia Jakarta composite(5.99 percent) and Tokyo Nikkei 225 (2.72percent). It may be noted that compared with theother world indices, the Pakistan stock marketperformed well during the current fiscal year. Thiswas mainly due to the steps taken by the currentgovernment to boost the confidence of the equitymarket investors which included reforms in theCapital Gains Tax, etc.Table 6.6: Global Stock Indices during June 30, 2011 to March 2012DateChange June 2011-Mar Local Currency V/sIndex2012US$30-Jun-2011 31-Mar-2012 Points % 30-Jun-2011 31-Mar-2011KSE 100 Index 12496.03 13,761.76 1265.73 10.13 85.95 91.02Philippines PSE Composite 4291.21 5,107.73 816.52 19.03 43.33 42.90Jakarta Composite 3888.57 4,121.55 232.98 5.99 8,570.00 9,138.00Kuala Lumpur KLSE Composite 1579.07 1,596.33 17.26 1.09 3.02 3.06US S&P 500 132064 1,408.47 87.83 6.65 -New Zealand NZX 50 3448.35 3,509.55 61.20 1.77 1.21 1.22UK FTSE100 5945.70 5,768.50 -177.20 -2.98 0.62 0.62Australia AORD 4659.80 4,420.00 -239.80 -5.15 0.93 0.97Seoul Composite 2100.69 2,014.04 -86.65 -4.12 1,068.88 1,131.95Tokyo Nikkei225 9816.09 10,083.56 267.47 2.72 80.73 82.84Singaporer Strait times 3120.44 3,010.46 -109.98 -3.52 1.23 1.26Hong Kong Hang Seng 22398.10 20,555.58 -1842.52 -8.23 7.78 7.77Bombay Sensex 18845.87 17,404.20 -1441.67 -7.65 44.70 50.87Taiwan T.weighted 8652.59 7,933.00 -719.59 -8.32 28.79 29.53China Shanghai Comp 2762.08 2,262.79 -499.29 -18.08 6.46 6.30Source: Karachi Stock ExchangeDebt Capital MarketsThe importance of a sound and diversifiedfinancial sector, which efficiently performs thefunction of financial intermediation, can hardly beoveremphasized. However, it has been observedover the years that Pakistan’s economy reliedmostly on the banking system to meet thefinancing needs of the economy, whereas thecapital markets developed relatively slowly. InPakistan, within the overall capital markets, equitymarkets have grown more significantly. During thepast few years the significance of debt markets andin particular, the bond markets has been realized asa complementary source of finance. Notably, thegovernment has a ‘market-completion’ role in thedevelopment of the debt market. As the primaryissuer of sovereign bonds of various tenors, thegovernment effectively establishes the benchmarkfor the pricing of private sector debt instruments.In most Asian countries, as in Pakistan, the bondmarket is dominated by government bonds.The major drivers of financial assets in Pakistanare deposits and government bonds, whereascorporate bonds remain a very small portion.Pakistan Investment Bonds (PIBs) remain thelongest tenor sovereign bonds, providing thebenchmark yield curve for private issuances. TheNational Savings Schemes (NSS), on the other89

Pakistan Economic Survey 2011-12hand, with tenors up to 10 years, provide risk-freeinvestment options to retail and institutionalinvestors.Government SecuritiesPakistan Investment Bonds (PIBs) are long termbonds issued by the Government of Pakistan andsold through the State Bank of Pakistan viaperiodic auctions. These are long term Bondsissued by the Government of Pakistan, offering arisk free investment to the bond holders atpremium interest rates depending on the maturityof the bond. PIBs are issued with tenors of 3, 5, 7,10, 15, 20 and 30 Years. Backed by thegovernment, they present a low risk long terminvestment option. The Pakistan Investment Bondsoffer a fixed semiannual coupon and repayment ofprincipal at maturity. They are highly liquidStatutory Liquidity Requirement (SLR) eligiblesecurities that are actively traded in the secondarymarket. The minimum denomination of PIBs isRs.100, 000.The government conducted fourteen auctions ofPIBs in 2009-10, seven in 2010-11 and seven in2011-12 (Jul-Mar) raising Rs. 64.7 billion,Rs.169.291 billion and Rs. 159.246 billionrespectively.A well-developed corporate bond market isessential for the growth of the economy as itprovides an additional avenue to the corporatesector for raising funds for meeting their financialrequirements. During the period under review July-December 2011 two listed debt instruments wereoffered to the general public i.e. offering Rs. 2billion Term Finance Certificates (TFC) with aGreenshoe Option of Rs. 1 billion by EngroCorporation Ltd and offering Rs. 1.5 billion TFCsby Summit Bank Limited. The TFCs by EngroCorporation Ltd., were offered to retail investorsonly whereas, TFCs offered by Summit Bank Ltd.,were offered to both institutional and retailinvestors. TFC Issue by Engro Corporation Ltd.,was oversubscribed, whereas, TFC Issue bySummit Bank Ltd., was under subscribed.Table 6.7: Listing of Debt Instruments during July 2011 to March 2012S.No. Name of the Company Floated on Formal ListingDatei. Engro crop. Ltd.(2 nd Issue)(2 nd issue-Engro RupiyaCertificate)June 01,2011- August31,2011November 04, 2011Listed atKSELSEIssue Size:(In billionrupees)2.00ii. Summit Bank Limited October 27, 2011 01-Dec-11 KSE 1.50TOTAL 3.50Source: Securities Exchange Commission of PakistanFurther, in addition to the above, during the periodJuly 2011 to March, 2012 a total of five debtsecurities issued through private placement werereported. The details of these privately placedcorporate debt issues are as follows:Table 6.8: Debt Securities issued through Private Placement during July 2011 to March 2012S. No. Name of Security No. of Issues Amount(In billion rupees)i. Private Placed Term Finance certificate) 01 1.00ii. Sukuk* 04 112.29iii. Commercial Papers 01 0.21Total 06 113.51*includes two Sukuk Issues of Rs.108.393 billion by Pakistan domestic Sukuk company Limited.Source: Securities Exchange Commission of PakistanAs of March 31, 2012 a total of 131 corporate debtsecurities were outstanding with an amount of Rs.500.433 billion. Details are presented in Table 6.9below:90

Capital MarketsTable 6.9: Debt Securities Outstanding as on March 31, 2012S. No. Name of Security No. of Issues Amount outstanding(In billion rupees)i. Listed Term Finance Certificates (L-TFCs) 37 66.51ii. Private placed term Finance certificates (PP-TFCs) 39 68.18iii. Sukuk 54 365.53iv. Commercial Papers 01 0.21Total 131 500.43Source: Securities Exchange Commission of PakistanBox-2Measures for the development of debt markets:In order to encourage listing of debt securities on the exchanges, a separate set of regulations for debt securitiesare being framedRegulatory framework for the credit rating agencies (CRAs) are being revamped so that CRAs play a moreeffective role in the development of the debt market. In this regard a committee, comprising of therepresentative of SECP and SBP and CRA has been constituted by the Commission which has been mandatedwith the tasks of:o Review of the existing regulatory framework for CRAs in line with the international best practiceso Strengthening of the existing regulatory Framework for CRAs viz the credit rating companies rules, 1995and the code of conduct for CRAs dated February 17, 2005o Review of the proposals of CRAs regarding enhancement of the rating universeo Diversification of capital structure of CRAs and their listing on the stock exchangesooRegulatory 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 stampduty applicable on issue and transfer of Term Finance certificates (TFCs) and commercial papers.Development of new regulatory frameworkIn one of the major moves towards development ofa vibrant debt market in Pakistan, the Securitiesand Exchange Commission of Pakistan hasrecently approved notification of the DebtSecurities Trustee regulations (DST Regulations).The main objective of the DST Regulations is toprotect the interests of debenture holders and tosafeguard the breach of provisions of the TrustDeed, monitor the working of debenture trusteesby calling for details regarding compliance by theissuers of the terms of the trust deed, creation ofsecurity, payment of interest, redemption ofdebentures and redress of complaints of debentureholders.Development of New Regulatory Regime forBrokersIn order to ensure that standards and principlesadopted in the markets conform to internationalbest practices, a revised market participant regimeis being proposed. The proposed regime wouldaddress some of the most significant issuespertaining to the business of stock brokerage and isexpected to increase the efficiency of our capitalmarket.Capital Market Reforms and DevelopmentActivitiesDuring the period under review, the Securities andExchange Commission of Pakistan (SECP)continued with its reform agenda for strengtheningthe Pakistani capital market with the objectives ofimproved risk management, increasedtransparency, investor protection and newproduct/market development. The highlights ofreform measures introduced during the periodunder review are as follows:oFor development of the debt market, the BondsAutomated Trading System (BATS) at the91

Pakistan Economic Survey 2011-12oostock exchange was revamped along the linesof the Bloomberg-based-E-Bond with varioussystem enhancements for facilitating the pricediscovery process of debt instruments andprice negotiation between the marketparticipants. Further, to facilitate investorstrading in Term Finance Certificates (TFCs)listed at different exchanges, a regulatoryframework was introduced for facilitatinginter-exchange trades in listed TFCs. A brokerto-brokerfunctionally was introduced in BATSwhich enables settlement of the inter-exchangetrades directly with the National ClearingCompany of Pakistan Limited (NCCPL);resulting in greater efficiency and transparencyin the trading and settlement process. Also, acentralized platform was developed at theNCCPL for mandatory reporting of tradesexecuted in the unlisted TFCs, which providesaccess to real-time trading information in unlistedTFCs thereby providing better pricediscovery and transparency.To fulfill the hedging requirements of variousgroups of investors in the commodities market,new futures contracts were introduced at thePakistan Mercantile Exchange Limited(PMEX) in sugar, cotton, wheat, crude oil (10barrel), silver (100 ounces), silver (10 tola) andgold (10 ounces). Further, the concept ofmarket makers was introduced which willpromote liquidity and investors’ confidencethrough enhanced profitability, reducedvolatility in prices and efficient execution oforders.To ensure easy access to financing andliquidity to the market, amendments wereapproved to the Securities (Leveraged Marketsand Pledging) rules, 2011 thereby removingpractical hindrances and creating flexibility formargin financing and margin trading products.Through the amended rules, reduced cashmargin requirements were prescribed andindividual investors were allowed toparticipate as financiers in the margin tradingmarket, along with waiver of the mandatorycondition of prescribing minimum liquidityrequirement for selecting securities eligible formargin financing.o To add depth and diverse investmentalternatives to the market, various newproduct/system development initiatives wereoooundertaken. In line with international bestpractices, Exchange Traded Funds (ETFs)were introduced at the Karachi StockExchange (KSE). EFTs are a globally popularinvestment product which allow investment ina diversified portfolio of securities tracking abenchmark index and provide investors withbenefits such as trading flexibility, overallportfolio diversification and transparency.To implement robust Anti-Money Launderingand combating the financing of Terrorismregime in the Pakistan capital market in lightof the Financial Action Task Force (FATF)recommendations and international bestpractices, effective Know-Your-Customer(KYC) and Customer-Due-Diligence (CDD)policies and procedures were introduced forthe capital market and its intermediaries.To ensure improved monitoring of internettrading activities offered by the brokers,internet trading regulations were approved forKSE which comprehensively cover variousaspects while effectively addressing issuesunique to this segment including riskmanagement and privacy of investors’accounts.To strengthen monitoring and compliance bymarket intermediaries with the applicableregulatory provisions and to improveenforcement power of the regulators,regulations governing system audit of thebrokers of KSE were revamped with majorchanges in the brokers’ audit process andscope.National Savings SchemesCentral Directorate of National Savings (CDNS) isengaged in making innovative efforts to promote asaving culture in the country. The CDNS offersattractive saving products to various categories ofpeople to suit their specific needs. CDNS iscurrently engaged in restructuring of the CDNS tobetter cater for the needs of the investors andintroduce more profitable products. Focus is onintroducing short term saving certificates andexpansion of CDNS network not only across thecountry but also to overseas Pakistanis. Details ofthe investment made in the saving schemes aregiven in Table: 6.10.92

Capital MarketsTable 6.10: National Savings Schemes (Net Investment)(Rs. Billion)2011-12S.No. Name of Scheme 2007-08 2008-09 2009-10 2010-11(Jul-Mar)1 Defence Savings certificates (4,317.43) (27,411.28) (32,493.15) 9,748.10 4,656.642 National Deposit Scheme 0.05 (2.71) (0.13) (1.01) (0.71)3 Khaas Deposit Scheme (6.99) (1.64) (3.84) (2.62) (0.26)4 Premium Saving Certificate -- -- -- -- --5 Special Savings Certificates(R) 13,800.57 128,469.03 61,856.60 43,960.21 (24,189.99)6 Special Savings Certificates(B) (0.18) (8.53) (0.30) (0.74) (0.70)7 Regular Income Certificates (273.53) 40,094.28 44,538.27 46,946.79 31,419.748 Bahbood Savings Certificates 38,799.69 78,537.96 59,267.18 61,731.56 38,128.519 Pensioners’ Benefit Account 18,695.93 22,215.74 18,166.85 17,940.32 11,107.8510Savings Accounts 8,989.12 (10,899.15) 1,021.30 (625.30) 1,566.0911 Special Savings Accounts 5,521.48 21,627.05 31,375.53 14,240.79 3,331.2612 Mahana Amdani Accounts (24.97) (50.03) (195.73) (77.94) 61.6213 Prize Bonds 8,277.07 14,649.97 38,556.68 41,083.40 41,314.3214 National Savings Bonds -- -- 3,625.16 -- --Total 89,460.81 267,220.71 225,714.46 234,943.98 107,484.37Source: Central Directorate of National SavingsMutual FundsThe period July 2011 to March 2012 marked asubstantial rise in mutual funds with total assets ofthe industry surging by 24 percent from Rs. 290billion to Rs. 400 billion. As of March 31, 2012,the number of mutual funds in the industry stood at146 compared to 137 in June 2011. The upwardtrend in the assets of the mutual funds industry isprimarily attributed to soaring investment inmoney market and capital protected funds since theindustry continues to be predominantly risk averse.Though the equity markets have depicted a bull runin the current financial year, equity funds have notbeen very successful in attracting substantialinflows. Influx in income funds is expected toremain subdued so long as the debt market isrevitalized.During the period July-March, 2011-12, theSecurities Exchange Commission of Pakistan, inits continuous efforts to curb money laundering,issued a circular on reporting/submission ofsuspicious transaction/currency transaction by NonBanking Finance Companies (NBFCs) to theFinancial Monitoring Unit under the Anti-MoneyLaundering Act 2010. Further, SECP to facilitatethe industry, brought about significant amendmentsin the Non-Banking Finance Companies andNotified Entities Regulations, 2008. Some of theimportant amendments made included thefollowing:ooooRegistration of trustee to bring it within theregulatory ambitEliminating the seed capital requirement fornew fundsEmpowering unit holders of a mutual fund tochange its management rights in caseredemption of units is suspended beyondfifteen days, andEnhanced oversight by trustee of a mutual fundin line with best international practices.Furthermore, the SECP also allowed equityorientedmutual funds to invest in all kinds offutures contracts to effectively achieve theirinvestment objectives. This measure was alsotaken in anticipation of its potential impact ongrowth and development of the futures market.93

Pakistan Economic Survey 2011-12Table 6.11: Major highlights of mutual funds during February 2012Total assets of Industry*Rs. 399 billion*Total number of funds* 128Total number of AMCS/IAs* 24Assets Size of AMCs/IAs*Rs. 43.136 billionDiscretionary /Non-discretionary portfolioRs. 44 billionFunds 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.ModarabaThe modaraba sector has an established legalframework that allows it flexibility to provide awide range of financial products and servicesunder the tenets of Islamic shariah which reflectthe innovative and dynamic nature of the industry.Modarabas have played a vital role in thedevelopment and growth of Islamic modes offinancing in the country and the capital marketssince their inception in 1980. Most of theModarabas in Pakistan are doing business in thefinancial sector while a few are engaged in theindustrial, trading or other services sectors. Likeany other industry, modarabas create a distinctivevalue proposition that meets the needs of itscustomers.Despite the prevailing financial and economiccrises in the country, most of the modarabascontinued to perform well and record profits.Currently, 40 registered modaraba companies arein existence and the total number of operationalmodarabas are 26. As per the quarterly financialstatements of modarabas, as on February 29, 2012,the aggregate paid-up fund of modarabas was Rs.8.896 billion. The total assets of the modarabasector stood at Rs. 26.757 billion against Rs.26.392 billion in June, 2011. Similarly, total equityof 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 andimage of modarabas in the financial sector of thecountry, the SECP, after detailed consultation withstakeholders and industry experts, introduced“Shariah compliance and Shariah auditMechanism” for modarabas. These will strengthenthe Shariah compliance by modarbas and helpthem to be recognized as true Islamic financialinstitutions in the financial sector. In terms of thesaid mechanism, the modarabas are required toappoint independent Shariah advisors who wouldprovide necessary guidance to the managementcompanies to carry out the business operations ofmodarabas in accordance with the Shariahprinciples. The first report of the Shariah Advisorson the affairs of modarabas will be disseminated tothe stakeholders with the annual audited accountsof modarabas for the year ending June 30, 2012.During the current financial year, the joint sessionof the Parliament unanimously approved theModaraba Companies and Modaraba (Floatationand Control) Ordinance, (Ammendment) Bill,2009. The bill seeks to empower the Securities andExchange Commission of Pakistan to makeregulations and issue circulars, code and guidelinesetc. so as to strengthen regulatory framework forthe modaraba sector and enable the Commission tosafeguard the interest of stakeholders in a moreproactive and effective manner.Investment Banks and Leasing CompaniesInvestment banking started to take root in Pakistanin the second half of the 1980s. A broad range ofbusiness services were envisaged that includemoney and capital market activities, projectfinancing, corporate financial services, andoperations in the call and money market. Theinvestment banking sector showed a strongperformance and continued to flourish till the mid-1990s. However, due to non-diversification of theirportfolio, they could not absorb the changingeconomic conditions of the country. Therefore, thissector started facing severe problems andwitnessed a declining trend. At present, there areonly seven functional investment banks operatingin Pakistan compared to 13 in 2005. Significantreasons for the downfall of investment bankingsector are small capital bases with limited ability toabsorb significant shocks, focus on quasi banking94

Capital Marketsactivities, maturity mismatch in their assets andliabilities, failure to develop competencies fordelivering non-fund based services, high cost offunds, limited capacity to expand outreach, and therise of universal banking.In order to revive the investment banking sector,necessary amendments were made to theregulatory framework to allow investment banks toundertake brokerage business from their ownplatform instead of forming a separate company.The objective was to encourage investment banksto focus on providing non-fund based services; toplay a crucial role in the capital market; to promotecorporate brokerage houses culture; and, to addressthe corporate governance issues in the brokerageindustry. Presently, the possibility of introducingan appropriate regulatory regime for non-deposittakingand non-listed Non Banking FinanceCompanies and ensuring that only licensed entitiesengage in investment banking activities are beingexplored for reviving the investment bankingsector.Table 6.12: Financials of Investment Banks inFebruary, 2012AmountParticulars(Rs in millions)Total Assets 18,273Total Equity 3,300Total Deposits 7,040Source: Securities Exchange Commission of PakistanLeasing is a mature business model. However, theleasing sector in Pakistan has been facing amultitude of challenges like liquidity issues, lowcapitalization, limited sources for resourcemobilization, high cost of funds, high level of nonperformingassets and limited outreach. Severalimportant amendments to the applicable regulatoryframework have been made over a period of timein order to promote this sector. During 2011, animportant amendment was made in the NonBanking Finance Compinies & Notified Entities(NBFC & NE) Regulations, 2008 i.e. deleting thecondition that requires a leasing company to fix theperiod of finance lease for not less than three years.The amendment is expected to increase in thebusiness volumes of leasing companies as they willbe able to entertain customers who desire a shorterlease period and finance assets with a shortereconomic life. The total number of active leasingcompanies was 9 as of February 29, 2012.Table 6.13: Financials of Leasing Companies inFebruary, 2012AmountParticulars(Rs in millions)Total Assets 34,242Total Equity 4,566Total Deposits 5,650Source: Securities Exchange Commission of PakistanVoluntary Pension SystemThe last two decades witnessed pension reformsglobally. In high-income countries, the drivingforce has been the threat that the current pensionsystem will become unaffordable as demographicdevelopments presented a major risk. Thecountries that were in the process of transitionfrom a controlled economy to a market economyconfronted the challenge of introducing a publicpension system in place of social security availableto their populace under the socialist system.However, again the demographic change andaffordability have been the driving force forreforms in these countries. It is anticipated thatPakistan shall also face similar challenges in thenear future. Lately, the government has beenconsidering reforming the current pension system.Luckily, the dependency ratio at this point of timeis extremely favourable for Pakistan to shift from adefined benefit system to a defined contributionsystem. While reforms at the national level willtake some time, the SECP has introducedVoluntary Pension System (VPS), with theapproval of the government. VPS envisagescontributions by Pakistani nationals in a pensionfund approved by the SECP. The pension fundpromises a stream of income to its members afterretirement. The government has given taxincentives to individuals under the current taxregime.The penetration of VPS is low at the momentbecause these are still new to Pakistan and nonbindingupon employers and individuals. It ishoped that, with the passage of time andcomplementary reforms in defined benefitretirement schemes, the system would gain afoothold and acquire substance. So far, 11 pensionfunds have been launched under VPS.95

Pakistan Economic Survey 2011-12Table 6.14: Growth of Pension Funds since 2007DateNo. of pension Net assets in Rs.fundsmillion30-JUN-07 4 42030-JUN-08 7 76630-JUN-09 7 87030-JUN-10 9 1,30130-JUN-11 9 1,55731-DEC-11 11 1,82929-FEB-12 11 1,979Source: Securities Exchange Commission of PakistanBefore June 2011, the maximum limit for taxcredit for savings through VPS to individuals wasup to Rs. 500,000 of taxable income. In the lastbudget the limit has been increased up to 20percent of taxable income. The limit is still lowerthan that available to those employed in private orpublic sector institutions. To encourage funding ofretirement schemes VPS needed to be madeinterchangeable with other retirement schemes,provident fund, and gratuity and superannuationfunds. This will encourage funded schemes leadingto accumulation of assets and efficient deploymentof retirement savings.REITReal Estate Investment Trusts (REITs) provideproperty owners an opportunity to securitize theirproperties. It also provides the investors with smallcapital base an opportunity to invest in the realestate assets. Currently there are two REITmanagement companies, operating in Pakistan.Keeping in view the macroeconomic indicators,the SECP has taken necessary measures to attractentrepreneurs to venture into the regulated realestate business. Amongst these, amending theREIT regulations in 2010 was one notableinitiative. Significant amendments includedreduction of fund size, introduction of hybridREITs and reduction in share capital for the REITmanagement companies (RMCs). However, thesemeasures still proved inadequate in attracting highyield properties into REITs. To improve theregulatory framework a committee has beenformed which includes the leading market players.This committee will review the REIT models indifferent jurisdictions and suggest an appropriateregulatory model for our market. Currently, workof the committee is in progress.Box-3Future Road MapIn 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 plan’s objectives within timelines provided, most important of which aregiven below:The Stock exchanges (Corporatization), Demutualization and Integration Bill has been approved in the jointsession of Parliament in March 2012. The bill provides a framework for the corporatization, demutualizationand integration of the stock exchanges. Demutualization would result in enhanced governance and transparencyat the stock exchanges and greater balance between interests of various stakeholders by clear segregation ofcommercial and regulatory functions and separation of trading rights and ownership rights. It will also assist inexpansion of market outreach, resulting in larger number of investors, improved liquidity and better pricediscovery at the stock exchanges. A demutualized stock exchange will be in a better position to attractinternational strategic partners and good quality issuers. Demutualization will also facilitate consolidation ofbrokers leading to financially strong entities. The SECP, along with the stock exchanges, is in the process ofensuring that subsequent to the enactment of the law, the activities set out therein are completed in a timelymanner.oIn line with international best practices, efforts will be undertaken for NCCPL to function as CentralCounter Party; establishment of a settlement guarantee fund; and transfer of risk management toNCCPL.For developing the commodities market, the SECP may explore the possibility of allowing new commodityexchanges to function in the country, as presently the potential offered by this market segment is not beingutilized to the maximum. This measure will also facilitate healthy competition and business generation in thissegment while contributing towards greater market outreach to the investors resulting in growth in the size ofthe commodities market.96

Capital Markets For developing an Islamic capital market in line with global best practice, the SECP is contemplating theestablishment of a Shariah Board comprising of eminent Islamic scholars and market professionals to ensurethat all products/services offered under this umbrella are in conformity with the Shariah principles. Also, effortswill be made for consideration of existing Islamic institutions and development of innovative Shariah compliantinstitutions, products and services in order to deepen the capital market. Regarding new product/system development, the future SECP agenda includes introduction of trading in indexoption to provide investors with avenues to develop better investment and hedging strategies. Also, to boostactivity in index futures market, dialogue will be initiated with foreign stock exchanges for cross listings offoreign indices at Pakistani stock exchanges. For investors in the commodities segment, efforts will be made forintroduction of new futures contracts in commodities like cotton seed, oilcake, crude palm oil and maize, androlling currency contracts on foreign currency exchange rate pairs. Also, work is underway for establishment ofa 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 atthe stock exchanges and integration of National Savings Schemes instruments in to the mainstream capitalmarket, in coordination with relevant stakeholders including the federal government and the State Bank ofPakistan. Also, to promote transparency and price discovery of debt securities and minimize pricing issues ofdebt securities, establishment of an independent Bond Pricing Agency (BPA) conforming to internationalstandards, is in the pipeline. The BPA is expected to contribute towards stimulating activity in the primary andsecondary debt markets, increasing market depth, reducing information asymmetry, increasing credibility offinancial statements through accurate asset-liability valuation, product development etc.From the standpoint of risk management and transparency, a Centralized KYC Agency will be established forregistration and maintenance of investors’ KYC records in line with the international best practices pertaining toKYC and CDD policies. These KYC records will be available for access by all market intermediaries and thismeasure will assist in removing the duplication presently faced in the KYC process by bringing uniformity to thesame.ConclusionsThe performance of stock markets presented amixed trend during the current fiscal year. Variousfactors such as unstable law and order situation,natural disasters, rumours on the economic frontpertaining to reduction in military and civil aidfrom international donors, the Pak rupeedepreciation and increasing fiscal deficit of thegovernment have all contributed to theunderperformance of the capital market during firsthalf of current fiscal year. However, the KSE-100index resumed its momentum during the 3 rd quarterof the 2011-12 owing to certain encouragingmeasures like considerable reduction in discountrate by the SBP during latter period of the first halfof current fiscal year and increase in foreignexchange reserves. Further, the market sentimentwas boosted by the proposed promulgation of theCapital Gain Tax Ordinance under which theNational Clearing Company of Pakistan Limited(NCCPL) has been appointed as an intermediaryentity to compute, determine, collect and depositthe Capital Gain Tax (CGT) on listed securities.The subject Ordinance was finally promulgated onthe 24 th April, 2012. The government is committedto formulating timely and effective policy to spuractivity in, and shore up the strength of, the capitalmarket.97

Chapter 7InflationThe global economy experienced significantfinancial crises in 2007-08. The financial crisisemanated in subprime mortgage loan portfolio andshocked the confidence of the internationalinstitutions and markets which in turn badlydeteriorated the economic development andbalance of payments across the world. In thedeveloping countries, the crisis was seen at thetime when they were already experiencing severeterms of trade and slower economic growth. Thefinancial meltdown led to a backlash on consumermarkets and broadly on the process of investmentin the production of goods and services. Thiscoupled with spike in commodity and oil prices ledto a decline in the aggregate demand and raisedinflation the world over. In Pakistan the affect wasfelt much severely as the country was alsoexperiencing internal security issues and compaignagainst terrorism. The surge in food andcommodity prices witnessed during 2008-09pushed the consumer prices index (CPI) to a recordlevel of 25.3 percent in August 2008.Fig-7.1: Inflationary Trend25.020.0CPIOld Base2000‐01=100New Base2007‐08=10015.010.05.00.0Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10May-10Jul-10Sep-10Nov-10Jan-11Mar-11May-11Jul-11Sep-11Nov-11Jan-12Mar-12The rising trend in domestic prices in tandem withglobal food and fuel prices affect several macroeconomicdynamics - consumption, investment,inflation, trade and fiscal balances and ultimatelyresulted in slow down of GDP growth.Asian Development Bank (ADB) report of 19 thMarch, 2012 titled “Food Price Escalation in SouthAsia” noted that the region suffers from a higheroverall food inflation rate than the rest ofdeveloping Asia. The report further pointed outthat the region, with a large number of peoplealready living close to the poverty line, is one ofthe most vulnerable regions in the world to foodprice shocks. The World Bank has also rated highfood prices as the biggest challenge facing mostdeveloping countries. This rising trend in inflationis not specific to Pakistan. Regional inflation is99

Pakistan Economic Survey 2011-12estimated to have also risen in India, Bangladesh and Thailand (Table 7.1).Table: 7.1 Regional Countries Food Price InflationPakistan India Bangladesh Thailand Sri LankaCPI Food CPI Food CPI Food CPI Food CPI FoodJul-11 12.4 17.1 8.4 8.2 11.0 13.4 4.1 7.2 7.4 9.3Aug-11 11.6 13.2 9.0 9.6 11.3 12.7 4.2 8.4 7.0 8.2Sep-11 10.5 9.9 10.1 9.6 12.0 13.8 4.1 8.9 6.4 6.6Oct-11 11.0 11.7 9.4 10.2 11.6 10.9 4.2 9.9 5.1 3.8Nov-11 10.2 10.0 9.3 8.5 11.6 12.5 4.1 10.2 4.7 2.1Dec-11 9.7 9.5 6.5 0.7 10.6 10.4 3.6 9.1 4.9 2.5Jan-12 10.1 9.2 5.3 -0.5 11.6 10.9 3.4 7.7 3.8 -0.2Feb-12 11.0 10.5 8.8 6.1 10.4 8.9 3.4 7.2 2.7 -4.1Mar-12 10.8 9.8 9.5 9.9 10.1 8.3 3.4 7.1 5.5 -2.5Apr-12 11.3 10.7 - - 9.9 8.1 2.7 4.9 6.1 0.2Source: PBS, BBS, Ministry of Commerce & Industry India, Bank of Thailand.Food insecurity is a multi dimensional problemand deserves to be tackled through a multi prongedstrategic approach where demand, supply anddistribution factors need to be taken into account.Availability and access, two important componentsof food security needs to be addressedsimultaneously. Food carries the largest weight inthree price indices and hence influences themovement of these indices even with slightvariation in prices. The most visible impact ofrising food prices on the economy is accelerationof inflationary pressure. In such a situationcontrolling the inflation becomes unmanageable.Pakistan is experiencing double-digit inflation overthe last several years mainly due to increase inprices of food.Inflation is generally measured by the ConsumerPrice Index (CPI). The other measures of inflationused in Pakistan are the Wholesale Price Index(WPI) and Sensitive Price Indicator (SPI).The Pakistan Bureau of Statistics (PBS) haschanged the base year of the price indices from2000-01 to 2007-08, which by comparison with theprevious base has undergone considerable changein terms of revision to commodity groups; theirweights derived from Family Budget Survey 2007-08; and, coverage of items to capture the changingpattern of consumption of the people.The old basket of commodities in the CPI has beenrevised and the commodities increased from 374 to487 items and the commodity groups from 10 to12. The coverage of cities has also been increasedfrom 35 to 40. Proper representation has beengiven to large cities (population of 500,000 andabove), medium cities (population 100,000 to500,000), medium small cities (population 50,000to 100,000) and small cities (population below50,000). The food group weight has been reducedfrom 40.3 percent to 34.8 percent and 21 items inthe old basket have been dropped while 111 newitems have been added. Health and Restaurant twonew sub indexes have been included. The subindex of transport and communication in the oldbase year has been split into two separate subgroups as transport and communication group.Rent being an important component of CPI is nowcomputed on the basis of real rental value ratherthan using wage rates and prices of constructionmaterials. In the CPI series with base 2000-01, thecoverage in terms of income groups is as below:i. Up to Rs. 3000ii. Rs. 3001 to Rs. 5000iii. Rs. 5001 to Rs. 12000, andiv. Above Rs. 12000In the new series with base 2007-08, the incomegroups have been divided into five incomequintiles as under:i. Up to Rs. 8000ii. Rs. 8001 to Rs. 12000iii. Rs. 12001 to Rs. 18000, andiv. Rs. 18001 to Rs. 35000v. Above Rs. 35000100

InflationThe basket of goods that makes up the WPI hasalso been revised for the base year 2007-08 due tochange of consumption patterns. In the currentseries of WPI, items are categorized into fivecommodity groups namely: (i) food products,beverages and tobacco, textiles, apparel and leatherproducts (ii) agriculture forestry and fisheryproducts (iii) ores and minerals, electricity gas andwater (iv) other transportable goods except metalproducts, machinery and equipment (v) metalproduct machinery and equipment. A set of 463items have been selected instead of 425 items toaccommodate changes in the production and salesof commodities in the wholesale market in 21major cities instead of 18; with coverage of 112commodities.The SPI indicates the weekly change of prices of53 selected items of daily use prevailing in 17major cities as consumed by six groups (Table 7.2)whose monthly income ranges from Rs. 8,000 toRs. 35,000 per month and an overall households(“combined”) category.Table:7.2 Inflation by Consumer Income GroupsUpto Rs.Combined Upto Rs.80008001-12000Source: Pakistan Bureau of Statistics (PBS)Upto Rs.12001-18000Upto Rs.18001-35000AboveRs.35000The key changes in the computation of the various indices are summarized in Table 7.3 below:Table:7.3 Price Indices in PakistanBase Year 2007-08=10 Base Year 2000-01=100Features CPI SPI WPI Features CPI SPI WPICities covered 40 17 21 Cities covered 35 17 18Markets covered 76 53 21 Markets covered 71 53 18Items covered 487 53 463 Items covered 374 53 425Commodities covered 89 - 112 Commodities covered 92 - 106No. of commodity groups 12 - 5 No. of commodity groups 10 - 5No. of price quotations 148048 11236 2366 No. of price quotations 106,216 11236 1,550Reporting Frequency Monthly Weekly Monthly Reporting Frequency Monthly Weekly MonthlyIncome Groups (in baseIncome Groups (in baseSix Quintile Six Quintile -year) with separate basketyear) with separate basketFour Four -Source: Pakistan Bureau of Statistics (PBS)Inflationary TrendsThe year 2011-12 (Jul-Apr) witnessed bothdemand pull and cost push inflation when viewedin the backdrop of the affects of the floods of 2010and heavy rains in 2011, which almost wiped outthe major and minor standing crops in Sindhprovince, created disruption in the supply chainwhich resulted in surging inflation. The globalspikes in commodities and fuel prices also exertedpressure on domestic inflation.Inflation on year to year basis reveals that the CPIwas highest in July 2011 at 12.4 percent. However,in December 2011 it declined to single digit at 9.7percent. Thereafter it increased steadily andreached 11.3 percent in April 2012. Food inflationon a year to year basis was highest in July 2011and lowest in January 2012 at 9.2 percent. Nonfoodinflation was lowest in July 2011 at 9.2percent and highest at 11.6 percent in April 2012.Core inflation during the last nine months of theyear remained almost at double digit levels exceptin July 2011 when it dropped to single digit at 9.5percent (Table 7.4). The main factor contributingto the rise of non-food inflation was the upwardadjustment of energy, gas and fuel prices.101

Pakistan Economic Survey 2011-12Table 7.4 Inflation on year on year (Y-o-Y) Basis %ChangeCommodity Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12CPI 12.4 11.6 10.5 11.0 10.2 9.7 10.1 11.0 10.8 11.3Food 17.1 13.2 9.9 11.7 10.0 9.5 9.2 10.5 9.8 10.7Non-Food 9.2 10.4 10.9 10.4 10.3 9.9 10.7 11.5 11.5 11.6Core 9.5 10.0 10.6 10.4 10.4 10.1 10.2 10.6 10.8 10.8WPI 20.3 18.7 17.0 15.4 12.0 8.3 8.7 7.2 4.5 3.8SPI 12.7 11.9 8.7 8.2 5.9 5.1 6.8 8.3 8.4 9.7The Consumer Price Index (CPI) on average basisrecorded as 10.8 percent during Jul-Apr 2011-12 ascompared to 13.8 percent during the same periodlast year. The two broad component of CPI, foodand non-food inflation recorded an increase of 11.1percent and 10.7 percent respectively during theperiod under review compared to 18.8 percent and10.8 percent during Jul-Apr 2010-11. While theWholesale Price Index (WPI), during Jul-Apr2011-12 recorded as 11.2 percent as against 21percent last year. Food and non-food under WPIwas noted as 6.7 percent and 13.3 percent duringcurrent period whereas it was recorded to be 23.5percent and 19.9 percent during the same periodlast year. The following table and graph representthe trends in the CPI, WPI and SPI.Table:7.5 Rate of Inflation on the basis of various price indices(Average percent)Items 2010-11(Jul-Apr) 2011-12(Jul-Apr)A Consumer Price Index 13.8 10.8Food 18.8 11.1Non-Food 10.8 10.7B Wholesale Price Index 21.0 11.2Food 23.5 6.7Non-Food 19.9 13.3C Sensitive Price Indicator 18.1 8.5Fig-7.2: CPI (Food, Non-food), WPI (Food, Non-food) and SPI (Percent)Sensitive Price IndicatorNon-FoodFoodWholesale Price IndexNon-FoodFoodConsumer Price Index2011-12(Jul-Apr)2010-11(Jul-Apr)6.78.511.210.710.811.110.813.313.818.118.819.921.023.50.0 5.0 10.0 15.0 20.0 25.0CPI inflation during the period (Jul-Apr) 2011-12increased by 10.8 percent on average and that offood increased by 11.1 percent. The food groupwith 34.8 percent weight in the CPI basket has aconsiderable effect on overall prices. A slightvariation in food prices has a large impact oninflation (Table 7.6).102

Table:7.6 Rate of Inflation on the basis of Food and Non-Food GroupsItems 2010-11(Jul-Apr) 2011-12(Jul-Apr)InflationA Consumer Price Index (CPI) 13.8 10.8B Food Group) 18.8 11.1C Non-food Group 10.8 10.7D Core 9.3 10.4Source: Pakistan Bureau of StatisticsFig: 7.3 Inflation by GroupsCoreNon-food GroupFood Group)CPI2011-12(Jul-Apr)2010-11(Jul-Apr)0 2 4 6 8 10 12 14 16 18 20Percentage pointsBoth supply and demand side factors areresponsible for food price escalation. Theseincluded supply disruption on account of thenatural calamities during the year as well as theincrease in transportation cost due to high fuelprices; on the demand side, the price hike is theconsequence of the inflationary gap measured asthe difference between monetary expansion andgrowth of overall national productivity.The reasons for the rising food prices are manifold.The demand and supply side factors responsiblefor the food price hike in 2007-08 also seem tocontinue in the current food price hike. Theseinclude rapid economic growth in emergingcountries leading to the increase in internationalfood demand, lower agricultural productivity dueto the scarcity of water in certain regions, supplyshort fall in the global food markets and oil supplyshocks resulting from geopolitical instability in theMiddle East etc.The non-food prices increased at a slower pace of10.7 percent than food prices. The divergent trendis due to different factors influencing these twobroad components of CPI differently, such as itemscoverage, nature of items and impact of seasonalvariation and availability etc. Among the non–fooditems, the hike in fuel related items such as diesel,petrol, gas, CNG and power tariff rates pushed theproduction and transportation cost up therebyaccelerating inflation.Core inflation which is nonfood - nonenergy isestimated at 10.4 percent during Jul-Apr 2011-12.Table-7.7: (Percent) Change In Price IndicesOn Average Basis (%) Point ContributionCommodityWeights July –Apr July –Apr July -Apr July –Apr2010-11 2011-12 2010-11 2011-12General (CPI) 100.0 13.8 10.8 13.8 10.8Food, & Non Alcoholic Beverages 34.8 18.8 11.1 6.6 3.9Alcoholic Beverages& Tobacco 1.4 11.8 7.5 0.2 0.1Non-Food 65.2 10.8 10.7 7.0 6.9103

Pakistan Economic Survey 2011-12Table-7.7: (Percent) Change In Price IndicesOn Average Basis (%) Point ContributionCommodityWeights July –Apr July –Apr July -Apr July –Apr2010-11 2011-12 2010-11 2011-12Non-Food Non Energy 53.5 9.3 10.4 5.0 5.6Clothing & Foot wear 7.6 11.4 14.9 0.9 1.1Housing, Water ,Elec. Gas & other Fuel 29.4 11.0 7.5 3.2 2.2Furnishing &Household Equip.4.2 9.2 17.4 0.4 0.7MaintenanceHealth 2.2 8.1 11.1 0.2 0.2Transport 7.2 11.2 15.5 0.8 1.1Communication 3.2 13.8 0.6 0.4 0.02Recreation & culture 2.0 5.3 5.7 0.1 0.1Education 3.9 6.6 12.3 0.3 0.5Restaurant & Hotels 1.2 16.5 13.7 0.2 0.2Miscellaneous 2.1 13.3 19.9 0.3 0.4Source: Pakistan Bureau of Statistics (PBS)Inflation by Income GroupsInflation by income groups affects theconsumption pattern of various income groups.The current CPI covers the consumption of thosehouseholds whose monthly income ranges fromRs. 8,000 to Rs. 35,000 per month. Table 7.8Fig-3: Monthly % Change of CPI, Food and Non-Food18.017.016.015.014.013.012.011.010.09.0reflects the highest incidence of inflation (11.4percent) in the highest income earning group. Asalready stated food carries the highest weight (34.8percent) in consumer items. This reveals the factthat a greater portion of expenditure of an averagehousehold is spent on food whereas the prices haverecently increased significantly.CPI Food Non-FoodJul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12Table:7.8 Inflation by Consumer Income GroupsFiscal Year Combined Upto Upto Rs. Upto Rs. Upto Rs. 18001- Above Rs.35000Rs.8000 8001-12000 12001-18000 35000Spliced with Base Year 2007-08 = 1002008-09 17.0 18.0 17.8 18.1 17.6 16.82009-10 10.1 10.5 10.5 10.6 10.3 9.82010-11 13.7 14.5 14.3 13.0 14.7 13.3Jul-Apr2010-11 13.8 14.8 14.6 13.2 14.9 13.42011-12 10.8 9.8 10.2 10.3 10.6 11.4Source: Pakistan Bureau of Statistics (PBS)104

InflationPercent191817161514131211109Fig-7.8: Inflation By Income GroupsCombinedUpto Rs.8000Upto Rs. 8001-12000Upto Rs. 12001-18000Upto Rs. 18001-35000Above Rs.350002008-092009-102010-11Jul-Apr2010-11Jul-Apr2011-12Wholesale Price IndexThe wholesale price index on annual average basishas increased by 11.2 percent during (Jul-Apr)2011-12. The increase in the food and non-foodgroup averaged 6.7 percent and 13.3 percentrespectively. The 14 major commodities coveredunder various sub groups of WPI contributed about8 percent point to the overall increase in WPI. Thelargest increase in wholesale prices was recordedfor fertilizer at 55.5 percent, followed by furnaceoil 36 percent, gram (whole), diesel and keroseneoil at 27 percent each (Table 7.9). Further analysisof the acceleration in wholesale prices reveals theconsiderable spike in prices of cotton, cement,vegetable ghee, fresh vegetable, milk, meat, riceand tea are the major contributory factors in theincrease in WPI.Table: 7.9 Percentage point contribution of major WPI itemsWeight %Change ImpactFertilizer 2.9 55.5 1.6Furnace Oil 3.3 35.9 1.2Gram (Whole) 0.5 27.6 0.1Diesel Oil 5.3 27.3 1.4Kerosene Oils 0.2 26.5 0.1Vegetable Ghee 1.6 23.4 0.4Meat 3.5 23.8 0.8Vegetables 1.2 24.3 0.3Fresh Milk 4.4 18.5 0.8Rice 2.4 22.1 0.5Tea 0.7 18.9 0.1Cotton 1.2 15.2 0.2Soaps 0.8 17.4 0.1Cement 1.8 15.4 0.3Total 30 8.0Source: Pakistan Bureau of Statistics (PBS)105

Pakistan Economic Survey 2011-12%ChangeFig: 7.9 Percent Change of major commodities in WPI6050403020100FertilizerFurnace OilGram (Whole)Diesel OilKerosene OilsVegetableGheeMeatVegetablesFresh MilkRiceTeaCottonSoapsCementTable: 7.10 (Percent) Change In Price IndicesCommodityWeightsOn Average Basis(%) Point ContributionJuly –Apr July -Apr July –Apr July –Apr2010-11 2011-12 2010-11 2011-12General(WPI) 100.0 21.0 11.2 21.0 11.2Agriculture Forestry & Fishery 42.1 30.7 1.6 12.9 0.7Non-Food 57.9 19.8 13.3 11.5 7.7Ores & Minerals 12.0 15.1 11.2 1.8 1.4Food Products, Beverages 31.1 23.4 6.7 7.3 2.1Other Transportable Goods 22.4 11.6 28.3 2.6 6.3Metal Products Machinery 8.7 13.1 21.4 1.1 1.9Source: Pakistan Bureau of StatisticsSensitive Price Indicator (SPI)The SPI measures the changes in weekly prices of53 essential items. During the current fiscal year(July—April) 2011-12, the increase in SPI isestimated at 8.5 percent over the correspondingincrease of 18 percent last year. An item wisereview of these 53 items which can be furthercategorized into food, non-food, utility andtransport groups, indicates that the majority of theincrease came from the increase in the prices of 11basic items. These few items account for 40percent of the weight in the SPI and contributedaround 4.0 percent to the overall increase in theSPI. The contribution of onion is estimated at 0.6percent, gram pulse 0.2 percent, tomatoes 0.2percent, tea 0.4 percent, beef 0.5 percent, mutton0.2 percent, rice 0.2 and vegetable ghee 0.1 percent(Table7.11).Table:7.11 Essential items point contribution in SPIItems Unit SPI Weight(% Change)April 12/ July 11ContributionOnions KG 1.4 40.5 0.6Gram Pulse KG 0.6 36.4 0.2Tomatoes KG 1.2 20.1 0.2Tea (Packet ) 200 GM. 2.2 17.4 0.4Beef KG 4.3 11.7 0.5Mutton KG 2.1 10.8 0.2Rice Basmati Broken KG 1.9 8.4 0.2106

InflationTable:7.11 Essential items point contribution in SPIItems Unit SPI Weight(% Change)April 12/ July 11ContributionMilk Fresh LTR 16.8 7.8 1.3Veg. Ghee (Loose) KG 2.7 4.8 0.1Chicken Farm KG 3.6 3.5 0.1Cooking Oil (Tin) KG 2.3 3.5 0.1Total 40.0 4.0Fig: 7.11 Change in prices of essential items in SPI (% CHANGE) April 12/ July 11%Change454035302520151050OnionsGram PulseTomatoesTea (Packet )BeefMuttonRice BasmatiBrokenMilk FreshVeg. Ghee(Loose)Chicken FarmCooking Oil(Tin)The current increase in the prices of edible oil andrice represents the global price trend in the pricesof these commodities and the domestic demandsupplysituation. Palm oil prices in internationalmarket increased from $1,088 per ton in July 2011to $1,152 per ton in March 2012; an increase of 6percent. When the prices of basic inputs increase,International Prices of MajorCommoditiesWheat ($/Ton)690590490390290Rice ($/Ton)Sugar ($/Ton)Crude ($/Brl)Palm Oil ($/Ton)1230118011301080the overall price is bound to show an increase too.The price of rice has increased by 17.2 percent inthe international market. Pakistan, being part of theglobal economy, cannot remain immune to suchglobal developments on the price front. These arethen reflected in the local markets.Fig7.7Domestic Prices of Major CommoditiesPalm OIl8474645444Wheat (Rs/Kg)Rice Basmati (Rs/Kg)Sugar (Rs/Kg)Cooking Oil (Rs/2.5 Kg)5155105055004951901030344909098024485Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12Cooking Oil107

Pakistan Economic Survey 2011-12A review of the price trend of essentialcommodities during the period (Jul-Apr) 2011-12suggests that the current price hike is the outcomeof rising food prices which influenced overallinflation. Prices of vegetable, fruit, meat andchicken (farm) etc. experienced larger increaseduring the period July 2011 to April 2012. Theprices of essential items have increased for aTable:7.12 Prices of Essential Itemsvariety of reasons. The increase in price of chicken(farm), fresh milk, beef and mutton is attributableto supply shortage of these items in the market.The increase in prices of tomatoes and onion isowing to damage to the crops by the floods as wellas seasonal volatility. Details of the commoditywise movement of prices are given below: (Table-7.12).ItemsUnitJuly Aug Sep Oct Nov Dec Jan Feb Mar Apr2011 2011 2011 2011 2011 2011 2012 2012 2012 2012%ChangeWheat Kg 25.4 25.4 25.9 26.2 26.7 27.3 27.4 27.4 27.5 27.4 7.9Wheat Flour Kg 29.7 28.6 29.7 29.9 30.2 30.7 30.7 30.8 30.9 31.0 4.4Rice Basmati Kg 57.3 58.9 58.9 59.1 59.9 59.7 59.1 59.0 60.1 62.1 8.4Rice Irri-6 Kg 43.7 44.7 45.3 45.2 45.2 45.0 45.4 45.4 46.0 46.9 7.3Masoor Pulse Kg 107.5 106.0 106.1 105.7 104.6 101.2 98.8 98.3 101.6 100.9 -6.1Moong Pulse Kg 140.3 139.5 137.1 134.0 129.6 124.3 120.9 118.8 122.5 122.6 -12.6Mash Pulse Kg 154.5 153.3 150.8 148.6 147.3 145.1 143.0 141.4 143.4 141.8 -8.2Gram Pulse Kg 72.4 72.9 72.7 72.5 71.6 71.4 70.9 75.2 97.3 98.7 36.3Beef Kg 233.7 239.8 244.6 249.1 252.2 252.2 253.5 257.1 259.6 261.0 11.7Mutton Kg 451.1 458.1 463.6 469.9 477.1 479.8 485.0 491.9 498.6 499.9 10.8Eggs Dozen 79.0 79.8 81.8 82.7 88.5 100.4 116.8 103.5 90.4 72.4 -8.4Sugar Kg 71.3 75.1 75.4 70.0 65.2 53.7 51.7 50.3 54.9 55.6 -22.0Milk Fresh Liter 55.9 56.0 56.1 56.5 57.1 57.7 57.8 58.0 59.0 60.2 7.7Veg.Ghee 2.5Kg 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5Veg.Ghee (loose) Kg 166.2 166.4 165.9 161.8 160.8 160.4 161.5 161.6 170.3 174.2 4.8Cooking oil 2.5Ltr. 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5Potato Kg 31.6 31.0 31.4 29.4 28.5 21.8 18.6 18.3 18.9 23.5 -25.6Onion Kg 18.2 24.0 32.3 42.7 53.2 36.0 43.4 37.6 31.8 25.6 40.7Tomato Kg 41.8 36.8 47.7 76.5 78.1 61.6 49.4 43.1 33.3 50.3 20.3Red chillies Kg 253.4 252.6 283.1 313.8 319.5 318.2 316.4 311.7 307.5 308.4 21.7Tea pack 200 Gms 121.1 121.1 131.6 131.6 131.6 131.6 131.6 134.5 140.0 142.1 17.3Chicken Farm Kg 160.8 164.4 143.5 132.1 127.1 131.9 160.3 162.2 156.9 166.5 3.5Source: Pakistan Bureau of Statistics (PBS)The prices of pulses show a mixed trend. The grampulse presents an increase of 36 percent. This wasdue to the prolonged winter season andunfavourable climate resulted in delay of its supplyas a result gram pulse was imported while theprices in international market were also rising.Tomato being a heavy weight item, its pricesremained high during April 2012, and at one pointin time it showed an increase of 67 percent, thiswas due to seasonal affect as major crops oftomatoes in Sindh was destroyed. Now with thearrival of this vegetable from Punjab, a declinedtrend in its prices was noted in May 2012. The SPIof the last two weeks of April and first two weeksof May 2012 suggests a negative trend as given inthe table below.Table 7.13: SPI (53 Items) 2007-08=100Percentage Change overPercentage Change overWeek ended SPI for lowestCombinedprev. week corr. Weekprev. week corr. Weekonincome groupSPI2011-12 2010-112011-12 2010-1105/04/2012 174.76 0.95 7.89 183.66 1.05 9.8712/04/2012 175.47 0.41 7.88 184.54 0.48 10.0019/04/2012 175.22 -0.14 7.29 184.36 -0.10 9.4826/04/2012 174.41 -0.46 7.03 183.53 -0.45 9.2403/05/2012 174.17 -0.14 7.90 183.31 -0.12 9.3010/05/2012 174.07 -0.06 7.55 183.28 -0.02 8.97108

InflationRegional PricesPrices of essential consumer items prevailing on10 th May, 2012 in Pakistan as compared withneighboring countries including India, Bangladesh,Sri Lanka, Iran and Afghanistan indicate thatprices of rice, beef, chicken (farm), sugar and redchilies were lower in Pakistan than in the otherregional countries. Prices of 08 items i.e. ricebasmati, beef, mutton, chicken (farm), sugar,tomatoes, red chilies and garlic are lower inPakistan as compared to India.Table 7.14: Prices of Selected Essential Items in Neighboring CountriesValue in Pak RupeesItems Unit Islamabad New Delhi Dhaka Colombo Tehran Kabul10/5/2012 10/5/2012 2/5/2012 2/5/2012 15/4/2012 12/4/2012Wheat Kg 27.8 27.2 39.1 -- -- 54.0Wheat Flour Kg 30.3 28.9 38.0 85.0 -- 58.0Rice Basmati Kg 100.1 160.5 150.7 127.5 216.8 135.0Masoor Pulse Kg 118.1 91.8 111.6 106.2 222.2 220.0Moong Pulse Kg 131.9 119.0 122.8 106.2 259.2 202.0Mash Pulse Kg 156.9 143.5 122.8 106.2 -- 276.0Gram Pulse Kg 113.8 88.4 78.1 106.2 222.2 127.0Beef Kg 280.0 283.0 290.2 368.3 1133.3 496.0Mutton Kg 556.9 567.0 502.3 708.2 1851.6 652.0Chicken Farm Kg 148.9 321.0 178.6 311.6* 318.5 309.0Eggs Dozn 85.1 83.0 117.2 76.4 171.8 127.0Sugar Kg 58.8 59.5 69.2 87.1 133.3 92.0Veg. Ghee (loose) Kg 206.0 147.9 468.9 -- -- 190.0Edible Oil(Dalda) Ltr 206.0 183.6 145.1 208.9 244.4 181.0Potato Kg 35.8 28.9 22.3 70.8 459.2 54.0Onion Kg 36.9 23.8 20.1 63.7 459.6 54.0Tomato Kg 36.3 37.4 16.7 56.7 162.9 127.0Red Chilies Kg 321.3 378.0 -- -- 888.8 398.0Garlic Kg 126.3 227.0 78.1 141.6 259.2 147.0Tea Kg 710.6 544.0 362.8 424.9 -- 469.0Source: Planning & Development Division-- Not available, * : Price of chicken is without featherPrice Stabilization MeasuresThe government is focused to restrict inflation to12 percent during the current fiscal year 2012.Different policy measures have been taken to dealwith food and fuel price hikes and to contain theinflation through monetary policy, augmentingsupply, streamlining distribution and interventionsto stimulate productivity.Given that the average inflation for (Jul-Apr)2011-12 was 10.84 percent and in view of theinternational food and fuel price trend thegovernment is keeping a close watch on themovement of price trend through weekly ECC andCabinet Meetings. In addition to the above, theNational Price Monitoring Committee (NPMC)also monitors the prices of essential commoditiesin consultation with the Provincial governmentsand the concerned Federal Ministries/ Divisionsand Organizations. The NPMC has so far heldtwelve meetings to monitor the price and supplysituation. The SBP controls inflation through thepolicy rate under the monetary policy. The recentinflationary pressure has necessitated a tightmonetary policy to suppress aggregate demand.The State Bank of Pakistan continued to keepmoney supply on a tight leash. To maintain fiscaldiscipline, the government has also focused onprudent expenditure management. Expendituresare being contained through austerity measures andadministrative mechanisms. The Senate StandingCommittee on Finance Revenue, EconomicAffairs, Statistics and Planning Division has109

Pakistan Economic Survey 2011-12recently approved the report of the sub committeeon the control of price of essential commoditieswhich is primarily aimed at finding ways andmeans to control prices.with direct damages amounting to 1.3 percent ofGDP and indirect losses of 0.2 percent of GDP.The floods remained confined to Sindh andBalochistan, with almost 96 percent of the damageoccurred in Sindh. The flood in terms of theirFlood Impacteconomic impact, especially in Sindh was moreSevere monsoon rains have triggered floods indevastating and caused an estimated damage of RsSouthern Pakistan of unprecedented scale, both in311 billion (6.1 percent of provincial GDP) in theterms of volume and spatial coverage. Accordingprovince. The floods impacted the richer districtsto report of ADB, it is estimated thaton the left bank of Indus, the agricultural heartlandapproximately 9.6 million people have beenof the province. The damage just in agriculture isaffected in Sindh and Balochistan as a result of theestimated to be Rs. 151 billion. On the other hand,floods. The overall damage from 2011 floods isdamages in Balochistan in 2011, are Rs. 12 billion,estimated at Rs 324.5 billion (1.6 percent of GDP),(1.4 percent of provincial GDP).Table 7.15: 2011 Kharif Area Affected by FloodCrop AreaArea Damaged (000 Ha)Province Damaged(000‟ ha)Cotton Rice Sugarcane Maize Vegetables Fruit OtherBalochistan 21.42 1.29 14.30 - - 1.78 0.17 3.88Sindh 859.61 494.94 163.85 88.40 - 99.24 13.19 -Total 881.03 496.22 178.14 88.40 - 101.03 13.36 3.88The floods have had a large and direct impact onthe Kharif cropping season. It has been estimatedby the World Bank and Asian Development Bank,that about 10 percent (142,434 ha) of the affectedKharif crop area will not be available forcultivation in Rabi and 5 percent in the Kharif2012. The main Rabi crop in Pakistan is wheatwhich is grown on some 8.5 million ha. In Sindh95 percent of the land was allocated to wheat inRabi 2010. There is a high possibility that wheatplanting in Sindh may face substantial constraints,mainly due to fact that the flood waters have notfully receded. In Balochistan, water have recededexcept for some low lying areas and, provided thenecessary support system for land clearing andinput supplies are put in place for the plantingseason, wheat planting may not be substantiallyaffected. However, damage to watercourses andtube wells, which are a critical source ofsupplementary water, may affect yields. Anotherfactor that may contribute to decrease in the areaunder wheat will be the delayed start of sugarcanecrushing but a recovery in the gap may be filled bythe early clearing of the damaged cotton areas.SUPARCO estimates 0.5 million tons loss ofwheat production in Sindh due to non availabilityof land. These damages of crops may affect thesupply position and as a result prices may rise. Theincrease in wheat procurement prices from Rs. 950per maund to Rs. 1,050 per maund may add toprice increase.Future OutlookThe government is focusing on restricting inflationto 12 percent during the current fiscal year 2011-12. The current trend of inflation reported duringthe first 10 months Jul-Apr 2011-12 suggests thatinflation has been stabilized on account ofpursuing tight monetary policy and declining trendin global commodity prices. Inflation is likely tofurther decelerate gradually over the next fewmonths, as better crops production and bettermanagement of supply chain may bring pricestability in the country. The decline in inflationmay continue further by falling global commodityprices and steps towards fiscal consolidation tocontain inflation. However, long term solutions lieincrease in agricultural investment; strong marketintegration; and, regional cooperation to securefood supplies for the country’s growingpopulation.110

Chapter 8Trade and PaymentsThe unfavorable global environment has sloweddown the world output and trade volume during2011; world output which grew by 5.3 percent in2010 decelerated to 3.9 percent in 2011. Thisslowing down of the global economic activity hascaused a sharp decline in the growth of worldtrade. Against the strong pick up of nearly 13.0percent in 2010 the growth of world trade droppedto 5.8 percent in 2011. The global economicslowdown and consequential decline in the growthof world trade has also depressed the internationalcommodity prices. The prices of non-fuelcommodities witnessed a deceleration from 26.3percent in 2010 to 17.8 percent in 2011; and, areprojected to grow negatively by 10.3 percent in2012.These developments can be attributed to theongoing European Sovereign Debt Crisis, theturmoil in the Arab Countries and the naturaldisasters that hit Thailand and Japan which causeddisruptions in the supply chain.The growth in world output and trade volume isprojected 1 to decelerate further during 2012 due tothe downside risks of deepening of the sovereigndebt crisis and worsening financial stress, increasein oil prices, and geo-political risks. It is projectedthat world output will grow by 3.5 percent andtrade volume will increase by 4.0 percent duringthe period.Amid the difficult global economic environment,the slowing down of the world trade, the drop ininternational commodity prices, and the energyshortages domestically, the exports from Pakistanremained higher by US$ 14.0 million during July-April 2011-12 over the same period last year andstood at $ 20,474 million. During the period July-April 2011-12, the growth of imports at 14.5percent remained more or less the same as thecorresponding period’s growth in the previousperiod. So as exports declined imports continued togrow highlighting the dominant role of externaldevelopments. Pakistan’s exports growth wouldhave been in much better position had there beennormalization in international prospects during theperiod. In fiscal year 2011-12, workers’remittances grew by $ 1.83 billion over the lastyear.Current Account BalanceThe current account deficit stood at $ 3,394 millionduring July-April 2011-12.This deficit in thecurrent account was largely caused by thewidening of trade and services account deficit.However, continued support from current transfersin the form of workers’ remittances helped incontaining further increase in the current accountdeficit during the period under review.The trade deficit expanded mainly due to the 14.5percent growth in imports and the 0.1 percentincrease in exports; thereby widening the tradedeficit by 49.2 percent during the period. Themajor factor behind the widening of the tradedeficit was the sharp rise in the import bill duringJuly-April 2011-12 which increased due to thehigher international prices of crude oil1 : World Economic Outlook April 2012, IMF111

Pakistan Economic Survey 2011-12Table 8.1: Summary Balance of PaymentsUS$ MillionItemsJuly-JuneJuly-April*2009-10 2010-11 2010-11 2011-12Current Account Balance -3,946 214 466 -3,394Trade balance -11,536 -10,516 -8,499 -12,683Goods: Exports 19,673 25,356 20,460 20,474Goods: Imports 31,209 35,872 28,959 33,157Services Balance -1,690 -1,940 -1,225 -2,347Services: Credit 5,229 5,768 4,917 4,101Services: Debit 6,919 7,708 6,142 6,448Income Account Balance -3,282 -3,017 -2,465 -2,655Income: Credit 561 716 563 668Income: Debit 3843 3733 3028 3323Current Transfers Net 12,562 15,687 12,655 14,291of which:Workers remittances 8,906 11,201 9,046 10,877Capital & Financial Account 5,272 2,262 772 1,367Capital Account 175 161 82 167Financial Account 5,097 2,101 690 1,200Direct Investment In Pakistan 2,151 1,635 1,293 668Portfolio Investment (Net) -65 338 295 -126Other Investment 3,087 172 -846 721Net Errors and Omissions -60 16 -29 -515Overall Balance 1,266 2,492 1,209 -2,542Source: State Bank of Pakistan*: ProvisionalAnalysis on a comparative month to month basisshows that the current account balance remainedunder pressure during the months of September2011, October 2011 and November 2011. Themonth of September 2011 witnessed the highestdeficit in current account in the entire July-April2011-12 period due to the fall in remittances andthe increase in the trade deficit during the month.The current account deficit remained lower in thefollowing months alongwith a surplus of $ 142million in March 2012.The monthly average exports increased by 0.1percent during July-April 2011-12 and stood at $2,047 million per month as against the average of $2046 million per month during the comparableperiod last year.The month-wise imports averaged $ 3,316 millionduring July-April 2011-12 and remained higherthan the average import of $ 2,896 million in thesame period last year. With the exception of March2012, monthly imports remained higher in all theremaining periods of the current fiscal year 2011-12, compared to the corresponding months of theprevious year.US$ MillionFig-8.1: Monthly Current Account Balance8004000‐400‐800‐1200Jul‐10Aug‐10Sep‐10Oct‐10Nov‐10Dec‐10Jan‐11Feb‐11Mar‐11Apr‐11May‐11Jun‐11Jul‐11Aug‐11Sep‐11Oct‐11Nov‐11Dec‐11Jan‐12Feb‐12Mar‐12Apr‐12Source: State Bank of PakistanDuring July-April 2011-12, the services accountdeficit recorded an expansion of $ 1,122 million.This deterioration in the services account wasprimarily due to the 16.6 percent fall in servicesexports. In addition to this, the 5.0 percent increasein imports also contributed to the deterioration in112

Trade and Paymentsthe services account during the period underreview.Within services export, government serviceswitnessed a major decline of 34.4 percent duringJuly-April 2011-12 compared to the same periodlast year. This was the outcome of the absence oflogistic support inflows during July-April 2011-12as compared to $ 743 million in the correspondingperiod last year.The other major categories of services exportwhich showed a fall during July-April 2011-12remained transportation, other business servicesand communication services; these servicesdeclined by $ 51.0 million, $ 68.0 million and $21.0 million respectively over the July-April 2010-11. On the other hand, the major service exports ofinsurance, computer and information and travelwitnessed a major increase during July-April 2011-12.Government services and travel remains the majorcontributors to the overall increase in servicesimports during July-April 2011-12.Workers’ RemittancesAccording to World Bank estimates theremittances flows to developing countries in 2011increased by 8.0 percent from $ 325 billion in 2010and is forecast to grow at 7 to 8 percent annuallytill 2014.Compared to the 10.1 percent growth in SouthAsia, remittances to Pakistan witnessed a stronggrowth of 25.8 percent in 2011 over previous year.Pakistan has become the fifth largest remittancesrecipient developing country in 2011. The generalupward trend in remittances during the periodunder review was composed of a per annumaverage growth from U.A.E of 32.2 percentfollowed by U.K. (30.1 percent), Saudi Arabia(27.3 percent), EU countries (25.3 percent), OtherGCC Countries (15.1 percent) and USA (9.5percent) during the period 2007-08 to 2010-11.Fig-8.2:Remittances By Country of Source FY 08 FY 09 FY 10 FY 113,0002,7002,4002,100US$ Million1,8001,5001,2009006003000USA U.K. Saudi Arabia U.A.E. Other GCCCountryEU CountriesMore recently, following the impressiveperformance of the last year, worker’s remittancescontinued to provide strength to the currentaccount. During July-April 2011-12, worker’sremittances grew by 20.2 percent and stood at $10.9 billion. The cumulative increase of $ 1.83billion during July-April 2011-12 over July-April2010-11 is largely attributed to the government’sefforts to divert remittances from the informal tothe formal channel. Since the launch of thePakistan Remittances Initiative (PRI), the share ofworker’s remittances coming through the bankingchannel has increased considerably, from 75percent in 2009-10 to 91 percent in 2011-12. PRIhas taken a number of steps to enhance the flow ofremittances through formal channels which113

Pakistan Economic Survey 2011-12include: (a) preparation of national strategies onremittances (b) taking all necessary steps toimplement the overall strategy (c) playing theadvisory role for financial sector in terms ofpreparing a business case, relationship buildingwith overseas correspondents, creating separateefficient remittance payment highways and (d)becoming a national focal point for overseasPakistanis through round the clock call centre,separate web site etc.Monthly analysis shows that with the exception ofSeptember and November 2011, the growth inworkers’ remittances remained higher during July-April 2011-12 compared to the correspondingyears. It also crossed the one billion mark duringthese months.Country-wise data shows that remittances fromalmost all major traditional sources increased. Theshare of Saudi Arabia in overall remittances wasthe largest; with UAE and USA having the secondand third largest shares. Other countries like UKand Other GCC Countries also contributed to theincrease in remittances during the period underreviewUS$ MillionFig- 8.3: Monthly Workers' Remittances140012001000800600Jul-10Aug-10Sep-10Oct-10Nov-10Dec-10Jan-11Feb-11Mar-11Apr-11May-11Jun-11Jul-11Aug-11Sep-11Oct-11Nov-11Dec-11Jan-12Feb-12Mar-12Apr-12Source: State Bank of PakistanTable:8.2. Country/Region Wise Cash Workers' RemittancesCountry/ Region($ Million)Jul-Apr2010-11 2011-12* % Change % ShareUSA 1,677.9 1,922.4 14.6 17.7U.K. 990.9 1,263.7 27.5 11.6Saudi Arabia 2,085.8 2,987.9 43.2 27.5UAE 2,091.3 2,386.3 14.1 21.9Other GCC Countries 1,063.5 1,226.6 15.3 11.3EU Countries 290.8 304.6 4.8 2.8Other Countries 846.4 785.7 -7.2 7.2Total 9,046.6 10,877.0 20.2 100.0Source: State Bank of Pakistan* ProvisionalFinancial AccountThe financial account posted a surplus of $ 1,200million during July-April 2011-12 against a surplusof $ 690 million in the corresponding period lastyear. Foreign direct investment declined by $ 625million and portfolio investment witnessed a fall of$ 126 million. Other investment stood at $ 721million during July-April 2011-12.During the period July-April 2011-12, ForeignDirect Investment (FDI) declined by 48.3 percent.This decline was primarily due to lower investmentin the telecommunication, financial business andpower sector during the period. The fall in FDI inPakistan appears to be the result of factors such asenergy crises and circular debt. However, the Oil& Exploration remained the major attractionduring current fiscal year as its share in overallFDI stood at 69.8 percent with 37.9 percentagepoints increase during the period.Foreign Exchange ReservesIn current fiscal year 2011-12, Pakistan’s foreignexchange reserves reached by $ 16.49 billion at theend-April 2012 compared to $ 17.05 billion incorresponding period last year.114

This was mainly due to current account deficit andrepayment of $ 400 million to the IMF.On the other hand, the rising inflows of scheduledbanks reserves on account of healthy rise in FE-25deposits and trade NOSTROs helped increasereserves in scheduled banks by $ 1.10 billion.Rs./US$Trade and PaymentsFig-8.5: Monthly Exchange Rate9590858020.016.0Fig 8.4: Gross Foreign ExchangeReservesSBP Banks7570Aug-08Dec-08Apr-09Aug-09Dec-09Apr-10Aug-10Dec-10Apr-11Aug-11Dec-11Apr-12$ billion12.08.04.00.0FY07 FY08 FY09 FY10 FY11 Jul-AprFY12Source: State Bank of PakistanExchange RateAfter witnessing the continuous decline indepreciation of average annual exchange ratesduring 2009-10 and 2010-11, the domesticcurrency remained under pressure through most offiscal year 2011-12. This pressure is emergingfrom the deficit in the overall external account ofthe country during July-April 2011-12. As a resultPakistan’s currency vis-à-vis the US dollardepreciated during July-April 2011-12.In absolute terms, the exchange rate averaged Rs.85.50/US$ during July-April 2010-11, whereas itaveraged at Rs. 88.55/US$ during July-April 2011-12. The Pak Rupee depreciated by 3.4 percentduring July-April 2011-12 over the depreciation of2.2 percent in July-April 2010-11 period due to thewidening current account deficit and speculationson account of the repayment of IMF loan duringthe period.Apart from the deficit in the current accountbalance during July-April 2011-12 other domesticfactors as well as the speculative environment inthe foreign exchange market added volatility to theexchange rate.Source: State Bank of PakistanReal Effective Exchange RatesConceptually, the REER is defined as the weightedaverage of nominal exchange rates adjusted forrelative price differential between the domestic andforeign countries. Given the weakness against theUS dollar, the Pak Rupee depreciated by 8.8, 5.7and 3.7 percent, against Yen, Euro and GreatBritain Pound, respectively. Despite thedepreciation against the US dollar and other majorcurrencies in nominal terms, the Pakistan currencyappreciated by 0.51 percent in real terms duringJul-Dec 2011-12 against an appreciation of 0.16percent during Jul-Dec 2010-11. The appreciationin real terms was due to the sharp and persistentrise in the relative price index (RPI).Index (FY04=100)Figure 8.6: REER, NEER and RPI180.0150.0120.090.0REER RPI NEER (RHS)70Source: State Bank of Pakistan68666462605856115

Pakistan Economic Survey 2011-12Commodity-Wise Performance of Exports andImports 2ExportsGroup-wise analysis of exports growth suggeststhat the exports of the “other manufacturers”witnessed an impressive growth of 19.9 percentduring July-April 2011-12 over the same periodlast year. Its share in overall exports also increasedby 3.9 percentage points and stood at 20.0 percentduring current fiscal year 2011-12. Jewelry,chemicals and pharmaceutical products, surgicalgoods & medical instruments, guar and guarproducts and engineering goods remained theprominent categories among the positivecontributors to the overall increase in “othermanufactures” group. Furthermore, these fiveitems collectively added $ 668.6 million in theoverall exports during July-April 2011-12. Jewelryexports have witnessed a significant $ 335.6million increase over the last year and its share in“other manufactures” group also increased from10.0 percent to 17.0 percent during July-April2011-12. Moreover, cement exports also increasedby 3.5 percent during July-April 2011-12 againstthe fall of 9.9 percent during July-April 2010-11.This increase in cement export receipts is mainlythe outcome of higher unit values, which increasedby 12.9 percent during the period. The decline inquantum exports of cement which witnessed a fallby 8.3 percent during the period tampered theincrease in cement export receipts.However, the overall increase in “othermanufactures” group was offset to some extent bythe negative growth of carpets (5.9 percent),leather garments (15.6 percent) and cutlery (6.3percent) during July-April 2011-12. The exportcategory of carpets, rugs and mats declined due toincreased competition from the neighboringcountries of Pakistan.The value of exports from the food group stood at$ 3509.7 million during July-April 2011-12compared to $ 3597.6 million in the correspondingperiod last year, thereby showing a negativegrowth of 2.4 percent. In absolute terms thisrepresents a fall of $ 87.9 million during theperiod. Further details reveal that the lowerquantity of exports of most of the food itemsremains the major reason behind the overalldecline. The unit values of different food itemsremained largely positive during the period. Themajor factors behind the overall fall in foodexports remain wheat, rice and vegetables. Inabsolute terms these three items fell by $ 442.3million during the first ten months of the currentfiscal year 2011-12. Rice exports followed lastyear’s trend and declined by 3.2 percent duringJuly-April 2011-12. This fall in rice export is dueto the overall quantum exports of rice by 9.1during the period. The major reason behind the fallin rice exports remained the higher availability ofrice internationally. The other reason for the fall inrice exports was the higher proportion of nonbasmatirice in the overall export quantum of rice.Wheat exports declined due to the internationallylower demand and prices as quantity and unit valueof wheat both witnessed a negative growth of 70.6percent and 8.3 percent, respectively.On the other hand, fruits exports witnessed a majorincrease during 2011-12; in absolute terms fruitexports increased by $ 70.5 million during July-April 2011-12 over the same period last year.In contrast to the 32.1 percent growth in July-April2010-11 textile exports declined by 9.6 percentduring July-April 2011-12. This fall in textile ismainly attributed to decline in quantity exports; themajority of the textile categories show a negativegrowth in the quantities exported. The majorreason behind this phenomenon is the energy crisishitting the textile sector and the fall in internationaldemand. Owing to this, the share of the textilesector in overall exports declined from 55.8percent in July-April 2010-11 to 52.4 percentduring July-April 2011-12 and on absolute term itfell by $ 1076 million during the period.2: The analysis of exports and imports is based on trade data released by Pakistan Bureau of Statistics (PBS) on Customsbasis which differs from exchange record data by SBP.116

Trade and PaymentsTable 8.3: Structure of Exports($ Millions)ParticularsJuly-AprilAbsolute% Change2011-12* 2010-11*ChangeA. Food GroupRice 1,735.2 1,792.2 -3.2 -57.0Fish & Fish Preparation 259.3 234.4 10.6 24.9Fruits 322.4 252.0 28.0 70.5Vegitables 131.9 211.7 -37.7 -79.8Wheat 112.7 418.2 -73.0 -305.5Spices 38.6 38.7 -0.3 -0.1Oil Seeds, Nuts & Kernels 23.4 14.5 60.6 8.8Meat & Meat Preparation 141.6 122.0 16.0 19.6B. Textile ManufacturesRaw Cotton 433.1 327.3 32.3 105.8Cotton Yarn 1,451.7 1,880.0 -22.8 -428.3Cotton Cloth 1,969.8 2,081.2 -5.4 -111.4Knitwear 1,624.5 1,870.1 -13.1 -245.6Bed Wear 1,453.1 1,686.0 -13.8 -232.9Towels 556.5 607.8 -8.4 -51.3Readymade Garments 1,326.6 1,396.5 -5.0 -69.9Made-up Articles 472.7 509.0 -7.1 -36.3C. Petroleum GroupPetroleum Products 291.9 752.9 -61.2 -461.0Petroleum Top Naptha 518.4 388.5 33.4 129.9D. Other ManufacturesCarpets. Rugs & mats 104.3 110.9 -5.9 -6.6Sports Goods 269.2 262.9 2.4 6.2Leather Tanned 358.7 370.8 -3.3 -12.2Leather Manufactures 435.3 450.3 -3.3 -14.9Surgical Goods & Medical.Inst. 249.6 212.6 17.4 37.0Chemicals & Pharma. Pro. 909.0 725.5 25.3 183.5Engineering Goods 230.1 196.4 17.2 33.7Jewellary 649.7 314.1 106.9 335.6Cement 387.3 374.2 3.5 13.1Source: PBS* ProvisionalThe negative effects of the energy shortagesdomestically and the slowdown of global demandare especially visible in the decline in the quantityof exports despite the increase in the unit values ofthe majority of items during the period July-April2011-12. Due to this phenomenon, the quantumexports of high value added items such asknitwear, bed wear, towels and readymadegarments have shown negative growth during theperiod under review.117

Pakistan Economic Survey 2011-12% GrowthFig-8.7: Textile Exports (July-April 2011-12) Quantity Unit Value1007550250-25-50-75-100Source: PBSRAW COTTON COTTON YARN COTTON CLOTH COTTONCARDED ORCOMBEDYARN OTHERTHAN COTTONYARNKNITWEAR BED WEAR TOWELS TENTS,CANVAS& TARPULINREADYMADEGARMENTSART,SILK &SYNTHETICTEXTILENotwithstanding the higher international prices, thepetroleum group export receipts declined by 29.0percent during the first ten months of the currentfiscal year compared to the same period last year.This decline in the petroleum group is due to thedecline in quantum export as petroleum productsand naptha fell by 68.4 percent and 13.9 percentrespectively causing a decline of $ 331.0 million innet absolute terms in export receipts frompetroleum group over the corresponding period lastyear. The circular debt problem in the countryremained the major reason for the decline in thepetroleum group exports during July-April 2011-12. Moreover, the share of the petroleum groupalso declined by 1.50 percentage points during theperiod under review.Concentration of ExportsThe process of decrease in concentration of exportsitems continued in the current fiscal year (July-April 2011-12) as the share of other items inoverall exports increased to 39.0 percent againstthe 28.5 percent during 2006-07, a 10.5 percentagepoints increase during the period. Moreover, theshare of the other items category witnessed a 6.2percentage points increase during July-April 2011-12 compared to the same period last year. In spiteof this structural change in exports of the country,the major share of Pakistan’s export is stillconcentrated in a few items with only three items(cotton manufactures, leather and rice) making up61.0 percent of total exports during July-March2011-12.Table 8.4:Pakistan’s Major Exports(Percentage Share)Commodity 06-07 07-08 08-09 09-10 10-11Jul-Mar*10-11 11-12Cotton Manufacturers 59.7 51.9 52.6 50.6 52.9 53.7 50.1Leather** 5.2 5.8 5.4 4.5 4.4 4.5 2.2Rice 6.6 9.8 11.2 11.3 8.7 9.0 8.7Sub-Total of three Items 71.5 67.5 69.2 66.4 66 67.2 61.0Other Items 28.5 32.5 30.8 33.6 34.0 32.8 39.0Total 100 100 100 100 100 100 100Source: Pakistan Bureau of Statistics*Provisional, ** Leather & Leather ManufacturedDirection of ExportsDespite being concentrated in a few markets,Pakistan has witnessed some geographicaldiversification in exports. During 2005-06, 47.2percent of the country’s exports were concentratedin five markets (USA, UK, Germany, Hong Kongand U.A.E.) of the world and remaining share ofall other countries was 52.8 percent. This118

Trade and Paymentsconcentration is on continuous decline since 2005-06 and recently the share of these five marketstood at 35.2 percent whereas the share of all othercountries increased to 64.8 during July-March2011-12 compared to 52.8 percent share during2005-06. This improvement in geographicaldiversification was mainly the result of theStrategic Trade Policy Framework (STPF-2009-12) introduced by the government and the resultingincrease in exports to China, Afghanistan andBangladesh.Table 8.5: Major Exports Markets(Percentage Share)Jul-MarCountry 05-06 06-07 07-08 08-09 09-10 10-1110-11 11-12*USA 25.5 24.6 19.5 18.9 17.4 16.0 15.9 14.7UK 5.4 5.6 5.4 4.9 5.3 4.9 5.0 5.1Germany 4.2 4.1 4.3 4.2 4.1 5.1 5.0 4.8Honk Kong 4.1 3.9 2.7 2.1 2.2 2.0 2.2 1.6U.A.E. 8.0 8.2 10.9 8.2 8.9 7.3 7.3 9.0Sub-Total 47.2 46.4 42.8 38.3 37.9 35.3 35.4 35.2Other Countries 52.8 53.6 57.2 61.7 62.1 64.7 64.6 64.8Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Source: Pakistan Bureau of Statistics*ProvisionalImportsStructure of imports indicates that food groupimports accounted for 11.4 percent of total importsand showed a negative growth rate of 1.7 percentduring July-April 2011-12 compared to last year.This fall in the overall food import bill is the resultof a decline in the quantity of imports of most ofthe food items despite the increase in the unitvalues of food group items.Within food group imports, the major contributioncame from sugar as its import bill declined by $665.0 million in absolute terms during July-April2011-12 compared to the same period last year.This fall in sugar imports came on the back ofimproved sugar production domestically due tohigher crop production of sugarcane during thefiscal year under review. Moreover, the import billof spices and pulses also witnessed a fall duringthe period.The import bill for edible oil increased by 16.5percent and has added $ 273 million to this year’simport bill. Palm oil imports surged in quantity,value and per unit value as it increased by 5.1percent, 18.3 percent and 12.5 percent,respectively. The higher import bill of palm oil isthe result of higher international prices and higherdomestic demand during the period, resulting in anincrease in the palm oil import bill in absoluteterms by $ 292 million. In addition, the import billfor tea during 2011-12 also increased by 4.8percent on the back of higher import prices duringthe period.% ageFig-8.8: Sources of Change inPetroleum Imports (Jul-Apr 2011-12)9080706050403020100Source: PBSPrice EffectQuantity EffectThe Import of petroleum group products grew by43.5 percent during July-April 2011-12 against the8.4 percent growth in the corresponding period lastyear reflecting mainly the impact of higherinternational oil prices since per unit values of119

Pakistan Economic Survey 2011-12petroleum products and petroleum crude increasedby 28.9 percent and 36.6 percent, respectively.Moreover, during July-April 2011-12, thepetroleum group import bill increased by $ 3,815.3million over the same period last year. Nearly 76.4percent of this increase in the import bill iscontributed by the price impact and 23.6 percentby the quantum impact.The increase in the petroleum import bill is alsoevident from the international monthly averageprices of oil. These surged from $ 76.4 per barrelin July 2010 to $ 120.5 per barrel in April 2012.Moreover, the quantity of petroleum productimports increased by 31.7 percent while quantumimports of crude oil declined by 19.5 percentduring July-April 2011-12. This phenomenon inquantum imports results from the effect of thecircular debt problem in the country faced byrefineries.$/BrlFig-8.9: International Monthly OilPrices (Average)140120100806040200Jul 10AugSepOctNovDecJanFebMarAprMayJunJul 11AugSepOctNovDecJanFebMarApr 12The import of consumer durables added $ 229.8million to the overall import bill for July-April2011-12. The contribution to the increase inconsumer durables imports remained road motorvehicles. Their import bill increased by $ 229.3million. Moreover, the import of electricmachinery and appliances also increased by 0.1percent during the period. During July-April 2011-12, the increase in road motor vehicle imports wasthe outcome of higher import of CBU (completebuild-up unit) which increased by $ 234.3 millionover the last year due to the import of cars andbuses, trucks and other heavy vehicles categoriesincreasing by 161.0 percent and 91.3 percentrespectively during the current fiscal year periodunder review. Moreover, the complete knockeddown-down (CKD)/semi-knocked-down (SKD)category of road motor vehicles also increased by6.8 percent during July-April 2011-12. Within thiscategory, motor cycles and buses, trucks and otherheavy vehicles contributed positively during theperiod. Due to these developments, the importquantum and value of rubber tyres and tubeswitnessed an increase of 25.4 percent and 14.4percent respectively during July-April 2011-12.Increase in the overall import bill of consumerdurables is generally the outcome of the fall induties on automobiles, deep freezers, airconditioners and beverages along with the cut intaxes announced by government.Telecom imports grew by 22.9 percent during thefirst ten months of the current fiscal year. Inabsolute terms the import in the telecom sectorwitnessed an increase of $ 195.2 million. Out ofthe total increase in telecom imports, 65.4 percenthas been contributed by mobile phone importswhich grew by 29.0 percent and added $ 127.7million to the import bill during July-April 2011-12 as compared to the corresponding period lastyear. This increase may be the result of increasedavailability of cheaper mobile phones in thecountry.The machinery group imports decreased to $3148.4 million during the first ten months of thecurrent fiscal year 2011-12 as against $ 3595.9million in the corresponding period last year.Among the different items of the machinery group,textile machinery, air crafts, ships and boats andother machinery witnessed a decline during theperiod under review. The decline in textilemachinery import may be attributed to the fall inexternal demand; decline in export prices; and,energy problems faced by textile sector.120

Table 8.6: Structure of ImportsParticularsTrade and Payments($ Million)AbsoluteChangeJuly-April2010-11 2011-12% ChangeA. Food GroupMilk & milk food 129.5 134.3 3.7 4.9Wheat Unmilled 5.2 0.0 -100.0 -5.2Dry fruits 74.4 72.3 -2.8 -2.1Tea 288.3 302.0 4.8 13.7Spices 91.3 86.6 -5.2 -4.7Edible Oil (Soyabean & Palm Oil) 1,660.3 1,933.6 16.5 273.3Sugar 679.9 14.4 -97.9 -665.5Pulses 344.6 320.3 -7.1 -24.3B. Machinery GroupPower Gen. Machines 865.6 877.2 1.3 11.6Office Machines 195.6 239.8 22.6 44.2Textile Machinery 399.4 339.0 -15.1 -60.4Const. & Mining Mach. 98.6 111.0 12.6 12.4Aircraft Ships and Boats 713.5 305.8 -57.1 -407.7Agriculture Machinery 77.6 103.0 32.7 25.4C. Petroleum GroupPetroleum Products 4,919.9 8,354.8 69.8 3,434.8Petroleum Crude 3,847.6 4,228.1 9.9 380.5D. Consumer DurablesElectric Mach. & App. 674.8 675.3 0.1 0.5Road Motor Vehicles 1,082.8 1,312.1 21.2 229.3E. Raw MaterialsRaw Cotton 852.8 369.5 -56.7 -483.4Synthetic fibre 464.2 434.6 -6.4 -29.5Silk yarn (Synth & Arti) 444.7 503.9 13.3 59.2Fertilizer 499.6 1,081.7 116.5 582.1Insecticides 122.3 110.4 -9.8 -11.9Plastic material 1,263.8 1,287.5 1.9 23.7Iron & steel and Scrap 423.9 446.8 5.4 22.9Iron & steel 993.9 1,119.0 12.6 125.1F. Telecom 854.3 1,049.5 22.9 195.2Source: Pakistan Bureau of StatisicsOn the other hand, the items which grew positivelycontinued to be the power generating machinery,office machines, construction and miningmachinery and agri machinery. Power generatingmachinery imports increased due to energyshortfalls in the country. As a result the import billstood at $ 877.2 million during July-April 2011-12.The increase in import of construction and miningmachinery reflects the increase in constructionactivities in the country. This improvement can beattributed to the start of public projects and is alsothe result of the increase in remittances which wentprimarily into the construction sector. The higherdemand for agricultural machinery imports ($ 25.4million) is mainly the outcome of remarkableimprovement in the agriculture sector.The import of products in the raw material groupsurged by 7.4 percent and accounted for 22.4percent of total imports during the period of July-April 2011-12. Within raw material imports, rawcotton declined in absolute terms by $ 483.4million mainly due to increased availability of thecrop domestically. The prominent increasewitnessed in the imports of fertilizer is due todecline in domestic production owing to gasshortages. As a result the import bill of fertilizerincreased by $ 582.1 million over the last year. Of121

Pakistan Economic Survey 2011-12this total increase around 87.6 percent was due toincrease in quantity and the remaining 12.4 percentdue to higher prices.Fig-8.10 Source of Change in FertilizerImport (Jul-Apr 2011-12)600Direction of ImportsDespite being fairly concentrated in a few markets,Pakistan’s import sources are witnessing a changein direction since 2007-08. The combined share ofPakistan’s major imports markets (Saudi Arabia,Kuwait, Japan, U.S.A., Germany and U.K.) hasbeen declining from the 36.7 percent in 2007-08 to30.2 percent at present thereby showing a 6.5percentage points fall during the period underreview.500US$ Million4003002001000Price EffectQuantity EffectSource: PBSTable-8.7: Major Sources of Imports (Percentage Share)Country 07-08 08-09 09-10 10-11 Jul-Mar10-11 11-12*U.S.A. 6.1 5.4 4.6 4.5 4.3 3.3U.K. 1.9 2.6 1.7 1.6 1.6 1.2Germany 3.2 3.8 3.4 2.3 2.3 2.5Japan 4.6 3.6 4.4 4.1 4.2 4.2Kuwait 7.5 6.6 6.9 8.2 6.8 8.4Saudi Arabia 13.4 12.3 9.7 11.3 11.7 10.6Sub-Total 36.7 34.3 30.7 32.0 30.9 30.2Other Countries 63.3 65.7 69.3 68.0 69.1 69.8Source: Pakistan Bureau of Statistics*ProvisionalMeasures/steps taken by the governmentregarding exports and importsIn July, 2009 the Federal Cabinet approvedcomplete zero-rating of exports.Incentives have been given to boost exportssuch as concessionary financing, duty freeimports of raw material under temporaryimportation scheme/Duty Tax Remission onExports (DTRE), duty drawback scheme,concessions in duty/taxes on import ofmachinery and raw material of priority exportsectors, development of export clusters.Through active trade diplomacy, Governmentis trying its level best to get better marketaccess for the localbusinesses in international markets byconcluding Free Trade Agreements (FTAs)and Preferential Trade Agreements (PTAs)with different countries.Trade Development Authority of Pakistan(TDAP) is undertaking various exportpromotional activities through tradeexhibitions and delegations in the new marketsviz China, Hong Kong, Russia, Malaysia,Africa region, America and Eastern Europeetc.The following measures have been takenduring 2011-12 in the import / export regime,through Amendments in the Import Policy andExport Policy Orders:122

Trade and PaymentsAmendments in Exports – Imports Policy orders during 2011-12Sr. No. Gist of Amendment Rationale/Justification1. Allowing export of organic brown sugar. To encourage local production oforganic brown sugar.2. Allowing units registered under DTRE scheme also to importinputs given in restricted list of the Import Policy Order (IPO),subject to fulfillment of conditions mentioned therein.3. Restricting import of exhausted batteries to industrial consumersonly subject to a fool proof mechanism.4. Restricting disposal of ambulances before ten years imported as adonation in secondhand used condition by imposing duty taxesapplicable at the time of import.5. Importer duly registered with Oil and Gas Regulatory Authorityfor importing automotives engine/gear oil etc.6. Another 17 categories were included in the positive list of itemsimportable from India.7. Allowing export oriented textile and leather sector to importaccessories on import cum export basis from India.8. Allowing raw material/inputs including polythene, polypropylene,newsprint and pure terephtalic acid from India through Wagha vialand route.9. Banning import of CNG cylinders and conversion kits. The banshall however not apply in the following cases:a) For which letters of credit established prior to 15-12-2011.b) Public transport vehicle i.e. buses and vans.10. Positive List with India has now been replaced with a NegativeList of 1209 items.To bring DTRE users at par withnormal importers.To safeguard environment.To avoid misuse of ambulances ascommercial vehicle after import.To safeguard consumers interest.To reduce cost of doing business.To facilitate export sector.To reduce cost of doing business.To check fast depletion of existinggas resources.To normalize Pakistan’s traderelations with India.123

Chapter 9Public Debt9.1 IntroductionDeveloping countries hinge in a delicate balance;they needto borrow in order to facilitate theirdevelopment process - on the other hand theborrowingshould be allocated efficiently in viewof their repayment ability. Debt may well act as acatalyst inthe course of growth of an economy, butonly if itis undertaken to facilitate a very wellthought out road map devised withdue diligence.Such measures can also lead to strengtheningg acountry’s capacity ofrepayment. Unsustainablelevels of debt can plague economic growth bylowering the actual developmental expenditure dueto heavy debt servicing requirement. This intricatescenario calls for a comprehensive, dynamic andrule basedpolicy which ensures the right choicesamong several options,addressesfinancialconstraints and ensures intergenerational welfareimpact.Pakistan’ss debt dynamicshaveundergonesubstantial changes since fiscal year 2007. Amyriadof domestic issues andthe internationalrecession and credit crises have impactedthecountry’s debt position. Higher interest payments,large subsidies specially food and energy, growingsecurityspending needs, narrow tax base and risinginternational commodity prices have resulted inlarge twin account (i.e. fiscal and current account)deficits. The financing of the fiscal deficitis agrowing challenge in the wake of the shrinking netforeignassets of the banking system in Pakistanowing to the current account deficit; the resultantliquidity crunch is exerting pressure on domesticinterestt rates. Lower FDI and other non-debtcreating flows due to energy shortages and securityconcerns have contributedtowards negativebalanceof payment and drawdown on officialforeigncurrency reserves of the country. TotalLiquid Foreign Exchange Reserves were $16.49billion by end-April 2012, compared to $18.24billion as of end June 2011.Fig-9. 1: Public Debt (as percent of GDP)100%90%80%70%60%50%40%30%20%FY80FY90FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11FY12-Q3125

Pakistan Economic Survey 2011-129.2 Public DebtTotal public debt is a measure of governmentindebtedness. It includes all government andgovernment guaranteed obligations denominated inrupee as well as foreign currency. It is an importantmeans of bridging government financing gaps.However, excessive reliance on public debt andinappropriate public debt management raisemacroeconomic risks, impede economic growth,and hinder economic development. Domestic andexternal debt should be treated separately.Domestic debt is a charge on the budget and mustbe serviced through government revenues and/oradditional borrowings whereas external debt (bothpublic and private) in addition to governmentrevenues is also a charge on the balance ofpayment and must be serviced from foreignexchange earnings, reserve drawdown, andadditional borrowings.As at end of March 2012, public debt stood at Rs.12,024 billion registering an increase of Rs. 1,315billion or 12.3 percent as compared to fiscal year2011. The increased amount includes Rs. 391billion consolidated by the government into publicdebt against outstanding previous years subsidiesrelated to the food and energy sectors. Public debtas a percent of GDP stood at 58.2 percent by end-March 2012 compared to 55.5 percent of GDPduring the same period last year.Table-9.1 Public Debt1990 1995 2000 2005 2008 2009 2010 2011 2012*(In billion Rs.)Domestic Currency Debt 374 790 1,576 2,178 3,275 3,859 4,654 6,015 7,206Foreign Currency Debt 428 873 1,442 1,913 2,780 3,736 4,284 4,694 4,818Total Public Debt 801 1,662 3,018 4,091 6,055 7,595 8,938 10,709 12,024(In percent of GDP)Rupee Debt 42.8 42.3 41.2 33.5 32.0 30.3 31.4 33.4 34.9Foreign Currency Debt 48.9 46.8 37.7 29.4 27.1 29.4 28.9 26.0 23.3Total Public Debt 91.7 89.1 78.9 62.9 59.1 59.7 60.4 59.4 58.2(In percent of Revenue)Rupee Debt 235 245 308 242 218 208 224 266 251Foreign Currency Debt 269 270 281 213 185 202 206 208 168Total Public Debt 505 515 589 455 404 410 430 474 419(In percent of Total Debt)Rupee Debt 46.6 47.5 52.2 53.2 54.1 50.8 52.1 56.2 59.9Foreign Currency Debt 53.4 52.5 47.8 46.8 45.9 49.2 47.9 43.8 40.1Memo:Foreign Currency Debt19.5 28.1 27.5 32.1 40.7 45.9 50.1 54.6 53.1($ Billion)Exchange Rate21.9 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 20,654Total Revenue (in Rs. Billion) 159 323 513 900 1,499 1,851 2,078 2,261 2,871Source: State Bank of Pakistan, Budget Wing, Economic Adviser’s Wing & Debt Policy Coordination Office* End-MarchHistorically, public debt stock accounted foralmost the same burden from domestic andexternal sources. However, government hasincreasingly focused on the domestic part over thelast few years owing to non-availability ofsufficient external financing i.e. domesticborrowings inched up in share from 46.6 percent infiscal year 1990 to 59.9 percent at end March,2012.126

PublicDebt605550454035302520151050Fig-9. 2 Sources of Public Debt (percent)FY90FY95FY99FY00FY01FY02FY03Domestic Currency DebtFY04FY05FY06FY07FY08FY09FY10Foreign Currency DebtFY 11Q3-FY12The public debt may be understated withoutreporting contingentliabilities. Contingentliabilities are not added to the overall debt of thecountry. However, contingent liabilitiesarepossible obligations that arises from past eventsand whose existence will be confirmed only by theoccurrence or non-occurrence ofone or moreuncertain future events not wholly within thecontrol ofthe government. In the case of Pakistan,these include, for instance, explicit and implicitguarantees issued to Public Sector Enterprises(PSEs) and unfunded losses of stateowned entities.The GovernmentofPakistan issued newguarantees aggregatingg Rs. 146.6 billion or 0. .71percent of GDP. Total outstanding stock ofgovernment guarantees as of March2012 stoodatRs. 487 billion.Table-9.2 Guarantees Outstandingas of March 31, 2012(Rs. Billion)Outstanding Guaranteesextended487to PSEs-Domestic Currency256-ForeignCurrency231Memo:Foreign Currency (US$ Million)2,5444Source: Debt Policy Coordination Office9.2.1 Dynamics of Public Debt BurdenBorrowing domestically or externally is a normal,indeed, necessary part of economic activity. Theeconomic rationalefor debt creation is thatborrowers can earn a higher economic returnthanthe cost of investedfunds and that these economicreturnscan then be translated intofinancial returns.Debt problems forgovernments arise if debt-of debt. This mayalso be expressed as debtservicing capacity does not keeppace with growthexceeding sustainable levels.The level of debt depends on the debt servicingcapacity of the economy i.e. export earnings andrevenue generation. The debtburden can beexpressed in terms of the stockratio i.e. debt toGDP, external debt to GDP or flow ratios i.e. debtto revenue, external debt to foreign exchangeearnings. It is common practice to measure thepublic debt burdenas a percentage of GDP;however, it makes more sensee to measuree debtburdenin terms of flow ratiosbecause earningpotential reflects more accurately on repaymentcapacity as GDP changes do not fully translate intorevenues, particularly in case of Pakistan where thetaxation systems are inelastic and the taxationmachinery is weak.127

Pakistan Economic Survey 2011-12Table-9.3 Dynamics of Public Debt Burden2007 2008 2009 2010 2011 2012*Public Debt to GDP 60.1 59.1 59.7 60.4 59.4 58.2Real Growth of Public Debt 2.3 8.3 5.2 4.3 1.1 2.4Real Growth of Revenues 11.9 -0.6 2.9 0.3 -8.4 1.5**Real Growth of Public Debt Burden -9.7 8.9 2.3 4.0 9.5 0.9Real Growth of GDP 6.8 3.7 1.7 3.8 2.4 3.7Source: Budget Wing, SBP and Debt Policy Coordination Office*End March, 2012**Growth as compared to same period in 2011If the primary balance (fiscal deficit before interestpayments) is zero and the real growth in revenue ishigher than the real growth in debt, the debt burdenwill ease. Pakistan saw a primary surplus in fiscalyear 2004, however, since then it is running aprimary deficit. In fiscal year 2009 the governmentwas able to bring the deficit down to 0.1 percent ofGDP from 2.5 percent in fiscal year 2008 as aresult of fiscal consolidation and rationalization ofexpenditure. However since fiscal year 2010,owing to increased security expenditure, sustainedfood and energy subsidies and the great floods of2010, the fiscal adjustment path was altered andthe primary deficit reached 2.5 percent of GDP atthe end of June 2011.A similar pattern was witnessed in terms of realgrowth of revenues; from a high of 11.9 percent infiscal year 2007 it declined to -8.4 percent in fiscalyear 2011. On the other hand a gradual decline inreal growth of debt has been witnessed since fiscalyear 2008. However, the real growth of debt hasbeen greater than the real growth of revenues; and,this complemented by the primary deficit resultedin increase of the debt burden. The public debtstood at 4.7 times government revenues at the endof fiscal year 2011. Ideally the debt to revenueratio should be 3.5 or lower.9.2.2 Servicing of Public DebtIncreases in the outstanding stock of total publicdebt have implications for the economy in theshape of a greater amount of resource allocationtowards debt servicing in the future. In order tomeet debt servicing obligations, an extra burden isplaced on limited government resources and mighthave costs in the shape of foregone publicinvestment or expenditure in other sectors of theeconomy.Table-9.4 Public Debt ServicingBudgeted Actual2010-2011 2011-2012Percentof Govt.RevenuePercent ofCurrentExpenditureBudgetedActual*Percentof Govt.RevenuePercent ofCurrentExpenditure(In billion Rs.) % % (In billion Rs.) % %Servicing of External 76.8 68.4 3.0 2.4 76.3 45.9 2.6 2.1DebtRepayment of External 174.4 154.2 6.8 5.3 243.2 94.5 5.4 4.4LoansServicing of Domestic 621.8 629.7 27.9 21.7 714.7 578.6 33.3 26.9DebtServicing of Public Debt 872.9 852.2 37.7 29.4 1,034.2 719.0 41.3 33.4Source: Debt Policy Coordination Office* July-March, 2012128

Public DebtDuring the year 2010-11, servicing of public debtamounted to Rs. 852.2 billion as opposed to abudgeted amount of Rs. 872.9 billion (Table 9.4).The saving of Rs. 20.7 billion has mostly been dueto stable dollar rupee parity; which reduced theamount used for interest and principal repaymentsof foreign loans in Rupee terms. Repayment offoreign loans stood at Rs. 154.2 billion as opposedto a target of Rs. 174.4 billion, while interestpayments on foreign loans, which were budgeted atRs. 76.8 billion, reached Rs 68.4 billion by end-June 2011. An amount of Rs. 629.7 billion wasspent on account of servicing of domestic debtagainst the budgeted estimate of Rs. 621.8 billion.The increase in domestic debt servicing is partlythe result of a tight monetary stance taken in orderto arrest the monetary overhang caused byprevious policies. As at the end of March 2012,servicing of the public debt stood at Rs. 719 billionagainst the budget amount of Rs. 1,034.2 billion.9.3 Domestic DebtPakistan’s domestic debt comprises permanentdebt (medium and long-term), floating debt (shortterm)and unfunded debt (made up of the variousinstruments available under the National SavingsScheme) having shares of 21.6 percent, 54.5percent and 23.9 percent respectively in totaldomestic debt. Banks’ preference of risk-freesovereign credit in view of mushrooming nonperformingloans augured well for the governmentsecurities market and overwhelming participationwas witnessed in the auctions of T-Bills, PIBs andGovernment Ijara Sukuk.The composition of major components shaping thedomestic debt portfolio has undergone atransformation from a high dominance of unfundeddebt to an increasing dependence on floatingcomponent of the domestic debt. The unfundedcategory comprising about 44.6 percent of theaggregate domestic debt stock in fiscal year 2002has declined to 23.9 percent by end March, 2012.Contrary to this, the share of floating debt to totaldomestic debt has reached 54.5 percent by end-March 2012 as compared with 31.4 percent infiscal year 2002 indicating an over reliance onshorter duration instruments i.e. 54.5 percent of thetotal domestic debt has the duration of 0.31 yearsat end March 2012 which is fairly low owing tomarket appetite for shorter duration reflectinginflationary expectations and higher interest ratesin the second half of the fiscal year 2012. Unduereliance on short-term sources of financing raisesthe rollover or refinancing risk for the government.Failure to issue new debt in order to mature a largeamount of outstanding short term debt may triggera liquidity or debt rollover crisis. The increase infrequency of such operations (due to their shortterm nature) coupled with any adverse rise ininterest rates may leave the government vulnerableto the high cost of debt. The trends in domesticdebt are discussed in the following graph:Fig-9.3 Trends in Permanent, Floating & Unfunded DebtRs. billion370032002700220017001200700200Permanent DebtFloating DebtUnfunded DebtFY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12-Q3129

Pakistan Economic Survey 2011-129.3.1 Outstanding Domestic DebtThe total domestic debt was positioned at Rs.7,206.9 billion at end-March 2012, representing anincrease of Rs. 1,190.5 billion in the first ninemonths of the current fiscal year. This increasestems from net issuance of market debt namelyTreasury bills (Rs. 576.4 billion) and PIBs (Rs.307.5 billion). In relation to GDP the domesticdebt stood at 34.9 percent which is higher thanend-June 2011 level at 33.4 percent. The domesticdebt grew by 19.8 percent in first nine months ofcurrent fiscal year. The focus on deficit financingthrough internal sources owing to lower externalreceipts has been the major cause.Table-9.5 Trends in Domestic Debt2002 2003 2004 2005 2008 2009 2010 2011 2012*(In billions Rs.)Permanent Debt 424.8 468.8 570.0 526.2 616.8 685.9 797.7 1125.3 1554.6Floating Debt 557.8 516.3 542.9 778.2 1637.4 1903.5 2398.7 3235.4 3926.9Unfunded Debt 792.1 909.5 899.2 873.2 1020.4 1269.2 1457.5 1655.8 1725.4Total 1774.7 1894.5 2012.2 2177.6 3274.5 3858.7 4653.9 6016.4 7206.9(In percent of GDP)Permanent Debt 9.7 9.7 10.1 8.1 6.0 5.4 5.4 6.2 7.5Floating Debt 12.7 10.7 9.6 12.0 16.0 15.0 16.2 17.9 19.0Unfunded Debt 18.0 18.9 15.9 13.4 10.0 10.0 9.8 9.2 8.4Total 40.3 39.3 35.7 33.5 32.0 30.3 31.4 33.4 34.9(In percent of Total Debt)Permanent Debt 23.9 24.7 28.3 24.2 18.8 17.8 17.1 18.7 21.6Floating Debt 31.4 27.3 27.0 35.7 50.0 49.3 51.5 53.8 54.5Unfunded Debt 44.6 48.0 44.7 40.1 31.2 32.9 31.3 27.5 23.9Memo:GDP (in billion of Rs.) 4402 4823 5641 6500 10243 12724 14804 18033 20654Source: Budget Wing, Ministry of Finance* End-MarchThe following section highlights the developmentsin the various components of domestic debt duringfirst nine months of the outgoing fiscal year.I. Permanent DebtPermanent Debt mainly consists of medium to longterm instruments including Pakistan InvestmentBonds (PIBs), Government Ijara Sukuk bond, PrizeBond etc. PIBs are non-callable instruments, withsemi-annual coupon payment. PIBs are issued intenors of 3, 5, 7, 10, 15, 20 and 30 ‐years maturity.The 3, 5 and 10 years tenor are most liquid whilelonger maturities are thinly traded. GovernmentIjarah Sukuks are medium term Shariah compliantbonds currently issued in 3 years tenor. Thepurpose of issuance was to raise money fromIslamic banking which has grown substantially inPakistan in recent years.The total share of permanent debt in thegovernment’s domestic debt stood at Rs. 1,554.6billion as at end-March 2012 compared to Rs.1,125.3 billion in 2011 registering an increase ofRs. 429.3 billion. The share of permanent debt intotal domestic debt inched up from 18.7 percent in2011 to 21.6 percent at end March 2012. Sizeablereceipts from Government Ijara Sukuk bond andPakistan Investment Bonds contributed to thisexpansion. Government mopped up net ofretirement Rs. 80.5 billion through successfulauctions of Ijara Sukuk bond and Rs. 307.5 billionthrough Pakistan Investment Bonds during July-March, 2012.II. Floating DebtFloating debt consists of short term domesticborrowing instruments such as Treasury Bills andState Bank borrowing through the purchase ofMarket Related Treasury Bills (MRTBs). TreasuryBills are zero coupon or discounted instrumentsissued in tenors of 3 months (introduced in 1997),6 months (introduced in 1990) and 12 months130

Public Debt(introduced in 1997). The share of 3 months, 6months and 12 months maturity in total T-Billsportfolio is 9 percent, 20 percent and 71 percentrespectively as at end-Mar 2012. In order to raiseshort term liquidity, the government borrows fromthe domestic banks through auction in the form ofTreasury Bills. The auction of Treasury bills isarranged by the State Bank of Pakistan (SBP)twice a month. Treasury Bills having maturity of 6months are also created by SBP on average rate ofinterest of previous auction on need basis.Floating Debt share in overall public debt anddomestic debt stood at 32.7 percent and 54.5percent respectively as at end-March 2012. DuringJuly-March, 2012, the floating debt grew by Rs.691.5 billion or 21.4 percent. Around 58 percent ofthe total increase in government domestic debtstock was contributed by floating debt instrumentsduring July-March, 2012.Much of the proceeds accrued through MarketTreasury Bills (MTBs) as Rs. 576.4 billion wasadded to the stock of June 30, 2011. On the otherhand, government borrowed Rs. 167.3 billion byissuing Market Related Treasury Bills (MRTBs) toSBP.III. Unfunded DebtUnfunded Debt made up of the various instrumentsavailable under the National Savings Scheme(NSS). A number of different schemes are offeredunder NSS in the investment horizon of 3 years to10 years. The total share of unfunded debt in thegovernment’s domestic debt stood at Rs. 1,725.4billion or 23.9 percent on end-March 2012. Thestock of unfunded debt increased by Rs. 69.6billion or 4.2 percent compared with fiscal year2011. Net receipts in Regular Income Scheme wereup by 17.2 percent in July-March, 2012, as thestock increased from Rs. 182.6 billion in June,2011 to Rs. 214 billion at end-March 2011. SpecialNSS Schemes including Bahbood SavingsCertificates and Pensioner’s Benefits Accountsregistered a combined nominal increase of Rs. 49.3billion compared to Rs. 59 billion during July-March 2011. Rates of return on NSS instrumentswere revised downward in October 2011 andJanuary 2012 in response to the decrease in thebenchmark discount rate.9.3.2 Duration of Domestic DebtAs at end March 2012, duration of domestic debtstood at 2 years excluding SBP Market RelatedTreasury Bills (MRTBs). Duration includingMRTBs stood at 1.61 years. This estimate ofduration may be a little inconsistent owing to thenon-availability of actual maturity profile of NSSand manual operations of Central Directorate ofNational Savings (CDNS). A behavioral analysiswas undertaken to estimate the maturity of NSSinstruments. Generally, across the globe,governments desire to incur the lowest annual debtservicing cost while ignoring portfolio risks. It isimportant for the government to take necessarymeasures to lengthen the maturity profile ofdomestic debt. Though this may result in additionaldebt servicing cost in the short term, it wouldcertainly help in reducing the associated liquidityand refinancing risks in the domestic debtportfolio.9.4 External Debt and LiabilitiesPakistan’s external debt and liabilities (EDL)include all foreign currency debt contracted by thepublic and private sector, as well as foreignexchange liabilities of the State Bank. EDL hasbeen dominated by Public and PublicallyGuaranteed Debt having share of 76 percent owingto current account deficit which is financedthrough loans from multilateral and bilateraldonors. Debt obligations of the private sector arefairly limited and have been a minor proportion ofEDL (6 percent). Borrowing from IMF contributed13 percent in EDL Stock which was intended forBalance of Payment (BoP) support and is reflectedin foreign currency reserves of the country. Theexplicit concessional terms of loans (low cost andlong tenors) contracted with international financialinstitutions or donor countries have concealed theinherent capital loss associated with foreigncurrency debt to some extent. However, theanalysis of currency movement of last 20 yearsreveals that cost of foreign currency borrowingadjusted for exchange rates movement has been 1.5percent lower than the average domestic interestrates.Pakistan External Debt and Liabilities (EDL) stockwas recorded at $60.3 billion as of March 2012.During July-March 2012, $179 million was added131

Pakistan Economic Survey 2011-122to the EDL stock. As a percentage of GDP indollar terms, the EDLwas downby 200 basispoints in July-March, 2012 compared to fiscal year2011 andapproximated to 26.5 percent. Sincefiscal year 2010, EDLhas increased in absoluteterms, butdecreased inrelation to GDP However,focusing on the absoluteincrease in theoutstanding stock of EDL can be misleading fortwo main reasons. Firstly, the outstanding stockofdebt mustbe analyzedin relation tothe size of theeconomy and its repayment capacity (in terms ofGDP and other macroeconommic indicators).Secondly,the absolute change inEDL neglectsclassification between an actual increase in stockand increasescaused by fluctuations ininternational exchange rates.Fig-9.4 External Public Debt(as percent of GDP)60%50%40%30%20%10%0%FY80FY90FY95FY99FY00FY01FY02FY03FY04FY05FY06FY07FY08FY09FY10FY11Q3-FY12The composition and structure ofPakistan ExternalDebt as on March 31, 2012 isdepicted throughfollowing graphs:Fig-9.5: Structure of EDL -End March, 2012Foreign OthersExchange 6%Liabilities4%IMF13%PrivateNon-GuaranteedDebt6%OtherBilateral4%Paris Club25%Multilaterall42%ScheduledBanks'Borrowing,1%IMF, 13%PrivateNon-GuaranteedDebt, 6%Fig-9.6 : Components ofEDL -End March, 2012ForeignExchangeLiabilities,4%Public andPublicallyGuaranteedDebt, 76%The following section highlights the developmentsin the various components of EDL during the firstnine months of the outgoing fiscal year.I. Publicand Publicly Guaranteed Debt (PPG)At the end-March 2012, Publicand publiclyguaranteed debt accounted for the largest share of76 percent in EDL. Public and publicly guaranteeddebt is dominated by the loans from bilateral andmultilateral donors. Multilateral debt, which is thelargest component of Pakistan’s EDL witnessedadecrease of $730 million during the period underreview. The project-basednature of loanscontractedunder this category hinges on Pakistan’sability toinstill project efficiency. Debt frombilateral sources includes loancontracted withParis Club countries and other countries outsidethe Paris Club. It is second largest component ofPakistan’s EDL. It witnessed anincrease of$137millionduring the period under review.II. IMF DebtAt theend-March2012, debt owed to IMFaggregated up to $8.1 billion. Payment amountingto $793 million hasbeen made in the 3 rd and 4 thquarterr of fiscal year 2012.132

Public DebtIII. Private Non-Guaranteed DebtThe share of private non-guaranteed debt in totalEDL stood at 6 percent at end-March 2012. Thestock of private non-guaranteed debt decreased by$147 million; from $3.48 billion in June 2011 to$3.34 billion by end-March 2012.Table-9.6: Pakistan External Debt and Liabilities2004 2005 2006 2007 2008 2009 2010 20112012-Q31. Public and Publically Guaranteed debt 29.9 31.1 32.9 35.3 40.6 42.6 43.1 46.7 46.4A. Medium and long term(>1 year) 29.9 30.8 32.7 35.3 39.5 41.1 42.3 46.1 45.8B. Short Term (1 yr) 1.7 1.3 1.6 2.3 2.9 3.3 3.4 3.5 3.33. IMF 1.8 1.6 1.5 1.4 1.3 5.1 8.1 8.9 8.1Total External Debt (1 through 3) 33.4 34.0 36.0 39.0 44.9 51.1 54.6 59.1 57.84. Foreign Exchange Liabilities 2.0 1.8 1.6 1.5 1.3 1.3 1.3 1.0 2.5Total External Debt & Liabilities35.3 35.8 37.6 40.5 46.2 52.3 55.9 60.1 60.3(1 to 4)(of which) Public Debt 31.3 32.1 33.9 36.5 40.9 46.3 49.5 54.6 53.1(In percent of GDP)Total External Debt (1 through 3) 34.1 31.1 28.2 27.3 27.4 31.5 30.9 28.1 25.41. Public and Publically Guaranteed debt 30.6 28.4 25.8 24.7 24.8 26.3 24.5 22.1 20.1A. Medium and long term(>1 year) 30.5 28.1 25.7 24.7 24.1 25.4 24.0 21.8 19.8B. Short Term (1 yr) 0.02 0.01 0.01 0.02 0.02 0.02 0.02 0.02 0.013. IMF 1.8 1.5 1.2 1.0 0.8 3.2 4.6 4.2 3.54. Foreign Exchange Liabilities 2.0 1.6 1.2 1.0 0.8 0.8 0.6 0.5 1.1Total External Debt & Liabilities(1 to 4)36.1 32.7 29.5 28.3 28.2 32.3 31.5 28.5 26.5Memo:GDP (in billion of Rs.) 5641 6500 7623 8673 10243 12724 14804 18033 20,654Exchange Rate (Rs./U.S. dollar, Period Avg.) 57.6 59.4 59.9 60.6 62.5 78.5 83.8 85.6 90.8Exchange Rate (Rs./US$, EOP) 57.9 59.7 60.2 60.6 68.3 81.4 85.5 86.0 90.7GDP (in billions of U.S. dollars) 98.0 109.5 127.4 143.0 163.8 162.1 176.5 210.8 227.8Source: State Bank of Pakistan, EAD and Debt Policy Coordination Office9.4.1 Composition of Foreign EconomicAssistanceThe total amount of foreign economic assistancereceived in the first nine months of 2011-12 stoodat $1,660 million. The composition of thisassistance is as follows:I. CommitmentsThe commitments of foreign economic assistancewere $4,580 million during 2010-11, while duringJuly-March 2012, total commitments amounted to$1,967 million. About 76 percent of totalcommitments during July-March 2012 were in theshape of project aid while the remaining comprisednon-project aid. Out of total non-project aid, shareof BOP/budgetary support was 78 percent.II. DisbursementsDuring July-March 2010-11, disbursements of$1,660 million were for different purposes likeProject Aid ($1,113 million), Programmeloans/BudgetarySupport ($99 million) and relief($448 million). Project aid accounted for 67percent of the total disbursements.9.4.2 External Debt ServicingDuring fiscal year 2011, external debt servicingsummed to US$ 4,799 million that is 14.3 percentlower than the previous year. A segregation of thisaggregate number shows a payment of US$ 2,348million in respect of maturing EDL stock whereinterest payments were US$ 963 million. US$1,488 million was rolled-over.133

Pakistan Economic Survey 2011-122Table-9.7ServicingYears2006-072007-082008-092009-102010-112011-12*Source: Sta*July-MarcServicing of external debt and liabilities during thefirst nine months of fiscal year 2012 amountedto$3,567million. Out of the total, $1,692 million waspaid against principal while interestt payments were$633 million. US$ 1,243 million was rolled-over.When compared to a stock of approximately US$60.1 billion at the end of fiscal year 2011, therelatively smaller amount of interest paymentsmade during the first three quarters of fiscal year2012 signal towards the concessional nature ofmost of the foreign loans contracted by Pakistan.Notwithstanding, withthe IMF-SBA repaymentsover next two years, the servicing will increase.9.4.3 Impact of Exchange Rate FluctuationsPakistan External Debt is contracted in multiplecurrencies, however, outstanding balance of theseloans is converted intoUS$ for reporting purposes.As at end March 2012, 94 percent of total ExternalDebt is contracted in 4 major currencies asdepicted in the following graph:Fig-9.7 Currency Wise External DebtComposition (as on March 2012)Others6%USD26%Pakistan's Public External DebtActualAmountPaid2,3262,5583,9863,8803,3112,325ate Bank of Pakistanch 2012AmountRolledOver(in million of US$)1,3001,2001,6001,7231,4881,243TotalEUR12%3,62663,7585,5865,6034,79993,567Apart from net freshdisbursements, exchange ratefluctuations in US$against these currencies canalso result in change in External Debt Stock i.e.appreciation of US$ against other currencieswillresult in decrease in External Debt Stock orviceversa. The total translational gain on account ofcross-currency movement against US$ amountedto $1, 129 million which can be attributed toappreciation of US $ against hard currencies likeEuro, Japanese yen (JPY), SDR by 7.9 percent, 2.0percentand 3.2 percent respectively.9.4.4 External Debt SustainabilityAnalysis of the current account deficit providesimportant clues as to the future direction of theexternal debt path. Higher current account in theabsence of offsetting increases to current transfersand non-debt creating capital flows can add to thestock of external debt. Similarly, any increase ininterestt rates and exchange ratedepreciationwillincrease the debt servicing cost of the country andwill affect the sovereign debt portfolio. ExternalDebt and Liabilitiesexpressed as a percentage ofGDP might be a common meansof measuring theindebtedness of an economy, but repaymentcapacity is more accurately captured throughexpressing the levels of debt as a percentage of theeconomy’sforeignexchangeeearnings andreserves. In order to ensuresustainability,government can assign thresholdlevels to thedebtstock as a ratio of economic indicatorsandcomparison with international thresholds providesinsightinto a country’s debt position.During2010-11, the non interest current accountshoweda surplus of 0.8 percentof nominal GDPon account of improved tradebalance (highercotton prices) and swelling inflows in remittances.This indicator showed a downward trend in fiscalyear 2012 by recording a deficitof 1.2 percent ofnominal GDP compared to a surplus of 0.66percentof nominalGDP duringthe same periodlast year owing to high value of oil imports.SDR26%JPY30%EDL as a percentage of Foreign ExchangeEarnings (FEE) gives a measure of a country’sdebt repayment capacity by comparing levels ofexternal debt to the sum of exports, servicesreceipts, and private unrequited transfers. Agenerally acceptablee threshold requires a country’s134

Public DebtEDL to remain below 2 times of FEE.Improvement was observed in the EDL-to-FEEratio, which was 1.3 in fiscal year 2011 comparedto 1.5 in fiscal year 2010 at the back of strongworkers’ remittances and a positive turn-around inexport earnings. The improvement of this ratiosuggests that Pakistan’s stock of external debt andliabilities is growing at a slower rate than itsforeign exchange earnings. During July-March2012, the ratio stood at 1.7against 1.3 during thesame period last year.Table-9.8 External Debt Sustainability(in percent)External Debt Indicators 2007 2008 2009 2010 2011 2012*Non Interest Current Account/GDP -3.8 -7.1 -4.5 -1.4 0.8 -1.2EDL/FEE (times) 1.2 1.2 1.5 1.5 1.3 1.7EDL/FER 2.5 4.0 4.2 3.3 3.3 3.6EDL/GDP 28.3 28.2 32.3 31.5 28.5 26.5EDL Servicing/FEE 12.6 11.7 18.0 16.5 11.4 10.0STD/EDL 0.1 2.4 2.8 1.4 1.0 0.9Source: EAD, SBP & Debt Policy Coordination Office* July - March 2012FEE: Foreign Exchange Earnings; STD: Short-term Debt; EDL: External Debt and Liabilities; FER: ForeignExchange ReservesA decrease in EDL in relations to ForeignExchange Reserves reflects the consolidation offoreign exchange reserves and a generalimprovement of the country’s repayment capacityor vice versa. On the onset of SBA in 2008, theratio declined to 3.3 in 2009-10 as EDL growthslowed and foreign exchange reserves shored up.The ratio did not improve in fiscal year 2011mainly because of stagnation in reserves and lowergrowth in EDL stock. By end-March 2012, theratio deteriorated slightly to 3.6 compared to 3.3 byend June 2012 mainly because of drawdown onreserves owing to lower Foreign DirectInvestments and other non-debt creating flows.A major improvement has been witnessed in EDLto-GDPratio as it improves from 31.5 percent infiscal year 2010 to 28.5 percent in fiscal year 2011.By end-March 2012, EDL as a percent of GDPstood at 26.5 percent, thereby showing a decreaseof 2.0 percentage points in first nine month ofcurrent fiscal year. This improvement is mainlydue to faster growth in nominal GDP in relation toslower growth in external debt owing to lowerfinancing from external sources.External Debt Servicing as a percentage of ForeignExchange Earnings has been declining since fiscalyear 2010 and stood at 11.4 percent during fiscalyear 2011 owing to strong workers’ remittancesand a positive turn-around in export earnings. Agenerally acceptable threshold requires a country’sEDL servicing to remain below 20 percent of FEE.The current levels of servicing are bound toincrease as IMF-SBA repayments initiate in fiscalyear 2012, that require serious efforts to enhancethe export earnings.Pakistan’s level of Short Term Debt (STD) as apercentage of EDL has historically been lower thanmost other developing countries. It was just 0.1percent in 2006-07. Fiscal year 2009-10 has seenan improvement in STD as a percentage of EDL to1.4 percent which decreased to 1 percent in fiscalyear 2010-11. During July-March 2012, the ratiostood at 0.9 percent.9.5 Pakistan’s Link with International CapitalMarketThe first ten months of the current financial yearwitnessed a period of substantial volatility in theglobal markets, largely as a consequence of fearsrelating to the Eurozone’s peripheral economies.The Emerging Market Bond Index (“EMBI”), abenchmark index for measuring the total returnperformance of international government bondsissued by emerging market countries, has depictedan increase over June 2011 levels, implying anincrease in costs for tapping international debt135

Pakistan Economic Survey 2011-12capital markets. However, since January 2012 theEMBI has shown a slight decrease indicating thatthe debt capital markets might be improving,however, uncertainty with respect to the Euro arearemains and continues to affect the credit riskappetite of global investors. In the backdrop ofprevailing uncertainty in the global markets, thesituation for Pakistan is further affected byconcerns over higher commodity prices,consequent energy shortages, flood etc. Given thegeneral risk awareness and volatility prevailing inthe international markets, Pakistan has not issuedany new debt instrument since 2008. Thegovernment plans to tap the global markets oncethe conditions become more favourable.9.6 Recent Performance of 2017 And 2036EurobondsPakistan has witnessed an increase in spreads on its2016, 2017 and 2036 Eurobonds in the first tenmonths of 2010-11. External factors mainlycontributed to the spread performance ofPakistan’s bonds over the past year, with an overalltightening witnessed since the beginning of 2012.However, levels remain high when compared tolevels seen at the beginning of 2010.The Eurobond maturing in 2016 is currently (as ofMay 9 th , 2012) trading at a spread of UST+1098basis points. The 2017 maturity bond, that had anissue spread of UST+200 basis points, is tradingcurrently at a spread of UST+1157 basis points.The 2036 bond, compared to the issue spread ofUST+302 basis points and a spread of 681 basispoints last year, is trading currently at a spread ofUST+1002 basis points. The following tablecontains the latest position of bond issued byPakistan along with their current yields.Table-9.9 Selected Secondary Market BenchmarksIssuerRatingsSpread over USTCoupon (%) Maturity(Moody’s/S&P)(bps)Yield (%)Pakistan B3/B- 7.125 Mar 2016 1098 11.714Pakistan B3/B- 6.875 Jun 2017 1157 12.312Pakistan B3/B- 7.875 Mar 2036 1002 13.024Source: Bloomberg, as at May 9 th , 20129.7 ConclusionPakistan’s public debt position declined slightly inthe current fiscal year. A host of internal andexternal factors contributed to the decline. Higherinterest payments, large subsidies specially foodand energy, growing security spending needs,narrow tax base and rising internationalcommodity prices have resulted in large twinaccount (i.e. fiscal and current account) deficits.Prudent government policy will be necessary toaddress the issue of public debt.136

Chapter 10EducationIntroductionThe primary objective of government policy in thelast few years has been to improve the level andquality of education in Pakistan. The governmentvision is to expand primary education and thismeasure can be used to assess whether governmentschools have increased their coverage, byincreasing enrolments faster than the growth inpopulation, especially at the primary level becausethat level forms the core of the literate population.Literacy and primary school enrolment rates inPakistan have shown improvement during last fiveyears but they are still lagging behind othercountries of the region. Scarcity of resources andinadequate provision of facilities and training arethe primary obstacles in imparting and expandingeducation. The present government’s strategy forthe sector includes improving the functioning andutilization of existing schools, improving thequality of education, increasing enrolment,improving access to education and expanding theprimary education system.Under the 18 th constitutional amendment controland management of the education sector has beendevolved to the provinces. They are nowresponsible for the key areas of the educationsector i.e. curriculum and syllabus, centers ofexcellence, standards of education up tointermediate level (Grade 12) and Islamiceducation. Planning and policy and standards ofeducation beyond Grade 12 are covered underFederal Legislative List. All the provinces haveshown their commitment to the National EducationPolicy 2009.This chapter presents an overview of the NationalEducation Policy, followed by a discussion ofliteracy and enrolment statistics. Educationalbudget and programmes and issues related totechnical and vocational training are discussednext, followed by a description of the activities andachievements of the Higher EducationCommission. The last section presents a briefsummary of the Annual Status of Education ReportSurvey.National Educational Policy 2009The National Educational Policy (NEP) 2009 is amilestone which aims to address a number ofissues including:quality and quantity in schools and collegeeducationuniversal primary educationimproved Early Children Education (ECE)improved facilities in primary schoolsconverting primary schools to elementaryschools detaching classes XI-XII from collegeeducationadopting a comprehensive definition of ‘free’educationachieving regional and gender parity especiallyat elementary level provide demand based skills and increase inthe share of resources for education in bothpublic and private sectorsThe policy also defines the role of governmentat the federal as well as the provincial level inthe field of education.137

Pakistan Economic Survey 2011-12LiteracyThe National Education Policy 2009 proposes thatthe literacy rate be increased up to 86 percent by2015 through up-scaling of ongoing programmesof adult literacy and non-formal education in thecountry and achieving universal primary educationand ensuring zero-drop rates at the primary level.The provinces will allocate a minimum of 4percent of education budget for literacy and nonformaleducation. Existing school infrastructurewherever feasible shall be used for literary and nonformal education. Literacy is one of the importantindicators of education because its improvement islikely to have a longer run impact on otherimportant indicators of national welfare. Accordingto the latest Pakistan Social and Living StandardsMeasurement (PSLM) Survey 2010-11, the literacyrate for the population (10 years and above) is 58percent during 2010-11, as compared to 57 percentin 2008-09. Literacy remains much higher in urbanareas than in rural areas and much higher for menthan for women. Province wise data suggest thatPunjab leads with 60 percent literacy followed bySindh with 59 percent, Khyber Pakhtunkhwa with50 percent and Balochistan with 41 percent. Thedetails are given in Table 10.1.Table 10.1: Literacy Rate (10 Years and Above)-Pakistan and Provinces(Percent)2008-09 2010-11Province/AreaMale Female Total Male Female TotalPakistan 69 45 57 69 46 58Rural 63 33 48 63 35 49Urban 81 67 74 81 67 74Punjab 69 50 59 70 51 60Rural 63 39 51 64 42 53Urban 82 71 76 80 71 76Sindh 71 45 59 71 46 59Rural 61 22 43 60 22 42Urban 81 65 73 82 68 75KPK 69 31 50 68 33 50Rural 67 27 47 67 29 48Urban 76 48 62 77 50 63Balochistan 62 23 45 60 19 41Rural 57 16 38 54 13 35Urban 78 47 64 79 40 61Source: Pakistan Social and Living Standards Measurement Survey, 2010-11Primary Enrolment RatesGross Enrolment Rates (GER)The GER or the participation rate is the number ofchildren attending primary schools divided by thenumber of children who ought to be attending. TheGER at the primary level excluding katchi (prep)for the age group 5-9 years at national level during2010-11 increased to 92 percent from 91 percent in2008-09. Amongst the provinces, Punjab shows amarginal increase from 97 percent in 2008-09 to 98percent in 2010-11. Sindh remained stable with 84percent, Khyber Pakhtunkhwa improved from 87percent to 89 percent and Balochistan declinedslightly from 75 percent to 74 percent in 2010-11.The details are given in Table 10.2.138

EducationTable 10.2: National and Provincial GER(Percent)Province/Area2008-09 2010-11Male Female Total Male Female TotalPakistan 99 83 91 100 83 92Punjab 102 92 97 103 93 98Sindh 93 75 84 94 72 84Khyber Pakhtunkhwa 102 70 87 101 76 89Balochistan 93 54 75 92 52 74Source: Pakistan Social and Living Standards Measurement Survey, 2010-11Net Enrolment Rates (NER)The NER at the primary level refers to the numberof students of primary school age enrolled inprimary schools divided by the number of childrenin the age group for that level of education. Inother words, for Pakistan, the official primary NERis the number of children aged 5 to 9 yearsattending primary level divided by the totalnumber of children aged 5 to 9 years.abadies) level for the age group 5-9 years. TheNER at the national level during 2010-11 slightlydecreased to 56 percent from 57 percent in 2008-09. Punjab shows a decrease from 62 percent in2008-09 to 61 percent in 2010-11. Sindh alsoshows decrease from 54 percent to 53 percent in2010-2011, Khyber Pakhtunkhwa witnessed adecrease from 52 percent to 51 percent andBalochistan improved from 44 percent in 2008-09to 47 percent in 2010-11.Table 10.3 show the Net primary level enrolmentrates at the national/provincial (excluding katchiTable 10.3: National and Provincial NER at Primary Level(Percent)Province/Area2008-09 2010-11Male Female Total Male Female TotalPakistan 61 54 57 60 53 56Punjab 64 60 62 62 59 61Sindh 57 49 54 57 48 53Khyber Pakhtunkhwa 58 45 52 57 45 51Balochistan 51 36 44 56 35 47Source: Pakistan Social and Living Standards Measurement Survey, 2010-11Educational Institutions and Enrolmenti) Pre-Primary EducationPre-Primary education is the basic component ofEarly Childhood Education (ECE). Prep or Katchiclasses are for children between 3 to 4 years ofage. An increase of 7.4 percent in Pre-Primaryenrolment (9.41 million) in 2010-11 over 2009-10(8.76 million) has been observed and it isestimated to increase by 4.8 percent to 9.86 millionin 2011-12. [Table 10.4].ii) Primary Education (Classes I – V)A total of 155,495 Primary Schools with 440,523Teachers were functional in 2010-11. An increasein primary enrolment (19.16 million) over 2009-10(18.77 million) was observed during 2010-11. It isestimated to increase by 2.2 percent to 19.57million in 2011-12. [Table 10.4].iii) Middle Education (Classes VI-VIII)A total of 41,951 middle schools with 334,984teachers were functional in 2010-11. An increasein middle enrolment (5.64 million) in 2010-11 over2009-10 (5.50 million) has been observed during2010-11. 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 452,779teachers were functional in 2010-11. An increase139

Pakistan Economic Survey 2011-12in secondary enrolment (2.63 million) in 2010-11over 2009-10 (2.58 million) has been observedduring 2010-11. It is estimated to increase by 3.6percent to 2.73 million in 2011-12. [Table 10.4].v) Higher Secondary / Inter Colleges (ClassesXI-XII)A total of 3,435 higher secondary schools and intercolleges with 81,183 teachers were functional in2010-11. An increase in secondary enrolment (1.19million) in 2010-11 over 2009-10 (1.17 million)has been observed. It is estimated to increase by8.7 percent to 1.291 million in 2011-12 [Table10.4].estimated to increase further to 1.45 million duringthe year 2011-12. [Table 10.4].(In thousand)Fig-10.1: Enrolment at each level250002000015000100005000PrimaryMiddleHighvi) Degree Colleges Education (Classes XIII-XIV)02009-10 2010-11 2011-12 EAn enrolment of 1.02 million students is expectedduring 2011-12 in degree colleges against anenrolment of 0.76 million in 2010-11. A total of1,558 degree colleges with 36,349 teachers werefunctional during 2010-11. [Table 10.4].vii) Universities Education (Classes XVonwards)An enrolment of 1.41 million is estimated in 2011-12 in higher education (universities) over 1.11million in 2010-11. There are 135 universities with63.557 thousand teachers in both private andpublic sectors are functional during 2010-11.[Table 10.4].Overall AssessmentThe overall educational situation, based on keyindicators such as likely enrolments, number ofinstitutes and number of teachers, has shown aslight improvement. The number of enrolmentsduring 2010-11 was 39.9 million as compared to38.2 million during the same period last year. Thisshows an increase of 4.4 percent. It is estimated toincrease to 41.6 million during 2011-12. Thenumber of institutes stood at 227,800 during 2010-11 as compared to 228,400 during the same periodlast year. This shows a decrease of 0.3 percent.However, the number is estimated to increase to228,300 during 2011-12. The number of teachersduring 2010-11were 1.41 million compared to 1.39million during the same period last year showingan increase of 1.7 percent. This number is(In thousand)(In thousand)Fig-10.2: Institution at each levelPrimaryMiddle180High1601401201008060402002009-10 2010-11 2011-12 EFig-10.3: Teachers at each levelPrimaryMiddle500High4504003503002502001501005002009-10 2010-11 2011-12 E140

EducationTable 10.4: Number of Mainstream Institutions, Enrolment and Teachers by Level(Thousands)Year Enrolment Institutions Teachers2009-10 2010-11 2011-12(E)2009-10 2010-11 2011-12(E)2009-10 2010-11 2011-12(E)Pre-Primary 8762.5 9412.5 9863.2 - - - - - -Primary* 18771.6 19157.6 19571.0 157.5 155.5 154.6 441.7 440.5 435.5Middle 5504.5 5643.7 5717.5 41.3 42.0 42.6 331.5 335.0 342.6High 2583.4 2630.1 2725.1 24.8 25.2 25.8 447.1 452.8 463.9Higher Sec./ 1166.0 1187.8 1291.0 3.3 3.4 3.6 77.2 81.2 85.0InterDegree Colleges 478.4 760.9 1015.2 1.4 1.6 1.7 30.8 36.3 45.4Universities 935.6 1107.7 1413.5 0.132 0.135 - 57.8 63.6 72.6Total 38202.0 39900.3 41596.5 228.4 227.8 228.3 1386.1 1409.4 1445.0Source: Ministry of Professional & Technical Training, AEPAM, IslamabadE: Estimated,*: including Pre-primary and Mosque SchoolsEducation Programme under PSDP 2010-11FinancialDuring the fiscal year 2010-11, an amount of Rs.2.87 billion was provided in the Federal PSDP forexpansion and development of basic and collegeeducation. The provincial governments wereallocated Rs.26 billion (Punjab, Rs. 10.4 billion,Sindh Rs. 4.5 billion, KPK Rs. 9.3 billion andBalochistan Rs. 1.6 billion) for schools and collegeeducation.Physical AchievementExpenditures for basic missing facilities wereprovided to 180 schools to develop and improvebasic and college education. The province/areawise details are given in Table 10.5.Table 10.5: Province/Area wise provision of missing facilities in Schools(Numbers)KhyberGilgitSindhBalochistan AJKFATA TotalPakhtunkhwaBaltistan50 32 26 22 25 25 180Note: Excluding Punjab Province as it had its own programme.Introduction of M.Com. classes at FG College ofCommerce, H-8/4, Islamabad and up-gradation of5 primary schools to middle level remained inprogress. A number of scholarships were providedto needy and talented students at all levels. A totalof 180 students from Balochistan and FATA wereenrolled in quality institutions and providedscholarships. Work continued on the 4 PolytechnicInstitutes. Work on construction of 14 CadetColleges also continued. Rs. 1 billion was spentunder the Canadian Debt Swap Projects on inservicetraining of 40,000 teachers, head teachersand master trainers. Provision of scholarships to200 student-teachers, repair and maintenance of 25teachers training institutions were also in progress.The Academy of Educational Planning andManagement (AEPAM) has provided training to200 principals, head teachers, district educationofficers and educational administrators for theircapacity building.The achievements of provincial educationaldepartmentsPunjab: Campaign for enhancement of literacywas launched specially for promotion of primaryeducation for girls in rural areas. The revamping ofexisting science laboratories of 1,000 schools wascompleted. Construction of library rooms wascompleted in 450 elementary schools.Sindh: In order to improve the quality of teachers,B.Ed classes were introduced at the ProvincialInstitute of Teachers Education (PITE) at BenazirAbad. Early childhood education and early141

Pakistan Economic Survey 2011-12learning programmes have been introduced in theprovince. Post-graduate courses have beenintroduced in degree colleges as well.Khyber Pakhtunkhwa: A total of 100 Primaryschools on need basis have been completed and300 additional class rooms have been constructed.Stipend to girl students was provided to reduce thedrop-out rate. Construction of library blocks,boundary walls and provision of water facilitieshave been completed in various degree colleges ofthe province.Balochistan: A total of 50 primary schools wereupgraded to middle level. Buildings were providedfor various shelter-less primary schools.Rehabilitation of the Government Degree Collegeand provision of residence facilities for lecturersremained in progress.Development Programme 2011-12FinancialAn allocation of Rs. 2.51 billion was made for thefinancial year 2011-12 for development projectsfor education. This includes Rs. 677.4 million forprojects under the Capital Administration andDevelopment Division (CADD), and Rs. 1.65billion for the teacher training programme underCIDA, Rs. 30.3 million for projects of education incantonment and garrison areas under Ministry ofDefense, Rs. 1.7 million under the CabinetDivision for printing of a comprehensivebiography of Faiz Ahmad Faiz in Urdu, Rs. 82.3million for Kashmir Affairs and Baltistan Divisionand Rs. 23.7 million for scholarship schemes underInter Provincial Coordination Division.Major Programmes1. Establishment of degree colleges for boys atShihala and for girls at Bhara Kahu,Islamabad.2. The construction work on provision ofcomputer labs in 119 schools is going on. Theacademic activities in Degree College forWomen at Sector I-14 are expected to startfrom September 2012.3. An allocation of Rs. 1.65 billion underCanadian Debt Swap has been made forcapacity building of teacher training institutes(For Islamabad, AJK, Gilgit-Baltistan andFATA Rs. 150.0 million, for Punjab Rs. 705.1million, for Sindh Rs. 315.9 million, for KPKRs. 260.6 million and for Balochistan Rs.181.8 million).4. An allocation of Rs. 81.3 million has beenmade for provision of scholarships; threeschemes under Inter-Provincial CoordinationDivision and one scheme under the DefenseDivision. A scheme for provision of qualityeducation to 200 students belonging toBalochistan and FATA for studying in qualityinstitutions of other provinces has also beenlaunched.Technical and Vocational EducationThere is a need to enhance and upgrade technicaland vocational education in the country to cater tothe labour demand in emerging sectors. In thiscontext the government is endeavoring to focus onenhancing productivity and skill developmentindustries particularly in the SME sector and ineconomic opportunities within and outside thecountry.The National Vocational and Technical TrainingCommission (NAVTTC) is an apex body and anational regulatory authority that has been set up toaddress the challenges of technical and vocationaleducation and training (TVET) in the country. It isinvolved in policy making, strategy formulation,and regulation and revamping of the TVET system.The commission is establishing and promotinglinkages among various stakeholders at thenational as well as international level. Since 2006,the commission has given a high priority to unaddressedareas and challenges faced by TVET. Inorder to combat these challenges during 2011-12,following steps have been taken:NAVTTC has developed 60 new curricula ofdifferent vocational trades and technologies,which are being taught in public and privatesector institutes across the country.A MoU has been signed between NAVTTCand the Sri-Lankan Tertiary and VocationalEducation Commission to share copy rights oftheir 107 National Skill Standards andTraining Learning Resource.142

EducationA total of 134,118 youth received vocationaland technical training under the President’sFunni Maharat Programme and PrimeMinister’s Hunermand Pakistan Programme.117 new Vocational Training Centres wereestablished in 72 tehsils of the country whichwere hither to without any TVET Centre.NAVTTC is assigned by its Act to establish aninternationally acceptable system ofaccreditation for TVET institutions. NAVTTChas formulated a mechanism and has obtainedconsensus of the stakeholders in the provinceson this mechanism. This is the first everattempt in Pakistan to develop such a systeminvolving the TVET Sector. NAVTTC hasformulated a framework for accreditation ofTVET institutes (public and private)throughout the country. In this connection amanual for accreditation in consultation withthe concerned stakeholders has been developedand is under implementation.NAVTTC has signed a MoU with Asia-PacificAccreditation and Certification Commission(APACC), Manila. Under which one institute,the Construction Technology TrainingInstitute, Islamabad has been accredited. Whilenine other institutes are in the process ofaccreditation. Moreover, the initial phase ofaccreditation of 12 institutes (both from publicand private sectors) has started from March 30,2012.The Code of Conduct and Professional Ethicsfor Technical and Vocational Training (TVT)was developed and printed for implementation.The code serves as an instrument and providesan important base for promoting goodpractices in teaching and learning ofinternational standards.An agreement for Technical and VocationalEducation and Training (TVET) ReformSupport Programme for a period of five yearsat a cost of €42.40 million has been signedwith the GIZ (German DevelopmentAgency).The programme is aimed at reformingthe TVET sector as whole. The reformcomponents cover (i) TVET governance andinstitutional buildings (ii) nationalqualification framework and human resourcedevelopment and (iii) effective and innovativetraining delivery and labour marketinformation services.NAVTTC has signed a memorandum ofunderstanding with the well known PakistaniNGO-AKHUWAT for providing interest freeloan of Rs. 50,000 to the successful trainees ofNAVTTC. All NAVTTC trainees are expectedto benefit from this scheme.NAVTTC has constituted 22 advisory groupsof experts from different industries andchambers of commerce. The advisory group isexpected to play a major role in articulating thecriteria for providing quality training to therequired skilled force.NAVTTC has constituted Project MonitoringAdvisory Committees at the Tehsil level formonitoring the NAVTTC sponsored trainingprogrammes. These committees are comprisedof notable and dedicated volunteers withoutany political affiliation.NAVTTC has acquired ISO 9001 Certificationas a step towards a better managed andefficient system.NAVTTC has developed institutional linkageswith a number of the world’s importantorganizations dealing with TVET sector. Theseorganizations are:• United Nations Educational, Scientific &Cultural Organization (UNESCO)• United Nations Industrial DevelopmentOrganization (UNIDO)• British Council (BC)• European Union (EU)• Turkey International Cooperation Agency(TIKA)• International Labor Organization (ILO)• Colombo Plan Staff College forTechnician Education (CPSC) for HumanResources Development in Asia and thePacific Region, Philippines.• Japan International Cooperation Agency(JICA).• Korean International Cooperation Agency.143

Pakistan Economic Survey 2011-12Higher Education Commission(iv) Financial management and sustainabilitySince its inception in 2002, the Higher Education (v) Research, innovation and entrepreneurshipCommission (HEC) has been striving to encourageuniversities to play a greater role in the economicKey achievements of the Higher Educationdevelopment of the country. After implementingCommission are as follows:the MTDF 2005-2010, HEC has proposed its nextfive year plan viz. its second MTDF – 2010-2015to create the knowledge capital and technologyrequired to enable Pakistan to join the ranks of theindustrially advanced countries within the nextdecade. The few prime physical targets of theproposed 5-year plan are:Human DevelopmentHuman resource development within the highereducation sector lies at the heart of the HEC’sreform process. This is an area in which vital andsignificant progress has been made. With the dualobjective of increasing institutional capacity and(i) Promoting excellence in learning and researchenhancing local research activities, the major thrustof the programmes in this area have been primarilyaimed at improving the academic qualifications of(ii) Developing leadership, governance andmanagementuniversity faculty. However, scholarships schemesare also open to individuals working in the private(iii) Universities building economies and or government sectors as well as Pakistanicommunitiesstudents. The projects and programmes are givenin Table-10.6.Table 10.6: Projects/Programmes(Numbers)Project Name144ScholarshipAvailedScholarsCompleted StudiesProvision of HE Opportunities for Studentsof Balochistan/ and FATA2000 28Japanese Need Based Merit ScholarshipsProgram950 935Financial Support for Meritorious NeedyStudents Program165 148Indigenous PhD Scholarship Schemes 1512 819692 People are placed in HEIs under Interim Placement of Fresh PhDs Programmes.Source: Higher Education CommissionHEC is also playing its role in running differentscholarship programmes to enhance academicqualification at various levels on merit basis in linewith requirements. The details are given in Table10.7.Table 10.7: Scholarships(Numbers)Project NameScholarsScholarships ScholarsCompletedAwarded ProceededStudiesPost-Doctoral Fellowship Programmes 590 477 4491000 Cuban Scholarships for Studies in General ComprehensiveMedicine604 604 N/AUS needs based Scholarship Programme for Pakistani UniversityStudents901 901 659MS / M. Phil leading to PhD Scholarships for teachers of WeakerUniversities.21 21 1MS leading to PhD Faculty Development Programme of UESTP/UETsUniversities.189 117 2Overseas scholarship scheme for PhD in selected fields Phase - 1 19 19 383Overseas Scholarships Phase-II 1439 1200 132Fulbright Scholarship Programme 233 233 24Source: Higher Education Commission

EducationResearchand DevelopmentResearch and development (R&D)is essential tobe competitive in the changing internationaleconomic scenarios. HEC has allocated funds inaccordance with the needs of the country in theR&D arena (see Fig10.4).Fig-10.4: Funds Allocated for Promotion of Research900800700650680726800 800Rs. Million600500400300270300442200100470Source: HEC2002-032003-042004-052005-06 062006-072007-082008-092009-102010-11LearningInnovation at HECFaculty training programmes,building a high quality pool ofmanagement staff at learningdesigned foracademics andinstitutions ofPakistan, are beingimplemented by the HEC.These programmes are designedto makeinternational standard education available tostudents. The details of this initiative are presentedin Table 10.8.Table 10.8: Province-Wise Distribution of Faculty Members/Management Staff Trained (Numbers)ProgrammesFederalPunjabSindhKPKBalochistanAJ&KTotalTotal number of UniversitiesHE FacultyTrained21 18 13970 214612791513470557302114746431Management Staff Trained94 1038771397401Grand TotalSource: HEC1064 2249136614186121216832Quality Assurance ProgrammesQuality assurance is one of the objectives of theHEC.In order to achieve it some qualityparameters have been developed and implementedto fill the gaps in quality provision betweennational and international systems of higherlearning. The Tenuree Track System (TTS) ofappointments has beenintroduced in public sectoruniversities. It aims at enhancing performance andefficiency of the faculty members by creating ahealthycompetitionamong them, allowingfreedomof researchand teaching, as well as thefinancial independence to pursue these objectives.To datea total of 1,378 faculty members havebeenappointed by 58 public sector universities/DegreeAwarding Institutes (DAIs). Due to continuoussupport to research journals by the HEC, researchoutput from Pakistan is now more visible at the145

Pakistan Economic Survey 2011-12international level. Almost 45 research journals arenow in the Institute of Scientific Information (ISI)master list with 11 journals having an impactfactor.Plagiarism Eradication SystemThe HEC's goal is to combat plagiarism effectivelyin an academic environment in all institutions ofPakistan while ensuring that the students andacademicians know that stealing intellectualproperty is unethical and leads to seriousconsequences. HEC is committed to eradicateplagiarism from higher education institutes. Forthis, the IT Division had sought a technologicalsolution and acquired an online software tool toassist in identifying plagiarized material. Thesoftware tool, “Thenticate” is one of the leadingsoftware used globally for this purpose.Anti-Plagiarism Service “Turnitin”Plagiarism detection service ‘Turnitin’ has beenprovided to all public and private sector HEIs bythe HEC in order to facilitate authentication ofcontents. Some of the salient features of thisstrategy are as follows:given 1000 user accounts. The service isprovided to a focal person nominated by theuniversity, who will be the resource person forfaculty members. Unlimited accounts have been acquired for aone year period and each university has beenTable 10.9: Plagiarism Eradication System Facilities(Numbers)Key Indicators 2008 2009 2010 2011No. of Universities given access to Turnitin 10 50 13 54No. of Registered Instructors - 763 2263 4144No. of Registered Students - 2094 6855 15811No. of Submission for Originality Report 2885 10446 69042 146297Source: HECTechnical support and facilitation throughemails, phone and personal visitUpdating Turnitin guidelines for instructorsand circulation of the same to universitiesMonitoring usage by the universitiesInvolved focal persons for conducting trainingsessions at respective campusesFor the past three years, all public sectoruniversities have been provided with campusversion of plagiarism detection solution, named asTurnitin. This online service is available athttp://www.turnitin.com and 1000 licenses for eachof the public sector universities/ institutes havebeen acquired for teaching faculty, post graduatestudents and researchers in order to address theissue at the grass root level. This year HEC hasprovided ten (10) months trial access to Turnitinservice to all the Private sector universities/institutes, after having negotiations with IParadigm (Turnitin parent company).In person and remotely managed trainings arearranged for the focal persons of all the universitiesto rise to the level of master trainer, so that theycan in turn extend trainings in-house to theirrespective universities/ institutes’ faculty and postgraduate students. All universities’ users are alsoencouraged to go through the training materialavailable at the Turnitin site and webinars arrangedby the service provider on a regular basis. Inaddition, a master trainer program was alsoarranged through the Turnitin service provider forthe focal persons nominated by theuniversities/institutes while selecting top ten (10)extensive users of Turnitin Service.Impact of Plagiarism PolicyThe zero tolerance policy of the HEC towardsplagiarism has had a positive impact on researchactivities being carried out in higher educationinstitutions and R&D organization. Because ofincreased awareness about proper documentation,literature referred during research activities hasimproved and researchers are more vigilant inciting information in their scholarly works.146

EducationFinancial ScenarioFor efficient allocation and disbursement of publicfunds, HEC has developed a formula basedfunding mechanism that assigns appropriateweights to different need and performanceindicators along with students and faculty strength.The detail of recurring funds released to highereducation sector during last 4 years is given inTable 10.10.Table 10.10: Recurring Grant Released(Rs. Million)2007-08 12,536.52008-09 15,766.42009-10 21,500.02010-11 29,057.0Source: HECNote: For the year 2011-12, Rs. 26.9 million havebeen allocated as annual recurring grant out of which55 percent has been released so far.To streamline and support institutional processesand operations, the HEC has successfullyintroduced/installed SAP Enterprise ResourcePlanning (ERP) application in its offices. The HEChas introduced a tenure track system, which offersa market based competitive salary package toattract and retain intelligentsia in public sectorinstitutions of higher learning. Currently, there are1,257 tenure track teachers working in differentpublic sector universities. In addition to recurringfunds, development funds were also released underthe “Subsidy to Scholars under Cultural ExchangeProgramme”. The details are given in Table 10.11.Table 10.11: Subsidy to Scholars (Rs. Millions)YearSubsidy Tendered2008-09 21.52009-10 77.02010-11 75.72011-12 13.5Total 187.8Source: HECPlanning & DevelopmentIn the development portfolio of HEC, there are 174ongoing projects. Only 3 new projects wereallowed to be included in the current year PSDP.Up till March 2012, 70 percent of the originalallocated funds have been released to developmentprojects. The HEC expects to complete 48development projects during the current financialyear. The year wise breakup is given in Table10.12. and Fig-10.5.Table 10.12: Development Expenditure(Rs. Billions)Financial Year Allocation Releases2008-09 18.00 16.422009-10 22.50 11.302010-11 15.76 14.06*2011-12 14.00 8.96Total 70.26 50.74Source: HEC*The releases are till Dec. 2011Rs. billionFig 10.5: Development Expenditure Allocation25.0020.0015.0010.005.000.00Source: HEC18.0016.4222.5011.3015.7614.06Releases14.008.962008-09 2009-10 2010-11 *2011-12Education SurveyAnnual Status of Education Report (ASER) is acitizen led household based learning survey mostlyin rural and selected urban areas. It measureslearning levels of children 5-16 years the same agegroup as identified for compulsory education inArticle 25 A of the Constitution of Pakistan. ASERis conducted each year across Pakistan and willcontinue up to 2015. It is led by the Idara-e-Taleem-o-Aagahi (ITA) in collaboration with theNational Commission for Human Development(NCHD), Sindh Education Foundation and manyother Civil Society Organizations (CSOs). In 2011,84 rural and 3 urban city districts, 2,502 villages,97 urban blocks and 3,642 government/privateschools were surveyed. The survey included49,793 households and 146,874 children. TheASER 2011 Survey was conducted in 84 rural and3 Urban districts (Lahore, Peshawar and Karachi)147

Pakistan Economic Survey 2011-12of Pakistan by 5000 active citizen volunteers throughout Pakistan.Box 1ASER 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 ofschool. This number has held steady since 2010. Nationally there is a persistent gender gap in out of schoolchildren with more girls than boys being out of school except for the 14-16 age group where slightly more boysare 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 ofAction (NPA) target of 50 percent enrolment in pre-school by 2015. The highest enrolment in this age groupwas 51.3 percent in Punjab and lowest in Gilgit-Baltistan (29.4 percent) with majority enrolled in governmentschools. For urban areas this trend is highest in Karachi (68.9 percent) with majority of children in privateschoolsPrivate school enrolment is on the rise: Nationally, non-state private school enrolment stood at 25.5 percent. Highest private school enrolment wasseen 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 districtwise 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 useablewater and toilet facilities. Of the total government primary schools surveyed, 55.4 percent had useable waterfacility 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 waterwhile 45.3 percent had a functional toilet Facilities in government schools have improved most in Punjab followed by Khyber Pakhtunkhwa (KPK). InPunjab 80 percent government schools have a useable water facility and 70 percent have a functional toiletwhereas in KPK 59 percent government schools were found with a useable water facility and 52 percent with afunctional toiletArithmetic 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 increasedfrom 34.3 per cent in 2010 to 37.3 per cent in 2011. The improvement is most visible in the provinces ofPunjab, Gilgit-Baltistan and Balochistan. Urdu reading levels are estimated to have declined slightly: The proportion of children in class 5 able to read aclass 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 levelUrdu 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 readsentences 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 the2010 attendance level of 81.5 percent. The highest attendance level was found in Azad Jammu Kashmir (88.5percent) while the lowest was in Sindh (61.6 percent).148

EducationClass 2 sitting together with other Classes: Nationally, for rural government schools, about half of all classes visited are multigrade. For example, at thenational 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) ascompared 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: Mother’s literacy stood at 34.5 percent. Lowest being 12.8 percent in FATA and highest being in Punjab (41.6percent)Source: ASER-Pakistan 2011ConclusionThe government of Pakistan is committed toimproving both the quality and the coverage ofeducation through effective policy interventionsand expenditure allocations. While literacy andenrolment rates are lagging behind other countriesin the region, they have been improving over thepast five years. To achieve the goals of providinghigher quality education and expanding thecoverage of educational services, more resourceswill need to be allocated to providing training andhigh quality facilities149

Chapter 11Health and NutritionAccess to good health can contribute positively tothe economic and social development of a country.Thus, key issues that impact the health status ofpeople ought to be addressed through a diverse setof policy tools comprising short and long termmeasures to secure better health outcomes.The people of Pakistan have grown healthier overthe past three decades. The vision for the healthsector comprises a healthy population with soundhealth, enjoying good quality of life through thepractice of a healthy life style. In order to achievethis vision, significant measures have been takentoward disease prevention, health promotion,greater coverage of immunization, familyplanning, and provision of female health workerservices.facilities in Pakistan. The targets andaccomplishments for the 2011-12 are thendescribed, followed by a discussion of thegovernment’s special focus on cancer treatmentand the response waged to counter dengueoutbreaks. The chapter then focuses on thechallenges of narcotics trafficking and the burdensof growing incidence of drug addiction in Pakistanisociety. The government’s efforts at augmentingfood security and enhancing the availability anduptake of nutrients are examined before presentingconclusions.National Health PolicyIn light of the health related MDGs, reducing childand maternal mortality by 2015 is a high priorityfor the government of Pakistan. Health spendinghas increased progressively over the years as theThis chapter is structured as follows: the nextNational Health Policy adopted in 2009 focuses onsection presents the National Health Policy and itsmaking the population healthier. Some of theprimary objectives, followed by an overview of theimportant targets of the policy are summarized instate of health indicators, expenditures, andthe table below:Table:11.1 National Health Policy 2009 Health Sector Indicators (Baseline, Benchmarks and Targets)Indicators Baseline Benchmarks and Targets2006-07 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15I

Pakistan Economic Survey 2011-12The objectives of the health policy are beingachieved through the following targetedinterventions.i. Making the health system more responsive andaccountableii. Introducing reforms in the health sector tomake pragmatic progress in meeting MDGtargets and tackling effectively newlyemerging and re-emerging health issuesiii. Effectively engaging private health sector andcivil society organizations to improve healthoutcomesiv. Prioritizing vulnerable and disadvantagedgroups in society as recipients of social upliftprogrammes.Despite these positive efforts, the health indicatorshave been slow to improve due to various externaland natural factors. Communicable diseases stillaccount for a major cause of death. Maternal healthproblems are widespread and the current infantmortality at 63/1000 is the highest in South Asia.Analysis suggests that:(i)Infectious and nutritional deficiency relateddiseases dominate the causes of mortality inthe country.(ii) Health status varies between urban-rurallocations and by economic status.(iii) Health achievements in Pakistan contrastsharply with those of its neighbours.Special efforts and considerable resources arerequired to achieve the desired health outcomes.Health IndicatorsThe most recent data on health performance ofother South Asian countries suggest that Pakistanlags behind in infant mortality rate (at 63 per 1000live births) and the under 5 years mortality rate (at86.5 per 1000 live births). These indicatorscontinue to remain high mainly on account ofunhealthy dietary habits, water borne diseases,malnutrition and rapid population growth.However, the average life expectancy at 66 yearscompares well with India, Nepal and Bangladesh.Pakistan is committed towards achieving theMDGs. The MDGs 4, 5 and 6 relate to childmortality, maternal health and combating HIV &Aids, Malaria and other diseases. Considerableefforts and immense resources are required toachieve the desired health outcomes.Table 11.2: Regional Human Development IndicatorCountryLife Expectancy2011Mortality Rateunder 5 per 1000Infant MortalityRate per 10002011Population GrowthRate (%)20112010Pakistan 65.99 86.5 63.26 2.03India 66.80 62.7 47.57 1.34China 74.68 18.4 16.06 0.49Indonesia 71.33 35.3 27.95 1.07Bangladesh 69.75 47.8 50.73 1.57Sri Lanka 75.73 16.5 9.70 0.93Malaysia 73.79 6.3 15.02 1.58Nepal 66.16 49.5 44.54 1.60Thailand 73.60 13.0 16.39 0.57Philippines 71.66 29.4 19.34 1.90Source: World Development Report 2011152

Health and NutritionHealth Expenditure(federal and provincial) declined from Rs. 79billion in 2009-10 to Rs 42 billion in 2010-11. ForTo maintain the expansion of health facilities, the2011-12 these have been increased to Rs 55.12financial allocation for the health sector has beenbillion; comprising Rs 26.25 billion asincreasing steadily. However, the massive floodsdevelopment expenditure and Rs 28.87 billion asof 2010 caused a significant downwardsnon-development (current) expenditure. Rs 15.72rationalization of health and nutrition expendituresbillion has been provided in the federal PSDP forwhich had to be diverted to the relief and2011-12.rehabilitation effort. Total health expendituresTable 11.3: Health & Nutrition Expenditures (2000-01 to 2011-12)(Rs. Billion)Fiscal Years Public Sector Expenditure (Federal and Provincial) Percentage HealthTotal HealthExpendituresDevelopmentExpenditureCurrentExpenditureChange Expenditure as %of GDP2000-01 24.28 5.94 18.34 9.9 0.722001-02 25.41 6.69 18.72 4.7 0.592002-03 28.81 6.61 22.21 13.4 0.582003-04 32.81 8.50 24.31 13.8 0.572004-05 38.00 11.00 27.00 15.8 0.572005-06 40.00 16.00 24.00 5.3 0.512006-07 50.00 20.00 30.00 25.0 0.572007-08 60.00 27.22 32.67 20.0 0.572008-09 74.00 33.00 41.10 23.0 0.562009-10 79.00 38.00 41.00 7.0 0.542010-11 42.00 19.00 23.00 (-)47 0.232011-12 55.12 26.25 28.87 31.24 0.27Source: Planning & Development DivisionFig: 11.1 Health & Nutrition Expenditures75Pak Rs (billion)655545352515Health & Nutrition ExpendituresDecline due to rationalization onaccount of Flood 20102000‐012001‐022002‐032003‐042004‐052005‐062006‐072007‐082008‐092009‐102010‐112011‐12Source: Planning and Development DivisionYearHealth FacilitiesThe health facilities and health related manpowerhave expanded substantially due to the greaterfocus on health sector programmes over the lastthree decades. This has resulted in theestablishment of a large network of health facilitieswith 108,137 hospital beds, 149,201 doctors,10,958 dentist and 76,244 nurses by 2011. Thecurrent position of health personnel is as follows:153

Pakistan Economic Survey 2011-12Table 11.4: Healthcare FacilitiesHealth Manpower 2009-10 2010-11 2011-12Registered Doctors 139,555 144,901 149,201Registered Dentists 9,822 10,508 10,958Registered Nurses 69,313 73,244 76,244Population per Doctor 1183 1,222 1,206Population per Dentist 16914 16,854 16,426Population per Bed 1592 1,701 1,665Source: Planning & Development DivisionInsufficient health spending and rapid populationgrowth have contributed to continuing lowfacilities to population ratios particularly in thecase of dentists, nurses and hospital beds. Thepotential pay off of investing in and improving theoverall health services is enormous.The health care system in Pakistan comprises bothpublic and private health facilities. The publicsector until recently was under the domain of theMinistry of Health. However, under the 18 thamendment of the constitution of Pakistan, theMinistry of Health has been devolved in June 2011and the functions of the ministry have beentransferred to provincial health departments. Theprovinces are now responsible for developing theirown strategies, programmes and interventionsbased on their local needs.The private health system now stretches across thespectrum from primary to tertiary care and existsall over the country in both urban and rural areas.This sector provides varying levels of care andconstitutes a diverse group of doctors, nurses,pharmacists, traditional healers and laboratorytechnicians. The services they provide includehospitals, nursing homes, and maternity clinics.The private sector has developed considerably bycapitalizing on the existing demand. The majorityof the private sector hospitals in Pakistan followeither a sole proprietorship or a partnership modelorganization. People sometime prefer privatehealth services over public health care due toconcerns about quality of care in public facilities.Given the complex nature of the healthcaredelivery system in Pakistan and the limitedresources available to the health care sector,concerted efforts are required through intersectoralcollaboration focusing on thedisadvantaged segment of population.Health insurance is one of the complementaryinterventions for the safety net beneficiaries withthe purpose of improving their access to healthcare services and reducing income loss due tocatastrophic shocks. An important consideration insocial insurance relates to the extent of healthcover to be provided. Zakat, Bait-ul-Mal, WorkersWelfare Fund, Employees Old Age Benefit andWorkers Participation Fund are all forms of socialsecurity. These funds provide assistance in alimited number of cases to cover medical treatmentcosts.Targets and Achievements during 2011-12The targets for the health sector during 2011-12included establishment of 10 rural health centres(RHC), 50 basic health units (BHUs) andrenovation of 20 existing RHCs and 50 BHUs. Themanpower targets include the addition of 5,000doctors, 500 dentists, 4,000 nurses, 5,000paramedics and 550 traditional birth attendants.Under the preventive program, about 7.5 millionchildren were targeted to be immunized and 22million packets of oral rehydration salt (ORS) wereto be distributed during 2011-12.The achievements in the health sector during 2011-12 included the establishment of 7 rural healthcentres (RHCs), 30 basic health units (BHUs) andrenovation of 15 existing RHCs and 35 BHUs andaddition of 4,000 hospital beds. The manpowerdevelopment achievements include entry of 4,300new doctors, 450 Dentists, 3,000 nurses andcompletion of training for 9,500 Lady HealthWorkers (LHWs). 60 percent of the set target was154

achieved in the case of BHUs and 95 percent in thecase of training of Lady Health Workers. Underthe preventive program, about 7 million childrenTable: 11.5 Physical achievements 2011-12Health and Nutritionwere immunized and 20 million packets of ORSwere distributed till March, 2012.Sub SectorsTargets (Number)Estimated achievements(Numbers)Achievement (%)A. Rural Health ProgrammeNew BHUs 50 30 60New RHCs 10 7 70Strengthening/ Improvement of BHUs 50 35 70Strengthening/ Improvement of RHCs 20 15 75B. Hospital Beds 5000 4000 80C. Health ManpowerDoctors 5000 4300 86Dentists 500 450 90Nurses 4000 3000 75Paramedics 5000 4500 90TBAs 550 500 91Training of LHWs 10000 9500 95D. Preventive ProgrammeImmunization ( Million Nos) 7.5 7 93Oral Rehydration Salt (ORS) (MillionPacket)22 20 91Source: Planning & Development DivisionHealth ProgramsIn pursuance of the 18 th amendment to theconstitution of Pakistan, the health sector hasbeen devolved to the provinces and the federalMinistry of Health has been abolished.However, national planning in the health sectorand cooperation with the provinces andinternational development partners is vestedwith the Planning and Development Division.All the vertical health programs have also beendevolved to the provinces. However, uponrequest of the provinces, the Council ofCommon Interests (CCI) in its meeting held on28 th April 2011 decided that the federalgovernment (Planning and DevelopmentDivision) shall fund these programs till currencyof the 7 th NFC award at a predefined share.Accordingly, the following national healthprogrammes continue to be financed by thefederal government in the post devolutionscenario till 2014-15.1. National Program for Family Planningand Primary Health CareThe program has recruited more than 103,000LHWs as of March 2012. More than 60 percentof the total population and 76 percent of thetarget population is covered by LHWs. Out of 30million children, about 16 million wereimmunized by LHWs during NationalImmunization Days (NIDS) Similarly, in highrisk districts out of 5 million target women, 4.5million were vaccinated by LHWs.2. Expanded Program on ImmunizationThe National EPI Program providesimmunization against the seven killer diseases -childhood tuberculosis, poliomyelitis,diphtheria, pertussis, neonatal tetanus, measlesand hepatitis B. Initiated in 1978, the EPIprogramme is an effective public healthintervention that has a great impact on the healthof the population. By reducing the cost oftreating diseases, immunization offersopportunities for poverty reduction. Every year anation wide National Immunization Day (NID)is carried out to give polio vaccine to all childrenbelow 5 years of age. The mass immunizationcampaign has gained a great deal of acceptanceacross the country.155

Pakistan Economic Survey 2011-123. Malaria Control ProgramMalaria is the second most prevalent anddevastating disease in the country and has been amajor cause of morbidity in Pakistan. More than90 percent of the disease in the country is in the56 highly endemic districts, mostly located inBalochistan (17 districts), FATA (7 agencies)and Sindh (12 districts). More than 40 percent ofthe reported cases from these districts are due toflaciparum malaria which is the more dangerousform of malaria. The Federally AdministratedTribal Areas (FATA) is the second highestmalaria affected belt of the country accountingfor 12-15 percent of the total case load of thecountry.The National Strategy for Malaria Control isbased on the following six key Roll BackMalaria (RBM) elements.1) Early diagnosis and prompt treatment.2) Multiple prevention3) Improved detection and response toepidemic4) Developing viable partnership with nationaland international partners5) National commitment6) Intensive and comprehensive publiceducation activities to enhance publicawareness of malaria, treatments andprevention4. National TB Control ProgramPakistan is sixth amongst the top 22 high diseaseburden country. National Tuberculosis ControlProgramme (NTP) has achieved 100 percentDirectly Observed Treatment System (DOTS)coverage in the public sector; in the last fiveyears NTP and partners have provided care tomore than half a million TB patients in Pakistan.Despite this the global target of 70 percent casedetectionhas not been achieved. There arecertain areas where there is room for the NTP tofurther improve such as, at the client level -suspect management, contact management,quality bacteriology services; at the communitylevel, the NTP can strengthen engagement withall care providers through public privatepartnership and inter-sectoral collaboration,monitoring and supervision, research forevidence based planning and Advocacy,Communication and Social Mobilization(ACSM). The prevalence rate of TB is nearly300 per 100,000 of population whereas theabsolute number of cases is 211,500 and thetreatment success rate is 91 percent. Thepercentage of TB case-detection rate is 80percent and cure rate is 74 percent.5. HIV/ AIDS Control ProgramThe government is implementing an HIV/ AIDSControl Programme since 2003 at a cost of Rs2.9 billion for five years. The major focus is onBehaviour Change Communication (BCC),services to high-risk population groups,treatment of Sexually Transmitted Infections(STIs), supply of safe blood and capacitybuilding of various stakeholders. A total of4,500 HIV positive cases have been reported tothe national and provincial AIDS ControlProgrammes. These include 2,700 full blownAIDS. Around 1,030 patients are receiving freetreatment through 12 AIDS Treatment Centers.6. National Maternal and Child HealthProgrammeNational Maternal and Child Health Programmehas been launched in order to improve maternaland neonatal Health services for all, particularlythe poor and the disadvantaged, at all levels ofthe health care delivery system. It aims toprovide improved access to high quality motherand child health and family planning services,train 10,000 community health and nutritionwomen workers, provide ComprehensiveEmergency Obstetric and National Care(EMONC) service in 275 hospitals/ healthfacilities, provide basic EMONC services in 550health facilities, and family planning services inall health outlets.7. National Programme for Prevention andControl of BlindnessThe National Programme for Prevention andControl of Blindness (NP-PCB) was launchedby the federal Ministry of Health in 2005. TheProgram is in line with “VISION 2020”, the156

Health and Nutritionglobal initiative of WHO for elimination ofpreventable causes of blindness by the year2020. An allocation of Rs. 246.9 million wasmade for this program during 2011-12.Cancer TreatmentThe Pakistan Atomic Energy Commission(PAEC) is playing a vital role in the healthsector by using nuclear and other advancedtechniques, for diagnosis and treatment ofcancerous and allied diseases, as well as nationalcancer awareness and prevention programmes.Presently the PAEC is operating 14 moderncancer hospitals in the country while four othersare in the final stages of completion and areexpected to start functioning by June 2012.These hospitals are manned by skilled teams ofmore than 2,000 professionals; includingdoctors, engineers, scientists, paramedical,technical and other supportive staff. Thesehospitals bring facilities for early diagnosis andtreatment of cancer within the reach of a verylarge proportion of the population of thecountry. The major services provided at thesehospitals are diagnostic and therapeutic nuclearmedicine, hormonal assays, radiotherapy,chemotherapy, indoor/wards facilities, breastcare clinics, biochemistry, ultrasonography,color Doppler, diagnostic radiology,histopathology, hematology, molecular baseddiagnostics and cancer prevention and awarenessprogrammes. About 527,633 patients weretreated from July to March 2012. Workcontinues in the following areas:• Research continued on various InternationalAtomic Energy Agency (IAEA) TC/Regional Cooperative Agreement (RCA)projects and others in collaboration withdifferent international/ national organization.• The cancer awareness andprevention/control campaign was launchedespecially for early diagnosis of breastcancer and treatment leading to betterprognosis through arranging lectures,seminar, and workshops in remote areas, andthrough print and electronic media andmobile breast care clinics.• Provision of state of the art treatment(radiation therapy) facility at Atomic EnergyMedical Centre (AEMC), Karachi.In order to provide better treatment facilities tothe patients at their door steps, the PAECcontinued working on the following projects:4 Hospitals (3 in KPK and 1 in Sindhprovince) have almost been completed andout patient departments have startedworking. These hospitals are expected tostart functioning at full capacity by June2012.Addition of latest and advanced diagnosticand therapeutic facilities on par withinternational standards is also underway andPositron Emission Tomography- Computedtomography (PET/ CT) facility at the PAECCancer Hospital Institute of NuclearMedicine and Oncology (INMOL) in Lahorehas been added and patients throughoutPakistan are benefitting from these facilities.PAEC Cancer Registry Programme (PCRP),started in 2007, is now in completion phaseand is expected to be completed in August2012. Patients in remote areas also benefited withmobile breast care clinics being arranged onfortnightly and monthly basis for awareness,diagnosis and treatment of patients.Dengue Epidemic and Control ProgrammeIn Pakistan, the outbreak of DengueHemorrhagic Fever (DHF) was first reported inKarachi in 1994, followed by outbreaks in 2005,2008, and most recently in 2011. Heavymonsoon rains in Punjab provided idealconditions for dengue-bearing mosquitoes tothrive in stagnant water. Although the diseasespread in all provinces, Punjab was badlyaffected.21,292 confirmed cases of dengue were reportedin Punjab in 2011, 352 of these cases were fatal.No deaths have been reported so far in 2012. Inorder to prevent the dengue epidemic, thefollowing steps have been taken:157

Pakistan Economic Survey 2011-12The Punjab government has established aprovincial task force headed by the ChiefMinister of Punjab.A provincial steering committee headed bythe Chief Secretary of the province has beenconstituted.District implementation committees headedby DCOs are operational.Chief Minister (CM’s) Dengue Researchand Development (R&D) cell wasestablished to carryout applied andoperations research on dengue.Emphasis is placed on utilizing latesttechnology for combatting dengueepidemics. A system has been developedand put in place for online dengue casesurveillance, while Global PositioningSystem (GPS) mapping of cases, vector, anddigital monitoring of dengue prevention andcontrol activities are being carried out.Environmental management measures havealso been taken including proper disposal ofwaste water, de-silting operations, supply ofsafe water, time repair of leaks in plumbingsystems, use of water filters, managementand regulation of used tyres, and cleanlinessdrives in eateries.All teaching hospitals have establishedisolation wards and high dependency unitswith all facilities. On the average 200 extrabeds were allocated for dengue patients ineach teaching hospital. About 10,000 bednets treated with insecticide were providedto each hospital for dengue isolation wards.For the arrangements of platelets, cellseparator machines with platelet kits weremade available on an urgent basis at theInstitute of Blood Transfusion Services,Jinnah Hospital Lahore, Children’s HospitalLahore and Lahore General Hospital. Inother hospitals centrifuge machines havebeen provided for platelet segregation.Delegates of dengue experts from Sri Lankaand Indonesia also visited Pakistan to reviewthe strategies and provide guidance on larvasurveillance and capacity building on vectorcontrol and case management. Job positionsof 875 sanitary patrols, 337 CDCsupervisors, 292 LHW’s and 66 data entryoperators were created. The creation of 718positions of lady sanitary patrols is underprocess.In Khyber Pakhtunkhwa a total of 386confirmed cases with 7 deaths were reportedfrom Peshawar, Abbotabad, Mansehra, Haripur,Mardan, Swat and Nowshera. Rs 55 million wasreleased for purchase of larvicides, insecticides,spray machines, foggers, and social mobilizationactivities. To address future dengue outbreaks ascheme at a cost of Rs 265.7 million has beenapproved. The scheme will be implemented inall 25 districts of the province for three years.Main components of the scheme includeinstitutionalization, advocacy, socialmobilization and communication, vector controland surveillance, disease management andsurveillance, and research and development.In Sindh, a total of 1,547 suspected cases werereported out of which 1,326 were from Karachiand 221 were from the rest of Sindh. 18 of thesecases were fatal, 16 from Karachi and 2 from therest of Sindh. Sindh’s response to this outbreakincludes detailed situation analysis (needassessment and gap analysis) of epidemiologyand entomology of transmitting vectors.Provincial Strategic planning for sustainedcontrol of vector borne diseases involve:Adopting integrated diseases control fordengue, malaria and leishmaniasisRestructuring of vector control programmeto fill existing planning Capacity building of care providers forclinical management of dengue cases usingguidelines specific to Pakistan Development of coordination andcollaboration with UN Agencies, other linedepartment and development partners forresource mobilization and technicalassistanceThe incidence of dengue in Balochistan wasmuch less compared to other provinces.However, the government of Balochistan also158

Health and Nutritiontook necessary measures to overcome anyemergency situation related to dengue.Drug AbuseIllicit drug consumption, production andtrafficking have emerged as a serious globalissue. Drug abuse has also affected Pakistan inmany ways. Proliferation of drugs andpsychotropic substances within Pakistani societyand the subsequent increase in number of drugaddicts are emerging challenges.A Drug Control Master Plan (2010-14) has beenprepared to reduce the health, social andeconomic cost associated with drug traffickingand substance abuse in Pakistan. The planincludes short, medium and long term initiativesfor implementation of the National Anti-Narcotics Policy 2010. The Ministry ofNarcotics Control in collaboration andcooperation with the provincial governments andother stakeholders, is taking measures toeffectively implement the policy.Currently, there are 16 ongoing developmentprojects being implemented at a total cost ofRs.4.67 billion including local cost of Rs.2.13billion and foreign aid of Rs.2.52 billion.Table: 11.6 Drug SeizuresS.No. Kind of Narcotics Quantity of DrugsSeized (in Kgs)i Opium 8,725.006ii Morphine 1,249.000iii Heroin 1,641.014iv Hashish 65,445.850Source: Narcotic Control DivisionPakistan is one of the top three countries wherethe confiscation rate, seizure of narcotics, drugsand precursor chemicals is high. The seizures ofnarcotics by the Anti-Narcotics Force (ANF)during the period July 2011 – 15 th February,2012 are given in the table 11.6:Food and NutritionThe links between malnutrition, ill health andpoverty are well known. Disease contributes topoverty due to the costs of illness and reducesearning capacity during and after illness. Goodhealth is a first step towards prosperity andreduction of poverty. It is therefore, critical tomove towards a system which will addresshealth challenges and prevent households fromfalling into poverty due to poor health. InPakistan, health sector investments are viewedas part of the government’s poverty alleviationendeavors.Food security is a national priority. According tothe recent National Nutrition Survey (NNS)2011, about 32 percent children under the age offive years and 15 percent mothers areunderweight. About 30 percent babies have lowbirth weight, reflecting the poor nutritionalstatus of mothers.The national food availability estimated throughfood balance sheets, has been satisfactory formajor food items during the fiscal year 2011-12.The average calories estimated based on foodavailability has been 2,430 per capita per day.The overall food availability trend of essentialfood items for the last five years is given in thefollowing table.The consumption of essential food items showsslight improvement in calorie intake from 1,650to 1,700 and protein from 44 to 46gm per capitaper day in 2010-11 compared to data from theHIES 2007-08. The change in food consumptionbetween 2007-08 and 2010-11 has mainly beenthrough increase in cereals: wheat 3 percent, rice12 percent, pulses 30 percent, vegetable gheeand oil 8 percent, meat 5 percent, fruits andvegetables 11 percent. Consumption decreasedfor sugar (1 percent) and milk (3 percent). Foodconsumption remained lower than food availableand the minimum food basket 11 Planning and Development Division 2012159

Pakistan Economic Survey 2011-12Table:11.7 Food Availability per capitaItems Year/ units 2006-07 2007-08 2008-09 2009-10 2010-11 (E) 2011-12 (T)Cereals Kg 151.1 158.1 160.3 158.8 158.7 160.0Pulses Kg 7.7 7.2 5.8 6.8 6.7 7.0Sugar Kg 30.3 30.0 25.6 26.1 26.5 29.5Milk Ltr 164.7 165.4 167.2 169.1 169.8 170.0Meat Kg 19.2 20.0 20.0 20.5 20.9 21.5Eggs Dozen 5.4 5.5 5.6 5.8 6.0 6.0Edible Oil Ltr 12.8 12.8 12.5 12.6 12.6 13.0Calories per day 2398 2410 2425 2415 2420 2430Protein per day (gm) 69.0 72.0 72.5 71.5 72.0 72.5Source: Planning & Development DivisionE: estimated T: targetsThe cost of the food basket for the fiscal year2011-12 (July- March) fluctuated and a cumulativeincrease of about 1 percent from Rs.1,745 toRs.1,767 was noted. The change in cost amongprovinces has been highest in KhyberPakhtunkhwa with a 5 percent increase owing tolower availability with respect to demand andlowest in Punjab where there was a 2 percentdecrease.The nutrition related activities/programmes aresummarized below:Food security and social safety net measuresespecially for poor households continued to bein place to combat the impact of food inflation.The Benazir Income Support Program (BISP)and Pakistan Bait-ul-Mal’s Food SupportProgram for poorest of the poor householdscontinued to provide cash incentive supportduring the year throughout the country.Food quality control is also an important foodsecurity concern. A reference food laboratoryfor strengthening of food quality controlsystem at the Nutrition Division of theNational Institute of Health (NIH), Islamabadwas completed during the year and is currentlyoperational.Nutrition improvement through micronutrientsupplementation to address anemia, andvitamin-A deficiency in children under fiveand women of child bearing age continuedalong with growth monitoring, counseling ofbreastfeeding and weaning practices andraising awareness through 98,000 Lady HealthWorkers in primary health care (PHC)continued across the country to cover morethan 60 percent of the total population.Micronutrient Deficiency Control Program toaddress major micronutrient deficiencies ofiodine, iron and vitamin-A& D are beingaddressed through food fortification in thepublic and private sector. The emphasis duringthe fiscal year remained on improving thequality of fortified products.ConclusionThis chapter discussed the state of health andnutrition in Pakistan. An overview of the NationalHealth Policy and its primary objectives arepresented, followed by a discussion of the state ofhealth indicators, expenditures, and facilities inPakistan. The targets and accomplishments for the2011-12 are described, followed by a special focuson cancer treatment and the government’s responseto dengue outbreaks. The chapter highlights thechallenges of narcotics trafficking and growingincidence of drug addiction in Pakistani society.Finally the chapter documents the government’sefforts at augmenting food security and enhancingthe availability and uptake of nutrients.160

Chapter 12Population Labour Force andEmploymentBalanced growth in population is crucial for thewelfare of the country or improving the productivecapacity of the economy. It is important to knowthe size of a country’s population, its growth rateand other demographic attributes in order toanalyze the dynamics of the population, labourforce and employment and to estimate the quantityof goods and services that will be needed to meetfuture demand.The population of a country plays a vital role notonly in the economic development but also for thesocial well-being of the people. However, poormanagement of human resources can lead to socialdistress and reduced economic performance. Dueto rapid population growth and lack of welldevelopedhuman resources, Pakistan is faced withsocioeconomic crises including food insecurity,and unemployment. Nevertheless, with continuousefforts of the government, the situation has startedto improve.Due to improved health facilities and promotion ofpopulation welfare activities through the Ministryof Population Welfare the crude birth and fertilityrates have been reduced considerably which hasled to a reduction in the average growth rate of thepopulation. This has been accompanied by anincreased labor participation rate. However despitethese improvements Pakistan is still lagging behindin comparison to its neighboring countries. Forexample, the fertility rate in Pakistan is still higherthan neighboring countries like India, Bangladesh,Sri Lanka, Nepal and China. As a result populationgrowth rate is not reducing considerably and at thesame time dependency ratio is increasing.Therefore, it is imperative to put further efforts fordevelopment of better human resources.Since its creation Pakistan has exhibited acontinuously high rate of population growth. Whenmeasured by population size it has moved from thethirteenth largest country in 1950 to the sixthlargest country in 2011. According to World Bankprojection it will become the fifth largest countryby 2050. This rapid increase in population leads togreater demand for food, infrastructure, andservices and puts an enormous strain on foodsecurity and provision of basic services.This chapter presents a discussion of the structureof Pakistan’s population and the evolution ofdemographic indicators, followed by a thoroughoverview of the structure of labour force, includingunemployment statistics and details of governmentprojects and programmes aimed at boostingemployment opportunities.Overview of Population and DemographicIndicatorsThe structure and growth pattern of population canbe evaluated through certain key indicators. Theseare briefly explained below:Crude Birth Rate: The average annual number ofbirths during a year per thousand persons in thepopulation at midyear is known as the crude birthrate. The birth rate is the main factor indetermining the rate of population growth. Itdepends on both the level of fertility and the agestructure of the population. The Crude Birth Rate(CBR) does not take into account the age or sexdifferences among the population. A crude birthrate of more than 30 per thousand is consideredhigh and a rate of less than 18 per thousand isconsidered low. The global crude birth rate in 2011was 20 per thousand. The CBR in Pakistan is161

Pakistan Economic Survey 2011-12estimated at 27.2 per thousand in 2011-12; in 2008it was 25.0 per thousand. This indicates amarginally improving trend.Similarly, the crude death rate measures the rate ofdeaths per one thousand people in a givenpopulation per year. A crude death rate of less thanten per thousand is considered as low while abovetwenty per thousand is considered as high.According to the World Population Data Sheet2011, the global crude death rate in 2010 was 8persons per thousand. In Pakistan it was 7.3 perthousand in 2011. It is worth mentioning that thecrude death rate decreased from 7.7 per thousandin mid-year 2008 to 7.2 per thousand in mid-year2012, which shows an improving trend (Fig.1).Infant mortality in Pakistan has also improved asthe country experienced a considerable decline inmaternal and infant mortality. Infant mortality was70.20 per thousand in mid year 2008, whichreduced to 69.00 per thousand live births in midyear 2012. The major reason for this decline isprovision of improved health facilities to controldiarrhea and pneumonia which can be fatal forinfants. Nevertheless, this decline is notsignificant, given the repeated pregnancies andbirths. The status of maternal health is improvingin Pakistan. The maternal death rate decreasedfrom 400 per 100,000 live births in 2005-06 to 276per 100,000 live births in 2010. This decline is theresult of the strengthening of the four pillars ofsafe motherhood including family planning,antenatal care, clean safe delivery and essentialobstetrical care.Fig-12.1: Population OverviewCrude Birth & Death Rate3025201510502008 2009 2010 2011 2012Source: National Institute of Population Studies (NIPS)Population Census OrganizationCrude birth rateCrude death ratePopulation (mln)185180175170165160155Some of the selected demographic indicators forthe period (2010-11 and 2011-12) are posted inTable 12.1.Table 12.1: Selected Demographic Indicators2010-11 (1 st July) 2011-12 (1 st July)Total Population (Million) 177.1 180.71Urban Population (Million) 65.3 67.55Rural Population (Million) 111.8 113.16Total Fertility Rate (TFR) 3.5 3.4Crude Birth Rate (Per thousand) 27.5 27.2Crude Death Rate (Per thousand) 7.3 7.2Population Growth Rate (Percent) 2.05 2.03Life Expectancy (Year)- Females 65.8 66.1- Males 63.9 64.3Source: P&D Division, National Institute of Population StudiesThe demographic indicators reflect improvementin the structure of the population and point tofuture trends. There is improvement in lifeexpectancy and a fall in the population growth rate.Increase in life expectancy indicates the provisionof a better living environment and health facilitiesin the country. The decline in fertility and theresultant decline in population growth lead to alower dependency ratio which may help inimproving living standards in the country.However the population growth rate is still higherthan other neighboring countries and is still achallenge for the government.162

Age Composition of PopulationThe age composition of a population gives insightto the size of the future productive humanresource. It also highlights changes in thedependency levels. During 2011, the under-15population was 62 million, whereas 104 millionwere between the ages 15-59 years. The availableprojections of the population by age categoriesindicate that those below 30 years of age willconstitute more than 53 percent of the totalpopulation by 2030. Countries, like Pakistan,having a very young age structure are more likelyPopulation, Labour Force and Employmentto have large dependent population which puts aconsiderable stress on the economy. This higherpercentage has a dual impact on the country’sfuture economic and social wellbeing. Thegrowing youth population will only add marginallyto the productive resources of the country but willput a large burden on health, education and decentjobs, if they are not trained properly. This willworsen both the economic and social situation.Conversely with effective government policies fortheir education and training, these youth canbecome a powerful force for economicdevelopment.Table 12.2: Population by Age GroupsMillionAge Group 1998 2011 2015 2020 2025 203000-04 19.59 22.02 22.76 23.28 22.44 20.3505-09 20.72 20.40 21.33 22.35 22.95 22.1810-14 17.14 19.94 20.07 21.24 22.28 22.8815-19 13.73 20.27 20.12 20.01 21.19 22.2420-24 11.88 17.72 19.8 20.05 19.95 21.1425-29 9.76 15.25 17.13 19.71 19.98 19.8930-34 8.24 12.95 14.72 17.04 19.62 19.9135-39 6.32 10.83 12.4 14.62 16.94 19.5340-44 5.89 8.90 10.36 12.27 14.49 16.8145-49 4.68 7.32 8.49 10.2 12.01 14.3150-54 4.26 6.01 6.88 8.26 9.95 11.8455-59 2.86 4.83 5.53 6.57 7.93 9.6060-64 2.72 3.78 4.31 5.13 6.14 7.4565+ 4.64 6.81 7.82 9.39 11.39 13.93Total 132.43 177.03 191.72 210.12 227.26 242.06Source: National Institute of Population Studies, Planning & Development Division, June 2010Regional DemographicsIran and Egypt have experienced a considerabledecline in the Total Fertility Rate (TFR). InThe Pakistan family planning indicators, thoughPakistan an important reason for the slower declineimproving, do not compare favorably with otheris the low Contraceptive Prevalence Rate (CPR)countries. Table 12.3 and 12.4 present adue to the lack of awareness because of whichcomparison of the family planning indicators withpeople hesitate in practicing contraception. Theneighboring and some brotherly Islamic countries.following table provides a comparison withIt is evident from the data that the performance ofregional countries on TFR, CPR and thePakistan when compared with these countries isPopulation Growth Rate (PGR).modest. Many Muslim countries such as Turkey,Table 12.3: Family Planning Indicators of Regional Countries-2011CountryTotal Fertility RateContraceptive PrevalenceRate %Population Growth Rate%Asia 2.1 67 0.9Bangladesh 2.2 56 1.3Bhutan 2.3 31 1.5163

Pakistan Economic Survey 2011-12Table 12.3: Family Planning Indicators of Regional Countries-2011CountryTotal Fertility RateContraceptive PrevalenceRate %Population Growth Rate%India 2.5 56 1.3Maldives 1.7 35 1.3Nepal 2.6 48 1.7Sri Lanka 2.2 68 0.8Pakistan 3.4 27 2.03Source: i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) PopulationProjection by Planning Commission’s Working Group on Population Sector, 2010ii) Sub Group II on Population Projections for the 10 th Five Year People’s Plan 2010-15Table 12.4: Family Planning Indicators of Muslim Countries-2011Country Total Fertility Rate Contraceptive PrevalenceRate %Population GrowthRate%Egypt 1.7 60 2.6Morocco 2.2 63 1.0Turkey 2.0 73 1.1Iran 1.6 73 1.0Indonesia 2.1 61 1.0Malaysia 2.6 55 1.6Pakistan 3.4 27 2.03Source:i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) Population Projectionby Planning Commission’s Working Group on Population Sector, 2010ii) Sub Group II on Population Projections for the 10 th Five Year People’s Plan 2010-15Fertility in PakistanThe Total Fertility Rate (TFR) of a population isthe average number of children that are born to awoman over her life time. The TFR is closely tiedto the population growth rates of a country and canbe a good indicator of future population trends.Awareness of contraception is increasing in thecountry. According to the Demographic and HealthSurvey of Pakistan 2006-07 by the Ministry ofPopulation Welfare, 96 percent of women whohave ever been married are aware of at least onefamily planning method compared to 78 percent in1991.The survey also shows that less than 30percent of married women were usingcontraception. The fertility rate per woman hasbeen reduced to 3.4 percent in 2012 from 4.0percent in 2006 and the population growth rate hascome down to 2.03 percent.The results are still not encouraging whencompared with other developing countries of theregion. Pakistan has the highest birth as well astotal fertility rate among the Asian developingcountries. If this trend prevails, it is expected thatPakistan’s population will double in 2046, andother things remaining the same Pakistan’s rank interms of the selected social and economicindicators in comparison with other developingAsian countries may deteriorate further. Therefore,vigorous efforts are needed to control populationgrowth and reduce the TFR.Fig-12.2: Trend in Fertility Rate (%)4.54.34.13.93.73.53.33.12.92.72.52006 2007 2008 2009 2010 2011 2012Source: Sub group II on population projection for the10th Five Year People Plan 2010‐15 (Planning andDevelopment Division)164

Population, Labour Force and EmploymentReproductive HealthReproductive health is a state of complete physical,mental and social well-being (and not merely theabsence of disease or infirmity), in all mattersrelating to the reproductive system, and to itsfunctions and processes. The provision ofcomprehensive, voluntary family planning andreproductive health services is a fundamentalhuman right. Contrary to its importance, thegeneral public is not sensitive about realizing andunderstanding the importance of reproductivehealth and as a result a large proportion of thepopulation is reluctant to use contraception. Theprevailing social mindset of son preference and thelimited role of women in decision making for thewelfare of the family hinder the effectiveimplementation of any reproductive healthprogram in many parts of the country.The Rights of Women and ChildrenThe future of a country depends largely on thequality of maternal guidance to the children andthe social and academic environment available tothem. A healthy and educated mother, therefore,plays an extremely important role in making surethat her children are physically healthy,intellectually developed and academically active.Similarly every child has the right to avail goodquality health care, safe drinking water, balanceddiet and clean and safe environment. The firstfocus of population welfare, therefore, has to be onthe education and health of a country ’ s femalepopulation which has direct relevance to children’sfuture. At the International Summit on Populationand Development in 1994, nations of the worldagreed that progress in addressing populationissues could be better achieved throughempowering women and girls to participate in theirsocieties and economies on equal footing with menand boys and to make fundamental decisions abouttheir lives, including decisions related to the timingand spacing of pregnancies and births.Box 1Measures 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 allForms 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 beenreserved 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 andestablishment of day care centre are part of the government initiatives to resolve the problems faced byemployed womenPopulation Welfare ProgrammeSince 2002 the service delivery of the PopulationWelfare Programme has been under theadministrative control of the provinces. Now theprovincial governments are responsible forimplementing the Population Welfare Programme.The federal government will be funding theprogramme for a four year period. The populationwelfare department played an impressive role inthe promotion of health and family planningrelated services throughout the country. Majorachievements are listed as below: The population welfare program hasestablished 2,891 family welfare centres165

Pakistan Economic Survey 2011-12(FWC) during 2010-11. The FWC is one of themain service delivery networks of the programestablished in rural and urban areas for theprovision of Mother Child Health Services(MCH), contraceptives and the treatment ofminor ailments. Reproductive Health Services-A Centres(RHSA) are hospital based units which providethe full range of family planning methodsincluding contraceptive surgery services.These centres also assist in public healtheducation campaigns and raising awarenessabout personal hygiene. There are 207 RHS-Acentres functioning throughout the country.Table-12.5: Physical and Contraceptive Users TargetsAt present 292 Mobile Service Units (MSU)are functioning in the country. The MSUextends reproductive health and familyplanning services to villages through regular(twice a week) camping services.The hospitals registered as RHS-B Centres areproviding training for doctors and paramedics.During 2010-11, the government launched 133RHS-B Centers.Registered Medical Practitioners, Hakims andHomeopaths are a significant source of healthcare provision in both the urban and rural areasof the country.(Cumulative Number) Name of ServiceOutlet / Unit2010-11(Target)2010-11(Achievement)2011-12(Target)Public SectorFamily Welfare Centers (FWCs) 3084 2891 3427Reproductive Health-A Centers 258 207 269Mobile Service Units (MSUs) 293 292 300Contraceptive users (million) 9.953 2.734 10.241Private SectorRHS-B Centers 145 133 184Registered Medical Practitioners 24273 9297 27576(RMPs)Hakeems and Homeopaths 13925 8071 14009Source: Planning and Development DivisionUrbanizationUrbanization is a process which involves theabsolute and relative growth of towns and citieswithin defined areas. Major reasons forurbanization are better economic opportunities andliving conditions as compared to rural areas. Dueto the growing needs and limited workopportunities people are rapidly moving towardsurban centers. Resultantly urbanization has beenaccelerated worldwide. This is the first time inhuman history that the majority of the world'spopulation has been shifted to urban areas. Atpresent 3.3 billion people (more than one half ofworld population) are living in urban areas. It ispredicted that by 2030 at least 60 percent of thepopulation will be living in cities. In developingcountries, about 60 million people move from ruralto urban areas each year and this rate of movementis expected to continue.In Pakistan cities are growing rapidly as a result ofthe movement of people from rural areas in searchof jobs, opportunities to improve their lives andmake a better future for their children. Moreoverthe lack of basic facilities in rural areas likeelectricity, sanitation, safe drinking water andschooling are some of the reasons for rapidurbanization. The population in urban areasincreased from 65.28 million in 2011 to 67.55million in 2012. This means that within a year, twomillion people shifted from rural to urban areas inPakistan. The annual population growth in urbanareas is expected to increase further in comingyears which may cause socio economic problemsin future.In order to cope with the situation, the governmentis not only trying to create a better economic andhealthy environment in urban areas but alsoprovide basic facilities in slum areas. Some of thereforms to manage urbanization are:166

Population, Labour Force and EmploymentProvision of adequate infrastructure, such asroads, houses, electricity, water and sanitationservices, public transportation, schools andhealth clinics.Transforming slums into legitimatecommunities.Government supportive policies foragricultural sector.Table 12.6: Urban and Rural Population (Million)Mid-Year Urban Population Rural Population2008 57.32 105.062009 60.87 109.072010 63.05 110.462011 65.28 111.822012 67.55 113.16Source: Planning and Development DivisionLabour Force and EmploymentThe labour force can be defined as that part of theeconomically active population which can supplylabour for production of goods and services in thecountry. Pakistan has a very large labour force dueto its large population size. Since independence,six labour policies have been announced by thegovernment. These were announced in 1955, 1959,1969, 1972, 2002 and 2010. These policies laiddown the parameters for the growth of tradeunionism; protection of workers’ rights; thesettlement of industrial disputes and the redress ofworkers grievances. The policy of 1972 was themost progressive one in terms of reforming thelabour laws. The present government, recognizesthat there should be a cordial relationship betweenworkers and employers and at the same time bothmust enjoy reasonable benefits without inflictingany set back on the economy. This is only possibleif there is a mutual awareness and understandingbetween workers and employers of the rights andobligations.The labour policy 2010 has been developed withina framework of objectives and initiatives; some ofwhich are summarized in Box-2Box 2Labour Policy 2010ObjectivesPromotion of employee’s social security and social insurance programmeAdequate security of jobs should be available to the workersConditions should be created so that workers and employers are committed to enhancing labour productivityPromotion of higher jobs be ensured at all levels based on suitability and meritForced labour in all its forms to be eliminatedJust and humane conditions of work be guaranteed to all workersInitiatives The government has increased the minimum wages from Rs.7,000 to Rs.8,000 per month (announced by PrimeMinister on 1 st 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 labour167

Pakistan Economic Survey 2011-12According to the Labour Force Survey (LFS)2010-11, Pakistan has a labour force of 57.24million people which is 0.91million more than theprevious year. The total number of peopleemployed during 2010-11 was 53.84 million, 0.63million more than the preceding year.Table-12.7: Civilian Labour Force, Employed and Unemployed for Pakistan(Million)YEAR 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11Labour Force 45.5 50.05 50.33 51.78 53.72 56.33 57.24Employed 42 46.95 47.65 49.09 50.79 53.21 53.84Unemployed 3.5 3.1 2.68 2.69 2.93 3.12 3.40Source: Various Issues of Labour Force Survey, 2010-11Labour Force Participation RatesThe Labour force participation is estimated on thebasis of the Crude Activity Rate (CAR) andRefined Activity Rate (RAR).The CAR is thepercentage of the labour force in the totalpopulation while RAR is the percentage of thelabour force in the population of persons 10 yearsof age and above. The RAR gives a relativelybetter picture of change in the labour forceparticipation in the country because it is comprisedof the active labour force. Between 2008-09 and2010-11, the CAR showed a mixed trend in therural areas. The male CAR decreased from 49.2percent to 48.6 percent whereas at the same timethe female CAR increased from 18.5 percent to19.4 percent. Therefore the net effect onparticipation in rural areas was zero. In the case ofthe urban areas the female CAR increased morethan the male CAR and there was an increase inthe overall participation rate. The RAR for therural areas shows a marginal decrease during the2009- 2011 period. There is a marginal increase inthe female RAR and a decrease in the male RAR.However in the urban areas both male and femaleRAR increased which on aggregate eliminated theeffect of reduction in the rural RAR. Therefore as awhole, no change has been seen in RAR at thecountry level. An important insight in this changeis that female participation is increasing in urbanareas. This is a good sign of female empowerment.Table-12.8: Labour Force Participation RatesIndicators 2008-09 2009-10 2010-11 Indicators 2008-09 2009-10 2010-11Crude Activity (Participation) Rates (%) Refined Activity (Participation) Rates (%)PakistanPakistanTotal 32.8 33.0 32.8 Total 45.7 45.9 45.7Male 49.6 49.5 49.3 Male 69.3 68.8 68.7Female 14.9 15.5 15.6 Female 20.7 21.5 21.7AugmentedAugmentedTotal 38.8 38.8 38.4 Total 53.9 53.9 53.5Female 27.0 27.2 27.0 Female 37.5 37.9 37.4RuralRuralTotal 34.3 34.5 34.3 Total 49.2 49.4 49.1Male 49.2 49.0 48.6 Male 71.0 70.2 70.0Female 18.5 19.3 19.4 Female 26.4 27.6 27.6AugmentedAugmentedTotal 42.7 42.6 42.2 Total 61.2 61.0 60.4Female 35.6 35.8 35.4 Female 50.7 51.2 50.3UrbanUrbanTotal 29.9 30.0 30.0 Total 39.3 39.5 39.5Male 50.4 50.6 50.6 Male 66.3 66.4 66.4Female 7.6 7.8 8.1 Female 10.1 10.3 10.7AugmentedAugmentedTotal 31.0 31.1 31.0 Total 40.8 41.0 40.8Female 9.9 10.1 10.1 Female 13.1 13.3 13.3Source: Labour Force Survey 2010-11168

Population, Labour Force and EmploymentTable 12.9: Employment Trend and Changes from 1999-00 to 2010-11(Million)Year Pakistan Rural UrbanEmployed Change Employed Change Employed Change1999-00 36.32 2.19 25.55 1.68 10.77 -0.012001-02 38.88 2.56 26.66 1.11 12.22 1.452003-04 42.00 3.12 28.81 2.15 13.19 0.972005-06 46.95 4.95 32.49 3.68 14.46 1.272006-07 47.65 0.70 33.11 0.62 14.54 0.082007-08 49.09 1.44 34.48 1.37 14.61 0.072008-09 50.79 1.70 35.54 1.06 15.25 0.642009-10 53.21 1.08 37.25 0.79 15.96 0.292010-11 53.84 0.63 37.85 0.60 15.99 0.03Source: Various issues of Labour Force Survey (2010-11) Pakistan Bureau of StatisticsAge Specific Labour force Participation ratesThere is an unambiguous disparity between themale and female participation rates in Pakistan inage groups of 15 to 29 and 60+. The total labourforce participation rate increased from 32.81percent in 2008 to 32.83 percent in 2010-11. Theparticipation rate in the 10-14 age groupsdecreased for both males and females. There was adeclining trend (1.10 percent) for males in the 15-19 age groups whereas an increasing trend (0.70percent) was found in females of the same agegroup. In case of the 20-24, 25-34 and 35-44 agegroups both male and female participation hasincreased. In the 45-54 and the 55-59 age groupsthe participation rate has decreased compared tolast year. In the 60+ category the maleparticipation rate has decreased while an increasingtrend is observed in the female group in thiscohort.Table-12.10: Age Specific Labour Force Participation Rate (%)Age2008-09 2009-10 2010-11Groups Total Male Female Total Male Female Total Male Female10-14 13.1 16.2 9.5 12.6 15.4 9.2 11.8 14.3 8.815-19 37.0 52.7 18.9 37.1 52.7 19.2 36.4 51.6 19.620-24 53.8 85.4 22.7 54.7 84.5 23.9 53.8 84.3 24.225-29 57.5 96.6 22.8 58.0 96.3 24.7 58.9 96.8 25.030-34 58.8 97.9 24.6 59.1 97.6 26.4 59.5 98.2 25.935-39 62.2 98.5 27.7 62.2 97.4 29.0 62.5 98.4 29.040-44 62.7 98.2 27.6 62.4 97.7 26.6 64.2 98.3 30.045-49 62.6 97.3 26.8 65.0 97.4 29.5 64.8 97.8 28.650-54 63.1 95.9 24.5 64.7 96.4 29.3 63.5 96.6 28.155-59 62.8 93.7 26.4 62.6 93.3 28.0 61.5 92.2 26.360+ 38.6 56.4 15.2 37.6 55.5 13.5 37.3 55.0 11.9Source: Labour Force Survey 2010-11Employment by SectorsMost of the labour force in Pakistan works in therural areas where agriculture is the dominantactivity. The total labour force working in theagricultural sector remained unchanged during the2008- 2011 period. However, female participationhas shown an increase of 1.4 percent during thisperiod. Contrary to that the male participationshows a declining trend. The manufacturing andconstruction sectors are also playing an importantrole in the provision of employment. Theemployment share by manufacturing sector hasincreased from 13.2 percent in 2009-10 to 13.7percent in 2010-11 and the share of constructionsector has increased from 6.7 percent in 2009-10 to7.0 percent in 2010-11. The Share of wholesaleand retail trade has decreased from 16.3 percent to16.2 percent while, the share of community / socialand personel service sector has decreased from11.2 percent to 10.8 percent in 2010-11.169

Pakistan Economic Survey 2011-122Table-12.11: Employment Shares by Industry (%)Major Industry Divisionss2008-09Total Male FemaleTotalTotalAgriculture/ forestry/hunting & fishingManufacturingConstructionWholesale & retail tradeTransport/ storage &communicationCommunity/social &personal service*Others10045.113.06.616.55.211.22.410037.313.38.320.56.611.12.9100 74.0 11.9 0.41.6 0.211.6 0.310045.013.26.716.35.211.22.4Source: Pakistan Bureau of Statistics, Labour Force Survey 2010-1112009-10Male FemaleTotal100 100 10036.6 74.9 45.113.9 11.0 13.78.5 0.3 7.020.2 2.1 16.26.6 0.3 5.111.2 11.2 10.83.0 0.2 2.12010-11Male Female100 10036.2 75.414.5 10.98.9 0.220.4 1.66.6 0.110.8 11.52.60.3Fig-12.4: Industry-wise Employment Share5%11%2%45%Agriculture / forestry / hunting& fishingManufacturingConstructionn16%Wholesale & retail tradeTransport / storage & communicationCommunity/ social & personal service7%OthersEmployment Status14%The structure of employment as shown in Table12.12 suggests that the employee and self-employedcategory account for 36 percent and 39.9percent of the totalemployedworkforcerespectively. This is followed by unpaid familyhelpers at 27.7 percent and employers at 1.4percent. 0f the unpaid family helpers, femalesTable12.12: Employment Status by Sex (%)2008-09TotalMale FemaleTotalEmployersSelf employedUnpaid family HelpersEmployeesTotal1.233.329.735.81001.538.720.239.6100 0.113.1 6521.8 100 1.334.229.135.4100Source: Labour Force Survey 2010-11decreased from 65percent to 63.4 percent andmales from 20.2 percent to17.3 percent. Thedataindicates that unpaidfamily helpers have decreasedfrom 15.10 million in 2008-10 to 14.91 million in2010-11. In the rural population the number ofunpaidfamily helpers is muchlarger thantheurban areas. Thisindicates that there is apossibility that the services are not properlycountedin the rural areas.2009-10Male FemaleTotal2010-11Male1.64018.739.71000.113.666.3201001.439.99 27.77 36.01000 1.840.517.340.4100Female0.115.663.420.9100170

Population, Labour Force and EmploymentTable 12.13: Employment Status by Region(Million)2008-09 2009-10 2010-11Total Urban Rural Total Urban Rural Total Urban RuralEmployers 0.60 0.46 0.14 0.67 0.50 0.17 0.77 0.53 0.24Self employed 16.91 4.59 12.32 18.21 4.90 13.30 18.77 5.01 13.76Unpaid family Helpers 15.10 1.84 13.26 15.48 1.82 13.67 14.91 1.83 13.08Employees 18.18 8.36 9.82 18.85 8.73 10.12 19.39 8.62 10.77Total 50.79 15.25 35.54 53.21 15.95 37.26 53.84 15.99 37.85Source: Labour Force Survey 2010-11, Pakistan Bureau of StatisticsFormal and Informal SectorsThe informal sector covers a wide range of labourmarket activities and plays an important andsometimes controversial role. It provides jobs andreduces unemployment but in many cases jobs arelow paid. This sector employs 73.8 percent ofPakistan’s total labour force. The employmentratio in rural informal sector (76.5 percent) ishigher compared to that in the urban areas (71.2percent). Table 12.14 illustrates that the femaleemployment rate in the rural informal sector isshowing an increasing trend while in the urbaninformal sector; the employment rate has decreased(from 67.2 percent in 2008-09 to 63.1percent in2010-11). According to the Labour Force Survey(LFS) 2008-09, the male employment rate in therural informal sector stood at 76.2 percent whichremained constant in 2010-11. However, in theurban informal sector employment has increasedfrom 70.6 percent to 72.4 percent during thisperiod. The overall percentage of persons workingin the informal sector shows an increase in both therural (from 76.3 percent to 76.5 percent) and urbanareas (from 70.4 percent to 71.2 percent).The formal sector did not show any significantchanges with respect to employment level duringthe 2008-2011 period. The total employment inthis sector reduced marginally from 26.7percent to26.2 percent. However in urban areas there was asignificant reduction from 29.4 percent to 28.8percent during this period.Table 12.14: Formal and informal Sector-Distribution of non-Agriculture Workers (%)Sector 2008-09 2009-10 2010-11Total Male Female Total Male Female Total Male FemaleTotal 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 26.7 26.6 27.6 26.7 26.7 26.9 26.2 25.9 28.9- Informal 73.3 73.4 72.4 73.3 73.3 73.1 73.8 74.1 71.1Rural 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 23.8 24.0 22.2 23.7 23.8 22.3 23.5 23.8 21.0- Informal 76.2 76.0 77.8 76.3 76.2 77.7 76.5 76.2 79.0Urban 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 29.4 29.1 32.8 29.6 29.4 31.6 28.8 27.6 36.9- Informal 70.6 70.9 67.2 70.4 70.6 68.4 71.2 72.4 63.1Source: Labour Force Survey 2010-11 Pakistan Bureau of Statistics.UnemploymentUnemployment is the situation in which people,willing and able to work at the prevailing wagerate are unable to find jobs. In Pakistan the labourforce is classified to include all persons who areten years of age and above and during the periodare without work, currently available and seekingwork. On the basis of the existing population of180.71 million with a labour force participationrate of 32.83 percent, the total labour force isapproximately 57.24 million.171

Pakistan Economic Survey 2011-122Table 12.15: Unemployment rate by areaArea/sex Unemployed labour force (in million)TotalRural Urban2008-092009-102010-112.933.123.401.761.891.851.171.231.55Source: Pakistan Bureau of Statistics, Labour Force Survey 2010-111TotalUnemploymentrate (%)Rural Urban5.554.77.15.64.87.26.04.78.8The unemployment rate has increased from 5.6percent in2009-10 to6.0 percent in 2010-11. Inrural areas unemployment rate has decreased from4.8 percent in 2009-10 to 4.7 percent in 2010-11due to supportive polices of government. Oftenitis perceived that the unemployment rate of ruralareas is greater because in rural areas there isalower chance of employment compared to theurban areas where employment opportunities arerelatively better due togreater economic activity.Contrary to this perception, the situation seems tobe the opposite. As is evident fromthe data in theabove table, the unemployment ratein urban areashas increased from 7.2percent in 2009-10 to 8.8percent in2010-11. The apparentreason of thishard reality is that the industrial sector is facing anacute shortage of energy resources and thereforethere is a reductionin job opportunities. It is notonly affecting economic development but isalsohampering social life. The comparison amongprovinces shows that the unemployment rate inPunjabis high (as shown in Table 12.16) ascompared to otherprovinces. The number ofunemployed peoplee in Sindh has increased from0.44 million in 2008-09 to 0.70 million in 2010-11while in Khyber-Pakhtunkhwa(KPK) a fall inunemployment has been observed. However, inBaluchistannumber of unemployedpeopleincreased from 0.06 million in2008-09 to0.07millionin 2010-11.Fig-12.5: Unemployment Rates over theYearsTotalRuralUrban1098765420032004 2005 20062007 2008 20092010 2011Table-12.16: Unemployed – Pakistanand ProvincesProvince /AreaUnemployment2008-092009-10TotalMale FemaleTotal MaleFemale TotalPakistanRuralUrbanPunjabRural2. 931. 761. 171. 871. 141.871.060.811.210.701.060.700.360.660.443.121.891.231.941.161. .911. .120. .791. .180. .681.21 0.77 0.444 0.76 0.48 3.401.851.552.101.252010-11Male2.221.141.081.310.76MillionFemale1.180.710.470.790.49172

Table-12.16: Unemployed – Pakistan and ProvincesProvince /AreaPopulation, Labour Force and EmploymentMillionUnemployment2008-09 2009-10 2010-11Total Male Female Total Male Female Total Male FemaleUrban 0.73 0.51 0.22 0.78 0.50 0.28 0.85 0.55 0.30Sindh 0.44 0.28 0.16 0.57 0.35 0.22 0.70 0.54 0.16Rural 0.14 0.06 0.08 0.24 0.12 0.12 0.15 0.10 0.05Urban 0.30 0.22 0.08 0.33 0.23 0.10 0.55 0.44 0.11KPK 0.56 0.36 0.20 0.55 0.35 0.20 0.53 0.32 0.21Rural 0.44 0.29 0.15 0.45 0.29 0.16 0.41 0.25 0.16Urban 0.12 0.07 0.05 0.10 0.06 0.04 0.12 0.07 0.05Balochistan 0.06 0.02 0.04 0.06 0.03 0.03 0.07 0.05 0.02Rural 0.04 0.01 0.03 0.04 0.02 0.02 0.04 0.03 0.01Urban 0.02 0.01 0.01 0.02 0.01 0.01 0.03 0.02 0.01Source: Labour Force Survey 2010-11Employment Expansion policiesEmployment expansion policies are based onaccelerating the rate of growth of the economyalong with a special emphasis on the developmentof the relatively more labour intensive sectors. Thespecific policies are as follows:Micro Credit Facilities: The Khushali Bank wasestablished to provide loans of up to Rs.30, 000 perperson to unemployed people to set up their ownbusiness. Moreover, the SME Bank wasestablished to provide financial assistance andbusiness support to small and medium enterprises.President’s Rozgar Scheme by National Bank ofPakistan (NBP): The National Bank of Pakistanhas developed a full range of products under thePresident’s Rozgar Scheme with the brand name of“NBP KAROBAR”. Under this scheme, a loan upto size of Rs. 100,000 is given for a maximumperiod of five years with a grace period of threemonths for establishing the business.National Vocational and Technical EducationCommission: The National Vocational andTechnical Education Commission (NAVTEC) wasestablished with a view to overcoming skill gaps,and the non‐ availability and lack ofstandardization of proper curricula. NAVTECinitiated two major training programs(President’s Funnee Maharat Program and thePrime Minister’s Hunarmand PakistanProgram) in the country under the President andthe Prime Minister’s directives. These programsremained focused on young men and womenthroughout the country to provide them qualitytechnical training. A stipend of Rs 2,000 per monthis paid to the participantsSkill Development Councils: Five SkillDevelopment Councils (SDCs) one each atIslamabad, Karachi, Lahore, Peshawar and Quettahas been established. These Councils are fulfillingthe diversified training needs of the industrial andcommercial sectors. The SDCs assess the trainingneeds of their geographical areas; prioritize themon the basis of market demand and facilitate thetraining of workers through the public and privatesector.Overseas Employment: Overseas employmentalso provides an opportunity to developingcountries to reduce poverty and to improve incomedistribution through growth in employmentlinkages. In 2011 the total number of registeredPakistani workers in different countries was456,893. The Bureau Emigration and overseasemployment is making concerted efforts to boostoverseas employment.Information Technology: The development ofthe IT and telecom sector has created considerableemployment opportunities, both directly orindirectly, for educated unemployed in a widerange of areas like call centres, telecomengineering, telecom sales, customer services,finance and accounting etc. This is one of thefastest growing sectors of the economy.173

Pakistan Economic Survey 2011-12National Internship Program: The first phase ofthe National Internship Program (NIP) has beencompleted. Under the first phase, 25,826 applicantswere offered internship at the Federal, Provincialand District government levels. The second phaseof the NIP was launched in February 2008. A totalof 71,915 applications were received. So far21,138 applications have been verified by HECand NADRA and are being placed in ministries,divisions, departments and provincial governmentsand at district level.Investing in Increasing Water Resources:Agriculture is the largest sector of Pakistan’seconomy and provides employment to nearly 45percent of the country’s work force. More thantwo‐ thirds of the county’s population lives in therural areas and depends directly or indirectly on theagriculture sector for their livelihood. GDP growthoriginating in agriculture is more effective inraising the income of the poor and increasingoverall employment than other sectors of theeconomy. The major constraint in Pakistan’sagriculture has been the lack of availability ofwater resources. The government is making aheavy investment to develop water resourceswhich will not only be helpful in increasing wateravailability and electricity but will also expand theemployment opportunities in the country.Employee Projection Policies: Efforts are beingmade to establish an efficient, equitable and rightsbasedlabour market that provides mechanisms toallow productivity growth in the economy andresult in real wage increases. The Zakat fundprovides a monthly subsistence allowance and arehabilitation grant is given to all the needyMuslims. The Bait-ul-Mall Fund has differentprojects such as Individual Financial Assistance,Free Skill Development and the Food SupportProgramme for helping the needy people. ThePublic Sector Benevolent Fund and GroupInsurance provide benefits to governmentemployees especially in the form of educationscholarships to their children and other financialaid at the time of emergency.Export of ManpowerThe government of Pakistan is making sincereefforts to boost overseas employment which willnot only reduce the unemployment burden in thecountry but will also increase remittances andthereby help to improve the economy of Pakistan.In this regard, MoUs have been signed with severallabour importing countries like Malaysia, Kuwait,and Qatar. The number of emigrants was 0.43million in 2008 which increased to 0.46 million in2011, as shown in Table 12.18Table 12.17: Number of Pakistani workers registered for overseas employment through Bureau ofEmigration & Overseas Employment during the period 2008-2011S.# Countries 2008 2009 2010 20111 UAE 221765 140889 113312 156353Kuwait 6250 1542 153 1733 Malaysia 1756 2435 3287 20924 Oman 37441 34089 37878 535255 Qatar 10171 4061 3039 51216 Saudi Arabia 138283 201816 189888 2222477 UK 756 556 430 308Source: Bureau of Emigration and Overseas EmploymentSaudi Arabia being a Muslim state is attractive formillions of Pakistani workers seeking jobs abroad.Due to this fact Saudi Arabia has become thelargest market for Pakistani workers in the worldbesides the Gulf States such as United ArabEmirate (UAE), Oman and Kuwait. The number ofemigrants in Saudi Arabia has increased from 0.14million in 2008 to 0.22 million in 2011. PresentlyPakistan is exporting skilled, semi-skilled andunskilled labour. Table 12.18 presents labourexport statistics during the 2008-2011 period.174

Population, Labour Force and EmploymentTable 12.18: Workers Registered For Overseas EmploymentYear Highly Qualified Highly Skilled Skilled Semi-Skilled Un-Skilled Total2008 9713 33173 177791 4209 205428 4303142009 4954 3260 182657 2465 210192 4035282010 7081 31650 165726 5181 153266 3629042011 6974 3018 171672 73247 201982 456893Total 28722 71101 697846 85102 770868 1653639Source: Bureau of Emigration and Overseas EmploymentConclusionHistorically, high population growth rate has beena major factor in Pakistan’s overall economicdevelopment. The government is committed toallocating funds and developing innovative policymeasures to address the issue of managingpopulation growth and the labour force.Improvements in health facilities and promotion ofpopulation welfare activities through the Ministryof Population Welfare have contributed to asignificant decline in the crude birth and fertilityrates, thereby leading to a reduction in the averagegrowth rate of the population. This has beenaccompanied by an increased labor participationrate. Despite these improvements Pakistan is stilllagging behind neighboring countries. Therefore, itis imperative to put further efforts for developmentof better human resources.175

Chapter 13Transport and CommunicationsIntroductionThe technological advances in globalcommunications and transportation havesignificantly catalysed the emergence of the globaleconomy leading to integration of fragmentednational markets of goods and services into asingle global market. With these rapiddevelopments, regions with adequate means ofcommunications and transportation have growneconomically and those lacking in these fields havelagged behind. The availability of an efficienttransport and communications network is a prerequisitefor a meaningful economic cooperationamongst nations, particularly in the areas of tradeand tourism for attracting foreign investment andrealizing the potential gains from an outwardoriented trade strategy.Besides human capital (skill and education) astrong efficient and affordable means of transportand communications of the country contributes tothe national economic growth by loweringdomestic production cost, integrating markets,promoting economic opportunities and establishinglinks among the people. The transport andcommunications sector generates a large number ofemployment opportunities, and acts as a significanttool in the fight against poverty. The sector is alsoa major contributor to government’s revenuethrough taxes and duties on its production andimports, fees on ownership and operation ofvehicles and licensing of modern communicationsfacilities.Sustainable economic development is dependenton a robust and low cost transport system.Enhanced export competitiveness is alsocontingent upon the efficient performance of thesector. The government is committed toimplementing a comprehensive and modernizingtransport and logistic sector through continuousreforms in all of its sub sectors. The transportsystem consists broadly of roads, railways, airtransport and ports shipping services.13.1: Road TransportRoads are the most important segment ofPakistan’s transport sector. Roads carry over 96percent of inland freight and 92 percent ofpassenger traffic and are undoubtedly the backboneof the economy. The current road network is about260,000 kms catering to eleven million vehicles ofall types. The Province wise distribution of roads isgiven in the following Table:Table 13.1: Estimated Length of Roads in Provinces (kms)Years Category Punjab Sindh KPK BalochistanGB &AJKTOTAL2007-08 Total 104115 80863 42369 29451 1552 258350Low Type 33864 26301 13781 9579 505 84030High Type 70251 54562 28588 19872 1047 1743202008-09 Total 104114 80863 42369 29452 1552 258350Low Type 32949 25591 13409 9321 491 81761High Type 71165 55272 28960 20131 1061 1765892009-10 Total 105085 81618 42765 29727 1565 260760Low Type 32179 24993 13095 9103 480 79850177

Pakistan Economic Survey 2011-12Table 13.1: Estimated Length of Roads in Provinces (kms)Years Category Punjab Sindh KPK BalochistanGB &AJKTOTALHigh Type 72906 56625 29670 20624 1085 1809102010-11 Total 105253 80625 42550 29500 1535 259463Low Type 32147 24000 13000 9000 450 78597High Type 73106 56625 29550 20500 1085 1808662011-12 Total 106455 80960 42975 29625 1580 261595Low Type 32590 24335 13140 9125 465 79655High Type 73865 56625 29835 20500 1115 181940Source: National Transport Research Centre (NTRC)13.1-a: National Highway AuthorityThe NHA road network is around 12,000 kms,which is merely 4.6 percent of the overall roadnetwork but it takes 80 percent of Pakistan’scommercial traffic. Despite overall budgetaryconstraints during the fiscal year, and the effects ofheavy floods in 2010 and law and order challengesNHA performed well. This performance in terms,of NHA projects is summarized below:a. Completed ProjectsNHA has completed 12 projects of flyovers,bridges, interchanges and road up gradation duringthe last one year at a cost of Rs 19.6 billion.b. Ongoing ProjectsAt present, 46 development projects on roadscovering 2,985 kms are ongoing at a cost Rs 245billion in different sections/packages. Theseprojects include construction of roads, riverbridges, tunnels, flyovers, interchanges. Provincewise break up of these projects is given below:Table 13.2: Province wise break up of NHA ProjectsProvince Projects Road length (Km) Cost (Rs. Billion)1 Punjab 14 315 48.22 Sindh 13 714 59.53 KPK, GB & AJK 12 738 73.14 Balochistan 7 1218 64.5Total 46 2985 245.3Source: NHAc. New Development ProjectsDuring the financial year, NHA has launched/awarded 16 new development projects covering alength of above 500 kms including construction ofa number of bridges, flyovers and interchangescosting Rs. 70,951 million. NHA is simultaneouslyconstructing 12 bridges across the rivers. Theseare; on river Chenab 4, on rivers Sutlej 2, on riverSwan 1 and on river Indus 5.Box–12011 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 ofPunjab and north-eastern Balochistan in August 2011. Floods caused severe damage to infrastructure in the affectedareas, coupled with the damages of 2010 floods that were still in the recovery phase, the losses in transport andcommunication sector are estimated at Rs. 26,468 million.Transport and CommunicationsThe damages in the transport and communications sector involve various categories of roads, railways, bridges, and178

Transport and Communicationstelecommunications infrastructure. Preliminary estimates indicate that approximately 8,385 km of the road networkand 190 km of railway lines were damaged by the flood including bridges and allied structures. Most of the damagesare on provincial highways and district roads in Sindh. Out of the estimated total damage and losses, the roadsubsector sustained the highest damage and losses of $299 million, followed by the railway subsector lossesamounting to $3 million. The floods have impaired the road conditions which will continue to deteriorate faster ifrepairs, rehabilitation and restoration works remain deferred for a longer period. The indirect losses due to damagein 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, powersystem and supporting civil works amounting to $1.9 million.Recovery and Reconstruction NeedsThe reconstruction needs of the sector have been estimated at $ 388 million, including $ 5 million for railways andexcluding $ 2 million required in the telecommunication subsector as these were private assets with insurancecoverage. Most of the reconstruction needs are in the road subsector amounting $ 383 million. The recovery strategyvaries 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 servicesrestored. For roads, diversion routes were created and services restored. Emergency repairs on railway lines havebeen undertaken. As a short term measure, the National Highways Authority (NHA) has tasked the regionalmaintenance units to undertake the emergent works through pre-qualified contractors and using proceeds of theannual road maintenance funds. All reconstruction costs for railways and 10 percent of the road reconstruction costsare included in the short-term recovery phase for works to be completed within 12 months. The remaining roadreconstruction will require careful prioritization to ensure efficient utilization of available resources since most ofthe restoration works are not complex and thinly spread across wider geographic area.13.2 Pakistan RailwaysAn effective railway system of the countryfacilitates commerce and trade, reducestransportation cost and promotes ruraldevelopment and national integration. PakistanRailways has entered into the Public-PrivatePartnership business in; Passenger Trains,Rehabilitation of Locomotives, ManagementOperation of Terminal Facilities including DryPorts. The Ministry of Railways has also adopted a“Track Access Policy” for private sectorparticipation to operate freight and passenger trainson Pakistan Railways infrastructure. The Ministryof Railways is also in process of allowing privatesector to operate on Pakistan Railways networkunder Public Private Partnership (PPP) framework.The Ministry of Railways has also created a “RealEstate Development and Marketing Company” assubsidiary of Ministry of Railways. The companywill manage to commercialize the surplus lands ofPakistan Railways in order to overcome itsfinancial challenges. In addition to the above, sixfactories including Locomotive Factory Risalpur,Carriage Factory Islamabad, and four ConcreteSleeper Factories in Kohat, Khanewal, Sukkur andKotri, are being corporatized for eventualprivatization subject to approval of thegovernment.Restructuring of Pakistan RailwaysThe Cabinet Committee of Restructuring (CCOR)has approved a restructuring framework forPakistan Railways. New Board of Directors of PRhas been constituted by including academia,management professionals, rail experts andexecutive functionaries. The process forrecruitment of a professional Chief ExecutiveOfficer and other technocrats is being undertaken.Repair of locomotives has been given a priority forrestoration of Railway services and freightoperations are also being prioritized for revenuegeneration. Financial viability is being ensuredthrough improving revenue and support by GOP. Ithas been decided that adjustment of fares andfreight pricing will be determined according tomarket conditions and cost of doing business. Anasset management company is being establishedfor optimum utilization of PR’s assets. PrivateSector involvement is the focus moving forward,179

Pakistan Economic Survey 2011-12Chamber of Commerce and Industries, Lahore hasbeen engaged for their freight transportation fromKarachi to Lahore. Commercial management ofrail operations and outsourcing of noncorefunctions is being initiated with an aim to improveefficiency of rail operations.Table 13.3: Railways Passenger Traffic and FreightS. No. Subject 2009-2010 2010-2011 July-Feb 20121. Number of Passenger carried74.9 64.9 25.0(Million)2. Passenger Traffic KM (Rs. Million) 23522.5 20618.8 16810.23. Freight carried Tones (Rs. Million) 5.8 2.6 0.94. Freight Tones Km (Rs. Million) 4846.9 1757.3 279.35. Route Km 7791.0 7791.0 7791.06. Freight Wagons 16499.0 18464.0 17698.07. Gross Earning (Rs. Million) 21,886.9 18,739.9 9359.0Source: Ministry of RailwaysAchievements during the Fiscal YearTrack: During the last financial year, 16 kms oftrack was rehabilitated on the Pakistan Railwaysnetwork besides doubling of more than 15 kms oftrack.Service Buildings: Construction of D Classrailway station at new Multan city was carried outat a cost of Rs. 39.8 million which has facilitatedthe local population to a large extent. Renovationof Khudian Khas, Usmanwala, Raiwind andKanganpur railway stations was carried out at acost of Rs. 24.0 million to improve facilities for thepassengers.Signaling: Signaling system of four railwaystations damaged during the riots of 2007 wasrehabilitated during the period.Rolling Stock: During February of the currentfiscal year, 52 new design passenger coaches wereimported from China at a cost of Rs. 4.1 billion.Remaining 150 passenger coaches will bemanufactured at Pakistan Railway CarriageFactory Islamabad by June 30, 2013. In addition,22 passenger coaches have been rehabilitated at thePakistan Railway Carriage Factory Islamabadduring last year.Establishment of new Dry Port: A new dry portwas set up at Prem Nagar near Raiwind industrialarea, Lahore through Public Private Partnership ata cost of Rs. 494.0 million.Table 13.4: Earning of Pakistan Railways(Rs. Million)Fiscal Year Earning % Change2007-08 19,973 -2008-09 23,160 16.02009-10 21,886 -5.52010-11 18,612 -15.02011-129359.0 -(July-Feb)Source: Ministry of Railways13.3 Pakistan International Airlines (PIA)A restructuring plan of PIA has been finalizedwhich addresses corporate governance, humanresource rationalization, financial and operationalrestructuring, engineering improvement,procurement and logistics, marketing and fleet,airport services and dispatch reliability amongothers. Increased fuel cost has been a majordownside risk to the financial strength of PIA; and,effective measures have been put in place tomitigate the effect. Various other costminimization and revenue enhancement measureshave been put in place to reduce the revenueexpendituregap in the medium term. Fleet renewaland addition is being planned. Routerationalization, code sharing and alliances arebeing pursued for moving to a new businessmodel. Dispatch reliability will be improvedthrough various initiatives including expansion ofreliability system, use of reliability tools andstandardized data exchange on maintenance.Strategic Business Units (SBUs) are beingestablished for outsourcing of non-core functionsof PIA. Rationalization of employment in PIA isbeing addressed through attrition and no new180

Transport and Communicationshiring is being undertaken except for operationalstaff. A financial restructuring plan has beenfinalized which includes equity injection, rolloverof loan and government guaranteed loans amongothers. A holistic view needs to be developed forrevitalization of PIA entailing industry dynamics,aviation policy and strategic needs. This is thefocus of the government.Pakistan International Airlines Corporation earnedincreased revenue amounting to Rs. 116.02 billionin year 2011 as compared to 107 billion last year.Passenger revenue increased upto Rs. 7.76 million.New destinations including Zahedan and Madinaalso added in increasing the revenue.A purchase agreement of five Boeings 777 hasbeen signed. Chairman PIAC inaugurated the stateof the art PIA Boeing-777 Flight Simulatorinstalled at the PIA Training Centre, Karachi onOctober 30, 2011. The acquisition of this full flightsimulator has resulted in improved trainingstandards, better coordinated crew scheduling andplanning.Following new destinations have been introducedduring 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 theyear 2011.Peshawar - Kuala LumpurSialkot – Riyadh & Sialkot - Dammam.Table 13.5: PIA PerformanceDescription 2011*Revenue Hours Flown 141,727Route KMS 460,719Revenue KMS Flown (000) 84,898Revenue Passenger carried (000) 5,953Revenue Passenger Kms (mil) 15,664Available Seats Kms (mil) 21,725Passenger Load Factor % 72.10Revenue Tonne Kms (mil) 1,678Available Tonne Kms (mil) 2,972Revenue Load Factor (%) 56.45Operating Revenue (mil) 117,356Operating Expense (mil) 132,970PIA Fleet (No. of Planes) 39Passenger Revenue (Rs. bn) 104.41Passenger Yield (2010: 6.12) 6.67Source: PIA* : PIA Data is on calendar year basis13.4 Ports and Shipping13.4 (a) Karachi Port Trust (KPT)The Karachi Port Trust (KPT) came into beingunder the 1886 Act. With a 11.5 kilometers longapproach channel, a depth of 12 meters and aturning basin of 600 meters, the Karachi Portprovides safe navigation for vessels up to 75,000metric tones deadweight. The KPT consists of twowharves; the East and West Wharf. The East wharfhas 17 multipurpose berths and the West Wharfhas 13 berths. Each of the Wharves has twodedicated container terminals and oil piers tohandle liquid cargo. The KPT handled 27.8 milliontones of cargo during the first 9 months of thecurrent fiscal year. The data on cargo handledduring the last five years is given in the followingtable:Table 13.6: Cargo Handled at Karachi Port(000 M/Tones)Period Imports Exports Total2007-08 25,517 11,676 37,1932008-09 25,367 13,365 38,7322009-10 27,892 13,528 41,4202010-11 28,589 12,843 41,4322011-1219,196 8,586 27,782(Jul-Mar)Source: Karachi Port Trust181

Pakistan Economic Survey 2011-1213.4 (b) Pakistan National ShippingCorporationShipping is a highly competitive market drivenindustry; its profitability is dependent on optimumutilization of vessels, strict cost controls andmaximization in cargo lifting. The economicdownturn has affected every sector of the maritimeindustry and the PNSC was no exception. Despitethis PNSC remained profitable during the periodunder review. The Commercial performance of thePNSC translated into financial gains. The PNSCremained profitable during the first nine months offiscal year 2011-12.The consolidated revenue of the PNSC Groupduring July-March 2011-12 were Rs. 6640 million.One dry Combi vessel was sold for demolition as ithad completed its useful commercial life. TheCommercial and Financial performance of thePNSC (un-audited) from July-March 2011-12 isgiven in the following tables.Table 13.7: Commercial Performance(In Metric Tons)Cargo Lifted Jul-Mar 2011-12Liquid Cargo 5,804,294Dry Cargo 205,379Total (Dry + Liquid) 6,009,673Source: PNSCTable 13.8: Financial Performance (Rs. in 000)Jul-Mar 2011-12Revenue 6,639,971Fleet Expenses 5,173,907Gross Profit 1,466,064Other Income 327,412Expenses 1,541,464Profit before tax 252,012Source: PNSCTable 13.9: PNSC-Fleet Deadweight Tonnage(In MT)Year No. of ships Total DWT2007 14 536,8212008 14 536,8212009 11 477,2382010 10 633,2732011 11 646,6662012 10 628,409Source: PNSCThe Corporation intends to acquire four vessels oncommercial loan / joint venture-basis. Acquisitionof two vessels is in process, while two more willbe acquired in next financial year.13.4 (c) Gwadar PortThe Gwadar Port was inaugurated on the 20 th ofMarch, 2007 and started commercial operationsfrom March 2008. The government has decided toimport all bulk cargo comprising of Urea, Wheatand Coal through Gwadar Port. The total cargohandled at the port up till now is 4.1 million tones.Gwadar Port has earned total revenue since its startof operation amounting to Rs. 53.4 million.13.4 (d) Port Qasim AuthorityPort Qasim Authority was established in 1973 as asecond deep sea port of Pakistan. Port Qasimcaters around 40 percent shipping requirements ofthe country. PQA handled a cargo volume of 19.7million tones during July-March 2011-12. Thevolume of import cargo during July-March 2011-12 stood at 14.7 million tones, while the exportshandled during the same period was 4.9 milliontones.Table 13.10: Cargo Handled at Gwadar Port(000 Tones)Year Imports Exports Total2008 231.6 - 231.62009 1218.1 - 1218.12010 705.9 - 705.92011 462.5 - 462.52012 541.2 - 541.2Source: Gwadar Port AuthorityTable- 13.11: Cargo Handled at Port Qasim(00 Tones)Period Import Export Total2007-08 21,502 4,922 26,4242008-09 19,445 5,584 25,0302009-10 19,226 6,380 25,6262010-11 19.511 6,657 26,1682011-12 14,722 4,942 19,664(Jul-Mar)Source: Port Qasim Authority182

Transport and CommunicationsBox Item–2Draft National Transport Policy (NTP)To address the Transport Sector issues and implement government’s policies and strategies for sustainable growth,Ministry of Communications has prepared a draft National Transport Policy in consultation with all stakeholders. Itcovers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports & Shipping and (iv) Aviation, NTP alsoincludes the National Transport Corridor Improvement Program (NTCIP) to make it more productive andenvironment friendly. The broad objective of the draft National Transport Policy are:To Provide safe, reliable, effective, efficient, affordable, accessible, sustainable and fullyintegrated transport system that will best meet the needs of freight & passenger access andmobility requirements and will be aimed at improving levels of service and cost effectiveness in afashion that supports governments goal of increasing public welfare through economic growth,and social improvement, poverty reduction and infrastructure and development while beingenvironmentally 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 thewhole transport sector including ports, roads, railway, aviation etc. and a frame work to develop and improve theNorth South corridor has been formulated. The framework takes a holistic and integrated approach to reduce the costof doing business in Pakistan by improving the trade and transport logistics chain and bringing it up to keystandards. 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 andindustrial 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 ofinternational consultants. Study on Financial Restructuring of Pakistan Railways is ongoing while consultancy firm is being hired forpreparation 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 CommunicationsThe 21 st century can safely be named the ITCentury as no institution can run without the helpof IT in the future. The advancement of IT hasbrought enormous benefits to individuals,businesses and organization. The world hasdeveloped into an information economy and theapplication of new technologies has become thecenterpiece of activities.Rapid development of Information andCommunication Technology (ICT) infrastructureand its adoption is now a prerequisite for makingnational progress in the economy and in daily lifeas well. Modernization and development oftelecom infrastructure has been correlated withincrease in economic activities. The InformationTechnology (IT) revolution is probably the mostimportant force shaping communities today.183

Pakistan Economic Survey 2011-12213.5-a Telecom SectorAt the endof fiscal year 2011-12, teledensity in thecountry stood at 68.3 percent showing 6.7 percentgrowth ascompared tothe previousyear. Since themobile sector contributes over 95 percent to thetotal teledensity of the country, an increase inmobile penetration from60.4 percent in 2010-111 to64.9 percent in 2011-12 resulted in improvementof 4.3 percentage points in total teledensity. FixedLocal Loop teledensityhas been declining over theyears due to mobile substitution andtoday it standsat 1.93 percent in 2011-12 as compared to 2.1percent last year showing a decrease of 0. .17percent. Wireless Local Loop subscribers havebeen increasing but the proportionate rise inpopulationkeeps the teledensity ofWLL servicesat 1.6 percent over the last three consecutive years.PercentageFig-13.1: Teledensity80.0070.0060.0050.0040.0030.0020.0010.000.00(71.66)Local LoopCellular Mobile(64.10)(68.3)Wireless Local Loop(61.99)1.81(58.80)1.932.172.12. 70(45.02)3.04(26.23)54.70 58.22 60.464.7 68.203.3740.9022.200.66 1.08 1.40 1.60 1.6 1.6 1.652005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Mar-12MillionFig-13.2: Cellular Subscribers120.0100.080.060.040.020.0Source: PTACellular Market ShareThe mobile market over the years has becomemore stable due tointense competition. Marketshares are now more balancedamong thefiveoperators with almost insignificant changesoverthe year. At the endof March 2012, Mobilink hada market share of30.25 percent followed byTelenor with 24.80 percent and Ufone with 19.54percent.Fig-13.3: Cellular Subscribers Market ShareMarch 12Warid12.17%-33.9Zong13.24%63.288.094.3108.8999.2118.32Mobilink30.25%Source: PTACellular Mobile SectorPakistan’ss cellular sector faced a tough economicand business environment during the last fiscalyear due to taxes, power crisis, security situation,extensive subscriber and naturalcalamities.Despite all these factors, the cellular industrymanaged to double its growth rate from theprevious fiscal year. According to the WorldEconomiccForum’sGlobal InformationTechnology Report 2010-11, Pakistan ranks no. 1in the Internet and Telephony Competition. Thetotal of mobile subscribers reached 118.3 millionatthe end ofMarch 2012.Telenor24.80%Ufone19.54%Source: PTANetwork CoverageeOne of the key indicators of a successful andadvanced cellular market is the geographicalcoverage of land area by thecellular mobileoperators in the country. Pakistan has a uniquetopography ranging from steep mountains to ragingdeserts. Despite such difficult terrain, more than 92percentof the landarea is under the umbrella ofcellularmobile services – a laudable effort by the184

Transport andCommunicationsmobile companies. At the end of March 2012,there are 33,027 cell sites across Pakistan.Fig-13.4: Total Cell Sites33,02735,00031,30330,12628,15930,00025,00021,51820,00013,72515,00010,0005,00002006-07 2007-08 2008-09 2009-10 2010-11 Mar-12Source: PTABasic ServicesBasic Services comprising of Local Loop (fixedand wireless) and Long Distance Internationalservices form the basis of telecommunicationinfrastructure of Pakistan. The technologicalrevolution, mainly wireless services, had a majorimpact on Fixed Local Loop business sincemobility, coverage, quality of service and lowmaintenance requirement shifted consumer focusfrom fixed to wireless services. The figure belowshows thedeclining trend in local loop subscribers,especiallyFLL services over the years. By the endof Dec, 2011, Local Loop (FLL & WLL)subscribers reached 5. 93 million all over Pakistan.Out of total 5.93 million subscribers 3.10 millionbelong to FLL and 2.83million to WLL.Fig-13.5: Local Loop Subscribers WLL FLLMillion7.00 (5.60)(6. 14) (6.08)(5.72)(5.93)6.001.165.002.622 2.662. .70 2.834.003.004.442.003.53 3.42 3. .02 3.101.000.002007-08 2008-09 2009-10 2010-11 Dec - 11Source: PTALong Distance InternationalLong Distance and International (LDI) is anotherpillar of Pakistan telecom sector, responsible forcarrying international traffic to and from Pakistan.LDI licensees are responsible for receivinginternational trafficfrom other countriesandhanding these overto their respective LL/mobileoperator for nation-wide long distance andinternational telephony service. PTA awarded 14licenses for LongDistance and Internationalservices and currently 13 of them are operational.PTCL is the largest LDI operator in the country asit also owns the international backhaul of Pakistan.The other major players include Link Direct,Wateen, WorldCalll and Telecard. Internationaltraffic in Pakistan isincreasing every year owing tolower tariffs and availability of internationalconnectivity throughh fiber optic and satellite links.During2011 total international traffic (Incoming +Outgoing) stood at 5,126 millionminutes.Fig-13.6: LDI International Incoming andOutgoing Traffic6000(5,126)International incoming TrafficInternational Outgoing Traffic (4,323)5000(3,751)Million Minutes4000300020001000800 999 1,123 1,231 1,1920Source:PTA(2,871)(2,409)3,9343,0922,6281,8721,609Oct-Dec 10 Jan-Mar11 Apr-Jun 11 Jul-Sep 11 Oct - Dec 11BroadbandThe growth of Broadband subscribers has beenmore than 150 percent on average for the last fouryears. Such an astounding growth rate highlightsthe tremendous potential in Pakistan’s broadbandmarket. Broadbandd subscribers have crossed theone million mark in 2011 with the highest netadditions in a year. According tothe latest marketdata, Broadband subscribers reached 1.9 million atthe endof February2012 with the penetration 1.1percent.185

Pakistan Economic Survey 2011-1222,200,0002,000,0001,800,0001,600,0001,400,0001,200,0001,000,000800,000600,000400,000200,000-SubscribersFig-13. 7: Broadbandd SubscribePenetrationnSource: PTATelecom EconomyTelecom Contributionn to ExchequerThe Telecom sector is an important contributordepositingover Rs. 100 billion onaverage eachyear to the NationalExchequer. The Telecomsector made its highest ever contribution to thenational exchequer in2011 as almost Rs. 117billion were depositedd by the telecom companiesshowing 7 percent growth during 2011. During thefirst two quarters of 2012, Rs. 58.1 billion havebeen deposited to the national exchequer.Fig-13.8: Telecom Contribution to ExchequerRs. billion120.0100.080.060.040.020.00.045,1530.032006-07Others37.09.717.636.3Source: PTA(100.1)SubscribersPenetration2007-0837.010.919.244.62006-07 2007-080.25900,648 1,491 1,4910.11168,082413,8092008-09PTA Deposits(111.6)(112.1) (109.1)39.39.214.2Note: PTA's contributions comprise of all its receipts including Initial andAnnual License Fee, Annual Spectrum Administrative Fee, USF and R&D FundContributions, Numbering Charges, License Application Fee, etc.Others include custom duties, WHTax and other taxes.0.552009-1044.913.66.649.4 44.02008-09 2009-100. .882010-11 111.101,912,152Feb-12Activation Tax(117.0)45.212.07.252.62010-11 Jul - Dec111.201.0000.8000.6000.4000.200-GST(58.1)27.92.23.924.1Telecom RevenueRevenue of the telecom sector reached an alll timehigh during the 2012, standing at Rs. 363 billion.Telecom revenue showed an increase of5.4percentas compared to the previous year. Inlinewith the teledensity, the cellular sector also has thehighestshare in telecom revenue. During 2011,cellularrevenue increased by 11 percent to reachRs. 262,761 millionas compared to Rs. 236,047millionin the previous year. The rise in totaltelecomrevenue is mainly attributed totheincrease in revenuee of mobile services only sincethe rest of the services except WLL have reporteddecrease in their total revenue. During the first twoquarters of 2012, Rs. 197,686 million worth ofrevenue has been generated by the telecom sector.Fig-13.9: TelecomRevenue (Rs. Million)400,0000350,0000300,0000Rs. Million250,0000200,0000150,0000100,0000344,212 362,935333,809278,550235, 613194,562197,68650,0000-2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Jul-Dec2012Source: PTATelecom InvestmentAdvancement in technology andnew innovationsrequiree a continued investment stream into thetelecomsector. Although companies have investedover US$ 12 billion in buildingof infrastructureand other projects in the last sixyears, there is nodenying the fact that there are untouched lands andgrey areas that need newor improvedinfrastructure. Mostof the telecom companieshaveestablished their infrastructureand expanded toevery nook and corner of the country. However,due to the terrain/security situation, companies arereluctant to invest further. PTArecognizingg thisfact has worked out with both operatorsandUniversalServicee Fund (USF)to makeinvestments in areas where there is no telecomservice. In 2011, the telecom sector investedUS$495.8 million; with the cellular mobile sector being186

Transport and Communicationsthe major contributor. In addition USF invested Rs.3.5 billion during the 2011.Foreign Direct Investment by the telecomcompanies is more than 30 percent of the total FDIin the country during the last six years. As in theinvestment scenario explained above, telecomcompanies reduced FDI because they have alreadylaid down the required infrastructure. In 2011,telecom sector attracted over US$ 79 million FDIin the country which is about 5 percent of the totalFDI in Pakistan in 2011.Analysis of investment and FDI clearly reveals thatthe telecom sector of Pakistan needs an influx ofnew investment in the near future to boost thesefigures. The auction of 3G licenses is expected,that will bring more FDI into the country. Animproved economic condition of the country willfurther encourage investors to bring capital intoPakistan.US$ MillionFig-13.10: Foreign Direct Investment6,0005,0004,0003,0002,0001,0000Source: PTA35211,905 1,82451401,43954108153720FDI in TelecomTotal FDI37421997915742005-06 2006-07 2007-08 2008-09 2009-10 2010-11Table 13.12: Telecom InvestmentUS$ (Million)2005-06 2006-07 2007-08 2008-09 2009-10 2010-11Cellular 1,420.9 2,584.5 2,337.7 1,229.75 908.8 358.6LDI 50.5 602.8 403.9 276.75 183.1 108.8LL 0.3 40.6 342.1 57.37 22.5 18.2WLL 259.4 747.0 52.8 82.11 23.0 10.2Total 1,731.1 3,974.8 3,136.4 1,645.9 1,137.5 495.8Source: PTARegulatory Intervention by PTA• Spectrum Auction for 3G & DefunctInstaphone LicenseThe Government of Pakistan announced spectrumauction for 3G and Instaphone license on 24 thNovember 2011. The Ministry of InformationTechnology issued a policy directive to PTA withthe objective of redefining the policy frameworkand setting guiding principles for the auction of 3Gfrequency leading to introduction of relevantservices. It was announced by the Federalgovernment that the auction would be transparentand competitive; the allocation will be neutral; and,usable for any available or upcoming technology.Similarly the auction of three blocks of 10 Mhzeach, out of currently available 3G spectrum (1.9GHz/2.1Ghz band), shall be announced by PTA.The license of defunct Instaphone along withallocated frequency will also be auctioned.• WLL Spectrum Auction in 1.9 GHz and 3.5GHz Frequency BandDuring the de-regulation of the telecom sector in2004-05, significant portion of the frequencyspectrum in 1.9 GHz and 3.5 GHz bands wasauctioned for WLL licensees. However, withunprecedented growth of wireless broadbandservices and introduction of new players in themarket, it became imperative for the government toallocate more spectrum resources to WLLoperators. In this regard, PTA has been entrustedwith the task of carrying out the auction of theWLL spectrum as per guidelines provided in thePolicy Directive issued by Ministry of IT on 16 thDecember 2011 for spectrum auction of availablefrequency in 1.9 GHz and 3.5 GHz. TheInformation Memorandum for WLL auction isavailable on the PTA website. The base price for3.5 GHz band is set at USD 28.2 million (coveringall telecom regions) and the base price for 1.9 GHz187

Pakistan Economic Survey 2011-12band is set at USD 88.75 million (covering alltelecom regions).• Mobile BankingIntroduction of efficient mobile banking services inthe country can utilize the strengths of mobilenetworks to provide financial services to the largeunbanked (rural, poor) population as well asincrease the overall efficiency of the bankingsector in Pakistan. The State Bank of Pakistanintroduced the Branchless Banking Regulations inMarch 2008. Subsequently, the Ministry of ITissued the Policy Directive (May 2008) to supportthe technical implementation of mobile banking inthe country. The government under the PolicyDirective states that a relevant telecom sectorpolicy framework is required to complement SBPBranchless Banking Regulations. Forimplementation of this Policy Directive, PTAdrafted the Third Party Service Providers(Branchless Banking) Regulations 2011.In order to provide an enabling regulatoryenvironment and develop cooperation for asimplified mobile banking framework that canallow license holders to take on branchless bankingactivity and harness the full potential of suchservices, the Pakistan TelecommunicationAuthority and the State Bank of Pakistan (SBP)signed a Memorandum of Understanding (MoU)on 11 th January, 2012. With this MoU, both theinstitutions have shown their interest andcommitment in stimulating the mobile bankingservices in the country. The SBP and PTA wouldact as facilitators for third party service providersfor mobile banking in Pakistan.• Cellular Mobile Network Quality ofServices Regulations, 2011To ensure that mobile operators maintain quality ofservice the PTA has prepared the Cellular MobileNetwork Quality of Services (QoS) Regulations,2011. These regulations apply to all cellular mobileoperators and identify the minimum quality ofservice standards and associated measurement,reporting and record keeping tasks (except packetswitched or GPRS/EDGE services). TheRegulations have been gazette notified.• GPRS/EDGE Service Quality of ServiceRegulations, 2010In order to maintain Mobile cellular Quality ofService, Pakistan Telecom Authority preparedGPRS/EDGE Key Performance Indicators (KPIs)following the international standards andconsulting the industry. Further these KPI’s havebeen incorporated in the regulations. Theseregulations are applicable to all cellular mobilecommunication service licensees for the purpose oflaying down quality of service parameters forGPRS/EDGE services, to ensure consumersatisfaction in line with the criterion determined bythe Authority from time to time.Table 13.13: Pakistan Telecommunication – Subscribers Category(Nos.)Years FLL Subscribers WLL Subscribers Mobile Phones BroadbandSubscribers2007-08 4,548,350 1,155,188 88,019,812 168,0822008-09 3,526,634 2,617,616 94,342,030 413,8092009-10 3,419,271 2,659,824 99,185,843 688,3732010-11 3,016,852 2,704,873 108,894,518 1,491,491Jul-March3,098,117 2,968,813 118,316,916 1,912,1522011-12Source: PTA13.6 Electronic Media13.6 (a) Pakistan Electronic Media RegulatoryAuthorityThe electronic media in Pakistan, remaineddominated, since independence, by the state-runPakistan Broadcasting Corporation and PakistanTelevision. Pakistan Television was launched inNovember 1964. As access to diverse sources ofinformation was limited and people could not keepabreast of the rapidly growing developmentsaround them, the government in 2002 opened upthe electronic media to the private sector in thecountry. Pakistan Electronic Media Regulatory188

Transport and CommunicationsAuthority (PEMRA) as a statutory body was set upwith a view to facilitate through licensing and toregulate the growth of the electronic media in theprivate sector. PEMRA is mandated for regulatingthe establishment and operation of all broadcastmedia that is satellite TV, FM radio anddistribution services like Cable TV, DTH (DirectTo Home), IPTV (Internet Protocol TV), MobileTV etc. in the country.Economic ContributionInvestment friendly policies of the governmenthave been conducive to the development of theelectronic media industry in the private sector.According to estimates there has been a cumulativeinvestment of approximately U.S. dollar 2.5 billionin the electronic media industry in Pakistan. Newjobs to more than 200,000 people of diversifiedskills and qualifications have been provided. Inaddition, over 7 million people have beenaccommodated through indirect employment. Withthe current growth rate of more than seven percentper annum, it is estimated that the cumulativeinvestment in the electronic media industry willreach above $ 3.0 billion by the end of the currentfinancial year. This expansion in investment wouldin turn have a multiplier effect on increasing jobopportunities for skilled media personnel andjournalists, expanding work of media productionhouses, advertising agencies and proliferation ofthe performing arts.Present Status of Private Electronic MediaDuring the last decade the country has witnessed amassive spurt in the number of TV channels andFM Radio stations in the private sector which isunmatched in the South Asian region. Theunprecedented growth of TV channels, Cable TVand FM Radio stations has indeed contributedremarkably in raising the standards of publicawareness and literacy. The massive growth whichhas taken place in the electronic media in theprivate sector in the last one decade is as follow:Table 13.14: PEMRA PerformanceSr.No. CategoryLicenses Issued in2011-12Total Licenses Issuedi. Satellite TV Channels 06 89ii. Landing Rights Permission to TV Channels 10 26iii. FM Radio licenses 06 157iv. Cable TV Licenses 600 3,000v. Multimedia, Multi Channels-- 6Distribution System (MMDS)vi. Internet Protocol Television (IPTV) -- 01vii. Mobile TV license 04 04viii. Mobile Audio Licenses 02 02Source: PEMRA13.6-(b) Pakistan Television CorporationLimited (PTV)PTV has launched Sports Channel on 11-01-2012.To eliminate the disparity and uplift the socioeconomicconditions PTV is gradually extendingits signals in remote and economically backwardareas. Prime Minister inaugurated the RebroadcastStation at Bhimber on 12-03-2012 RBS in Neela-But, Jura, Athmaqam, Karan, Dhudhnial, Sharda ,Kel and Mirpur, Palandri are in progress. RBS atBadin is in progress and National News Bureau atLarkana is almost completed. Prime Ministerinaugurated TV Centre at Multan on 30-12-2011.RBS at Besham and Kohat are ready forinauguration; RBCs at Buneer, Kund Bangla andPooran are in progress. RBCs at Kharan, and BarKhan are in progress. RBS Chilas, Gahkuch,Khaplu, Shigar are ready for inauguration and RBSat Aliabad/Karimabad, Jaglot/Bunji and Astore arein progress. PTV will launch English channelshortly. In fiscal year 2011-12 TV sets were 12,252million in the country.189

Pakistan Economic Survey 2011-1213.6-(c) Pakistan Broadcasting CorporationPakistan Broadcasting Corporation is the largestradio network in the country with a listenershiplarger than all private radio channels in thecountry. Its mission is to entertain and educatepeople through music programmes, features andplays.Following are the prominent services of PBC:-National Broadcasting Services was launchedon 28 th August, 2008. NBS has seventeenhours daily transmission from 7 am to 12midnight. The programmes are originated fromIslamabad and provincial capitals.PBC World Service broadcasts daily Urduprogrammes of 8 hours and 30 minutesduration for the audience living abroad.PBC External Services, broadcast programmesfor 8 hrs daily in 11 foreign languagescovering Afghanistan, Iran, China, India,Bangladesh, Nepal and Sri Lanka. Central Production Units (CPU) producemusic, drama, features, documentaries andprogrammes for special occasions. CPU hasover 2 million minutes recording in its archiveswhich are being digitized. Pakistan Broadcasting Corporation hasestablished different FM Stations to cater tothe infotainment and educational needs oflisteners in their respective languages all overthe country.These stations are broadcasting programmes intheir respective local/regional languages and inUrdu with a ratio of 70/30 respectively. Totalbroadcast hours of these FM Stations are 260hours daily.PBC News is putting on air 117 News bulletinsdaily. These include National, Regional,External and Local News bulletins besidesresume of National Assembly and Senate. Inaddition PBC news launched the broadcast ofFATA News, special news bulletins from PBCHyderabad on rain/ flood situation andongoing rescue and relief activities in Urduand Sindhi languages.PBC has nine approved development projectsin hand for which an amount of Rs. 217.7million has been allocated in 2012. The detailsof these projects are given below:-1 Balancing and Modernization ofequipment.2 2 X 100 KW SW transmitters and HFaerial system Landhi Karachi.3 Up-gradation of PBC Larkana from 10KW Medium Wave to 100 KW MWtransmitter.4 Replacement of 100 KW MW transmittersat Multan, Hyderabad & Muzaffarabad.5 Establishment of PBA and IT Centre atLehtrar Road, Islamabad.6 100 KW MW transmitter at Gwadar.7 Establishment of 47 FM Radio Stations allover Pakistan.8 Replacement of 100 KW MW with 400KW Medium Wave transmitter Peshawarunder USAID programme.9 Replacement of 10 KW MW with 100 KWMW transmitters D.I. Khan under USAIDprogramme and shifting of BroadcastingHouse.10 Installation of 100 KW MW transmitterand BH at Turbat.13.7 The Pakistan PostTo provide trust worthy, efficient and timesensitive services to the customers, Pakistan Posthas offered full blend of Express Mail andFinancial Services. It provides services through anetwork of 12,035 (1,797 urban and 10,238 rural)post offices across the country. Some salientachievements of the Post Office department aregiven below:Benazir Income Support Programme (BISP)Complete web-based tracking and monitoringsystem for disbursement of funds for BenazirIncome Support Programme (BISP) has evolvedthat includes continuous processing, monitoringand reconciliation of the specialized money ordersscheme. During the 1 st nine months of the current190

Transport and Communicationsfiscal year (July-March) total 8,621,193 BISPMoney Orders along with required funds forRs.17,242.4 million were received from BISPauthorities, out of which 97 percent Money Ordersamounting to Rs.16,642.0 million have been paidwithin prescribed period of time.Western Union Money Remittances BusinessDuring the first nine months of current fiscal year(July-March), Pakistan Post has received theforeign remittances amounting of Rs. 9,247.9million.Establishment of “Small & Smart” ExpressCentersTo provide quality services to the customers, 55Small and Smart Express Centers have been set upin the urban areas. These Express Centers are fullycomputerized and automated and cater therequirements of the public. These canters facilitatethe customers, particularly in trade, commerce andbusiness. The services offer in these centersinclude: Urgent Mail Service, urgent Money OrderService, Expedited Mail Service, Fax Mail, FaxMoney orders, Payment of incoming foreignremittances through Western Union, Acceptance ofUtility Bills, Traditional Services, Booking ofInland and Foreign Parcels.Achievements of Saving BankPakistan Post has been doing Saving Bank work asan agency function on behalf of the Ministry ofFinance under the government Savings Bank Act-1873 on commission basis. During the period July-March 2011-12 an amount of Rs. 160,266.9million has been collected through NationalSavings Schemes and earned commissionamounting to Rs. 801.3 million during this period.Postal Life InsuranceTotal Policies are 382,019, for a sum assured Rs.49,507.9 million and a Premium Income is Rs.1,993.8 million.ComputerizationCounter Automations SystemOver one hundred General Post Offices includingrenovated post offices through out Pakistan havebeen provided with counter computerizationfacilities for the better service quality to thecustomers through a LAN based system.Computerized Pension Payment SystemOver 1.4 million Civil and Military pensioners arebeing served by Pakistan Post about 1.3 millionpensioners has been disbursing pension fromPakistan Post. The pensioners are receiving thepension in a hassle free environment. Pakistan Postis also disbursing pension to over 40,000 PTCLpensioners. Pakistan Post has also developed aseparate system for PTCL pension disbursement.ConclusionWith the continuing expansion of thetransportation and communication sectorthroughout the country, Pakistan is preparing forthe future in various areas from creating vasttransport networks to building up a sustainableinformation technology infrastructure with theobjective of setting the foundations for continuedgrowth and success. Despite such challenges inareas of natural disaster recovery and difficultterrain to develop upon, transportationdevelopments have continued, and expect toexpand. Communications infrastructure haswidened despite challenges with security, poweroutages and rough terrain in which to build upon.The cellular mobile sector has been a majorcontributor to the expanding market fortelecommunication and the various technologiesthat come with it, bringing the country to highstandards of telecommunication structures on parwith the rest of the world. This area is expected togrow at an accelerated pace due to demand,however it is important that capital andinvestments come with it. Overall, thetransportation and communication arena remainsstrong, is changing, expanding and seeking to meetwith the needs of Pakistan’s citizen.191

Chapter 14EnergyEnergy is considered to be the lifeline of economicdevelopment. For a developing economy with ahigh population growth rate, it is important to keepa balance between energy supply and emergingneeds. If corrective measures are not effectivelyanticipated significant constraints start emergingfor development activities.The rise in global energy demand has raisedquestions regarding energy security and increasedthe focus on diversification, generation andefficient allocation. The answer lies in theattainment of optimal energy mix through fuelsubstitution by promoting energy efficiency andrenewable energy and interregional co-operation.However, oil and natural gas will continue to bethe world’s top two energy sources through 2040;accounting for about 60 percent of global demand.Gas being the fastest growing major fuel sourceover this period is expected to grow at 1.6 percentper year from 2010 to 2040 as estimated by “TheOutlook for Energy: A View to 2040” is given inFigure-14.1.Figure 14.1: Global energy demand by fuel type (Quadrillion BTUs)Quadrillions British Thermal Units250200150100502040201020102040From its peak in 2025, coalwill decline by more than 10percent of total Hydro/Geo201020402040 2010 20402010Latin America andChina are the biggestusers of hydropower, which makes upover 80 percent of totalHydro/Geo supplies20402010 2040 20100OilGasCoalSource: The Outlook for Energy: Aview to 2040NuclearBiomass/WasteHydroOtherRenewablePakistan’s economy has been growing at anaverage growth rate of almost 3 percent for the lastfour years and demand of energy both atproduction and consumer end is increasing rapidly.Knowing that there is a strong relationshipbetween economic growth and energy demand, thegovernment is making all possible efforts toaddress the challenges of rising energy demand(Box-1).193

Pakistan Economic Survey 2011-12Box- 1Reforms of Present Government addressing Energy CrisesOil Sector ReformsThe Federal Government, in pursuance of its deregulation policy, has deregulated prices of Motor Spirit (MS), HighOctane Blending Component (HOBC), Light Diesel Oil (LDO), Jet Propellant 1 (JP1), Jet Propellant 4(JP4) and JetPropellant 8 (JP8) w.e.f. June 1 st , 2011. Refineries and Oil Marketing Companies (OMCs) are allowed to fix andannounce their ex-refinery price and ex-depot prices of above mentioned products on monthly basis. Under thederegulation framework POL prices have been linked with Pakistan State Oil (PSO) actual import price. In case ofnon availability of PSO import prices, the refineries will fix their ex-refinery price as per existing Import ParityPricing (IPP) formula.Gas Sector ReformsTo mitigate the gas shortage, government has designed different policies not only for exploration of new local gasreserves but also for import of gas like Liquefied Natural Gas (LNG) most mentionable are Liquefied PetroleumGas (LPG) Policy 2011 and Liquefied Natural Gas (LNG) Policy 2011.Coal Sector ReformsFederal and Provincial Governments are endeavoring to harness the huge coal resources of Thar by utilizing it as asource 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 foran integrated mining project to many companies like M/s Engro Powergen (Pvt.) Limited, M/s Cougar Energy UKlimited, 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 plantPower Sector ReformsGovernment 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 Plan2010 has been expedited and upgraded under the Power Sector Recovery Plan 2011. The plans are based on thefollowing 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 SubsidyThe timely payment of tariff differential subsidy (TDS) is being ensured along with subsidies for KESC and FATAon monthly basis. All subsidy claims till December 2011 (Rs.56 billion) have been disbursed. GoP started 2012 withno 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 tophase out subsidies to power sector which have cost rupees one trillion in last 4 years.Resolution of Circular DebtCircular debt refers to the unpaid bills by Pakistan Electric Power Company (PEPCO) to key players especially Oilcompanies, Gas companies, Independent Power Producers (IPPs) and Water and Power Development Authority(WAPDA).194

EnergyStock Issue• Recovery of receivables of DistributionCompanies (DISCOs) of Rs. 354 billion (Feb2012) is essential to clear the circular debtagainst payables of Rs. 398 billion (April 2012).• Unpaid power tariff differential subsidy (Rs.301billon) until 30 June 2009 picked up by GoPthrough Power Holding Private Limited (PHPL)company. Stock of Rs.120bn of outstandingtariff differential subsidy (TDS) for FY10 waspicked up by the Federal Government in May2011.• Debt swap of Rs. 150 billion has been donewhich covers sizeable proportion of circulardebt.Supply Side Management• 3,400 MW has been added since 2008.• Most efficient plants are being dispatched tomaintain to conserve fuel.• Economic dispatch to conserve fuel is beingimplemented.• Gas Supply to Karachi Electric SupplyCorporation (KESC) has been increased toimprove fuel mix and ensure maximum supply.• Change Combined Cycle plants to coal (24months).• Mangla raising project is completed and theproject is also inaugurated.• Diamer Bhasha Dam of 4,500MW generationcapacity inaugurated• 1400MW Tarbela 4 th extension initiated.During 2011-12, energy outages in Pakistancontinued to be the dominant constraint in its growth.Yet, traces of energy supply shortages can be tracedto the independence of the country. Till the 1980sless than two-third of the energy requirements weremet through its own domestic resources. In the 1990sPakistan was still engaged in various efforts to bridgethe wide gap between increasing demand and limitedenergy supply. Further in the early 2000s, the energysector (especially its sub sector electricity) receivedgreater attention because of the faster rate of growthin its demand. By 2011-12, electricity and gasshortages are considered to be the primary cause ofconstrained production activities in a number ofindustries. Energy intensive industries (Petroleum,Iron and Steel, Engineering Industries and Electrical)shaved off 0.2 percentage points from real GDPgrowth in 2010-11 and in 2011-12. Also, theestimated cost of power crises to the economy isFlow Issue• Efforts for 100 percent recovery of current bills areunderway along with disconnection of defaultersafter 45 days (reduced from 90 days) without anyexemption/discrimination. A total of 210,301disconnections carried out during July-Feb 2012.• Two months security deposit shall be paid by newand defaulting consumers to get a reconnection.• Refund of General Sales Tax (GST) on uncollectedbills of more than 180 days has been approvedDemand Side Management• Lines losses reduced from 20.4 percent (FY10) to19.6 percent (FY11). Loss mapping in eachDistribution Companies (DISCOs) is in progress toexactly pin-point the losses and their sources toachieve the target of 18.7 percent losses in FY12.• Load Management conservation measures to saveabout 1000MW put in place.• Promote Private Sector Participation in the Sector• Expression of Interest (EOI) for private biddersissued for O&M contracting for GenerationCompanies (GENCOs).• GoP in the process of finalizing Operations andmaintenance (O&M) contracting wherever requiredfor Distribution Companies (DISCOs).• Work on coal fired plants has been expedited.approximately Rs.380 billion per year, around 2percent of GDP, while the cost of subsidies given tothe power sector to the exchequer in the last fouryears (2008-2012) is almost 2.5 percent of GDP, (Rs.1100 billion). The liquidity crunch in the powersector has resulted in under utilization of installedcapacity of up to 4000MW. It has also affectedinvestment in power sector.Flood was one of the factors which caused electricityand gas shortage as it damaged the distributionnetwork (i.e., 90 percent of distribution transformersto the petroleum and gas fields). “The total damage tothe energy sector was of Rs 1.2 billion (US$ 14.2million) according to Asian Development BankReport, “2011 Pakistan Floods; Preliminary Damageand Needs Assessment”. Lower accumulation ofwater reserves in dams along with high internationalprices of oil has compounded the pressure on195

Pakistan Economic Survey 2011-12electricity as there is still significant share of oil(furnace) in electricity generation (about 35.1percent) which is vulnerable to the internationalprices. Further the oil refineries have also beenrunning below capacity, thus constraining the supplyof oil and other fuels. Likewise, in the gas sector,Pakistan faced severe shortages that exceededapproximately 2 billion cubic feet per day as localproduction was unable to keep pace with therequirements of the country. This was due mainly tothe depletion of existing resources, unfavorable lawand order situation and lukewarm interest ofexploration and production companies etc. However,the geographical location of the country makes it afavourable potential market for the import of naturalgas from its neighboring countries like Iran, India andTurkmenistan. The government has, therefore, takenthe initiative to import gas from these countries. Theinitial projects in this regard are Iran-PakistanPipeline and Turkmenistan-Afghanistan-Pakistan-India gas pipeline. To mitigate the energy crisis, thegovernment has notified the Liquefied Natural Gas(LNG) Policy 2011 which encourages private partiesto develop LNG projects and sets them free toparticipate in any segment of the LNG value chain. Inorder to solve issues in power sector, the governmenthas decided to construct five multi-purpose waterPakistan’s Energy Sector 1storages in the country during the next 10 -12 years.The Diamer Basha Dam Project - the world's highestRoller Compacted Concrete Dam - is the mostmentionable achievement. Also Pakistan is one of thebeneficiaries of Tetra-partner power import projectunder the head of Central Asia-South Asia (CASA-1000) electricity trade.To ensure energy security and sustainabledevelopment in the country, the government is alsotaking all possible measures to diversify its energymix. In this the regard government has given dueattention 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 otherstakeholders. The policy includes all (AlternativeRenewable Energy (ARE) technologies includingWind, Solar, Hydro, Biogas, Cogeneration, Waste-to-Energy, and Geothermal; providing extremelyattractive financial and fiscal incentives to both localand foreign investors while offering them a levelplaying field. It is expected that with the approval ofthe policy and government’s keen interest in energysector, the situation will improve significantly in nearfuture.Figure 14.2: Pakistan’s Energy Sector Consumption and Supply 2010-11 2Energy Consumption (38.8 million TOE) by Share of SourcesOil Products(29 %)Gas(43.2 %)LPG(1.3%)Electricity(16.2 %)Coal(10.4 %)Energy Consumption (38.8million TOE) by Share ofSectorsTransformation (−17.8 million TOE)Diversions (−7.4 million TOE)Statistical Differ (−0.5 million TOE)Energy Supply (64.5million TOE) by Share ofSourcesNatural Gas(47.6%)LPG(0.5%)Oil(32.0%)Coal(6.7%)Electricity(13.1%)Crude Oil(15.7%)PetroleumProducts (16.3%)1Data on variables of energy is given on calendar year instead of fiscal year2 TOE (tonne of oil equivalent) is a unit of energy. It is considered as an amount of energy released by burning one tonne of crudeoil approximately equal to 42 GJ. [1 TOE = 41.868 GJ = 11, 630 Kilowatt Hours =39.683 million Btu]196

Energy14.1 Energy ConsumptionPakistan’s total energy consumption stood at 38.8million tonnes of oil equivalent in 2010-11. Therelative importance of the various sources ofenergy consumption of Liquid Petroleum Gas(LPG), electricity and coal has been broadlysimilar since 2005-06. The share of gasconsumption stood at the highest equal to 43.2percent of the total energy mix of the country,Share in percentageThe consumption of petroleum products showed acontinuous declining trend since 2001-02.However due to positive changes in years 2004-05,2007-08 and 2009-10, the overall average for lastten years became positive 1.1 percent per annum.The longer term trend suggests that composition offollowed by oil (29.0 percent). As shown in Fig-14.3, the major consumption source of natural gaswitnessed an increase in share by almost 4percentage points during 2010-11 compared to2005-06. This is due to the substitution effect to acheaper source from an expensive source. Since oilis the more expensive fuel because of Pakistan’simports at the high international prices the share ofoil consumption declined by 3.0 percentage pointsduring the period under review.Figure 14.3: Energy Consumption by Sources in %: A Comparison between2005-06, 2008-09 & 20010-1150.045.040.035.030.025.020.015.010.05.00.032.029.039.343.2Oil Gas LPG Electricity Coal2005-06 32.0 39.3 1.8 16.2 10.62008-09 29.0 43.7 1.5 15.3 10.42010-11 29.0 43.2 1.3 16.2 10.4Source: Hydrocarbon Development Institute of Pakistanannual energy consumption is shifting frompetroleum products to other energy sources due tovolatile prices of oil. Thus consumption of gas,electricity and coal has increased at an average of5.1 percent, 4.8 percent and 7.7 percent per annumfor last ten years as shown in Table 14.1.Table:14.1: Annual Energy ConsumptionPetroleum Products Gas Electricity CoalFiscalYearTonnesM.T*Change (%) (mmcft) Change (%) (Gwh) Change (%)Change (%)(000)(000)2001-02 16,960 -3.9 824,604 7.4 50,622 4.2 4,409 9.02002-03 16,452 -3.0 872,264 5.8 52,656 4.0 4,890 10.92003-04 13,421 -18.4 1,051,418 20.5 57,491 9.2 6,065 24.02004-05 14,671 9.3 1,161,043 10.4 61,327 6.7 7,894 30.22005-06 14,627 -0.3 1,223,385 5.4 67,603 10.2 7,714 -2.32006-07 16,847 15.2 1,221,994 -0.1 72,712 7.6 7,894 2.32007-08 18,080 7.3 1,275,212 4.4 73,400 0.9 10,111 28.12008-09 17,911 -0.9 1,269,433 -0.5 70,371 -4.1 8,390 -17.02009-10 19,132 6.8 1,277,821 0.66 74,348 5.7 8,139 -3.01.81.316.216.210.610.4197

Pakistan Economic Survey 2011-12Table:14.1: Annual Energy ConsumptionPetroleum Products Gas Electricity CoalFiscalYearTonnesM.T*Change (%) (mmcft) Change (%) (Gwh) Change (%)Change (%)(000)(000)2010-11 18,887 -1.3 1,240,671 -2.91 77,099 3.7 7,717 -5.2Avg. 101.1 5.1 4.8 7.7yearsJuly-Mar2010-11(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) -19.1Source: Hydrocarbon Development Institute of Pakistan*: Million Ton −: Not Availablee: Estimated **: Consumption of electricity for AJK and KESC for the months Jan to Mar 2012 is not available14.2-a Petroleum ProductDuring the first three quarters of current fiscal yearthe overall consumption of petroleum productsincreased to 13,879 million tonnes in the periodJuly-March 2011-12 compared to 13,802 milliontonnes in corresponding period of 2010-11 thusposting a positive growth of 0.6 percent. The majordecline was in the agriculture sector (40.8 percent)followed by the government sector (20.3 percent).Similarly the power sector and household sectorhad also shown negative growth in theconsumption of petroleum products for the periodunder discussion posting -5.2 percent and -8.0percent respectively. Although petroleum productsconsidered as necessary inputs of the power sector,yet the negative growth in power as well ashousehold sector can be attributed to changes indemand behavior toward relatively cheaperalternatives. The industry sector had shownpositive growth of 24.2 percent in the consumptionof petroleum products during the period of July-March 2011-12 when compared with July-March2010-11, mainly due to recovery in economicactivity. The transport sector usually consumeshigh quantity of petroleum products butsurprisingly this sector showed a relative smallgrowth of 3.5 percent during the period underconsideration.Table 14.2: Consumption of Petroleum Products (000 tones)Year House Change Industry Change Agriculture Changeholds(000tonnes)(%) (000tonnes)(%) (000tonnes) (a)(%)Transport(000tonnes)Change(%)Power(000tonnes)Change(%)OtherGovt(000tonnes)Change(%)Total000tonnes)2001-02 335 -25.7 1,612 -16.2 226 -11.4 8,019 -1.7 6,305 -2.8 464 24.7 16,9602002-03 283 -15.5 1,604 -0.5 197 -12.8 8,082 0.8 6,020 -4.5 266 -42.7 16,4522003-04 231 -18.4 1,493 -6.9 184 -6.6 8,464 4.7 2,740 -54.5 309 16.2 13,4212004-05 193 -16.5 1,542 3.3 142 -22.8 9,025 6.6 3,452 26 317 2.6 14,6712005-06 129 -33.2 1,682 9.1 82 -42.3 8,157 -9.6 4,219 22.2 359 13.2 14,6272006-07 106 -17.8 1,596 -5.1 97 18.3 7,982 -2.1 6,741 59.8 325 -9.5 16,8472007-08 121 14.1 1,071 -32.9 109 12.7 9,384 17.6 7,084 5.1 311 -4.5 18,0802008-09 97 -19.5 969 -9.5 70 -36.2 8,837 -5.8 7,750 6.9 367 18.2 17,9112009-10 90 -7.5 985 1.6 58 -16.9 8,861 0.3 8,814 16.4 323 -12.0 19,1312010-11 85 -5.6 1,355 37.6 41 -29.3 8,892 0.3 8,139 -7.7 374 15.8 18,887Avg. 10years-14.6 -2.0 -14.7 1.1 6.7 2.2July-Mar2010-11 67.3 - 919.2 - 35.8 - 6,599.1 - 5,913.4 - 267.4 - 13,8022011-12* 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 13,879Source: Hydrocarbon Development Institute of Pakistan(a) High Speed Diesel (HSD) consumption in agriculture is not available separately and is included under transport sector. Agriculture sectorrepresents only Light Diesel Oil (LDO)*: Oil/POL product consumption for the month March 2012 is missingThe share of Punjab in consumption has declinedfrom 59.3 percent during the last fiscal year to 57percent in 2010-11. There was an increase in theshare of Sindh to 24 percent this year as compared198

Energyto 21.4 percent last year. The share of Balochistanand Khyberpakhtunkhwa (KPK) remained constantover the last four years with Balochistan having arelatively higher share than KPK in theconsumption of petroleum products as is evidentfrom the figure belowFigure 14.4: Share of Provinces in Consumption of Petroleum ProductsPercentage Share in Total Consumption70.060.050.040.030.020.010.00.0KPKA.J. KashmirPunjabSindhBalochistan2008 2009 2010 2011Source: Directorate General of Petroleum Concessions (DGPC)Years14.2-b Natural GasThe consumption pattern of gas by different userssince 2001-02 is presented in Table 14.3. Theanalysis of the sectoral consumption of gasindicates that during July-March 2011-12, theconsumption of gas in the cement sector was 1.4billion cubic feet compared to 0.6 billion in thecorresponding period during 2010-11 thus postinga positive growth of 133 percent during the periodunder review. The industrial sector experienced adecline in consumption of gas and posted anegative growth of 12.5 percent during 2010-11.This sector also showed negative growth of 6.8percent during July-March 2011-12 whencompared to the same period during 2010-11. Thetransport sectors is the most significant sector;posting a positive growth in gas consumption of14.2 percent during 2010-11 as compared with2009-10 and a positive growth of 10.8 percentduring July-March 2011-12 as compared with thesame period during 2010-11.Table 14.3: Consumption of Gas (Billion Cft)YearHousehold Change (%) CommercialChange(%)CementChange(%)FertilizerChange(%)PowerChange(%)IndustrialChange(%)Transport(CNG)2001-02 144 2.1 22 4.8 7 0.0 178 1.7 315 12.1 151 8.6 7 66.6 8252002-03 154 6.9 23 4.5 3 -57.1 181 1.7 336 6.7 165 9.3 11 53.6 8722003-04 155 0.6 24 4.3 8 166.7 185 2.2 470 39.9 193 17.0 16 40.1 1,0512004-05 172 11.0 27 12.5 13 62.5 190 2.7 507 7.9 226 17.1 24 54.1 1,1612005-06 171 -0.6 29 7.4 15 15.4 198 4.2 492 -3.0 279 23.5 39 59.1 1,2232006-07 186 8.8 31 6.9 15 0.0 194 -2.0 434 -11.8 307 10.0 56 45.2 1,2222007-08 204 9.7 34 9.4 13 -15.1 200 3.1 430 -1.0 323 5.1 72 27.6 1,2752008-09 214 4.9 36 4.8 7 -42.6 201 0.5 404 -6.0 319 -1.1 88 22.5 1,2692009-10 219 2.4 37 4.1 2 -73.4 220 9.4 367 -9.2 334 4.5 99 12.2 1,2782010-11 232 5.9 36 -1.3 1 -27.8 228 3.6 337 -8.0 292 -12.5 113 14.2 1,241Avg. 10years5.2 5.7 2.9 2.7 2.8 8.1 39.5July-Mar2010-11(P)185.9 - 27.2 - 0.6 - 166.9 - 254.4 - 223.6 - 81.4 - 940.02011-12(P)205.4 10.5 29.4 8.1 1.4 133.3 159.0 -4.8 263.5 3.6 208.5 -6.8 90.2 10.8 957.3Source: Hydrocarbon Development Institute of PakistanP: ProvisionalChange(%)Total199

Pakistan Economic Survey 2011-122Like petroleum products, the share of Punjab in theconsumption of natural gas in 2010-11 is higher (53.2%) followed by Sindh ( 35.3%). Balochistan and KPKrespectively have smaller shares of 7.1 percent and4.4 percent.14.2-c ElectricityThe electricity consumption during2010-11 was77,099 GWh as compared to 74,348GWh in 2009-10, however during theperiod July-March 2011-12its consumption decreased to 54,5955 GWh from 56,194 GWh in corresponding period 2010-11 posting adecrease of almost 3 percent. During July-March2011-12 agriculture, commercial, industrial andhouseholdsector also show negative growth of -13.6,-11.9, -10.1 and -7.0 percent respectively (Table14.4).Figure14.5: Share ofProvinces inConsumption of Natural GasSindh'sShare, 35.3KPK'sShare, 4.4Balochistan'sShare, 7.1Punjab'sShare, 53. .2Source: Directorate General of Petroleum Concessions(DGPC)Table 14.4: Consumption of Electricity by SectorsYearTraction HouseholdCommercialGWh ChangeGWh Change(000) (%) (000) (%)2001-022002-032003-042004-052005-062006-072007-082008-092009-102010-11Avg. 10 yearsJuly-March2010-11 (e)2011-12*111091213128521−123.223.625.827.630.733.333.732.334.235.925.824.01.81.79.37.011.28.51.2-4.25.95.04.7--7.03.03.23.74.14.75.45.65.35.65.84.23.7- 15.8 - 6.6 --11.9 14.2 -10.1 5.7 -13.6Source: Hydrocarbon Development Institute of Pakistan(e): Estimated *: The electricity consumption data of AJK and KESC for themonth January to March 2012 is not availableThe share of the provinces in electricityconsumption for the last four year is shown in thefigure below. It shows that this share has remainedIndustrialAgricultureGWh Change GWh Change(000) (%) (000) (%)5.6 5.6 14.37.3 6.0 7.17.4 6.7 11.76.9 7.0 4.56.5 7.9 12.96.6 8.2 3.8-1.9 8.5 3.7-6.8 8.8 3.52.6 9.7 10.27.1 9.0 -7.24.16.47.1 15.18.5 16.215.6 17.410.8 18.614.6 19.814.9 21.13.7 20.7-5.4 19.35.7 19.83.6 21.27.9Street Light Other Govt.GWhChangeGWh(%) (000)212 -0.5244 15.1262 7.4305 16.4353 15.7387 9.6415 7.2430 3.6458 6.5456 -0.48.1321 -323 0.6Change(%)3.5 0.03.4 -2.93.7 8.83.8 2.74.0 5.34.4 10.04.5 2.34.3 -4.44.5 4.74.8 6.73.33.5 -6.7 91.4Total(GWh)5062252656574916132767603727127340070371743487709956,19454,595almost constant in all provinces over time. Onaveragee Punjab has 62 percent, Sindh 20.2 percent,KPK 11.4 percent and Balochistan 5.5 percentshare inelectricity consumption.Figure 14.6: Share of Provinces in Consumption of ElectricityPercentage Share in Total Consumption70.060.050.040.030.020.010.00.02006 2007A.J. Kashmir'2008Source: Directoratee General of Petroleum Concessionss (DGPC)PunjabSindhBalochistan'2009Years2010KPK'2011200

Energy14.2-d CoalPakistan has huge coal resources estimated at over185 billion tonnes; including 175 billion tonnes,identified at Thar coalfields in the Sindh province.Pakistan’s coal generally ranks from lignite to subbituminous.The major user of coal are the cementsector and brick kilns; about 60 percent of totalcoal was consumed by cement while 39 percentwas consumed by the brick kiln industry during theperiod 2010-11. The longer term trend analysisshows that for the last ten years, on average, thecement sector and brick kilns have been the highestconsumers of coal. The reason for the high share ofconsumption of coal in the cement industry is dueto switching over to coal from furnace oil whichhas increased the utilization of indigenous as wellas imported coal (Table 14.5).Table 14.5: Consumption of Coal by SectorsYear Household Power Brick Kilns Cement Total (000(000 metric Share (%) (000 metric Share (%) (000 metric Share (%) (000 metric Share (%) metrictonnes)tonnes)tonnes)tonnes)tonnes)2001-02 1 0.0 249 5.7 2,578 58.5 1,581 35.9 4,4092002-03 1 0.0 204 4.2 2,607 53.3 2,078 42.5 4,8902003-04 1 0.0 185 3.0 2,589 42.7 3,289 54.2 6,0652004-05 − − 180 2.3 3,907 49.5 3,807 48.2 7,8942005-06 − − 149 1.9 4,222 54.7 3,343 43.3 7,7142006-07 1 0.0 164 2.1 3,278 41.5 4,451 56.4 7,8942007-08 1 0.0 162 1.6 3,761 37.2 6,187 61.2 10,1112008-09 1 0.0 113 1.3 3,275 39.0 5,002 59.6 8,3902009-10 − − 126 1.5 3,005 36.9 5,008 61.5 8,1392010-11(P) − − 97 1.3 3,004 38.9 4,617 59.8 7,717Avg. 100.0 2.5 45.2 52.3yearsJul-Mar2010-11 − − 44.6 3,305.5 2,500.0 5,850.02011-12(P) − − 56.0 25.6 2,274.0 -31.2 2,400.0 -4.0 4,730.0Source: Ministry of Petroleum Natural Resource & Hydrocarbon Development Institute of Pakistan−: Not available P: Provisional14.3 Supply of EnergyPrimary energy supply has increased by 2.3percent during current year when compared withlast year. The availability of energy per capita in2011 remained 0.372 TOE compared to 0.371 TOEin 2010 posting a positive growth rate of 0.16percent (Table 14.6). Due to population growthrate of almost 2 percent, the balance betweenenergy supply and emerging needs was outset.Table 14.6: Primary Energy Supply and Per Capita AvailabilityYear Energy Supply Per CapitaMillion TOE Change (%) Availability (TOE) Change (%)2001-02 45.07 1.5 0.32 -1.252002-03 47.06 4.4 0.32 0.002003-04 50.85 8.1 0.34 6.252004-05 55.58 9.3 0.36 5.882005-06 58.06 4.5 0.37 2.782006-07 60.62 4.4 0.38 2.702007-08 62.92 3.8 0.39 2.632008-09 62.55 -0.6 0.38 -2.562009-10 63.09 0.9 0.36 -5.262010-11 64.52 2.3 0.36 0.00Source: Hydrocarbon Development Institute of Pakistan.−: Not Available estimated201

Pakistan Economic Survey 2011-12Analysis of the composition of final energysupplies in the country suggests that the supply ofcoal during last ten years grew at an average rate of7.5 percent per annum followed by gas, electricity,petroleum products and crude oil with averagegrowth rates of 5.7 percent, 3.4 percent, 2.1percent and 0.4 percent, respectively.Table 14.7: Composition of Final Energy SuppliesYear Crude Oil PetroleumGas Electricity CoalProductsMillion Change (Mln.T.) Change (bcf)(a) Change (000Gwh) Change (Million ChangeBarrels (%)(%)(%) (b) (%) Tonnes) (%)2001-02 75.2 2.1 18.1 1.6 923.8 7.7 72.4 6.3 4.4 7.32002-03 76.0 1.1 17.5 -2.9 992.6 7.4 75.7 4.6 4.9 11.42003-04 80.3 5.7 14.9 -14.9 1,202.7 21.2 80.9 6.9 6 22.42004-05 85.3 6.2 16.2 8.3 1,344.9 11.8 85.7 5.9 7.9 31.72005-06 87.5 2.6 16.5 2.2 1,400.0 4.1 93.8 9.5 7.7 -2.52006-07 85.3 -2.5 18.6 12.9 1,413.6 1.0 98.4 4.9 7.9 2.62007-08 90.5 6.1 19.8 6.1 1,454.2 2.9 95.9 -2.5 10.1 27.82008-09 86.1 -4.8 19.8 0.1 1,460.7 0.4 91.8 -4.3 8.4 -16.82009-10 76.8 -10.9 20.2 1.9 1,482.8 1.5 95.6 4.1 8.2 -2.42010-11 75.3 -1.9 21.3 5.5 1,471.6 -0.8 94.7 -0.9 7.7 -6.1Avg. 10Year0.4 2.1 5.7 3.4 7.5July-Mar2010-11(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 -20.3Source: 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 ofFeb to Mar 2012 is missingThe main hurdle in the supply of energy wasaccumulation of the massive circular debt. Themajor problems which cause accumulation ofcircular debt were the partial transfer of tariff asdetermined by National Electric Power RegulatoryAuthority (NEPRA), heavy line losses (presentlevel of line losses are almost 20 percent),incomplete corporatization, weak governance andcostly fuel mix putting an extra financial burden onmeeting the cost of fuel oil due to constant increasein the oil prices, etc. The government has made allpossible attempts to address this issue. Thegovernment has transferred bank loan liabilities ofRs 216.0 billion (as of 30-06-2009) and Rs. 85.114billion from the books of power companies andplaced these amounts with the Power Holding(Pvt) Ltd (PHPL) in November, 2011. Thegovernment has repaid these loans to the bankalong with markup.During 2010-11 the Finance Division releasedRs. 65 billion as well as Rs. 120 billion astariff subsidy to Pakistan Electric PowerCompany (Pvt) Ltd (PEPCO) over and abovethe budgetary allocation to overcome itsoperational shortfall and relax the CircularDebt.With the approval of the Cabinet, fundsamounting to Rs. 142.0 billion have beenraised from the banks in March 2012 and paidto Independent Power Producers (IPPs) byPEPCO. Another transaction for raising fundsto the tune of Rs. 20 billion is in process forpayment of overdue of Independent PowerProducers (IPPs) / Gas Companies/ PakistanState Oil (PSO) etc to overcome/reduce theCircular Debt.The power sector was allowed to transfer thecost of power to the consumers through the202

tariff increases of 6%, 12% and 6% at the startof the three quarters on 1 st Jan, 1 st April and 1 stOctober 2010.EnergyTo enable the Power Sector to meet its cashshortfall, the following Tariff DifferentialSubsidies have been released during theperiod:Table 14.8: Tariff Differential Subsidies (Rs. in billion)2008-09 2009-10 2010-11 2011-12 (upto Mar-12)109.173 178,841 346.096 93.250Source: Corporate Finance WingBecause of the policy implementation by thegovernment the inter circular debt has shown adeclining trend over the period July-Mar 2011-12as shown in figure below:Figure 14.7: Inter Corporate Circular Debt for period July-March 2011-12350,000300,000250,000Intercircular DebtRs in Million200,000150,000100,00050,0000Jul Aug Sept Oct Nov Dec Jan Feb MarSource: Corporate Finance WingJuly-March 2011-1214.3-a Crude OilThe total supply of crude oil for the fiscal year2010-11 was 75.3 million barrels, equal to 10.1million TOE, out of which 68.1 percent wasimported and 31.9 percent was locally extracted.The balance recoverable reserves of crude oil inthe country as on December 31st, 2011 have beenestimated at 247.53 million barrels in the country.The average crude oil production during July 2011to Mar 2012 remained 66032 barrels per day asagainst 65997 barrels per day during thecorresponding period of last year, showing anincrease of 0.05 percent. During the period underreview, 39669 (60 percent) barrels per day wereproduced in northern region and 26364 (40percent) barrels per day in southern region, asagainst 34762.28 (53 percent) barrels and 31234.22(47.33 percent) barrels produced per dayrespectively in the same period last year. DuringJuly 2011 to March 2012, production of crude oilhas increased by 14.11 percent from northernregion whereas production decreased in southernregion by 16 percent, as compared to same periodlast year overalls 0.05 percent oil productionincreased in the country. The company wise detailof production of crude oil during July-March 2011-12 and corresponding period of the last fiscal yearis as given below:203

Pakistan Economic Survey 2011-12Table 14.9: Production of Crude Oil (BOPD)Region 2010-11 July-Mar July-Mar Change (%)2010-11 2011-12Northern Region 35,367.74 34,762.28 39,668.59 -1.71Dewan Petroleum (Pvt) Ltd 207.38 211.21 193.48 1.85Oil & Gas Development Company Limited (OGDCL) 18,526.47 18,236.27 21,036.58 -1.57Orient Petroleum International Inc (Opii) 680.38 658.18 886.16 -3.26Pakistan Oilfields Limited (POL) 3,327.12 3,401.00 2,844.97 2.22Pakistan Petroleum Limited (PPL) 5,138.52 4,925.16 6,130.21 -4.15MOL Pakistan Oil & Gas Co 7,487.87 7,330.47 8,411.34 -2.10Mari Gas Company Limited (MGCL) − − 165.84 −Southern Region 30,498.44 31,234.22 26,363.50 2.41Oil & Gas Development Company Limited (OGDCL) 18,315.59 18,615.34 16,498.27 1.64BP Pakistan Exploration & Production Inc (BP) 8,362.90 8,625.89 6,646.82 3.14Pakistan Petroleum Limited (PPL) 1,140.31 1,233.66 402.24 8.19BHP Petroleum Pakistan (BHP) 2,169.09 2,228.26 2,306.30 2.73OMV (Pakistan) Exploration (OMV) 52.16 54.28 49.23 4.06eni Pakistan Limited (eni) 332.98 355.34 327.89 6.72Mari Gas Company Limited (MGCL) 17.55 7.30 63.46 -58.40Petroliam Nasional Berhad (PETRONAS) 107.86 114.15 69.29 5.83Total: 65,866.18 65,996.50 66,032.09 0.20Source: Ministry of Petroleum & Natural ResourcesThe share of Sindh in the total production was 46percent during 2010-11 with a declining trend seenover the last four years. Initially the share ofPunjab in the production of crude oil declined in2009 after which it has became almost static. Theshare of KPK in crude oil production increasedfrom 5.3 percent in 2005-06 to 32.6 percent whichis the second highest amongst the provinces in2010-11. Balochistan’s share remained very smalland constant at around 0.1 percent during the lastfour years as shown in the figure below:Figure 14.8: Share of Provinces in Production of Crude Oil70Percentage Share in Total Production60Sindh504030PunjabKPK2010Balochistan02006 2007 2008 2009 2010 2011Source: Directorate General of Petroleum Concessions (DGPC)Years204

Energy14.3-b Petroleum ProductsPetroleum products are produced from theprocessing of crude oil at petroleum refineries andthe extraction of liquid hydrocarbons at natural gasprocessing plants. These products are furtherclassified into Energy and Non-Energy products.Energy products include Motor Spirit, Kerosene,High Octane Blending Component (HOBC), HighSpeed Diesel Oil (HSD), Light Diesel Oil (LDO),Furnace Oil (FO), Aviation Fuels, Naphtha andLiquefied Petroleum Gas (LPG), while Non-Energy 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 thetotal production of petroleum products (energy andnon-energy) remained 9.40 million tonnescompared to 9.53 million tonnes during 2009-10;thus posting a negative growth of 1.36 percent. Outof 9.40 million tonnes 8.91 million tonnes areenergy products while 0.49 million tonnes are nonenergyproducts. In these products diesel has thehighest share of 34.9 percent followed by FurnaceOil (FO) having 25.9 percent. Motor Spirit andHigh Octane Blending Component (HOBC)together have 13.3 percent while Aviation Fuels,Naphtha and Liquefied Petroleum Gas (LPG) hold8.8 percent, 8.6 percent and 1.9 percentrespectively. Non-Energy products together have5.3 percent share in the total production ofpetroleum products.Percentage Share3.503.002.502.001.501.000.500.00Fig-14.9: Share of Refineries in Petroleum Products Productions during 20111.70Energy Products0.07Non-Energy Products0.42Energy Products0.02 0.01 0.00Non-Energy ProductsEnergy ProductsNon-Energy Products1.92Energy Products0.39Non-Energy Products3.19Energy Products0.02Non-Energy Products1.58Energy Products0.00 0.10 0.00Non-Energy ProductsEnergy ProductsNon-Energy ProductsRefineriesAttock RefineryLtdBYCO PetroleumPakistan LtdDhodak Refinery National RefineryLtdLtdPak-ArabRefinery LtdSource: Oil Refineries, Directorate General of Petroleum Concession, Directorate General of Oil and Directorate General of GasPakistan Refinery ENAR PetroleumLtd Refining Facility(EPRF)The total import of petroleum products were 12.37million tonnes while total export of petroleumproducts were 1.57 million tonnes in 2010-11. Thisis shown in Table 14.10. During the period July-March 2011-12 there was a negative growth of 27percent in the export of petroleum products and apositive growth of 37.7 percent in the import ofpetroleum products.Table 14.10: Imports and Exports of Petroleum Products(Million Tonnes)ImportsExportsProductsQuantity inQuantity inProductsmillion Tonesmillion Tones100 Octane Aviation Fuel (100LL) 0.80 Naphtha 0.79High Speed Deisel (HSD) 3.78 High Speed Deisel (HSD) 0.12High Sulphur Furnance Oil 5.60 Jet Propellant (Aviation Fuel) JP-1 0.64Low Sulphur Furnance Oil 1.06 Furnance Oil 0.004Motor Spirit 1.13 Motor Spirit 0.02Total 12.37 Total 1.57Source: Hydrocarbon Development Institute of Pakistan205

Pakistan Economic Survey 2011-1214.3-c Natural GasThe consumption of increasing natural gas israpidly. As on December 31 st 2011, the balancerecoverable natural gas reserves have beenestimated at 24.001 Trillion Cubic Feet. Theaverage production of natural gas during July-March 2011-12 was 4236.06 million cubic feet perday (Mmcfd) as against 4050.64 (Mmcfd) duringthe corresponding period of last year, showing anincrease of 4.57 percent. Natural gas is used ingeneral industry to prepare consumer items, toproduce cement and to generate electricity. In theform of CNG, it is used in transport sector andmost importantly to manufacture fertilizer to boostthe agricultural sector. Currently 27 private andpublic sector companies are engaged in oil and gasexploration & production activities. Company wisetotal natural gas production is as under:Table- 14.11: Production of Natural Gas (Mmcfd)Company 2010-11July-Mar July-Mar Change2010-11 2011-12 (%)BHP Petroleum Pakistan (BHP) 392.13 399.77 446.08 11.58eni Pakistan Limited (eni) 478.24 486.89 468.88 -3.70Dewan Petroleum (Pvt) Ltd 28.56 28.88 27.09 -6.20Hycarbex-American Energy, Inc − − 6.36 −Mari Gas Company Limited (MGCL) 509.86 502.02 552.68 10.09Oil & Gas Development Company Limited (OGDCL) 862.12 853.74 1,026.18 20.20OMV (Pakistan) Exploration (OMV) 443.52 446.43 402.32 -9.88Orient Petroleum International Inc (Opii) 13.38 13.01 17.44 34.05Pakistan Oilfields Limited (POL) 21.23 21.46 20.59 -4.05Pakistan Petroleum Limited (PPL) 760.36 765.58 786.33 2.71Tullow Oil Plc (Tullow) 0.38 0.50 − −Petroleum Exploration (Pvt) Limited (PEL) 26.87 27.57 24.43 -11.39BP Pakistan Exploration & Production Inc (BP) 176.83 189.61 130.50 -31.17Petroliam Nasional Berhad (PETRONAS) 13.24 13.52 12.94 -4.29MOL Pakistan Oil & Gas Co 305.04 301.85 313.78 3.95Total: 4,031.76 4,050.83 4,235.60 4.56Source: Ministry of Petroleum & Natural ResourcesHistorically, indigenous natural gas is one of thetypes of fuel used by thermal power plants whilethe other type of fuel being imported is furnace oil.With the significant increase in international pricesof furnace oil, initially the power sector retainedthe lion's share in the allocation of natural gas.However, the gas companies did not sign longtermagreements with the public sector utilities andsubsequently, the allocation of gas to the publicsector plants were allocated on as-and-whenavailablebasis. This pattern continued for aconsiderable period up to the mid eighties.However, with the passage of time, natural gasbecame a scarce resource because of major use inthe domestic, fertilizer and transport sectors. Thusthe allocation of natural gas for the power sectorhas declined significantly.(i). Liquefied Petroleum Gas (LPG):LPG currently contributes only 0.5 percent to thetotal primary energy supply in the country.However, 87 percent of its demand is met throughlocal production. The rest is imported. This lowershare is mainly due to local supply constraints andthe higher price of LPG in relation to competingfuels like fuel wood, dung etc. Currently, inPakistan, out of 27 million households,approximately 6 million are connected to thenatural gas network while the rest are relying onLPG and conventional fuels such as coal,firewood, kerosene, biomass etc. LPG has thus206

Energybecome a popular domestic fuel for those who livein areas where the natural gas infrastructure doesnot exist. The annual total supply of LPGremained 467,476 tonnes; 1, 281 tonnes wereproduced daily during 2012, out of this 46 percentis produced in the private sector while 54 percentis produced in the public sector. The three mainsources of LPG are; refineries 32 percent, gasproducing fields 55 percents and imports 13percent. The details are given in the figure below:Fig-14.10: LPG Supplies by Source during 2011140117.41201008060402009.3 5.79.66.120.37.30.410.65.720.75.938.3 45.6 14.490.260.1Attock Refinery LtdPakistan Refinery LtdNational Refinery LtdPak-Arab Refinery LtdBYCO Petroleum Pakistan LtdOGDC (Bobi)OGDC (Dakhni)Annual (000 Tonnes)OGDC (Dhodak)OGDC (Kunnar)OGDC (Chanda)BPP (Naimat Basal)OPL (Ratana)POLPPL (Adhi)PPL (Hala)JJVLImportsSector Fields ImportsSources of LPGSource: Oil Refineries, Directorate General of Petroleum Concessions (DGPC), Directorate General of Oil (DGO) and Directorate General ofGas (DGG)(ii).Compressed Natural Gas (CNG):CNG as an alternative fuel for automobiles wasintroduced in 1992 to reduce the dependency onexpensive imported fuel and to protect theenvironment. During the past few years, atremendous growth in this sector was witnessed onaccount of the price differential between CNG andpetrol which led to increase in conversion ofvehicles into CNG. As a result to meet the growingdemand a significant increase in CNG stations waswitnessed. According to an estimate presentlythere are 3,331 CNG stations operating in thecountry.(iii).Liquefied Natural Gas (LNG):Realizing the widening gap between demand andsupply of natural gas the government isencouraging LNG import through the privatesector. Various investors have shown an interest.In this regard OGRA has issued provisionallicenses for construction of a LNG terminal,operation, sales and marketing of Regassifiedliquid natural gas (RLNG) / Liquid natural gasLNG. It is expected that RLNG volume of 1400MMsfcd will be added to the system. In Pakistanimport of LNG is considered to be beneficial forpower companies as these companies are importingconsiderably more expensive furnace oil as inputfor power. In this context, the government hassigned a Memorandum of Understanding (MoU)with Qatar for the import of 500 mmcfd and isexploring other avenues with Algeria and Malaysiawhich are prospective suppliers of LNG.14.3-d ElectricityDuring 2010-11, electricity generation was 94,653GWh. The contribution of Hydel in electricitygeneration increased to 33.6 percent in 2010-11 as207

Pakistan Economic Survey 2011-122comparedto 29.4 percent in 2009-10. Since oilbecame an expensive input, its share in electricitygenerationn declined to 35.1 percent as comparedtoalmost 38percent last year. The same was the casefor gas. Its share was 27.3 percent as comparedto29.4 percent of last year. The share of coalremained stagnant at 0.1 percent. The electricitygenerationn by sourceand company is shownbelow:Figure 14.11: Electricty Generation by SourceGas, 27.3%Oil, 35.1%Nuclear, 3.6%Imported,0.3%Coal, 0.1 1%Hydel, 33.6%Source:Hydrocarbon Development Institute of PakistanPower generation is provided bythree sourcesthermal, hydel and nuclear. There are 13hydroelectric facilities with installed capacity6,481 MWare ownedand operated by the Waterand Development Authority (WAPDA) whilethermal power plants are owned by both public andprivate companies. The public sector operates 13thermal plants with installed capacity of 4,900MW. About one third of power generation (5,987MW) is provided byprivate sector companies(Independent Power Producers IPPs). Also, KESCoperates plants with total capacity of 1,955 MW.Out of the total 19,252 MW of the nationalinstalled generationncapacity,dependablegenerationn is about 17, ,523 MW in the summer andabout 14,640 in the winter, depending on theannual hydrology.During 2010-11, theWater and PowerDevelopment Authority (WAPDA) remained themain contributor to electricity generation with 48.7percent coming from this source.KarachiElectricitySupply Corporation (KESC), PakistanAtomic Energy Commission (PAEC), Kot AdduPower Company (KAPCO) andthe Hub PowerCompany (HUBCO) have 8.3, 3.6, 6.2 and 9.1percent, respectively.IndependentPowerProducers (IPPs) have contributed almost 25percentas shown in the figure below:Rouch, 3.2%Uch, 4.5%HUBCO,9.1%Fig-14.12: Electricity Generation ByCompaniesLiberty,1.4% Other IPPs15.0%KAPCO,6.2%PAEC,KESC,3.6% 8.3%WAPDA,48.7%Source: HydrocarbonDevelopment Institute of PakistanAccording to National Transmission and DispatchCompany Ltd, during July-March 2011-12,demandd was 18,860 MW and supply remained12,755 MW thus creating a deficit of almost 6, 000MW. The solution to electricity or power crisis canbe addressed in short-term, medium-term and longandterm. In short-termvarioustechnicaladministrative measures must be implemented toimprove operational and managerial efficiency. Inthis context for recoveries and theft control, thegovernment has adopted strict measures likelegislation of high penalties onelectricity theft,requisitioning of rangers/ frontiers corps to assistin theftcontrol andrecoveries, prepaid meters forgovernment departments, curbingof bogus bills byDistribution Companies (DISCOs) audit andvigilance and monitoring of load managementactivity. Likewise, in order to better utilizehydropower resources in the country, Water andPower Development Authority (Wapda) hasawarded a Rs164 million contract to consultingfirms MWH (USA) and Nespak (Pakistan) to carryout a feasibility study to upgrade the 1,000-MW(megawatts) Mangla Power Station. Besides up-Power House is alsobeing rehabilitated at a cost ofgradation of Manglaa Power House, 22-MW JabbanRs. 3. .7 billion. In addition, the contract forrehabilitationand up-gradation of 243-MWWarsakPower House will also be finalized shortly.208

EnergyAlso Laraib Energy Limited (“Laraib”) is theowner and developer of 84 MW hydroelectricpowers generating complex known as the NewBong Escape Hydroelectric Power Complex (the“Project”) on the Jhelum River in Azad Jammu andKashmir (AJ&K). The Project has the distinctionof being Pakistan and AJ&K’s first hydropowerIPP. By developing a bankable framework thistrendsetting project has paved the way for rapidand full scale development of Pakistan andAJ&K’s hydropower potential. Finally, the UnitedStates and Pakistan signed implementationagreements to upgrade three Pakistani thermalpower stations at Jamshoro, Muzaffargarh, andGuddu. The rehabilitation, commissioned by thePakistani companies, will restore approximately305 MW of lost power generation capacity andbring a measure of relief to the people of Pakistanover the course of the next 12 months.14.3-e Nuclear EnergyPakistan Atomic Energy Commission (PAEC) isresponsible for planning, construction andoperation of nuclear power plants in the country.PAEC is currently operating three nuclear powerplants i.e. Karachi Nuclear Power Plant(KANUPP) and Chashma Nuclear Power PlantUnit-1 and 2 (C-1 & C-2). The construction of twomore units C-3 and C-4 of being 340 MW each isin progress.KANUPP, located at Karachi, completed its designlife of 30 years in 2002. After refurbishments andsafety retrofits, it is now operating on extendedlife. C-1 located at Chashma is performing verywell since its commercial operation. Third nuclearpower plant that is also located at Chashma beingan improved version of C-1 had also startedcommercial operation on 18 May 2011, threemonths ahead of its schedule. Performance of theoperating nuclear power plants of Pakistan isshown in the Table 14.12:The under construction nuclear power plants C-3and C-4 are of 340 MWe each. The first concreteof these plants has been poured and commercialoperation of C-3 and C-4 is expected in 2016 and2017, respectively.The government has mandated to Pakistan AtomicEnergy Commission (PAEC) for the installation of8,800 MW nuclear power capacities by the year2030. Technical and engineering infrastructure isin place to provide technical support to existing,under construction and future nuclear powerplants. It also has a network of in-houseeducational and training institutions thatencompass all major facets of nuclear science andtechnology.Table 14.12: Performance of the Operating Nuclear Power Plants in PakistanPlantsElectricity sent to GridGross CapacityCommercialGrid DataJuly-March 2012 Lifetime (billion(MW)Data(million KWh) KWh)KANUPP 137* 18-Oct-71 7-Dec-72 329.1 12.07C-1 325 13-Jun-00 15-Sep-00 1477.3 22.17C-2 325 14-Mar-11 18-May-11 1790.7 2.22Source: Pakistan Atomic Energy Commission* KANUPP re-licensed at 98 MW (gross) after completing design life14.3-f CoalPakistan has huge coal reserves which areestimated at over 185 billion tonnes; including 175billion tonnes identified at Thar coalfields in Sindhprovince. Pakistan’s coal generally ranks fromlignite to sub-bituminous. The total production ofcoal during 2010-11 was 7.7 million tonnes ascompared to 8.1 million tonnes in 2009-10;showing a negative growth of 5.1 percent. In 2010-11 the import of coal was 4,267 million tonnescompared to 4,658 million tonnes in 2009-10; adecline of 8.4 percent. The long trend shows thatthere was an increase of production of coal; anaverage 7.7 percent change occurred in last tenyears.209

Pakistan Economic Survey 2011-12Table 14.13: Production of Coal, Share and Percentage ChangeFiscal YearImports Domestic Production TotalTones (000) % Share Tones (000) % Share Tones (000) % Change2001-02 1,081 24.5 3,328 75.48 4,409 9.02002-03 1,578 32.3 3,312 67.73 4,890 10.92003-04 2,789 46.0 3,275 54.01 6,064 24.02004-05 3,307 41.9 4,587 58.11 7,894 30.22005-06 2,843 36.9 4,871 63.14 7,714 -2.32006-07 4,251 53.9 3,643 46.15 7,894 2.32007-08 5,987 59.2 4,124 40.79 10,111 28.12008-09 4,652 55.4 3,738 44.55 8,390 -17.02009-10 4,658 57.2 3,481 42.77 8,139 -3.02010-11 4,267 55.3 3,450 44.71 7,717 -5.2Avg. 10 years 46.3 53.7 7.7July-Mar2010-11 3,500e 59.8 2,350e 40.2 5,850e −2011-12 2,700c 57.1 2,030c 42.9 4,730c -19.15Source: Hydrocarbon Development Institute of Pakistane: Coal data is estimated on the basis of six monthsc: Coal import is estimated on the bais of six months data while the production from FATA is not availableThe Federal and Provincial governments areendeavoring to harness the huge coal resources ofThar by utilizing these as a source of energy forpower generation through international investment.As part of the promotional activity to increase theshare of coal, the Government of Sindh has leasedout a coal block for an integrated mining project.The details are as under:-1. Government of Sindh has entered into a jointventure with M/s Engro Powergen (Pvt.)Limited for Coal Mining in Block-II andestablished a Company under Companies Act,1984 viz. “ Sindh Engro Coal MiningCompany” for development of coal mines andinstalling 600-1000 MW Power Plant2. M/s Cougar Energy UK limited has beenallocated Block-III in Thar coalfield forextraction of under ground Coal Gasificationand establishing a 400 MW power plant3. M/s Bin Daen Group, UAE has been allocatedBlock-IV in Thar coalfield for coal mine andinstalling 1000 MW Power Plant4. One block has been allocated to PlanningCommission of Pakistan for a Pilot Project of50 MW based on Underground CoalGasification Project in Block-V5. M/s Oracle Coalfield Plc, UK has beenallocated Block-VI in Thar coalfield fordeveloping coal mine and installing powerplant of 300 MW extendable up to 1000 MW6. M/s China National Machinery Import andExport Corporation of China (CMC)conducted a feasibility study for 400 MWintegrated coal mining and coal fired powerplant at Sonda-Jerrick in district Thatta7. The Government of Sindh is entering into aJoint Venture with M/s Al-Abbas Groupcompany and allocated an area in Badincoalfield for developing coal mine andinstalling Coal-fired Power Plant of 300-600MW14.4 Performance of Major Oil and GasCompaniesDuring 1st July 2011 to 31st March 2012, sofar eight (8) oil and gas discoveries have beenmade in the country. Details are as under:210

EnergyTable 14.14: Oil and Gas Discoveries during July-March 2011-12Discovery Discovery Date Status Company Total Depth Current Productionin Meters Oil Gas (Mmcfd)(BOPD)Mulaki-1 July-11 Oil & Gas United Energy 2,080.0 92.26 14.68Pakistan (UEP)Maru South-1 August-11 Gas Oil and Gas 720.0 − −DevelopmentCompany Limited(OGDCL)Halini-1 October-11 Oil Mari Gas Company 5,350.0 649.29 −Limited (MGCL)Zin X-1 December-11 Gas Oil and Gas 2,300.0 − −DevelopmentCompany Limited(OGDCL)Gharo-1 February-12 Oil United Energy 1,334.7 501.74 0.04Pakistan (UEP)Mohano-1 February-12 Oil United Energy 1,727 187.65 0.07Pakistan (UEP)Suleman-1 March-12 Gas Oil and Gas 4,575 − −DevelopmentCompany Limited(OGDCL)Pir Apan-1 March-12 Gas United Energy 2,155 327.28 10.6Pakistan (UEP)Total 1758.22 25.39Source: Ministry of Petroleum & Natural ResourcesThe Councils of Common Interest (CCI)approved Tight Gas (Exploration &Production) Policy, 2011 that offers 40 percenthigher price than the price announced inExploration & Production Policy, 2009, withan incentive of additional 10 percent price ifthe discoveries are made within a period of 2years to attract exploration companies to investin tight gas fields. Tight gas reserves areestimated at 24 trillion cubic feet. Initially 100-150 Mmcfd would be added depending on itssuccess rate.Economic Coordination Committee (ECC) hasapproved Low BTU Gas Pricing Policy, 2012. Petroleum Policy 2009 is reviewed andPetroleum (Exploration & Production) Policy,2012 is being promulgated shortly. The Ministry of Petroleum & NaturalResources is also working on Shale Gas Policyto encourage the investors to exploit thesereservoirs.14.4-a Oil and Gas Development CompanyLimited (OGDCL):OGDCL is the local market leader in terms ofreserves, production and acreage. It is the firstPakistani Exploration and Production Company tolist its shares on the London Stock Exchange.Equipped with a forward looking professionallydeveloped Business and Strategic Plan, competentprofessionals to implement the same and robustbalance sheet OGDCL is ready to take on thechallenges of an internationally listed company.OGDCL had spaded 7 wells (1 Exploratory /Appraisal & 6 Development wells) during theperiod July to December 2011. In the previous yearduring the corresponding period 7 wells (2Exploratory / Appraisal & 5 Development wells)were spaded. The details of the Oil, Gas, LPG andsulphur’s production is given below:211

Pakistan Economic Survey 2011-12Table 14.15: Physical Performance of OGDCLS. # Name of Activity July-Dec July-Dec Change (%)2010 20111 Total 7 7 −i Exploratory Wells 2 1ii Development / Appraisal Wells 5 62 Productioni Oil (Barrels) 6,656,408 (36,176) 6,611,728 (35,933) -0.7ii Gas (MMcft) 152,934 (831) 158,933 (864) 3.8iii LPG (MT) 21,646 (118) 17,613 (96) -22.9iv Sulphur (MT) 12,435 (67.5) 12,750 (69.2) 2.5Source: Ministry of Petroleum &Natural Resources (MP&NR), Oil & Gas Development Company Ltd (OGDCL)Figures in braces show daily average production14.4-b Oil & Gas Regulatory Authority(OGRA):The Oil and Gas Regulatory Authority (OGRA) ismandated by the government to regulate the oil andgas sector to promote competition and attractinvestment. In March 2006, it was also given thetask to compute and notify prices of petroleumproducts as per the Federal Government approvedformula. OGRA computes and notifies ex-refineryprice of High Speed Diesel (HSD) and SuperiorKerosene Oil (SKO) including ex-depot prices ofSKO and IFEM (In land Freight EqualizationMargin) on monthly basis. Furthermore, OGRAhas been assigned to monitor the pricing ofpetroleum products. OGRA has also been assignedto submit quarterly reports on pricing of petroleumproducts indicating the trend in internationalmarkets and petroleum products pricing announcedTable 14.16: Physical Performance of SNGPL and SSGCLS. No Name of Activity 2010-11SNGPLby Oil Marketing Companies (OMCs)/refineriesalong with analysis/findings and suggestions, ifany, on regular basis to ECC.14.4-c Sui Northern Gas Pipelines Limited(SNGPL):During 2010-11 SNGPL earned a profit after tax ofRs. 2,361 million and paid an amount of Rs. 1,228million in corporate taxes. During the current yearSNGPL extended its transmission network to alength of 7,613 Km.14.4-d Sui Southern Gas Company Limited(SSGCL):SSGCL earned a profit after tax of Rs. 4,795million during 2010-11. During the current yearSSGCL extended its transmission network to alength of 3,337 Km.2010-11SSGCL1 Sector-Wise Gas Consumption (mmcf)Power 321 218Fertilizer 116 66Cement 2 2CNG/Transport 231 80General Industry 302 202Commercial 72 28Domestic 416 231Total 1,460 8272 New Connections (Nos.)Domestic 256,172 120,159Industrial 231 179Commercial 1,246 844Total 257,649 121,182Source: Sui Northern Gas Pipeline Ltd (SNGPL), Sui Southern Gas Pipeline Ltd (SSGC)212

Energy14.5 Performance of Power Sector Authorities14.5-a National Electric Power RegulatoryAuthority (NEPRA)The National Electric Power Regulatory Authorityis exclusively responsible for regulating theelectric power services and safeguarding theinterests of investors and consumers. NEPRAgrants licenses for generation, transmission anddistribution of electric power; determines tariffrates, charges and other terms and conditions forsupply of electric power; prescribes and enforcesperformance standards and addresses thecomplaints of electricity consumers. As a regulatorNEPRA extends advice/recommendations to theconcerned entities, including the government, tomake the power more efficient and sustainable.During the period July-December 2011, NEPRAannounced the Upfront Tariff for Wind PowerProducers. Upfront tariff for coal basedtechnologies is also in the pipeline and will beannounced after consultations with the PrivatePower and Infrastructure Board (PPIB). NEPRAprocessed 25 applications for grant of generationlicenses for power plants with a cumulativecapacity of approximately 600 MW; out of which15 were granted generation licenses while theothers were at an advanced stage of processing andexpected to be finalized soon. Besides these, onedistribution license was also granted. SinceNEPRA determines electricity tariffs in accordancewith the Tariff Standards and Procedure Rules,1998 during the period July-December 2011, 13tariff determinations and 149 tariff adjustmentswere issued relating to different GenerationDistribution Companies.Pursuant to amendment in Section 31 of NEPRAAct (XL of 1997), through promulgation ofOrdinance No.XVIII of 2009 dated July 31, 2009,Ordinance No.XXIX of 2009 dated November 26,2009 and Ordinance No.XIV of 2010 dated April20,2010, NEPRA was mandated to determine theoverall electricity tariff on a quarterly basis andintimate the same to the Federal Government fornotification in the official Gazette. The ordinancelapsed in August 2010. Thereafter, tariffdetermination on an annual basis and adjustmenton account of variation in fuel cost component ofconsumer-end-tariff is being determined byNEPRA on a monthly basis in pursuance of theFinance Bill 2008. The status of complaints duringJuly-December 2011 has been summarized below:Table 14.17: Physical Performance of NEPRA (July – December 2011)DISCOSComplaintSent toDISCOSRedressed byDISCOSUnderProcessConsumer advised toapproach DISCOSTotal DisposedoffTotalComplaints(1) (2) (3) (4) (5) = (2) + (4) (6) = (1) + (4)PESCO 80 64 16 31 95 111IESCO 29 29 0 29 58 58GEPCO 11 10 1 6 16 17FESCO 24 23 1 22 45 46LESCO 37 34 3 62 96 99MEPCO 167 162 5 116 278 283HESCO 105 103 2 56 159 161QESCO 1 1 0 3 4 4KESCO 59 59 0 52 111 111SEPCO 15 14 1 69 83 84Total 528 499 29 446 945 974Source: National Electric Power Regulatory Authority (NEPRA)213

Pakistan Economic Survey 2011-1214.5-b Water and Power DevelopmentAuthority (WAPDA)The installed capacity in the PEPCO system is20,986 MW as of June 2011; with hydro 6627 MWand thermal 14,359 MW. The hydropower capacityaccounts for 31.6 percent, thermal 65.3 percent andNuclear 3.1 percent. Of this 4829 MW is owned byex-WAPDA GENCOs, 448 MW by rental, 650 byPAEC and rest by IPPs. There is 55-MW ofisolated generation capacity in Pasni and Punjgoorareas. WAPDA is executing, on priority basis, theprojects such as 969 MW-Neelum Jhelum, 1410MW-Tarbela 4 th Extension, 7100 MW-Bunji, 4320MW-Dasu, 740-MW Munda Dam and mostmentionable 4500 MW-Diamer Bhasha Damprojects, to cope with the increasing demand ofpower. Almost 96 percent work on the main dam atMangla, spillway and allied facilities had beencompleted and resettlement work is in progress.Likewise 99.7 percent work on Satpara and 72.1percent on Gomal Zam dam had been completed.In an attempt to reduce the energy crises, PrimeMinister Yousaf Raza Gilani laid the foundationstone of the Diamer Bhasha Dam in Gilgit-Baltistan on October 18, 2011. The dam is beingbuilt about 40 kilometres from Chilas on the IndusRiver and will have a capacity of producing 4,500megawatts of electricity. Some salient features ofthe dam are given in Box-2:Box-2(Diamer Basha Dam Project)ProjectThe project is located on Indus River, about 315 kmupstream of Tarbela Dam, 165 km downstream ofGilgit and 40 km downstream of Chilas. Theproposed dam would have a maximum height of 270m, and impound a reservoir of about 7,500,000 acrefeet (9.25×109 m 3 ), with live storage of more than6,400,000 acre feet (7.89×109 m 3 ). Mean annualdischarge of Indus River at the site is 50,000,000acre feet (6.2×1010 m 3 ).Salient Features• Total installed capacity 4500 MW• Availability of about 6,400,000 acre feet(7.89×109 m 3 ) annual surface face waterstorage for supplementing irrigation suppliesduring low flow periods.• Reduction of dependence on thermal power,thus saving foreign exchange.• Creation of massive infrastructure leading tooverall socio-economic uplift of the area andstandard of living of people.• Minimum operation level having expectedlength equal to 1060 m.i). Electricity Generation & PowerTransmissionDue to alarming increase in fuel prices, the needfor cheaper hydro power has gained moreimportance. Unfortunately the composition ofelectricity generation shows that the hydropotential has not been utilized fully. The hydropotential which is located in the north is stilllargely untapped. The hydro generation accountedfor 31.9 percent during July-March 2011-12accounted 33 percent in total electricity generationwhile during 2011-11 it came up to 35.6 percentcompared to 31.9 percent during 2009-10. The214

Energytrend of hydro-thermal energy generation for thelast five years is given in the following table.Table 14.18: Electricty GenerationYear Hydro (Gwh) % age Thermal (Gwh) % age Total (Gwh) % Change2006-07 31,942 36.4 55,895 63.6 87,837 6.82007-08 28,667 33.2 57,602 66.8 86,269 -1.82008-09 27,763 32.9 56,614 67.1 84,377 -2.22009-10 28,492 31.9 60,746 68.1 89,238 5.82010-11 32,259 35.6 58,316 64.4 90,575 1.5July-Mar2010-11 24,105 36.0 42,823 64.0 66,928 −2011-12 22,411 33.0 45,534 67.0 67,945 1.5Source: Pakistan Electric Power Company (Pvt) Limited (PEPCO), National Transmission & Distribution CompanyLimited (NTDC)Total energy includes import from Iran, Gwh : Giga watt hoursTo carry power from power generation station tothe consumers’ network, the role of transmissionand primary lines network is very essential. Notonly the length of network-lines is important butthe transformation capacity of the grid-stations isalso of equal value. The length of transmissionlines was 7367 KM for 220kV and 23995 KM for132-kV level at the end of June 2010. This hasgone up to 7427 KM for 220 kV and 26321 KMfor 132 level at the end of June 2011, showing acombined increase of 2386 KM.The transformation capacity of 220 kV substationswas 15014 MVA 3 at the end of June 2010, whichas 16494 MVA by the end of June 2011 showingan increase of 1480 MVA. It has further gone up17671 MVA by the end of December 2011showing an increase of 1177 MVA over June2011. Similarly, the 132 kV transformationcapacity which was 26569 in June 2010 has goneup to 30137 MVA by June 2011 and up to 31016MVA by the end of December 2011 thus showingan appreciable increase of 4447 MVA over June2010 figures.ii). Growth in Consumers.The number of consumers has been increasing dueto rapid expansion of electric network to villagesand other un-electrified areas. During July-March2011-12 the number of consumers has beenincreased to 20.85 million as compared to 20.12million in the comparable period of last year. Thetrend of increase in number of consumers duringthe last five years is given in the following table:Table 14.19: Number of ConsumersYear Domestic Commercial Industrial Agriculture Others Total2006-07 14,354,368 2,151,971 233,162 236,255 10,798 16,986,5542007-08 15,226,711 2,229,403 242,401 245,640 11,211 17,955,3662008-09 15,481,734 2,256,837 250,593 254,891 11,504 18,255,5592009-10 16,673,015 2,362,312 263,507 271,268 12,122 19,582,2242010-11 17,322,140 2,421,221 273,067 280,603 12,452 20,309,483July-March2010-11 17,157,541 2,404,136 270,445 279,021 12,354 20,123,4972011-12 17,808,962 2,466,049 284,049 282,639 12,745 20,854,444Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority3 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 thePF is unity then MVA = MW. A PF of UNITY suggests that the load is purely resistive with neither capacitive nor inductive components in theload or source. Of course this can mean such components have been balanced artificially.215

Pakistan Economic Survey 2011-12iii). Village ElectrificationThe village electrification program is an integralpart of the total power sector development programin order to provide basic necessity of life to all thepeople of Pakistan, raise the productive capacityand socio-economic standards of the populationliving in rural areas.Table 14.20: Village ElectrificationYear AdditionDuring theYearProgressiveTotalGrowth(%)2006-07 14,203 117,456 -2007-08 10,441 127,897 8.92008-09 9,868 137,765 7.72009-10 15,062 152,827 10.92010-11 11,705 164,532 7.7July-Mar2010-11 7,283 160,110 -2011-12 6,558 171,090 6.9Source: Water and Power Development AuthorityBetween the period 30 th June 2011 to March 2012,6,558 was the progressive number of electrifiedvillages. The trend of village electrification duringpast 05-years period is provided in Table 14.20:iv). Electricity Consumption by EconomicGroupThe consumption of electricity by economic groupidentifies the domestic sector as the largest user forthe past many years. Even during the current year2011-12, the consumption pattern, more or less,remained the same with domestic share of 43percent, industrial 26 percent and agriculturalabout 12 percent. During July-March 2011-12,consumption of electricity has increased in everyeconomic group including domestic, commercial,industrial and public lighting which is a positiveindication. The consumption trend of electricity byeconomic group for the past 05-years is givenbelow:Table 14.21: Consumption of Electricity by Economic Group(Million Kwh)Year Domestic CommerciacultureIndustrial Agri-Public Bulk Traction Supply TotalLighting Supplyto KESC2006-07 28,990 4,290 17,603 8,097 316 3,267 12.0 4,905 67,4802007-08 28,751 4,358 17,299 8,380 340 3,332 8.0 4,072 66,5402008-09 27,787 4,203 16,035 8,695 347 3,198 5.0 5,014 65,2842009-10 29,507 4,466 16,371 9,585 372 3,367 2.3 5,208 68,8782010-11 30,973 4,683 17,700 8,847 3,644 3,644 2.0 5,449 74,942July-Mar2010-11 22,691 3,450 13,255 6,485 261 2,680 0.5 3,976 52,7992011-12 23,137 3,483 14,023 6,298 280 2,716 0.5 4,319 54,257Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authorityv). Power LossesThe National Transmission & Dispatch CompanyLimited (NTDC) and Distribution Companies(DISCOs) have invoked various technical andadministrative measures to improve operationaland managerial efficiency to reduce power losses.The measures have given positive signs resultingin the reduction of power losses and increase inrevenue. Certain measures such as renovation,rehabilitation, capacitor installation andstrengthening the distribution system network are acontinuous process for controlling/reducingwastage of power/energy. The Transmission andDistribution losses for the past five years are givenbelow which indicate steady trend of efficiencyincrease:Table 14.22: Transmission & Distribution Lossesof Net System EnergyYearTransmission & Distribution(T & D) Losses (%)2006-07 21.52007-08 21.32008-09 21.12009-10 20.92010-11 20.8July-Mar2010-11 19.82011-12 19.5Source: National Transmission & Dispatch Company Ltd,Water & Power Development Authority216

Energy14.5-c Private Power and Infrastructure Board(PPIB)The Private Power and infrastructure Board (PPIB)is a ‘One Window” facilitator to the privateinvestors in the fields of power generation onbehalf of the Government of Pakistan (GoP). PPIBis currently processing thirty eight (38) multiplefuel (Oil, Coal, Gas, Cogeneration and Hydel)Independent Power Producer (IPP) projects with acumulative capacity of around 10,457 MW. Out ofthese thirty eight projects, a total of twelve (12)new IPPs having a cumulative capacity of over2400 MW have been commissioned since March2009; while other companies are aggressivelyworking to achieve the financial close/commissioning of their respective projects.The year wise actual/expected capacity additionsof IPPs upto year 2019 are as follows:Table 15.23 Actual/expected capacity additions ofIPPs upto year 2019Year(MW)Project already2,409commissioned2013 4592014 1262015 5292016 5522017 1,6822018 4,1522019 548Total 10,457Source: Private Power and Infrastructure Board14.5-d Karachi Electric Supply CompanyLimited (KESC)The Karachi Electric Supply Company PowerUtility has posted earnings before Interest, Tax,Depreciation and Amortization (EBITDA) of Rs.5.0 billion compared to Rs. 2.7 billion during thesame period last year. This growth has largely beendriven by the improvement in Transmission andDistribution (T&D) losses; which have come downto 29.6 percent - a reduction of 1.6 percent Year onYear and 2.9 percent on Quarter on Quarter basis.This was also made possible with the improvementin efficiency of the generation fleet throughinvestment in state of the art new plants. Duringthe 3 rd Quarter of 2012, all the three Gas Turbineseach of 116 MW of the Bin Qasim Power Station-II (BQPS-II) 560 MW combined cycle plant havebeen successfully commissioned and the steamturbine will be successfully operative shortlywhich will further boost up the profitability of theCompany and take the overall KESC generationfleet efficiency to 40 percent.14.6 Alternative Sources of EnergyThe government in its bid to diversify its energymix, has been giving due attention to fast track thedevelopment of Alternative / Renewable Energy(ARE) resources in the country. With this veryobjective in view the Government of Pakistan inMay 2010 gave the Alternative EnergyDevelopment Board (AEDB) the mandate toimplement Alternative / Renewable Energy (ARE)commercial projects on its own or through jointventure or partnership with public or private sectorentities in addition to its mandates under theordinance. Along with the AEDB, the PakistanCouncil of Renewable Energy Technologies(PCRET) has also been acquiring and updatingknow how for the promotion and mass propagationof Renewable Energy Technologies in the field ofSolar, Micro-hydel, Wind etc. The main functionof PCRET is to develop, acquire, adapt, promoteand disseminate Renewable Energy Technologiesin the country.Measures taken by AEDB during this fiscalyearAEDB initiated a number of supportive measuresthat were required to be taken for laying a strongfoundations of the ARE sector in Pakistan. In thisregard:New wind corridors in areas outside Sindhhave also been identified. Resource assessmentof these corridors is underway and a number ofwind measuring masts are being installed in allfour provinces.National Grid Code for wind power projectshas been amended. Grid Integration Plan 2010-2015 for wind power projects is developed byAEDB to support National Transmission andDispatch Company (NTDC).Regional Environmental Study has beenconducted by AEDB to support wind power217

Pakistan Economic Survey 2011-12projects. Guidelines for environmentalassessment have also been developed.Asian Development Bank has been taken onboardto provide guarantee to the wind powerproject developers in order to mitigate thecountry risk.Local manufacturing of micro wind turbine hasbeen started. Manufacturing for large windturbines is also being initiated. The turbinetowers for the first project are beingmanufactured in Pakistan.Issues related to financing of projects havebeen resolved and now leading financingagencies like International FinanceCorporation (IFC), Asian Development Bank(ADB), Organization of the PetroleumExporting Countries (OPIC) and EconomicCooperation Organization (ECO) Trade Banketc. are offering financing to wind powerprojects in Pakistan.Measures taken by Pakistan Council ofRenewable Energy Technologies (PCERT)during this fiscal yearThe Council had also strived to strengthen itsdevelopmental efforts by introducing variousprojects in the public sector for the developmentand promotion of suitable technologies to producematerials and devices in the field of RenewableEnergy despite the number of hurdles in thedevelopment and promotion of renewable energytechnologies. Some of the notable projects andtheir status are as under:Table 15.24: Projects by Pakistan Council of Renewable Energy Technologies (PCERT)No. Type Present Status Target 2011-15 Target 2016-201. Micro-hydel Plants (MHP) in GilgitBaltistan, AJK & Khyber Pakhtonkhwaand Canal-falls485 units generating 8 MW (electrifying 70,000houses)5 MW (electrifying25000 houses)20 MW (electrifying100,000 Houses)2. Biogas Plants Cooking, lightingIrrigation and power generation3. Solar Water Heaters Manufacturingthrough private sector with PCRETTechnical servicesSolar Dryers Manufacturing throughprivate sector with PCRET TechnicalservicesSolar Cooker Manufacturing throughprivate sector with PCRET Technicalservices4. PV Modules Production Manufacturingthrough private sector with PCRETTechnical services4000 units. Producing 18000 M 3 /day 50,000 units.Producing 0.300million M 3 /dayDesigned & developed 05 different models ofSWH for commercialization.Designed & Developed 03 different models of20,100 & 500 Kg capacitiesDesigned & developed box and dish type solarcookers for commercializationDeveloped Solar Cell production capacities upto pilot scale.5. Wind Turbines 100% subsidy 155 units of 0.5-10 KW capacity electrifying1600 houses.Source: Pakistan Council of Renewable Energy Technology (PCERT)10,000 units (125-260liters each)50,000 units.Producing 0.300million M 3 /day25000 units 125-260liters/day50,000 units 100,000 units100,000 units 200,000 units5 MW 20 MW1000 units 10 MWelectrifying 50,000houses1000 Nos. 10 MWelectrifying 50,000houses(i) Mega Wind Power ProjectsIn addition to the above mentioned projects, AEDBalso issued Letters of Intent (LoIs) to 43 IPPspursuing development of wind power projects.Land was allocated to 19 IPPs for 50 MW windpower projects each in Gharo Keti Bander WindCorridor. Projects with a cumulative capacity ofapprox. 950 MW are at various stages ofdevelopment on these lands.(ii) BiodieselMain achievements in this fiscal year are: Pilot Energy plantations for Biodieselcultivated on 650 acres under study; Biodiesel production initiated with PSO;First Biodiesel refinery with the capacity of18,000 Tons / annum Capacity has been set upat Karachi.SRO 474(1)12008 exempts custom duties andsales tax on Biodiesel production equipmentand material.Amendments in OGRA Ordinance for Biofuels pricing approved.218

Energy Proposal for undertaking a feasibility study toset up 10,000 tons per annum Biodieselproduction facility is in search of funding. Barriers to implementing Biodiesel Policyidentified at the National StakeholdersConference. Task force for barrier removalestablished. Registration of Jatropha seeds under process(iii) Biogas ProjectsPakistan produces a huge amount of municipalwaste (up to 50,000 tons / day) and agriculturalwaste in the form of Biogas, Cotton Sticks, andRice Husk etc. Converting this waste into energycan generate up to 5,000MW of power. Pakistanoffers lucrative opportunities in this sector inwhich a number of projects are already beingimplemented.So far Pakistan Council of Renewable EnergyTechnologies (PRET) has installed 4015 biogasplants (with net generation capacity of 17980M 3 /day) on cost sharing basis throughout thecountry. During the period in reference, 234 biogasplants have been installed. PCRET has installed1000 biogas plants of 5 cubic meters each withannual production of 1.941 Million cubic metergas, 1.567 Million kg of manure and 4.7 Million kgof carbon dioxide abatement. In addition theCouncil has installed 30 commercial size biogasplants ranging from 50-250 M 3 by executingtechnological support for irrigation and powergeneration.A World Bank funded project for carrying out adetailed study for Biomass / Waste-to-Energyprojects in 20 cities of Pakistan has been initiated.Another Waste to Energy Study, funded by U.STrade and Development Agency (USTDA) isbeing carried out for Karachi to generate 5-10MWpower.AEDB has issued a LoI to set up a 12MW Biomassto Energy power project in Sindh, basedexclusively on Biogas / Agricultural Waste. Theproject is jointly sponsored by investors from USand local entrepreneurs, the SSJD Bio Energy.Another LoI has been issued to M/s LumenEnergia Pvt Ltd. to set up a 12MW power plant atJhang based on agricultural waste like cotton stalk,rice husk, sugarcane trash, biogas, wheat chaff andother crops as multi-fuel sources. AEDB has issueda letter of intent to M/s Pak Ethanol (Pvt) Ltd. toset up a 9 MW biogas power project at Pak Ethanol(Pvt) Ltd, Matli, and Sindh.(iv) Small HydroProductive Use of Renewable Energy (PURE)Project is being implemented to install 103 hydropower plants in Khyber Pakhtonkhwa (KPK) andGilgit Baltistan (GB), with the total cost of US$19.5 million. Another project for 250 plants isunder preparation for the same areas. Eight hydroprojects have been initiated under the RenewableEnergy Development Sector Investment Program(REDSIP) with the support of the AsianDevelopment Bank (ADB). These projects arebeing implemented in KPK and Punjab with anestimated cost of US $ 290 million. Another 2small hydro power projects have been initiatedunder REDSIP. The Government of Punjab hasissued LOIs to private investors for establishmentof 10 small hydro projects with a cumulativecapacity of 142MW at different locations inPunjab. AEDB has initiated a program with theassistance of Deutsche Gesellschaft fürInternationale Zusammenarbeit (GIZ) support toassist the provinces to solicit private investments insmall hydro sector; under this program prefeasibilitystudy for 25 hydro sites in AJK, Sindh,Punjab and KPK with the cumulative capacity of284.14MW has been completed. Public sectorHydro power projects are initiated in (a) KPK(worth U$ 150.99 Million, of 17.0MW, 36.6MWand 2.6 MW), (b) Punjab (worth U$ 138.74Million, of 5.38MW, 4.04MW, 2.82MW, 4.16MW and 7.64MW) and (c) Gilgit Baltistan (worthU$ 71.12 Million, of 26MW and 4MW(v) SolarIn Solar Energy, 6 LOIs for cumulative capacity of148 MW On-Grid Solar PV power plants havebeen issued by AEDB. Additionally 3 LoIs of 70MW capacities have been issued by Punjab PowerDevelopment Board (PPDB). The sponsors arepreparing feasibility studies. Solar VillageElectrification Program was initiated under thePrime Minister’s directive. Three thousand SolarHome Systems have been installed in 49 villagesof district Tharparkar, Sindh. Another 51 villages219

Pakistan Economic Survey 2011-12in Sindh and 300 villages in Balochistan have beenapproved for electrification using solar energy andwill be implemented shortly. AEDB is also doingthe Parliamentarian Sponsored VillageElectrification Program and has so far preparedand submitted 27 feasibilities for approval. Fundsfor three schemes have so far been released underPeople Work Programs-II PWP-II and the schemesare being implemented.These government’s policies aim to meet thedemand fully with an emphasis on exploration ofindigenous resources including hydel, coal,domestic gas and renewable and imported energyin a timely manner. Sectoral deficiencies are beingimproved. Institutions are strengthened and privatesectors’ involvement is being enhanced to promotethe culture of public private partnership leading tolessen the burden on public resources. In thiscontext the government held two National EnergyConferences in 2011 and 2012. To address thepresent energy crises the followingrecommendations were made:Equitable load shedding among all provinces.Reduction in number of working days forgovernment offices along with implementationof street-light conservation plan asrecommended by the Ministry of Water andPower.Closing down of all commercial centersthroughout the country at 8pm except forweekends. For saving energy the governmenthas decided to have different office hoursduring winter and summer time.Allocation of additional gas to the powersector (ideally 207mmcfd giving 1000MW)Subsidy for solar agri tube wells through easyfinancingThe government will also cut power supply toadvertisement billboards and would replace allthe regular bulbs with energy-savers.To ensure the smooth supply of power thegovernment will allocate additional gas topower companies.To limit the use of energy by governmentoffices, prepaid meters in all federal andprovincial government buildings will beinstalled. Also cases related to power theftswill be registered and immediate action againstthe culprits will be taken. Provinces to help inprompt registration of FIRs, designatingspecial magistrates and nominating focalpersons. e.g., Home Secretary at the provincialand the District Coordination Officer (DCO) atthe district level for expeditious disposal ofelectricity theft cases. Upfront tariff for all types of fuels by NEPRAand tariff increase of 12 percent Expedite conversion of steam basedIPPs/GENCOs to coalConclusionEnergy needs are indelibly linked to Pakistan’seconomic and sustainable growth capabilities.Pakistanis have been in increasing in demandacross the various areas of energy sources. With agrowing economy and the desire for vastproduction and consumption across the country,the energy demands remain high. With energyshortages as a main challenge, the government isworking tirelessly to ensure such problems areremedied. Given the need for energy, theGovernment of Pakistan is doing the utmost topromote renewable energies, various energysources and energy efficiency. There are variousprojects that speak to the endless possibilities ofbuilding up Pakistan’s renewable energy sources.These hope to continue and expand in comingyears220

Chapter 15Social Safety NetsBackgroundSince 2007-08 the economy has been underconsiderable pressure due to both domestic andexternal developments. The global financial crisishit the country hard when it was already facing abalance of payments crisis stemming from highfood and fuel prices in the world markets. Thecombined effects of the global food and fuel crisesadversely affected the economy resulting inunsustainable current account and fiscal deficitsand unprecedented high inflation. Moreover, theunstable law and order situation in the country andstruggle against extremism put severe strains onthe government’s finances. These adversedevelopments led to the signing of an IMF StandbyArrangement Programme. The catastrophic floodsof 2010 and 2011 further exacerbated the situation.The floods led to a huge loss of life in 2010,affecting approximately 20 million people directlyand a much larger proportion indirectly. Moreover,the huge damage to crops and infrastructure alsoseverely affected the economy at large, whichdisrupted the supply chain and business activitiesin the affected areas. This supply shock resulted inhigh inflation. The floods of 2010 were followedby the rains of 2011, which though of lowerintensity compounded the negative impact on theeconomy and added to the pressures on prices andthe welfare of the people.This chapter describes the impact of prices onhousehold expenditures and welfare of the peoplein Pakistan and the steps taken by the governmentto mitigate some of the adverse effects through theseries of safety nets that have been put in place toprotect the poor and vulnerable.The Effect of Prices on the Welfare of the PoorThe inflationary pressure on the economy hasincreased during the last four years due to acombination of the external and domestic shocksdescribed above. Inflation which had increasedrapidly during 2007-08 by 17.0 percent for theconsumer price index overall and 23.7 percent forfood items respectively has started to come down.According to Pakistan Bureau of Statistics duringthe period July-March 2011-12 it was 10.8 percentfor the consumer Price Index overall and 11.2percent for food. The rise in price indices wasmainly driven by food inflation, which rose rapidlyduring this period. Prices of basic foodcommodities like wheat, wheat flour, eggs, freshfruits, chicken, potatoes, rice, vegetable andcooking oil rose sharply during 2008-10. While asharp increase in world food prices andinternational oil prices since 2007 were mainlyresponsible for the escalation of prices, a numberof domestic factors also contributed to the pricehike.The government has brought down inflation in thecurrent fiscal year due to a stringent demandmanagement policy, better supply chainarrangements, tight monetary policy and regularlymonitoring of the price and supply position of allessential items by taking all the provincialgovernments on board.221

Pakistan Economic Survey 2011-12Fig-15.1: Consumer Price Index and Food Inflation CPI Food3027242118151296302000‐012001‐024.43.63.52.42002‐033.12.92003‐044.66.09.312.52004‐057.96.97.810.312.017.617.023.72005‐0610.112.62006‐0713.718.310.811.22007‐082008‐092009‐102010‐112011‐12(Jul‐ Mar)Source: Pakistan Bureau of StatisticsIt has been observed that South Asia’s poor areparticularly vulnerable to food price rises while itseconomies suffer from higher than average overallinflation when compared to the remainder ofdeveloping Asia. ADB estimated the priceelasticity of poverty with respect to food prices,which measures the percentage increase in povertywhen food prices increased by 1 percent using thelatest POVACL (World Bank) database. Theanalysis simulates the effect of rising food pricesby 10 percent, 20 percent and 30 percent on thechange in percentage of poor and the totalheadcounts of poor in South Asia. Table 15.1shows the impact of the food prices on poverty forSouth Asian countries vs. Developing AsiaTable 15.1: Impact of food price increases on Poverty for South Asia vs. Developing Asia ($1.25-a-dayPoverty Line)Change in percentage of poor(in percentage points) with anincrease in food prices by:Change in number of poor(in millions) with an increase in foodprices by:10% 20% 30% 10% 20% 30%Bangladesh 2.5 5.0 7.5 3.8 7.7 11.5Bhutan 1.8 3.5 5.3 0.01 0.02 0.03India 2.7 5.4 8.1 29.5 59.0 88.5Nepal 2.0 4.1 6.1 0.6 1.1 1.7Pakistan 2.2 4.5 6.7 3.47 6.9 10.4Sri Lanka 1.2 2.4 3.6 0.24 0.47 0.71South Asia average 2.1 4.1 6.2 37.6 75.2 112.8Percentage of increase in total- - - 58.4% 58.4% 58.4%poor in developing Asia bySouth AsiaDeveloping Asia 1.9 3.9 5.8 64.4 128.8 193.2Source: Food price escalation in south Asia - A serious and growing concerns, Asian Development Bank, February2012The progress on poverty alleviations its correlates and Millennium Development Goals is presented inBox-1222

Social Safety NetsBox-1Poverty Alleviation and Millennium Development GoalsThe UNDP’s Human Development Report, 2011 ranks Pakistan at 145 th with HDI value of 0.504. The report showsgradual increase in the value of HDI from 0.503 in 2010 and 0.499 in 2009, through Pakistan’s rank has slipped alittle during 2011. Other composite indices place Pakistan at a lower rank. The Inequality Adjusted Poverty Index is0.346 and multi-dimensional poverty index for Pakistan is 0.264. These indices weight inequality and non-incomedimensions of poverty more.Pakistan Social and Living Standards Measurement Survey 2010-11 shows mixed results in terms of the educationenrolment indicators. Literacy rate (10+) has improved from 57 percent in 2008-09 to 58 percent and adult literacyimproved from 54 percent to 55 percent in the same period, while Primary and Middle school Gross EnrollmentRate also registered a one percentage point improvement. However, slippage on the primary and secondary NetEnrollment 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 supplyand sanitation indicators. Whereas the sanitation situation at household level has registered an improvement (interms of 66 percent of population using flush toilets compared to 63 percent in 2008-09), the access to drinkingwater to urban and rural population of Pakistan is 94 percent and 84 percent respectively, with an average of 87percent in 2011.A committee of poverty experts has been constituted in Planning and Development Division to estimate PovertyHeadcount as well as poverty correlates. The committee is working on its task in a professional ways considering alldimensions of poverty and report of the committee will be available shortly.Source: Planning & Development DivisionProfile of Consumption ExpenditureThe trends in household consumption expenditureprovide an effective insight into understanding thedynamics of poverty in the country. Table-15.2reveals the per capita consumption expenditure inurban/rural areas and by quintiles. The average percapita expenditures for the richest class in theurban areas are more than four and half times thoseof the poor class. Analysis along similar lines forrural areas indicates that these averages are morethan three and half times those of the poor class.The average per capita expenditure is almost thesame for poor in rural and urban areas whereas forthe rich class it is higher in urban areas than in therural areas, indicating that more wealth isconcentrated in urban areas compared to ruralareas.Table-15.2 Per Capita Monthly Household Consumption Expenditure by Quintiles & RegionPer Capita Monthly Household Consumption ExpenditureQuintiles2007-08 2010-11Urban Rural Total Urban Rural Total1 st 906 868 874 1441 1426 14282 nd 1216 1208 1210 1985 1966 19703 rd 1547 1522 1529 2469 2468 24684 th 2032 1998 2011 3217 3195 32035 th 4334 3566 3984 6679 5312 6073Ratio of highest to lowest 4.78 4.11 4.56 4.63 3.73 4.25quintilesSource: Federal Bureau of StatisticsTable 15.3 compares the percentage of monthlyconsumption expenditure by commodity groups.The consumption expenditure pattern for differentcommodity groups shows consistent trend from2007-08 to 2010-11. The share of food expenditureis relatively higher compared to the other223

Pakistan Economic Survey 2011-12commodity groups. It had increased from 43.05percent in 2005-06 to 44.22 percent in 2007-08.Since the international food price hike of 2008 andthe domestic shocks following the floods itincreased further to 48.91 percent in 2010-11.Further analysis reveals that consumptionexpenditure in apparel, textile, and footwear,housing, education, transport, communication andrecreation and entertainment has, as expected,shown a decreasing trend since 2007-08 whileconsumption expenditure on fuel and lighting,cleaning and laundry has shown a slightlyincreasing trend as compared to 2007-08.Food price inflation and slow growth over anumber of years resulting from the combination ofinternational and domestic shocks has led to agreater share of expenditures going to the essentialfood, fuel, lighting etc.Table 15.3: Percentage of Monthly Consumption Expenditure by Commodity GroupsCommodity Groups 2005-06 2007-08 2010-11Urban Rural Total Urban Rural Total Urban Rural TotalFood, drinks &35.17 49.56 43.05 37.85 48.87 44.22 41.08 54.71 48.91tobaccoApparel, textile, footwear4.90 6.42 5.73 4.71 6.06 5.49 4.66 5.45 5.11Transport &7.12 5.39 6.17 6.55 5.92 6.18 6.69 5.51 6.01communicationCleaning & laundry 3.54 3.61 3.58 3.77 3.49 3.60 3.55 3.83 3.71Recreation &1.04 0.32 0.65 1.09 0.42 0.70 0.77 0.19 0.44entertainmentEducation 5.20 2.41 3.67 5.26 2.94 3.92 4.82 2.51 3.49Housing (rent & 22.74 8.94 15.19 22.11 9.99 15.10 21.04 8.67 13.93other costs)Fuel & lighting 7.39 8.41 7.95 6.82 8.09 7.55 7.06 8.01 7.60Miscellaneous 12.91 14.94 14.02 11.85 14.23 13.23 10.32 11.13 10.78Source: Federal Bureau of StatisticsTable 15.4 shows the percentage share ofexpenditure on major food items. Out of the totalfood expenditure 17 food items contributed 82.52percent. These items contribute 84.61 percent inrural areas and 78.80 percent in urban areas.Comparison of the same 17 food items with theyear 2007-08 shows that the overall expenditurelevel has slightly increased in both urban and ruralareas. For food items the major share ofconsumption expenditure is incurred on wheat,milk, vegetable ghee, vegetables and sugarcomprising 58 percent out of 82.52 percent. Wheatcontinues to be the major expenditure item in bothrural and urban areas and its percentage share inaggregate has increased between 2007-08 and2010-11.Table 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11Food Items2007-08 2010-11Urban Rural Total Urban Rural TotalWheat 12.07 16.55 14.93 12.82 16.25 15.02Rice 4.21 4.28 4.25 3.56 3.74 3.67Pulses 2.25 2.41 2.35 2.53 2.60 2.57Vegetable ghee 6.76 9.81 8.71 5.75 8.59 7.58Tea 1.87 2.04 1.98 2.06 2.17 2.13Milk (fresh) 19.87 20.58 20.33 19.33 19.47 19.42Butter 0.39 1.49 1.09 0.32 1.22 0.90Mutton 2.55 1.12 1.64 3.80 3.10 3.35Beef 3.73 2.90 3.20 2.29 1.12 1.54Chicken 4.47 3.45 3.82 4.48 3.32 3.74Fish 0.95 0.54 0.69 0.62 0.44 0.51Fruits 4.71 3.27 3.79 4.30 3.01 3.47Vegetable 7.81 7.95 7.90 8.10 8.91 8.62224

Social Safety NetsTable 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11Food Items2007-08 2010-11Urban Rural Total Urban Rural TotalSalt 0.22 0.20 0.20 0.16 0.16 0.15Spices 2.07 1.76 1.88 2.63 2.20 2.35Sugar 4.09 5.14 4.76 5.91 7.74 7.09Gur 0.09 0.43 0.31 0.13 0.57 0.41Total 78.11 83.92 81.83 78.80 84.61 82.52Source: Federal Bureau of StatisticsPro-Poor ExpendituresThe government’s commitment to follow asustained poverty reduction strategy and aminimum of 4.5 percent of GDP to social andpoverty related expenditures is clearly reflected inthe allocations to the pro-poor sectors shown inTable 15.5. The government prioritized 17 propoorsectors through the Medium TermExpenditure Framework (MTEF) in the PRSP-II,which provides a link between the policy prioritiesand the budget realties. Expenditure on pro-poorsectors in 2007-08 stood at 5.57 percent of GDP.In 2008-09, these were 7.46 percent of GDP and in2009-10, 7.57 percent of GDP. These expenditureswere well above the requirement under the law.During 2010-11, total expenditures for thesesectors were increased further and amounted to Rs1245.541 billion, which is 6.9 percent of GDP.Already Rs. 919.564 billion expenditures havebeen made in these sectors during July-Decemberof the current fiscal year. Box-2 present anoverview of social protections programs inPakistan.Table 15.5: Budgetary Poverty Related Expenditures by Sectors(Rs. Million)Sectors 2007-08 2008/09 2009-10 2010-11 2011-12*Roads, Highways & Bridges 84,825 99,613 98,456 99,567 30,367Water Supply and Sanitation 19,817 22,204 25,459 28,506 11,788Education 182,646 240,378 259,525 322,334 156,990Health 61,127 83,714 94,399 106,017 46,842Population Planning 13,322 5,345 7,048 4,861 2,247Social Security & Welfare 18,942 29,129 54,571 55,171 24,934Natural Calamities 7,728 10,083 12,548 49,115 27,510Agriculture 83,493 88,912 104,815 115,511 41,732Land Reclamation 3,130 2,738 1,990 3,669 1,616Rural Development 23,334 16,362 20,391 19,109 12,724Subsidies 54,872 220,567 234,926 230,945 463,091Food Support Programme 4,370 12,420 0 0 0People’s Works Programme-I 1,420 3,329 8,417 5,049 2,222People’s Works Programme-II 2,748 28,000 31,754 21,300 2,902Low Cost Housing 597 583 1,828 373 101Justice Administration 7820 9,193 10,996 14,223 7,151Law and Order 2,429 104,658 143,639 169,791 87,347Total 572,620 977,228 1,110,762 1,245,541 919,564Total as % age of GDP 5.57 7.46 7.57 6.9 -Source: Ministry of Finance* July-DecemberAn overview of social protection programmes ofthe country is presented in Box-2, which alsoindicates targeted group of beneficiaries andfinancing arrangements for these programmes.225

Pakistan Economic Survey 2011-12Box-2Social Protection Programs in Pakistan1.2.3.4.5.6.7.89.S.No.Program Financing Type of Benefit Target GroupBenazir Income SupportProgram (BISP)Public Funds Cash as Income Support Married females belonging to ultrapoor householdsMicrofinance Donor Funded Cash as loan for establishing Provide financial services, credit tobusinessthe poor for self employment andmove them out of povertyPakistan Bait-ul-Mal Public Funds Cash as income support grant for Disabled persons, invalids, widows,daughters’ weddings, food orphans and household living belowsupplement in education the poverty linePeople’s Works Program Public Funds Cash for Work Provision of electricity, gas, farm tomarket roads, good, water supplyand other facilities to the rural poorPeople’s Rozgar Scheme Commercial BankFinancedSubsidy on Wheat, Sugar &FertilizerGeographicalCoverageManaged ByNationwide FederalGovernmentNationwide RSPs/MFIsNationwideNationwideFederalGovernmentFederalGovernmentFinancing for Selected businesses* Unemployed educated persons Nationwide National Bank ofPakistanPublic Funds In kind as social welfare Poor people of the country Nationwide FederalGovernmentUtility Stores Public Funds In kind as social welfare Poor people of the country Nationwide FederalGovernmentZakat & UshrSpecial levy on Cash“Deserving/Nationwide Government &bank balances &Needy” among MuslimsZakat & Ushragricultural outputCommitteesChild Labour and Childrenin BondagePublic FundsProtection survival developmentand rehabilitation servicesWorking children facing abuse andexploitationNationwideFederal &ProvincialGovernment,FATA, GBEmployees Old-Age Contributory Cash Formal Sector Employees Nationwide Federal10.Benefit Scheme(Employers)GovernmentSocial Health Insurance Contributory Cash General Population Nationwide Federal11.(individuals)GovernmentWorkers Welfare Fund Contributory Housing, schools, health facilities Formal Sector employees Nationwide Federal12.(Employers)Government*: Community Transport, Community Utility Sores, Community Mobile Utility Stores and PCO/Tele-Centers with a maximum of Rs 200,000/- three new productsincluding Commercial Vehicle, Shopkeepers and Primary Healthcare Equipments to Medical Graduates, Science Graduates and B-Pharmacy qualified individuals. Themaximum limit ranges from Rs 500,000/- to Rs 700,000/-Social Safety ProgrammesRecognizing the need to protect the poor and thevulnerable, the government has launched severalsafety net programs. The following social safetynet programs in particular minimize the adverseeffects of poverty on the targeted population of thecountry.I. Pakistan Poverty Alleviation FundThe Pakistan Poverty Alleviation Fund (PPAF) is aflagship element of country’s poverty reductionstrategy. It is sponsored and supported by thegovernment with an endowment of Rs. 1,000million and funded by the multilateral and bilateraldonors like World Bank, International Fund forAgricultural Development, KfW FinancialCooperation Germany, US Department ofAgriculture, Italian Government etc. The fundingprovided to PPAF is dedicated for micro credit,enterprise development, community basedinfrastructure and energy projects, livelihoodenhancement and protection, social mobilization,and capacity building institutional assistance forthe partner organizations of PPAF.The overall operational and financial outreachduring the half year ended December 2011remained satisfactory. Total disbursements for coreoperations during the period were Rs. 8,490million. Loan (micro credit and enterprisedevelopment facility) disbursements were Rs.6,766 million; water and infrastructuredisbursements were Rs. 365 million; disbursementsfor education and health were Rs. 361 million;capacity building disbursements were Rs. 438million; social mobilization disbursement were Rs.220 million; and disbursements for livelihoodenhancement and protection were Rs. 339 million.In addition to disbursement for core operations, Rs.576 million (Rs. 273 million from donors' fundingand Rs. 203 million from PPAF's own resources)was disbursed for project and flood relief activities.By the end of December 2011, the total cumulativedisbursements were Rs. 100 billion. Credit and226

Social Safety Netsenterprise development accounted for 59 percent oftotal disbursements followed by relief,rehabilitation and reconstruction activities (20percent); community physical infrastructure (10percent); human and institutional development(including social mobilization) (7 percent);livelihood enhancement and protection (1 percent);and health & education (3 percent). PPAFinterventions are being carried out nationwide with50% of the resources deployed in Punjab, 19percent in Sindh, 16 percent in KhyberPakhtunkhwa, 4 percent in Balochistan; 9 percentin Azad Jammu and Kashmir; 1 percent each inGilgit Baltistan and Islamabad Capital Territory.By the end of December 31, 2011, PPAF fundinghad been disbursed in urban and rural areas of 129districts of the country (about 297,000 communityorganizations / groups) through 114 partnerorganizations of which 12 were focusingexclusively or predominantly on women. Oncumulative basis, PPAF has financed 5,352,838micro credit loans. More than 27,417infrastructure, health and education projects wereinitiated and a total of 488,249 staff andcommunity members were trained. In earthquakeaffected areas, PPAF provided financing to122,000 households to build earthquake resistanthomes and trained over 108,000 individuals inseismic construction and related skills.II. Pakistan Bait-ul-MalPakistan Bait-ul-Mal (PBM) is making asignificant contribution towards poverty reductionthrough its various poorest of the poor focusedservices such as providing assistance to destitute,widows, orphans, invalid, infirm and other needyirrespective of their gender, caste, creed andreligion. The following are the ongoing coreprojects/schemes:a. Individual Financial Assistance (IFA): It isone of its major social dispensation programme toprovide financial assistance to destitute and needywidows, orphans, invalid, infirm and other needypersons, to provide for free medical treatment forindigent sick persons, to provide stipend andfinancial assistance to brilliant but poor students.Under this head PBM has provided financialassistance of Rs. 734.901 million up to February2012 and 13,171 beneficiaries from all over thecountry have benefitted from this scheme.b. Child Support Programme (CSP): This is acash transfer programme, in which cash incentiveis provided to the parents for sending their childrento schools. Rs. 300 per month is paid to thefamilies with one child and Rs.600 per month tothe families with two or more children of schoolage. Currently the programme is running in 12districts. An amount of Rs. 66.754 million hasbeen disbursed up to February 2012.c. National Centres for Rehabilitation of ChildLabour (NCsRCL): PBM has a proactive childlabour rehabilitation policy and number ofinitiatives has been taken for the better`ment ofworking children. Efforts have been made towithdraw them from work places with a view totheir mainstreaming into education by undertakingprogrammes for non-formal education. 159 centreshave been established throughout the country onwhich Rs. 248.681 million has been spent up tillFebruary 2012.d. Vocational / Diversified Vocational DastkariSchools (V/DVDS): PBM has establishedVocational / Diversified Vocational DastkariSchools (VDS/DVDS) where poor widows,orphans and needy girls are given training in avariety of skills to make them self-sufficient toearn their livelihoods in a respectable manner.PBM has established 144 VDS and 15 DVDSthroughout the country on which Rs. 93.876million has been spent up till February 2012.e. Pakistan Sweet Homes (PSHs): PBM hasestablished Sweet Homes for Orphans havingaccommodation for 100 children in each home. Atotal of 28 Pakistan Sweet Homes (Orphanages)have been established so far on which Rs. 133.475million has been spent up till February 2012.f. Langer Programme: PBM is also working forprovision of assistance to needy persons. Itprovided ration bags to those affected by naturaldisasters such as the floods of of Sindh and ofKPK. In this regard an amount of Rs. 185.306million expenditures were incurred up to February2012.227

Pakistan Economic Survey 2011-12g. Institutional Rehabilitation through NGOs:It provides grant-in-aid to registered nongovernmentalorganization (NGOs) for theirprojects aimed at institutional rehabilitation of thepoor and deserving persons of the society. PBMhas disbursed an amount of Rs. 24.383 million inthis regard up to February 2012.h. Jinnah Burn and Reconstructive SurgeryCentre, Lahore: On 21 st May, 2004, PakistanBait-ul-Mal, Health Department, Government ofPunjab and Jinnah Hospital, Lahore signed amemorandum of understanding for construction ofsingle purpose state-of-the-art burn andreconstructive surgery centre in Lahore. PakistanBait-ul-Mal has so far released Rs. 610 million forconstruction of the centre out of which Rs. 350million have been released up to February 2012.III. Benazir Income Support ProgrammeBenazir Income Support Programme (BISP) wasestablished by the Government of Pakistan in July2008 with the primary objective of providingimmediate relief to the poor enabling them toabsorb the shock of rising prices of food and fuel.BISP has evolved over the past few years into thecountry’s main social safety net. It is committed tothe fulfillment of the dream of making Pakistan awelfare state through poverty alleviation andwomen empowerment. It has made remarkableprogress by providing much needed relief to over 4million recipients including flood and bomb blastvictims all across Pakistan. An amount of over Rs122 billion up to March, 2012 has been disbursedto its recipients. The number of recipients isexpected to increase to 7 million once the on-goingprocessing of data collected during the nation-widepoverty scorecard targeting survey is completed.The BISP has launched the following pro-pooractivities. Box-3 describes the eligibility criteriafor BISP.Box-3Eligibility for BISPEligible households are identified through a targeting process, which consists of household surveys and theapplication of a Proxy Means Test Formula (PMT) that determines welfare status of a family on a scale between 0-100. 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 strategiesFirst ever census of its kind in South AsiaCovered almost 27 million households in the countryUse of GPS devices to map the data of the entire country for informed decision making (to cope with naturaldisasters and other emergencies)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 PakistanOne woman beneficiary per familyWoman is CNIC holderSource: Benazir Income Support ProgrammeNation-wide Poverty Scorecard TargetingSurvey: This survey was launched in October2010 in all districts of the country, including AJKand Gilgit-Baltistan, with an initial target to coveralmost 25 million households. The new system oftargeting was aimed at a much higher degree ofobjectivity, using international best practices, tominimize inclusion and exclusion errors. The useof Global Positioning System (GPS) devices wasalso made mandatory in this phase to uphold the228

Social Safety Netsdignity of households by conducting the survey attheir doorsteps. The survey will be completed byJune 30, 2012 and over 27 million households willbe covered nationwide during this exercise. Thetask for data entry is entrusted to NADRA and dataentry of all collected survey forms has beencompleted. During 2011-12, over 6.43 millioneligible families have been identified throughpoverty scorecard census. It is expected that thisfigure will reach almost 7 million families by June30, 2012.Payment to Recipients: During the 2011-12, Rs24.1 billion has been distributed amongapproximately 3.5 million - recipients up to March2012. This included over Rs. 3.95 billion paidthrough Smart Cards to 182,789 recipients and Rs.826.38 million paid to about 1.3 million recipientsthrough mobile phone banking. The rest of thecash transfers were made through the Pakistan Postmoney orders. In order to further improve theefficiency of the payment delivery mechanisms,BISP has signed agreements with severalcommercial banks during the current fiscal year tolaunch the Benazir Debit Cards in over 100districts of Pakistan by June 30, 2012. So far92,000 Debit Cards have been distributed and anamount of Rs.1.02 billion has been disbursed to thebeneficiaries. A total of 4,803,126 Debt Cards areplanned to be distributed by June 30, 2012. Box-4contains the innovative payment mechanism usedby BISP.Box-4Innovative Payment Mechanisms used by BISPBISP is using alternate payment mechanisms including Benazir Debit Card, Smart Card and Mobile banking toefficiently 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 providemultiple payment mechanism to its beneficiaries for more timely and efficient services, BISP has signedagreements with several commercial banks during the current fiscal year to introduce Benazir Debit Cards forcash transfers in over 122 districts in Pakistan by June 30, 2012. Launched in Feb 2012 (in phases), 650,000Debit Cards have been distributed and through these cards Rs. 1.95 billion have been transferred to thebeneficiaries. 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 designatedfranchises2. Smart Card: BISP had signed a contract in early 2010 with United Bank Ltd. (UBL) for making payments tobeneficiaries through smart cards in four of the test phase districts (Mianwali, Mirpurkhas, Multan andSanghar). The beneficiaries were issued Smart Cards, and they collect their cash benefits through bankdesignated franchises. Over 183,000 beneficiaries are benefiting from this payment mechanism3. Phone-to-Phone Banking: Another Alternate Payment Mechanism already in place is the Phone-to-PhoneBanking (P-to-P Banking). It has been implemented in 7 districts. Beneficiaries are provided free mobile phonesand SIM’s. An amount of Rs. 1.7 billion has been disbursed under this payment mechanism to around 137,000beneficiaries in the piloted districts.Source: Benazir Income Support ProgrammeGraduation Initiatives: Besides cash transfers,BISP has also launched various graduationprogrammes for its recipients to enable them toexit from the poverty trap. During 2011-12, thefollowing progress has been made by theseprogrammes:Waseela-e-Haq: Under this programme,microfinance in the form of returnable soft loansup to Rs. 300,000 are provided to recipients,selected through a monthly computerized randomdraw, for setting up small businesses. During thereporting period, 29 draws were held and a total of34,807 recipients were pre-qualified. An amount ofRs. 943 million was disbursed to 6,281 recipientswhile 2,680 new recipients started their ownbusinesses. It is planned to hold another 5 draws by229

Pakistan Economic Survey 2011-12June 30, 2012 to pre-qualify 10,000 additionalrecipients.Waseela-e-Rozgar: Under this programme, BISPprovides technical and vocational training to onemember per recipient family to help them to securetheir livelihood. BISP signed MOUs with severalpublic sector training organizations and initiatedtraining for the recipients and their nominees. Onthe other hand, a large number of private sectortraining institutions were also selected all acrossPakistan through a competitive process. Traininghas commenced in the first quarter of 2012 in mostof these institutions and so far 964 persons havebeen trained while 4,044 persons are currentlyenrolled. It is expected that by June 30, 2012 thetotal number of trained persons will beapproximately 20,000. In addition, BISP organizedvocational trainings for a batch of 173 recipientsfrom Rawalpindi division during the 1 st quarter of2012 through the funds provided by a Chinese civilsociety organization.Waseela-e-Sehat: Life insurance cover of Rs.100,000 for the bread winners of BISP beneficiaryfamilies was launched from January 1, 2011. Over3.5 million beneficiary families now have theirbread earners covered under life insurance schemelaunched by BISP in collaboration with State LifeInsurance Corporation of Pakistan (SLIC). Over900 cases have already been processed by SLICduring 2011-12. A comprehensive HealthInsurance Scheme covering entire family of BISPbeneficiary has also been piloted in DistrictFaisalabad in April 2012. The same is planned tobe extended in other districts of Pakistan in comingyears.Waseela-e-Taleem: BISP designed a coresponsibilitycash transfer programme titled“Waseela-e-Taleem” for the primary education ofthe children of its recipients whereby 3 millionchildren will be imparted education during 2012-2016. The programme is scheduled to be launchedin 5 districts during the current fiscal year.IV. ZakatZakat plays an important role in povertyalleviation. Zakat funds are utilized for assistanceto the needy, indigent, poor, orphans, widows,handicapped and disabled for their subsistence orrehabilitation. These poor segments of society areprovided Zakat funds either directly throughrespective local Zakat Committee or indirectlythrough institutions i.e. educational, vocational,social institutions and hospitals, etc. As aconsequence of the 18 th constitutional amendment,the subject of Zakat has been devolved to theProvinces/Federal Areas. Up to February, 2012 atotal amount of Rs.3,668.794 million wasdistributed in bulk amongst the provinces and otheradministrative areas. In addition to this, an amountof Rs.4,131.474 million has also been released inMarch 2012 as a reserve fund available within theCentral Zakat Fund to Provinces/Federal Areas toprovide financial assistance to mustahequeen.After devolution of the subject of Zakat theProvinces/Federal Areas are directly managing thedistribution of Zakat and the beneficiaries.V. Peoples Works Program-I & II:Peoples Works programme (PWP) I & II are thewelfare programmes comprising of smalldevelopment schemes for provision of electricity,gas, farm to market roads, telephone, education,health, water supply, and sanitation facilities to therural poor. PWP-I & II incurred expenditures of Rs8.4 billion and Rs 31.8 billion during 2009-10 andRs. 5.049 billion and Rs 21.30 billion during 2010-11 where as Rs 2.222 billion expenditure havebeen incurred between July-December 2011-12 onPWP-I and Rs 2.902 billion expenditures on PWP-II.VI. Employees Old Age Benefits InstitutionsEmployees Old Age Benefits Institution (EOBI)provides monetary benefits to old age workersthrough various programmes such as Old AgePension, Invalidity Pension, Survivors pension andOld Age Grants. During the period of July, 2011 toMarch 2012, Rs.7,961.208 million has beenutilized for 350,485 beneficiaries, which is 17.8percent higher compared to the corresponding230

period of last year. Furthermore, it is planned that331,513 more beneficiaries will take benefit fromthe EOBI up to June 2012, an additional amount ofRs. 3,791.792 million is allocated for thesebeneficiaries.VII. Workers Welfare FundWorkers Welfare Fund (WWF) is also providingassistance to poor labourers all over the country. Itprovides funds for housing facilities for industrialworkers and for other welfare programmes such asthe Marriage Grant, Death Grant and scholarshipsetc. During the current fiscal year from July toMarch Rs. 77.021 million in expenditures has beenincurred for scholarships. There are 1,456beneficiaries of this program, who are children ofpoor workers. Another Rs. 636.930 million havebeen disbursed as Marriage Grants from which9,138 families of the workers have benefited.WWF has also disbursed Rs. 341.200 million forDeath Grants for 1,079 cases of mishaps ofworkers all over the country. Further, Rs 2,539.900million expenditures have been incurred duringJuly-April 2012 for 46 housing schemes which willbenefit 15,000 families of workers.Social Safety Netsfinancial services, especially credit, to the poor, toallow them to become economically active. Thecredit programs offer a small loan to thebeneficiaries for self-employment purposes thatcan start or enhance their income streams, andeventually making them self-reliant and move outof poverty. Although micro credit has been themain thrust in the past, today microfinance is seenas encompassing a wide range of financial servicessuch as credit, savings and insurance.Microfinance services help the poor inaccumulating assets and building incomegenerating capacities that can provide better accessto social services such as health and education,food security, and access to basic necessities oflife. In addition, savings help them to manage theirresources over time and to enable them to plan andfinance their investments. Insurance becomesuseful in order to mitigate the effects ofunexpected shocks such as natural disasters. Thishas been very evident in 2010 and 2011, in thewake of floods and rains, crop failures, hike inprices, terrorism and macroeconomic shocks.The microfinance industry provides services inVIII. Microfinance InitiativesMicrofinance has been widely recognized as anthree broad categories namely, micro-credit,micro-savings and micro-insurance. Details of theindustry are provided in Table-15.6 below:effective strategy to combat poverty by providingTable-15.6: Active Borrowers, Active Savers and Active Policy holders by Peer GroupMicro-credit Micro-Savings Micro-InsuranceDetailsActiveBorrowers(Million)Value (PKRMillion)ActiveSaversValue (PKRMillion)PolicyHoldersSum insured(PKR Million)2009-10 1.98 25.1 2.8 9.6 3.81 53.72010-11 2.03 27.5 3.6 12.7 2.7 33.6Increase/decrease (Net)0.05 2.40 0.80 3.10 -1.11 -20.10Increase/decrease (%)2.53 9.56 28.57 32.29 -29.13 -37.43Source: Pakistan Microfinance Network (PMN).The objective of the microfinance initiative is toprovide liquidity to the microfinance providers inresponse to tighter liquidity conditions and spikesin inflation. It is provided as a package throughmicrofinance banks (MFBs), microfinanceinstitutions (MFIs), Rural Support Programmes(RSPs), and others including CommercialFinancial Institutions (CFIs) and Non-governmentOrganizations (NGOs). Table 15.7 presents thenumber of Micro-credit beneficiaries withOutstanding Loans Portfolio (OLP) andDisbursements by loan providers.231

Pakistan Economic Survey 2011-12Table 15.7:MFPActiveBorrowersOutstanding Loansportfolio (PKR)MillionNumber ofLoansdisbursedDisbursements(PKR) MillionTotal for Pakistan MF sector 1969,236 26,741.14 1800,262 36.72(year ended December 31, 2011)MFBsFirst Microfinance Bank Limited 139,435 2,625.52 152,683 3,601.61Khushhali Bank 440,461 4,823.72 374,633 5,279.69Kashf Microfinance Bank 19,912 694.67 20,942 626.21Pak Oman Micofinance Bank 11,917 128.23 6601 150.08Tameer Bank 132,728 5,070.42 150,747 6,881.06Total for MFBS 744,453 13,342.56 705,606 16,538.64MFIsAKHUWAT 42,069 355.16 43,307 569.43ASA – Pakistan 142,814 1,580.14 149,224 2,809.73ASASAH 14,975 170.81 10,080 184.73Community Support Concern 13,184 160.47 12,862 315.14Centre for Women’s Cooperative 7,214 127.51 4,107 214.08DevelopmentDAMEN 21,036 459.31 24,591 605.31Kashf Foundation 265,825 2,645.16 150,555 3,306.42Orangi Charitable Trust 39,289 482.49 25,595 439.52SAFWCO 31,117 309.07 28,219 467.45Total for MFIs 587,523 6,290.42 448,540 8,911.82RSPsNational Rural Support programme 329,975 3,704.93 326,718 5,674.51Punjab Rural Support programme 61,446 675.55 53,895 916.40Sindh Rural Suport Organization 38,236 521.85 62,369 979.41Sarhad Rural Support Programme 2802 19.44 3020 43.51Thardeep Rural Support programme 44,317 407.08 46,725 669.60Total for RSPs 476,776 5,328.85 492,727 8,283.43OthersBRAC 97,547 979.86 96,186 1,653.09Jinnah Welfare Society 15,825 231.02 15,735 380.87Narowal Rural Development2443 26.67 1949 137.89programmeOrix Leasing 16,022 179.18 12,010 260.03Organization for Participatory20,907 301.98 799 17.29DevelopmentRural Community Developmentsociety7049 47.95 19,982 446.54Sungi Development Foundation 672 11.68 6641 86.37Swabi WWS 19 0.96 87 6.95Total for Other 160,484 1,779.30 153,383 2,989.03ConclusionSustained growth on a consistent basis is needed toreduce poverty in the country. Macroeconomicstability is, of course, a pre-requisite for thesustained economic growth but it is not sufficientto reduce poverty. Rather, it is the foundation onwhich to build a thriving economy. No singlepolicy can completely address the needs of povertyreduction. Food-based interventions may play asupplementary and short term role in eliminatingpoverty. A multi-pronged approach is needed,which includes interventions to enhance incomes232

Social Safety Netsand ensure growth combined with safety netsprograms to cater to the marginalized and thosethat cannot be included directly. This requiresinterventions in the production system, transfer ofresources and employment programmes as well aseffective safety net programs. The new growthstrategy introduced by the Planning Commissionfocuses on enhanced growth through increase inproductivity in a regulatory environment thatenhances competition and promotes innovation. Itfocuses on markets, competition and youth and onvibrant cities that maximize the efficiency ofproduction and commerce by taking advantage ofall growth linkages. Furthermore, successfullytargeted social safety net programs, fair and broadbased fiscal regimes, efficient labour markets thatpromote job creation, and high quality educationopportunities for the youth are also interventionsundertaken by the government to reduce povertyon a permanent basis. Government at all level ishighly committed to poverty alleviation programsand all efforts are being made to ensure continuityof these programmes.233

Chapter 16EnvironmentPakistan continued to face challenges in achievingenvironmentally sound development. This hasbecome increasingly difficult in the backdrop ofthe consecutive floods and rains across the countryas well as other exogenous and endogenousfactors.The quality of the natural environment is not onlyan extremely important issue from the point ofview of individual survival but it will also emergeas one of the principal human security issues inPakistan. The environmental challenges includeclimate change impacts, loss of biologicaldiversity, deforestation and degradation of air andwater quality. The fast growing population poses asignificant challenge for Pakistan. The existingenvironment management capacity cannot sustainsuch a large population with a good quality of life.This chapter discusses the various environmentrelated issues and challenges faced by Pakistan,and the initiatives taken by the government toaddress and combat those challenges. The firstsection provides a review of government policiesand programs intended to put a focus onenvironmental issues in Pakistan and activelycombat the adverse impacts of climate change. Thesecond section describes the state of theenvironment in Pakistan, and identifies keychallenges and shortcomings in terms of air andwater pollution and forestlands. Mangroveecosystems and coastal resources are discussednext, followed by an overview of the 2011 floodsand institutional responses to the disaster. The finalsection concludes the chapter.Climate Change: The Evolution of Policies andProgrammesAs a result of concerted efforts of the government,the word “environment” has been graduallyachieving a greater and wider audience andacceptance in the country. Awareness aboutenvironmental issues has been rising andinstitutions have been built to address these issues.Civil society institutions working onenvironmental issues are strengthening and theirinfluence has increased. The government,therefore, has effectively engaged to arrest theprocesses of environmental degradation throughvarious programmes during the last three years.Some highlights of the government’s efforts tocombat the adverse effects of climate change arelisted below. The National Climate Change Policy 2011 hasbeen developed which provides a frameworkfor addressing the issues that Pakistan face orwill face in future due to the changing climate. With the devolution of Ministry ofEnvironment, Provinces now have morepowers in policy formulation andimplementation.Improvements in weather forecasting whichhelps in sound and timely decision making inagricultural practices and better managementof natural resources and disaster response.The National Marine Disaster contingencyplan was implemented by the MaritimeSecurity Agency (MSA) by carrying outBarracuda-I and Barracuda-II exercises.EURO - II standards for vehicle emissionswere adopted for new manufacturing vehicles235

Pakistan Economic Survey 2011-12industries. Drinking water quality standards,Ambient air quality standards and Noisestandards were also adopted..17 Laboratories have been adopted withProvincial Agencies/Departments underPakistan Environmental Protection Agency,(Certification of laboratories) Regulation 2000for carrying out analysis of the industrialeffluents, waste waters and other analyticalresearch requiring Lab facilities in the country.The Cartagena Protocol on bio safety wasratified.Swiss Model of Vertical Shaft Brick Kiln(VSBK) was identified as an environmentfriendly and energy efficient brickmanufacturing technology. Demonstrations forthe model were held in collaboration withBricks Manufacturing Associations. Pakistan Clean Air Programme (PCAP) hasbeen approved.A National Impact Assessment Program (NIAP) isbeing jointly implemented by the PlanningCommission/Planning and Development Division(Environment Section), Ministry of DisasterManagement (Pakistan Agency and EnvironmentWing), Provincial EPAs and IUCN Pakistan. TheNetherlands Commission for EnvironmentalAssessment is providing technical support forNIAP and it is funded by the Embassy of theKingdom of Netherlands. The objective of theprogram is to contribute to sustainabledevelopment in Pakistan through strengthening ofthe Environmental Impact Assessment (EIA)process and introducing Strategic EnvironmentalAssessment (SEA) in the national developmentplanning. The NIAP is housed in the PlanningCommission of Pakistan since the ProgramCoordination Unit is primarily responsible forcreating ownership for the program within thepublic sector, coordinating amongst the Programpartners and ensuring post-program sustainabilityof the efforts.The NIAP has achieved the following targets forSEA and EIA:Formulation of SEA task force where SEApilots are under consideration.Awareness raising workshops for the policyand decision makers in order to make groundsfor SEACapacity building through trainings on SEA.Case studies on SEA from Pakistan werepresented at international forums.EIA regulation were reviewed and revised.Extensive training programmes were held tobuild capacity; seminars and workshops wereorganized to raise awareness.In response to the environmental and climatechange related policies, a number of projects havebeen funded by the government to improve thecapacity of relevant institutions to deal withincreasing environmental degradation. In addition,there are number of projects funded by the donorsin which the government is a partner. These arebeing currently implemented to improve overallenvironment of the country. These projects includethe National Environmental InformationManagement System, National Impact AssessmentProgram and the Pakistan Wetlands Program.After, the devolution of the Ministry ofEnvironment on 28 th June, 2011 the Ministry ofDisaster Management took over the responsibilitiesof the environment sector at the federal level. Dueto the limited resources at its disposal, governmentefforts alone are not sufficient to addresschallenges resulting from climate change. A muchlarger participation and support from otherstakeholders including industry, civil society, andthe public at large as well as the donors is neededto effectively respond to climate issues.Pakistan is a signatory to major environmentalconventions and protocols. As signatory to theUnited Nations Framework Convention on ClimateChange (UNFCCC) and a member state of theWorld Bank, Pakistan qualifies for financial andtechnological assistance. At the UNFCCC Cancunconference the developed countries havecommitted to create a sizable “Green ClimateFund” with fast start finance. In order to benefitfrom international financial mechanisms, theGovernment of Pakistan expects to take thefollowing measures:Comment [MM1]: Please verify this rephrasingis reflecting the reality in PakistanComment [MM2]: should this be "dissolution" or"dismantling"?236

Continue to assess how best to positionPakistan vis-a-vis other groups of developingcountries in order to secure adaptation funding;Ensure the access and effective use of theopportunities available internationally foradaptation and mitigation efforts e.g. throughGlobal Climate Fund (GCF), CleanDevelopment Mechanism (CDM), AdaptationFund (AF), Global Environment Facility(GEF),World Bank’s Forest CarbonPartnership Fund (FCPF), etc.;Establish a Pakistan Climate Change TrustFund for financing climate change relatedprojects;Environment Continue to push for transparent delivery ofnew and additional fast start funding bydeveloped countries; Develop public-corporate-civil societypartnership for financing and implementationof climate change adaptation and mitigationprojects; Create domestic carbon market opportunitiesby introducing appropriate investmentframework linked with regional bankinginstitutions.The Millennium Development Goals (MDGs) arethe centerpiece of development efforts of theGovernment of Pakistan. The status of the MDGswith reference to environment sector indicators ispresented below, (Table 16.1).Table 16.1—The MDG targets and achievementsName of Sector/Sub-SectorYear2004-05 2010-11MDG Targets 2015Forests cover including State and private forests/farmlands 4.9 5.17 6.0(%)Area protected for conservation of wildlife (%) 11.3 11.3 12.0No. of petrol & diesel vehicles using CNG fuel (000) 380 2740 920Access to sanitation (national)% 42 48@ 90Access to clean water (national)% 65 92@ 93Number of continuous air pollution monitoring stations. 0 10 --Number of regional offices of Environmental Protection0 4 --AgenciesFunctional Environmental Tribunals 2 3 --Source: Environment Section, P&D Division, @ = Source (WHO/UNICEF)Box­1Climate ChangeClimate change is an area that has become increasingly important in recent years and raises issues of global justiceand equity. Whereas the richer industrialized countries are primarily responsible for greenhouse gas emissions, it isthe poorer developing countries who would most heavily bear the costs of climate change. It is major concern forPakistan because of its large population and economic dependence on primary natural resources. Pakistan’s agrarianeconomy is heavily dependent on river water provided by melting glaciersPakistani cities are facing problems of urban congestion, deteriorating air and water quality and waste managementwhile the rural areas are witnessing rapid deforestation, biodiversity and habitat loss, crop failure, desertification andland degradation. In this regard, the National Climate Change Policy 2011 provides a framework for addressing theissues that Pakistan faces or will face in future due to the changing climate. The policy provides a comprehensiveframework for the development of an action plan for national efforts on adaptation and mitigation. The goal of thepolicy is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of theeconomy and to steer Pakistan towards climate resilient developmentThe main objectives of Pakistan’s climate change policy 2011 includeTo pursue the sustained economic growth by appropriately addressing the challenges of climate change237

Pakistan Economic Survey 2011-12To integrate climate change policy with other related national policiesTo facilitate and strengthen Pakistan’s role as a responsible member of the international community inaddressing climate change challengesTo focus on pro-poor gender sensitive adaptation while also promoting mitigation to the extent possible in acost effective mannerTo ensure water, food, and energy security of the country in the face of challenges posed by climate changeTo 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 climatechangeTo facilitate effective use of the opportunities, particularly financial, available both nationally andinternationallyTo foster the development of appropriate economic incentives to encourage public and private sector investmentin both adaptation and mitigation measuresTo enhance the awareness, skill and institutional capacity of relevant stakeholdersTo promote conservation of natural resources and long term sustainabilityThe climate change threats to Pakistan are:Considerable increase in frequency and intensity of extreme weather events, coupled with erratic monsoon rainscausing frequent and intense floods and droughtsProjected recession of Hindu Kush-Karakoram-Himalayan (HKH) glaciers due to global warming and carbonsoot 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 floodsIncreased temperature resulting in enhanced heat- and water-stressed conditions, particularly in arid and semiaridregions, leading to reduced agricultural productivityFurther decrease in the already scanty forest cover from too rapid change in climatic conditions to allow naturalmigration of adversely affected plant speciesIncreased intrusion of saline water in the Indus delta, adversely affecting coastal agriculture, mangroves andbreeding grounds of fishThreat to coastal areas due to projected sea level rise and increased cyclonic activity due to higher sea surfacetemperaturesIncreased stress between upper riparian and lower riparian regions on sharing the water resourcesIncreased health risks and climate change induced migrationThe above threats are the cause of major survival concerns for Pakistan, particularly in terms of the country’swater, food, and energy security considerationsState of the EnvironmentAirWith an estimated 37 percent of its populationliving in cities, Pakistan is the most urbanizedcountry in South Asia. Rapid urbanization has beenaccompanied by environmental problems such aspollution, waste management, congestion and thedestruction of fragile ecosystems. Urban airpollution remains one of the most significantenvironmental problems facing cities. A substantialbody of research demonstrates that highconcentrations of suspended particulate matteradversely affect human health; prolong a widerange of respiratory diseases and increases theprobability of heart ailments.The higher concentration of Suspended ParticulateMatter (SPM) in the air is a major issue inPakistan. The main sources of SPM are vehicularemission, industrial emissions, burning of solidwaste, pollens, brick kilns and natural dust.SPM can originate through natural phenomenon,such as unpaved roads and places uncovered byComment [MM3]: chapter on laborforce/population mentions that urban unemploymenthigher than rural.238

Environmentgreen grasses or trees. Fine sized particles of soilmay be raised in the form of dust cloud by drivenmotor vehicles and by strong wind. Another originof fine particles is anthropological activities. Theseinclude emissions from the motor vehicle andindustrial activity. Climatic and geographicalconditions also affect the level of SPM in ambientair. These include the type of soil, temperature,wind speed, relative humidity and quantity ofprecipitations.Several studies of air, water and noise pollutionhave been carried out by the PakistanEnvironmental Protection Agency (Pak-EPA). InJune 2011, Pak-EPA conducted a study to monitorthe vehicular emissions in Islamabad. Vehicleswere examined at 13 different locations ofIslamabad. A total of 576 diesel, petrol and CNGdriven vehicles were tested in 13 days. Nearly 43.5percent of the total vehicles tested were found noncompliantof National Environmental QualityStandards (NEQS). During this study, noise levelwas also monitored and found within safe limitexcept at two places where the noise level wasrecorded to be over the safe limit for a short periodof time.Ambient air quality data recorded by real timeautomatic monitoring stations in the five capitalcities confirmed the presence of high concentrationof suspended particulate matter. The level of PM(Particulate Matter size below 2.5 micron), whichis mainly due to the combustion source, wasreported to have reached an alarming level (2-6times higher than the safe limit). The NationalEnvironmental Quality Standards (NEQS) for PM2.5 is 25 micron/m 3 annual average. The table andfigure below show annual mean value of PM 2.5 infive capital cities.Table 16.2: Annual Mean Value of Suspended Particulate Matter (PM 2.5) from June 2011-March 2012Sr. No. City Level (µg */m3)1. Islamabad 87.052. Lahore 153.53. Karachi 52.914. Peshawar 74.535. Quetta 63.92Source: Pakistan Environment Protection Agency.* µg = µg stands for microgramThe level of other pollutants in the ambient air likecarbon monoxide (CO), Sulphur dioxide (SO 2 ),Oxides of nitrogen (NO x ), Ozone (O 3 ) andHydrocarbons (HC) are within safe limitsaccording to National Environmental QualityStandards (NEQS) for ambient air. Sometimes theconcentration of NO x and SO 2 goes higher than thesafe limit at Lahore and Peshawar, but this happensfor short periods of time and represents a shorttime exposure to the public.Comment [MM4]: if i'm not mistaken, thisshould be the greek letter mu and not a u. pleaseverify.ConcentrationFig-16.1: PM 2.5180.00153.50160.00140.00120.00100.00 87.0574.5380.0063.6252.9160.0040.0020.000.00Islamabad Lahore Karachi Peshawar QuettaCities239

Pakistan Economic Survey 2011-12Motorcycles and rickshaws, due to their two stroke(2-strokes) engines, are the most inefficient inburning fuel and contribute most to emissions. 2-stroke vehicles are responsible for emission of veryfine inhalable particles that settle in lungs andcause respiratory diseases. The 2-stroke vehiclesindustry is fast growing in Pakistan and hasincreased by 117 percent in 2010-11 whencompared with the year 2001-02. Rickshaws havegrown by more than 11.1 percent whilemotorcycles and scooters have posted a growth of120.4 percent over 2001-02, (Table 16.3).Table 16.3—Motor Vehicles on the Road(000 Nos.)Year Total Motorcycles/Scooter Rickshaws2001-02 2561.9 2481.1 80.82002-03 2737.1 2656.2 80.92003-04 2963.5 2882.5 81.02004-05 3146.4 3064.9 81.52005-06 3868.8 3791.0 77.82006-07 4542.9 4463.9 79.02007-08 5126.3 5037.0 89.32008-09 5456.4 5368.0 88.42009-10 5501.2 5412.1 89.12010-11 5558.6 5468.8 89.8Source: National Transport Research CentreThe use of coal in the power sector has beendecreasing. This may be due to the fact that anumber of plants have now been converted tonatural gas. Likewise, there has been a reduction incoal usage for domestic purposes. Bricks kilns areanother source of pollution in many areas. Use oflow-grade coal and old tyres in bricks kilnsgenerate dense black smoke (soot) and other kindof emissions. The use of coal has increased by 64.2percent for bricks kilns in 2010-11 when comparedwith year 2001-02 (Table 16.4).Table 16.4: Consumption of Coal(000 M/Tons)Year Power Brick Kilns Household2001-02 249.4 2577.5 1.12002-03 203.6 2607.0 1.12003-04 184.9 2589.4 1.02004-05 179.9 3906.7 -2005-06 149.3 4221.8 -2006-07 164.4 3277.4 1.02007-08 162.2 3760.7 1.02008-09 112.5 3274.8 0.82009-10 125.5 3035.2 -2010-11 96.5 4231.5 -Source: Hydrocarbon Development Institute of Pakistan- : Not AvailableIn the past few years, the CNG Sector has seentremendous growth. 3,331 CNG stations arecurrently operational making Pakistan one of thelargest users of CNG in the world. The use of CNGas an alternate fuel in the transport sector hashelped to reduce air pollution to a considerableextent including reduction of suspended particulatematter (SPM) emitted from the public transport aswell as private vehicles. Since the country is facinga shortage of CNG, other alternative sources suchas LNG are being considered as a part ofenvironment friendly component.240

EnvironmentTable 15.5—Growth in CNG SectorAs on CNG Stations (No.) Converted Vehicles (No.)December 2000 150 120,000December 2001 218 210,000December 2002 360 330,000December 2003 475 450,000December 2004 633 660,000December 2005 835 1,050,000December 2006 1,190 1,300,00016 th May, 2007 1,450 1,400,000February 2008 2,063 1,700,000December 2009 3,051 2,000,000June 2011 3,331 2,740,000Source: OGRA, Ministry of Petroleum & Natural ResourcesWater and SanitationAlthough 70.9 percent of earth’s surface is coveredwith water nearly 97 percent of this is saltwater.Most of the remaining 3 percent are in the polar icecaps, glaciers, atmosphere or undergroundreservoirs and hard to reach. Only 0.4 percent isavailable for direct use. Freshwater is a preciousnatural resource and fundamental to the survival ofhumans and most other land-based life forms.Water PollutionWater pollution has been a serious concernaffecting not only humans but also plants andanimals. The ecosystem of rivers, lakes, streams,and seas are deteriorating due to contamination ofwater from various sources. This situation isleading to many health problems including seriousillnesses transmitted by polluted drinking watersuch as cholera, typhoid fever, hepatitis A and B,dysentery, etc. Dumping of solid and liquidindustrial waste, improper disposal of human andanimal waste, and residues of agriculture practiceslike fertilizer and pesticides are all majorcontaminants of drinking water. These pollutantsare discharged directly into rivers and irrigationcanals and also transmitted by rain water runoffand get mixed with ground water aquifer.Drinking Water and SanitationGlobally, access to drinking water was at 87percent in 2011. In order to meet the MDG target,an additional 2 percent is needed by 2015. InPakistan, statistics on access to drinking water isimpressive; according to the Pakistan Bureau ofStatistics (PBS) report Pakistan Standard LivingMeasurement (PSLM) 2010-11, access to drinkingwater to urban and rural population of Pakistan is94 and 84 percent respectively, with an average of87 percent in 2011.Hence access to the source ofdrinking water is satisfactory.According to Pakistan Council of Research inWater Resources (PCRWR), the majority of thepopulation in the country is exposed to the hazardsof drinking unsafe and polluted water from bothsurface and ground water sources. As derived fromthe National Water Quality Monitoring Programmecarried out by the PCRWR, the 4 majorcontaminants in drinking water sources of Pakistanwere bacteriological (68 percent), arsenic (24percent), nitrate (13 percent) and fluoride (5percent). Similarly, the five years trend analysishas revealed that out of a total 357, only 45 watersources (13 percent) were found “safe” and theremaining 312 (87 percent) were “unsafe” fordrinking purpose. In Pakistan about 68 percent ofthe drinking water consumption is fromgroundwater for both urban and rural areas.Pak-EPA has conducted a 4 month study tomonitor the water quality of Rawal Lake and itstributary. Samples were collected on monthly basisand analyzed at the Central Laboratory forEnvironmental Analysis and Networking(CLEAN). Parameters like biological oxygendemand (BOD), conductivity and total suspendedsolid were found to be higher than surface waterstandards. BOD was found to be 2 to 8 times andComment [MM5]: the subsequent paragraphs aresuggesting that manys ources are polluted? if thoseparagraphs are true, then we need to add thissentence to the claim that access to drinking water isexcellent.241

Pakistan Economic Survey 2011-12TSS 1.2 to 6.2 times higher than surface waterguidelines.Globally, improved sanitation coverage was justabove the 60 percent mark in 2008, up from 54percent in 1990, with over 2,500 million peoplestill without access. Half of the people living indeveloping regions have no access to improvedsanitation 1 .Municipal sewage is a major source of surfacewater pollution. About 2 million wet tons ofhuman excreta are annually produced in the urbansector of which around 50 percent go onto pollutewater bodies. The National Conservation Strategystates that almost 40 percent of all disease relateddeaths are connected to water borne diseases.Other sources of water pollution are industrialeffluents, solid waste, hospital waste, chemicalfertilizers and pesticides.In Pakistan sanitation facilities are improving.However, much improvement is needed for ruralareas sanitation facilities. According to PBSPakistan Standard Living Measurement 2008-09,14 percent of all garbage collection facilitiesprovided to the population are executed throughmunicipalities, 7 percent through privatelymanaged collection systems, and the remaining 79percent have no system.The most basic requirement for proper sanitation issafe disposal of excreta away from a dwelling unit,by using a sanitary latrine. There is a greatvariation in latrine coverage between provinces.Urban Sindh has the best coverage followed byurban Khyber Pakhtukhwa.In most of the urban and rural population water issupplied from the ground water except for thecities of Karachi, Hyderabad, and part ofIslamabad, which mainly uses surface water.Therefore, deteriorating ground water quality inPakistan has serious implications for theenvironment and health of Pakistan’s population.Different national and international reports haveidentified Pakistan as one of the most ‘waterstressed’ countries in the world, facing lack of1 UN-2011water availability for irrigation, industry andhuman consumption. According to a World Bankreport, water supply in Pakistan fell from 5000cubic meters to 1000 cubic meters in 2010, and islikely to further reduce to 800 cubic meters percapita by 2020 due to growing population pressure,rapid urbanization and industrialization.The government is committed to provide safedrinking water through clean drinking waterinitiatives and installation of water filtration plants.However, the execution and monitoring ofgovernment efforts are being hindered by limitedresources, increasing population, fast growingurban development, industrialization, highoperational and maintenance and poor costrecovery, lack of private sector participation, andlow institutional capacities.Strategy and Action Plans (Water & Sanitation) Develop legal and policy frameworksregarding promotion of safe drinking water inPakistan. This promotion would includedesalinization of sea water. Develop a water quality database to assist indecision making. Establish a water quality monitoring andsurveillance system based on enforceablewater quality guidelines and standards.Conduct cyclic 4 seasonal water qualitymonitoring for major rivers and waterreservoirs. Address arsenic pollution of groundwater inSindh and Punjab through specific initiativesincluding investigative studies and awarenessraising programmes. Develop legal and policy frameworksregarding promotion of safe drinking water inPakistan. Make installation of water treatment plants anintegral component of drinking water supplyschemes. Develop an integrated approach that will guidethe allocation of water, allocation ofinvestment and pricing of water services, bothin rural and urban areas.Comment [MM9]: How did access to waterremain at 90-95% with this precipitous drop inavailability?Comment [MM10]: don't capitalize unless that'sthe name of the initiative.Comment [MM6]: tonnes, right?Comment [MM7]: 40 percent of disease relateddeaths, right?Comment [MM8]: This heading also talks aboutdrinking water, while the previous section also talksabout sanitation. Makes sense to combine into onesub-heading?242

Promote and devise methods for harvestingrain water using low-cost structures. Clarify national sanitation policy in order tomake it explicit and consistent. Encourage and promote public toilets in allurban centres. Develop systems for safe sewage disposal. Awareness raising and bringing an attitudinalchange. Generate resources (locally and nationally) andensure participation of stakeholders. Guide appropriate technical choices. Establish public-private-civil societycollaborative arrangements.According to a report released by theWHO/UNICEF Joint Monitoring Program (JMP)2012, in Pakistan 92 percent people had gainedaccess to source of drinking water by 2010 whilethis ratio was 85 percent and 89 percent in 1990and 2000 respectively. The MDG target is toachieve the ratio of 93 percent by 2015. Moreover,48 percent people have been using improvedsanitation by 2010 while this ratio was 27 percentand 37 percent in 1990 and 2000 respectively. TheMDG target for access to sanitation is 90 percentby 2015.ForestCurrently Pakistan has only 5.17 percent of totalland area covered with forest placing Pakistanamong countries with low forest cover. Thecountry’s forest area is divided into state-ownedforests, communal forests and privately ownedforests. Major forest types existing in Pakistan aretemperate and subtropical conifer forests, scrubforests, riverine forests (irrigated plantations), linerplantation (roadside, canal-side) and mangroveforests. The existing forest resources in the countryare under severe pressure to meet the fuel-woodand timber needs of a rapidly growing population.In addition to this, the wood based industriesincluding housing, sports, matches and furnitureare continuously growing.EnvironmentForests and REDD+(Reducing Emissions from Deforestation andDegradation plus)Increasing GHG emissions are contributing toglobal warming and leading to accelerated climatechange. The REDD+ initiative facilitates tradebetween developed countries who are net emittersof GHG and the developing countries who are netnon-emitters, since they do not have heavyindustry that produce carbon but have forests thatcan stock excess carbon in the air. Under REDD+mechanism, the emitters may trade their carbon tobe consumed/stocked by forests in developingcountries at a per ton cost to be calculated as perCertified Emission Reduction (CER). This processbuilds a nexus between climate change and forestcarbon credits. Therefore, the concept of REDD+was developed as an incentive based mitigationresponse from the Montreal Climate ChangeNegotiations (COP 11) in 2005 to address 17-25percent reported global share from deforestationand forests degradation. This will involveenhancing existing forests and increasing forestcover. This concept has three important phases: Readiness phase (2010-2012): enactingnational strategies supported by appropriatecapacity building Pilot phase or Investments phase: ‘learningby doing’ through pilot projects. This isunderway in some countries, before theenactment of international rules. Implementation or Operations phase (2013-2020): performance-based payments are made,either by direct funding or via links to theglobal carbon market, leading to the globalimplementation of REDD+.REDD+ Potential and Pakistan:Pakistan has a low forest cover with diversifiedforest types from coastal mangrove and riverineecosystem to alpine Chir Pine forests within placeddiversified community. There is a decline inoverall forest cover in Pakistan, with the amount offorests declining by just under 2 percent in the1990s, but by more than 2 percent in just fiveyears, from 2000 to 2005. This decline needs to betaken into account to get maximum benefits fromComment [MM11]: toilets, surely?Comment [MM12]: right?Comment [MM13]: first paragraph on page 10put the global access to water at 87 percent in 2011.It droped 5% in a year?Comment [MM14]: on page 12, the MDG targetfor 2015 is stated to be 87+2= 89 percent? thesereports need to be consistent.243

Pakistan Economic Survey 2011-12REDD+. The government is striving to reversethese negative trends and aiming to increasePakistan’s forest cover to 6 percent by 2015.The total carbon stock of conifer forests could beestimated as 58 mega tons on the basis of biomassestimations by Asia Least cost Greenhouse GasAbatement Strategy (ALGAS). On the bases ofFAO Deforestation data 1990-2005 and ALGAS,389 mega tons of carbon potential could beestimated for all types of forests in Pakistan withan estimated annual return of US$ 54 million at arate of US$ 15 per tonne of carbon credits 2 . Otherestimates by Leadership for Environment andDevelopment (LEAD) 2010 3 points to potentialearnings of between $94.74 million and $315.8million per year if deforestation is haltedcompletely. This estimate reflects the limited dataavailable and provides only an indicative estimate.The actual potential could be far greater,depending on the carbon price and the sectorsincluded under REDD+.Pakistan’s efforts with regard to the REDD+initiative need to be significantly enhanced on apriority basis in order to achieve the global targetand meet the basic requirements of REDD+readiness phase. As Pakistan faces a high rate ofdeforestation and aims to reverse this trend, theactive engagement in REDD+ is a uniqueopportunity to support this national priority.However, this needs to be driven by a focusedstrategic plan and supported by a scaling up ofnational technical and institutional capacity to dealwith REDD+ mechanism.Mangroves Ecosystem and Coastal ResourcesThe coastal belt of Pakistan extends up to 1,050km along Sindh and Balochistan provinces. Thetotal population in and around mangrove forests onthe coast of Pakistan is estimated to be around 1.2million people, nearly 900,000 of whom reside inthe Indus Delta 4 . At least three quarters of theDelta’s rural population depend, directly or2 Iqbal. K.M.J., and Ahmad. M., (2011) SDPI, PolicyPaper Series # 38 September 20113 LEAD (2010) REDD+ Policy Brief 4. LEAD-Pakistan4 (Salman 2002), and Sindh Forest Department 2012.indirectly on fishing as their main source ofincome.Pakistan’s commercial marine fisheries operate inand around the mangrove creeks on the coast ofSindh province. The annual value of fish caughtfrom mangrove dependent fish species in the IndusDelta is estimated at around $20 million. Shrimpsare also particularly important, with a domesticvalue of $70 million and an export value of aboutone and a half times this figure, and the export ofmud crabs contributes an additional $3 million tothe regional economy.Beside these economic benefits, the mangroveforest benefits the ecosystem by providingnurseries for many species of fish and shrimp,stabilize shorelines and reduce coastal erosion, andprotect coastal habitations from storm damage. Itprovides grazing grounds to at least 8,000 camels,5,000 buffaloes and over 1,000 goats, in additionto providing other forest products like fuel wood,honey, and medicinal plants to local communities.It is estimated that one hectare of properlymanaged mangroves can yield 100 kg of fish, 25kg of shrimp, and 15kg of crab meat annually.Mangrove Forest DegradationThe most prominent and most sensitive ecosystemof the region is characterized by mangroves forestthat form a number of direct and indirect linkageswith the socioeconomic status and occupationsadopted by the community. The figures from SindhForest Department (SFD) and IUCN-Pakistanestimated that 196,000 ha of mangrove forest inPakistan has been lost up to 2007. According to thechange analysis done by WWF-Pakistan at KetiBunder site through satellite imaging, themangrove cover has experienced a drastic declineof 20 percent, from 1992 to 2007.Moreover, the creeks are also perceived to widenin future due to exacerbation of soil erosion alongthe Arabian Sea, which forces the mangrove foresttowards instability and this instability trend hasbeen continuous from 1992 to 2007, with a verynominal percentage of dense mangrove forestsremaining stable during this time period. SimilarlyWWF-Pakistan also reported that the 0.5 millionComment [MM15]: what's this? per tonne?244

hectares of fertile land in Thatta district alone isaffected by sea intrusion.The other major threats to mangrove ecosystemincludes shortage of fresh water and resultant siltdepositions, industrial and municipal pollution,dumping of waste, oil spills and leakages, andencroachment of settlements around mangroveforests. The Government of Pakistan has takensteps to halt the deforestation of mangroves byestablishing protected areas and new plantations byforest department with the help of nongovernmentalorganizations like WWF-Pakistanand IUCN.Floods of 2011 and Policy ResponsesIn a Damage and Need Assessment Report jointlyprepared by the Asian Development Bank and theWorld Bank, it has also been pointed out that inaddition to causing loss of life, displacement ofmillions, and huge losses to the economy, thefloods in 2011 have resulted in environmentaldamages, heightened environmental health risksand affected forests, wetlands and other naturalsystems. The floods have also causedcontamination of drinking water, proliferation ofdisease vectors caused by stagnant water ponds,and accumulation of solid wastes – factors thatwould further exacerbate health risks for theaffected population, particularly women andchildren. Environmental degradation and its effectson human health was already a significantdevelopment challenge in Pakistan, which hassome of the highest prevalence rates in all of SouthAsia for child mortality, diarrhea and acuterespiratory illnesses associated with environmentalfactors. The conditions created by the floods couldresult in a significant increase of these and otherillnesses. No estimates are available for damages toother environmental resources such as wetlandsand mangroves at this stage. To fill such damagedata gaps, follow-up environmental studies havebeen proposed to address safe disposal of debris,leakage/spillage of hazardous and/or toxicsubstances and assess damage to cultural heritagesites.The floods were initiated by a naturalphenomenon; however, anthropogenicinterventions exacerbated them, particularly asEnvironmentdestruction and degradation of natural ecosystemsreduced their capacity to protect from flood. Also,development of settlements and croplands infloodplains as well as blocking of natural drainageroutes created the conditions for the current humantragedy. To avoid such disasters in the future,strengthening the resilience of the Indus Watershedis urgently needed, involving an approach thatcombines structural and non-structural measuresthat are strategic, feasible, and affordable tominimize vulnerability to extreme weather events.Such an approach also calls for improvedmanagement of the Indus Basin’s major naturalresources through strengthened coordination offlood-related actions within and among theprovinces. Towards this end, the following priorityactions are proposed to be undertaken: Addressing environmental health priorities,including drinking water, sanitation, hygieneand indoor air quality Reviewing/updating the flood protectionstrategy and master plan, and preparing astorm water drainage master plan; and Preparing land use plans and buildingregulation, and strengthening legal andinstitutional frameworks.The environmental damage caused by floodshas 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 PolicyResponseThe 2011 floods have caused wide-ranging damageto different sectors of the economy. Thereconstruction and recovery needs are diverse andmulti-faceted and work has to be undertaken on anurgent basis. However, these interventions,particularly those related to irrigation, agriculture,transport, health, education, housing, and watersupply and sanitation are likely to cause negativeenvironmental impacts. In order to ensure thesustainability of the reconstruction and recoveryprocess, these negative environmental impactsought to be addressed as an integral part of allsectoral plans.Comment [MM16]: this sentence is not addinganything newComment [MM17]: I don't know if I understandthe message here: reconsutruction efforts are goingto create a carbon footprint. Is that the negativeenvironmental impact being referred to here? Even ifit is, it's hard to see the "social" impact here.245

Pakistan Economic Survey 2011-12The national environmental legislation (PakistanEnvironment Protection Agency 1997), as well asthe international financial institutions’ (IFIs)safeguards require that environmental and socialassessments are carried out and managementplans/frameworks are prepared prior toundertaking the interventions such as thoserecommended in the floods Damage and NeedAssessment. However, details of the specificactivities associated with the individualreconstruction and recovery plans in the majorityof sectors are not currently known, hence thepotentially adverse environmental and socialimpacts of these activities cannot be identified.Instead, it is proposed that a broad Environmentaland Social Screening and Assessment Framework(ESSAF) be prepared for the overall reconstructionand recovery needs.The ESSAF will define the environmental andsocial screening and assessment requirements ofindividual projects or interventions, and will guidethe implementing agencies in identifying theappropriate type and level of environmental andsocial assessment to be carried out prior toundertaking each project or intervention incompliance with national as well as IFI’s safeguardrequirements. The ESSAF will also define therequirements for preparing appropriateenvironmental and social documents, and obtainingapprovals/clearances of these documents from therelevant agencies. To ensure implementation ofESSAF, it is further proposed that each line agency(Provincial Disaster Management Authority /District Disaster Management Authority) appointsan environmental and social focal person withinthe department.ConclusionThe Government of Pakistan has undertakenvarious steps to combat the negative impacts ofclimate change. This chapter provided an accountof institutional change, including raisingawareness, developing strategy and policies, andimplementing programmes to actively address andreverse adversities faced due to global warmingand the resultant climate change. The state ofPakistan’s atmosphere, including air and waterquality, state of forestry, and coastal resourceswere described, identifying the key challenges thatremain in these areas as well as new strategies thathave been adopted (REDD+) by the government.The chapter identifies that it will be crucial tocarefully evaluate disaster response and rebuildingstrategies to make sure that they areenvironmentally sustainable.246