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

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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
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Highlights of the Pakistan Economic
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SOCIAL INDICATORS2001-02 2002-03 20
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Special SectionPakistan: Flood Impa
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Pakistan: Flood Impact AssessmentHe
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district roads (including farm-to-m
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System. The main canals are the Pat
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Chapter 2AgricultureThe agriculture
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Agricultureagriculture. Livestock c
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AgricultureTable 2.6: Area, Product
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Agricultureb) Minor Cropsi) Oilseed
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During July-March, 2011-12 about 36
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It is expected about Rs. 30.00 bill
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AgricultureBox-1Credit Disbursement
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Trade and PaymentsTable 8.3: Struct
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Trade and Paymentsconcentration is
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Table 8.6: Structure of ImportsPart
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Trade and PaymentsAmendments in Exp
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Chapter 11Health and NutritionAcces
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Health and NutritionHealth Expendit
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achieved in the case of BHUs and 95
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Health and Nutritionglobal initiati
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Health and Nutritiontook necessary
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Chapter 12Population Labour Force a
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Age Composition of PopulationThe ag
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Population, Labour Force and Employ
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Table-12.16: Unemployed - Pakistan
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Chapter 14EnergyEnergy is considere
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EnergyStock Issue• Recovery of re
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Energy14.1 Energy ConsumptionPakist
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Energyto 21.4 percent last year. Th
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Energy14.2-d CoalPakistan has huge
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tariff increases of 6%, 12% and 6%
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Energy14.3-b Petroleum ProductsPetr
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Energybecome a popular domestic fue
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EnergyAlso Laraib Energy Limited (
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EnergyTable 14.14: Oil and Gas Disc
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Energy14.5 Performance of Power Sec
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Energytrend of hydro-thermal energy
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Energy14.5-c Private Power and Infr
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Energy Proposal for undertaking a f
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Chapter 15Social Safety NetsBackgro
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Social Safety NetsBox-1Poverty Alle
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Social Safety NetsTable 15.4: Perce
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Social Safety Netsenterprise develo
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Social Safety Netsdignity of househ
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period of last year. Furthermore, i
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Social Safety Netsand ensure growth
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