Presentation by!

• Name: NAUROZ KHAN

• Class: B.B.A 4th

• Subject: BUSINESS FINANCE

• Topic: CURRENT ECONOMIC SITUATION OF PAKISTAN

• DATE: 17, AUGUST, 2009

Current Economic Situation Of

Pakistan

Introduction

• Pakistan economic environment is affected by intensification of war on terror and deepening of the global financial crisis which penetrated into domestic economy through the route of substantial decline in Pakistan’s exports and a visible slowdown in foreign direct inflows. Pakistan economy continues to remain exposed to the vagaries of international developments as well as internal security environment. The intensity of the global financial crisis has further added to Pakistan predicament. Despite support from the IMF and other bilateral and multilateral donors, Pakistan external account remains exposed to a host of uncertainties.

Growth and investment

• In growth and in investment we lost investor because of global economic situation, through financial markets which collapse the external demand for its exports and decline in availability of external capital to finance or invest in growth process of the country. According to global financial crisis was felt on market and investor confidence in many developing countries, including Pakistan, as banking systems and asset markets came under stress.

Agriculture

• In spite of structural shift towards industrialization, agriculture sector is still the largest sector of the economy with deep impact on socio-economic set up. It is the source of the livelihood of almost 44.7 percent of the total employed labor force in the country. With the present contribution to GDP at 21.8 percent, agriculture sector is the mainstay of the rural economy around which socio-economic privileges and deprivations resolve.

Manufacturing

• The manufacturing being the second largest sector of the economy bears significant importance 18.4 percent contribution to GDP. Overall manufacturing sector posted a negative growth rate of 3.3 percent during the current fiscal year against the target of 6.1 percent and 4.8 percent of last year. However, production in large scale manufacturing during July-Mar 2008-09 witnessed a broad-based decline of 7.7 percent against the revised growth target of negative 5.0 percent.

Fiscal Development

• The main objective of Pakistan fiscal policy is sustained economic growth in unison with decline debt services, poverty alleviation, the creation of job opportunities and investment in physical and human infrastructure. It is unfortunate that fiscal space available during the last seven years (2000-2007) was not used to provide support to structural reform; instead, painful structural reforms were delayed. The current government decrease the 20 percent governmental expenses.

Money And Credit

• Functioning of the financial markets, monetary stability and economic growth are closely related, due to the fact that monetary policy transmission signals work through the channels of financial markets and bank-based intermediation. Therefore an efficient financial system is a pre-requisite for stronger economic growth. For a successful financial system, financial intermediaries play a significant role, since they are critical lenders and borrowers.

Capital Markets

• Financial markets perform a key function in the form of intermediation by mobilizing savings from a large pool of small savers and channelizing these funds into productive investments by a generally much smaller number of borrowers. Trading in securities enables a match between the differing maturity preferences of lenders and borrowers. Stock markets also potentially endorse broad-basing of ownership of financial assets and the reallocation of funds among corporations and sectors. Moreover, a developed bond market helps in providing liquidity to domestic growth and credit expansion. (In 30 Jun 2008 the index rate of KSE was 12,289.03 and on 15 May 2009 it was 7,177.64).

Inflation

• The rate of inflation is an important macroeconomic indicator and one of the key variables most central banks around the world scrutinize when setting their main policy rate. Pakistan is one of only a handful of countries that is still experiencing double-digit inflation. The surge in food and commodity prices witnessed during the start of fiscal year 2008-09 pushed the Consumer Prices Index (CPI) in Pakistan to a record level of 25.3 percent in August 2008, remaining above the 20 percent level up until February 2009. Now a days its roundabout 18 percent.

Trade And Payments

• The global economic downturn is affecting the Pakistan economy through three indirect channels: the sharp drops in oil prices, has led to sharp easing of import demand pressures; the contraction in global demand, trade, and related activity, is impacting adversely demand for exports and remittances from EU and US in particular; and constricted access to the international credit markets and lower investor appetite for risk is affecting capital inflows, depressing local asset prices, and reducing already low investment level. Pakistan economy needs an integrated policy to deal with external sector vulnerabilities like removing structural rigidities in the exports and imports sectors.

External And Domestic Debt

• The government embarked upon a plan of Economic Stabilization to regain macroeconomic stability. The measures taken under this program by the government have placed the economy on the path to recovery. The support from the international Monetary Fund is a key impetus to this stabilization process. The effect of stabilization started accruing as the current account has recovered substantially and hemorrhage to foreign exchange reserves not only arrested but around $3.4 billion have been added to the reserves.

Education

• Education is extensively regarded as a route to economic prosperity being the key to scientific and technological advancement. Hence, it plays a pivotal role in human capital formation and a necessary tool for sustainable socio-economic growth. Education also combats unemployment, confirms sound foundation of social equity, awareness, tolerance, self esteem, and spread of political socialization and culture vitality. It raises the productivity and efficiency of individuals and thus produces skilled manpower capable for leading the economy towards the path of economic development. Education also originates confidence which empowers people to defend their rights, improve health status and good governance in implementation of socio-economic policies.

Health And Nutrition

• Pakistan requires progress in economic and policy sector to reduce the burden of diseases not simply in health care but much have to be done in agriculture, education, transportation, environment, public health sector and other relevant areas in order improve the nation’s overall health. The most immediate health problem of the country are: inadequate sanitation facilities, unsafe water, poor living conditions, poverty and low literacy rate with women being the worse affected whose lack of knowledge often render them and their children vulnerable to various diseases.

Population, Labour Force And Employment

• Pakistan is facing a formidable challenge of tackling the issues of economic development and poverty reduction. In the wake of growing population, the need for food security and the provision of employment opportunities and housing are becoming a burden on the economy. Without population stabilization, addressing the critical issues, such a global warming, biodiversity, the environment, energy, food/water supplies, migration and security is extremely difficult. Total population in Pakistan is 163.76 million in 2008-09.

Poverty

• The inadequacy of income to meet basic needs, low quality of life, denial of opportunities and choices basic to human development are different facets of poverty. The main objectives of government policies are to raise the standard of living and improve the socio-economic conditions of the people and thus reduce the incidence of poverty in the country.

Transport And Communication

• Transportation network of any country is of vital importance to its development and affects all sectors through economic linkages. It ensures safe and timely travel encourages business activities and cuts down transportation costs while granting produces access to markets for their goods. A reliable transportation network also provides swift access to labor force and hence generates employment opportunities. It has been widely recognized that economies with better road and communication networks are positioned more advantageously in terms of overall competitiveness as compared to economies having poor networks. Enhancements in transportation and telecommunication benefit industry, agriculture, and other services sectors as well as improving the standard of living of the general public, it is therefore, crucial that investments be made to develop and maintain an efficient network of transportation and telecommunication to ensure cost efficient integration of markets both domestically and internationally.

Energy

• The world energy scenario during 2008-09 has been very eventful, same as Pakistan. International oil prices fluctuated widely, leaving all vulnerable oil import countries like Pakistan under great stress. The volatile energy picture not only made major dents in the macroeconomic variables such as budget deficit, current account balance, inflation, exchange rates and foreign exchange reserves, but also eroded the purchasing power of poor on the back of rising prices of petroleum products. So the major impact has been experienced in the industrial and agriculture sector, because of energy shortfall. Energy consumption being an integral part of all the economic activities has also declined as a result of the economic slow down.

Questions?