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The Economy of Pakistan- Part 2

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Current State of Economy of Pakistan July 2014.
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  THE ECONOMY OF PAKISTAN   Researched & Compiled by   Insaf Research Team  irt@insaf.pk Adnan F. Rehman: 03454888878 Faisal Hameed: 03314077640 Rana M. Ahmad: 03018444472 Shahbaz A. Khan:03147779222 Date: Jul 27, 2014      Insaf Research Team (IRT)   1   THE ECONOMY OF PAKISTAN The economy of Pakistan  is:    The 27th largest in the world in terms of purchasing power parity (PPP);    The 44th largest in terms of nominal GDP;    The 15th largest trader of goods in the world, ranking above Spain and Australia; &    The world’s 6th largest trader of services.  However as Pakistan has a population of over 183 million thus GDP per capita is $3,056 ranking 140th in the world. Pakistan is a rapidly developing country and is one of the Next Eleven, the eleven countries that, along with the BRICS, have a high potential to become the world’s largest economies in the 21st century.  However, after decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway transportation and electric power generation had developed. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit  –   driven by a widening trade gap as import growth outstrips export expansion  –   could draw down reserves and dampen GDP growth in the medium term. Pakistan is currently undergoing the process economic liberalization which includes privatization of all government corporations, aimed at attracting foreign investment and decrease budget deficit. In the context of Pakistan, owing to the fact that it is a developing nation, there is no wonder that it is surrounded with a number of social and economical problems. The real issue is not the presence of these problems in society because there is no concept of an ideal society in the world. Every country in the world has its own set of socio-economic problems. The main issue is the extent and intensity of the socio-economic problems of Pakistan which have soared to alarming levels. Now we will have a broader view of the problem as global issue. All the countries in the world are somehow under the attack of socio-economic problem like Poverty & Corruption.    Insaf Research Team (IRT)   2   Social Problems:  A) Poverty; B) Illiteracy; C) Corruption; D) Unemployment; E) Child Labor; & F) Health problem. Economical Problems:  A) Power crises; B) War on terrorism; C) Declining export; D) Tumbling stock-market; E) Lack of tourism; & F) Loss in business. Despite problems of terrorism and energy crisis, the economic outlook of Pakistan, according to the State Bank of Pakistan,  has improved in the last fiscal with inflation remaining in single digit and foreign remittances showing a rise. Unveiling its bi-monthly monetary policy for the new fiscal, the Bank kept the key interest rate unchanged at 10 per cent and forecast a CPI inflation rate of 7.5-8.5 % during the year. Governor State bank, Ashraf Mehmood Wathra says that despite the problems of energy crisis and terrorism in the country the economic outlook had improved in the last fiscal year due to improved foreign remittances, better tax returns and reduced government borrowing from the banks. Pak-China Joint Chamber of Commerce and Industry  President Shah Faisal Afridi terms the current assessment of Pakistan's economy by “ Moody's ”  as a green signal to the international investors for investing in Pakistan. Afridi says that the government has met 10 of 17 structural benchmarks to set the economy on track for achieving further improvements. Moody has appreciated energy sector reforms and improvement measures to be introduced by the present government of Pakistan along with privatization of the state-owned enterprises. On the other hand Pakistan Economy Watch (PEW)  laments sale of profitable national assets to bridge budget deficit and terms it as a roll-call of blunders. According to the President of PEW, Dr. Murtaza Mughal, policy makers are focused    Insaf Research Team (IRT)   3   on reducing deficit which has pushed them into an abominable IMF trap. Transferring ownership of our national assets may result in growing poverty, unemployment and eroded exchange rates as foreign investors would transfer profits overseas, he has warned. In addition, international financial institutions want to impose global economic order, a plan hidden behind attractive words like privatization, deregulation, downsizing etcetera. The government has planned to cut supply of natural gas to CNG outlets in Punjab to one day a week on the pretext of supplying gas to power plants to minimize load shedding. The decision has been taken on the behest of influential owners of the gas guzzling captive power plants. The decision would benefit few running primitive power plants wasting gas worth Rs. 70 billion per annum while hurting tens of millions dependent of the economical fuel. However, according to State Bank of Pakistan ’s  Third Quarterly Report for FY14  on the state of the economy, Pakistan’s economy appears to have turned a corner during the third quarter. Revival of economic activity is a key development in FY14, with real GDP growth of 4.1 % , which is the nation’s highest growth rate in the past five years. The report adds that after many years of low growth, sentiments about the economy seem to have improved. However, the report emphasizes , “These signs of improvements should not discount the challenges faced by the economy; efforts for much needed-structural reforms should continue .”  But based on the data released by the Ministry of Finance , the SBP Report points out that despite efforts for fiscal consolidation on the expenditure side, tax mobilization still remains lackluster as FBR is still operating on a narrow tax base. While the FBR  should take concrete steps to plug tax leakages and increase documentation of all financial transactions, provincial governments (having the constitutional right to tax services and agricultural income) also need to implement provincial taxes more effectively. With regard to finance, the Government mainly relied on domestic sources during Jul-Mar FY14. However, external financing has increased subsequently with the issuance of Eurobonds, fresh loans from IFIs, and bilateral assistance. Although the resumption of external inflows is important for a resource-constrained economy, this will add to Pakistan’s external debt. The SBP Report  showed the total public debt (external and domestic) crossing the limit of 60 % of GDP, as set by the Fiscal Responsibility and Debt Limitation Act
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