Economy in the Red: 4-Year Performance
Real Economic Performance: The SBP's foreign exchange reserves have declined by about $2 billion in the last six months. A deterioration in the current account balance due to lower cotton/textile prices and a sharp slowdown in remittances growth, continued difficulties in attracting external financing, and the beginning of repayments to the IMF will likely put further pressure on the balance of pa...yments this year, with reserves projected at $12.1 billion by end 2011/12.
In the absence of corrective measures, the fiscal deficit is likely to reach 7 percent of GDP, much higher than the government's revised budget target of 4.7 percent. Moreover, there are considerable downside risks to this already difficult baseline, particularly in the context of an increasingly difficult global environment and concerns about policy weakening ahead of senate elections in 2012 and parliamentary elections in 2013.
In the absence of corrective measures, the fiscal deficit is likely to reach 7 percent of GDP, much higher than the government's revised budget target of 4.7 percent. Moreover, there are considerable downside risks to this already difficult baseline, particularly in the context of an increasingly difficult global environment and concerns about policy weakening ahead of senate elections in 2012 and parliamentary elections in 2013.
IMF Directors stressed that monetary and exchange rate policies need to better focus on containing inflation and external risks. Monetary policy is now too accommodative, and should be tightened if inflation or external pressures increase. Central bank financing of the budget needs to be curtailed, and greater operational independence of the central bank needs to be secured. Directors also called for more exchange rate flexibility to facilitate external adjustment and safeguard foreign reserves.
Unemployment is high when underemployment and unpaid employment are taken into account, while poverty incidence and measures of human development are at worrisome levels. Efforts to boost revenue mobilization were once again frustrated by a lack of political support, and the fiscal deficit widened to 6.6 percent of GDP in 2010/11. Monetary policy has become more accommodative, with the SBP directly or indirectly (through liquidity injections via open market operations) financing fiscal deficits. While the economy is recovering from the floods, the external position, until recently a source of strength on booming exports and workers' remittances, is deteriorating.
| Pakistan: Selected Economic Indicators, 2008/09–2011/12 1/ | ||||
| (Population: 173.5 million (2010/11)) | ||||
| (Per capita GDP: US$1,179 (2010/11)) | ||||
| (Poverty rate: 17.2 percent (2007/08)) | ||||
| Estimate | Projection | |||
| 2008/09 | 2009/10 | 2010/11 | 2011/12 | |
| (Annual percentage change) | ||||
| Output and prices | ||||
| Real GDP at factor cost | 1.7 | 3.8 | 2.4 | 3.4 |
| GDP deflator at factor cost | 20.0 | 11.9 | 18.8 | 12.0 |
| Consumer prices (period average) 2/ | 17.6 | 10.1 | 13.7 | 12.0 |
| Consumer prices (end of period) 2/ | 9.6 | 11.8 | 13.3 | 11.0 |
| Pakistani rupees per U.S. dollar (period average) | 25.8 | 6.7 | 2.3 | … |
| (In percent of GDP) | ||||
| Saving and investment | ||||
| Gross saving | 12.5 | 13.1 | 13.6 | 11.4 |
| Government | -2.1 | -2.4 | -3.6 | -3.6 |
| Nongovernment (including public sector enterprises) | 14.5 | 15.5 | 17.2 | 15.0 |
| Gross capital formation 3/ | 18.2 | 15.4 | 13.4 | 13.4 |
| Government | 3.1 | 3.5 | 2.6 | 3.1 |
| Nongovernment (including public sector enterprises) | 15.1 | 11.9 | 10.8 | 10.3 |
| Public finances | ||||
| Revenue and grants | 14.7 | 14.4 | 12.8 | 12.7 |
| Expenditure (including statistical discrepancy) | 19.9 | 20.3 | 18.9 | 19.5 |
| Budget balance (including grants) | -5.2 | -5.9 | -6.1 | -6.7 |
| Budget balance (excluding grants) | -5.3 | -6.2 | -6.6 | -6.9 |
| Primary balance | -0.2 | -1.6 | -2.3 | -2.9 |
| Total general government debt 4/ | 60.7 | 61.5 | 60.1 | 61.7 |
| External general government debt | 30.4 | 30.1 | 26.8 | 24.9 |
| Domestic general government debt | 30.3 | 31.4 | 33.3 | 36.9 |
| (Annual changes in percent of initial stock of broad money, unless otherwise indicated | ||||
| Monetary sector | ||||
| Net foreign assets | -3.2 | 0.5 | 4.1 | -3.3 |
| Net domestic assets | 12.8 | 11.9 | 11.8 | 18.2 |
| Broad money | 9.6 | 12.5 | 15.9 | 14.9 |
| Reserve Money | 1.9 | 11.4 | 17.1 | 13.3 |
| Private credit (percentage change) | 0.7 | 3.9 | 4.0 | 3.4 |
| Six-month treasury bill rate (period average, in percent) | 13.1 | 12.2 | 13.7 | … |
| External sector | ||||
| Merchandise exports, U.S. dollars (percentage change) | -6.4 | 2.9 | 29.3 | -1.8 |
| Merchandise imports, U.S. dollars (percentage change) | -10.3 | -1.7 | 14.5 | 9.2 |
| Current account balance (in percent of GDP) | -5.7 | -2.2 | 0.2 | -2.0 |
| (In percent of exports of goods and services, unless otherwise indicated) | ||||
| External public and publicly guaranteed debt | 182.2 | 177.3 | 153.4 | 158.5 |
| Debt service | 21.6 | 23.0 | 13.8 | 18.3 |
| Gross reserves (in millions of U.S. dollars) 5/ | 9,110 | 12,958 | 14,784 | 12,086 |
| In months of next year's imports of goods and services | 2.9 | 3.6 | 3.7 | 2.9 |
| Memorandum items: | ||||
| Real effective exchange rate (annual average, percentage change) | -2.1 | 1.0 | 6.1 | … |
| Terms of trade (percentage change) | 1.9 | 4.5 | -3.2 | … |
| Real per capita GDP (percentage change) | -2.6 | 1.6 | 0.3 | 1.3 |
| GDP at market prices (in billions of Pakistani rupees) | 12,724 | 14,837 | 18,063 | 20,918 |
| GDP at market prices (in billions of U.S. dollars) | 161.8 | 176.9 | 210.6 | 233.5 |
| Sources: Pakistani authorities; and IMF staff estimates and projections. 1/ Fiscal year ends June 30. | ||||
