2011年-世界发展银行全球_Pakistan_Economic_Update_June_2011_17页_1mb

Pakistan Economic Update Summary

Core Content

This document provides an overview of Pakistan's economic situation in the fiscal year 2010/11, highlighting the impact of the 2010 floods, fiscal and external imbalances, and the progress in structural reforms.

Main Points

Economic Outlook Deterioration

• The economic outlook significantly worsened after the devastating floods of July-August 2010, which affected all provinces.
• The flood damage is estimated at around US$10 billion.
• Real GDP growth, initially projected at 4.5 percent, is now expected to slow to 2.5-3 percent.

External Position Improvement

• The external position improved in the first ten months of FY2010/11 due to robust export growth (20.3 percent) and strong inflows of workers' remittances.
• The current account deficit fell from US$3.9 billion (2% of GDP) in FY2009/10 to US$748 million for the first ten months of FY2010/11.
• Foreign exchange reserves increased to US$14.1 billion by end-February 2011 from US$13.0 billion at end-June 2010.
• The external current account recorded a marginal deficit of US$81 million in the first seven months of FY2010/11.

Fiscal Position Deterioration

• The fiscal deficit widened in the first half of the fiscal year to 2.9 percent of GDP, exceeding 70 percent of the full-year target.
• The government estimated that the consolidated fiscal deficit could surpass 8 percent of GDP without urgent measures.
• To contain the deficit, the government introduced one-off tax measures, removal of tax exemptions, tariff increases, and expenditure cuts.
• Revenue mobilization fell short of targets, with total revenue collection at 5.9 percent of GDP (compared to 6.1 percent in FY2009/10).
• Power subsidies remain a major drain on the budget due to delayed tariff adjustments and rising input costs.

Structural Reforms Progress

• Tax administration and energy sector reforms have made steady progress.
• The government improved the General Sales Tax (GST) and removed several tax exemptions.
• Broad-based value added tax (VAT) has not yet been introduced due to a lack of consensus.
• Power tariff increases and management board appointments aim to reduce inefficiencies in the sector.
• Flood damage and political challenges have delayed reforms, leading to continued subsidy burdens.

Sectoral Performance

• Agriculture:

  • Suffered a significant setback due to flood damage to kharif crops.
  • Cotton and rice production dropped, but sugarcane showed gains.
  • Wheat production is expected to rise due to improved water availability, which could help with rising international prices.
  • Livestock also faced losses, but water reservoirs and green pastures may support recovery.

• Manufacturing:

  • Contracted by 1.8 percent during July-December 2010.
  • Turned positive in December 2010.
  • Expected to improve with a better wheat crop and sugarcane production, supported by agri-price demand and consumer durables growth.

• Services sector:

  • Provides more than half of the growth impulse.
  • Wholesale and retail trade, other services, and transport, storage, and communication are performing well.
  • Flood-relief activity and rehabilitation work are driving services growth.
  • Credit to retail trade grew by 44 percent, and telecom imports increased by 14 percent.

Financial Sector

• The financial sector has remained relatively robust despite the global financial crisis.
• Non-performing loans (NPLs) increased, reaching 14 percent of total loans by September 2010.
• SMEs, mortgage loans, and agriculture sector loans are the most vulnerable, with NPL-to-loan ratios of 25%, 20%, and 20% respectively.
• Liquidity indicators improved after the 2008 crisis but have slightly deteriorated since June 2010.
• Capital adequacy ratio remains above the regulatory requirement at 13.8 percent.
• Financial sector penetration is low, with only 14 percent of households using formal financial services.
• The public sector's reliance on banking and non-banking sector funding may hinder private sector growth.

Inflation and Monetary Policy

• Monetary expansion contributed to inflation, with Rs445 billion in credit demand from the government between July 2010 and February 2011.
• Net Foreign Assets (NFA) of the banking system increased by Rs146 billion during this period, aligning with foreign exchange reserve build-up.

Key Challenges and Outlook

• Fiscal deficit remains a major concern, with subsidies and low revenue collection exacerbating the issue.
• Energy crisis continues to affect economic growth and investment in electricity generation.
• Political instability and security issues hinder stabilization efforts and structural reforms.
• High country risk and perceived instability have reduced foreign investment.
• Floods and delayed reforms have further strained the economy.
• Continued recovery in the manufacturing and services sectors is expected, contingent on improving law and order and resolving the energy crisis.

Conclusion

The fiscal deficit and subsidy burden remain the most pressing issues for Pakistan's economic stability. While the external position has improved due to export growth and remittances, the internal challenges are significant. Structural reforms in taxation and energy are progressing, but delays and inefficiencies continue to discourage investment and hamper growth. Services and manufacturing are showing early signs of recovery, but long-term stability depends on effective policy implementation and political will.