Pakistan

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Area: 796,095 sq. km

Population: 196,174,380 (2014, est.)

Capital: Islamabad

GDP: USD 246.8bn (2014, est.)

Exports: USD 25.11bn (2014, est.)

Imports: USD 45.07bn (2014, est.)

Currency: Pakistani rupee (PKR)

Exchange rate: 1 USD = 140.90 PKR (01/2016)

 

Economic Structure and Development:

Pakistan’s GDP growth rate is forecasted to reach 3.5% 2015 comma after a slight slow down from 3.6% % in 2013 down to 2.5point five% in 2014. According to IMF estimations, the economy generated the GDP of USD 236.5 billion in 2013. The inflation rate of an estimated 8% remains high but nevertheless shows a significant decrease compared with 10% and 30% in 2010 and 2011. As a result of massive government spending on subsidies, especially on energy costs and the military, Pakistan’s budget deficit accounted for 6.5% of GDP in 2012 and it’s essential investments in education, health or infrastructure are yet to be realised. Agriculture is the most important sector, contributing 24% of the GDP and providing jobs for almost half of the Pakistani labour force. In recent years, livestock was recognised as the fastest-growing subsector, contributing approximately 50% of agricultural GDP.

  • Despite the enormous share in GDP, Pakistan’s agriculture faces several challenges:
  • Small farming households have unlimited access to financial assets
  • Unequalled contribution of land: 2% of the rural Society owns 45% of the total land
  • Lack of progress in terms of ‘green technology’ and efficient irrigation systems
  • Poor water management due to opaqueness of water flows and inter-provincial water conflicts
  • Illegal water pumping
  • Water losses as a result of out-dated machines and technologies

To overcome the disturbance factors, the government needs to implement several reforms and incentives for investors. Policies are needed to support agricultural diversification as well as a long-term strategy to solve the irrigation and drainage problem. Modern technology and a focus on research and development are therefore necessary. Additionally, the distribution of land should be protected against speculated action, for example through land taxation. A land administration system must also be established, helping to retain control over the contribution of state-owned lands. Pakistan is facing a high energy supply gap, with demand rising over 80% in the past 15 years. The current peak demand for energy reached 22,000MW during summer 2013 and will rise to 30,000MW by 2030 according to estimations. The total capacity, which accounted for 22,500MW, cannot be utilised to its full extent; a total supply of 15,000MW can be provided. The 7,500MW deficit is mainly caused by inefficiency, the obsolescence of the power plans and the lack of financial resources to purchase enough furnace oil. In order to overcome the supply gap, the government has announced a power strategy that features a power subsidy reduction as well as the investment of RSI 260bn (USD 5bn) in independent power plants (IPPs). This strategy also focuses on new energy resources. In 2012, oil and gas were the main power contribute tours with a share of 65% (oil 15% and gas 50%) of the total energy mix. On the other hand, Pakistan has immense potential for renewable energies. Already providing 6,500MW, hydropower plans will be expanded. Solar energy also has great potential, with utilisable resources of 50,000MW, while wind energy could generate three times more than the current energy capacity. To encourage the establishment of wind power supply, the government is offering several investment incentives, which include exemption from income taxes, a Purchase guarantee for generated energy, the absence of import duties and available credits for carbon. The textile sector is the most important industry, together with cotton processing. In 2013, 21.6% of GDP came from industrial production. Services – especially banking, insurance, transport and communication – are the key sector for Pakistan contributing 53.1% of the GDP in the same year. Remittances from abroad have amounted to USD 1bn monthly since 2011, also playing a central role in the Pakistani economy. Given that the repayment of debts from the IMF started in early 2012, pressure on foreign exchange reserves is expected. These reserves, which reached USD 18.3bn in 2011, heads shrunk to USD 13.8bn by 2012 and down to the USD 11.2bn in 2013. Fiscal decentralisation is also important for regional development. The responsible authorities therefore need to build up competency in this area.

Economic Outlook:

Pakistan offers excellent opportunities for foreign companies, in part due to its large and growing domestic markets, which is expected to reach 200 million people in the near future. The new government, in office since June 2013, has announced its focus on supporting economic sustainability and improving the countries economic status as objectives for its five-year term. For higher growth rates, a special focus has been placed on finding solutions to the energy crisis, especially through the establishment of renewable energy generators as well as boosting investment and trade through new incentives. Upgrading infrastructure and ceding most economic functions to the private sector are also included in the strategy. Therefore, the Pakistani government agreed to the economic reform program laid out by the IMF, which will support Pakistan with a three-year loan of USD 6.7bn. in the first step, Power subsidies will be cut down and removed. Other structural reforms also hope to strengthen the financial system and improve the business climate. According to IMF estimations, fiscal consolidation is expected to limit GDP growth to 2.5% in 2014, before rising to 3.5% and 3.7% in 2015 and 2016. The current account deficit forecast remains at 0.8% of GDP, as foreign reserves have dwindled. The monetary program is likely to limit average inflation to 7.9% for 2014. As already mentioned, overcoming the current energy crisis is one of the most important economic challenges for Pakistan as it is a prerequisite for industrial development and the delivery of basic public services, and therefore could contribute to the further stabilisation of the country. In order to realise the country is great potential for renewable energies, especially for hydro, solar and wind energy, Pakistan must attract investments. Besides the financial demand, knowledge and technology are necessities. The agricultural sector could also benefit from new machineries and expertise, for example efficient water management. Overall, economic development depends on the government efforts to achieve stability in the country.

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