Forecast
From the Economist Intelligence Unit
Source: Country Forecast - Pakistan
The opposition has been critical of how the president and chief of army staff, General Pervez Musharraf, has handled the relief effort following the devastating earthquake in northern Pakistan in October 2005, but the Economist Intelligence Unit expects him to remain in power in 2006-07. He has the support of the army, a majority in parliament, the power to dismiss the prime minister and the right to suspend parliament. His supporters are also likely to be re-elected in a parliamentary election in 2007. The biggest risk to political stability is the possibility that he may be assassinated. Despite the earthquake, the economy is expected to perform strongly: real GDP growth is expected to reach 6.6% in fiscal year 2005/06 (July-June) and 6% in 2006/07, following the government’s provisional figure of 8.4% at factor cost (7.8% on an expenditure basis) for 2004/05. Inflation remains the biggest threat to the economy: annual inflation will average 8.6% in 2006 and 6.7% in 2007. The current-account deficit will widen to 3.8% of GDP in 2006 and 4.3% in 2007, in line with the rising merchandise trade deficit.
http://www.economist.com/countries/...rofile-Forecast
Annual data 2005(a)
Population (m) 156.4
GDP (US$ bn; market exchange rate) 110.7
GDP (US$ bn; purchasing power parity) 375.8
GDP per head (US$; market exchange rate) 708
GDP per head (US$; purchasing power parity) 2,403
Exchange rate (av) PRs:US$ 59.6
(a) Economist Intelligence Unit estimates.
Historical averages (%) 2001-05
Population growth 2.0
Real GDP growth 5.0
Real domestic demand growth 4.7
Inflation 5.2
Current-account balance (% of GDP) 1.6
Exchange rate (av) PRs:US$ 59.6
FDI inflows (% of GDP) 0.8
Major exports 2003 % of total
Cotton fabrics 10.8
Cotton yarn&thread 9.6
Rice 5.3
Major imports 2003 % of total
Machinery&transport equipment 26.7
Mineral fuels etc 23.8
Chemicals 16.0
Leading markets 2004 % of total
US 21.0
UAE 10.9
UK 7.0
Germany 5.1
Leading suppliers 2004 % of total
China 12.2
US 11.1
UAE 10.7
Saudi Arabia 10.4
http://www.economist.com/countries/...ofile-FactSheet
How Pakistan Is Picking Itself Up
Prime Minister Shaukat Aziz talks about efforts to deregulate and build the economy while overcoming the recent earthquake and fighting terrorism
Pakistani Prime Minister Shaukat Aziz traveled to New York and Washington in late January to meet with President George W. Bush, as well as U.N. officials and investors. He came at a delicate time, when U.S. forces had just bombed a Pakistani village, and while his country was still recovering from a devastating earthquake. Aziz discussed these turbulent events with BusinessWeek Senior Editor Chris Power. But the Prime Minister -- a former top executive at Citigroup (C) -- also gave a surprisingly upbeat assessment of Pakistan's economy. Edited excerpts of their conversation follow:
How has Pakistan fared since you became Prime Minister?
I think the single most important change is in the economy. We have transformed the mindset from that of a restricted closed economy to that of a totally deregulated economy where the three principles we work on are liberalization, deregulation, and privatization.
There's no distinction between local and foreign investment. Last year we clocked in 8.4% GDP growth, the second best after China. This year we will be close to 7%. Per-capita income is up to $736, and purchasing power parity per capita is about $2,500. The middle class is emerging, and people are doing well. Investment is at an all-time high -- both local and foreign. But still we need more. FDI last year was $1.5 billion. This year it will be $3 billion.
So you feel things are much better than they were five years ago?
Definitely. I think most people now feel that. And one indicator is that you can't find hotel rooms in Pakistan anymore!
One possible problem with this scenario is the current-account deficit, which is growing.
It's still within a safe range. The boom in imports is due to growth in the economy. When you have growth rates of 8% and demand is high, if you don't allow free imports, your price equation will get even worse. I think we are doing all right. Capital inflows are good. We haven't done anything unusual on debt. If you take the capital account into the numbers, the overall balance is pretty O.K.
What about the negative impact of oil?
Oil is looking tricky. We have sustained the high increase in oil prices. It does put pressure on our foreign exchange. But we are selling oil at market prices. There is no subsidy. It's tough. [Ordinary Pakistanis] don't like us for that. But if you subsidize, you take on debt to fund the oil bill, which is a killer.
Is the fiscal deficit feeling strain?
Our target this year is 3.8% of GDP, and we'll be no more than 4%. That increase is due to the earthquake, as you would imagine. But it's very well within control.
You want to widen Pakistan's tax base to boost revenues for the government. How is that going?
We are widening the tax base. In fact, our tax collection is doing well. We are up 33% so far this year over last year. That's all taxes -- income tax, import taxes, and the general sales tax.
Is that capturing all the possible tax revenues?
No. There's still a lot of potential. That's why I keep pushing them...a 33% increase is not good enough. Keep in mind that this increase in collection is in spite of the fact that the tax rates and tariff rates are all down. Gone are the days when you can run your country or economy by building high tariff walls around it.
How is the earthquake relief effort going?
I think most objective observers will tell you they are pleasantly surprised. It's a tough terrain. You are fighting the Himalayas. Even helicopters can't land in many places. We've created two independent entities -- a relief agency, which is providing food, tents, blankets, medical care, etc., and a rehab agency, which is more long-term. It focuses on income generation, building your own home, etc.
Has mortality gone up in the affected areas?
There has been no epidemic. These are tough people. You have a lot of respiratory problems, but I've been to most of the field hospitals. I've taken 64 trips to the earthquake area. Every week I go somewhere and check. It is our goal to get these people settled back in their traditional areas as soon as possible. It will take a couple of years.
Getting back to the economy, how is deregulation proceeding?
Let me tell you, it depends. In telecommunications, we have a great regulatory regime, a good regulator, tremendous investment coming in. We auctioned two licenses for cellular phones. We got $291 million each. We just sold our phone company, so we are moving ahead. In those areas it's working well.
But the Monopoly Authority, which regulates antitrust issues, needs fixing.
That's being remapped. We have a total program to reengineer and reinvent it. That's really not performing at par.
There has been some indication of hoarding and profiteering because of no monopoly control.
Some industries are accused of market fixing, but now we are going to really strengthen the whole agency and be tough.
How is Pakistan doing in developing workers' skills?
We now have shortages of skilled labor. So we have a major initiative for vocational and technical training, which we have just launched. And this is not talking about PhDs -- this is quick training for filling gaps in the economy. It's demand-driven. We've also made English compulsory in all federal schools from class one. There's no such thing as optional now.
Are the rural areas joining in the growth?
One of the best things that has happened in the last several years is farm income. Farm income is up. Farmer productivity is up. GDP grew last year by 7.6%. in real terms. Our whole strategy on agriculture is not subsidy-determined. Farmer profitability and linkage to international prices -- that was the fundamental reform in agriculture.
The U.S. is a big backer of your reform efforts.
They've been a great ally and a great friend of ours.
But how do you feel when the U.S. bombs a Pakistani village?
You know our view. It's a very regrettable incident. We cannot condone it. Innocent lives have been lost. At the same time we are very committed to fight terrorism, jointly with the U.S. and others. Because terrorism is no solution to any problem, and loss of innocent life is unfair. So we are committed to fighting terrorism. But there is a need for more coordination and more communication. The people of Pakistan are very angry.
The bombing doesn't make it easier for the government in the border region.
It's a difficult area. We have 80,000 troops there. That's a high number.
http://msnbc.msn.com/id/11021152/