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Default Economic Survey of Pakistan 2005-06

Economic Survey of Pakistan 2005-06: executive summary

The following is the executive summary of the Economic Survey of Pakistan 2005-06.

Pakistan’s economy has delivered yet another year of solid economic growth in 2005-06 in the midst of an extraordinary surge in oil prices and devastating earthquake of October 8, 2005 causing widespread damages. Pakistani corporates and consumers continue to be the bright spot.

Consumer spending remained buoyant and investors remained upbeat on the strength and sustainability of the current growth momentum, despite higher energy prices and natural calamities. With economic growth at 6.6 per cent in 2005-06, Pakistan’s economy has grown at an average rate of almost seven per cent per annum during the last four years (2002/03-2005/06) and over 7.5 per cent in the last three years (2003/04–2005/06), thus positioning itself as one of the fastest growing economies of the Asian region. The growth momentum that Pakistan sustained for the last four years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong credit growth.

The pre-requisites for a sustained economic growth appear to have gained firm footing during the last four years. The outgoing fiscal year (2005-06) has been an extraordinary year for the economy of Pakistan. At the very onset of the year the economy faced headwinds from rising oil prices, hovering around $70–75 per barrel and putting severe strains on the country’s trade balance on the one hand and budget on the other, and massive earthquake of October 8, 2005 causing extensive damage to property, infrastructure, school, hospital, etc., and loss of over 70,000 human lives. The rescue, relief and reconstruction of earthquake affected areas also put budget under severe stress.

Pakistan’s economy has proved itself as remarkably resilient in the face of shocks of extraordinary proportions. Growth has remained buoyant. Real GDP grew strongly at 6.6 per cent in 2005-06 as against the revised estimates of 8.6 per cent last year and 7.0 per cent growth target for the year. Key drivers of this year’s growth have been service sectors and industry. Large-scale manufacturing grew by 9.0 per cent as against 15.6 per cent of last year and 14.5 per cent target for the year, exhibiting signs of moderation on account of higher capacity utilization on the one hand and strong base effect along with several other factors on the other hand. The services sector continued to perform strongly at 8.8 per cent. Construction too continued to perform strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas. Consumer spending remained strong and investment spending gained further traction.

Pakistan’s economy continues to maintain solid pace of expansion since the fiscal year 2002-03 recovery in the economy has been strong, rapid and sustained. During the fiscal year 2005-06, Pakistan’s economic fundamentals have gained further strength. The most important achievements of this year include:

Growth and investment

Pakistan’s economy continued to maintain solid pace of expansion for the fourth year in a row in the fiscal year 2005-06 despite facing headwinds from rising energy prices at $70-75 per barrel and the widespread damage caused by the earthquake of October 8, 2005. The growth momentum that Pakistan sustained for the last four years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong credit growth.

Real GDP grew by 6.6 per cent in 2005-06 as against 8.6 per cent last year and fell short of the target (7.0 per cent). With economic growth at 6.6 per cent in 2005-06, Pakistan’s economy has grown at an average rate of almost 7.0 per cent per annum during the last four years and over 7.5 per cent in the last three years, thus enabling it to join the exclusive club of the fastest growing economies of the Asian region.

Growth of value addition in Commodity Producing Sector (CPS) slowed to 4.3 per cent in 2005-06 as against 9.2 per cent last year. Both the important components of the commodity producing sector namely, agriculture and manufacturing performed less than their targets. Within the CPS, agriculture and manufacturing grew by 2.5 per cent and 8.6 per cent, respectively.

Agriculture and particularly its crop sector could not perform up to the expectation especially major crops registered a 3.6 per cent contraction in growth. Livestock, a major component of agriculture, exhibited strong showing and pulled the overall growth in agriculture to 2.5 per cent as against the target of 4.2 per cent. Livestock has been the only saving grace as far as the performance of agriculture is concerned this year.

Overall manufacturing, accounting for 18.2 per cent of GDP, registered an impressive growth of 8.6 per cent against the target of 12.0 per cent and last year’s achievement of 12.6 per cent. Large-scale manufacturing grew by 9.0 per cent as against 15.6 per cent of last year and 14.5 per cent target for the year, exhibiting signs of moderation on account of higher capacity utilization on the one hand and strong base effect along with several other factors on the other hand. Small-scale manufacturing grew at estimated 9.3 per cent in 2005-06.

The Construction sector continued its strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas. The construction sector is estimated to grow by 9.2 per cent in 2005-06 as against extraordinary growth of 18.6 per cent last year.

The services sector grew by 8.8 per cent in 2005-06 as against 8.0 per cent of last year. Growth in the services sector in 2005-06 was primarily attributable to strong growth in the finance and insurance sector, better performance of wholesale and retail trade, as well as transport and the communications sector. Finance and insurance sector spearheaded the growth in the services sector and registered stellar growth of 23.0 per cent during the current fiscal year 2005-06 which is slightly lower than 29.7 per cent of last year. Value added in the wholesale and retail trade sector has increased by 9.9 per cent over the previous year, compared to 11.1 per cent growth last year. The transport, storage and communications sector grew by 7.1 per cent compared to 3.5 per cent growth last year. Major contribution towards growth has come from the services sector which has emerged as a new growth power house for some time.

The commodity producing sectors (agriculture and industry) has contributed one-third of the GDP growth and the services sector contributed the remaining two-third to the real GDP growth of 6.6 per cent. The CPS contributed 31.7 per cent or 2.1 percentage point to this year’s growth while the remaining 68 per cent or 4.5 percentage points contribution came from services sector. Within the CPS, agriculture contributed 0.55 percentage points or 8.4 per cent to overall growth while industry contributed 1.54 percentage points or 23.3 per cent. Within services sector wholesale and retail trade has contributed 27.9 per cent or 1.84 percentage points to GDP growth.

Pakistan’s per capita real GDP has risen at a faster pace during the last three years (5.6 per cent per annum on average in rupee terms) leading to a rise in average income of the people. Such increases in real per capita income have led to a sharp increase in consumer spending during the last three years. Per capita income defined as Gross National Product at market price in dollar term divided by the country’s population, grew by an average rate of 13.9 per cent per annum during the last four years -– rising from $579 in 2002-03 to $847 in 2005-06. Per capita income in dollar term registered an increase of 14.1 per cent over last year -– rising from $742 to $847. As opposed to an average annual increase of 1.4 per cent during 2000-03, real private consumption expenditure grew by 13.1 per cent in 2004-05 and further by 8.1 per cent in 2005-06.


During the fiscal year 2005-06, gross fixed capital formation or domestic fixed investment grew by 30.7 per cent as against a sharp rise of 28.6 per cent last year. Private sector investment grew by 31.6 per cent this year as against a growth of 29.1 per cent last year. Major growth in investment by private sector is witnessed in agriculture (15.3 per cent), manufacturing (14.4 per cent), mining and quarrying (45.5 per cent), construction (9.5 per cent), transport and communication (20.2 per cent), and wholesale and retail trade (424.5 per cent). Public sector investment on the other hand registered massive growth of 46.7 per cent as against a hefty 32.9 per cent increase last year. The growth in domestic investment was largely a public sector phenomenon last year but this year, it was mainly public-private sector partnership driven. Total investment increased from 18.1 per cent of GDP last year to 20.0 per cent of GDP in 2005-06. Fixed investment as percentage of GDP is estimated at 18.4 per cent as against 16.5 per cent last year. Both public sector investment and private sector investment as percentage of GDP have increased to 4.8 per cent and 13.6 per cent, respectively, up from 4.4 per cent and 12.1 per cent last year.


National savings as percentage of GDP stood at 16.4 per cent in 2005-06 fractionally lower than last year’s level of 16.5 per cent. Domestic savings stood at 14.4 per cent of GDP in 2005-06 slightly lower than 14.5 per cent of GDP last year.


Agriculture is the mainstay of Pakistan’s economy. Nearly twenty-two per cent of total output (GDP) and 44.8 per cent of total employment is generated in agriculture. It also contributes substantially to Pakistan’s exports. Agriculture also contributes to growth as a supplier of raw materials to industry as well as market for industrial products. Furthermore, 44.8 per cent of country’s work force is employed in agriculture, but 65.9 per cent of country’s population living in rural areas is directly or indirectly linked with agriculture for their livelihood. Whatever happens to agriculture is bound to affect not only the country’s growth performance, but to a large segment of the country’s population as well.

Over the last five years, growth in agriculture has witnessed a mixed trend. During the first two years (2000-01 and 2001-02), the country experienced the crippling drought, which badly affected its agriculture and eventually overall growth in agriculture turned negative for these two years. In the preceding years (2002-03 to 2004-05), relatively better availability of irrigation water had positive impact on overall agricultural growth and this sector exhibited a modest to strong recovery.

However, the performance of agriculture during the fiscal year 2005-06 has been weak. Against the target of 4.2 per cent and last year’s achievement of 6.7 per cent, overall agriculture grew by 2.5 per cent in 2005-06, due to a relatively poor performance of major crops and forestry, and weaker one of minor crops and fishery. At the same time, Livestock has been the sole saving grace. Major corps, accounting for 35.2 per cent of value added in agriculture, registered a decline of 3.6 per cent as production of two of the four major crops, namely cotton and sugarcane has been significantly less than last year for a variety of reasons including, excessive rains at the time of sowing, high temperature at the flowering stage, late harvesting of wheat crop, a strong base effect (cotton) and lastly the incidence of frost, damaging sugarcane crop in the month of January, 2006. The production of third major crop, namely wheat, remained more or less at last year’s level at 21.7 million tons thereby registering a meagre growth of 0.4 per cent. The production of rice -– the fourth major crop -– has been the sole major crop which registered an impressive growth of 10.4 per cent, but failed to turn the negative growth in major crops to a positive one.

Minor crops, accounting for 12.3 per cent of agricultural value added, barely managed to register a positive growth of 1.6 per cent in 2005-06 as against a growth of 3.0 per cent last year. The performance of livestock, the single largest sector accounting for almost one–half of agricultural value added, has been impressive as this sector grew by 8.0 per cent on the back of substantial increase in the population of species, milk, etc. The performance of fisheries has been poor as it grew by 1.9 per cent only in 2005-06. Forestry has been registering negative growth for three consecutive years -– registering a negative growth of 9.7 per cent in 2005-06 as against a negative growth of 30.4 per cent.

Pakistan’s agriculture has been suffering, on and off, from a severe shortage of irrigation water in recent years. As against the normal surface water availability at canal heads of 103.5 million-acre feet (MAF), the overall (both for Kharif and Rabi) water availability has been less in the range of 5.9 per cent (2003-04) to 29.4 per cent (2001-02). Relatively speaking, the Rabi season faced more shortage of water than Kharif during these periods. During the current fiscal year (2005-06), the availability of water for Kharif 2005 (for the crops such as rice, sugarcane and cotton) has been 5.5 per cent more than the normal supplies and 19.8 per cent more than last year’s Kharif. Excessive winter rainfalls (January-March 2005) along with the melting of snow on mountains top were responsible for higher than normal availability of water during Kharif 2005. The water availability during the Rabi season (for major crop such as wheat), as on end of March, 2006 was estimated at 30.0 MAF, which was 17.3 per cent less than the normal availability, and 29.8 per cent more than last year’s Rabi.

Amongst major crops, cotton production is estimated at 12.417 million bales for 2005-06 lower by 13 per cent over the last year’s production of 14.265 million bales. Wheat production is estimated at 21.7 million tons in 2005-06 as against 21.612 million tons last year, showing an increase of 0.4 per cent. Rice production has increased by 10.4 per cent in 2005-06 from 5.025 million tons last year to 5.547 million tons in 2005-06. Sugarcane production, however, decreased from 47.244 million tons in 2004-05 to 44.312 million tons in 2005-06, showing a decrease of 6.2 per cent.

As regards the minor crops, the production of chillies and onions increased by 34.8 and 29.0 per cent, respectively, during 2005-06. The production of all the pulses — masoor, moong and mash -– is down by 13.5, 12.6 and 9.8 per cent, respectively, during 2005-06. Lesser production over last year is due to shortfall in area. The production of potato also decreased by 17.9 per cent on account of frost, which affected the potato crop. Agriculture credit disbursement of Rs91.161 billion during July-March, 2005-06 is higher by 23.5 per cent, as compared to Rs73.811 billion over the corresponding period last year. The fertilizer off-take stood at 2,982,000 nutrient tons in July-March 2005-06 or higher by 6.1 per cent, as compared to 2,811, 000 nutrient tons for the corresponding period last year.

Manufacturing, mining and investment policies 2005-06

The overall manufacturing sector continued to maintain its growth momentum with more vigour during the current fiscal year. Overall manufacturing recorded an impressive and broad based growth of 8.6 per cent, against a target of 12.0 per cent and last year’s growth of 12.6 per cent. Large-scale manufacturing registered an impressive growth of 9.0 per cent in the current fiscal year 2005-06 against a target of 14.5 per cent and last year’s achievement of 15.6 per cent.

The main contributors to this impressive growth of 9.0 per cent in July-March 2005-06 over last year are the automobile group (29.76 per cent), engineering goods group (6.46 per cent), non-metallic mineral products (9.49 per cent), leather products (10.91 per cent), chemicals (9.08 per cent), pharmaceuticals (14.83 per cent) and electricals (11.78 per cent). The items that registered positive growth were cotton cloth (0.07 per cent) and cotton yarn (11.16 per cent) in the textile group; cooking oil (17.6 per cent) in the food, beverages and tobacco groups; nitrogenous fertilizer (4.46 per cent), in the chemical group, cement (9.75 per cent) in the non-metallic mineral products group and jeeps and car (29.9 per cent), LCVs (29.3 per cent) and motorcycles/scooters (15.04 per cent) in the automobile group. The individual items exhibiting negative growth include: sugar (2.40 per cent), coke (77.39 per cent), power looms (24.67 per cent) and billets (47.95 per cent).

The output of the mining and quarrying sector grew by 3.8 per cent this year as against the rise of 9.6 per cent last year. The principal minerals which have shown positive growth are: baryte (11.4 per cent), limestone (9.9 per cent), natural gas (4.5 per cent), rock salt (13.2 per cent), sulphur (5.4 per cent) and gypsum (12.6 per cent). While negative growth was exhibited by chromite (6.7 per cent) and magnetite (10.7 per cent).

Foreign direct investment has witnessed an increase of 238.7 per cent in the first ten months (July-April, 2005-06), whereas, net foreign private investment stood at $3,376 million against $1,027 million last year, thereby showing increase of $2,349 million. The increase in foreign private investment is because of the inflow of portfolio investment of $355.8 million as compared to inflow of $135.5 million in the comparable period last year.

The privatisation programme maintained its pace during 2005-06 and succeeded in privatising some high-ticket items despite an inhospitable global environment. By end April 2006, Pakistan completed or approved 160 transactions at gross proceeds of Rs985 billion. This includes 57 transactions for Rs337.908 billion completed during October 1999 to April 2006.

Poverty and income distribution

In Pakistan, the Poverty Reduction Strategy was launched by the government in 2001 in response to the rising trend in poverty during 1990s. Preliminary findings of Pakistan Social and Living Standards Measurement Survey (PSLM 2004-05) on poverty status were released at the end of February 2006, which indicates that the poverty level in Pakistan has been reduced during the last four years. A strong growth (7.5 per cent on average) for three years in a row, with per capita income growing at an average rate of 5.6 per cent; a large inflow of remittances (over $4.0 billion per annum) in recent years, a huge expenditure on poverty-related and social sector program, and many other interventions have made a significant dent to poverty in Pakistan.

As per HIES survey 2004-05, the percentage of the population living below the poverty line is provisionally estimated at 25.4 per cent in 2005, down from 32.1 per cent in 2001. This suggests a decline of 6.7 percentage points in poverty in the last four years. More importantly, the rural poverty has declined more than urban poverty. The provisional estimates show that rural poverty has declined from 39.0 per cent in 2001 to 31.8 per cent in 2005, a decline of 7.2 percentage points. Urban poverty on the other hand is provisionally estimated to have declined from 22.7 per cent in 2001 to 17.2 per cent in 2005, a decline of 5.5 percentage points.

The social sector and poverty related expenditures grew at an average rate of more than 20 per cent per annum during 2001-05. There is nearly a three-fold increase in the projected PRSP expenditure for 2006-07 when compared with the actual expenditures of base year 2001-02. Within the various categories of pro-poor expenditure, human development comes out to be the priority item of the Government with expenditures under this head constituting, on average, more than 50 per cent of all PRSP related expenditures. Further reduction in poverty, however, serves as a major challenge for the government. A clear lesson from the past four years of Pakistan and from other countries’ experience is that sustained growth on a consistent basis is needed to reduce poverty.

Fiscal development

Pakistan has gained further strength on fiscal side. Revenues are buoyant, expenditure is rationalized, fiscal deficit is at sustainable level and revenue deficit has almost been eliminated. Resultantly, Public debt is fast moving towards a sustainable level. Much progress has been made towards fiscal consolidation. The wide-ranging tax and tariff reforms as well as reforms in tax administration have started paying dividends. Tax collection by the Central Board of Revenue (CBR) has picked up. As a result of prudent fiscal management over the last 5 years, the burden of interest payment in domestic budget has declined sharply, thereby, releasing resources for development and social sector programme.

During the five years from 2000-01 to 2005-06, tax collection by the CBR increased by 81.0 per cent. The Central Board of Revenue (CBR) was targeted to collect Rs690 billion but it is most likely to collect Rs710 billion -– Rs20 billion more than the target and 20.6 per cent more than last year. The total expenditure remains more or less stable in a narrow band of 17 to 18.8 per cent of GDP during the last six years. Substantial decline in interest payments from as high as 7.5 per cent of GDP in 1998-99 to 3.1 per cent of GDP in 2005-06, has provided fiscal space to reorient expenditure in favour of development expenditure. Resultantly the share of current expenditure in total expenditure declined from 89 per cent of total expenditure in 1998-99 to 78 per cent in 2005-06. In addition, the share of development expenditure doubled from 11 per cent to 22 per cent in the same period. During the last six years the development expenditure improved from 2.2 per cent of GDP in 2000-01 to 4.2 per cent of GDP in 2005-06. Second largest component of the current expenditure, namely, defence spending remained stagnant at around 3.1 per cent to 3.3 per cent of GDP during the last six years.

Government is achieving the goal of fiscal stabilization without compromising spending on the social sector. Non-defence-non-interest expenditure has improved from 7.8 per cent of GDP in 1999-2000 to 11.8 per cent of GDP in 2005-06. During the last six years the real growth in current expenditure hovered around 3 per cent per annum and pace of growth has slowed down. Total expenditure grew by 3.4 per cent in the first three years (2000-03) but accelerated to 5.6 per cent during the last three years (2003-06). The main contribution is coming from development expenditure which grew by 7.4 per cent per annum in first three years (2000-03) and by 23.8 per cent in recent three years (2003-06).

Total consolidated revenues are targeted at Rs1,095.6 billion in 2005-06 compared to Rs900.0 billion in 2004-05, an increase of 21.7 per cent. This was primarily due to a rise of 22.2 per cent in tax revenue on the back of increases in both federal and provincial tax revenues, which grew by 19.8 per cent and 50.1 per cent, respectively. Non-tax revenue increased by 19.3 per cent in 2005-06 but remained stagnant at 3.8 per cent of GDP.

In 2005-06, Pakistan is likely to face an overall fiscal deficit of Rs261.6 billion or 3.4 per cent of GDP excluding earthquake effect and if we include earthquake related spending worth Rs65.8 billion, the size of the deficit stood at Rs327.3 billion or 4.2 per cent of GDP. This revenue-expenditure gap was financed through external and domestic sources. Out of the gap of Rs327.3 billion, financing from external sources is expected at Rs118.4 billion. The remaining gap of Rs208.9 billion is likely to be financed from domestic sources. Within domestic sources, financing from non-bank sources amounted to Rs22.4 billion while Rs96.7 billion would be contributed by the Banking sources, and Rs90.0 billion is to be financed through privatisation proceeds. The revenue deficit (the difference between total revenue and total current expenditure), a measure of government dis-saving, was at a deficit of 0.7 per cent of GDP in 2004-05 compared to a deficit of 2.2 per cent in 2000-01. It has further progressed towards almost elimination at 0.03 per cent of GDP in 2005-06.

The public debt-to-GDP ratio, which stood at almost 85 per cent in end June 2000, declined substantially to 61.4 per cent by the end of June 2005, 23.6 percentage points decline in country’s debt burden in 5 years. By end March 2006, public debt further declined to 54.7 per cent of the projected GDP for the year. Following the debt reduction strategy in which raising revenue was one of the key elements, the public debt burden in relation to total revenue has declined substantially from 562.5 per cent in 1999-2000 to 448.9 per cent by end-June 2005 and further to 384.9 per cent by end-March 2006 to the projected revenue for the year. During the last six years, the debt servicing liabilities have declined sharply from 65.4 per cent of revenue in 1999-2000 to 27.8 per cent of revenue and from 53.5 per cent to 27.8 per cent of current expenditure in 2005-06. The ratios of domestic debt to GDP and to tax revenue both decreased during 2005-06. The stock of domestic debt as per cent of GDP declined from 35.7 per cent in 2003-04 to 32.8 per cent in 2004-05 and further to 29.4 per cent by end March 2006.

As a result of prudent fiscal management over the last 6 years, the burden of interest payments on the domestic budget has declined sharply, thereby, releasing resources for development and social sector programmes. Interest payments as a percentage of total revenue have been reduced to one-half (41 per cent to 20 per cent) over the last six years. Similarly, share in total expenditure declined from 30 per cent to 16 per cent during the same period. Most importantly, as percentage of GDP, interest payments declined from 6 per cent to 2.6 per cent in the last six years.

Money & credit

The easy and accommodative monetary policy stance that had been pursued during the last few years by the SBP underwent considerable changes during the FY05, switching from a broadly accommodative to aggressive tightening in the second half of the last fiscal year, since April 2005. The same tight monetary policy stance continued during the current fiscal year despite declines in both core and overall inflation. Notwithstanding the tight monetary policy stance the SBP continued to strike a balance between promoting growth and controlling inflation on the one hand and maintaining a stable exchange rate environment on the other. Tight monetary policy stance is likely to continue until inflationary pressures are significantly eased off.

The State Bank of Pakistan has taken a number of steps in various areas to further enhance the effectiveness of the banking industry in Pakistan. Going forward, the SBP would continue to take measures aimed at expanding credit to priority sectors such as agriculture, SMEs and export sector. To further revamp the financial sector in line with the global financial system, the State Bank of Pakistan has set out a road map for the implementation of Basel-II. It is the new regulatory capital adequacy regime, which offers a series of approaches ranging from simple to more complex methodologies for capital allocation against credit and operational risk.

The credit plan for 2005-06 set the target for monetary expansion at Rs380 billion or 12.8 per cent higher than last year (FY05) on the basis of a growth target of 7.0 per cent and inflation target of 8 per cent. The money supply during July-April 22, 2006 of the current fiscal year expanded by Rs294.9 billion or 9.94 per cent as against an expansion of Rs332.4 billion or 13.37 per cent in the same period last year. The pace of monetary expansion remained well within the Credit Plan target for the year (12.8 per cent). Within the NDA, both net budgetary borrowings and borrowings for commodity operations remained well within the credit plan targets. The net credit to the Government for budgetary purposes was Rs43.3 billion compared to the annual credit plan target of Rs98 billion and Rs15.0 billion borrowed in the corresponding period of last year. However, credit to the private sector has exceeded the credit plan target and stood at Rs345.1 billion as against Rs330 billion envisaged for the year in the credit plan. Expansion in NFA stood at Rs37.8 billion owing mainly to the receipts of privatisation proceeds and issuance of sovereign bond. The proceeds from privatisation and sovereign bond not only helped build NFA; it also helped in containing the growth in NDA through the retirement of government debt held by the SBP.

Despite the tight monetary policy stance of the SBP, credit to the private sector was broad-based which grew by 20.2 per cent (Rs345.1 billion) during July-April 22, 2006 compared with the growth of 28.0 per cent or Rs357.4 billion during the same period of last year. Credit to the private sector continued to exhibit strong demand, reflecting the confidence of the private sector on the continuously improving macroeconomic fundamentals of the country. The manufacturing sector continued to be the largest recipient of bank credit, amounting to Rs130.0 billion during July- March 2005-06, 17.1 per cent more than the comparable period of last year and accounting for almost 47.9 per cent of the credit to private sector businesses. The growth in consumer loans remained robust, and their scale expanded by 27 per cent to Rs67.2 billion. The consumer loans were acquired to finance a range of products including automobiles (Rs23.2 billion) followed by personal loans (Rs21.5 billion), credit cards (Rs10.4 billion) and house building (Rs10.1 billion).

Credit disbursement to the agriculture sector, also remained consistent with the previous year trend. Scheduled banks and DFIs advances to the SME sector witnessed a growth of Rs40.6 billion during July-February FY06 compared with an expansion of Rs59.9 billion in the same period of last year. The scheduled banks have opened 304 offices during the period from 01-04-2005 to 31-03-2006. During July-March 2005-06, there was an increase of Rs303.9 billion (17.3 per cent) in the net advances of the scheduled banks. Their deposits increased by Rs272.9 billion (11.5 per cent) and their total investments increased by Rs77.1 billion during the first nine months of the current fiscal year. In 2005, the banking sector produced impressive results. The year has been unprecedented in terms of profits.

Pakistan continues to be at the forefront of the Micro-Finance Sector Development Programme (MSDP). Within the overall MSDP framework, Khushhali Bank (KB) is the lead micro-finance institution in Pakistan. The Bank now serves nearly 250,000 clients, with a cumulative disbursement of over Rs6.0 billion in 75 districts of Pakistan with high poverty incidence. Around 60 per cent of KB’s clients are in the rural areas, roughly one-third being women.

Capital market

During the fiscal year 2005-06, the stock market continued to maintain its strong performance and achieved new heights by creating many new records. The KSE-100 Index crossed the barrier of 12,000-mark for the first time in the history of capital market and touched an all time high on April 13, 2006. The KSE-100 index made further inroad and reached 12,274 points on April 17, 2006, showing a growth of 64.7 per cent over June 2005. Between December 2005 and April 2006 alone, the KSE share index increased by 25 per cent. Similarly, the total market capitalisation also increased to Rs3,419.4 billion on April 17, 2006 ($57.0 billion) from Rs2,013.2 billion ($33.7 billion), showing a growth of 70 per cent over June 2005. At current levels, KSE’s market capitalisation is equivalent to about 44.3 per cent of estimated GDP of FY06.

The improved performance of the stock market can mainly be attributed to consistent and transparent economic policies resulting in strong economic growth; a successful privatisation process attracting foreign investors in prestigious organization like PTCL and National Refinery; sound monetary policy of the SBP, maintenance of fiscal discipline and the capital market reforms including development measures introduced by the stock exchanges with full support of the SECP. The government’s economic policies and cap imports, registering a growth of 38.1 per cent in the first nine months (July-March) of the current fiscal year. Non-food non-oil imports also grew by 38.3 per cent, reflecting continued strong domestic demand. Major contributors to the rise in machinery imports include power generation machine (44.8 per cent), agriculture machinery (109.2 per cent), construction and mining machinery (29.0 per cent) and other machinery (51.7 per cent). A surge in imports of machinery reflects a growth in domestic investment driven imports, thus allowing the expansion of the country’s production base.

Imports of petroleum group have also played a key role in taking Pakistan’s import to a new height. Emerging as the single largest item in the country’s import bill, the Petroleum group import amounted to $ 4615.8 million, during the first nine months (July-March) of the current fiscal year as against $2,806.6 million in the same period last year. Thus an increase of 64.5 per cent resulted in an increase in trade deficit to $82620.3 million, in comparison to $4263.4 million in the same period last year.

Current account balance

Pakistan’s current account balance that slipped into red in 2004-05 after posting surpluses for three consecutive years remained in deficit in 2005-06, with a widening gap due to a higher import bill. This was brought about by high global crude prices and a hefty rise in non-oil imports. Furthermore, higher freight charges by international shipping lines as a result of sharp increase in global trade and higher fuel cost, and growth in personal travel due to the rising level of income of middle and high income groups, have also contributed to the widening of current account gap. Deceleration in the growth of net transfers is also responsible for widening of the current account deficit.

The current account deficit, excluding official transfers, stood at $4,696 million in the first nine months (July-March) of the current fiscal year as against $1181 million in the same period last year. As percentage of projected GDP for the year the current account deficit stood at 3.7 per cent as against 1.1 per cent in the same period last year. Although trade deficit (fob) almost doubled over the last year and services balance deteriorated by 27.5 per cent, the strong inflows under private transfers fuelled by rising workers’ remittances and resident foreign currency accounts offset some of the negatives with current account deficit standing at $4,696 million. The flow under long–term capital (net) improved markedly and risen to $3,905 million from $1,633 million last year.

External debt and liabilities

Pakistan’s total stock of external debt and foreign exchange liabilities grew at an average rate of 7.4 per cent per annum during 1990-99 -– rising from $20.5 billion in 1990 to $38.9 billion by end June 1999 but declined slightly to $37.9 billion in 1999-2000. It exhibited a declining trend thereafter. Pakistan’s external debt and liabilities have declined by $3.1 billion -– down from $38.9 billion in 1998-99 to $35.834 billion by 2004-05. However, external debt and liabilities increased to $36.557 billion by end-March 2006, thus showing a rise of $0.723 billion in the first nine months of the current fiscal year. The rise is mainly on account of issuance of sovereign bonds worth $800 million in March 2006.

External debt and foreign exchange liabilities, instead of growing at the pace of the 1990s, were in fact reduced from $38.9 billion in 1998-99 to $36.5 billion by end-March 2006 -— a reduction of $2.4 billion in seven years. Most importantly, the burden of the debt has declined substantially during the same period. For example, the external debt and liabilities as a percentage of foreign exchange earnings which stood at 335.4 per cent in 1998-99, declined to 127.6 per cent by end-March 2006. The external debt and liabilities stood at 64.1 per cent of GDP in end-June 1999, declined to 28.3 per cent in end-March 2006. The annual debt servicing payments made during the period 1999-2000 to 2003-04 averaged just above $5 billion per annum. This amount has drastically come down to around $3 billion in 2004-05. An amount of $2.4 billion has been paid during July-March 2005-06 and the amount rolled over declined from $4.1 billion in 1999-2000 to $1.1 billion in July-March 2005-06.

On March 23, 2006, Pakistan successfully issued $500 million new 10-year Eurobond and $300 million new 30-year bonds in the international debt capital markets lead managed by JP Morgan, Citi group and Deutsche Bank. This transaction, which represented the first international 144A bond issued by Pakistan since 1999, raised significant interest amongst international institutional investors. The 10-year notes were priced with a coupon of 7.125 per cent, framing a spread of 240bps over the relevant 10-year US Treasury benchmark and 187bps over the US$ mid-swap rate. The 30-year bonds were priced with a coupon of 7.875 per cent to, framing a spread of 302bps over the relevant 30-year US Treasury benchmark and 256bps over the US$ mid-swap rate. Pakistan was able to achieve spreads on both the new 10 and 30-year bonds that were tighter than its previous 5-year issues. By issuing 10 and 30 year tranches, Pakistan completed its primary objective of establishing a full Pakistani International yield curve in record time. With over 170 accounts participating, books closed with total orders exceeding US$2bn. The issue was over 2.5 times oversubscribed.


Right to education is the basic requirement of every individual. Nations all over the world reached high levels of prosperity and human development through investing and prioritizing provision of quality and equitable health and education faculties to their citizens. East Asian economies are a recent example that shows how nations can benefit from an educated and productive labour force. Pakistan is in fact, entering into that phase of demographic transition, where in few years massive influx in the working age population (60 million) is expected. Thus, investing in providing quality education to the upcoming working age population is the only way to cash the demographic dividend.

Currently, the literacy rate is 53 per cent which is much below the targets set to be achieved in 2005 (60 per cent ESR and 58 per cent in PRSP) and far away from reaching the Millennium Development Goals (MDGs) target of 80 per cent literacy till 2015. Looking at the gender disaggregated data for overall literacy, 65 per cent of males and 40 per cent of females were literate in the year 2004-05. District disaggregated data for adult literacy show that, in Punjab Rawalpindi with 75 per cent is ranked at the top and Lohdran with 34 per cent at the bottom. Karachi with 78 per cent literacy is ranked at the top while Jacobabad with 43 per cent is ranked at the bottom in Sindh. In NWFP, Abbotabad (65 per cent) is at the top and Kohistan (25 per cent) at the bottom. Finally, in Balochistan Quetta (65 per cent) at the top and Jhal Magsi (20 per cent) and Qilla Saifullah (20 per cent) are at the bottom.

The key impediments to the progress in reaching a higher level of literacy in Pakistan are the low enrolment rates and poor quality of education provided by the public sector. In case of enrolments, net enrolment rate (NER) has seen a considerable increase of 10 percentage points from 42 per cent in 2001-02 to 52 per cent in 2004-05. The MDG targets to reach 100 per cent NER till 2015. This requires almost 50 per cent increase in enrolment in next 10 years, which is a huge challenge for the policy makers. Another factor that contributes to lower literacy rates is the high dropout rate at all levels. Major reasons behind dropout include poor quality of infrastructure, teacher’s absenteeism, quality of education and the value of returns attached to sending children to schools. There exist wide gender gaps especially in the rural areas in enrolments at all levels.

In the past year, 2,187 new primary schools were established, 1,221 in the public sector and 881 in the private sector. This increase has occurred in both rural and urban areas. Enrolment at the primary level increased from 19.92 million in 2001-02 to 21.33 million in 2004-05, 4.28 million to 4.55 million at the middle level and 1.79 million to 1.88 million at the secondary level during 2001-02 to 2004-05. During the past four years 249 additional technical and vocational institutions were established. There is a significant increase of 35 universities during the period 2001-02 to 2004-05 including 13 new public and 22 new private universities.

Government of Pakistan is currently spending 2.1 per cent of its GDP on education sector which is very low as compared to other countries in the region. The share of education sector has not seen much change in the past several years, in fact it has stagnated to about 2 per cent from 2003-2005. The government has launched several programmes to increase coverage by increasing enrolment and to improve the overall quality of education but these initiatives need proper implementation and constant monitoring for their timely completion.


Importance of the health in the social lives of the people makes it such an important area that it cannot be considered in isolation and it is inextricably tied to other socio economic and political realities. The Constitution of Pakistan in its article 38 titled “promotion of social and economic wellbeing of the people” ensures the provision of basic necessities of life including health and medical relief for all citizens, irrespective of sex, caste, creed or race. The government of Pakistan recognizes and acknowledges the access to essential health care as a basic human right that is why the public health sector has always been a priority area of the government activities. The government of Pakistan is fully aware of its commitment to achieve Millennium Development Goals (MDGs) regarding health and initiatives have been taken to address health issues under PRSP and MTDF.

There is a considerable improvement in health care facilities over the past year as the existing vast network of health care facilities consist of 946 hospitals, 4,554 dispensaries, 5,290 basic health units/sub health centres (BHUs/SHCs), 552 rural health centres (RHCs), 907 maternal and child health centres (MCHs) and 289 TB centres (TBCs). Available human resources for the fiscal year 2005-06 turn out to be 118,160 doctors, 6,761 dentists and 33,427 nurses, which make the ratio of population per doctor as 1,310, population per dentist 25,297 and population per nurse as 4636. The new health facilities added to overall health services include construction of 56 new facilities (42 BHU and 14 RHCs), upgrading of 59 existing facilities (18 RHCs and 41 BHUs) and addition of 3,500 new doctors, 1,900 nurses, and 15,000 lady health workers. The total outlay on health sector is budgeted at Rs40 billion which shows an increase of 5.3 per cent over the last year and turns out to be 0.51 per cent of GDP. To reduce incidence of disease and to alleviate their suffering and pain so as to improve the health status of people, various health programmes like lady health worker programme, malaria, tuberculosis, HIV/AIDS control programmes, the expanded programme on immunization, National Maternal and Child Health Programme, Prime Minister Programme for Prevention and Control of Hepatitis in Pakistan, Drug Abuse, Cancer Treatment programme remained operative during fiscal year 2005-06.

During the fiscal year 2005-06 the caloric availability per day is likely to increase from 2271 to 2328 and protein availability from 65.5 to 66.9 grams PSLM 2004-05 reports district level data for major indicators in the health sector such as sickness/injuries, immunization, pre and post natal consultation etc. In the case of immunization, the top ranked districts are Jhelum (Punjab), Hyderabad (Sindh), Chitral (NWFP) and Gwadar (Balochistan). The districts reporting lowest immunization are Muzaffar Garh (Punjab), Jacobabad (Sindh), Shangla (NWFP) and Qilla Saifullah (Balochistan). The government of Pakistan needs to address the problem of the adversely affected districts and focus on policies to solve the problems and initiate immediate remedial measures.

Population, labour force and employment

Achieving a world population in balance with its environmental resources is crucial to the future of our planet and the welfare of its people. Population growth is a complex issue that directly or indirectly impacts all aspects of our lives and the conditions under which we live — from the environment and global stability to women’s health and empowerment. Pakistan being a developing country also faces the problem of over population. During the past 25 years, cultivable land has increased by 27 per cent compared to 98 per cent increase in population, resulting in reduced individual land holdings in Pakistan. Due to a high birth rate urban population will double in the next 20 years causing more and more forests to be cut to make way for humanity. Even now each year, deforestation occurs at the rate of 2.5 per cent. In addition, since only 60 per cent of our population has sewerage facility, the remaining 40 per cent churn out wastes damaging the environment and causing a lot of diseases. Rising levels of income on the one hand and easy availability of loan facility/ financing on the other has lead to an increase in motorization in the country and almost 70 per cent of our on-the-road vehicles have outlived their life span and emit un-burnt monoxide gases.

In Pakistan, labour force participation is estimated on the basis of the Crude Activity Rate (CAR) and the Refined Activity Rate (RAR). The CAR is the percentage of the labour force in the total population while RAR is the percentage of the labour force in the population of persons 10 years of age and above. The figures both for CAR (32.8 per cent) and RAR (46.9 per cent) for the first half of 2005-06 fare higher than LFS 2003-04 (30.4 per cent and 43.7 per cent). This phenomenon is more obvious for rural areas and women. Augmentation of the rates for the set of economic activities carried out within the house precincts also depicts the same scenario (42.8 Vs 38.5 per cent).

Agriculture still accounts for the largest source of employed work force. The share of agriculture in employment has increased from 43 per cent in 2003-04 to almost 45 per cent by mid of 2005-06. Sector wise break up of employed labour force shows that female labour force participation is on the rise for most sectors especially agriculture, fishery and telecom sectors. It is important to note that the employment of the rural females increased despite a considerable rise in female Labour Force Participation Rate. The increase in rural female employment was mainly in the category of unpaid family helpers, which may be due to enhanced growth rates in agriculture in recent years or due to the combined efforts of various NGO.

Transport and communication

A strong, efficient and affordable infrastructure is a critical element of a good investment climate and therefore, is a pre-condition to sustain the growth momentum. Transport and Communications both are important elements of infrastructure services and are essential in maintaining economic growth and competitiveness. In fact, the transport and communication sector in Pakistan account for about 11 per cent of GDP, 16 per cent of fixed investment, 6 per cent of employment and about 15 per cent of the Public Sector Development Programme. Road transport is a backbone of Pakistan’s transport system, accounting for 90 per cent of national passenger traffic and 96 per cent of freight movement. Over the past ten years, road traffic — both passenger and freight — has grown much faster than the country’s economic growth. The 9,518km long National Highway and Motorway network contributes about 3.7 per cent of the total road network and carries 90 per cent of Pakistan’s total traffic. The total length of roads in Pakistan was 258,340km, including 165,762km of high type (64 per cent) and 92,578km of low type roads (36 per cent) by the end of March, 2006. During the outgoing fiscal year, the length of high type roads has increased by 1.8 per cent over the last year but the length of low type roads has declined by 2.9 per cent. The construction work on Islamabad-Peshawar Motorway (M-1) however, is still in progress.

Furthermore, the Pakistan Railways have carried 61.3 million passengers and 4.3 million tons freight, with its gross earnings stood at Rs12.5 billion during July-March 2005-06. In comparison, PIA carried 3.972 million passengers during July-February 2005-06 as against 3.571 million in the same period last year, showing an increase of 11.2 per cent. Both passenger capacity and traffic volume also increased by 2.4 per cent and 8.7 per cent, respectively. In addition, its fleet consists of 41 aircrafts of various types. In addition, there are three private airlines, operating in the country and provide both domestic and international services.

Karachi Port has also handled 24,572,000 tons of cargo during July-March, 2005-06, compared to 21,845,000 tons during the same period last year, showing an increase of 12.5 per cent. Port Qasim has handled 16.8 million ton of cargo during July-March 2005-06 compared to 16 million cargo handled during the corresponding period last year, registering a growth of 5 per cent. Gwadar Port is also being built with Chinese assistance and its first phase has almost been completed.

In 1999-2000, there were only 0.3 million cellular mobile subscribers in Pakistan which jumped to 2.4 million by 2002-03 as a result of introduction of CPP regime and addition of another mobile operator (Ufone). Mobile subscribers continued to rise at an unprecedented pace, reaching 12.8 million by 2004-05. A major turnaround was witnessed when the mobile companies started giving free mobile connections and bearing the cost of government levies themselves. In a short period of 9 months in the outgoing fiscal year, more than 16 million new subscribers have been added to the list, reaching over 29.6 million by end April 2006. In other words, a more than 131 per cent increase in subscribers in just 9 months was unprecedented. Accordingly, the total teledensity (Fixed + Cellular + WLL) has jumped form 3.7 per cent in 2001-02 to 23.1 per cent by end March 2005-06.

For promotion of information technology, 2,339 cities/towns/ villages have been provided internet facility by March 2006. Total fixed telephone lines installed by March 2006 were 5.2 million as against 5.1 million up to June 2005 last year.


Global energy consumption is expected to increase steadily over the next twenty years. According to the International Energy Outlook 2001, the actual growth of world energy consumption increased from 207 quadrillion Btu in 1970, to 382 quadrillion Btu in 1999 which is anticipated to further increase to 607 quadrillion Btu in 2020. Over this fifty-year period, the consumption of energy will likely to increase by about 200 per cent, from 207 quadrillion Btu in 1970, to 607 quadrillion Btu in 2020. The largest increase in energy use will occur in the developing world. From 1999 to 2020, energy consumption in the developing countries is expected to climb 122 quadrillion Btu to 264 quadrillion Btu, depicting an increase of 116 per cent. In other words, the increase in energy use in the developing world is roughly double that of all countries in the global economy. Because, firstly many developing countries are striving towards economic development and industrialisation and will thus require additional energy. Secondly, virtually all of the increase in the world’s population over the next 20 years will take place in the developing world. Population growth will add over one billion people to the poorer regions, thus expanding the energy requirements for these regions.

Production of crude oil per day has decreased to 65,385 barrels during July-March 2005-06 from 66,199 barrels per day during the same period last year, showing a decline of 1.2 per cent. The overall production of crude oil decreased to 17.9 million barrels during July-March 2005-06 from 18.1 million barrels during the corresponding period last year, showing a decline of 1.1 per cent. On an average, the transport sector consumes 49.7 per cent of the petroleum products, followed by power sector (32.3 per cent), industry (11.8 per cent), household (2.5 per cent), other government (2.3 per cent), and agriculture (1.4 per cent) during last 10 years i.e. 1995-96 to 2004-05.

The average production of natural gas per day stood at 3,825 million cubic feet during July-March 2005-06 as compared to 3,663 million cubic feet over the same period last year, showing an increase of 4.4 per cent. The overall production of gas has increased to 1,048,190 million cubic feet during July-March 2005-06 as compared to 1,003,189 million cubic feet daily in the same period last year, showing an increase of 4.5 per cent. On average, the power sector consumes 36.6 per cent of gas, followed by fertiliser (22.5 per cent), industrial sector (18.8 per cent), household (18.4 per cent), commercial sector (2.8 per cent) and cement (1.3 per cent) during last 10 years i.e. 1995-96 to 2004-05.

Total installed capacity of electricity (Wapda, KESC, KANUPP and IPPs) stood at 19,439mw during July-March 2005-06, compared to 19,389mw during July-March 2004-05. Total installed capacity of Wapda stood at 11,363mw during July-March 2005-06 of which, hydel accounts for 56.9 per cent or 6,463mw, thermal accounts for 43.1 per cent or 4,900mw. During the first three quarters of current fiscal year, 63,978 GWh electricity has been generated as against 61,758 GWh were produced in the same period last year. The number of villages electrified increased to 99,595 by March 2006 from 90,467 up to 2004-05, showing an increase of 10 per cent.

Presently, some 930 CNG stations are operating in the country, while 200 are under construction. By March 2006 about one million vehicles were converted to CNG as compared to 700,000 vehicles during the same period last year, showing an increase of 43 per cent. With these developments Pakistan has become the leading country in Asia and the third largest user of CNG in the world after Argentina and Brazil.

Environment and housing

Environment: Sustainable development remains the cornerstone of government policies, and the concern for environment, its protection, renewal and enrichment is recognized as an obligation for the betterment of all citizens. The poverty-environment nexus has been of particular interest in the recent years, as poverty in Pakistan, like in many other middle-income countries, plays an important role in increasing the vulnerability of the poor to pollution and environmental degradation.

Several policies, plans, programmes and projects have been initiated for environmental protection and conservation in the sectoral areas of water and air pollution control, land use, forest management, energy efficiency, biodiversity conservation, and waste management, etc. One of the major achievements during 2005-06 was the formulation of the “National Environmental Policy 2005” which addresses the sectoral issues such as (a) water management and conservations, (b) energy efficiency and renewable, (c) agriculture and livestock, (d) forestry and plantation, (e) biodiversity and protected areas, (f) climate change, air quality and noise, and (g) pollution and waste management.

The key factors contributing to air pollution in Pakistan are: a) rapidly growing energy demand; b) increasing industrial and domestic demand and c) a fast growing transport sector. In the cities, widespread use of low-quality fuel, combined with a dramatic expansion in the number of vehicles on roads, has led to significant air pollution problems. Air pollution levels in Pakistan’s most populated cities are among the highest in the world, causing serious health issues in the process. The government is promoting the use of CNG in a big way to reduce the pollution level. Presently, some 935 CNG stations are operational through out the country, while another 200 are under construction. As of April 2006, the total number of CNG vehicles stood at 950,000, compared to 700,000 vehicles in April 2005, making Pakistan’s CNG fleet the largest in Asia and the third largest in the world after Argentina and Brazil.

Water availability in Pakistan continues to decrease, both in total amount of water as well as in the per capita water availability in Pakistan. In 1951, when population stood at 34 million, per capita availability of water was 5300 cubic meter, which has now decreased to 1105 cubic meter, just touching water scarcity level of 1000 cubic meter. With a present growth in population and the low rainfall, the threshold limit of water scarcity i.e. 1000 m3 of water per capita per year may be reached as early as the year 2010. Various mega initiatives have been planned especially under Wapda vision 2025. The estimates show that the current water shortage of 9 million acre feet would aggravate to 25 MAF if all planned dams under Vision 2025 are not constructed by 2016.

The government is committed to supply safe drinking water to its people and in this regard has started implementation of a “Clean Drinking Water Initiative” Project in 2005, which caters for the installation of 544 water purification plants of 2000 gallons/hour capacity, one in each Tehsil of Pakistan. A new project on “Clean Drinking Water for All” under Khushhal Pakistan Programme, has been recently approved and caters for installation of around 6035 water purification plants of different capacities (500/1000/2000 gallons/ hour), one in each union council of Pakistan.

Like many other developing countries, dry lands in Pakistan are severely affected by land degradation and desertification due to unsustainable land management practices and increasing demand of natural resources causing enormous environmental problems. The situation is further aggravated by scarcity of water, frequent droughts and miss-management of land resources, contributing to expansion of deserts, reduced productivity and consequently increases in rural poverty. In order to address the problems of land degradation and desertification, the ministry of environment, government of Pakistan, has taken an initiative and designed a full-scale project on “Sustainable Land Management to Combat Desertification in Pakistan”. The project aims at combating desertification and improving land management practices to eradicate poverty in arid and semi-arid regions of Pakistan.

The forestry sector plays an important role in soil conservation, water regulation for irrigation and power generation, reduction of sedimentation in water conveyances and reservoirs, employment and maintenance of ecological balance. Under the Millennium Development Goals of the Forestry Sector, Pakistan is committed to increase forest cover from existing 5 per cent to 5.7 per cent by the year 2011 and to 6 per cent by the year 2015. This implies bringing an additional 1.051 million hectares land area under forest.

The government of Pakistan is implementing a number of policies and programmes in the environment sector. National Environment Action Plan (NEAP) remains the flagship programme of the ministry of environment. The main objectives of NEAP are to safeguard public health, promote sustainable livelihood and enhance quality of life for the people of Pakistan. It focuses on clean air, clean water, solid waste management and eco-system management.

Housing Sector: Housing is one of the basic human requirements, as every family needs a roof. Providing shelter to every family has become a major issue as a result of rapid urbanization and higher population growth. According to the housing census 1998, the housing backlog, which stood at 4.30 million, has been currently projected at 6.19 million. It is estimated that to address the backlog and to meet the housing shortfall in the next 20 years the overall housing production has to be increased to 500,000 housing units annually. The present housing stock is also rapidly aging and estimates suggest that more than 50 per cent stock is over 50 years old. It is also estimated that 50 per cent of the urban population now live in slums and squatter settlements. Meeting the backlog in housing, besides replacement of out-lived housing units is beyond the financial resources of the Government. This necessitates putting in place a framework to facilitate financing in the formal private sector and mobilize non-government resources for a market based housing financed system. The government of Pakistan is, therefore, encouraging participation of local as well foreign investors/developers and private sector companies in housing sector to build more and more housing projects to meet the demands of a vast segment of society.

Having realized the importance of the housing sector in the overall economic development of the country, the government, as an immediate measure, declared Housing and Construction as a priority industry and simultaneously formulated a pragmatic and workable National Housing Policy. This is aimed at revitalizing the housing sector, providing therein various incentives for the construction industry and the private sector builders/developers. The salient features of this policy include: (i) Identify the state and other lands for housing development, (ii) To encourage the financial institution to give mortgage loans for housing at market rates. Commercial banks shall also be encouraged to advance loans for housing, by earmarking a substantial percentage of their loan portfolio, (iii) The annual disbursement of HBFC loans shall be enhanced from the present Rs1.2 billion to Rs7.00 billion over the next five years. (iv) Simplification of procedures for land transactions and standardisation of mortgage documents to facilitate sale and purchase of housing. (v) Stamp duties and registration fees, which are exceptionally high as compared to other countries, shall be adequately reduced to an aggregate total of 1 per cent to enhance registration, improve documentation and increase revenue receipts. (vi) Property tax on rented property shall be reduced from the current high rate of 25 per cent to 5 per cent. (vii) All new construction of houses on plots measuring up to 150 sq-yrds & flats/apartments having an area of 1,000 sq-ft shall be exempt from all types of taxes for a period of 5 years. (viii) Provincial governments shall develop packages in which prime state land within urban centres, occupied by the katchi abadis, shall be offered to the private developers for commercial use provided they arrange and finance upgradation or relocation of katchi abadis.

As a result of the coordinated efforts of federal and provincial governments and concerned private sector stakeholders, a large number of policy measures have so far been implemented resulting in the improvement of overall housing situation in the country besides availability of affordable housing finance to the extent of Rs34 billion in the market.
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