Pakistan Economic Survey 2011-12.pdf

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Growth and Stabilization

Introduction

The resilience of the economy of Pakistan has been tested several times by one crisis after another. The economy has witnessed numerous domestic and external shocks from 2007 onwards. The sharp rise in international oil and food prices, the internal security hazards brought on by the campaign against extremism and the repeated natural disasters in the form of successive floods have buffeted the macroeconomic strategy with shock after shock. Domestically, two floods, the difficult security situation and the energy crisis have combined to drastically impact economic growth. The campaign against extremism with its associated destruction of physical infrastructure, the displacement of thousands of people from the affected areas and the associated rise in expenditure to support the moved people has all taken their toll. The growth in our export markets has slowed down compared to last year. Gross Domestic Product (GDP) growth has been stuck at a level, which is half of the level of Pakistan’s long-term trend potential of about 6.5 percent per annum and is lower than what would be required for sustained increases in employment and income and a reduction in poverty.

Amidst the critical challenges of the floods and heavy rains of 2010 and 2011, skyrocketing oil prices and global contraction, the government’s strategy continued to focus on regaining macroeconomic stability. There have been some successes. Pakistan has been able to withstand the pressures and improve its performance in some key areas such as the check on inflation, the increase in exports and revenue generation and maintenance of comfortable foreign exchange reserve levels. The focus on reforms and austerity through the control

of public expenditures despite the difficulties has continued.

The economy is now showing signs of modest recovery. The commodity producing sectors and especially the agriculture sector are doing better. Some improvement is also witnessed in the Large Scale Manufacturing (LSM) sector. The Service sector also gained from healthy trade activities and the improvements in the commodity producing sectors. The smooth functioning of the supply chains is playing a key role in improving the economic situation and ensuring the availability of essential items. Pakistan has the potential to grow at 6 to 7 percent in the next couple of years.

The GDP growth for 2011-12 was projected at 4.2 percent on the back of 3.4 percent growth in Agriculture, 2 percent growth in LSM and 5 percent in Services sectors. However, the torrential rains in Sindh province during August 2011 compelled the government to revise its GDP growth target to 3.6 percent from 4.2 percent on the basis of 2.5 percent growth in Agriculture, 1.5 percent in LSM, and 4.4 percent growth in services sector.

The revised growth targets have been met and marginally exceeded. The economy has shown resilience. GDP growth for 2011-12 has been estimated 3.7 percent based on nine month data as compared to 3.0 percent (revised) in the previous fiscal year 2011. The Agriculture sector recorded a growth of 3.13 percent against a target of 3.4 percent and previous year’s growth rate of 2.38 percent. The Large Scale Manufacturing sector grew by 1.78 percent as compared to the target of 2.0 percent and against the growth of 1.15 percent

Chapter 1

Pakistan Economic Survey 2011-12

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in the last year. Although the Services sector recorded steady growth of 4.02 percent as compared to 4.45 percent in 2010-11, this was

lower than the target of 5.0 percent set for the outgoing year. Figure-1.1 presents an overview of GDP growth over the previous years.

The 3.7 percent growth based on the nine months data 2011-12, up from 1.7 percent in 2008-09 and 3.0 percent last year, indicates the potential growth trajectory. The country has enormous potential to grow at much higher rates which is demonstrated by the achievement of the 3.7 percent growth this year despite the numerous internal and external shocks that the economy has been forced to withstand.

Some of Pakistan’s economic problems are structural in nature. The objectives of sustaining high growth, low inflation, and external payment viability can not be achieved without removing certain structural barriers. To this end the major structural reforms of the government have included tax legislation, trade reforms, further privatization of State Owned Enterprises (SOEs), financial sector reforms, human resource development and social protection. The EU approval of duty waiver on textile items is being pursued aggressively, which would help in improving the exports and providing support to the business environment. In recent times, Pakistan has also undergone political and constitutional changes. Civil societies and other organizations are now playing a more active and independent role and this coupled with government reforms are helping economic growth.

Global Developments

The International Monetary Fund (IMF) has warned that the euro zone debt crisis is escalating

and dragging down the entire world economy. In this scenario China has remained a bright spot. Its growth rate, although down to a forecast of 8.2 percent for this year compared to 9.2 percent last year, has remained relatively high. If China can maintain its growth, it’s good for the world, providing support for commodities markets and growth in other countries.

The IMF maintained its forecast of 2.1 percent growth for the US in the year 2012 and 2.4 percent for the year 2013. For Japan the growth rate projected for 2012 is 2.0 percent and for 2013 it is 1.7 percent. Overall, economic activity in advanced economies is likely to expand by 1.7 percent on average in 2012 and 2013. Growth in emerging economies is projected at 5.7 percent in 2012. The IMF expects growth in oil exporting countries in the Middle East and North Africa to slow to 3.9 percent in 2012, from 4.9 percent in 2011. Net oil importers in the Middle East and North Africa region are expected to record 2.6 percent growth in 2012, after sluggish growth of 1.4 percent in 2011. GDP growth across the Gulf Cooperation Council (GCC) countries is expected to be moderate at a rate of 4 percent in 2012.

Unfortunately, Europe is now caught in a vicious cycle of high debt and low growth. Highly burdened by debt, most of the economies in the region may not attain respectable levels of growth to improve their fiscal position. This will imply

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potential debt servicing difficulties and limit their abilities to unshackle their growth potential. Almost 17 percent of total exports of Pakistan are to the Euro zone as are a reasonable portion of its total import from this region. Problems in this area can impact on Pakistan’s trade and hence its overall growth.

Asia on the other hand, continues to move ahead, with China and India leading the growth. There is some hope that perhaps Asia has created some distance from the OECD, and has therefore, not been dragged down so far. However, if the OECD continues its downward slide, the export-led Asian giants could see their growth prospects diminish.

Table-1.1: Comparative Real GDP Growth Rates (%)Region/Country 2009 2010 2011 2012 2013 (P) World GDP -0.5 5.3 3.9 3.5 4.1Euro Area -4.1 1.9 1.4 -0.3 0.9United States -2.6 3.0 1.7 2.1 2.4Japan -6.3 4.4 -0.7 2.0 1.7Germany -4.7 3.6 3.1 0.6 1.5Canada -2.5 3.2 2.5 2.1 2.2Developing Countries 2.7 7.5 6.2 5.7 6.0China 9.2 10.4 9.2 8.2 8.8Hong Kong SAR -2.7 6.8 5.4 2.6 4.2Korea 0.2 6.1 4.5 3.5 4.0Singapore 0.6 2.8 3.3 2.7 3.9Vietnam 5.3 6.8 5.9 5.6 6.3 ASEAN Indonesia 4.6 6.2 6.5 6.1 6.6Malaysia -1.6 7.2 5.1 4.4 4.7Thailand -2.3 7.8 0.1 5.5 7.5Philippines 1.1 7.6 3.7 4.2 4.7 South Asia India 6.6 10.6 7.2 6.9 7.3Bangladesh 5.9 6.4 6.1 5.9 6.4Sri Lanka 3.5 8.0 8.2 7.5 7.0Pakistan 1.7 3.1 3.0 3.7 4.3 Middle East Saudi Arabia 0.1 4.6 6.8 6.0 4.1Kuwait -5.2 3.4 8.2 6.6 1.8Iran 3.9 5.9 2.0 0.4 1.3Egypt 4.7 5.1 1.8 1.5 3.3 Africa Algeria 2.4 3.3 2.5 3.1 3.4Morocco 4.9 3.7 4.3 3.7 4.3Tunisia 3.1 3.1 -0.8 2.2 3.5Nigeria 7.0 8.0 7.2 7.1 6.6Kenya 2.6 5.6 5.0 5.2 5.7South Africa -1.5 2.9 3.1 2.7 3.4Source: World Economic Outlook (IMF), April 2012. P: Projected.

Pakistan’s economy is very closely linked to the rest of the world due to its high external sector exposure. Several countries of the euro zone are important trading partners of Pakistan. As such, any untoward development in these countries could

have a substantial negative impact on the economy of Pakistan. A contraction or stagnation in economic activity in the global economy, can potentially affect the level of our exports, Foreign Direct Investment (FDI) and home remittances adversely. Similarly further increase in oil prices

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Table 1.2: Growth Performance of Components of Gross National Product (% Growth at Constant Factor Costs of 1999-2000)

Sectors/Sub-Sectors 2007-08 2008-09 2009-10 2010-11 R 2011-12 P Commodity Producing Sector 1.3 1.8 3.56 1.47 3.281. Agriculture 1.0 4.0 0.62 2.38 3.13-Major Crops -6.4 7.8 -2.28 -0.23 3.18-Minor Crops 10.9 -1.2 -7.72 2.68 -1.26-Livestock 4.2 3.1 4.28 3.97 4.04-Forestry 9.2 2.3 2.20 -0.40 0.95-Fishing -13.0 -3.0 1.47 1.94 1.782. Mining & Quarrying 4.4 -0.5 2.23 -1.28 4.383. Manufacturing 4.8 -3.6 5.46 3.06 3.56-Large Scale 4.0 -8.1 4.79 1.15 1.78-Small Scale 7.5 7.5 7.51 7.51 7.51-Slaughtering - - 4.33 4.38 4.464. Construction -5.5 -11.2 16.34 -7.09 6.465. Electricity & Gas Distribution -23.6 59.0 6.16 -7.25 -1.62Services Sector 6.0 1.7 2.63 4.45 4.026.Transport,Storage and Communication 3.8 3.6 1.89 0.87 1.257. Wholesale & Retail Trade 5.3 -1.4 4.49 3.53 3.588. Finance & Insurance 11.1 -7.6 -12.16 -1.41 6.539. Ownership of Dwellings 3.5 3.5 3.51 1.79 3.5110. Public Administration & Defence 1.2 3.6 2.52 14.17 2.6111. Social, Community & Public Services 9.8 8.9 7.83 6.90 6.7712. GDP (Constant Factor Cost) 3.7 1.7 3.07 3.04 3.67Source: Pakistan Bureau of Statistics P : Provisional, R : Revised, - : Included in Small Scale Commodity Producing Sector

The commodity producing sector (CPS) comprises of agriculture and industry. It is the most important sector of the economy, with relatively stronger forward and backward linkages for economic development and prosperity of the country. It accounted for 46.5 percent of GDP during the outgoing fiscal year. This is a decline from 49.1 percent of GDP in 2001-02, indicating that the share of the non-commodity producing sector has increased. The commodity producing sector has performed much better in outgoing fiscal year compared to last year; its growth rate this year was 3.28 percent against only 1.47 percent in last year. The recovery in both agriculture and industrial sector, though moderate, has helped to achieve this level. However, the growth of the commodity producing sector remained far below its potential due to largely unforeseen climatic factors.

Agriculture Sector

Agriculture is a key sector of the economy. It provides food items and raw materials for industrial units and accounts for 21 percent of GDP, 45 percent of employment and 60 percent of exports. In the inevitable process of structural transformation its share shrank to 21.1 percent in fiscal year 2011-12 compared to 24.1 percent ten years earlier in 2001-02. Despite its declining share, it is the single largest sector of Pakistan’s economy. Moreover, an overwhelming majority of the population depends directly or indirectly on income generated by this sector. The agriculture sector has strong backward and forward linkages. As a result its growth has a larger impact on the overall economic performance. The performance of the agriculture sector remained weak due to recent catastrophic floods.

However, the government’s supportive polices in this sector resulted in a growth of 3.13 percent


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against the growth of 2.38 percent last year and 0.62 percent in fiscal year 2009-10. The improved performance is mainly attributed to a sharp pick-up in the production of rice; cotton, and sugarcane. Livestock also registered a significant growth. The agriculture sector consists of various sub-sectors which include crops, livestock, fisheries and forestry. The crop sub-sector is further divided into major crops, namely, wheat, cotton, rice, sugarcane, maize and gram and minor crops namely, pulses, potatoes, onions, chilies and garlic etc.

Major Crops: Major crops account for 31.87 of agricultural value added and registered an accelerating growth of 3.18 percent compared to a negative growth of 0.23 percent last year and -2.28 percent in fiscal year 2009-10. The major crops including cotton, sugarcane and rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, wheat registered a negative growth of -6.7 percent. The main reason for the negative growth of wheat is the 2.6 percent decline in area under cultivation. In lower Sindh, in particular, sowing was delayed mainly because of late receding rain water which resulted in a decline in both the acreage as well as the yields. Moreover, in Punjab also the extended fog season delayed the planting of seed beyond the optimal period. The other major crops bajra, jowar, maize, sesamim, gram, barley, rapeseed and mustard and tobacco showed mixed trends but their share in the overall sector is small.

Minor Crops: Minor crops contributed 10.11 percent to value addition in overall agriculture. Production in this sub-sector declined by -1.26 percent. This negative growth is far below the 2.68 percent positive growth last year. The main reason for this negative growth of minor crops is the heavy flood in Sindh and Balochistan provinces. The growth of pulses is estimated at -3.50 percent, vegetables -10.0 percent, chilies -78.4 percent, onion -15.4 percent and oil seeds -26.9 percent.

Livestock: Global integration, rising income and living standards as well as changing dietary patterns across regions have brought a paradigm structural shift. This shift is visible in Pakistan also. The share of livestock in agriculture has increased to 55 percent. Livestock includes cattle,

buffalos, sheep, goat, camel, horses, asses, mules and poultry and their products. The demand for livestock has grown at a phenomenal pace. The increase in prices has provided incentive for greater production and spurred growth. The importance of this sector may be recognized by the fact that the majority of people living in rural areas depend directly or indirectly on the livestock and dairy sector. This sub-sector is highly labour intensive. It has also emerged as a major source of income for the small farmers as well as the landless rural poor.

Livestock has witnessed a marginally higher growth of 4.04 percent against the growth of 3.97 percent last year. The production of milk, poultry products and other livestock items has increased at the rate of 3.3 percent, 7.1 percent and 2.24 percent respectively.

Fisheries: The fisheries sector witnessed a growth of 1.78 percent against the growth of 1.94 percent last year. Components of fisheries such as marine fishing and in-land fishing, contributed to an overall increase in value addition in the fisheries sub-sector. The gross value addition of marine fish increased by 1.35 percent and that of inland fish by 1.96 percent.

Forestry: The growth of the forestry sub-sector is recorded at 0.95 percent as compared to the contraction of -0.40 percent last year. Forests are a key component of our environment and degradation of forests can pose severe socio-economic challenges for the coming generations. The main components of forestry, timber and fire wood, grew at 0.90 percent and 0.46 percent respectively.

Manufacturing Sector: The manufacturing sector contributes much to the progress of our economy. The manufacturing sector has remained under stress for the last several years, due to energy shortages, poor law and order situation. The heavy floods also depressed the supply chain and affected market demand. The share of the manufacturing sector in GDP was 17.7 percent in 2001-02. This has increased in 2011-12 to 18.6 percent of GDP. The manufacturing sector has been hard hit by international and domestic factors, which caused the slowing down of its output. The growth of the


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manufacturing sector was 3.56 percent compared to the growth of 3.06 percent last year.

Manufacturing has three main sub-components; namely the Large-Scale Manufacturing (LSM), Small Scale Manufacturing and Slaughtering. Small scale manufacturing maintained its growth of last year at 7.51 percent and slaughtering growth is estimated at 4.46 percent against 4.38 percent last year. Large Scale Manufacturing (LSM) has also witnessed a slight improvement. It has shown a growth of 1.78 percent against the growth of 1.15 percent last year. The major LSM industries which registered notable growth include; refrigerators 7.56 percent, sugar 27.09 percent, beverages 10.60 percent, liquid/syrup 15.93 percent, injection 6.53 percent, soaps and detergents 8.15 percent, buses 25.0 percent, electric bulbs 15.02 percent, electric transformers 27.72 percent etc. On the whole 38 major industries group recorded positive growth. The industries which reported negative growth include; cooking oil -1.61 percent, motor tyres -25.73 percent, T.V. sets -22.19 percent and deepfreezers -49.47 percent etc.

Construction Sector: The construction sector has shown 6.46 percent growth as compared to negative growth of -7.09 percent in last year. The increase in growth is due to rapid execution of work on the rehabilitation of the flood affected areas, increased investment in small scale construction and rapid implementation of PSDP schemes which are near completion.

Mining and Quarrying: Extraction of minerals and ores through efficient mining and quarrying provides convenient and economical access to raw materials and a competitive edge to the country. The mining and quarrying sector recorded positive growth of 4.38 percent during the year 2011-12 against the negative growth of -1.28 percent last year. The contribution of this sector in GDP has expanded remarkably and now accounts for 9.45 percent of the industrial value addition. The output of chromite, bauxite, gypsum, chalk and fluoride increased by 591.54 percent, 82.15 percent, 24.43 percent, 82.18 percent and 111.28 percent respectively. This growth was also made possible in some part due to the increase in natural gas production. The extraction of bentonite, however, registered substantial decline of -47.82 percent.

Much of the country’s mining reserves exist in remote areas. Infrastructure improvements are necessary to sustain and achieve higher growth rates in future. Improvement in the security situation in the country would also lead to greater production.

Services Sector:

The importance of the services sector has been recognized all over the world. This sector has emerged as the main driver of economic growth. The services sector also plays a vital role in sustaining economic activities in Pakistan. The economy has gone through a major transformation in its economic structure. The share of the services sector has increased to 53.5 percent in 2011-12. In developed countries the share of services sector in GDP is around 75 percent. This share is 65 percent in Singapore, 52 percent in India and 42 percent in Indonesia.

The services sector consists of the following sub-sectors: Transport, Storage and Communication; Wholesale and Retail Trade; Finance and Insurance; Ownership of Dwellings; Public Administration and Defense; and Social Services. The Services sector has registered a growth rate of 4.02 percent in 2011-12. This performance is dominated by Finance and Insurance at 6.53 percent, Social and Community Services 6.77 percent and Wholesale and Retail Trade 3.58 percent. The contribution of transport, storage and communication is estimated at 1.25 percent. The recovery in agriculture and industry have resulted a positive impact on the performance of the whole sale and retail trade. Our services sector has a great potential to grow at a rapid pace. In order to develop the services sector, Pakistan has recognized the needs to liberalize operating rights and has separated regulators from operators.

Finance and Insurance Sector: The finance and insurance sector comprises the State Bank of Pakistan; all scheduled banks (domestic and foreign), Development Financial Institutions (DFIs), all insurance (life and general) companies, Modaraba/Leasing companies, Money Changers and stock exchange brokers. The financial sub-sector consists of all resident corporations principally engaged in financial intermediations or


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in auxiliary financial activities related to financial intermediation. Pakistan’s financial sector is integrated with the world economy and this is reflected in its performance. Finance and Insurance sector recorded positive growth of 6.53 percent in 2011-12 as against contraction of -1.41 percent last year.

Transport, Storage and Communication: The role of Transport, Storage and Communication (TS&C) sector is very important in boosting the economic activities of the country. The current global economic crisis and the level of integration of these sub-sectors in the globalized economy including the presence of multi national enterprises (MNEs) in the markets of all countries of the world puts a greater need for major investments in physical and qualitative terms to meet expected demand. Information and Communication Technologies (ICTs) are perhaps the most critical tool for a dynamic and flexible services sector. The TS&C sub-sector grew at 1.25 percent as compared to 0.87 percent last year. Water Transport has declined by -3.14 percent during 2011-12, and Air Transport by a massive -27.93 percent. Sub-sectors that showed a positive growth are; pipeline transport 34.64 percent, road transport 2.88 percent, storage 2.10 percent and communication 0.93 percent.

Wholesale and Retail Trade Sector: The wholesale and retail trade sector is based on the margins taken by traders on the transaction of commodities traded. In 2011-12, this sector grew at 3.58 percent as compared to 3.53 percent in the last year.

Public Administration and Defense: Public Administration and Defense posted a growth of 2.61 percent as compared to 14.17 percent last

year. The positive change in the wage component of public sector employees, and an increase in defense and security related expenditures were largely responsible for this growth.

Ownership of Dwellings: Ownership of Dwellings has recorded a growth of 3.51 percent during the year 2011-12 compared to 1.79 percent last year. Social Services grew by 6.77 percent against the last year’s growth of 6.90 percent. The rise in the growth of Ownership of Dwelling and social services is mainly due to the fast track work on reconstruction and rehabilitation of flood affected areas by government, NGOs and private sectors.

Contribution to Real GDP Growth (Production Approach)

As in previous years the improvements in economic growth in the fiscal year 2011-12 came mainly from the services sector. The services sector contributed 58.58 percent to overall economic growth; while the commodity producing sector (CPS) contributed only 41.4 percent. The agriculture sector contributed 17.98 percent to economic growth compared to 23.43 percent contribution by the industrial sector.

The overall growth of 3.67 percent is shared between the Commodity producing sector and Services sector. Within the commodity producing sector, agriculture contributed 0.66 percentage points to overall GDP growth, while industry contributed 0.86 percentage points. The services sector contributed the remaining 2.15 percentage points. The percentage share of agriculture, manufacturing and services in overall growth was 17.98 percent, 23.43 percent and 58.58 percent respectively. The sectoral contribution to the GDP growth is shown below in Table-1.3.

Table 1.3: Sectoral Contribution to the GDP growth (% Points) Sector 2007-08 2008-09 2009-10 2010-11 2011-12 Agriculture 0.23 0.86 0.13 0.50 0.66Industry 0.38 -0.03 1.57 0.18 0.86- Manufacturing 0.92 -0.69 0.10 0.57 0.66Services 3.08 0.89 1.37 2.36 2.15Real GDP (Fc) 3.68 1.72 3.07 3.04 3.67Source: Pakistan Bureau of Statistics


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Contribution to Real GDP Growth (Aggregate Demand Side Analysis)

Consumption is the largest and relatively smooth component of aggregate demand; the other two components are investment and net exports. In every economy of the world consumption may be disaggregated into the public and private sector consumption. Similarly investment may be classified into public and private investment. Aggregate demand is the sum of consumption, investment and net exports (exports minus imports) of the goods and services. Pakistani society like other developing countries is a consumption oriented society, having a high marginal propensity to consume. As a result private consumption is the major sub-component of aggregate demand.

Private consumption expenditure has increased to 75 percent of GDP, whereas public consumption expenditures are 13 percent of GDP. Total consumption has reached 88.35 percent of GDP in fiscal year 2011-12 compared to 83 percent in the last fiscal year. Private consumption has increased on the back of sustained growth in remittances.

Furthermore, increase in rural income due to higher production of crops and the sharp increase in commodity prices also supported the consumption demand.

The share of investment in GDP growth remained negative. A number of factors may be responsible for this decline. These include: slow down in global business activities affecting foreign direct investment, the decline in the external demand of the domestic production, serious energy shortages, unstable law and order situation and higher interest rates in the recent years. The contribution of net exports has also been negative. The balance between investment and consumption has been disturbed from 2008-09 onwards due to domestic and external shocks. The composition of aggregate demand highlights an alarming factor. The contribution of fixed investment to economic growth has become negative since 2008-09. Domestic demand continued to be the most significant driving force for economic growth, with private consumption being the major driver for sustaining aggregate demand.

Table-1.4: Composition of GDP Growth Point Contribution Flows 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Private Consumption 0.8 3.4 -1.9 8.3 -1.5 2.3 8.5 Public Consumption 3.9 -1.1 3.8 -4.2 5.1 0.4 0.9Total Consumption [C] 4.7 2.3 1.9 4.1 3.6 2.7 9.4 Gross Fixed Investment 2.9 2.2 1.3 -2.7 -1.5 -1.3 -1.5 Change in Stocks 0.1 0.1 0.0 0.1 0.1 0.1 0.1Total Investment [I] 2.9 2.3 1.3 -2.7 -1.4 -1.2 -1.4 Exports (Goods & Serv.) [X] 1.8 0.4 -1.0 -0.6 2.2 2.4 -2.1 Imports (Goods & Serv.) [M] 3.2 -0.7 0.6 -2.7 0.9 0.9 1.7Net Exports [X-M] -1.5 1.1 -1.6 2.2 1.3 1.5 -3.8 Aggregate Demand (C+I+X) 9.4 5.0 2.2 0.9 3.5 3.0 5.9 Domestic Demand (C+I) 7.6 4.6 3.2 1.4 2.2 1.5 8.0GDP MP 6.2 5.7 1.6 3.6 3.5 3.0 4.2Source: Pakistan Bureau of Statistics Composition of Gross Domestic Product

The economy of Pakistan, like all developing economies, is in the process of structural transformation during the last few decades. There has been a clear shift away from the Commodity Producing Sector (CPS) which accounted for

almost 62 percent of the GDP in 1969-70 to 46.46 percent in 2011-12, a decline of 15.54 percent. The decline in the share of CPS is offset by the increase in the share of the services sector. A further breakdown of the CPS shows that the share of the agriculture sector has been falling over time. In 1969-70, agriculture accounted for 38.9 percent of


10

GDP. This has gradually declined to 21.1 percent in 2011-12. The decline in the share of agriculture in GDP indicates that the non-agriculture sectors grew more quickly as compared to the agriculture sector.

Scientific development and revolutionary innovations in the business climate have encouraged the manufacturing and services sectors more than the agriculture sector. Structural, social and cultural problems of the agriculture sector, the higher risk and vulnerability to natural calamities have encouraged investors to switch to the non-agriculture sectors. The contribution of agriculture to overall GDP will continue to decline as

development takes place. This is an inevitable consequence of the process of growth and development.

It has been observed during the last two decades that the major momentum to economic growth has come from the services sector which has emerged as the main driver of the economic growth. Within the services sector, almost all the sub-sectors have increasing contributions. The share of manufacturing in GDP has remained stagnant, at around 14.7 percent, for 30 years until 1999-2000. Its contribution to GDP has increased after 1999-2000 from 14.7 percent to 18.65 percent in 2011-12.

Table 1.5: Sectoral Share in Gross Domestic Product (GDP)

(At Constant Factor Cost-in percentage) 1999-00 2004-05 2008-09 2009-10 2010-11 2011-12 P Commodity Producing Sector 49.3 48.7 47.1 47.6 46.7 46.461. Agriculture 25.9 22.4 21.8 21.2 20.9 21.1- Major Crops 9.6 8.4 7.3 6.9 6.5 6.71- Minor Crops 3.5 2.7 2.5 2.2 2.3 2.13- Livestock 11.7 10.6 11.3 11.4 11.5 11.61- Fishing 0.4 0.3 0.4 0.4 0.4 0.37- Forestry 0.7 0.4 0.3 0.3 0.2 0.24Industrial Sector 23.3 26.3 25.3 26.4 25.8 25.402. Mining & Quarrying 2.3 2.7 2.5 2.5 2.4 2.403. Manufacturing 14.7 18.3 18.2 18.6 18.7 18.65- Large Scale 9.5 12.9 12.1 12.3 12.1 11.90- Small Scale 5.2 4.1 4.7 4.9 5.1 6.744. Construction 2.5 2.1 2.1 2.6 2.5 2.155. Electricity & Gas Distribution 3.9 3.2 2.5 2.8 2.2 2.19Services Sector 50.7 51.3 52.9 52.4 53.3 53.546. Transport, Storage & Communication 11.3 10.4 10.2 10.1 10.0 14.127. Wholesale and Retail Trade 17.5 18.7 16.8 17.0 17.2 17.128. Finance and Insurance 3.7 4.0 5.7 4.9 4.5 4.799. Ownership of Dwellings 3.1 2.9 2.8 2.7 2.7 2.7210. Public Admn. & Defence 6.2 5.9 6.1 6.0 6.6 6.6211. Other Services 9.0 9.5 11.3 11.8 12.3 12.6512.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0 100.0Source: Economic Adviser’s Wing, Finance Division P: Provisional Fig-1.4 presents the structural shift in the economy. During the last 10 years the sectoral share of the agriculture sector has decreased from 23 percent to 21.1 percent. The sectoral share of the manufacturing sector has increased from 18 percent to 18.6 percent and the share of other industries has remained more or less stagnant

around 7 percent of the GDP over the last 10 years. The share of the services sector has increased from 50.9 percent to 53.5 percent in the same period. It may be concluded that on the whole structural transformation has been slow during the decade under discussion. The share of the commodity


11

producing sector and the services sector has increased marginally.

Fig-1.4: Contribution to GDP

The government has approved the Framework of Economic Growth which lays out a wide-ranging strategy for long term competitiveness and growth. The strategy focuses on governance, institutions, markets, connectivity and cities. The government

is making efforts to accelerate the operationalization of the growth strategy by initiating specific policies and programs in key strategic areas. The salient features of the new growth strategy are summarized in Box-2.

Box-2 New Growth Strategy

New growth strategy is an approach to accelerate economic growth and sustain it. It identified a coherent approach to growth that goes well beyond projects and targets public service delivery, productivity, competitive markets, innovation and entrepreneurship

The strategy is based on sustained reform that builds efficient and knowledgeable governance structure, and markets in attractive and well-connected locations. It focuses on the ‘software’ of economic growth (issues of economic governance, institutions, incentives, human resources, etc.), and provides an environment in which the ‘hardware’ of growth (physical infrastructure) could be expanded and made more productive at every level.

Targeting Growth

Around 68 percent of Pakistan’s population is in the youth category (under 30 years) with the size of the workforce increasing by over 3 percent annually. To absorb this youth bulge productively, Pakistan's real GDP needs to grow at an annual average rate in excess of 7 per cent

Efforts will be undertaken to revive the economy to its short term potential GDP growth rate of about 5–6 percent annually. Resolving issues regarding energy and governance and ensuring credible macro stability, this could be achieved in a short time

Deep and sustained reforms for a number of years in areas such as public sector management, developing competitive markets, urban management and connecting people and places are the way forward for accelerating growth to above 7 percent. This is precisely what fast growing economies have done. This is also the direction towards which Pakistan is now aimed to move.

Thrust of Growth Strategy

Pakistan is facing several external and internal challenges. In order to achieve economic growth in this scenario the new growth framework has the following characteristics. It does the following:

Puts emphasis on productivity and efficiency beyond brick and mortar perspective Seeks to build a better government and markets, taking the view that good government complements

Agriculture 24.1%

Manufacturing,17.7%

Services 50.9%

Other Industries

7.3%

2001-02

Agriculture 21.1%

Manufacturing 18.6%

Services 53.5%

Other Industries

6.8%2011-12


12

efficient, competitive and connected markets Recognizes that economic well-being is a result of the variety and frequency of economic transactions.

Policy, law and regulation must seek to minimize transaction costs and allow speedy and frequent transactions.

Focuses on urban development as a crucible for the nurturing of innovation entrepreneurship and productivity

Includes youth through community development and the provision of market opportunities while continuing to impart skills and education.

Source: Planning and Development Division

Per Capita Income:

Per capita income is defined here as Gross National Product at market price in dollar term divided by the country’s population. Per capita income is widely used and recognized as one of the important indicators of economic growth and general well-being of a society. Per Capita Income in dollar terms grew at a modest rate of 9.1percent in 2011-12 compared to 17.8 percent growth last year.

The per capita income in dollar terms has increased from $ 582 in 2002-03 to $ 1,372 in 2011-12. The major factors, which contributed in the rise of per capita income, include acceleration in real GDP growth, inflows of workers remittances and the stable exchange rate. Fig 1.5 shows the improvement in per capita income during the last ten years.

Investment and Savings

Investment plays an important role in the economic growth of a country. It raises the productive capacity of the economy, affects the employment levels, and promotes technological progress through embodiment of new techniques. Investment spending is usually volatile, because it depends on multiple factors. That is why it is responsible for much of the fluctuations of the GDP. Investment has been hard hit by international and domestic factors during the last few years. Total investment has declined from 22.1 percent of GDP in 2007-08 to 12.5 percent of GDP in 2011-

12. Fixed investment has decreased to 10.9 percent of GDP in 2011-12 from 20.5 percent of GDP in 2007-08. Private investment witnessed a contraction of 7.9 percent in 2011-12 compared to 15.0 percent of GDP in 2007-08. Public investment as a percent of GDP also declined to 3.0 percent in 2011-12 against the 5.4 percent in 2007-08. The composition of investment between the private and public sector has also changed during the period under review.

The contribution of national savings to domestic investment is indirectly the mirror image of foreign

582 663 724823 904

1015 990 10681258

1372

0200400600800

1000120014001600

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

Fig-1.5: Per Capita Income ($)


13

savings required to meet investment demand. The requirement of foreign savings needed to finance the saving investment gap, reflects the current account deficit in the balance of payments. National savings are 10.7 percent of GDP in 2011-12 compared to 13.6 percent in 2007-08. Domestic savings have also declined from 11.5 percent of GDP in 2007-08 to 8.9 percent of GDP in 2011-12. Net foreign resource inflows are financing the saving investment gap. Theoretically, there are two ways of improving the savings investment gap. One is through increasing savings and the other is through decreasing investment. Pakistan needs to gear up both savings and investment to enhance the

employment generating ability of the economy as well as increase resource availability for investment.

Public sector investment is crucial for catalyzing economic development. It creates spillover effects for private sector investment because private sector development is facilitated through public sector development spending particularly on infrastructure. However, curtailment of development expenditures limits private sector development. Public sector investment decreased from 5.4 percent of GDP in 2007-08 to just 3.0 percent in 2011-12. Saving and Investment as percentage of GDP are presented in Table 1.6.

Table 1.6: Structure of Savings and Investment (As Percent of GDP) Description 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 P Total Investment 16.6 19.1 22.1 22.5 22.1 18.2 15.4 13.1 12.5Changes in Stock 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6Gross Fixed Investment

15.0 17.5 20.5 20.9 20.5 16.6 13.8 11.5 10.9

-Public Investment 4.0 4.3 4.8 5.6 5.4 4.3 3.6 2.9 3.0 -Private Investment 10.9 13.1 15.7 15.4 15.0 12.3 10.2 8.6 7.9Foreign Savings -1.3 1.6 3.9 5.1 8.5 5.7 2.2 -0.1 1.8National Savings 17.9 17.5 18.2 17.4 13.6 12.5 13.2 13.2 10.7Domestic Savings 15.7 15.4 16.3 15.6 11.5 9.8 9.3 13.3 8.9Source: EA Wing Calculations P: Provisional Foreign Direct Investment

Pakistan has a very fertile market for foreign investors given its very large consumer base of 180 million people. People need food, energy and other amenities to live and thrive. There is a great potential in the power and infrastructure sector and in natural resources. There seems to be huge scope for investment in hydel and coal based power projects, alternative energy like wind power, and natural gas transmission from foreign lands. The country also needs infrastructure, world class education systems, exploration of its natural resources and mechanization of industries. Foreign investors can exploit all such opportunities.

Global foreign direct investment will be close to $ 800 billion during 2012; less than the $ 1 trillion achieved in 2007. The Euro crisis has dampened enthusiasm. However, prospects from East Asia are looking good. The United States is focusing on economic revival and its stock markets are

responding positively. China, India, Turkey, Brazil and Indonesia also appear to be moving in a positive direction.

Foreign Direct Investment (FDI) in Pakistan stood at $ 666.7 million during July-April 2011-12 as against $ 1292.9 million last year. This is a decline of 48.4 percent. Oil & Gas Exploration remained the major sector for foreign investors. The share of Oil and Gas Exploration in total FDI during July-April 2012 stood at 69.8 percent.

Pakistan will certainly attract foreign direct investment with the resolution of the energy shortages and improvement in the law and order situation. The Board of Investment (BOI) under the Prime Minister’s Secretariat is making efforts to provide an increasingly investment friendly environment to investors. Efforts are being made to facilitate foreign investors in Pakistan with improved infrastructure and a better working


14

environment so that the favorable business climate may induce investors to initiate new investment projects. In particular, efforts are also going on to encourage the setting up of fruit processing industries and more export processing zones in the country, so that sustained high economic growth through exports may be achieved.

Workers Remittances

Remittances from overseas Pakistanis have been an important source of foreign exchange during the last four years. These have not only provided critical support to the balance of payments but have helped in stimulating the domestic economy and helped to alleviate poverty. Significant flows of remittances also helped Pakistan to partially counter the adverse effects of the oil price shocks, reduce the unemployment problem, and improve

the standard of living of recipient households.

The upsurge in the remittances may be attributed to the government’s efforts for redirecting these flows from informal to formal channels. Bilateral arrangements of commercial banks with foreign entities under Pakistan Remittance Initiatives (PRI) have helped facilitate movement in this direction. Furthermore, initiatives under the PRI such as introduced Xpress money, Inter bank Fund Transfer (IBFT) facility have also helped to improve the remittance flow to Pakistan. Increase in remittances is also the result of the higher demand of Pakistani workers. An overview of country wise remittances is presented in Table 1.7.

Table-1.7: Country Wise Workers’ Remittances US$ Million

Country 06-07 07-08 08-09 09-10 10-11 July-April* 11-12

USA 1459.64 1762.03 1735.87 1771.19 2068.87 1922.35U.K. 430.04 458.87 605.59 876.38 1199.67 1263.67Saudi Arabia 1023.56 1251.32 1559.56 1917.66 2670.07 2987.86U.A.E. 866.49 1090.30 1688.59 2038.52 2597.74 2386.26Other GCC Countries 757.33 983.39 1202.65 1237.86 1306.18 1226.61EU Countries 149.00 176.64 247.66 252.21 354.76 304.59Total 5493.65 6451.24 7811.43 8905.90 11200.97 10,876.99Source: SBP * : Provisional

Workers’ Remittances totaled $ 10,876.99 million in July-April of 2011-12, as against $ 9,046.61 million in the comparable period of last year. This is an increase of 20.23 percent. Remittances from Saudi Arabia recorded massive growth of 43.25 percent, followed by U.K. (27.52 percent), USA (14.57 percent), Other GCC countries (15.34 percent) and UAE (14.10 percent) during the period under review. Monthly data on remittances suggests that the monthly average for the period of July-April 2011-12 stood at $ 1,087.70 million compared to $ 904.66 million during the corresponding period last year.

Prospects of Economic Growth

Pakistan’s economy is resilient. This resilience comes from the potential as well as the growth in remittances and in the informal economy. Despite positive developments including the easing of

inflation and reduction in fiscal deficit, Pakistan’s economy remains in an unsteady state with slow growth, fragile macroeconomic fundamentals, and heightened vulnerability to balance of payments shock. Key problems affecting the economy include energy shortages and a host of structural impediments that have held back investment and growth. Necessary reforms are under process to remove the structural impediments.

Reinitiating the privatization process will attract foreign investment for Pakistan. Foreign investment may also be attracted from the Middle East in agriculture and livestock sectors. Many of these countries need an assured supply of items like wheat, rice, milk, poultry meat, edible oil, flowers, fruit and vegetables and are ready to invest on the basis of long-term supply contracts.


15

Savings are the mover of growth. Policies are being implemented which give savings incentives such as, tax breaks and compulsory savings in employee provident funds. The government is aware that several long term savings instruments may need to be developed to increase household savings. There is also need to expand the network of National Savings Schemes, microfinance institutions, banks and postal savings to far flung areas of the country. These have been and are the focus of the government’s attention.

Measures to stimulate growth will not yield full potential unless the structural weaknesses responsible for the decline in the investment are addressed. This decline is due largely to the unstable security situation. The shortage and high cost of energy, and the rising cost of doing business in Pakistan are also contributing to the decline. The government is making efforts to address these negative factors in order to improve investment climate in the country.

Pakistan’s middle class has expanded and is currently estimated at 35 percent of the population. Having substantial size and composition primarily urban and associated with professional white-collar

occupations the middle class may play a major role in boosting economic growth. A vibrant middle class not only generates demand of goods and services but also the savings required to fund productive investments. Moreover, the middle class households provide a breeding ground for the professional and skilled labour force. Such human capital is essential for growth in the long run. With the existence of such a vibrant middle class the consumer goods industry can provide a strong impetus to economic growth. Despite an overall slump in the economy, the consumer goods industry in Pakistan has registered a steady growth and has a great potential for further expansion.

There is rising trend of youth entrepreneurship in Pakistan. Many young entrepreneurs have succeeded in establishing various businesses that are booming. This has produced a strong demonstration effect for others to follow. These young entrepreneurs have the potential to cause a paradigm shift in the economic fortunes of Pakistan. The opening up of trade with India is another major initiative that can boost economic growth by providing greater market access as well as easy and cheaper availability of raw materials for domestic producers.

17

Agriculture

The agriculture sector continues to be an essential component of Pakistan’s economy. It currently contributes 21 percent to GDP. Agriculture generates productive employment opportunities for 45 percent of the country’s labour force and 60 percent of the rural population depends upon this sector for its livelihood. It has a vital role in ensuring food security, generating overall economic growth, reducing poverty and the transforming towards industrialization. The present government is determined to improve the quality of life of the people and to banish hunger and malnutrition from the country by making agriculture an efficient, productive and profitable sector of the economy.

In order to improve governance in the public sector the government took bold steps and brought in the 18th Amendment to the Constitution of 1973. Accordingly, Ministries performing tasks which were provincial subjects were devolved from the Federal level, including the Ministry of Food and Agriculture. However, realizing the food security concerns across the country the government took timely steps to establish the Ministry of National Food Security and Research to tackle the Food Security issues.

The newly created Ministry, under the aegis of the present government, has planned to take two major steps in order to solve the food security issues on a permanent basis. The first step is the establishment of the National Food Security Council representing Federal, Provincial and local level Governments. Secondly, through a Letter of Intent the Ministry, in collaboration with World Food Programme, is launching the Zero Hunger Programme worth US $

1.6 billion to address the food security objective. Under this Programme the Ministry shall donate up to 500,000 metric tons of wheat per year and the World Food Programme intends to negotiate with local producers to exchange part of the donated wheat for High Energy Biscuits (HEB) and similar products manufactured in Pakistan factories for distributions through WFP operations to primary school children, siblings of malnourished children and the vulnerable populations especially children at risk of malnutrition. The fund will also be converted to fortified wheat flour for distributions aimed at combating food insecurity in Pakistan. The WFP will also cooperate in the capacity building of the Ministry’s officials in areas addressing food security and monitoring progress.

Flooding in 2011, affected crops like rice, cotton and sugarcane, although in the current year, 2011-12, they performed well and provided support and continued to support food security objectives this year. The agriculture sector recorded a growth of 3.1 percent in 2011-12. The profitability of agriculture sector during 2011-12, remained high because the farmers received good prices for rice, cotton and sugarcane, which allowed for greater financial resources passed on to the rural economy.

Recent performance

During 2011-12, the overall performance of agriculture sector exhibited a growth of 3.1 percent mainly due to positive growth in agriculture related subsectors, except minor crops. Major crops accounted for 31.9 percent of agricultural value added and experienced a growth of 3.2 percent in fiscal year 2011-12 with negative growth of 0.2 percent in 2011. The significant growth in major crops is contributed by rice, cotton and sugarcane

Chapter 2


18

by 27.7 percent, 18.6 percent and 4.9 percent, respectively.

Table 2.1: Agriculture growth percentages from 2005-2012 Year Agriculture Major Crops Minor Crops Livestock Fishery Forestry 2005-06 6.3 -3.9 0.4 15.8 20.8 -1.12006-07 4.1 7.7 -1.0 2.8 15.4 -5.12007-08 1.0 -6.4 10.9 4.2 9.2 -13.02008-09 4.0 7.8 -1.2 3.1 2.3 -3.02009-10 0.6 -2.3 -7.7 4.3 1.5 2.22010-11 2.4 -0.2 2.7 4.0 1.9 -0.42011-12(P) 3.1 3.2 -1.3 4.0 1.8 1.0Source: Pakistan Bureau of Statistics P:Provisional

Minor crops contributed 10.1 percent value addition in agriculture and exhibited a negative growth of 1.3 percent in 2011-12 against 2.7 percent growth of 2011. The Livestock sector, which has a 55.1 percent share in the agriculture, grew by 4.0 percent in 2011-12. The Fishery sector grew by 1.8 percent as against last year’s growth of 1.9 percent. Forestry sector posted a positive growth of 1.0 percent this year as compared to negative growth of 0.4 percent last year.

Pakistan has two crop seasons, "Kharif" being the first sowing season from April-June and it is harvested during October-December. Rice, sugarcane, cotton, maize, mung, mash, bajra and jowar are “Kharif" crops. "Rabi", the second

sowing season, begins October-December and is harvested in April-May. Wheat, gram, lentil (masoor), tobacco, rapeseed, barley and mustard are "Rabi" crops. These crops make Pakistan an agricultural country and its performance is dependent upon timely availability of irrigation water. During 2011-12, the availability of water as a basic input for Kharif 2011 (for the crops such as rice, sugarcane and cotton) has been 10 percent less than the normal supplies but 13 percent higher than last year’s Kharif 2010 season. The water availability during Rabi season (for major crop such as wheat), is estimated at 29.4 MAF, which is 19.2 percent less than the normal availability, but 15 percent less than last year’s Rabi crop (Table 2.2).

Table 2.2: Actual Surface Water Availability (Million Acre Feet)

Period Kharif Rabi Total %age incr/decr. Over the Avg.

Average system usage 67.1 36.4 103.5 -2003-04 65.9 31.5 97.4 - 5.92004-05 59.1 23.1 82.2 - 20.62005-06 70.8 30.1 100.9 - 2.52006-07 63.1 31.2 94.3 - 8.92007-08 70.8 27.9 98.7 - 4.62008-09 66.9 24.9 91.8 -11.32009-10 67.3 25.0 92.3 -10.82010-11 53.4 34.6 88.0 -15.02011-12 60.4 29.4 89.8 -13.4Source: Indus River System Authority I. Crop Situation

Major crops, such as wheat, rice, cotton and sugarcane account for 91 percent of the value added in the major crops. The value added in major crops accounts for 32 percent of the value added in

the agriculture. Thus, four major crops (wheat, rice, cotton, and sugarcane) on average, contribute 29 percent to the value added in overall agriculture and 6.0 percent to GDP. The minor crops account for 10.1 percent of the value added in overall

agriculturagriculturcombinedTable 2.3:

Year

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12(P)

Source: PaP: Provisio

a) Major i) Cotton

Cotton isignificanby providindustry, accounts agricultur12, the cthousand (2689 threported (July-Marthe last ybales. Tproductioncontrol ovvirus (CL Table 2.4:

Year

2007-08 2008-09 2009-10 2010-11 2011-12(P) Source: PakP: Provisio

re. Livestock ral value add contribution Production o

(0

akistan Bureau onal (July-Marc

Crops: :

is an impntly contributding raw msurh as cottofor 7.8 pe

re and 1.6 percrop was cult

hectares, 5.4housand hectat 13.6 millirch) 2011-12,ear’s producthe increase n is attributever widespreaLCV) and su

Area, Produ

(000

kistan Bureau onal (July-Marc

contributes dded–much mn of major anof Major Crop

Cotton 000 bales)

13,019 (-8.7)

12,856 (-1.2)

11,655 (-9.3)

11,819 (1.4)

12,914 (9.4)

11,460 (-11.3) 13,595 (18.6)

of Statistics ch), Figures in

ortant cashtes to the nat

material to thon lint as an ercent of varcent of GDPtivated on an percent mortares). The ion bales dur, higher by 18tion which w

in cultivaed to the usead attack of ucking pests

uction and YieArea

0 Hectare) 3054 2820 3106 2689 2835

of Statistics h)

55.1 percent more than tnd minor cro

ps

Sugarcane

44(

54(2

63(1

50(-249

(55(1

58

n parentheses ar

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Pro(000 Bales)

11651181129111461359

110

115

120

125

130

135

140

Figu

percent). Thcrops is docum

Rice

5,547(10.4)5,438(-2.0)5,563(2.3)

6,952(25.0)6,883(-1.0)4,823

(-30.0)6,160(27.7)

ine rates

se in yield peThe area, prodt five years is

duction % Chang

55 -191460 -195 1

000

500

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500

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500

000

07-08

ure 2.1: Cotton P

he productionmented in Ta

(i

Maize

3,110(11.23,088(-0.73,605(16.73,593(-0.33,26(-9.23,707(13.74,27(15.2

er hectare asduction and ys given in Ta

ge (Kgs/He9.31.49.3

11.318.6

08-09 09-10

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n performancable 2.3.

in thousands of

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649 713 707 724 815

10-11 11-12

0 bales)

Source: P

ulture

19

ce of

f tons)

t

21,277(-1.6)

23,295(9.5)

20,959(-10.0)24,033(14.7)

23,311(-3.0)

25,214(8.2)

23,517(-6.7)

o last on for Figure

ange -8.79.9

-0.82.4

12.6

(P)

PBS

Pakistan E

20

World Co

The produ

Table 2.5: ProductionChina India USA Pakistan Brazil UzbekistanOthers World TotConsumptiChina India Pakistan East Asia/AEurope & TBrazil USA Others World TotSource: PaE: Estimate

ii) Sugarc

The sugarand is userefined suagricultur

45000

50000

55000

60000

65000

Fig-2.2

Economic Sur

otton Outloo

uction and con

Production a

n

n

al ion

Australia Turkey

al akistan Central ed, P: Provisio

cane:

rcane crop is ed as a raw mugar and gur.re and GDP

07-08 08-0

2: Sugarcane PTons

rvey 2011-12

ok

nsumption of

and Consumpt200

Cotton Commonal

the second mmaterial in th. Its share in P is 3.7 an

09 09-10

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2

f major cotton

tion of Major 09-10

6.95.12.62.01.10.83.2

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major cash crhe production

value addedd 0.8 perce

10-11 11-12(P)

000

Source: PBS

n growing cou

Cotton Grow20

9218650719852917

103039865502773636xtile Industry

rop of

d in ent,

respectof 1,04last ySugarcestimatyear’s an incrlast yeproducyear’s encourcrop. Hwith lafloods Sugarcposted negativproducwater lower sugarca2.6 and

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untries are giv

wing Countries010-11 E

6531104

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24

tively. Sugarc46 thousand hyear’s level cane productted at 58.0 mproduction orease of 4.9 pear. The maiction are luc

produce andraged the farmHowever, the ast year, pos

of 2010 ecane crop, an

a growth ove 0.9 perctivity gain creceded verySindh. The ane for the lad Figure 2.2.

ven in Table 2

s (in

6.405.763.941.911.960.914.225.10

9.594.482.201.751.490.960.853.174.49

cane was culhectares, 5.9 p

of 988 thion for the

million tons, f 55.3 millionpercent over in factors cocrative markd timely avamers to growyield per he

sted a negatnhanced thed as a result,f 6.9 percenrcent this

could not be y slowly in area, produc

ast five years

2.5.

n Millions of To2011-12 P

2

2

ltivated on anpercent higherhousand hec

year 2011-in contrast t

n tons. This sthe producti

ontributing tket prices ofailability of iw more sugaectare, if comive growth.

e soil fertilit, yield per he

nt as comparyear. How

sustained besugarcane ar

ction and yieare given in

ons)

7.405.693.392.352.000.885.28

26.96

9.384.562.331.631.460.900.703.01

23.96

n area r than

ctares. 12 is to last shows ion of to the f last inputs arcane

mpared The ty of ectare red to wever, ecause rea of eld of Table

Table 2.6:

Year

2007-08 2008-09 2009-10 2010-11 2011-12(PSource: PaP: Provisio

iii) Rice:

Rice rankcrops in Pforeign exgrows a hdemand apercent opercent othousand year’s 23the crop ipercent mlast year. increase ishown imcompared Table 2.7:

Year

2007-08 2008-09 2009-10 2010-11 2011-12(PSource: PaP: Provisio

iv) Whea

Wheat is populationIts impoformulatin12.5 perc2.6 percenof 8666 tdecrease

Area, Produc

(000 H

) akistan Bureauonal (July-Marc

ks as second aPakistan and ixchange earnihigh quality oand also for f the value af GDP. The hectares, 8

65 thousand is an estimate

more than the4This increasein area sownmproved gro

d to -14.6 p

Area, Produc

(000 He

) akistan Bureauonal (July-Marc

t:

the basic sn and largest ortance is ng agriculturent to the vant to GDP. Wthousand hectof 2.6 perce

ction and YielArea

Hectare) %1241 1029 943 988

1046 u of Statistics ch)

amongst the sit has been a ings in recentof rice to fulfexports. Ric

added in agrisown area f

.7 percent mhectares. Th

ed 6160 thou4823 thousande in area is dun. The yield powth of 17ercent last y

ction and YielArea

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u of Statistics ch)

taple food fograin sourcealways recral policies. lue added in

Wheat is cultivtares in 2011ent over last

ld of Sugarcan

% Change 20.6

-17.1-8.44.85.9

taple food gramajor sourcet years. Pakistfill the domesce accounts 4iculture and for rice is 25more than le production

usand tons, 27d tons produc

ue to 8.7 perceper hectare h

7.5 percent year. The ar

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Change (-2.617.8-2.7

-18.08.7

for most of te of the countognized wh

It contribuagriculture a

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year’s area

ne Produ

(000 Tons) 6392050045493735530958038

ain e of tan stic 4.9 1.0

571 last

of 7.7 ced ent has

as rea,

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Produ(000 Tons)

55636952688348236160

the try. hen utes and rea g a of

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50

55

60

65

70

75

Figu

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16-21-112

4

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thousand hecn tons is estimhe yield per ve growth of t growth last wing of wheaand other c

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500

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500

000

500

000

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07-08

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(Kgs/Hec.8 51.7 48.3 52.0 55.9 55

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(Kgs/Hec3 20 20 20 27 2

ctares. The pmated during

hectare in 4.2 percent ayear. This is at was delayeclimatic factoreased the proep would he

08-09 09-10

Production (0

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Yield c.) % Cha1507 8635 2357 5981 5486

the last five re 2.3.

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production ofJuly-March 22011-12 posas compared due to the faced due to staors. Recentlyocurement pr

elp the farme

10-11 11-

00 Tons)

Source

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21

ange -3.2-5.67.76.9

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sted a to 11

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12(P)

e: PBS

Pakistan E

22

increase realized in

The overafarmers produced increase pcotton andrain affectdemonstra

Table 2.8:

Year

2007-08 2008-09 2009-10 2010-11 2011-12(PSource: PakP:Provision v) Other

During 20by 15.2 pby 5.7 pegram, thewhere pragainst 49

Table 2.9:

Crops

Kharif Maize Bajra Jawar Rabi Gram Barley Rapeseed &Tobacco Source: PaP: Provisio

Economic Sur

its production the later par

all decrease faced in thduring last y

predispositiond reducing thted districts oated in Table

Area, Produc

(000 he

) kistan Bureau onal(July-March

Major Crop

011-12, the prpercent, whileercent. This e largest Rabroduction sto96 thousand

Area and Pro

(0

& Mustard

akistan Bureauonal (July-Marc

rvey 2011-12

on and its irt of 2011-12.

in area is duhe disposal year. Farmersn of growing he area of BTof Sindh This 2.8 and Figur

ction and YielArea

ectares) %8550 9046 9132 8901 8666

of Statistics h)

s

roduction of me rapeseed anis in contrasbi pulses croood at 291 tons of last y

oduction of Ot201

Area 000 hectares)

974 548 229

1054 77

203 51

u of Statistics ch)

2

impact will .

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s then beganearly sown B

T cotton sown phenomenonre 2.4.

ld of Wheat

% Change -0.35.81.0

-2.5-2.6

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year, showing

ther Major K10-11

Productio(000 tons)

3703414

497

1710

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ms eat to BT

n in n is

Produ(000 tons)

2095924033233112521423517

sed ose ike an, ns, g a

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Kharif and Rab

n )

Are(000 hec

074641

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1700

1900

2100

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2500

2700

Fig 2

uction % Change

-1014.-3.8

-6.

ion of about y because of uther crops lialso, witness

percent, 8.7 t, respectivelrresponding p

ction of major

bi Crops 2011-12 (P

ea ctares)

P(

1083458214

105575

21347

00

00

00

00

00

00

07-08

2.4: Wheat Pro

(Kgs /Hec.0 2.7 2.0 2.2 2.7 2

41.3 percenunfavorable wike bajra, tosed a declinepercent, 2.8

ly, in 2011-1period last yr crops are giv

P) Production (000 tons)

4271304137

29170

18694

08-09 09-10

oduction (000

Yield c.) % Cha

2451 2657 2553 2833 2714

nt during 20weather condiobacco, jaware in producti percent and2 as compar

year. The areven in Table 2

% Changproduction

Last yea

4 7

0 6 4

10-11 11-1

0 Tons)

Source:

anges -9.88.4

-3.911.0-4.2

11-12 itions. r and ion of d 1.4 red to a and 2.9.

e In n over ar

15.2-12.1-2.8

-41.3-1.45.7

-8.7

12 (P)

PBS

Agriculture

23

b) Minor Crops i) Oilseeds

The major oilseed crops grown in the country include sunflower, canola, cottonseed, rapeseed and mustard. Although the cotton crop is grown for its lint, cottonseed contributes 50 to 60 percent of local edible oil production. At present, total requirement of edible oil in the country is 2.045 million tons. During the year 2010-11, the total availability of edible oil was 3.079 million tons; of which local production contributed 0.696 million tons (34 percent of the requirement); while imports of edible oil or oilseeds was 2.383 million ton. The import bill reached Rs. 224 billion (US$ 2.611 billion) in 2010-11.

It is estimated that 10 percent of the total availability of edible oil is consumed in industries like cosmetics, paints and other allied products. Around 200,000 tons of edible oil is exported, mainly to Afghanistan. This does not include smuggling through porous borders which is not accounted for.

During the year 2011-12 (July-February) 1.467 million tons of edible oil worth Rs. 145 billion (US$ 1.654 billion) was imported. Local production during 2011-12 was 0.636 million tons. The area and production of oilseed crops during 2010-11 and 2011-12 is shown in Table 2.10.

Table 2.10: Area and Production of Major Oilseed Crops Crops 2010-11 2011-12 (P)

Area Production Area Production (000 Acres) Seed

(000 Tons) Oil

(000 Tons) (000 Acres) Seed

(000 Tons) Oil

(000 Tons) Cottonseed 6,450 2,934 352 6,958 3,212 385Rapeseed/ Mustard 439 157 50 575 203 61

Sunflower 1,108 643 244 877 473 179Canola 223 131 50 27 30 11Total 8,230 3,865 696 8,437 3,918 636Source: Pakistan Oilseed Development Board P: Provisional (July-Feb)

ii) Other Minor Crops:

The production of mung and potato has increased by 22.0 percent and 17.5 percent, respectively during, 2011-12. However, the production of chillies, onion, masoor (lentil) and mash decreased by 78.3 percent, 15.4 percent 12.8 percent and 3.5

percent, respectively. The area sown for masoor, onion and chillies decreased by 13.8 percent, 14.9 percent and 65.7 percent, respectively. There was an increase of area sown for mung and potatoes by 2.5 percent and 16.2 percent, respectively. The area and production of minor crops are given in Table 2.11.

Table: 2.11 Area and Production of Minor Crops

Crops 2010-11 2011-12(P) %Change In

Production Area (000 hectares)

Production (000 tons)

Area (000 hectares)

Production (000 tons)

Masoor 26.1 13.3 22.5 11.6 -12.8Mung 137.4 76.2 140.8 93.0 22.0Mash 24.5 11.3 24.5 10.9 -3.5Potato 159.3 3491.8 185.1 4104.4 17.5Onion 147.6 1939.6 125.6 1640.0 -15.4Chillies 63.6 171.7 21.8 37.2 -78.3Source: Pakistan Bureau of Statistics P: Provisional (July-March)


24

II. Farm Inputs i) Fertilizer:

Fertilizer is Pakistan’s most important and expensive input in agricultural production. The contribution of balanced fertilizer use towards increased yield varies from 30 to 60 percent in different crop production areas of the country. One kg of fertilizer nutrient produces about 8 kg of cereals (wheat, maize and rice), 2.5 kg of cotton and 114 kg of stripped sugarcane. All of Pakistan’s soils are deficient in nitrogen (N), 80 to 90 percent are deficient in phosphorus (P), and 30 percent are lacking in potassium (K). The wide spread deficiency of micronutrients is also appearing in different areas. Lands used for single crops are depleting soil fertility because lands are using only certain essential plant nutrients and are intensely cultivated. When these soils go without being replenished, future crops are threatened from loss of micronutrients and other essential plant nutrients.

The domestic production of fertilizers from July-March, 2011-12 declined by 1.4 percent when compared to the last year’s production. The fertilizer industry experienced a curtailment of

natural gas (the raw material for urea) and some urea plants produced less than their production capacity. However, a timely import of urea addressed the absence in supply and total availability of fertilizer increased by 16.3 percent. Despite the increased supply of urea, total consumption of fertilizer reduced by 4.9 percent. Nitrogen consumption increased by 0.3 percent while that of phosphate decreased by 22.3 percent and potash by 36 percent. Details of fertilizer production are presented in Table 2.12.

The major reason for reduced fertilizer consumption was the effect of heavy and destructive rains in the Sindh province during the monsoon season in 2011, which adversely affected crop lands. Another reason for the reduction in consumption of fertilizer was the increase in price of all fertilizers. The prices of urea went up by 81.4 percent in July-March, 2011-12 as compared to the same period of the last fiscal year. The prices of DAP, CAN and NP also increased by 38.8 percent, 75.5 percent and 45.7 percent, respectively, over the same period last year.

Table: 2.12 Production and Off-take of Fertilizers (‘000’ Nutrient Tons)

Year Domestic Production

% Change Import %

Change Total % Change Off-take %

Change 2007-08 2822 - 876 - 3698 - 3581 -2008-09 2907 3.0 568 -35.1 3475 -6.0 3711 3.62009-10 3082 6.0 1444 154.2 4526 30.2 4360 17.52010-11 3076 -0.2 645 -55.4 3721 0.6 3933 -9.82010-11 P 2287 - 532 - 2819 - 3064 -2011-12 P 2255 -1.4 1024 92.6 3279 16.3 2913 -4.9Source: National Fertilizer Development Centre P : Provisional (Jul-March)

ii) Improved Seed:

Quality seed is also an essential input for improving yield in Pakistan. Seed has a unique position among the other various agricultural inputs because the effectiveness of all other inputs depend primarily on the potential of the seeds. Seed is a high technology product and is an innovation readily adapted for Pakistan’s climate. Improving access to good quality seed is a critical

requirement for sustainable agricultural growth and food security. Effective use of improved and certified seed can result in higher agricultural production, which leads to increased net incomes of farming families. This is the desired positive impact of improved seed for greater rural development. Hence the availability of quality seed of improved varieties is essential to achieve production targets.

Agriculture

25

During July-March, 2011-12 about 361.0 thousand tons of improved seed of various Kharif/Rabi season crops were procured. The procurement of seeds for various Kharif crops (cotton, paddy, maize, mung bean, etc) is currently underway. The details of this procurement are demonstrated in Table 2.13.

The Federal Seed Certification and Registration Department (FSC&RD) is engaged in providing seed certification coverage to public and private sector seed companies of the country. It provides seed quality control services through its 28 seed testing laboratories as well as monitoring of seed quality in the market. The activities and achievements of the department during 2011-12 are described below:

During the year 2011-12, forty-five (45) new seed companies were registered, making the total number of registered seed companies in the country 774, which includes four public sector and five multinational companies.

Twenty-two (22) new crop varieties were approved {(5) wheat, (11) cotton, (3) oilseeds, (2) pulses and (1) fodder}.

During 2011-12, different crops offered by the various seed agencies, totaling 502.6 thousand

acres, were inspected for certification purposes.

A total quantity of 361.0 thousand MT seeds of various corps were sampled and tested for purity, germination and seed health purposes.

Pre and post control trials of all pre-basic, basic seed lots and 20 percent of certified seed lots were carried out in the fields to determine the quality of seed distributed by various seed agencies.

Under the provision of the Seed Act, five cases were filed in different courts of law against the seed dealers found selling substandard seeds.

During 2011-12, a total of 13.7 MT of imported seed of various crops and hybrids, with a total value of Rs. 3287.6 million, was tested under the Seed (Truth in Labelling) Rules. 1991 at the port of entries i.e. Lahore and Karachi.

Almost 718 samples of seed and propagating material of various vegetable and fruit crops were tested at the Central Seed Testing Laboratory, Islamabad for detection of fungal and viral disease using latest diagnosis techniques and protocols.

Table 2.13: Seed Availability* (Metric Tons) Crop Local Imported Total Wheat 319890.0 0.0 319890.0Cotton 1649.8 0.0 1649.8Paddy 22749.6 2657.1 25406.7Maize 1372.9 3739.3 5112.2Pulses 1189.0 0.0 1189.0Oilseeds 23.5 328.7 352.2Fodders 11.4 1473.6 1485.0Vegetables 256.0 564.6 820.6Potato 145.0 4963.6 5108.6Total 347287.2 13726.9 361014.1Source: Federal Seed Certification & Registration Department * : July-March 2011-12

iii) Irrigation

Universally an efficient irrigation system is a pre-requisite for higher agricultural production as it

helps in increasing crop intensity, an aim Pakistan hopes to achieve throughout the country. Despite the existence of a good irrigation canal network in Pakistan, large amounts of water are wasted in the


26

irrigation process because of improper lining of waterways. Rainfall recorded during the monsoon

and winter season is presented in Table 2.14.

Table 2.14: Rainfall* Recorded During 2011-12 (in Millimetres) Monsoon Rainfall*

(Jul-Sep) 2011 Winter Rainfall* (Jan-Mar) 2012

Normal 137.5mm 70.5mmActual 236.5mm 34.2mmShortage (-)/excess (+) + 99.0mm -36.3mm% Shortage (-)/excess (+) +72.0 % -51.4%Source: Pakistan Meteorological Department * : Area weighted

During the monsoon season, (July-September), the normal average rainfall 137.5 mm, while the actual rainfall received in 2011 was 236.5 mm, indicating an increase of 99.0 percent. During the winter, (January-March), normal average rainfall during this period is 70.5 mm and the actual rainfall received in 2012 was 34.2 mm,, indicating a decrease of 51.4 percent under the normal rainfall average.

The canal head withdrawals in April-September 2011 increased by 13 percent and stood at 60.4 million acre feet (MAF) as compared to 53.4 MAF during the same period last year. During the second planting season, October-March, 2011-12, the canal head withdrawals declined to 29.4 MAF, compared to 34.6 MAF during the same period last year. The Province-wise details are given in Table 2.15.

Table 2.15: Canal Head Withdrawals (Below Rim Station) Million Acre Feet (MAF)

Provinces Kharif

(Apr-Sep) 2010

Kharif (Apr -Sep)

2011

% Change in Kharif 2011

over 2010

Rabi (Oct-Mar)

2010-11

Rabi (Oct –Mar)

2011-12

% Change in Rabi 2011-12 Over 2010-11

Punjab 29.00 34.29 18 18.73 17.61 -6Sindh 22.61 23.29 3 14.51 10.13 -30Balochistan 1.21 1.86 54 0.88 1.12 27KPK 0.60 0.96 60 0.48 0.56 17Total 53.41 60.40 13 34.59 29.42 -15Source: Indus River System Authority

To address the water sector issues, strategies and future water sector policy, an integrated water resource management approach, guiding principles of equity, efficiency, participatory decision making, sustainability and accountability have been adopted. The strategy is focused on priority investments in the water sector to achieve additional water storages and reorganization for effective and responsive institutional reforms. Water availability is continuously diminishing. The challenge is to formulate an effective implementation of a comprehensive set of measures for the development an efficient management of water

resources. The focus areas of investment in the water sector are:

a. Augmentation of surface water resources by construction of storage small/medium dams.

b. Conservation measures, or the lining of irrigation channels, included modernizing and rehabilitating irrigation systems, lining of waterways and enhancing efficiency by rehabilitating and improving the operation of the existing system.

c. Protection of infrastructure from onslaught of floods and water logging and Salinity.

d. Introduction of high efficiency irrigation systems i.e. sprinkler and drip.

Agriculture

27

It is expected about Rs. 30.00 billion would be utilized on the water sector’s programmes under the Ministry of Water and Power for 2011-12. The

following major water sector projects are demonstrated in Table 2.16.

Table: 2.16: Major Water Sector Projects under Implementation Projects Location Total

App.cost (Rs. In million)

Live Storage (MAF)

Irrigated Area

(Acres)

Latest Status (Expected up to June 2012)

Gomal Zam Dam Khyber Pakhtunkhwa

12,829 0.892 1, 91,139 75 % Physically completed

Greater Thal Canal * Punjab 30,467 - 1,739,000(3 Phases)

Phase-I, completed

Rainee Canal * Sindh 18,862 - 412,400(3 Phases)

94 % Physically completed Phase-I

Kachhi Canal * Balochistan 31,204 - 713,000(3 Phases)

62 % Physically completed Phase-I

Raising of Mangla Dam

AJ&K 62,553(O)97,000 (B R)

2.90 All over Pakistan

Physically completed

Satpara Dam Multi- purpose

Skardu 4,397 0.05 15,536 Physically completed

Right Bank Outfall Drain (RBOD) RBOD-I RBOD-II RBOD-III

Sindh Sindh Balochistan

14,70729,0146,535

88% Physically Completed65% Physically Completed75% Physically Completed

Source: Planning & Development Division, Planning Commission * Progress of all three canals is for Phase-I, whereas app. cost is reflected for total project, Revised cost of all three canals is un-approved, submitted for approval to P&D Division

Water Sector Programmes during (2011-12)

These programmes are:

Completion of phase-I of the Greater Thal Canal, substantial completion (60 percent) of Kachhi Canal in Balochistan and Rainee Canal (92 percent) in Sindh for irrigating 2.9 million acres.

Completion of Mangla Dam Raising Project for additional storage of 2.9 MAF and additional power generation of 644 GWh.

Completion of Satpara Dam in Gilgit Baltistan for irrigation of 15,536 acres of agriculture land and 17.3 MW power generations.

Substantial completion of Gomal Zam Dam Project in Tribal/ Khyber Pakhtunkhwa (KPK) area for irrigation of 1, 91,139 acres of agriculture land and generation of 17.4 MW power

Rs. 1,800 million is expected to be utilized on lining various irrigation channels in Punjab, Sindh and Khyber Pukhtunkhwa during the year 2011-12.

An amount of Rs. 1,600 million is expected to be utilized during the year 2011-12 on improvement of existing irrigating system in Punjab, Sindh, KPK and Balochistan.

More than Rs. 2.00 billion is expected to be utilized on construction of new small to medium sized dams across Pakistan; (Winder, Darwat, Nai Gaj and Naulong dam).

In Balochistan, about Rs. 3.00 billion are expected to be spent on the construction of new small, delay action dams and improvement of existing irrigation system and flood schemes.

In the drainage sector, continued fast track implementation of the RBOD-1, II & III projects hope to protect and reclaim 4.90 million acres of irrigated land.


28

iv) Agricultural Credit:

The role of credit is instrumental in the agriculture sector where Pakistani farmers often lack finances necessary for carrying out vital farming activities. This issue, if not addressed, can cause a multitude of problems, ranging from the exploitation of poor farmers at the hands of informal sources of credit, to a slowdown in the adoption of modern farming techniques and inputs, resulting in slow development of this chief sector of our economy.

The Government of Pakistan and the SBP is cognizant of the centrality of access to agriculture credit in the growth of the agriculture sector, and they have been making all efforts for the promotion and development of agricultural finance in the country at affordable prices. As a result, the flow of credit to agriculture sector from banks is showing improvement. A well-established network of lending institutions operates to meet the financial requirements of farmers in the rural areas. Currently 26 commercial and microfinance banks, with around 3,900 agriculture designated branches, are facilitating farmers by extending agriculture credit throughout the country. These include; ABL, Habib Bank Limited (HBL), Muslim Commercial Bank (MCB), United Bank Limited (UBL), two specialized banks, viz, Zarai Tarqiti Bank Limited (ZTBL), Punjab Provincial Corporative Bank Limited (PCBL), and 14 private domestic banks. Furthermore, five microfinance banks (MFBs) are also providing financing to farmers. These banks provide credit to the farming community for all types of farming activities such as growing crops, livestock, poultry, fisheries, orchards, forestry, nurseries, apiculture and sericulture.

The increasing demand for credit is due to an array of factors, such as the rising pressure from the quickly expanding population. Credit on food resources and high prices of agriculture inputs, and the reasonable prices of agricultural commodities are attracting investment into Pakistan’s agriculture sector. The Agricultural Credit Advisory Committee (ACAC) has allocated an indicative agriculture credit disbursement target of Rs. 285 billion for 2011-12 as compared to the target of Rs. 270 billion; (fixed for last year and the actual credit disbursement of Rs. 263 billion during 2010-11). Out of the total amount of agricultural credit disbursed, Rs. 195.1 billion was allocated to Commercial Banks, Rs. 70.1 billion to ZTBL, Rs. 12.2 billion went to the Microfinance Banks, (five MFBs included since July 2011), and Rs. 7.6 billion was allocated to the Punjab Provincial Cooperative Bank Limited (PPCBL). During July-March, 2011-12 five major banks, as a group, disbursed Rs 107.7 billion or 76.3 percent of their whole year’s targets. ZTBL disbursed Rs 37.9 billion or 54 percent of its targets and Domestic Private Banks (DPBs) disbursed Rs 37.3 billion or 69 percent of their targets. MFBs disbursed Rs 8.5 billion or 69.9 percent of their target and the PPCBL disbursed Rs 6.0 billion or 79.1 percent of its allocated target.

During the period July-March, 2011-12, bank disbursement to the agriculture sector surged by 17 percent on a year-to-year basis to Rs 197.4 billion, or 69.2 percent of the target, of Rs. 285 billion. This goes in contrast to the disbursement of Rs 168.7 billion during corresponding period last year. The details are presented in Table 2.17.

Table 2.17: Supply of Agricultural Credit by Institutions (Rs. in Billion)

Year ZTBL Commercial Banks PPCBL

Domestic Private Banks

MFBs Total

Rs. Billion %Change

2006-07 56. 5 80.4 8.0 24.0 0.0 168.8 22.82007-08 66.9 94.7 5.9 43.9 0.0 211.6 25.32008-09 75.1 110.7 5.6 41.6 0.0 233.0 10.12009-10 79.0 119.6 5.7 43.8 0.0 248.1 6.52010-11 65.4 140.3 7.2 50.2 0.0 263.0 6.02010-11 P 37.4 93.3 4.4 33.7 0.0 168.7 -2011-12 P 37.8 107.6 6.0 37.3 8.5 197.4 17.0Source: State Bank of Pakistan. P: Provisional (July – Mar)

Agriculture

29

Box-1 Credit Disbursement to Farm and Non-Farm Sector

The sector-wise classification reveals that the share of the non-farm sector showed healthy growth and its share in overall agriculture credit disbursement rose to 36.3 percent in March, 2012. During the period under review Rs 125.64 billion was disbursed to the farm sector while credit disbursement to non-farm sector stood at Rs 71.73 billion. Last year, an amount of Rs 110.46 billion or 65.5 percent was extended to farm sector and Rs 58.23 billion or 34.5 percent was disbursed to non-farm sector.

Sector 2011-12 2010-11 July-March 2011 July-March 2010

A Farm Credit 125.64 110.46 1 Subsistence Holding 70.83 65.97 i Production 68.60 63.97 ii Development 2.23 2.82 2 Economic Holding 33.82 28.68 i Production 33.04 27.94 ii Development 0.78 0.74 3 Above Economic Holding 20.98 15.81 i Production 19.07 15.09 ii Development 1.91 0.72 B Non-Farm Credit 71.73 58.23 1 Small Farms 19.02 12.67 2 Large Farms 52.71 45.56 Total (A+B) 197.36 168.69 Source: SBP

III. Forestry

During the year 2011-12, forests have contributed 92 thousand cubic meters of timber and 262 thousand cubic meters of firewood as compared to 91 thousand cubic meters timber and 261 thousand cubic meters firewood in 2010-11.

IV. Livestock and Poultry A. Livestock

The livestock sector occupies a unique position in the National Agenda of economic development of the present government. The sector provides a net source of foreign earnings. Historically livestock has been the subsistence sector dominated by small holders to meet their needs of milk, food security and daily cash income. Therefore, livestock is considered a more secure source of income for the small farmers and landless poor; and, is a source of

employment generation at the rural level. It also helps to reduce income variability, especially in cases of crop failure due to a variety of causes. Livestock is central to the livelihood of the rural poor in the country and can play an important role in poverty alleviation. It can uplift the socioeconomic condition of Pakistan’s rural masses. The livestock population for the last three years is given in Table 2.18.

Livestock contributed approximately 55.1 percent to the agricultural value added and 11.6 percent to national GDP during 2010-12, against 54.6 percent and 11.6 percent during the same period last year. Gross value added of the livestock sector at constant factor cost has increased from Rs. 672 billion (2010-11) to Rs. 700 billion (2011-12); showing an increase of 4.0 percent as compared to previous year.


30

Table 2.18: Livestock Population (Million Nos.)Species 2009-101 2010-111 2011-121 Cattle 34.3 35.6 36.9Buffalo 30.8 31.7 32.7Sheep 27.8 28.1 28.4Goat 59.9 61.5 63.1Camels 1.0 1.0 1.0Horses 0.4 0.4 0.4Asses 4.6 4.7 4.8Mules 0.2 0.2 0.2Source: Ministry of National Food Security & Research 1: Estimated Figure based on inter census growth rate of Livestock Census 1996 & 2006

The major products of livestock are milk and meat. The production of these products for the last three years is given in Table 2.19.

Table 2.19: Milk and Meat Production Species Units 2009-101 2010-111 2011-121 Milk (Gross Production) 000 Tons 44,978 46,440 47,951Cow " 15,546 16,133 16,741Buffalo " 27,848 28,694 29,565Sheep2 " 36 36 37Goat " 739 759 779Camel2 " 808 818 829Milk (Human Consumption)3 000 Tons 36,299 37,475 38,690Cow " 12,437 12,906 13,393Buffalo " 22,279 22,955 23,652Sheep " 36 36 37Goat " 739 759 779Camel " 808 818 829Meat4 000 Tons 2,965 3,095 3,232Beef " 1,655 1,711 1,769Mutton " 603 616 629Poultry meat " 707 767 834Source: Ministry of National Food Security & Research 1: The figures for milk and meat production for the indicated years are calculated by applying milk production parameters to the projected population of respective years based on the inter census growth rate of livestock census 1996 & 2006 2 : The figures for the Milk production for the indicated years are calculated after adding the production of milk from camel and sheep to the figures reported in the livestock census 2006. 3 : Milk for human consumption is derived by subtracting 20% (15% wastage in transportation and 5% in calving) of the gross milk production of cows and Buffalo. 4 : The figures for meat production are of red meat and do not include the edible offal’s. The production of other livestock products over the last three years is demonstrated in Table 2.20. Table:2.20 Estimated Livestock Products Production Species Units 2009-101 2010-111 2011-121 Eggs Million Nos 11,839 12,457 13,144Hides 000 No's 13,040 13,481 13,938Cattle " 6,496 6,741 6,995Buffalo " 6,445 6,640 6,842

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31

Table:2.20 Estimated Livestock Products Production Species Units 2009-101 2010-111 2011-121 Camels " 99 100 101Skins 000 No's 47,402 48,478 49,582Sheep Skin " 10,495 10,620 10,745Goat Skin " 23,061 23,685 24,237Fancy Skin " 13,846 14,173 14,509 Lamb skin " 3,117 3,154 3,192 Kid skin " 10,728 11,019 11,318Wool 000 Tons 42.0 42.5 43.0Hair " 22.6 23.2 23.8Edible Offal’s " 334 344 353Blood " 56.8 58.3 59.8Guts 000 No's 47,886 48,974 50,089Casings " 13,879 14,347 14,832Horns & Hooves 000 Tons 48.1 49.5 50.9Bones " 713.4 735.1 757.5Fats " 228.1 234.8 241.7Dung " 1,008 1,039 1,071Urine " 311 320 329Head & Trotters " 208.2 214.0 220.1Ducks, Drakes & Ducklings Million No’s 0.6 0.6 0.5Source: Ministry of National Food Security & Research 1 ; The figures for livestock product for the indicated years were calculated by applying production parameters to the projected population of respective years Consequent of 18th Constitutional Amendment, the subjects of animal health and production have been delegated to the provinces. The Ministry of National Food Security and Research created a “Livestock Wing”, delegating the following roles:

1. Co-ordination of foreign aid and technical assistance in the livestock sector and related fields.

2. Animal Quarantine Departments/ stations/ facilities located anywhere in Pakistan.

3. Veterinary drugs, vaccines and animal feed additives.

a. Import and export.

b. Procurement from abroad for federal requirement and for interprovincial supplies.

4. Livestock, poultry and livestock products;

a. Import and export.

b. Laying down national grades.

The population growth, increase in per capita income and the potential for export is fueling the

demand of livestock and livestock products. The rise in production cost has increased the retailer’s and consumer’s price index for milk, yogurt, meat, eggs, and other items. The overall livestock development strategy resolves to foster “private sector-led development”, with the public sector providing an enabling environment through policy interventions and playing a capacity building role for improved livestock husbandry practices. The emphasis will be on improving per unit animal productivity and moving from subsistence to market oriented and then to commercial livestock farming in the country to meet the domestic demand and surplus for export.

The Livestock Wing with its redefined mandate continued regulatory measures that included allowing import of high yielding animals, semen and embryos for crossbreeding. It also included duty free import of veterinary dairy and livestock machinery/equipment, allowing import of feed inputs, and vaccines at zero rates. In order to reduce input costs in livestock/poultry feed production, certain feed ingredients, growth promoters and vitamin premixes have been zero rated. Sales tax exemption has been allowed to


32

uncooked poultry meat; processed milk, yogurt, cheese and flavoured milk, butter and cream in order to encourage establishment of a value added industry in the country. More than 9500 exotic animals, 318,768 semen doses and 4300 embryos of high yielding animals have been imported in the country from July 2010 to December 2012. New slaughterhouses, milk processing and meat processing units have been established in the private sector. The export of the meat (beef, mutton and camel meat) has increased from US $108.54 million (2010-11) to US $123.61 million in 2011-12, showing an increase of 13.9 percent.

The future plan for the livestock sector is to persuade the policies to achieve 5 percent or more growth in meat and 8 percent or more in milk production through shifting from subsistence livestock farming to market-oriented and commercial farming. The focus will be to encourage and promote high yielding animal’s production and their crossbreeding through Artificial insemination services. The future road

map has clear mile stones in the shape of entering into global Halal Food Trade Market, controlling trans-boundary animal diseases of trade and economic importance, as well as a socio-economic uplifting mechanism of poor, small-scale livestock farmers.

Poultry

The poultry sector is one of the most organized and vibrant segments of the agriculture industry of Pakistan. This sector generates direct and indirect employment and income for about 1.5 million people. Its contribution in agriculture and livestock is 6.4 percent and 11.5 percent, respectively. Poultry meat contributes 25.8 percent of the total meat production in the country. The current investment in the poultry industry is about Rs 200.00 billion. The poultry sector has shown a robust growth of 8 to 10 percent annually, which reflects its inherent potential. The production of commercial and rural poultry and poultry products for the last three years is given in Table 2.21.

Table 2.21: Domestic/Rural & Commercial Poultry Type Units 2009-101 2010-111 2011-121 Domestic Poultry Million No’s 77.35 78.51 79.68Cocks " 9.58 9.84 10.10Hens " 36.76 37.42 38.09Chicken " 31.02 31.25 31.48Eggs2 " 3676.00 3742.00 3809.00Meat 000 Tons 102.40 104.43 106.51Duck, Drake & Duckling Million No's 0.59 0.56 0.54Eggs2 " 26.28 25.18 24.13Meat 000 Tons 0.80 0.77 0.73Commercial Poultry Layers Million No's 30.41 32.54 44.10Broilers " 493.40 542.74 34.82Breeding Stock " 8.39 8.81 597.02Day Old Chicks " 515.36 566.89 9.25Eggs2 Million No’s 8137.00 8690.00 623.58Meat 000 Tons 603.47 662.18 9281.00Total Poultry Day Old Chicks Million No’s 546.00 598.00 655.00Poultry Birds " 610.00 663.00 721.00Eggs " 11839.00 12857.00 13114.00Poultry Meat 000 Tons 707.00 767.00 834.00Source: Ministry of National Food Security & Research 1 ; The figures for the indicated year are statistically calculated using the figures of 2005-06. 2 : The figures for Eggs (Farming) and Eggs (Desi) are calculated using the poultry parameters for egg production.

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33

Poultry Development policy envisions sustainable supply of wholesome poultry meat, eggs and other value added products to the local and international markets at competitive prices. It is aimed at facilitating and supporting private sector-led development for sustainable poultry production. The strategy revolves around improving the regulatory framework; disease control and genetic improvement in rural poultry; high tech poultry production under environmentally controlled housing; processing and value addition; improving bio-security; need based research and development and farmers training and education. It envisages poultry sectors growth of 15-20 percent annually.

MEGA DEVELOPMENT PROJECTS

The Ministry of Livestock and Dairy Development, before devolution concluded the following (7) projects in the Livestock sector at an estimated cost of Rs. 8.8 billion. The achievements of these projects are summarized below:

Strengthening of Livestock Services Project (SLSP)

Field studies on (5) models of service delivery were conducted (CAHEW, WLEW, DFCM, Wool Producers Association, PRSM);

Introduced PPR vaccine production in the country;

Distribution of 2200 Motor-Cycles to field staff of provincial livestock departments on hire purchase basis to strengthen and improve the veterinary health coverage; and

Established the National Epidemiology Network for Livestock Disease Surveillance and Reporting.

Livestock Production and Development for Meat Production

Completed more than 13,000 feed-lot fattening operations (beef and mutton) in which more than 163,000 beef animals and 200,000 mutton animals have been produced.

Milk Collection Processing and Dairy Production and Development Programme

Formed 207 Milk Producer Groups (MPG) in all the four provinces, Azad Jammu & Kashmir and Gilgit Baltistan

Installed 150 milk cooling tanks

Provided 63.3 tons of fodder seeds and 663 tons of animal ration/feed on cost basis to the members of MPGs

Registered 1,004 Red Sindhi, Sahiwal and NiliRavi livestock breeders for production of quality breeding animals.

Prime Minister’s Special Initiative for Livestock (PMSIL)

A total of 290 veterinary clinics have been established providing veterinary services at 70 percent reduced cost to rural farmers at their door steps i.e. 100 percent achievement

Quality medicines/vaccines are available to rural farmer at 30 percent reduced cost as compared to market prices

A total of 3,150 community organizations (COs) have been formed and 3000 rural community persons have been trained by imparting one month training in basic veterinary services through the government livestock institutes

A total of 4,265 rural livestock female farmers have been trained in better animal husbandry practices to enhance their income through enhanced milk productivity

National Programme for the Control and prevention of Avian Influenza

Established 40 surveillance and 66 rapid response units (RRUs)

Processed 0.4 million samples of blood, tissues and swabs for screening against Avian Influenza

Establishment of the Bio security Laboratory-3 is under process

Disbursed Rs. 23.5 million as compensation to Avian Influenza affected farmers

Pakistan is maintaining Avian Influenza (bird flu) free status since June 2008


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Improving Reproductive Efficiency of Cattle and Buffaloes in smallholder production systems

Civil work of Embryo Transfer Technology Centre at Okara has been completed

For strengthening and improvement of Provincial Semen Production Units (SPU) 6 Semen Quality Analyzer (SQA-VB with Test Kit) were given to SPU’s in Korangi, Quetta, Khairimurat, Qadirabad, Harichand, and Karaniwala

Embryo Transfer Technology Centre has produced 502,996 semen doses and 2,031 embryos from elite exotic animals for cross breeding purposes and carried out 178,318 artificial inseminations, embryo transfer has been carried out in 168 animals

Provided training to artificial insemination technicians

Up gradation and Establishment of Animal Quarantine Stations in Pakistan

A total of (5) Animal Quarantine Stations (AQS) have been up-graded in order to facilitate import/export of livestock and its products

A total of 2 new AQS are being established at Khunjrab and Khokhrapar.

V. Fisheries

i) Fishery plays an important role in Pakistan’s economy and is considered to be a source of livelihood for coastal inhabitants. Apart from marine fisheries, inland fisheries (based in rivers, lakes, ponds, dams) are also a very important activity throughout the country. Fisheries share in GDP is 0.3 percent. Although the contribution is very small it adds substantially to the national income via export earnings. A total of 84,498 million tons of fish and fish preparation were exported during the July-March, 2011-12. Pakistan’s major buyers are China, Thailand, Malaysia, Middle East, Sri Lanka and Japan. Pakistan earned US $222.8 million from these exports.

ii) During July-March, 2011-12 the total marine and inland fish production was estimated at 951,324 million tons, out of which 681,700

million tons was from marine production and the remaining came from inland waters. In July-March, 2010-11 the production was estimated to be 937,082 million tons, where 672,652 m. tons was marine and the remaining was produced by inland fishery sector.

iii) The government is taking a number of steps to improve the fisheries sector. A number of initiatives have been taken by the federal and provincial fisheries departments which also include strengthening of extension services, introduction of new fishing methodologies, development of value added products, enhancement of per capita consumption of fish, and the upgrading of socio-economic conditions of the fishermen’s community.

iv) Modernized Fishing Fleets: A project for the improvement of fish holds of local fishing boats was approved and four local fishing boats have been modified by the federal government (Marine Fisheries Department) as demonstration boats at a total cost of Rs. 5.0 million with the aim of assisting boat owners to modify their boats on similar lines. As a result of introducing modular boats by the MFD, boat owners have started modifying boat using their own expenses. So far, 502 boats have been modified. This shows success in the fishermen community because they have accepted and are using the technology of lining of fish holds with fiberglass coatings.

(v) Resumption of Export to the EU Countries

The European Union (EU) has expressed satisfaction with most of the steps taken by the government of Pakistan. However, with regard to the Hazard Analysis Critical Control Point (HACCP) of processing plants, the EU has now asked for an inspection report. MFD, in consultation with a UNIDO consultant, submitted this report on December 31, 2011. Based on this report it is hoped that fisheries’ exports will be resumed.

The export of fish and fishery products to the European Union was suspended in April 2007. The Government has made adequate and effective efforts to resume of export to the EU.

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35

In this connection, two laboratories of the Marine Fisheries Department achieved accreditation under ISO/IEC-17025 international standards and now the test report of these laboratories are recognized all over the world. Thus, the requirement of EU and SPS has been fulfilled. As mentioned above, during the tenure of the present government, more than 500 fishing boats have been upgraded; the government of Sindh contributed 75 percent, while 25 percent contribution was made by the owner to upgrade present standards.

Landing sites and auction halls at Karachi Fish Harbour have also been upgraded; processing plants have rectified the deficiencies. The knowledge and skills of MFD inspectors under official watch have been enhanced. Training has also been provided to the fishermen on hygienic preservation and handling of a catch once it is onboard the fishing vessels.

v) Conservation and management of marine resources

MFD in collaboration with fisheries department of the government of Sindh, Fisherman’s Cooperative Society Ltd, Karachi Fisheries Harbour Authority and other stakeholders undertook research/experimental

surveys to test different sizes of the cod-end of trawl-net being used by local fishermen. The optimal mesh size, on the basis of results of the surveys, will be selected and notified for implementation by the fishermen to ensure juveniles and/or undersized fish cannot escape from the trawl-net.

Conclusions

The agriculture sector continues to play a crucial role in Pakistan’s economy. Currently it contributes 21 percent to GDP, and provides employment to 45 percent of the country’s labour force, while 60 percent of the rural population derives its livelihoods from this sector. Despite the floods of 2011, the sector recorded a growth of 3.1 percent in 2011-12. The profitability of agriculture sector during 2011-12, remained high because the farmers received good prices for rice, cotton and sugarcane, which allowed for greater financial resources passed on to the rural economy. Recognizing the vital role the sector plays in ensuring food security, generating overall economic growth, reducing poverty and the transforming towards industrialization, the present government is determined to support the sector by promulgating policy that will continue to make agriculture an efficient, productive and profitable sector of the economy.

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Manufacturing and Mining

3.1 Introduction

The manufacturing sector posted a growth rate of 3.56 percent during the current fiscal year July-March 2011-12 compared to 2.96 percent of the same period last year. A modest improvement was seen in Large Scale Manufacturing (LSM) in July-March 2011-12 as the Quantum Index of

Manufacturing (QIM) increased by 1.05 percent against the target of 2.0 percent compared to growth of 0.98 percent during the same period last year. Due to revision of the base year as well as new industries being added, it is not prudent to compare the performance of the LSM sector on the revised base against the official growth target of 2.0 percent (Box-1).

Box-1

The methodology to compute Quantum Index of Manufacturing (QIM) has been revised during the current fiscal year. This includes rebasing, addition of new industries and revision of weights. Important Changes can be gauged from the table below.

Previous QIM Rebased QIM

• Base Year 1999-00 • Base Year 2005-06 • Weight derived from the Census of

Manufacturing Industries (CMI) 2000-01

• Weight derived from the Census of Manufacturing Industries (CMI) 2005-06 using UN International Standard Industries Classification (ISIC) Rev 3.1

• Cumulative weight of 75.075 percent for 100 items is being used for computation of QIM

• Cumulative weight of 70.332 percent for 112 items is being used for computation of QIM

Comparison of Weights

CMI 2000-01 Sources No of Items Weights (%)

MOIP/1 35 44.446

OCAC/2 11 5.232

BOS/3 54 25.397

All 100 75.075

CMI 2005-06 Sources No of Items Weights (%)

MOIP/1 36 49.556

OCAC/2 11 5.410

BOS/3 65 15.366

All 112 70.332

/1: Ministry of Industries and Production /2 : Oil Companies Advisory Committee /3 : Bureau of Statistics (Provincial)

Chapter 3


38

The production data received from the Oil Companies Advisory Committee (OCAC) comprising of 11 items, Ministry of Industries and Production 36 items and the Provincial Bureau of

Statistics 65 items respectively have contributed in LSM growth as -0.26 percent, 0.75 percent and 0.55 percent.

The growth rate in Large Scale Manufacturing (LSM) has recovered, largely due to good performance among the sub categories such as food, beverages and tobacco, paper and board, textile, non-metallic mineral products, pharmaceutical and leather products compared to negative growth seen during the second quarter of the current fiscal year. The Year to Year positive growth during the start of current fiscal year (July-Sep) can be partially attributed to export demand which has increased the production in the short run. Dismal performance was seen in the winter season (Oct-Dec) which was due to persistent gas shortages. Moreover, agro-based industries which were recovering from the impact of the floods of 2010, was again hit by another natural calamity in the form of heavy rains in Sindh during August 2011. The cotton crop is most vulnerable to floods and almost all major sugarcane producing districts were affected but losses to sugarcane were lower as the crop is relatively resilient to flooding. The floods also damaged industrial supply networks and rural demand and this coupled with severe power and natural gas shortages led to a number of

key industries (textile, fertilizer, steel, glass etc) not operating at expected levels.

LSM production began to revive in December 2011 as the impact of flood began to subside. A remarkable growth of 6.0 percent was witnessed in Feb-2012. This could also be attributed to the beneficial effect of specific policies on large scale industry. Effective fiscal policy helped in revitalizing the growth to some extent due to reduction in duties on beverages, automobiles, cement and air conditioners. This step was necessitated in view of the costly input prices and the need to absorb the volatility in the production of these industries. In addition, the growth in agro-based industries was based on increase in cotton (Punjab) and sugarcane production during the current fiscal year. In March 2012, the year to year performance of the sector turned negative by registering a decline of 3.7 percent owing to prolonged power and gas shortages.

Group-wise Performance

The group-wise analysis (Table 3.1) indicates some of the groups in the Large Scale

-10.0

-5.0

0.0

5.0

10.0

15.0

Jul-1

0

Aug

-10

Sept

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb-

11

Mar

-11

Apr

-11

May

-11

June

-11

July

-11

Aug

-11

Sept

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Gro

wth

rate

Fig 3.1: LSM Growth rates (Y-o-Y)

Source: Pakistan Bureau of Statistics


39

Manufacturing (LSM) experienced a positive growth during the first nine months (July-March) of the current fiscal year. The groups showing substantial increase include pharmaceutical (10.89 percent), paper and board (8.38 percent), wood

product (7.39 percent), food beverages and tobacco (6.53 percent), non-metallic mineral products (2.87 percent), leather product (1.76 percent) and textile (0.77 percent).

The sectors showing a decline in production during July-March, 2011-12 were iron and steel products (28.47 percent), rubber products (24.63 percent), engineering products (10.19 percent), electronics (7.88 percent), coke and petroleum products (5.68 percent), chemicals (4.70 percent), automobiles (0.84 percent) and fertilizers (0.42 percent).

The performance of LSM production for the remaining period of 2011-12 augurs well due to the

improvement in some other external factors such as higher textile export, better marketing strategies in smaller food processing industries and the government’s supportive policies for tractors, wheat milling and pharmaceutical industry.

The group wise growth and the contribution of each of the LSM for the period July-March 2010-11 versus July-March 2011-12 is presented in Table-3.1.

Table 3.1: Group-wise Growth and Points Contribution rate of LSM for the month of July-March 2011-12 vs. July- March 2010-11

S.No Groups Weights % Change

July-March % Point Contribution

July-March 2010-11 2011-12 2010-11 2011-12

1 Textile 20.91 0.7 0.8 0.15 0.162 Food, Beverages & Tobacco 12.37 14.0 6.5 1.73 0.813 Coke & Petroleum Products 5.51 -4.6 -5.7 -0.25 -0.314 Pharmaceuticals 3.62 1.3 10.9 0.05 0.395 Chemicals 1.72 -2.5 -4.7 -0.04 -0.086 Automobiles 4.61 11.9 -0.8 0.55 -0.047 Iron & Steel Products 5.39 -10.3 -28.5 -0.56 -1.538 Fertilizers 4.44 -9.2 -0.4 -0.41 -0.029 Electronics 1.96 -14.4 -7.9 -0.28 -0.1510 Leather Products 0.86 17.4 1.8 0.15 0.0211 Paper & Board 2.31 -2.3 8.4 -0.05 0.1912 Engineering Products 0.40 -9.5 -10.2 -0.04 -0.0413 Rubber Products 0.26 9.2 -24.6 0.02 -0.0614 Non-Metallic Mineral Products 5.36 -9.6 2.9 -0.51 0.1515 Wood Products 0.59 6.9 7.4 0.04 0.04Source: Pakistan Bureau of Statistics

9.49

6.02

-5.98

0.331.51 1.05

-8.00-6.00-4.00-2.000.002.004.006.008.00

10.0012.00

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (July-Mar)

Fig 3.2: LSM growth rate (Annual Basis)



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Growth was mainly derived from consumer goods. Food and pharmaceuticals showed the strongest contribution. In addition, intermediate goods such as building materials, fertilizers and petroleum products posted a modest contribution in overall LSM performance.

Some important items wise contribution in Large Scale Manufacturing growth witnessed in generating sets (143.88 percent), blankets (109.87 percent), electric transformer (31.15 percent),

juices, syrups and squashes (26.68 percent), heavy machinery & equipment (20.99 percent), sugarcane machine (19.24 percent), electric tubes (17.86 percent), kerosene oil (14.56 percent), liquids/syrups (14.09 percent), footwear (6.15 percent) and LPG (3.44 percent).

An Item wise review of production of selected items in Large Scale Manufacturing during July-March 2011-12 is presented in Table 3.2.

Table-3.2 : Production of selected industrial items of Large Scale Manufacturing

S.No. Items Unit Weight July-March % Change (Jul-Mar) 2011-12

% Point Contribution

(Jul-Mar) 2011-12 2010-11 2011-12

1 Deep Freezers (Nos.) 0.16 67380 35316 -47.59 -0.082 Jeep & Cars (Nos.) 2.80 101532 110430 8.76 0.253 Refrigerators (Nos.) 0.24 690236 737146 6.80 0.024 Upper Leather (000 sq.m.) 0.39 19324 18350 -5.04 -0.025 Cement (000 tones) 5.30 20814 21410 2.86 0.156 Liquids/Syrups (Milion Liters) 1.10 62.456 71.259 14.09 0.167 Phosphatic fertilizer (000 N tones) 0.40 385.313 359.344 -6.74 -0.038 Tablets (Milion Nos) 1.90 15848.369 17550.617 10.74 0.209 Cooking oil (000 tones) 2.20 228.649 228.834 0.08 0.00

11 Nitrogenous fertilizer (000 N tones) 4.04 1667.918 1674.972 0.42 0.0212 Cotton Cloth (Million sq.m.) 7.20 764.480 769.600 0.67 0.0513 Vegetable Ghee (000 tones) 1.10 816.924 829.434 1.53 0.0214 Cotton Yarn (000 tones) 13.00 2200.41 2225.31 1.13 0.1515 Sugar (000 tones) 3.50 3892.141 4485.592 15.25 0.5316 Tea Blended (000 tones) 0.40 50.783 57.511 13.25 0.0517 Petroleum products (Milion Liters) 5.50 8427.809 8046.298 -4.53 -0.2518 Cigarettes (Billion Nos.) 2.10 47.458 45.674 -3.76 -0.0819 Coke (000 tones) 0.10 218.824 138.616 -36.65 -0.0420 Pig iron (000 tones) 1.58 326.675 195.81 -40.06 -0.63


The country has been faced with energy shortages due to which the utilization capacity remained low (Box-2). Nevertheless capacity in the local industry and expected domestic demand based on

high consumption trends remained the driving force in helping to stimulate revival. However, alternate energy sources in the long run could help to further foster growth in the industrial sector.


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Box-2 LSM Data Annual Installed & Utilized Capacity of 37 Items

S.No Items Unit of Measure

Annual Installed Capacity

2010-11 (July-June) 2010-11 (July-Jan) Capacity Utilization

% Age Capacity Utilization

% Age

1 Sugar Th. Tones 6,800 4,169 61.31 2,266 74.982 Cigarettes Min Nos 96,187 65,403 68.00 34,521 61.523 Cotton Yarn Th. Kgs 3,240,400 3,939,480 90.71 1,734,630 91.774 Cotton Cloth Th. M2 12,644,000 9,008,980 71.25 5,320,100 72.135 Jute Hessian Tones 24,000 18,218 75.91 10,986 78.476 Jute Sacking Tones 120,000 62,630 52.19 34,261 48.947 Jute Others Tones 36,000 12,326 34.24 7,041 33.538-11 Paper & Paper

Board Tones 900,000 434,740 48.30 288,309 54.92

12 Chip Board Tones 95,000 27,464 28.91 16,844 30.4013 Sodah Ash Tones 500,000 378,048 75.61 214,135 73.4214 Caustic Soda Tones 230,650 172,031 74.59 99,665 74.0815-21 Fertilizer Tones 7,264,700 6,026,611 82.96 3,532,812 83.3722 Glass Sheet Th.M2 71,000 13,342 18.79 8,107 19.5723 Cement Th. Tons 41,484 28,716 69.22 16,421 67.8624 Bicycles Nos 700,000 343,205 49.03 135,307 33.1425 Coke Tones 970,000 301,701 31.10 106,647 18.8526 Pig Iron/H. Metal Tones 1,230,000 433,104 35.21 158,230 22.0527 Cast / Rolled Billet Tones 660,000 3,913 0.59 1,403 0.3628 Hr. Coils/ Plates Tones 792,000 358,597 45.28 117,235 25.3829 Cr. Coils Tones 210,000 87,946 41.88 16,628 13.5730 Glav. Products Tones 100,000 2,720 2.72 - 0.0031-33 Cars/LCVs/Jeeps Nos 280,000 153,997 55.00 94,076 57.6034-35 Trucks/Buses Nos 25,000 3,300 13.20 1,715 11.7636 Tractors Nos 75,000 70,855 94.47 14,896 34.0537 Motor Cycles Nos 2,935,525 1,638,457 55.81 962,665 56.22Source: Ministry of Industries and Production

3.2 Textile Industry

The textile industry plays a pivotal role in Pakistan's economy. The contribution of the textile industry in total exports is around 54 percent of the total export earnings of the country. It is a labour-intensive industry and offers entry-level jobs for unskilled labour. Job creation, especially in the clothing sector, has been particularly strong for women, who previously had limited income opportunities outside the household or the informal sector. The textile and clothing industry accounts for 46 percent of the total manufacturing and provides employment to 38 percent of the manufacturing labour force. The availability of basic raw material for the textile industry i.e. cotton, has played a significant role in the growth of the industry because of which Pakistan has been

able to prove its strength in the world by sustaining its position and growth.

Global Overview

The international statistics report on export of textile and clothing trade indicates some signs of recovery in this sector after the global financial meltdown in 2008-09. The exports of textile and clothing trade has increased from US$ 524.0 billion in 2009 to US$ 602.2 billion in 2010; an increase of 14.7 percent. The export of Pakistan textile and clothing trade has also shown positive signs, increasing from US$ 9.9 billion in 2009 to US$ 11.8 billion in 2010, an increase of about 20 percent.

In 2010 China became the major exporter of textiles, pushing the European Union into second


42

place. India recorded a 40 percent increase in its exports of textiles in 2010 to become the third largest exporting nation, just ahead of the United States. China’s share in world exports of clothing increased to 37 percent in 2010, rising from 18.3

percent in 2000, while its share in the country’s total exports declined to 8.2 percent, from 14.5 percent in 2000. Among the major exporters of clothing, India registered a decline of 3.1 percent.

Table 3.3: Export of Textile and Clothing (US $ Billions) 2000 2004 2005 2006 2007 2008 2009 2010 World Textile 157.3 195.5 202.7 220.4 240.4 250.2 209.9 250.7World Clothing 197.7 260.6 276.8 309.1 345.8 361.9 315.1 351.5Total:- 355.0 456.1 479.5 529.5 586.2 612.1 524.0 602.2 Pakistan Textile 4.5 6.1 7.1 7.5 7.4 7.2 6.5 7.8Pakistan Clothing 2.1 3.0 3.6 3.9 3.9 3.9 3.4 3.9Total 6.7 9.1 10.7 11.4 11.2 11.1 9.9 11.8% Age of World Trade 1.88 2.01 2.23 2.15 1.91 1.81 1.88 2.00Source: Ministry of Textile

Domestic Overview

Domestically Pakistan is facing problems of shortage of electricity, gas and law and order situation. The unscheduled/scheduled load shedding along with increasing rates of gas and electricity have obstructed the viability of the textile industry as exporters are unable to meet their commitments. Besides this, high interest rates of bank financing have also hindered new investments in the textile industry and layoffs and closures have become common in the industry.

Performance of Textile Industry

The textile industry of Pakistan has the potential to perform better both in production as well as in export by virtue of its inherent competitiveness on account of its conventional products. However, to sustain its position and increase its share and to move into high value added products, large investments in machinery equipment and new technology are essential. The training of workers, improvement in labour productivity, research and development, product diversification and branding are the immediate areas to focus on. The export performance of this industry is reported in Table 3.4.

Table 3.4: Export of Pakistan Textiles (US$ Millions)

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 (Jul-Mar)

Cotton & Cotton Textiles 10390 10071 9308 9754 13104 8513 Synthetic textiles 430 490 319 446 670 395 Wool & Woolen Textiles 233 216 145 137 132 95 Total Textiles 11053 10777 9772 10337 13906 9063 Total Exports 17011 19224 17782 19290 24827 16913 Textile as %age 65% 56% 55% 54% 56% 54% Source: Ministry of Textile

3.2.1 Ancillary Textile Industry

The ancillary textile industry includes cotton spinning, cotton cloth, cotton yarn, cotton fabric, fabric processing, home textiles, towels, hosiery and knitwear and readymade garments. These

components are being produced both in the large-scale organized sector as well as in the unorganized cottage/small and medium units. The performance of these various ancillary textile industries is discussed below.


43

(i) Cotton Spinning Sector

The spinning sector is the most important segment in the hierarchy of textile production. At present, as per the record of Textile Commissioner Organization (TCO), it is comprised of 521 textile units (50 composite units and 471 spinning units) with 9.99 million spindles and 116 thousand rotors in operation with capacity utilization of 89 percent and 60 percent respectively, during July –March, 2011-12.

Clothing Sector

The pattern of cloth production is different from that of the spinning sector. Usually production of cloth in the mill sector is reported and the non-mills sector is not reported. For the non-mills sector, therefore, estimated numbers are taken as proxy. The production of cotton cloth has increased substantially. This sector served as the main strength for the down stream sectors such as bed wear and made-ups and garments. The following table presents the production and export performance of the cloth sector.

Table 3.5: Production and Exports of Clothing sector Production (M. Sq. Mtrs.)

July-Mar 2010-2011

July-Mar 2011-2012

% age Change

Mill Sector 764.480 769.600 0.67Non Mill Sector 5971.650 5975.850 0.07Total 6736.130 6745.450 0.14Cloth Exports Quantity (M.Sq Mtr.) 1294.863 1412.963 9.12Value (M.US$) 1716.300 1709.961 -0.369Source: Ministry of Textile (ii) Textile Made-up Sector

This is the most dynamic segment of the textile industry. The major product groups are towels,

tents and canvas, cotton bags, bed-wear, hosiery and knitwear, and readymade garments including fashion apparels. Export performance of the made-up sector is presented in Table 3.6.

Table 3.6: Exports of Made-Ups 2011-2012

(July – Mar) 2010-2011 (July-Mar)

% Change

Hosiery Knitwear Quantity (M.Doz) 75.383 100.451 -24.96Value (M.US$) 1216.120 1276.722 -4.75Readymade Garments Quantity (M.Doz) 19.741 25.455 -22.45Value (M.US$) 1216.120 1276.722 -4.75Towels Quantity (M.Doz) 101.508 149.224 -31.98Value (M.US$) 488.273 580.448 -15.88Tents/Canvas Quantity (M.Doz) 18.139 9.221 96.71Value (M.US$) 67.406 29.260 130.37Bed Wears Quantity (M.Doz) 188.385 243.051 -22.49Value (M.US$) 1356.656 1556.984 -12.87Other Made up Value (M.US$) 418.802 508.768 -17.68Source: Ministry of Textile


44

a) Hosiery Industry

There are about 12,000 knitting machines all over the country. There is greater reliance on this industry due to the substantial value addition in knitwear. This sector has tremendous export potential also. However the sector remained under pressure from its competitors.

Table 3.7: Export of Knitwear (July – Mar)

2011-2012 (July – Mar)

2010-2011 %

Change Quantity (000 Doz) 75.383 100.451 -24.96

Value (M.US$) 1534.662 1726.139 -11.09

Source: Ministry of Textile b) Readymade Garment Industry

The garment industry provides highest value addition in the textile sector. The industry consisted of small, medium and large scale units most of them having 50 machines and below. Large units are now coming up in the organized sector of the industry.

During July-March 2011-12, readymade garments worth $ 1.2 billion were exported compared to $ 1.3 billion in the comparable period of last year, thus showing a decline of 4.8 percent. In quantity terms the decline in the exports of readymade garments was 22.5 percent.

c) Towel Industry

During July-March 2011-12, exports in this sector stood at $ 488 million as against $ 580 million in the comparable period of last year; showing a decrease of 15.9 percent. Quantity exported declined by 31.9 percent.

d) Canvas

This is the highest raw cotton consuming sector. The production capacity is more than 100 million sq. meters. This value-added sector also has great potential for export. Nearly 60 percent of its production is exported while 40 percent is consumed locally mostly by the armed forces. Pakistan is the cheapest source of tents and canvas.

Table 3.8: Exports of Tent & Canvas Industry (July– Mar)

2011-2012 (July – Mar)

2010-2011 %

Change

Quantity (000 Doz) 18.139 9.221 96.71

Value (M.US$) 67.406 29.460 130.37

Source: Ministry of Textile

iv) Art Silk and Synthetic weaving industry

The art silk and synthetic weaving industry has developed as a cottage industry over the time based on power looms. Units comprising of 0-10 looms are spread all over the country. The major concentration is in Karachi, Faisalabad, Gujranwala and Jalalpur Jattan as well as in the un-settled areas (Bara, Swat, Khyber Agency and Waziristan). During 2011-12 (July-March), production of synthetic fabric recorded at 1,311,550 million square meters as compared to 1,478,571 million square meters during the same period last year, showing a decrease of 11.3 percent.

v) Woolen Industry

The main products manufactured by the woolen industry are woolen yarn 6.864 M.kgs, acrylic yarn 6.960 M.kgs, fabrics 3,445 (M.sq.meter), shawls 13.353 million, blanket 657,235, and carpets 3.5 (M.Sq.meter). The exports of carpets during the period July to Mar 2011-12 is as below Table 3.9.

Table 3.9: Exports of Carpets and Rugs (Woollen)

(July – Mar) 2010-2011

(July – Mar) 2011-2012

% Change

Quantity (M.Sq.Mtr) 2.123 2.512 13.61

Value (M.US$) 96.078 95.305 0.80Source: Ministry of Textile

vi) Jute Industry

The main products manufactured by the jute industry are jute sacks and Hessian cloth, which are used for packing and handling of wheat, rice and food grains. During 2011-12 (July-March), no change has been recorded in spindles installed capacity whereas single addition has been recorded in the looms installed capacity compared to last


45

year. However, negative growth was observed in the working capacity of both spindles and looms during the current fiscal year. Table 3.10 shows the installed and working capacity of the industry during the period under review.

Table 3.10: The installed and working capacity of jute industry

(July – Mar) 2010-11

(July – Mar) 2011-12

% Change

Spindles Installed 36076 36076 0%

Spindles Worked 27697 24279 -12%

Looms Installed 1851 1852 0.1%

Looms Worked 1129 1047 -7%

Source: Ministry of Textile

The production of jute goods for the period of July – Mar. 2010-11 and 2011-12 was 92,666 M. ton and 98,753 M. ton respectively, showing an increase of 6.6 percent.

3.3 Other Industries

Although Pakistan’s exports are mostly confined to cotton and textile products in the international market, there are other industries as well which progressed rapidly and also contributed to the manufacturing sector.

3.3-1 Engineering Sector

The engineering industry in Pakistan has enjoyed some success as a result of some really hard work. The increasing competition that the international market presents has been challenging. Engineering Development Board (EDB) is the apex government body entrusted with strengthening the engineering base of Pakistan. Its main objective is to maintain international standard in the field of engineering goods and services. The EDB has taken initiatives to boost the production of the surgical industry and electric fan Industry.

The current capacity in the surgical sector is under utilized. During 2011-12 (July-March), exports of surgical goods and medical instruments reached US$ 221 million compared to US$ 186.7 million during the same period last year. The EDB is

planning to prepare a growth strategy with active participation of all stakeholders in order to touch the export target of US$ 500 million by 2015.

The electric fan industry is mainly clustered in Gujrat and comprises of more than 2,000 small and medium enterprises. The industry is not only fulfilling local demand for domestic fans of various categories but is also earning handsome foreign exchange besides providing ample employment opportunities. A number of measures have been taken during 2011-12 and are currently underway to facilitate the industry to produce domestic fans at par with internationally accepted standards. The Fan Development Institute (FDI) is also being updated with the cooperation of the Pakistan Council for Science and Industrial Research (PCSIR).

In addition to projecting the engineering image of Pakistan, the EDB has initiated the compilation of the Engineering Goods and Services exporters Directory of Pakistan 2012. The directory shall have the complete profile of the Exporters and shall be circulated to Pakistan’s Foreign Missions, Foreign Chambers of Commerce and the EDB’s International support partners in the potential markets.

3.3-2 Automobile Industry

The four sectors of the automobile industry have shown mixed trends of growth during the year July-March 2011-12. The industry seems to be less buoyant in comparison with the corresponding period of last year 2010-11. Buses, cars, LCVs and two/three wheelers managed to grow by 23 percent, 9.1 percent, 5.7 percent and 3.1 percent respectively compared to 24.7 percent, 16.4 percent, 20.5 percent and 12.6 percent respectively during the same period last year. A larger decline was witnessed in tractor production which was recorded at 48 percent compared to negative growth of 2.2 percent.

During the start of the current fiscal year, production of tractors declined substantially by almost 70 percent after the imposition of the 16 percent general sale tax (GST) in April 2011. Following the government’s announcement to cut GST from 16 percent to 5 percent production


46

figures have started to recover. The two other components of the automotive industry such as jeeps and trucks also showed dismal performance

by registering negative growth of 44 percent and 6.8 percent respectively. The table given below presents the comparative analysis of the sector.

Table 3.11: Production of Automotive Industry

Products Installed Capacity

2010-11 (July-March)

2011-12 (July-March)

% Change

Cars 240,000 100,870 110,059 9.1LCVs 43,900 14,159 14,971 5.7Jeeps 5,000 662 371 -44.0Buses 5,000 357 439 23.0Trucks 28,500 2,031 1,893 -6.8Tractors 65,000 51,664 26,840 -48.0Two/Three Wheelers 1,800,000 602,268 620,741 3.1Source: Pakistan Automotive Manufacturing Association (PAMA)

The potential demand for vehicles in the economy is helping to grow the industry but it is highly dependent on the long term policy commitments. The term of the current Auto-industry Development Program is expiring on June 30th 2012. The government’s commitment with the industry would reflect in a new program which may bring new hope and opportunities for growth. It may be added that the forthcoming opening up of trade with India would bring new opportunities as well as challenges for the auto-industry and thus a transformation is inevitable.

3.3-3 Fertilizer Industry

The fertilizer industry, being provider of one of the key inputs for crop production, has significant importance in the country’s economy. At the beginning of 2011-12, it was assumed that the country will attain self-sufficiency at least in urea availability because of the operationalizing of two new plants. This has added annual production capacity of 1.8 million tonnes to the national installed capacity taking it to 6.3 million tonnes per annum. However, due to the curtailment of natural gas (the raw material for urea manufacturing), some urea plants produced substantially less than their production capacity. As a result 1.6 million tonnes of urea had to be imported by the government during 2011-12 to meet the deficit. Hence, in addition to spending foreign exchange for imports, the government had to pickup the price difference to equalize the prices of domestic and imported urea; and for this purpose, it is

estimated that the government spent around Rs. 45 billion as fertilizer subsidy in 2011-12.

The fertilizer sector is the second largest consumer of gas after the power sector. Natural gas is used as feedstock as well as fuel in the manufacturing of nitrogenous fertilizers. Three companies namely Sui Northern Gas Pipeline Limited, Sui Southern Gas Company Limited and Mari Gas Company Limited are providing gas to the fertilizer sector. The intensity of the prevailing energy crisis specifically in relation to the supply of natural gas to supply curtailment (20 percent on Sui Network plants and 12 percent on Mari Network) to the fertilizer industry since May, 2010, has meant that the winter load shedding has increased from normal 45 days to 60 days. And on the SNGPL system the rotational load management (shedding) of 15 days for fertilizer plants has also been observed. This policy of gas supply is adversely affecting domestic production of fertilizer and resulting in a price hike and increase in the import bill. Smooth supplies of natural gas to urea plants are essential to run the plants at 100 percent of their installed capacity for making urea available (as per requirement) at stable/affordable prices and for avoiding its import.

3.3-4 Cement Industry

The cement production capacity in Pakistan has increased to 44 million tonnes in 2011-12 from 30 million tonnes in 2006-07 due to the establishment of new cement plants. Pakistan’s cement is being exported to Afghanistan, India, Africa, and Middle


47

East. Export of cement is exempted from the Sales Tax and Federal Excise Duty (FED). However, a 16 percent sales tax and the Rs. 500 per ton Federal Excise Duty are being charged on the domestic consumption. The import of coal used as fuel for the cement plants is allowed at 0 percent customs duty and 16 percent sales tax. As per the investment policy of the government, the import of

plant machinery and equipment for the manufacturing sectors is allowed at 5 percent customs duty. The key factors hindering the overall production capacity of cement industry are the energy crises and demand and supply mechanism.

Table-3.12 presents the production and utilization capacity along with the total production of cement.

Table 3.12: Supply (Million tonnes) Years Production

Capacity Capacity

Utilization(% age) Local Market

(Cement) Export (Cement

+ Clinker) Total

Production 2006-07 30 80 % 21 3 242007-08 37 82 % 22 8 302008-09 42 75 % 20 11 312009-10 45 77 % 23 11 342010-11 41 76 % 22 9 312011-12 (July-Dec) 44 70% 11 4 15

Source: Ministry of Industries

3.5: Privatization Programme

Pakistan’s privatization program was initiated in the early 1990s to demonstrate the government’s high priority to private sector development. Pakistan’s privatization program was the most successful program in the whole of South Asia, Central Asia and the Middle East as it successfully managed to complete approximately 167 privatization transactions, generating revenue of over US$ 9 billion.

The last privatization transaction completed by the Privatization Commission was Hazara Phosphate and Fertilizers Limited (HPFL) in November 2008. Thereafter, the privatization program entered into an extended lean period due to domestic and global challenges. Domestically, unstable law and order situation and negative economic outlook adversely affected the investment climate in the country. Internationally, the global financial crisis of 2008 and the on-going Euro zone sovereign debt crisis affected the flow of investment into the country. It may be noted that the privatization program cannot be conducted in isolation and is highly dependent on both the domestic and international regulatory, financial, economic and political environment.

Despite the challenges, the government had re invigorated the privatization program by focusing

on a policy of “Privatization for the People.” Under this program a renewed focus is placed on domestic capital market listings. Despite many challenges, the Privatization Commission is actively pursuing a capital market road map, which includes a secondary public offering of Pakistan Petroleum Limited and an Exchangeable Bond for the Oil and Gas Development Company Limited. The transactions will be launched in the near future subject to market conditions.

The Privatization Commission, besides conducting privatization through the capital markets, is also exercising the traditional privatization mode i.e. the strategic sale of two entities, the National Power Construction Company (NPCC) and Heavy Electrical Complex (HEC). The transactions are at an advanced stage and the privatization process is expected to be completed soon subject to market conditions.

In addition, the Ministry has also initiated a landmark program for empowerment of employees of public sector entities in the form of the Benazir Employees Stock Scheme (BESOS), offering 12 percent stock options to employees of 78 public organizations. It is expected that approximately 500,000 employees of 78 SOEs will benefit from this scheme. So far, Trusts have been registered in 64 entities. Out of these, Unit Certificates have


48

been distributed to 142,756 employees of 50 entities. The total dividend received from the Trusts of 11 entities stands at Rs. 6.79 billion (approx.) out of which 50 percent has been distributed among employees of respective entities and the remaining 50 percent has been transferred to the Central Revolving Fund (CRF) of the Privatization Commission (PC). Buyback claims received till date stand at Rs. 4.45 billion, out of which Rs. 1.160 billion has been paid.

3.6: Small and Medium Enterprises

SME-led economic growth has become the hallmark of economic prosperity and general well-being in the world. SMEs are globally recognized as critical for economic development and poverty alleviation. In Pakistan, nearly 99 percent of economic establishments are SMEs; absorbing 80 percent of unskilled labor. These SMEs are collectively providing undeniable support to economic growth by contributing 40 percent to GDP and 30 percent to the exports from the manufacturing sector. To further boost its significance in the economic development process the government has introduced various initiatives to promote SME-led economic growth with the dual aim to accelerate industrial development and export diversification. Most important of these initiatives include approval of the first SME Policy of Pakistan and Infrastructural Development through Public Sector Development Program. In addition to these, SMEDA as a government agency for SME development has been involved in various activities such as providing over the counter services to SMEs, helpdesk facilitation, human resource development, technological up gradation and infrastructural support.

Parallel to infrastructural support, SMEDA, in collaboration with international agencies like Japan International Cooperation Agency (JICA), Deutshe Gesellshaft Fur Internationale Zusammenarbeit (GIZ), Senior Experts Services (SES, Germany), Asian Productivity Organization (APO) and local experts, is providing technical assistance to SMEs in the relevant industrial units to upgrade their skills and improve systems.

During July-March 2011-12, 27 industrial units have been the direct beneficiaries of this

programme; whereas, 16 technical training workshops, seminars and awareness sessions were conducted. Major sectors facilitated under the Industry Support Programme are: textiles (spinning, weaving processing, garments, sportswear and apparel), auto parts, electric fans sector and furniture sector across the country.

The factors that impede development of the SME sector in Pakistan are well-known. However, lack of support of concrete data and quantifiable research are making the task of securing attention of policy makers and key government stakeholders difficult. During 2011-12, SMEDA took the initiative of bridging this information gap through publication of the SMEDA Research Working Papers Series.

3.7: Mineral Sector

The production of minerals are important for the growth of mineral based industries due to their use in the other sectors of the economy such as energy minerals-coal; agriculture minerals- rock phosphate, gypsum; construction minerals- limestone, natural stones, pozzolana etc. The most significant benefits to be derived from an expansion of the mineral sector activities are: expansion of employment opportunities; expanding business opportunities for local industries; increase revenue flow to the provincial and federal governments; technology transfer; and regional infrastructure development.

Pakistan has a widely varied geological framework, ranging from Pre-Cambrian to the present that includes a number of zones hosting several metallic minerals, industrial minerals, precious and semi-precious stones.

The government has extended special incentives for mineral development through public and private investment and facilitating private sector to contribute in this sector. To revive industrial growth, a 100 MW power plant was established by using Thar coal deposits based on underground coal gasification, which would convert into 1000 MW power plant. Efforts are for exploration and evaluation of coalfields in Sindh and Balochistan. These studies are aimed at enhancing the coal resource base, supplement power generation, and


49

substitute furnace oil in different industrial units in the country.

The indigenous problems faced by this sector are inadequate provision of the geological data base, limited mining experience and inadequate capital resources and finally the lack of infrastructure and security in geological promising areas.

The future programmes in the sector are: Reko Diq Cooper Gold Prospects; utilization of indigenous Iron ore resources at Nokkundi and Dilband area; exploring the hidden resources through private/multinational investment and, up gradation/strengthening of Geosciences advance Research labs.

51

Fiscal Development

The importance of a prudent fiscal policy cannot be overruled as it supports economic activity through sustainable growth and poverty alleviation. The effective implementation of the policy endeavors to mobilize resources through taxes and public savings, which can fund much needed public goods and services. It also helps to correct fiscal imbalances as well as promote investment and growth by optimal allocation of resources and through improving the tax system. Consequently, a well structured fiscal policy ensures rapid economic growth and development in the country.

The global financial crisis and the policy responses of the governments around the world exemplified the potential role for fiscal policy to stabilize the global economy and to avert an employment collapse of the type witnessed during the great depression. However the current global economic environment is characterized by a fragile financial system, high public deficits and mounting debts. Global output is expected to increase by only 3.5 percent in 2012 as compared to 4 percent in 2011 on account of the significant rise in sovereign vulnerabilities and deteriorated financial conditions in the advanced countries1. Going forward, the emerging and developing countries are also expected to witness sluggish growth due to the worsening external environment and the weakening of internal demand. Accordingly, sustained adjustment, ample liquidity and easy

monetary policy and most importantly restoration of confidence are urgently required for sustained economic recovery.

Pakistan’s economy, which largely remained impervious to the global financial crisis due to its lower exposure to international finance, faced multifaceted challenges on external and internal fronts mainly campaign against extremism, unstable law and order situation, lingering energy shortages and non materialization of external inflows. Additionally the unprecedented calamity of floods in 2010 and torrential rain in Sindh in 2011 contributed further stress on the economy. However, the fiscal situation was well contained. Efforts to manage the fiscal deficit within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises (Box-1) have yielded results. The fiscal deficit declined from 7.6 percent in FY08 to 5.9 percent in 2010-11. In 2011-12 the fiscal deficit was projected to be 4 percent of GDP (Rs. 851 billion). Nevertheless, during the course of the period the projection for fiscal deficit has been revised to 4.7 percent. However, achievement of this revised target depends crucially on the realization of the envisaged surpluses from provincial governments, the non-tax revenues which depends on inflows into the Coalition Support Fund, and strict control over expenditures.

1 Global Economic Outlook , April, 2012

Chapter 4


52

Box-1 Snapshot of Current Economic Reforms in Pakistan

The government has undertaken various economic and financial reforms for economic stabilization. These include:-

I. Expenditure Management Strategy through, Containing fiscal deficit Elimination of general subsidies, to be replaced by targeted subsidies Restructuring of public sector enterprises Power sector reform

II. Improving domestic resource mobilization through,

Harmonization of tax administration Strengthening risk based audits Improving efficiency of tax administration Broadening of tax base

III. Achieving economic efficiency through devolution through,

Transfer of concurrent subjects to provinces Equitable resource transfer to provinces

IV. Strengthening social safety nets through,

Benazir income support program Bait-ul-Mal Disaster management

In order to maintain the budgetary allocation of the development program a number of steps have been initiated such as curtailing the expenditure on traveling allowance, stationery, entertainment, advertisement, repair/maintenance and utilities by 20 percent of the budget estimates. It is also worth mentioning that as a part of the austerity measures, the federal government has implemented the “Compulsory Monetization of Transport Facility for Civil Servants in BS-20 to BS-22” which will be help to save Rs. 1.3 billion per annum. From

these measures an amount of Rs. 5.366 billion is expected to be saved during the financial year 2011-12. In addition, to create more fiscal space through the expansion of the tax base, various tax measures have been taken such as an exclusive and dedicated directorate general has been created specifically for broadening of tax base (BTB). In this regard a nationwide BTB campaign is in progress. Similarly sales tax exemptions and zero ratings have been withdrawn for all major items except food items, health, education and agricultural produce (Box-2).

Box-2 Revenue Measures

The government introduced reform initiatives through presidential ordinance and withdrawal of SRO based exemptions; amendments were made in the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005. These measures were effective from 15th and 16th March, 2011 to meet the growing need of flood affected people and to reach the assigned target. These reforms include:

15 percent surcharge on income and advance taxes Increase in the rate of special excise duty from 1 percent to 2.5 percent, however special excise duty was

abolished in 2011-12

Fiscal Development

53

Withdrawal of special regime of assessable price for levy of GST at 8 percent on actual value of sugar Removal of SRO based exemptions from fertilizer, pesticides, tractor and elimination of zero rating from

plants, machinery and equipment Restriction of zero rating to registered person for export of textile, leather, carpets, sports goods and

surgical goods. Source: FBR

These measures yielded a total of Rs. 29.4 billion during 2010-11. The withdrawal of exemptions and the left over amount of 15 percent flood relief surcharge contributed an additional amount of around Rs. 50 billion during July-March, 2011-12.

Fiscal Policy Development

Tax as a major source of revenue and growth plays a vital role in building up institutions and markets. A good tax system not only helps in equitable distribution of economic benefits for social justice but also attracts investment at all levels of business activities. The absence of an efficient tax system

discourages well documented investment and compels the country to rely on continuous borrowing from internal and external sources to finance the budgetary deficit, which may crowd out private investment. For more than a decade now the low tax to GDP ratio has been a major economic issue confronting Pakistan. The overall tax to GDP ratio has varied between 9.5 to 11.4 percent mainly due to structural deficiencies in the tax and administration system. Pakistan is characterized as having the lowest tax to GDP ratio not only amongst the peer countries but also in the region.

Table 4.1: Fiscal Indicators as Percent of GDP^

Year Real GDP Growth

Overall Fiscal Deficit

Expenditure Revenue

Total Current Development Total Rev. Tax Non-

Tax FY01 2.0 4.3† 17.4 15.3 2.1 13.1 10.5 2.6FY02 3.1 4.3† 18.5 15.7 2.8 14.0 10.7 3.3FY03 4.7 3.7 18.8 16.2 2.6 14.8 11.4 3.4FY04 7.5 2.3 16.5 13.7 2.8 14.2 11.0 3.2FY05 9.0 3.3† 16.8 13.3 3.5 13.8 10.1 3.7FY06 5.8 4.3*† 18.4 13.6 4.8 14.1 10.5 3.6FY07 6.8 4.4 20.6 15.8 5.0 14.9 10.2 4.7FY08 3.7 7.6 22.2 18.1 4.4 14.6 10.3 4.4FY09 1.7 5.3 19.9 16.0 3.8 14.5 9.5 5.1FY10 3.1 6.3 20.3 16.8 3.5 14.0 10.1 3.9FY11 3.0 5.9 19.2 16.1 2.8 12.5 9.5 3.1

FY12B 3.7 4.0 18.0 14.4 3.6 13.9 10.4 3.5Notes ^: The base of Pakistan’s GDP has been changed from 1980-81 to 1999-2000, therefore, wherever GDP appears in denominator the numbers prior to 1999-2000 are not comparable. † : Statistical discrepancy (both positive and negative) has been adjusted in arriving at overall fiscal deficit numbers.

* : Include earthquake related expenditure worth 0.8 and 0.5 percent of GDP for 2005-06 and 2006-07 respectively.

B : Budgted However, the government is committed to increase this ratio by introducing various additional tax measures such as: monitoring and risk based audit, strengthening electronic payment, close watch on Afghan transit trade and recovering arrears etc. These measures helped the FBR to collect Rs.

1,558 billion during 2010-11 against Rs. 1,008 billion in 2007-08. FBR Tax collection has shown a significant growth of 54.6 percent since 2007-08. For the current fiscal year 2011-12, the target of Rs. 1,952.0 billion has been set; which is expected to be achieved as the total collection during first

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54

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fiscal year 2due to the

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witnessed cal target due

FY07 FY08 F

iscal Deficit

Revenue

.8 billion inr. This is an

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budget deficiHowever, it w2010-11 despe flood and

the expenditlar pattern twing an overline in total of GDP) is rcentage poinditure (1.6 pepast four yeriod total expagainst Rs.

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as declined frcent in 2010

opment expenonsiderable dto some stru

FY09 FY10

n the compan increase of

o GDP ratio a secular deit widened dwas well contpite the challd security re

ture to GDPto that for rall decline

expenditureshared by cunts of GDP)ercentage poiears. During penditures sto3,721.2 billio

During the pwere Rs. 1,estimates of

from 7.6 perce-11 on accounditure. The deviation fro

uctural deficie

FY11 FY12B

arable f 24.0

either ecline. during tained lenges elated

ratio total

since e (3.0 urrent ) and nts of July-

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ent in unt of fiscal

om its encies

in the taxelectricityenterprisecommittedseveral ma high grmeasures,measures,power secenterprisethe massienormousunexpecteand recoupward ad

Table 4.2:Year

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

Perc

ent

x system, largy sector andes (PSEs). Hd to contain

measures as wrowth trajecto, broadening , elimination ctor subsidieses and powerve floods in

s strain on ped expendituronstruction ndjustment in

Structure of

Total (FBR

39

40

46

52

59

71

84

8.0

8.5

9.0

9.5

10.0

2001-02 2

Fig-4.2: F

ge additional d support to

However, the n the fiscal ell as to put tory. These inof the tax bof subsidies

s), restructurinr sector refo2010 and 20

public financres to meet thneeds and rthe fiscal def

Federal Tax R

R) Tax Revof GD

92.3

04.1

60.6

20.9

90.4

13.5

47.2

002-03 2003-04

FBR Tax Rev a

subsidies to to public sec

government deficit throuthe economy nclude austerase through ts (specially tng public secorms. Howev011 have put ces due to the rehabilitatiresulted in tficit target fro

Revenue (Rs. Bv as % DP

DiTa

9.4

9.2

9.6

9.2

8.9

9.4

9.7

4 2004-05 200

as % of GDP

the ctor

is ugh on

rity tax the

ctor ver,

an the ion the om

4 perce

Structu

An efsufficieexpendsector narrowadminifaced ieffectivhas incvaried

Billion)irect axes Cus

124.6[31.8]142.5[35.3]151.9[33.0]165.1[31.7]183.4[30.1]225.0[31.5]333.7

5-06 2006-07

ent to 4.7 perc

ure of Tax R

fficient tax ent revenuditures withou

borrowing. w tax base,istrative weakin the impleve tax systemcreased in recbetween 8.6 a

stoms Sa65.0

{24.3}47.8

{18.3}68.8

{22.3}91.0

{25.6}115.4

{28.4}138.4

{28.3}132.3

2007-08 2008-0

F

cent of GDP.

Revenues

system is ues to fiut recourse toAt present t massive tknesses due

ementation ofm. Although ent years, theand 9.8 perce

Indirect Taxesales Exc

153.6{57.4}166.6

{63.7}195.1

{63.2}219.2

{61.6}238.5

{58.6}294.8

{60.3}309.4

09 2009-10 20

iscal Develop

vital for rafinance esso excessive pthe country htax evasion to the chall

f an efficienrevenue colle

e tax to GDP ent (Table 4.2

s cise To

49.1 {18.3}

47.2 {18} 44.8

{14.5} 45.6

{12.8} 53.1

{13.0} 55.3

{11.3} 71.8

010-11 2011-12B

pment

55

aising sential public has a

and lenges nt and ection ratios ).

otal 267.7[68.2]261.6[64.7]308.7[67.0]355.8[68.3]407.0[68.9]488.5[68.5]513.5

B


56

Table 4.2: Structure of Federal Tax Revenue (Rs. Billion)Year Total (FBR) Tax Rev as %

of GDP Direct Taxes

Indirect Taxes Customs Sales Excise Total

[39.4] {25.8} {60.3} {14.0} [60.6]

2007-08 1,008.1 9.8 387.9 150.7 377.4 92.1 620.2[38.5] {24.3} {60.9} {14.9} [61.5]

2008-09 1,161.1 9.1 443.5 148.4 451.7 117.5 717.6[38.2] {20.7} {62.9} {16.4} [61.8]

2009-10 1,327.4 9.0 526.0 160.3 516.3 124.8 801.4[39.6] {20.0} {64.4} {15.6} [60.4]

2010-11 1,558.2 8.6 602.5 184.9 633.4 137.4 955.7[38.7] {19.3} {66.3} {14.4} [61.3]

2011-12B 1,952.0 9.5 745.0 215.0 852.0 140.0 1207.0[38.2] {17.8} {70.6} {11.6} [61.8]

Source: Federal Board of Revenue [ ]as % of total taxes { } as % of indirect taxes Under the present tax system, some sectors are under-taxed and others are not taxed at all. This distortion is being addressed. Moreover, the internal tax system has undergone substantial changes as the share of income tax has risen significantly from around 32 percent in 2000-01 to 38.2 percent in 2011-12. On the other hand the composition of taxes has been rationalized with a gradual decrease in the dependence on foreign trade taxes and a simultaneous increase in GST. Customs and excise duties have registered a gradual decline on account of the tax and tariff reforms with excise and custom comprising only 8.5 percent and 10.6 percent respectively in 2011-12. Pakistan’s tax to GDP ratio stood at around 8.6 percent in 2010-11 and expected to be about 9.5 percent of GDP in 2011-12. The indirect tax to GDP ratio stood at around 5.3percent and direct tax to GDP ratio at around 3.3 percent in 2010-11. During July-April, 2011-12 indirect tax to GDP ratio stood at 4.3 percent and direct tax to GDP ratio recorded at 2.6 percent. The ratio can only be increased substantially if the major contributors to GDP growth not included in the tax net can be brought into the tax system.

Tax Reforms

The low tax-to-GDP ratio restricts the country’s ability to counter inflation, deliver quality public services or improve human resources to reach a take-off stage for economic development. To address this issue and others including debt servicing and defense needs, the government has

placed Tax Administration high on its reform agenda.

Reform Strategy

The reform strategy had three main planks (a) policy reforms, (b) administrative reforms and (c) organizational reforms. The policy reforms include simpler laws, universal self-assessment, elimination of exemptions, less dependence on withholding taxes and effective dispute resolution mechanism. The administrative reforms aim (i) to transform income tax organization on functional lines; (ii) re-engineer manual processes of all taxes with the aim to reduce face to face contact between taxpayers and tax collectors, increase effectiveness of FBR, and improve skills and integrity of the workforce and facilitation of taxpayers. The organizational reforms also included re-organization of the FBR on functional lines, reduction in number of tiers and reduction in the workforce.

In pursuance of tax reforms FBR has been re-structured on functional lines. With a view to supplement the level of skills in the FBR, the government in March-April, 2001 appointed professional members from private sector for (i) Human Resource Management (HRM), (ii) Information Management System (IMS), (iii) Audit, (iv) Facilitation and Taxpayers Education (FATE) and (v) Fiscal Research and Statistics (FR&S). The FBR has prepared a new recruitment policy (with greater emphasis on skills that match

Fiscal Development

57

FBR needs), incentive and merit based remuneration and promotion mechanism and extensive training. FBR through its reform program is strengthening audit and enforcement activities.

Broad objectives of reforms included overall increase in the revenue collection/tax-GDP ratio, broadening of the tax base, strengthening audit and enforcement procedures, guarantee fairer and more equitable application of tax laws, increase in transparency and integrity, facilitate and promote voluntary compliance with tax laws and provide transparent and high quality tax services.

To achieve reforms objectives, the FBR has established Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to test the re-organized structure of income tax and sales tax and Taxpayers Education and Facilitation Centers to improve voluntary compliance. Customs processes have been re-engineered and Customs Administration Reform (CARE) was started which has minimized the time of clearance of goods and reduced the cost of doing business. Facility for online filing of goods declarations and a website for information dissemination and helpline for taxpayers have been established (see Box-3).

Box-3 Major Achievements under TARP

General

• Gaining stakeholders respect. • Creating business friendly environment. • Introducing professionalism, integrity, teamwork, courtesy, responsiveness, transparency and

fairness. • Facilitating and providing service to the taxpayers. • Reducing the cost of doing business. • Moving towards optimum use of automation and IT. • Infused confidence among taxpayers through regular facilitation and tax education which has

bridged the gap between taxpayers and tax collectors. • Creation of an enabling environment for various stakeholders

Income Tax

• Self Assessment Scheme introduced. • Improved voluntary compliance and number of compliant taxpayers increased to more than 2.5

million. • Efficiency of the department improved with the introduction of working on functional basis. • Computerized and updated taxpayers profiles. • Reduced contact between tax officials and taxpayer. • Tax base widened. • Simplification of Income Tax Law, Rules and Forms. • Share in total Revenue collection increased.

Automation

a. Integrated Tax Management System (ITMS) • 100% e-filing of corporate income tax returns. • 100% e-filing of Sales Tax returns. • 100% e-filing of sales tax invoice summaries. • E-Registration. • E-Payment. • E-Notices and feedback to taxpayers.


58

• Risk based refund processing (Pilot Project). • Audit case selection through Nexus Business Intelligence System.

b. Customs Automation

• E-filing, paperless workflow and risk based selectivity. • Nationwide e-filing. • Post Clearance Audit (PCA) introduced. • Electronic access to consolidated data to different stake holders. • System based random marking of examiners and appraisers. • Availability of country wide referential import value data. • On-line Bank Payment System (24 NBP nation wide booths). • Elimination of GD filling fee.

Source: FBR

Review of Public Expenditure

Public expenditures are significant for provision of social services, economic stabilization and growth. However, in Pakistan, public expenditures remained under tremendous pressure during 2011-12 owing to flood related expenses, continued security related issues and higher subsidies. During July-March, 2011-12, actual disbursement against

the budgeted subsidy of Rs. 166.4 billion set for the current fiscal year 2011-12 stood at Rs. 103 billion (excluding Rs. 391 billion on account of debt consolidation). It is expected to increase further on account of a settlement of circular debt issue. The permanent solution of the circular debt issue requires the rationalization of electricity tariff and improving the overall efficiency of the energy sector.

Table 4.3: Trends in Components of Expenditure (as % of GDP)

Year Total

Expenditure

(A)

Current Expenditure

(B)

Interest Payments

(C)

Defence

(D)

Development Expenditure

(E)

Non Interest Non-

Defence Exp(A-C-D)

Fiscal Deficit

Revenue Deficit/ Surplus

(TR-Total CE)

Primary deficit (TR-NI

Exp)

1999-00 18.5 16.4 6.8 3.9 2.5 7.7 5.4 -3.0 1.72000-01 17.0 15.3 5.9 3.1 2.1 8.0 4.3 -2.2 2.02001-02 18.5 15.7 6.1 3.3 2.8 9.0 4.3 -1.7 1.62002-03 18.4 16.2 4.8 3.3 2.6 10.0 3.7 -1.4 1.22003-04 16.9 13.7 4.0 3.3 2.8 9.7 2.3 0.3 1.12004-05 17.2 13.3 3.4 3.2 3.5 10.5 3.3 0.5 0.02005-06 18.4 13.6 3.4 3.2 4.8 11.8 4.3 0.5 -0.82006-07 20.6 15.8 4.4 2.9 5.0 13.3 4.3 -0.9 -1.32007-08 22.2 18.1 5.0 2.7 4.4 14.5 7.6 -3.5 -2.62008-09 19.9 16.0 5.2 2.6 3.8 12.1 5.4 -1.5 -0.22009-10 20.3 16.8 4.5 2.5 3.5 13.3 6.3 -2.7 -1.82010-11 19.2 16.1 4.0 2.5 2.8 12.7 5.9 -3.5 -2.62011-12B 18.0 14.4 3.8 2.4 3.6 11.8 4.0* -0.5 -0.3B Budgeted * Budgeted number is revised to 4.7 percent of GDP

Fiscal Development

59

Total expenditures (TE) stood at Rs. 3,455.1 billion or 19.2 percent of GDP in 2010-11 as compared to Rs. 3,006.7 billion or 20.3 percent of GDP in 2009-10. It is worth mentioning that despite the unplanned expenditures due to flood related activities at the start of the current fiscal year, the expenditures as percent of GDP remained at 12.8 percent (Rs. 2,641.9 billion) during July-March 2011-12. Total expenditures are expected to decline by 18.0 percent.

Current expenditures (CE) are expected to remain at 14.4 percent of GDP in fiscal year 2011-12. During fiscal year 2010-11, current expenditure were Rs. 2,900.8 billion or 16.1 percent of GDP compared to Rs. 2,481.0 billion or 16.8 percent of GDP in 2009-10. The decline came from non-interest-non-defense spending. During July-March, 2011-12 current expenditures stood at Rs. 2,154.1 billion or 10.4 percent of GDP compared to Rs. 1,909.8 billion or 10.6 percent of GDP in the same period of fiscal year 2010-11.

Development expenditures in fiscal year 2010-11 remained at Rs. 506.1 billion or 2.8 percent of GDP as compared to Rs. 517.9 billion or 3.5 percent of GDP in 2009-10. In the current fiscal year's budget, the allocation for development expenditure is 3.6 percent of GDP. The share of current expenditure in total expenditure has declined significantly from 89.9 percent to 84 percent in 2010-11. These are expected to decline further by 4 percent due mainly to the substantial

fall in interest payments. Defense expenditures accounted for 15.5 percent of current expenditure in 2010-11. As a percentage of GDP defense expenditures were 2.5 percent in 2010-11 and are likely to remain slightly below this level in 2011-12. However in absolute terms defense expenditure rose to Rs. 450.6 billion during 2010-11 from Rs. 375.0 billion in 2009-10. Nevertheless the budget target is set at Rs. 495.2 billion for 2011-12 which is around 2.4 percent of GDP.

Fiscal Performance: July-March, 2011-12

At present Pakistan is confronting unsustainable fiscal deficits and unabated debt service charges on account of both external and internal challenges including electricity and gas outages that have restricted the overall growth of the economy. Similarly insufficient external inflows have resulted in increased reliance of government on domestic resources. It is, therefore, important to revamp the strategies of domestic and external financial resource mobilization through tax and non-tax instruments.

Pakistan has witnessed a sharp deterioration in fiscal indicators during the past few years due to the revenue-expenditure gap. The fiscal situation was further aggravated by the domestic and external imbalances together with the deteriorating security environment, persistent inflationary pressures, unprecedented floods in 2010 and massive rains in 2011.

Table 4.4 Consolidated Revenue & Expenditure

Budget Estimate 2011-12

Prov. Actual July-March

2010-11


2011-12

Growth (%) July-March

2011-12 A. Total Revenue 2,870.5 1,495.3 1,747.0 16.8a) Tax Revenue 2,151.2 1,117.6 1,379.2 23.4Federal 2,074.2 1,074.8 1,321.5 23.0of which FBR Revenues 1,952.0 1,020.1 1,280.4 25.5Provincial Tax Revenue 77.0 42.8 57.6 34.6b) Non-Tax Revenue 719.3 377.7 367.9 -2.6B. Total Expenditure 3,721.2 2,262.6 2,641.9 16.8a) Current Expenditure 2,976.3 1,909.8 2,154.1 12.8Federal 2,016.3 1,345.7 1,478.7 9.9- Interest 791.0 507.4 624.5 23.1- Defence 495.2 335.1 348.0 3.8Provincial 960.0 564.1 675.4 19.7b) Development Exp. & net lending 744.9 352.7 428.0 21.3


60

Table 4.4 Consolidated Revenue & Expenditure Budget

Estimate 2011-12


2010-11


2011-12

Growth (%) July-March

2011-12 PSDP 639.9 246.5 375.6 52.4Other Development 97.1 35.7 45.4 27.2c) Net Lending 7.9 70.5 6.9 -90.2C. Overall Fiscal Deficit 850.6 783.3 894.9 14.2As % of GDP 4.0 4.5 4.3 -4.4Financing of Fiscal Deficit 850.6 783.3 894.9 14.2i) External Sources 134.5 83.1 47.4 -43.0ii) Domestic 716.1 700.1 847.5 21.1- Bank 412.6 316.4 443.8 40.3- Non-Bank 303.5 383.8 403.7 5.2GDP at Market Prices 21,042 18,033 20,654 14.5Source: Budget Wing, Finance Division and FBR

According to the consolidated revenue and expenditure statement of the government, total revenues grew by 16.8 percent during July-March 2011-12 and stood at Rs. 1,747.0 billion compared to Rs. 1,495.3 billion in the same period of fiscal year 2010-11. The increase is mostly due to a significant rise in FBR tax collection, which increased by 25.5 percent during the period under review. On the other hand non tax revenue declined by 2.6 percent as it stood at Rs. 367.9 billion in July-March 2011-12 from Rs. 377.7 billion in the same period last year. Total expenditures were recorded at Rs. 2,641.9 billion during July-March; 2011-12 compared to Rs. 2,262.6 billion in the same period last year posted a growth of 16.8 percent. External resources for financing the budget deficit amounted to Rs. 47.4 billion - a net decline of 43 percent. Insufficient external financing shifted greater reliance on domestic resources to finance the budget deficit during July-March, 2011-12. The fiscal deficit as a percentage of GDP stood at 4.3 percent against 4.5 percent during the same period of fiscal year 2010-11.

FBR Tax Collection

FBR tax collection for the fiscal year 2011-12 was targeted at Rs. 1,952 billion which was higher by 25.3 percent over the actual collection of Rs. 1,558 billion during 2010-11. During July-April, 2011-12 net collection stood at Rs. 1,426.0 billion despite

the major challenges to the economy due to the dearth of electricity and gas. This reflects 24.0 percent growth over Rs. 1,149.8 billion collected during the same period last year (Table:4.5).

Direct Taxes

The gross and net collection of direct taxes has registered growth of 31.3 percent and 22.6 percent respectively during the first ten months of 2011-12. The gross and net collection increased from Rs. 462.9 billion and Rs. 431.3 in July-April, 2010-11 to Rs. 607.8 billion and Rs. 528.9 billion respectively during July-April, 2011-12. Major revenue spinners of direct taxes are withholding tax, voluntary payments and collection on demand.

Indirect Taxes

During July-April 2011-12, the gross and net collection of indirect taxes has witnessed a growth of 23.1 percent and 24.9 percent respectively. It has accounted for 62.9 percent of the total FBR tax revenues.

Within indirect taxes, growth in sales tax increased by 33.7 percent. The gross and net sales tax collection during July-April 2011-12 reached Rs. 673.0 billion and Rs. 635.1 billion respectively, showing growth of 30.6 percent and 33.7 percent respectively over the corresponding period of 2010-11. Of the net collection, 44.8 percent of total sales tax was contributed by sales tax on domestic

Fiscal Development

61

goods and services during July-April, 2011-12, while the rest was derived from imports. Within net domestic sales tax collection, the major contribution came from POL products, telecom services, natural gas, fertilizer, other services, sugar, cigarettes, beverages, cement and electrical

energy. On the other hand POL products, plastic, edible oil, fertilizers, iron and steel, vehicles, machinery, organic chemicals and oilseeds contributed significantly to the collection of sales tax from imports.

Table 4.5: FBR Tax Revenues Rs Billion 2010-11 2011-12 July-April % Change Achievement Change (Actual) (B.E) 2010-11 2011-12 (Percentage) A. DIRECT TAXES Gross 462.9 607.8 31.3 Refund/Rebate 31.6 78.9 Net 602.5 745.0 431.3 528.9 22.6 71.0B. INDIRECT TAXES Gross 766.5 943.4 23.1 Refund/Rebate 47.9 46.2 Net 955.7 1,207.0 718.6 897.2 24.9 74.3B.1 SALES TAX Gross 515.3 673.0 30.6 Refund/Rebate 40.3 37.9 Net 633.4 852.0 475.0 635.1 33.7 74.5B.2 FEDERAL EXCISE Gross 102.2 95.8 -6.3 Refund/Rebate 0.0 0.2 Net 137.4 140.0 102.2 95.6 -6.5 68.3B.3 CUSTOM Gross 149.0 174.6 17.2 Refund/Rebate 7.6 8.1 Net 184.9 215.0 141.4 166.5 17.8 77.4TOTAL TAX COLLECTION Gross 1,092.3 1,551.2 42.0 Refund/Rebate -57.6 125.1 Net 1,558.2 1,952.0 1,149.9 1,426.1 24.0 73.1Source: Federal Board of Revenue (FBR)

Custom duty collection has registered a growth of 17.2 percent and 17.8 in both gross and net terms. The gross and net collection has increased from Rs. 149.0 billion and 141.4 billion during July-April, 2010-11 to Rs. 174.6 billion and Rs. 166.5 billion respectively during July-April, 2011-12. The major revenue spinners of custom duty have been automobiles, edible oil, petroleum products, machinery, plastic, iron and steel, paper and paperboard, textile materials and organic chemicals.

A negative growth of 6.5 percent has been recorded in the net collection of Federal Excise Duties (FED) during July- April, 2011-12. The net

collection stood at Rs. 95.6 billion during July-April 2011-12 as against Rs. 102.2 billion during the same period last year. The major revenue spinners of FED are cigarettes, cement, beverages, natural gas, POL product and services.

Provincial Budget

The total outlay of the four provincial budgets for 2011-12 stood at Rs. 1,435 billion; 21.7 percent higher than the outlay of Rs. 1,179 billion last year


62

Table 4.6: Overview of Provincial Budgets (Rs Billion)

Items Punjab Sindh KPK Baluchistan Total

2010-11 RE

2011-12 BE

2010-11 RE

2011-12 BE

2010-11 RE

2011-12-BE

2010-11 RE

2011-12 BE

2010-11 RE

2011-12 BE

A. Total Tax Revenue 502.6 625.4 310.6 359.4 160.2 195.4 100.5 111.5 1073.9 1291.7Provincial Taxes 39.0 48.6 32.7 35.0 3.3 3.6 1.2 1.3 76.2 88.5Share in Federal Taxes 463.6 576.8 277.9 324.4 156.9 191.8 99.3 110.2 997.7 1203.2B. Non-Tax Revenue 26.0 20.6 12.4 19.9 5.4 5.9 2.8 3.5 46.6 49.9C. All Others -7.5 21.2 11.3 17.9 37.6 23.9 3.8 -0.2 45.2 62.8Total Revenues (A+B+C) 521.1 667.2 334.3 397.2 203.2 225.2 107.1 114.8 1165.7 1404.4a) Current Expenditure 387.6 434.8 281.2 283.1 139.5 149 74.3 90.6 882.6 957.5b) Development Expenditure

138.7 220.0 65.6 141.1 65.0 85.1 27.1 31.4 296.4 477.6

i) Rev. Account 81.4 127.2 3.9 51.7 10.3 13.1 0.0 0.0 95.6 192.0ii) Cap. Acount 57.3 92.8 61.7 89.4 54.7 72.0 27.1 31.4 200.8 285.6Total Exp (a+b) 526.3 654.8 346.8 424.2 204.5 234.1 101.4 122.0 1179 1435.1Source: Provincial Finance, Budget Wing

Punjab witnessed the highest increase of 24.4 percent in budgetary outlay, followed by Sindh (22.3 percent), Baluchistan (20.3 percent) and KPK (14.5 percent). The overall provincial revenue receipts for 2011-12 are estimated at Rs.

1,404 billion, which is up by 20.5 percent compared to last year. During 2010-11 provincial revenues witnessed a growth of 34 percent compared to 20.4 percent in 2009-10.

Table 4.7: 4- Years Overview of Provincial Budget Growth Rates (%) Rs. Billion Items 2007-08 2008-09 2009-10 2010-11 FY10 FY11 A. Total Tax Revenue 504.1 612.0 697.3 1,073.9 13.9 54.0Provincial Taxes 50.3 57.3 68.6 76.2 19.7 11.1Share in Federal Taxes 453.8 554.7 628.8 997.7 13.4 58.7B. Non-Tax Revenue 59.6 58.0 56.7 46.6 -2.2 -17.8C. All Others 48.2 52.9 116.2 45.2 119.7 -61.1Total Revenues (A+B+C) 611.9 722.8 870.2 1,165.7 20.4 34.0a) Current Expenditure 497.5 688.9 704.8 882.6 2.3 25.2b) Development Expenditure 262.0 314.0 291.8 296.4 -7.1 1.6Total Exp (a+b) 759.5 1,002.9 1,357.7 1,179.0 35.4 -13.2Source: Provincial Finance, Budget Wing

The accelerated growth in revenues was mainly due to the increase in the provincial share in federal revenues under the 7th NFC award. On the other hand the consolidated fiscal balance deteriorated during July-March, 2011-12 and stood at Rs. 65 billion compared to Rs. 115 billion recorded in the same period of 2010-11. The growth in total expenditure has outpaced the significant growth in revenues.

Allocation of Revenues between the Federal Government and Provinces

Fiscal decentralization, or the transfer of fiscal power from the national government to the sub national governments, is considered to be an

effective tool to improve efficiency in the public sector and to stimulate economic growth. This devolution refers to the devolution of responsibilities for public spending and revenue collection from the central to the local governments.

In 2010 the government took a major step towards fiscal decentralization by signing 7th National Finance Commission (NFC) award between the federal government and provincial governments and by passing 18th Constitutional Amendment. This has not only allowed the transfer of more funds but also widen the range of responsibilities from the federation to the provinces.

Fiscal Development

63

Table 4.8: Transfers to Provinces (NET) (Rs. Billion) 2008-09 2009-10 2010-11 2011-12B Divisible Pool 477.4 574.1 834.7 1,043.9Straight Transfer 82.4 81.2 163.0 159.4Special Grants/ Subventions 40.6 82.0 54.1 55.4Project Aid 26.3 16.0 21.9 38.2Program Loans 0.0 0.0 0.0 16.6Japanese Grant 0.0 0.0 0.1 0.9Total Transfer to Province 626.8 753.3 1,073.7 1,313.7Interest Payment 18.5 18.7 18.5 15.6Loan Repayment 21.0 24.0 32.4 27.2Transfer to Province(Net) 587.3 710.6 1,022.8 1,270.9Source: Budget in Brief, 2011-12 Under the 7th NFC award, the financial autonomy of the provinces has been ensured by increasing their share in the divisible pool from 50 percent to 56 percent in 2010-11 and 57.5 percent from 2011-12 onwards. The distribution of the resources has been made on multi–weighted criteria which consist of population (82 percent), poverty/backwardness (10.3 percent), revenue collection/generation (5.0 percent) and area or inverse population density (2.7 percent). While the share of the federal government in the net proceeds of the divisible pool stood at 44 percent in 2010-11 and 42.5 percent from 2011-12 onwards. Total transfers to provinces have been projected to increase to Rs. 1,270.9 billion; an increase of 24.3 percent in 2011-12 over the actual transfer of Rs. 1,022.8 billion in 2010-11.

Medium Term Budgetary Framework

The MTBF has improved the budget preparation process. Firstly, the medium-term fiscal framework and budget policies have been incorporated into a medium-term Budget Strategy Paper on rolling basis, which include medium-term indicative budget ceilings for the recurrent and development budgets, and provides an opportunity to discuss the budget between the technical and political levels prior to the presentation of the annual budget. The political level involvement includes cabinet, Standing Committees on Finance & Revenue, and political parties.

Secondly, the Priorities Committee has been upgraded. Before the reform program, the

Priorities Committee meeting was headed by an Additional Finance Secretary (Budget) and would discuss only the development budget in detail. The MTBF reform, has upgraded the committee which is now chaired jointly by the Secretary Finance, Secretary Planning and Secretary Economic Affairs Division. The committee now discusses both the recurrent and development budgets with increased focus on policy priorities.

The Output Based Budget (OBB) has also been institutionalized in the federal government which presents policies of the ministries in the shape of goals, outcomes, outputs and medium-term budgets. The OBB also presents key performance indicators for the outputs to introduce government wide monitoring system.

Similarly the MTBF reform program has drafted the Public Finance Act to legalize the MTBF reform program. Also, the reform program is working with the Planning Commission to implement strategic planning processes in line ministries and introduce an Apex Monitoring and Evaluation function in the government to monitor service delivery and outcomes. The reform program is also interacting with PIFRA (Project to Improve Financial Reporting and Auditing) to introduce SAP based budgeting in the line ministries.

In addition to the above, the following important developments have been initiated as part of the reform program:


64

The Priorities Committee, which would only discuss project funding prior to the MTBF has been upgraded and is chaired by Secretary Finance, Secretary Planning and Secretary Economic Affairs Division. The upgraded Priorities Committee discusses policy priorities of the Principal Accounting Officers together with medium-term budgets.

The Budget Strategy Paper (BSP) is discussed with Parliamentary Standing Committees on Finance and Revenue. This process improves parliamentary input into the budgeting processes of the government.

The Budget Strategy Paper (BSP) is discussed with political parties, economic advisory council and chambers. This allows greater focus on strategic economic and budgeting agenda of the government.

Conclusion

Fiscal policy has the potential of playing a crucial role in spurring economic growth and poverty

alleviation. Pakistan’s economy has fared well in terms of fiscal deficit in the recent past, reducing deficit from 7.6 percent in FY08 to 5.9 percent in 2010-11. In fiscal year 2011-12 the fiscal deficit was projected to be 4 percent of GDP (Rs. 851 billion). Nevertheless, during the course of the period the projection for fiscal deficit has been revised to 4.7 percent. Various external factors contributed to this revision, for instance, growing burden from the campaign against extremism, domestic security concerns, energy shortages, unprecedented natural disasters, and upheaval in the global economy. However, government efforts to contain the fiscal situation were effective and fiscal deficit has remained within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises. The achievement of the revised deficit target depends crucially on the realization of the expected surpluses from provincial governments, the non-tax revenues which depend on inflows into the Coalition Support Fund, and strict control over expenditures.

65

Money and Credit

Pakistan’s monetary policy aims at stabilizing economic growth through a number of channels. It influences the future expectations of economic activity and inflation. A sound fiscal position is important for achieving macroeconomic stability. This occurs through efficient resource allocation and the mobilization of domestic savings. Because of this, the central bank through its monetary policy and strategies plays an influential role.

The global financial crisis that erupted in late 2007 not only produced the severe worldwide economic contraction, it has also hampered the ability of central banks to successfully manage the economy. In reaction to the crisis, markets of developed economies responded in a variety of ways, such as creating measures aimed at specific sectors, as well

as more general stimulus packages aimed at keeping financial institutions buoyant. On the other hand, economic activity in emerging and developing economies remained relatively vigorous on account of strong internal demand. The global economic activity rebounded in 2010 on the back of better macroeconomic performance and continued accommodative macroeconomic policies. Unfortunately, performance slowed later in the year because countries with large public and private debt burdens faced serious problems accessing sovereign debt markets. Consequently, heightened concerns about long term debt sustainability in various parts of the world have posed additional risks, not only to financial stability, but also for the ability to access safe assets.

Box 1 High Demand for Safe Assets

There is a potential threat to global financial stability due to high demand for safe assets. The threat has been driven up on account of heightened uncertainty, regulatory reforms and the extraordinary post-crisis responses of central banks in the advance economies. The supply of safe assets has contracted as the ability of the public and the private sectors to produce such assets has declined. Similarly, the number of countries whose debt is considered safe has fallen. Lack of safe asset scarcity will increase the price of safety and compel investors to move down the safety scale. It will also lead to more short-term spikes in volatility, and shortages of high-grade collateral.

There is a need for flexibility in policy design and implementation for a smooth adjustment in the markets for safe assets. Hence policy makers should strike a balance between the desire to ensure the soundness of financial institutions and the costs associated with potential overly rapid acquisitions of safe assets to meet such goals.

Global Financial Stability Report, April 2012. IMF.

Pakistan’s financial sector has not witnessed a direct impact of the global financial crisis due to its limited exposure in international financial markets. However, high inflationary pressures, heightened

security risks, power shortages and a high cost of doing business posed numerous challenges for Pakistan’s economy. Consequently, all these factors along with the global financial crisis caused a deceleration in the investment rate, a rise in

Chapter 5


66

unemployment and poverty, an increase in the debt burden, and a sharp fall in foreign exchange reserves. Moreover, the dearth of financial inflows resulted in a sharp diversion of credit away from the private sector. As a consequence, monetary policy remained under enormous pressure to strike a balance between supporting growth and keeping inflation under watch.

The devastating floods in 2010 and heavy rains in Sindh in 2011 once again brought on a plethora of challenges. The government’s efforts to contain the fiscal deficit were undermined by the significant rise in federal and provincial government’s expenditures in favor of rehabilitation and reconstruction activities. Moreover, the less than expected external inflows intensified fiscal stress. In addition, changes in key export and import prices in the international markets and the fragile global economic recovery are also affecting domestic economic conditions. Despite the challenges faced by the economy due to flood and security related issues Pakistan holds enormous potential and resilience. This was evident when the fiscal deficit remained within reasonable limits, (i.e 5.9 percent of GDP in 2010-11). The year to year CPI inflation was also recorded at 10.8 percent in March 2012 against 13 percent in the same period of the previous year.

Table 5.1: Policy Rate Effective from Date 21-Apr-09 14.0 17-Aug-09 13.0 25-Nov-09 12.5 30-Jan-10 12.5 27-Mar-10 12.5 02-Aug-10 13.0 30-Sep-10 13.5 30-Nov-10 14.0 01-Aug-11 13.5 10-Oct-11 12.0 30-Nov-11 until date 12.0 Source: State Bank of Pakistan

Monetary Policy Stance

The continuation of sound monetary management is central to taking on the multifaceted challenges faced by any economy as it deals with major issues of price stability, control of money supply and rationalization of administered interest rate. In

Pakistan, monetary management has mainly focused on controlling inflation. Inflation has persistently remained in double digits in the last few years on account of difficult domestic and external economic environment. Similarly, the heavy reliance on domestic borrowings in the absence of diversified and sustainable financing sources has constricted the availability of credit to the private sector. Furthermore, dried up external financing and insufficient funds from non-bank sources resulted in short-term borrowing from the banking system. Consequently, the banking sector’s exposure to government papers has increased significantly.

Given the difficult economic situation, the State Bank of Pakistan (SBP) followed a proactive policy response to shave-off additional demand from the economy. It has also accommodated the fiscal deficit. The SBP adopted an expansionary monetary policy during the fiscal year 2011-12. It slashed the discount rate by 50 bps points to 13.5 percent from 14 percent on the back of an improved fiscal position. The decision continued to show progress, as the consumer price index (CPI) and government borrowings from the Central Bank remained lower than its level at the end of June. However, the rate was further reduced by 150 bps points to 12 percent on October 8th, 2011, in order to boost to private sector credit and investment. Similarly, for a smooth functioning of a payment system and financial stability, SBP has injected substantial short term liquidity in the system.

Nevertheless, risks to macroeconomic stability due to fiscal weakness and decline in foreign inflows have not retreated. The power crisis and the precarious law and order situation are still an impediment to provide an environment conducive for productive activities. Hence, there is a need for a cautious approach to keep the inflation expectations around the medium term targets of 9.5 percent for fiscal year 2012-13 and 8 percent for fiscal year 2013-14. On the other hand increase in government borrowing to finance the budget deficit is adversely affecting the inflation outlook. Keeping the overall macroeconomic situation in view, the SBP has decided to keep the policy rate unchanged at 12 percent w.e.f. April 13, 2012.

Recent M

During thyear, Julymoney anan expanspercent ddeceleratiby the sig

Table 5.2:

1. Net gov a. Borrow b. Comm c. Others2. Credit to d. Credit e. Credit f. PSEs S g. Other 3.Other Ite4.Net Dom5.Net Fore6.MonetarySource: Sta Net Dome2012 stoobillion duan increasexpansiondemand fborrowing

ConverselsignificanSBP’s forthe widdeterioratsurpluses.period unas comparthe same p

During Jusector entfrom Rs. billion. CelectricityNovembe

Monetary and

he first eleveny – 11th May nd close subssion of 9.09 pduring the samion in moneygnificant fall

Profile of Mo

ernment sectorwing for budge

modity operatios o Non-governmt to Private Secto Public Sect

Special AccounFinancial Insti

ems(net) mestic assets (Neign Assets (NFy Assets(M2) ate Bank of Pa

estic Assets (od at Rs. 880uring the samse of 14.9 pen in NDA ifor private segs.

ly, Net Foreignt contractionreign exchan

dening curreing capital . NFA of the

nder review dred to an incperiod of 201

uly – 11th Mterprises (PSE

10.6 billionCredit to PSEsy generationer 2011 in or

d Credit Dev

n months of th2012 broad mtitutes for mo

percent as comme period in

y supply is pin the Net Fo

onetary Indica

r Borrowing(a+etary support ons

ment Sector (d+ctor tor Enterprises nt-Debt repaymitutions(SBP cr

NDA) FA)

akistan

(NDA) from J0.9 billion ag

me period last rcent over ths mainly duector credit a

gn Assets (NFn on account nge reserves tent account

and finae banking sysdeclined to Rcrease of Rs.

0-11.

May 2012, cEs) registeredn in 2010-11s was mostly

n companiesrder to partia

elopment

he current fismoney (M2),oney, witnessmpared to 11.n 2010-11. Tprimarily drivoreign Assets

ators

+b+c)

+e+f+g)

(PSEs) ment with SBPredit to NBFIs)

July – 11th Mgainst Rs. 48

year, reflectihe last year. Tue to a rise and governme

FA) witnessedof reduction that arose frot deficit aancial accoustem during t

Rs. 272.2 billi181.1 billion

credit to pubd a sharp decli1 to Rs. 142concentrated

s, however ally resolve t

cal or sed .47

The ven of

the bgoverncircula2011-1accounforeignof currindicatdemon

)

May 1.6 ing

The in

ent

d a in

om and unt the ion

n in

blic ine 2.6

d in in

the

circula391 bimonth Investm

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-400-300-200-100

0100200

Figu

banking systnment borrowr debt. Durin2, a significa

nt inflows ren exchange rerent account dtors for fiscalstrated in Tab

Jul-20

-

-481.6

662.6

r debt issue illion from c

treasury ment Bonds.

nment Bank

government bm for budgetions stood at

2007

-08

2008

-09

ure-5.1: Net Fo

tem, along wing and a on

g the first halant decline iesulted in d

eserves to finadeficit. The pl year 2010-1ble 5.2.

-14May 10-11 506.5 603.3 101.1

4.2 118.7 107.8 10.6 -0.2 0.5

143.6 6 (9.20%) 181.1 (11.47%)

the governmcommercial bbills and

k Borrowing

borrowing frtary supportRs. 1,003.3 b

2009

-10

2010

-11

oreign Assets

Money and C

with incre-off settlemelf of the fiscan capital finadepletion of ance the majoprofile of mon11 and 2011-

Rs. BJul-11Ma

2011-121,003.31,084.4

-81.60.5

92.9234.8

-142.60.00.7

-215.3880.9 (14.89

-272.2608.7 (9.09

ment borrowebanks through

5-year Pak

from the bat and commbillion during

Jul-1

4May

201

1

Jul-1

1May

2012

Credit

67

reased ent of

al year ancial

SBP or part netary -12 is

illion ay

9%)

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ed Rs. h 12-kistan

anking modity g July

Jul1

1May

201

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Pakistan E

68

– 11th Macommoditless than borrowing1,084.4 bthe same phas increa

The heavyof the goalso led sector, unthe recengovernmebe repaidexisting st

Commod

Commodiadvances corporatioof the cosugar and

During Jufinancing billion agthe sameretirementsecond qgovernmeagencies subsidies.governmestood at R

-200.0

0.0

200.0

400.0

600.0

800.0

Rs.

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ion

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ay 2012 on aties, public s

target reveng for budgetaillion as comperiod of the ased to Rs. 4

y reliance onovernment fro

to the sluggnder the crowdnt SBP Ament borrowingd at the endtock is to be r

dity Finance

ity finance aeither to the

ons or privateommodities sd fertilizer.

uly – 11th Mayregistered a

ainst the retire period of t was primquarter of ent released R

for the s On 11th

ent borrowingRs 315.9 billio

0

0

0

0

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2007‐08

igure 5.2: Gov

rvey 2011-12

account of rissector enterprnue collectioary support al

mpared to Rs. last year. The

442.3 billion

n the borrowiom the bankgish growth ding out effec

mendment Ag from the SBd of each qretired within

aims to prove governmene sector for tsuch as cotto

y 2012, loansa net retiremerement of Rs.

fiscal year marily concen

fiscal year Rs. 78 billion settlement oMay, 2012

gs for commoon (Figure 5.3

2008‐09 20

vernment Bor

2

sing subsidy rises' losses aon. Governmelone stood at 603.3 billione SBP financias compared

ing requiremeking system h

in the privct. According

Act, 2012, tBP is requiredquarter and tn eight years.

vide short tent, public secthe procuremeon, wheat, ri

s for commodent of Rs. 8101.1 billion2010-11. T

ntrated in t2012 as t

to procuremef accumulat

the stock odity operatio3).

009‐10 2010‐

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on and ent Rs

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d to

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ent has ate

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The gotons (Mhas beforthcointernaincentiThereforequireduring 2011-1

‐11 July‐14May2011

050

100150200250300350400450

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Fig

7.7 billion. Fsed a net incrriod under reear. Non-bantary supportlling the govnd scheduled

overnment proMT) of wheat een raised tooming wheat ational wheave for its e

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the rest of th2.

y July‐ 11May 2012

gure 5.3: Comm

Financing fromrease of Rs. 6eview againstnk and extert was less vernment to banks.

ocurement tarthis year, and

o Rs. 1050 pcrop. Additi

at prices hexport by thsiderable risheat procure

he months of

50.0

200.0

350.0

500.0F

F

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modity Financ

m scheduled b42.1 billion dt Rs. 385.6 brnal financin

than expeborrow from

rget is 7.72 md the supportper 40 kg foionally, declihas reducedhe private sse in the ement is exp

current fisca

rom SBP

rom Scheduled ba

Total borrowings

ce

banks during billion ng for ected, m the

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anks

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The credJuly-11th Mcomparedlast year. private seMay, 201private sHowever,system haprivate se

The privacredit in tstanding substantiasector creMay 2012of more thquarter of

Credit to

The revivwas one omonetary

Table 5. 3

Sectors

Overall Cr1. Loans tA. AgriculB. Mining C. ManufaTextiles D. ElectricE. ConstruF. CommerG. TranspoI. Other pri2. Trust Fu3. Persona4. Others 5. InvestmSector Source: Sta

Sector wishows th

Private Sect

it availed byMay, 2011-12

d to Rs 107.8On the other

ector credit w2. There is asector credi, heavy boras restricted ctor.

ate sector withe second qu

at Rs. 28al credit floedit (PSC) ex2 was limitedhan usual seaf fiscal year 2

Private Sect

val of privateof the main c

policy stanc

: Credit to Pr

redit (1 to 5) o Private Sectolture and Quarrying

acturing

city, gas and wauction rce and Trade ort, storage andivate business unds and NPOal

ent in Security

ate Bank of Pa

ise growth inhat loans to

tor

y the private2 stood at Rs 8 billion in thr hand year towas 7.5 perca strong relatit and econ

rrowing fromthe credit ex

itnessed the huarter of fisca82.2 billion.w, the cumxpansion durd to Rs 234.8 asonal retirem012.

tor (Sectoral

investment iconcerns for Sce in 2011-12

ivate Sector

or Business

g

ater supply

d communicatin.e.c

Os

y & Shares of P

akistan

n credit to th private sec

e sector duri234.8 billionhe same peri

o year growthent up until ionship betwenomic growm the bankixpansion to t

highest flow al year 2011-. Despite t

mulative privring July – 1

billion becauments in the fi

l Analysis)

in the economSBP to ease t2. However, t

ons

Private

e private secctor business

ing n as iod

h in 11

een wth. ing the

of -12 the ate

11th use irst

my the the

desirednot takunfavosubstanthe prilimitedrising preferrextendi

End June St

Jun-10 Ju2,749.3 22,258.5 2

169.517.5

1,263.6470.2215.567.1

229.7105.123.613.1

321.511.1

145.1

ctor ses

registerexpansRs. 42.

1

1

2

2

perc

enta

ges

Fi

d boost in prike place due

orable law anntial governmivate sector fd the availabi

non-performred to investing credit to t

tocks Ju

un-11 2010-2,918.2 222,431.8 22

180.517.9

1,385.4 20514.7 10269.4 267.7 -

213.7 -1106.2 -29.418.0

294.0 -116.4

158.0 1

red a sharp dsion during th.9 billion aga

0.0

5.0

10.0

15.0

20.0

25.0

2005

-06

2006

-07

ig-5.4 : Growt

ivate investme to energy d order situa

ment borrowinfrom receivinlity of creditming loans t in liquid athe private se

uly-March (Flows) -11 2011-12 8.3 41.6 2.1 42.9 3.3 10.5 0.4 -2.8 5.3 65.0 5.5 16.4 8.1 -12.2 0.9 -9.5 8.1 -4.3 0.6 -2.5 3.6 -1.4 3.4 -1.0 7.6 -7.8 6.7 -0.1

3.6 7.5

decline. In flowhe period undainst Rs. 222.

2006

07

2007

-08

2008

-09

h of Private S

Money and C

ment demand shortages an

ation. Additiong has crowdeng credit. Thi. Similarly, d

(NPLs) bassets rather ctor.

Rs B

Growth Ra

2010-11 208.39.82.02.3

16.222.413.1-1.4-7.9-0.615.125.7-5.560.6

9.4

w terms, the der review sto1 billion in J

2009

-10

2010

-11

2 011

-12(

July

-11

Sector

Credit

69

could nd an onally, ed out is has due to banks

than

Billion

ates

11-121.41.85.8

-15.74.73.2

-4.5-14.0-2.0-2.3-4.8-5.4-2.6-0.6

4.7

credit ood at July—

0(J

uy

May

)


70

March 2011. However, the stocks reached Rs 2474.7 billion in March 2011-12 against the end June stock of Rs 2431.8 billion, reflecting an increase of only 1.8 percent. All of the major sectors, excluding agriculture, registered a decline in credit when compared to last year. Particularly, loans to textile sector are significantly lower than last year. The ample profitability of textile sector in 2010-11, along with subsequent decline in cotton prices in 2011-12 explains the relatively lower requirement for credit during July - May 2012.

The manufacturing sector advanced over 100 percent (Rs 65.0 billion) of total PSC, followed by textiles (38.2 percent), and agriculture (24.5 percent). On the other hand, credit to trade and construction declined by 14 percent, followed by electricity, gas and water supply (4.5 percent), and then commerce and trade (2 percent).

In agriculture, overall credit disbursement by five major commercial banks1 stood at Rs. 107.6 billion in July—March 2012 as compared to Rs. 93.3 billion in July—March 2011 posting an increase of Rs. 14.4 billion or 15.4 percent. Total credit disbursement to agriculture sector during July-March 2012 surged by 17 percent on year to year basis to Rs. 197.4 billion against total disbursement of Rs. 168.7 billion in the same period of fiscal year 2010-11.

Net decline in consumer financing during July - March 2012 stood at Rs8.5 billion as compared to the decline of Rs 17.4 billion in the comparable period of 2010-11 , thereby registered a decline of 3.9 percent as compared to the decline of 7.1 percent during the period under review.

Table 5.4: Consumer Financing Rs. Billion

Description July-March Growth (%) 2010-11 2011-12 2010-11 2011-12

Consumer Financing -17.40 -8.50 -7.10 -3.90 1) For house building -5.40 -5.20 -10.00 -10.90 2) For transport i.e. purchase of car -10.60 -5.60 -16.40 -11.00 3) Credit cards -3.40 -1.70 -12.20 -7.00 4) Consumers durable 0.03 0.10 13.90 37.10 5) Personal loans 0.40 2.70 0.40 3.00 6) Other 1.60 1.20 55.70 27.00 Source: State Bank of Pakistan

Loans for consumer durables witnessed a net expansion of 37.1 percent during July 2011 - March 2012 against 13.9 percent in the same period last year. However, auto loans, mortgages, credit cards and personal loans have consistently been on the decline since January 2008 on account of multiple factors (e.g. fragile economic conditions, rising cost of credit and increasing default). The stock of consumer finance reduced to Rs. 209.1billion in March 2012 from its peak of Rs. 371.3 billion exactly four years earlier.

Each category within the consumer finance segment has registered a persistent increase in the loan infection ratio for the last three years. This increase has been a combination of rising NPLs and declining credit to each category with the exception of consumer durables.

Monetary Assets

The component of monetary assets (M2) include: currency in circulation, demand deposit, time deposits (excluding IMF A/C, counterpart), and resident’s foreign currency.

1 Allied Bank, Habib Bank Limited, MCB Bank Limited, National Bank of Pakistan and United Bank Limited

Money and Credit

71

Table-5.5 Monetary Aggregates (Rs Million) Items End June July-11May 2010 2011 2010-11 2011-12 A.Currency in Circulation 1,295,385 1,501,409 1,550,840 1,705,749Deposit of which: B. Other Deposits with SBP 6,663 10,145 10,359 11,924C.Total Demand &Time Deposits incl.RFCDs 4,475,186 5,183,640 4,878,666 5,586,202of which RFCDs 345,438 374,945 368,012 416,962Monetary Assets Stock (M2) A+B+C 5,777,234 6,695,194 6,439,864 7,303,874Memorandum Items Currency/Money Ratio 22.4 22.4 24.1 23.4Other Deposits/Money ratio 0.1 0.2 0.2 0.1Total Deposits/Money ratio 77.5 77.4 75.8 76.5RFCD/Money ratio 6.0 5.6 5.7 5.7Income Velocity of Money 2.7 2.9 2.7 2.7Source: State Bank of Pakistan

Currency in Circulation

During July – 11th May 2012, currency in circulation (CIC), in flow terms, stood at Rs. 204.3 billion as compared to Rs. 255.5 billion in the

same period last year. Similarly, the currency in circulation as percent of money supply (M2) has declined to 23.4 percent in 2011-12 as against 24.1 percent during the same period in 2010-11.

Broad money (M2) grew by 9.09 percent during July – 11th May 2012, as compared to an increase of 11.47 percent during the same period last year. The decline in broad money (M2) came from the decline in both currency in circulation and deposit money.

Deposits

During July – 11th May 2012, demand and time deposits stood at Rs. 402.6 billion as against Rs 403.5 billion during the same period last year. Hence the decline in currency in circulation is

offset by the increase in demand and time deposits. Similarly, resident foreign currency deposits (RFCDs) have increased to Rs. 42.0 billion as compared to Rs. 22.6 billion during the same period last year.

Monetary Management

Efficient monetary management is crucial in providing a sound and secure financial environment that is favorable for the attainment of both macroeconomic stability and growth. Moreover, a well-developed financial system facilitates the exchange of goods and services by

7.5

8.0

8.5

9.0

9.5

10.0

10.5

20.0

21.0

22.0

23.0

24.0

25.0

2006 2007 2008 2009 2010 2011 2012(July-11May)

Fig-5.5 : Currency in Circulation % M2 & GDPCIC/M2 CIC/GDP


72

providing payment services. It also allocates society’s savings to its most productive use by acquiring and processing the information about enterprises and finds possible investment projects. Finally, it helps diversify and reduce liquidity and inter-temporal risk. A stable financial system is essential for an efficient, deep and liquid market.

The strains on the financial sector and the credit crunch in the aftermath of the global financial

crisis led to the closing of many credit lines and erosion various of financial mechanisms. Pakistan’s financial markets witnessed a slowdown in deposit mobilization and profitability in the sector. Conversely, the financial sector remained generally immune to the contagion of the unstable financial sector.

Table 5.6: Summary of OMO's Rs. billion Injections Absorptions

2010-11 2011-12 2010- 11 2011-12 July 75.05 408.45 20.50 - August 165.05 640.35 - - September 196.55 1025.10 54.40 - October 36.85 1058.65 171.50 - November 67.55 1381.45 102.50 - December 34.10 1418.90 128.55 24.00 January 106.85 969.15 11.50 - February 119.40 1244.40 51.20 - March 230.85 1210.90 - 3.00 Total 1,032.25 9357.35 540.15 27.00 Source: State Bank of Pakistan

During the first half of fiscal year 2011-12 reliance on the banking system to fund the government’s finances created further challenges to striking a balance between cautious liquidity operations and payment system stability. Furthermore, the excess volatility in short term interest rates increased the challenges of monetary management, mainly due to a sharper deterioration in the external current account deficit, a declining trend of foreign

inflows, and a higher currency to deposit ratio. However, other market interest rates, such as KIBOR and the weighted average lending rate (WALR), have largely followed the policy rate reductions. The average spread between the policy rate and the 6 month KIBOR has narrowed to 12 bps after the cumulative 200 bps reduction in the policy rate.

Table 5.7: Market Treasury Bills Auctions Rs. Million

JUL-JUN Jul-March FY2010-11 Offered Accepted W.A.Rate*

Offered Accepted W.A Rate* FY11 FY12 FY11 FY12 FY11 FY1

2 3-Months 2,837,276 1,668,408 12.8 2,479,501 671,490 1,484,235 363,478 12.8 12.5

6-Months 2,226,878 1,614,552 13.0 1,101,412 1,501,433 809,208 883,012 13.0 12.7

12-Months 908,194 599,015 13.2 437,602 2,086,003 234,144 1,239,758 13.2 12.8

Total 5,972,348 3,881,975 4,018,515 4,258,926 2,527,587 2,486,247 Source: State Bank of Pakistan Average of maximum and minimum rates

The SBPprimary mMarch 20during themarket ofduring the2011-12.

In an antiin Octobetenure pamonths o49.9 perceby 35.5 pe

Table 5.8:

PIBs

3 Years

5 Years

10 Years

15 Years

20 Years

30 Years

Total

Source:SB* : Averag

During 2billion frInvestmenbillion in

11.011.512.012.513.013.514.014.5

J08

Fig-

P accepted Rmarket of T012 as compe same periodffered a total e first nine m

cipation of a er 2011 and oapers increasf 2011-12 ment of the totaercent in 6 mo

Pakistan InvOffered

81,960

33,306

176,840

2,966

7,875

12,413

315,360

BP e of Minimum

011-12, the rom the print Bonds (PIB

n the same p

Jun-

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-5.7: Weighted

Rs. 2486.2 bT-bills duringpared to Rs. d of fiscal yea

amount of Rmonths of cur

further cut inonwards invessed. During

months T-billsal accepted amonths T-bills

estment BondAccepted *Jul-Jun

FY 2010-11 49,712

16,668

101,355

460

875

225

169,295

m and Maximum

SBP rose upimary markeBs) as compaeriod last ye

Dec

08

Feb-

09

Apr

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09

d Average Int

illion from tg July 2011

2527.6 billiar 2010-11. TRs. 4259 billirrent fiscal ye

n the policy rstment in long

the first nis, accounted mount follow

ds Auctions*W.A Rate

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14.1

14.2

14.2

m rates

p to Rs. 159et of Pakistared to Rs. 83ear. The mark

Aug

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Oct

-09

Dec

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terest Rates

the 1 - ion

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rate ger ine for

wed

Offered

FY 11 FY42,227 74

18,662 57

111,246 108

2,031 2

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11,113

191,779 242

9.2 tan 3.4 ket

offeredfirst ninRs. 191

0.0

20.0

40.0

60.0

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ent

Figu

Feb-

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AJul-March

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200 5

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d a total amone months of1.8 billion in

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74 41,938

37 64,370

BR 2,262

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ount of Rs. 24f the fiscal ye2010-11.

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Rs. M

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Nil

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42.3 billion iar 2011-12 ag

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Table 5.9Average (W Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Source: Sta

The weighmark-up)

Table 5.10 Total AsseInvestmentAdvances Deposits Equity Profit Befo

0.0

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R DR 20 7.41 22 7.20 19 6.99 24 7.09 37 7.35 21 7.45 25 7.22 62 7.46 22 7.40 28 8.40 97 8.03 58 7.48 23 7.06 18 7.12 14 7.03 80 6.98 akistan

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ribution of PIB

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FY11

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(including zestood at 12.

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833 1,2762,428 2,688

,255 3,854402 544124 107

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784170

Money and Credit

75

Table 5.10: Highlights of the Banking System Rs billion CY*05 CY06 CY07 CY08 CY09 Dec-10 Sep-11 Dec-11 Profit After Tax (PAT) 63 84 73 43 54 65 76 110Non-Performing Loans 177 177 218 359 446 548 613 607Non-Performing Loans (net) 41 39 30 109 134 182 210 202 Base-I Base-II Capital Adequacy Ratio (all banks) 11.3 12.7 12.3 12.3 14.0 14.0 14.9 14.6Source: State Bank of Pakistan * Calendar year

The deposits of the banking system increased to Rs. 6238 billion in December 2011 from Rs. 5450 billion in December 2010 thus posted a growth of 14.4 percent year to year basis.

With continuous growth in the non-performing loans (NPLs) since CY07, credit risk has been a

major challenge for banks. NPLs reached Rs. 607 billion in December 2011 against Rs. 548 billion recorded in December 2010. The capital adequacy ratio also increased to 14.6 percent from 14 percent during the period under review (Table 5.9).

BOX-2 Financial Development

Financial development in reference to the increase in the ratio of money supply to GDP suggests that the more liquid money is available in the economy, the more opportunities exist in economy for sustainable economic growth. Therefore, the development of the financial system (financial deepening) is interlinked with the economic development of any country.

Considering M2 as a proxy for the size of the financial sector, increase in M2/GDP ratio reveals that in nominal terms the financial assets are growing faster than the non financial assets. In case of Pakistan, the financial market has shown great resilience in the wake of global financial crisis due to low integration with global financial markets.

Table 5.11 suggests that the M2 to GDP ratio has shown a rising trend since 2000-01 with growing economic activity and rose from 36.7 percent to 47 percent in 2006-07. The ratio

Table5.11: Key Indicators of Pakistan's Financial Development Years M2/GDP DD+TD/M2 2000-01 36.7 75.4 2001-02 40.0 75.4 2002-03 43.1 76.2 2003-04 44.9 76.8 2004-05 45.1 77.6 2005-06 45.0 72.5 2006-07 46.6 74.1 2007-08 44.7 73.3 2008-09 39.2 72.0 2009-10 39.4 71.5 2010-11 37.1 71.8 July-May 2010-11 35.0 70.0 2011-12 34.9 70.1

8

9.5

11

12.5

14

15.5

Fig-5.9: Capital Adequacy Ratio (percent)


76

started to decline gradually and stood at 37.1 percent in 2010-11. During July —May 2012 M2 to GDP ratio has declined further to 34.9 percent as compared to 35 percent in the same period last year on account of the pressure to the liquidity profile of the financial markets mainly due to the rising government’s borrowing needs. On the other hand another significant ratio DD + TD/M2, which represents monetary depth, has also shown the declining trend since 2004-05 by decreasing from 77.6 percent to 71.8 percent in 2010-11. This is the period when the monetary policy stance changed from accommodating to tightening. However, reduced policy rate by 200 bps to 12 percent during the current fiscal year 2011-12, resulted in a slight increase of 70.1 percent during July 2011—May 2012 from 70 percent during the same period last year.

In an effort to improve financial deepening and competition in the banking system, SBP is already encouraging depositors to put their savings in government securities through Investor’s Portfolio Securities (IPS) accounts which may lead to better returns on deposits over time. Moreover, in May 2008, SBP introduced a minimum percent floor on all categories of Savings/PLS Saving Products. Consequently, average deposit rate of all saving related products increased from 2.1 percent to 5.25 percent, with no significant change thereafter. The saving deposits category now account for 38 percent of all bank deposits and 52 percent of total number of deposit accounts.1

Islamic Banking

The Islamic banking industry in Pakistan has maintained a strong and sustainable growth

momentum in the wake of fragile economic conditions. Over the past six years it has witnessed an average growth of 30 percent.

Table 5.12: Islamic Banks Rs. Billion CY05 CY06 CY07 CY08 CY09 Dec-10 Dec-11 Assets of the Islamic banks 71.5 119.3 205.9 276.0 366.3 477.0 641.0 Deposits of the Islamic Banks 49.9 83.7 147.4 201.6 282.6 390.1 521.0 Share in Banks Assets 1.95% 2.79% 3.98% 4.90% 5.60% 6.68% 7.80% Share in Bank Deposits 1.75% 2.62% 3.82% 4.78% 5.90% 7.16% 8.40% Source: Islamic Banking Department, State Bank of Pakistan *Provisional data

The asset base of the industry reached Rs. 641 billion reflecting 34 percent Year to year (YOY) growth, while the share in bank assets increased to 7.8 percent from 6.7 percent during the period under review. The growth in assets is mainly attributed to financing and investment that together grew by 40 percent year to year basis. On the other hand deposits reached to Rs. 521 billion depicting YOY growth of 34 percent by end of Dec 2011. Thus it contributed 8.4 percent in banks deposits against 7.2 percent in Dec 2010. Similarly operating performance indicators also witnessed encouraging performance in 2011, as non-performing financing (NPFs) declined while return on assets (ROA) and return on equity (ROE) both

remained higher than that of overall banking industry average.

The breakup of financing in CY11 indicates that Murabaha dominates followed by Diminishing Musharaka and Ijara with all other modes constituting a relatively small share.

Microfinance

The Government of Pakistan and the SBP remain committed to promoting microfinance as a long term strategy to broaden access to financial services by the low income segments, thus improving their livelihood and income generating opportunities.

1 Monetary Policy statement, April, 2011-12

Money and Credit

77

Table 5.13: Financing Products by Islamic banks %age Mode of Financing CY05 CY06 CY07 CY08 CY09 CY10 CY11 Murabaha 44.4 48.4 44.5 36.5 42.3 44.9 43.8Ijara 29.7 29.7 24.0 22.1 14.2 12.7 10.4Musharaka 0.5 0.8 1.6 2.1 1.8 2.9 2.4Mudaraba 0.3 0.2 0.4 0.2 0.1Diminishing Muskaraka 12.8 14.8 25.6 28.9 30.4 29.5 32.0Salam 0.6 1.9 1.4 1.8 1.2 1.4 2.4Istisna 1.4 1.4 1.0 2.9 6.1 5.8 4.4Others 12.1 3.0 1.6 5.4 3.6 2.6 4.4Source : State Bank of Pakistan

The overall microfinance sector witnessed loan portfolio growth of 13 percent over the year. Its gross loan portfolio stood at Rs. 28.84 billion as the quarter ended in December 2011 with 2.07 million active borrowers. On the deposit side, the number of depositors of Micro Finance Banks (MFBS) increased to 1.44 million with a deposit base of Rs. 13.6 billion as of March 31, 2012.

The overall performance of the sector remained positive in spite of the various challenges including the heavy floods/rains that adversely affected

various parts of the country especially Sindh, for the second consecutive year. The loan portfolio growth is attributable to the recent microfinance sector strategy that stresses the need for microfinance providers to diversify portfolio in different economic and geographic segments. The NPLs of microfinance banks have also dropped to two (2) percent as the quarter ended in March 2012 against 5.29 percent in March 2011 depicting effectiveness of the credit process. The sector was able to expand its retail network to 1,739 business locations across the country.

Table 5.14: Microfinance Industry Indicators Year Institution Number

of MFBs Number of Branches

Total No. of Borrowers

Gross loan portfolio

Average Loan Size

(Rs)

Total No. of Depositors

Deposits

(Rs. In '000) (Rs. In '000)Dec-08 MFBs 7 271 542,641 6,461,462 11,907 254,381 4,115,667

MFIs 20 1,186 1,190,238 11,952,000 14,940 - -Total 27 1,457 1,732,879 18,413,462 10,626 254,381 4,115,667

Dec-09 MFBs 8 284 703,044 9,004,000 13,576 459,024 7,099,206MFIs 21 1,159 1,123,001 12,719,000 11,326 - -Total 29 1,443 1,826,045 21,723,000 12,131 459,024 7,099,206

Dec-10 MFBs 8 284 717,141 10,528,000 20,151 780,294 10,289,000MFIs 21 1,252 1,342,395 14,966,000 17,180 - -Total 29 1,536 2,059,536 25,494,000 18,385 780,294 10,289,000

Dec-11 MFBs 9 303 733,931 14,650,000 19,691 1,362,202 13,927,066MFIs 23 1,436 1,339,140 14,195,000 10,600 - -Total 32 1,739 2,073,071 28,845,000 13,914 1,362,202 13,927,066

Source: State Bank of Pakistan

Microfinance Policy Initiatives

The policy framework for microfinance has evolved in tandem with sector growth. It encourages private sector participation by supporting a multi-institutional approach. The regulatory instructions are developed in view of

the present market situation and MFBs’ preparedness allowing adequate room for further innovation and market development. During the past two consecutive years Pakistan was globally ranked first by the ”Economist Intelligence Unit” (EIU) of the Economist magazine, in terms of


78

microfinance regulatory framework via its reports released in 2010 and 2011.

In September, 2011 the Waseela Microfinance Bank was granted a license under the “Microfinance Institutions Ordinance, 2001” to operate nationwide. In addition, the Auriga Group acquired the district wide Network Microfinance Bank with the intent of upscaling its operations as a nation wise MFB. Also in the same month, the general provisioning requirement for MFBs was withdrawn in cases where loans were backed by liquid securities, gold, or other cash collateral with appropriate margin. However, in case of all other loans, microfinance banks shall maintain general provision of 1%.

In March 2012, the State Bank has revised Prudential Regulations No. 10 and 11 for MFBs to

facilitate lending to microenterprise segment. For these purposes, the term microenterprise shall mean projects or businesses in trading, manufacturing, services, and agriculture sectors that lead to livelihood improvement and income generation. Microenterprises are undertaken by micro-entrepreneurs who are either self-employed or employ few individuals; these businesses do not exceed 10 employees and they excluded seasonal labor.

The revisions will facilitate lending of up to Rs. 500,000 to eligible microenterprises. Moreover, MFBs that previously were unable to tap the microenterprise market constraints of lending up to Rs. 150,000 under the general loans category will now be able to upscale their credit operations.

Box-3 Program’s initiatives:

SBP is playing a pivotal role in promoting inclusive finance through implementation of government and donor funded programs. These programs are managed with the objective of enhancing the provision of financial services to unbanked segments especially to the poor and marginalized population through sustainable models. The updates on government programs and SBP market interventions are as follows:

1. Financial Inclusion Program (FIP):

FIP is implemented with grant assistance of 50 million pounds from the UK Government’s Department for International Development (DfID). SBP has successfully launched a number of market interventions under FIP since 2008. Progress under each of these interventions is as follows:

a. The Institutional Strengthening Fund (ISF) was launched to strengthen institutional and human resource capacity of MFB is in order to enhance scale and sustainability of microfinance services. So far funding support of Rs. 819 million has been approved for 19 microfinance providers including top and middle tier MFBs and MFIs as well as the Pakistan Microfinance Network. The grant covers 22 projects addressing institutional strengthening needs of the grantee institutions for capacity building/ HR training, IT development, business plan/ strategic reviews, market research, branchless banking, corporate governance, credit ratings, remittances, and treasury functions, and others.

b. Microfinance Credit Guarantee Facility (MCGF) was launched to mobilize wholesale commercial funding for microfinance providers through partial guarantees to commercial banks. So far, fourteen (14) guarantees with a total exposure of Rs. 957 million have been issued for mobilizing Rs. 3,275million.

c. Credit Guarantee Scheme (CGS) for Small and Rural Enterprises aims to facilitate credit to small and rural businesses through partial guarantees. So far partner banks have booked guarantees of Rs. 1,107 billion against sanctioned loans of Rs. 2.711 billion for 3,846 small and rural enterprises by the end of March 2012.

d. Financial Innovation Challenge Fund (FICF): was launched in May 2011. It aims to foster innovations and test new markets, lower cost of delivery, enable systems and procedures to be more efficient and provide new ways of meeting the unmet demand for financial services. A number of applications were received under the 1st

Money and Credit

79

round and the selected applicants will be announced after due process.

2. Improving Access to Financial Services Fund (IAFSF)

The following interventions have been taken under IAFSF:

a. Nationwide Financial Literacy Program has been launched in January 2012 to disseminate basic education about financial concepts, products and services to the masses.

b. Grass Root Level Training Programs on Microfinance is a series of 40 individual training programs expected to benefit 1000 participants from various microfinance providers. So far 12 training Programs have been organized.

Insurance Sector

The insurance industry in Pakistan is relatively small compared to its counterparts in the region. The insurance penetration and density remained

modest as compared to other jurisdictions while the insurance sector remained underdeveloped relative to its potential. As of December 2010, the industry’s total premium revenue stands at Rs. 100.58 billion.

Fig-5.10: Insurance Penetration in Pakistan

Box-4 Way Forward

1. Development of New Insurance Law: SECP is considering embarking upon the initiative of revamping of insurance laws in Pakistan. The derived benefits will include a new regulatory and supervisory framework encompassing enhanced reserves and capital requirements, insurance industry’s risk-focused surveillance mechanisms, training and capacity building to support the implementation of the improvised insurance regulatory framework. Under this new regime, certain new regulations will also be introduced where no such framework exists currently such as regulations for reinsurance, regulations for insurance & reinsurance brokers, regulations for alternate distribution channels, regulations for disclosure requirements and consumer protection, regulations for Takaful Investment Products, and others.

2. Voluntary Pension Schemes by Insurance companies: Although there are already nine (9) Pension Funds


80

operating under the Voluntary Pension System Rules, 2005, none of the insurers have so far ventured in this area while registering itself under these rules. The SECP intends to make the existing Rules more conducive and equally attractive for insurers by initiating a consultative process with the relevant stakeholders and encouraging the insurance companies to offer voluntary pension products.

3. Development of Crop Insurance in Pakistan: The agriculture sector contributes approximately 21 percent to Pakistan's GDP and generates about 45 percent of employment. It also contributes to the economic growth of the country by supplying raw materials to the industry as well as for export purposes. With the proliferation of numerous initiatives launched by the public and private sector, including the access to financial services in rural areas, it has become imperative that measures be taken to mitigate risks to which farmers are exposed. It is a known fact that agricultural production can increase if the vagaries of nature and the risks associated with it can be better managed. While, the majority of areas of our agricultural economy are exposed to adverse weather events such as floods and droughts, crop diseases and other disasters, the immediate need is to provide it with a carefully designed tool to mitigate such inherent risks. As the apex regulator of the insurance industry, it is the endeavor of SECP to develop and promote the agricultural insurance in order to ensure the well-being of the economy. Also, while augmenting the efforts of government whereby it formed a crop insurance scheme in year 2008 and the recent interest to develop a scheme available to all farmers of the country involved in the cultivation of the major crops, there is a need of bringing all stakeholders, including SECP, State Bank of Pakistan, insurance industry, agriculture and livestock development departments/ agencies, together to articulate the development of crop insurance in Pakistan. SECP will be working to help in building a market-based approach in the design and pricing of crop insurance products.

Conclusion

Pakistan’s financial institutions are doing the utmost to continue to respond to the global economic and financial volatility. Although Pakistan was not heavily affected by the financial crisis of 2007, it is taking every precaution in how it moves forward to support growth and monitor

inflation. Efforts continue in avoiding high inflationary pressures, mitigating heightened security risks, eliminating power shortages and providing a lower cost of doing business, in order to boost Pakistan’s economy. With evidence of its past resilience in rough economic times, the future roles of money and credit in Pakistan remain optimistic.

81

Capital Markets

Introduction

The capital market, like the money market plays a significant role in the national economy. A developed, dynamic and vibrant capital market can contribute significantly in the speedy economic growth and development. It mobilizes funds from people for further investments in the productive channels of an economy, activating idle monetary resources and puts them in proper investments. Capital market also helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. It raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a longer period of time. It provides suitable interest rate return also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provide diverse investment avenues for the public.

The capital market enhances production and productivity in the national economy. As it makes funds available for long periods of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in increasing production and productivity in the economy by generation of employment and development of infrastructure.

The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. The developed capital market also provides access to foreign capital for domestic industry. Thus the

capital market definitely plays a constructive role in the overall development of an economy.

Capital markets consist mainly of Stock (equity) and Debt markets. The capital market provides an avenue for raising the long-term financing needs of business through equity and long term debt by attracting investors with a long term investment horizon.

Pakistan Equity Markets

The Karachi Stock Exchange (KSE) is the biggest and most liquid exchange in Pakistan with an average daily turnover of 254 million shares and market capitalization of US $ 41.0 billion as of the first week of May, 2012. The international magazine 'Business Week' declared the KSE as the best performing world stock market in 2002. Since then, international investors have given due considerations to the KSE in making decisions regarding foreign investment in equity markets.

Since 1991, foreign investors have an equal opportunity together with local investors to operate in the secondary capital market on the Karachi Stock Exchange. The establishment of the new policy for foreign investors and the privatization initiated in Pakistan has accelerated the development of the KSE, which had 591 companies listed in 2012.

The Karachi Stock Exchange trades the KSE-100 Index. It is a highly-diversified index of 100 largest capitalization companies’ stocks from all sectors of Pakistan’s economy. A constantly revised index is a good indicator of the overall exchange performance over a period of time. In May, 2012, 92 percent of the KSE total market

Chapter 6


82

capitalization was represented by the KSE-100 Index.

The Lahore Stock Exchange is the second stock exchange established in Pakistan in 1971. Today, the LSE is the only domestic exchange to have more than one trading floor and is also the only exchange in the region to have established a unified order book with another domestic stock exchange in the country. The institution was established to facilitate the investors of Punjab and Northern areas by providing them an access to the capital market and enabling them to take part in the progress of the corporate sector of the country. The Lahore Stock Exchange Twenty Five company index, the LSE25, calculates the performance of stocks of major companies.

The third stock exchange, the Islamabad Stock Exchange, was incorporated as a guarantee limited company in 1989 in Islamabad with the main object of setting up a trading and settlement infrastructure, information system, skilled resources, accessibility and a fair and orderly market place. The purpose for establishment of the stock exchange in Islamabad was to cater to the needs of less developed areas of the northern part of Pakistan. ISE10 index monitors the performance of the ISE.

Developments in 2011-12

The Pakistan stock markets remained range bound during the first half with a predominantly declining trend. The obscure movement of the stock market statistics was consequent to various challenges faced by the country including escalating political upheaval, uncertainty due to worsening law and order situation as well as rumours on the economic front pertaining to reduction in military and civil aid from international donors, the Pak rupee depreciation and increasing fiscal deficit of the government. However, the KSE-100 index resumed its momentum during the 3rd quarter of 2011-12 owing to certain encouraging measures like considerable reduction in discount rate by the SBP during latter period of the first half of Current Financial Year and increase in foreign exchange reserves. Further, the market sentiment was boosted by the proposed promulgation of the Capital Gain Tax Ordinance under which the

National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the Capital Gain Tax (CGT) on listed securities. The subject Ordinance was finally promulgated on the 24th April, 2012.

In Pakistan, securities trading remained exempt from CGT for 36 years till June 30, 2010. The imposition of CGT on securities from July 1, 2010 has not only impacted the tax revenue (less than 10 percent of figure three years ago) but also reduced average traded value to the lowest level during the last ten years. During the period of exemption, the investors kept making gains from the securities trading which remained undocumented due to exemption from requirement of filing of income tax returns relating to exempt income. In 2010, after the imposition of CGT, investors were required to file the income tax returns along with declaring the source/evidence of investments for which they did not have the documented details. Due to this the investors reduced investments in the stock markets and the average daily turnover reduced along with the reduction in the share prices.

To address the distress condition of share trading in the stock market, some mechanism was required to provide relief to the investors who were subjected to 100 percent documentation of the gains and increase in the tax revenue. This has now been done with the promulgation of the CGT Ordinance under which NCCPL has been appointed as an intermediary entity to compute, determine, collect and deposit the CGT on listed securities.

NCCPL is a clearing company where all the amounts relating to the trading activity in the stock markets in Pakistan are settled. Therefore the NCCPL can capture and tax all the transaction in which capital gain arises under the income tax law. The NCCPL will compute tax for all type of investors except the few financial intermediaries, foreign institutional investors and any other person specified by FBR. The tax rate for CGT will be 8 percent and 10 percent for investment holding up to six months and 12 months respectively till June 30, 2014. NCCPL will be depositing the tax with the FBR on an annual basis.

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83

In addition, no question relating to the source/nature of money will be asked by the tax authorities if the money remains invested in the stock market for a period of 45 days (till June 30, 2012) and 120 days (till June 30, 2014) before and after the promulgation of CGT Ordinance with a condition that the investor files with FBR a statement of investment, wealth statement, income tax returns and statement that the due tax has been paid. Further the automated system of the NCCPL will be audited on a quarterly basis and the NCCPL will submit quarterly statements to FBR relating to the CGT.

Performance of Karachi Stock Exchange

A total of 591 companies were listed at the Karachi Stock Exchange (KSE) as of May 04, 2012 with a total listed capital of Rs1,059.087 billion. The aggregate market capitalization as on May 04, 2012 stood at Rs. 3,730.489 billion which remained below 18.1 percent of the provisional estimates of GDP, fiscal year 2012.

Market performance in terms of volumes also remained sluggish during the first half of the 2011-12 but volumes gathered pace in the 3rd

quarter. The average daily volume for the nine months was 108.21 million shares.

The investment by foreign investors in the capital markets during the period from July 2011 to March 2012 depicted a net outflow of USD 176.303 million.

Table 6.1: Profile of Karachi Stock Exchange Description 2007-2008 2008-2009 2009-2010 2010-2011 2011-12

(end March 2012)

Total listed companies 652 651 652 639 591

New companies listed 7 8 8 1 3

Fund mobilized (Rs. in billion) 62.88 44.95 111.83 31.04 107.29

Total Listed Capital (Rs. in million) 706,419.98 781,793.81 909,893.67 943,732.85 1,058,455.26

Total Market Capitalization (Rs. in million) 3,777,704.89 2,120,650.87 2,732,373.61 3,288,657.32 3,528,143.84

Total Shares Volume (million) 63,316.12 28,332.78 42,959.12 28,018.14 23,633.28

Average Daily Share volume (million) 256.34 115.64 172.53 111.63 127.75

Source: Karachi Stock Exchange

The closing value of KSE 100-index as on May 07, 2012 stood at 14,617.97 points registering a growth of 17.04 percent as compared to July 01, 2011 when the index stood at 12,484.17 points. It

also touched its highest level of 14,617.97 points on May 07, 2012 and lowest level of 10,842.26 points on August 23, 2011.

(1,200,000)(1,000,000)

(800,000)(600,000)(400,000)(200,000)

0 200,000 400,000 600,000

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

(Jul

-Mar

)

US

000

$

Fig-1: Net Inflow of Foreign Investment


84

Table 6.2: Leading Stock Market Indicators on KSE (KSE-100 Index: November (1991=1000) Months 2010-11 2011-12

KSE Index (end month)

Market Capitalization(Rs. Billion)

Turnover Of shares (billion)

KSE Index (end month)

Market Capitalization (Rs. Billion)

Turnover Of shares (billion)

July 10,519.02 2,992.5 1.5 12,190.37 3,247.4 1.2August 9,813.00 2,781.3 1.2 11,070.58 2,938.0 1.0September 10,013.31 2,810.3 1.2 11,761.97 3,125.8 1.4October, 10,598.40 2,943.1 2.2 11,868.88 3,119.1 1.8November 11,234.76 3,113.8 2.3 11,532.83 3,022.6 0.9December 12,022.46 3,324.4 2.9 11,347.66 2,960.1 0.8January 12,359.36 3,392.6 3.6 11,874.89 3,064.0 1.6February 11,289.23 3,109.9 1.8 12,877.88 3,317.7 3.9March 11,809.54 3,181.1 2.2 13,761.76 3,501.8 7.0April, 12,057.54 3,2241.8 1.6 13,990.38 3,548.9 6.6May 12,123.15 3,249.9 1.6 June 12,496.03 3,315.8 1.7 Source: Karachi Stock Exchange

9000

10000

11000

12000

13000

14000

15000

Fig-2: KSE Index

25002700290031003300350037003900

Fig-3: Market Capitalization

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85

Various steps are being taken by the SECP to encourage new listings. These include the following:

The management of unlisted public companies is being approached through stock exchanges to motivate them for listing at the stock exchanges. An initial public offering (IPO) summit has also been organized to identify potential IPOs and to attract them to list their companies on the stock exchanges.

Various regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached so that their regulated entities can be motivated for listing.

Formation of a technical committee, comprising members from all the three stock exchanges and the commission to take necessary steps for encouragement of new listing. Such steps include review of the existing regulatory framework for new listing; introduction of venture/SME board for listing of small capital based companies and venture companies; amendments in the listing regulations for reviewing the minimum allocation of capital to the general public; devising a procedure for allocation of capital to various categories of applications during IPOs, and bringing uniformity in the listing regulations of all the three stock exchanges of Pakistan.

Sector wise Performance

Oil and gas Sector, food producers, chemicals, construction and materials were the outperforming sectors during the current year. Performance of some of the major sectors is mentioned below.

Oil and Gas

In this sector 12 companies are listed at the Karachi Stock Exchange. In addition to the oil and gas exploration companies, oil marketing companies and refineries are also listed in this sector. Due to global increase in prices and higher consumption, Pakistan’s oil and gas sector has also shown good profits, and continued to be the major market player. In the year 2011 the total profit before tax was Rs. 196,116.97 million, whereas profit after tax was Rs. 134,496.29 million. In the

year 2010 the profit after tax was Rs. 104,249.82 million. As on March 31, 2012 the total market capitalization of this sector was Rs. 1,186,015 million as against total paid up capital of Rs. 74,537.225 million.

Chemicals

Within this sector 32 companies are listed, with total paid up capital of Rs. 95,480.23 million and the market capitalization was Rs. 393,536.80 million. The profit after tax of this sector was Rs. 49,515.7 million. Six fertilizer manufacturing companies are included in this sector which has earned good profits during the year. These include Engro Chemicals, Fatima Fertilizer Company, Fauji Fetilizer Company and Fauji Fetilizer Bin Qasim etc.

Construction and Materials

This sector comprises of 36 companies, with total listed capital of Rs. 77,003.96 million and the market capitalization of Rs.113,500.56. On the back of higher cement prices and increase in local demand the sector also showed growth which translated into good financial results compared to last year. In 2011 the total loss after tax has come down to Rs.404.275 million as against total loss of Rs. 6,107.25 million in year 2010.

Automobile and Parts

The sector comprises of 16 companies with the total paid up capital of Rs. 6,940.80 million and the total market capitalization was Rs. 43,857.87 million. The sector posted total profit of Rs. 4,519.86 million in year 2011. Automobile sales also picked up in spite of increase in prices of locally manufactured cars.

Personal Goods

This is the largest sector with 188 companies (mostly related to the textile sector) with a listed capital of Rs. 54,366.23 million and market capitalization of Rs. 54,366.23 million. The total profit after tax of this sector was Rs. 26,807.96 million.

Fixed Line Communication The sector comprises of 5 companies which includes PTCL with capital of Rs. 51,000 million.


86

The total paid up capital of this sector is Rs. 68,858.86 million and the market capitalization of Rs. 51,638.25 million. The total profit after tax was Rs. 2,828.473 million in year 2011.

Food Producers

This sector comprises of 57 companies (mostly sugar related) with total paid up capital of Rs. 20,476.29 million and market capitalization of Rs. 383,406.15 million. The profit after tax of this sector was Rs.16, 462.50 million in year 2011.

Commercial Banks

The sector comprises of 23 listed banks with listed capital of Rs. 382,507 million and market capitalization of Rs. 774,521.13 million. The total profit after tax of this sector increased to Rs. 104,213.46 million from Rs. 65,060.58 million in year 2010.

Pharmaceuticals and Bio Tech

The sector comprises of 9 listed pharmaceutical companies with paid up capital of Rs. 4,955.77 million; whereas the market capitalization was Rs. 33,509.46 million. The total profit after tax of this sector was Rs. 4,041.26 million.

Performance of some Blue Chips

During July-March 2011-2012, the total paid up capital of fifteen big companies (Oil & Gas Development Company Limited, Pakistan Petroleum Limited, Nestle Pakistan Limited, Fauji Fertilizer Company Limited, Habib Bank Limited, MCB Bank Limited, Pakistan Oilfields Limited, Unilever Pakistan Limited, National Bank of Pakistan, United Bank Limited, Allied Bank Limited, FATIMA Fertilizer Limited, Fajui Fertilizer Bin Qasim limited, Hub Power Company Limited and Pakistan Telecommunication Limited) was Rs. 215.87 billion, which constituted 20.7 percent of the total listed capital at KSE.

These fifteen companies earned a profit after taxation of Rs.248.19 billion in the fiscal year up to March 2012. Out of the total profit after tax, the share of OGDCL and PPL was Rs. 94.98 billion representing 38.3 percent of the fifteen big companies. For the period ending March 31, 2012, earnings per share for the top rated companies ranged from a 1.46 in the case of PTCL to 307.98 in respect of Unilever Pakistan. This indicates that the business environment in the current fiscal year has improved considerably for the blue chip companies (Table 6.3).

Table 6.3: Price to Earnings Ratio of Top Fifteen CompaniesName of Company Profit After

Tax in (Rs. billion)

Paid up Capital

(Rs. billion)

EPS Market Price (Rs.)

March 31, 2012

PE ratio Market Capitalization

(Rs. billion)

Oil & Gas Development Company Limited

63.53 43.01 14.77 167.66 11.35 721.09

Pakistan Petroleum Limited 31.45 11.95 26.31 182.79 6.95 218.43Nestle Pakistan Limited 4.67 0.45 102.94 4447.00 43.20 201.67Fauji fertilizer Company Limited 22.49 8.48 26.52 124.84 4.71 105.88Habib Bank Limited 20.74 11.02 18.82 111.37 5.92 122.74MCB Bank Limited 19.42 8.36 23.23 175.44 7.55 146.71Pakistan Oilfields Limited 10.82 2.37 45.72 365.24 7.99 86.40Unilever Pakistan Limited 4.09 0.66 307.98 5601.00 18.19 74.46National Bank of Pakistan 17.60 16.82 10.47 45.62 4.36 76.30United Bank Limited 15.50 12.24 12.66 76.68 6.21 93.18Allied Bank Limited 10.14 8.60 11.79 63.92 5.42 54.99FATIMA Fertilizer Limited 4.12 20.00 2.06 23.72 11.52 47.44Fajui Fertilizer Bin Qasim limited 10.77 9.34 11.53 41.57 3.61 38.83The Hub Power Company Limited 5.42 11.57 4.69 37.63 8.03 43.54Pakistan Telecommunication Limited

7.43 51.00 1.46 12.31 8.45 62.78

Source: Karachi Stock Exchange

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Performance of Lahore Stock Exchange

The top market indicators witnessed an encouraging trend at the Lahore Stock Exchange (LSE). The turnover of shares on the LSE during Jul-March, 2011-12 was 0.587 billion shares compared to 0.923 billion during the same period last year. The total paid-up capital with the LSE increased from Rs. 888.2 billion in June, 2011 to

Rs. 981.7 billion in March, 2012. The LSE25 index which was at 3,051.1 points level in June, 2011, increased to 3,707.6 points in March, 2012. The market capitalization of the LSE has increased from Rs. 3,166 billion in June, 2011 to Rs. 3,294.1 billion in March, 2012. Two new companies were listed with the LSE during Jul-Mar 2011-12 in addition to listing of seven Open End Funds and one TFC and Bond during the same period.

Table 6.4: Profile of Lahore Stock Exchange 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

(Jul-Mar) Total Number of Listed Companies 520 514 511 510 496 460New Companies Listed 10 2 9 25 9 2Fund Mobilized (Rs billion) 38.8 29.7 32.8 67.5 18.1 5.5*

Listed Capital (Rs billion) 594.6 664.5 728.3 842.6 888.2 981.7Turnover of Shares (billion) 8.2 6.5 2.7 3.4 1.1 0.6LSE 25 Index 4,849.9 3,868.8 2,132.3 3092.7 3,051.1 3,707.6Aggregate Market Capitalization (Rs billion) 3,859.8 3,514.2 2,018.2 2622.9 3,166.0 3,294.1

* : Funds mobilized through Right issues. Source: Lahore Stock Exchange Performance of Islamabad Stock Exchange

The Islamabad Stock Exchange (ISE) witnessed a mixed trend during the first nine months of 2011-12. The ISE-10 index started at 2,722.8 points on July 01, 2011 and closed at 2,821.9 points level at the end of March, 2012 showing an increase of 99.1 points (3.6 percent). The highest level of the

index 2,907.97 was witnessed on March 05, 2012 as compared to the lowest level of 2,302.8 as on August 23, 2011. The average daily turnover of shares in the ISE during Jul-March, 2011-12 was 0.11 million shares as compared to 0.14 million shares during 2010-11. ISE index however increased to 2,942.01 points on May 07, 2012.

Table 6.5: Profile of Islamabad Stock Exchange 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

(Jul-Mar) Number of Listed Companies 246 248 261 244 236 254New Companies Listed 12 7 15 2 - -Fund Mobilized (Rs. billion) 30.7 24.6 24.8 76.7 17.8 20.8Listed Capital (Rs. billion) 488.6 551 608.6 715.7 727.0 830.5Turnover of Shares (billion) 0.2 0.6 0.3 0.2 0.04 0.01ISE 10 Index 2,716 2,749.6 1,713 2,441.2 2,722.8 2,821.9Aggregate Market Capitalization (Rs billion) 3,060.6 2,872.4 1,705.1 2,261.7 2,621.1 2,824.4Source: Islamabad Stock Exchange

The total funds mobilized during Jul-Mar, 2011-12 in the three stock exchanges amounted to Rs. 133.6 billion compared to Rs. 66.9 billion in the last fiscal year. The total turnover of shares in the three stock exchanges during the first three quarters of the current fiscal year was 24.24 billion shares,

compared to 29.16 billion shares during the last financial year.

Corporatization and Demutualization of Stock Exchanges

The Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, was


88

promulgated with the signing of the bill by the President of Pakistan on May 7, 2012. The demutualization bill was approved on March 27, 2012, in a joint session of the Parliament.

The demutualization law provides a framework for the corporatization, demutualization and integration of the stock exchanges and had been drafted by the SECP after consensus with all the stakeholders. The law requires the stock exchanges to be demutualized within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualization exercise.

At present, the Pakistan stock exchanges are operating as non-profit companies with a mutualized structure wherein the members have the ownership as well as trading rights. This structure inherently creates conflict of interest as members predominantly control the affairs of the stock exchange which results in lack of transparency in the operations of the stock exchange and compromises investors’ interest. Also, due to lack of resources our exchanges have not been able to grow to the expectations of investors, as trading activity is mostly concentrated of these exchanges with the dominant share going to the Karachi Stock Exchange.

Corporatization and demutualisation of stock exchanges would entail converting the stock exchanges’ structure from non-profit, mutually owned organizations to for-profit entities owned by

shareholders. Demutualization would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading and ownership rights.

Demutualization will assist in expansion of market outreach, resulting in larger number of investors, improved liquidity and better price discovery. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualization will also facilitate consolidation of brokers leading to financially strong entities.

Demutualization is a well-established global trend and almost all stock exchanges worldwide operate in a demutualized set up. The enactment of this law will bring the Pakistan capital market at par with other international jurisdictions such as India, Malaysia, Singapore, the US, the UK, Germany, Australia, Hong Kong, and Turkey.

Listing Guide Book

In order to facilitate the issuers/offerers of securities and to create awareness among the general public about the process of initial public offerings (IPOs), a listing guide book (LGB) has been published by the SECP. LGB not only contains general information about the purpose and benefits of listing but also contains all major legal requirements applicable to IPOs and listings.

Box-1 Measures to encourage New Equity Listings:

Various steps are being taken to encourage new listings which include the following:

The management of unlisted public companies is being approached through stock exchanges to motivate them for listing at the stock exchanges. An IPO Summit has been organized to identify potential IPOs and to attract them to list their companies on the stock exchanges

Various regulatory bodies such as PTA, OGRA, DGPC, PPIB, SBP and BOI have been approached so that their regulatees can be motivated for listing

Formation of a technical committee, comprising members from all the three stock exchanges and the commission to take necessary steps for encouragement of new listing. Such steps include

o revision of the existing regulatory framework for new listing o introduction of SME board for listing of small capital based companies and venture

companies o amendments in the listing regulations for reviewing the minimum allocation of capital to the

general public

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89

o devising a procedure for allocation of capital to various categories of applications during IPOs, and

o bringing uniformity in the listing regulations of all the three stock exchanges of Pakistan

Global Stock Markets

During fiscal year 2011-12, the leading stock markets indices of the world observed mixed trends. Some of the markets witnessed negative growth ranging from 18.1 percent (China) to 3 percent (UK). Whereas major stocks which observed positive growth include, Philippines (19.03 percent), Pakistan (10.13 percent), US S&P

500 (6.65 percent), Indonesia Jakarta composite (5.99 percent) and Tokyo Nikkei 225 (2.72 percent). It may be noted that compared with the other world indices, the Pakistan stock market performed well during the current fiscal year. This was mainly due to the steps taken by the current government to boost the confidence of the equity market investors which included reforms in the Capital Gains Tax, etc.

Table 6.6: Global Stock Indices during June 30, 2011 to March 2012

Index Date Change June 2011-Mar

2012 Local Currency V/s

US$ 30-Jun-2011 31-Mar-2012 Points % 30-Jun-2011 31-Mar-2011

KSE 100 Index 12496.03 13,761.76 1265.73 10.13 85.95 91.02Philippines PSE Composite 4291.21 5,107.73 816.52 19.03 43.33 42.90Jakarta Composite 3888.57 4,121.55 232.98 5.99 8,570.00 9,138.00Kuala Lumpur KLSE Composite 1579.07 1,596.33 17.26 1.09 3.02 3.06US S&P 500 132064 1,408.47 87.83 6.65 - New Zealand NZX 50 3448.35 3,509.55 61.20 1.77 1.21 1.22UK FTSE100 5945.70 5,768.50 -177.20 -2.98 0.62 0.62Australia AORD 4659.80 4,420.00 -239.80 -5.15 0.93 0.97Seoul Composite 2100.69 2,014.04 -86.65 -4.12 1,068.88 1,131.95Tokyo Nikkei225 9816.09 10,083.56 267.47 2.72 80.73 82.84Singaporer Strait times 3120.44 3,010.46 -109.98 -3.52 1.23 1.26Hong Kong Hang Seng 22398.10 20,555.58 -1842.52 -8.23 7.78 7.77Bombay Sensex 18845.87 17,404.20 -1441.67 -7.65 44.70 50.87Taiwan T.weighted 8652.59 7,933.00 -719.59 -8.32 28.79 29.53China Shanghai Comp 2762.08 2,262.79 -499.29 -18.08 6.46 6.30Source: Karachi Stock Exchange Debt Capital Markets

The importance of a sound and diversified financial sector, which efficiently performs the function of financial intermediation, can hardly be overemphasized. However, it has been observed over the years that Pakistan’s economy relied mostly on the banking system to meet the financing needs of the economy, whereas the capital markets developed relatively slowly. In Pakistan, within the overall capital markets, equity markets have grown more significantly. During the past few years the significance of debt markets and in particular, the bond markets has been realized as a complementary source of finance. Notably, the

government has a ‘market-completion’ role in the development of the debt market. As the primary issuer of sovereign bonds of various tenors, the government effectively establishes the benchmark for the pricing of private sector debt instruments. In most Asian countries, as in Pakistan, the bond market is dominated by government bonds.

The major drivers of financial assets in Pakistan are deposits and government bonds, whereas corporate bonds remain a very small portion. Pakistan Investment Bonds (PIBs) remain the longest tenor sovereign bonds, providing the benchmark yield curve for private issuances. The National Savings Schemes (NSS), on the other


90

hand, with tenors up to 10 years, provide risk-free investment options to retail and institutional investors.

Government Securities

Pakistan Investment Bonds (PIBs) are long term bonds issued by the Government of Pakistan and sold through the State Bank of Pakistan via periodic auctions. These are long term Bonds issued by the Government of Pakistan, offering a risk free investment to the bond holders at premium interest rates depending on the maturity of the bond. PIBs are issued with tenors of 3, 5, 7, 10, 15, 20 and 30 Years. Backed by the government, they present a low risk long term investment option. The Pakistan Investment Bonds offer a fixed semiannual coupon and repayment of principal at maturity. They are highly liquid Statutory Liquidity Requirement (SLR) eligible securities that are actively traded in the secondary market. The minimum denomination of PIBs is Rs.100, 000.

The government conducted fourteen auctions of PIBs in 2009-10, seven in 2010-11 and seven in 2011-12 (Jul-Mar) raising Rs. 64.7 billion, Rs.169.291 billion and Rs. 159.246 billion respectively.

A well-developed corporate bond market is essential for the growth of the economy as it provides an additional avenue to the corporate sector for raising funds for meeting their financial requirements. During the period under review July-December 2011 two listed debt instruments were offered to the general public i.e. offering Rs. 2 billion Term Finance Certificates (TFC) with a Greenshoe Option of Rs. 1 billion by Engro Corporation Ltd and offering Rs. 1.5 billion TFCs by Summit Bank Limited. The TFCs by Engro Corporation Ltd., were offered to retail investors only whereas, TFCs offered by Summit Bank Ltd., were offered to both institutional and retail investors. TFC Issue by Engro Corporation Ltd., was oversubscribed, whereas, TFC Issue by Summit Bank Ltd., was under subscribed.

Table 6.7: Listing of Debt Instruments during July 2011 to March 2012 S.No. Name of the Company Floated on Formal Listing

Date Listed at Issue Size:

(In billion rupees)

i. Engro crop. Ltd. (2nd Issue) (2nd issue-Engro Rupiya Certificate)

June 01,2011- August 31,2011

November 04, 2011 KSE LSE

2.00

ii. Summit Bank Limited October 27, 2011 01-Dec-11 KSE 1.50TOTAL 3.50

Source: Securities Exchange Commission of Pakistan

Further, in addition to the above, during the period July 2011 to March, 2012 a total of five debt

securities issued through private placement were reported. The details of these privately placed corporate debt issues are as follows:

Table 6.8: Debt Securities issued through Private Placement during July 2011 to March 2012 S. No. Name of Security No. of Issues Amount

(In billion rupees) i. Private Placed Term Finance certificate) 01 1.00ii. Sukuk* 04 112.29iii. Commercial Papers 01 0.21 Total 06 113.51*includes two Sukuk Issues of Rs.108.393 billion by Pakistan domestic Sukuk company Limited. Source: Securities Exchange Commission of Pakistan

As of March 31, 2012 a total of 131 corporate debt securities were outstanding with an amount of Rs.

500.433 billion. Details are presented in Table 6.9 below:

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91

Table 6.9: Debt Securities Outstanding as on March 31, 2012 S. No. Name of Security No. of Issues Amount outstanding

(In billion rupees) i. Listed Term Finance Certificates (L-TFCs) 37 66.51ii. Private placed term Finance certificates (PP-TFCs) 39 68.18iii. Sukuk 54 365.53iv. Commercial Papers 01 0.21 Total 131 500.43Source: Securities Exchange Commission of Pakistan

Box-2 Measures for the development of debt markets:

In order to encourage listing of debt securities on the exchanges, a separate set of regulations for debt securities are being framed

Regulatory framework for the credit rating agencies (CRAs) are being revamped so that CRAs play a more effective role in the development of the debt market. In this regard a committee, comprising of the representative of SECP and SBP and CRA has been constituted by the Commission which has been mandated with the tasks of:

o Review of the existing regulatory framework for CRAs in line with the international best practices o Strengthening of the existing regulatory Framework for CRAs viz the credit rating companies rules, 1995

and the code of conduct for CRAs dated February 17, 2005 o Review of the proposals of CRAs regarding enhancement of the rating universe o Diversification of capital structure of CRAs and their listing on the stock exchanges o Regulatory framework for establishment of a Bond Pricing Agency (BPA) o In order to rationalize the cost of issue of corporate bonds, steps are being taken to reduce the rate of stamp

duty applicable on issue and transfer of Term Finance certificates (TFCs) and commercial papers.

Development of new regulatory framework

In one of the major moves towards development of a vibrant debt market in Pakistan, the Securities and Exchange Commission of Pakistan has recently approved notification of the Debt Securities Trustee regulations (DST Regulations). The main objective of the DST Regulations is to protect the interests of debenture holders and to safeguard the breach of provisions of the Trust Deed, monitor the working of debenture trustees by calling for details regarding compliance by the issuers of the terms of the trust deed, creation of security, payment of interest, redemption of debentures and redress of complaints of debenture holders.

Development of New Regulatory Regime for Brokers

In order to ensure that standards and principles adopted in the markets conform to international

best practices, a revised market participant regime is being proposed. The proposed regime would address some of the most significant issues pertaining to the business of stock brokerage and is expected to increase the efficiency of our capital market.

Capital Market Reforms and Development Activities

During the period under review, the Securities and Exchange Commission of Pakistan (SECP) continued with its reform agenda for strengthening the Pakistani capital market with the objectives of improved risk management, increased transparency, investor protection and new product/market development. The highlights of reform measures introduced during the period under review are as follows:

o For development of the debt market, the Bonds Automated Trading System (BATS) at the


92

stock exchange was revamped along the lines of the Bloomberg-based-E-Bond with various system enhancements for facilitating the price discovery process of debt instruments and price negotiation between the market participants. Further, to facilitate investors trading in Term Finance Certificates (TFCs) listed at different exchanges, a regulatory framework was introduced for facilitating inter-exchange trades in listed TFCs. A broker-to-broker functionally was introduced in BATS which enables settlement of the inter-exchange trades directly with the National Clearing Company of Pakistan Limited (NCCPL); resulting in greater efficiency and transparency in the trading and settlement process. Also, a centralized platform was developed at the NCCPL for mandatory reporting of trades executed in the unlisted TFCs, which provides access to real-time trading information in un-listed TFCs thereby providing better price discovery and transparency.

o To fulfill the hedging requirements of various groups of investors in the commodities market, new futures contracts were introduced at the Pakistan Mercantile Exchange Limited (PMEX) in sugar, cotton, wheat, crude oil (10 barrel), silver (100 ounces), silver (10 tola) and gold (10 ounces). Further, the concept of market makers was introduced which will promote liquidity and investors’ confidence through enhanced profitability, reduced volatility in prices and efficient execution of orders.

o To ensure easy access to financing and liquidity to the market, amendments were approved to the Securities (Leveraged Markets and Pledging) rules, 2011 thereby removing practical hindrances and creating flexibility for margin financing and margin trading products. Through the amended rules, reduced cash margin requirements were prescribed and individual investors were allowed to participate as financiers in the margin trading market, along with waiver of the mandatory condition of prescribing minimum liquidity requirement for selecting securities eligible for margin financing.

o To add depth and diverse investment alternatives to the market, various new product/system development initiatives were

undertaken. In line with international best practices, Exchange Traded Funds (ETFs) were introduced at the Karachi Stock Exchange (KSE). EFTs are a globally popular investment product which allow investment in a diversified portfolio of securities tracking a benchmark index and provide investors with benefits such as trading flexibility, overall portfolio diversification and transparency.

o To implement robust Anti-Money Laundering and combating the financing of Terrorism regime in the Pakistan capital market in light of the Financial Action Task Force (FATF) recommendations and international best practices, effective Know-Your-Customer (KYC) and Customer-Due-Diligence (CDD) policies and procedures were introduced for the capital market and its intermediaries.

o To ensure improved monitoring of internet trading activities offered by the brokers, internet trading regulations were approved for KSE which comprehensively cover various aspects while effectively addressing issues unique to this segment including risk management and privacy of investors’ accounts.

o To strengthen monitoring and compliance by market intermediaries with the applicable regulatory provisions and to improve enforcement power of the regulators, regulations governing system audit of the brokers of KSE were revamped with major changes in the brokers’ audit process and scope.

National Savings Schemes

Central Directorate of National Savings (CDNS) is engaged in making innovative efforts to promote a saving culture in the country. The CDNS offers attractive saving products to various categories of people to suit their specific needs. CDNS is currently engaged in restructuring of the CDNS to better cater for the needs of the investors and introduce more profitable products. Focus is on introducing short term saving certificates and expansion of CDNS network not only across the country but also to overseas Pakistanis. Details of the investment made in the saving schemes are given in Table: 6.10.

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Table 6.10: National Savings Schemes (Net Investment) (Rs. Billion)

S.No. Name of Scheme 2007-08 2008-09 2009-10 2010-11 2011-12 (Jul-Mar)

1 Defence Savings certificates (4,317.43) (27,411.28) (32,493.15) 9,748.10 4,656.642 National Deposit Scheme 0.05 (2.71) (0.13) (1.01) (0.71)3 Khaas Deposit Scheme (6.99) (1.64) (3.84) (2.62) (0.26)4 Premium Saving Certificate -- -- -- -- --5 Special Savings Certificates(R) 13,800.57 128,469.03 61,856.60 43,960.21 (24,189.99)6 Special Savings Certificates(B) (0.18) (8.53) (0.30) (0.74) (0.70)7 Regular Income Certificates (273.53) 40,094.28 44,538.27 46,946.79 31,419.748 Bahbood Savings Certificates 38,799.69 78,537.96 59,267.18 61,731.56 38,128.519 Pensioners’ Benefit Account 18,695.93 22,215.74 18,166.85 17,940.32 11,107.8510 Savings Accounts 8,989.12 (10,899.15) 1,021.30 (625.30) 1,566.09

11 Special Savings Accounts 5,521.48 21,627.05 31,375.53 14,240.79 3,331.2612 Mahana Amdani Accounts (24.97) (50.03) (195.73) (77.94) 61.6213 Prize Bonds 8,277.07 14,649.97 38,556.68 41,083.40 41,314.3214 National Savings Bonds -- -- 3,625.16 -- -- Total 89,460.81 267,220.71 225,714.46 234,943.98 107,484.37Source: Central Directorate of National Savings Mutual Funds

The period July 2011 to March 2012 marked a substantial rise in mutual funds with total assets of the industry surging by 24 percent from Rs. 290 billion to Rs. 400 billion. As of March 31, 2012, the number of mutual funds in the industry stood at 146 compared to 137 in June 2011. The upward trend in the assets of the mutual funds industry is primarily attributed to soaring investment in money market and capital protected funds since the industry continues to be predominantly risk averse. Though the equity markets have depicted a bull run in the current financial year, equity funds have not been very successful in attracting substantial inflows. Influx in income funds is expected to remain subdued so long as the debt market is revitalized.

During the period July-March, 2011-12, the Securities Exchange Commission of Pakistan, in its continuous efforts to curb money laundering, issued a circular on reporting/submission of suspicious transaction/currency transaction by Non Banking Finance Companies (NBFCs) to the Financial Monitoring Unit under the Anti-Money

Laundering Act 2010. Further, SECP to facilitate the industry, brought about significant amendments in the Non-Banking Finance Companies and Notified Entities Regulations, 2008. Some of the important amendments made included the following:

o Registration of trustee to bring it within the regulatory ambit

o Eliminating the seed capital requirement for new funds

o Empowering unit holders of a mutual fund to change its management rights in case redemption of units is suspended beyond fifteen days, and

o Enhanced oversight by trustee of a mutual fund in line with best international practices.

Furthermore, the SECP also allowed equity-oriented mutual funds to invest in all kinds of futures contracts to effectively achieve their investment objectives. This measure was also taken in anticipation of its potential impact on growth and development of the futures market.


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Table 6.11: Major highlights of mutual funds during February 2012 Total assets of Industry* Rs. 399 billion*Total number of funds* 128Total number of AMCS/IAs* 24Assets Size of AMCs/IAs* Rs. 43.136 billionDiscretionary /Non-discretionary portfolio Rs. 44 billionFunds launched during the month -Source: Securities Exchange Commission of Pakistan *include assets under management of Arif Habib and MCB amounting to Rs.34.9 billion. Modaraba

The modaraba sector has an established legal framework that allows it flexibility to provide a wide range of financial products and services under the tenets of Islamic shariah which reflect the innovative and dynamic nature of the industry. Modarabas have played a vital role in the development and growth of Islamic modes of financing in the country and the capital markets since their inception in 1980. Most of the Modarabas in Pakistan are doing business in the financial sector while a few are engaged in the industrial, trading or other services sectors. Like any other industry, modarabas create a distinctive value proposition that meets the needs of its customers.

Despite the prevailing financial and economic crises in the country, most of the modarabas continued to perform well and record profits. Currently, 40 registered modaraba companies are in existence and the total number of operational modarabas are 26. As per the quarterly financial statements of modarabas, as on February 29, 2012, the aggregate paid-up fund of modarabas was Rs. 8.896 billion. The total assets of the modaraba sector stood at Rs. 26.757 billion against Rs. 26.392 billion in June, 2011. Similarly, total equity of the modaraba sector was Rs. 11.486 billion (inclusive of revaluation reserves) compared to Rs. 11.560 billion during June, 2011.

In order to improve the financial standing and image of modarabas in the financial sector of the country, the SECP, after detailed consultation with stakeholders and industry experts, introduced “Shariah compliance and Shariah audit Mechanism” for modarabas. These will strengthen the Shariah compliance by modarbas and help them to be recognized as true Islamic financial institutions in the financial sector. In terms of the

said mechanism, the modarabas are required to appoint independent Shariah advisors who would provide necessary guidance to the management companies to carry out the business operations of modarabas in accordance with the Shariah principles. The first report of the Shariah Advisors on the affairs of modarabas will be disseminated to the stakeholders with the annual audited accounts of modarabas for the year ending June 30, 2012.

During the current financial year, the joint session of the Parliament unanimously approved the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, (Ammendment) Bill, 2009. The bill seeks to empower the Securities and Exchange Commission of Pakistan to make regulations and issue circulars, code and guidelines etc. so as to strengthen regulatory framework for the modaraba sector and enable the Commission to safeguard the interest of stakeholders in a more proactive and effective manner.

Investment Banks and Leasing Companies

Investment banking started to take root in Pakistan in the second half of the 1980s. A broad range of business services were envisaged that include money and capital market activities, project financing, corporate financial services, and operations in the call and money market. The investment banking sector showed a strong performance and continued to flourish till the mid-1990s. However, due to non-diversification of their portfolio, they could not absorb the changing economic conditions of the country. Therefore, this sector started facing severe problems and witnessed a declining trend. At present, there are only seven functional investment banks operating in Pakistan compared to 13 in 2005. Significant reasons for the downfall of investment banking sector are small capital bases with limited ability to absorb significant shocks, focus on quasi banking

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activities, maturity mismatch in their assets and liabilities, failure to develop competencies for delivering non-fund based services, high cost of funds, limited capacity to expand outreach, and the rise of universal banking.

In order to revive the investment banking sector, necessary amendments were made to the regulatory framework to allow investment banks to undertake brokerage business from their own platform instead of forming a separate company. The objective was to encourage investment banks to focus on providing non-fund based services; to play a crucial role in the capital market; to promote corporate brokerage houses culture; and, to address the corporate governance issues in the brokerage industry. Presently, the possibility of introducing an appropriate regulatory regime for non-deposit-taking and non-listed Non Banking Finance Companies and ensuring that only licensed entities engage in investment banking activities are being explored for reviving the investment banking sector.

Table 6.12: Financials of Investment Banks in February, 2012

Particulars Amount (Rs in millions)

Total Assets 18,273Total Equity 3,300 Total Deposits 7,040Source: Securities Exchange Commission of Pakistan

Leasing is a mature business model. However, the leasing sector in Pakistan has been facing a multitude of challenges like liquidity issues, low capitalization, limited sources for resource mobilization, high cost of funds, high level of non-performing assets and limited outreach. Several important amendments to the applicable regulatory framework have been made over a period of time in order to promote this sector. During 2011, an important amendment was made in the Non Banking Finance Compinies & Notified Entities (NBFC & NE) Regulations, 2008 i.e. deleting the condition that requires a leasing company to fix the period of finance lease for not less than three years. The amendment is expected to increase in the business volumes of leasing companies as they will be able to entertain customers who desire a shorter lease period and finance assets with a shorter

economic life. The total number of active leasing companies was 9 as of February 29, 2012.

Table 6.13: Financials of Leasing Companies in February, 2012

Particulars Amount (Rs in millions)

Total Assets 34,242Total Equity 4,566 Total Deposits 5,650Source: Securities Exchange Commission of Pakistan

Voluntary Pension System

The last two decades witnessed pension reforms globally. In high-income countries, the driving force has been the threat that the current pension system will become unaffordable as demographic developments presented a major risk. The countries that were in the process of transition from a controlled economy to a market economy confronted the challenge of introducing a public pension system in place of social security available to their populace under the socialist system. However, again the demographic change and affordability have been the driving force for reforms in these countries. It is anticipated that Pakistan shall also face similar challenges in the near future. Lately, the government has been considering reforming the current pension system. Luckily, the dependency ratio at this point of time is extremely favourable for Pakistan to shift from a defined benefit system to a defined contribution system. While reforms at the national level will take some time, the SECP has introduced Voluntary Pension System (VPS), with the approval of the government. VPS envisages contributions by Pakistani nationals in a pension fund approved by the SECP. The pension fund promises a stream of income to its members after retirement. The government has given tax incentives to individuals under the current tax regime.

The penetration of VPS is low at the moment because these are still new to Pakistan and non-binding upon employers and individuals. It is hoped that, with the passage of time and complementary reforms in defined benefit retirement schemes, the system would gain a foothold and acquire substance. So far, 11 pension funds have been launched under VPS.


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Table 6.14: Growth of Pension Funds since 2007

Date No. of pension funds

Net assets in Rs. million

30-JUN-07 4 42030-JUN-08 7 76630-JUN-09 7 87030-JUN-10 9 1,30130-JUN-11 9 1,55731-DEC-11 11 1,82929-FEB-12 11 1,979Source: Securities Exchange Commission of Pakistan

Before June 2011, the maximum limit for tax credit for savings through VPS to individuals was up to Rs. 500,000 of taxable income. In the last budget the limit has been increased up to 20 percent of taxable income. The limit is still lower than that available to those employed in private or public sector institutions. To encourage funding of retirement schemes VPS needed to be made interchangeable with other retirement schemes, provident fund, and gratuity and superannuation funds. This will encourage funded schemes leading to accumulation of assets and efficient deployment of retirement savings.

REIT

Real Estate Investment Trusts (REITs) provide property owners an opportunity to securitize their properties. It also provides the investors with small capital base an opportunity to invest in the real estate assets. Currently there are two REIT management companies, operating in Pakistan. Keeping in view the macroeconomic indicators, the SECP has taken necessary measures to attract entrepreneurs to venture into the regulated real estate business. Amongst these, amending the REIT regulations in 2010 was one notable initiative. Significant amendments included reduction of fund size, introduction of hybrid REITs and reduction in share capital for the REIT management companies (RMCs). However, these measures still proved inadequate in attracting high yield properties into REITs. To improve the regulatory framework a committee has been formed which includes the leading market players. This committee will review the REIT models in different jurisdictions and suggest an appropriate regulatory model for our market. Currently, work of the committee is in progress.

Box-3 Future Road Map

In consultation with relevant stakeholders, a comprehensive three-year Capital Market Development Plan (2012-14) has been drafted. The plan envisages introduction of key structural and regulatory reforms, development of equity, derivative, debt, commodities and currencies markets, development of Shariah-compliant investment alternatives, and measures for improving governance, risk management, efficiency and transparency in capital market operations. Efforts are underway for achieving the plan’s objectives within timelines provided, most important of which are given below: The Stock exchanges (Corporatization), Demutualization and Integration Bill has been approved in the joint

session of Parliament in March 2012. The bill provides a framework for the corporatization, demutualization and integration of the stock exchanges. Demutualization would result in enhanced governance and transparency at the stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial and regulatory functions and separation of trading rights and ownership rights. It will also assist in expansion of market outreach, resulting in larger number of investors, improved liquidity and better price discovery at the stock exchanges. A demutualized stock exchange will be in a better position to attract international strategic partners and good quality issuers. Demutualization will also facilitate consolidation of brokers leading to financially strong entities. The SECP, along with the stock exchanges, is in the process of ensuring that subsequent to the enactment of the law, the activities set out therein are completed in a timely manner.

o In line with international best practices, efforts will be undertaken for NCCPL to function as Central Counter Party; establishment of a settlement guarantee fund; and transfer of risk management to NCCPL.

For developing the commodities market, the SECP may explore the possibility of allowing new commodity exchanges to function in the country, as presently the potential offered by this market segment is not being utilized to the maximum. This measure will also facilitate healthy competition and business generation in this segment while contributing towards greater market outreach to the investors resulting in growth in the size of the commodities market.

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For developing an Islamic capital market in line with global best practice, the SECP is contemplating the establishment of a Shariah Board comprising of eminent Islamic scholars and market professionals to ensure that all products/services offered under this umbrella are in conformity with the Shariah principles. Also, efforts will be made for consideration of existing Islamic institutions and development of innovative Shariah compliant institutions, products and services in order to deepen the capital market.

Regarding new product/system development, the future SECP agenda includes introduction of trading in index option to provide investors with avenues to develop better investment and hedging strategies. Also, to boost activity in index futures market, dialogue will be initiated with foreign stock exchanges for cross listings of foreign indices at Pakistani stock exchanges. For investors in the commodities segment, efforts will be made for introduction of new futures contracts in commodities like cotton seed, oilcake, crude palm oil and maize, and rolling currency contracts on foreign currency exchange rate pairs. Also, work is underway for establishment of a collateral management company that would have a national network of approved warehouses with storage, grading/certification capabilities for commodities market.

To accelerate growth in the debt market, endeavors will be made for listing of government debt instrument at the stock exchanges and integration of National Savings Schemes instruments in to the mainstream capital market, in coordination with relevant stakeholders including the federal government and the State Bank of Pakistan. Also, to promote transparency and price discovery of debt securities and minimize pricing issues of debt securities, establishment of an independent Bond Pricing Agency (BPA) conforming to international standards, is in the pipeline. The BPA is expected to contribute towards stimulating activity in the primary and secondary debt markets, increasing market depth, reducing information asymmetry, increasing credibility of financial statements through accurate asset-liability valuation, product development etc.

From the standpoint of risk management and transparency, a Centralized KYC Agency will be established for registration and maintenance of investors’ KYC records in line with the international best practices pertaining to KYC and CDD policies. These KYC records will be available for access by all market intermediaries and this measure will assist in removing the duplication presently faced in the KYC process by bringing uniformity to the same.

Conclusions

The performance of stock markets presented a mixed trend during the current fiscal year. Various factors such as unstable law and order situation, natural disasters, rumours on the economic front pertaining to reduction in military and civil aid from international donors, the Pak rupee depreciation and increasing fiscal deficit of the government have all contributed to the underperformance of the capital market during first half of current fiscal year. However, the KSE-100 index resumed its momentum during the 3rd quarter of the 2011-12 owing to certain encouraging measures like considerable reduction in discount

rate by the SBP during latter period of the first half of current fiscal year and increase in foreign exchange reserves. Further, the market sentiment was boosted by the proposed promulgation of the Capital Gain Tax Ordinance under which the National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the Capital Gain Tax (CGT) on listed securities. The subject Ordinance was finally promulgated on the 24th April, 2012. The government is committed to formulating timely and effective policy to spur activity in, and shore up the strength of, the capital market.

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Inflation

The global economy experienced significant financial crises in 2007-08. The financial crisis emanated in subprime mortgage loan portfolio and shocked the confidence of the international institutions and markets which in turn badly deteriorated the economic development and balance of payments across the world. In the developing countries, the crisis was seen at the time when they were already experiencing severe terms of trade and slower economic growth. The financial meltdown led to a backlash on consumer

markets and broadly on the process of investment in the production of goods and services. This coupled with spike in commodity and oil prices led to a decline in the aggregate demand and raised inflation the world over. In Pakistan the affect was felt much severely as the country was also experiencing internal security issues and compaign against terrorism. The surge in food and commodity prices witnessed during 2008-09 pushed the consumer prices index (CPI) to a record level of 25.3 percent in August 2008.

The rising trend in domestic prices in tandem with global food and fuel prices affect several macro-economic dynamics - consumption, investment, inflation, trade and fiscal balances and ultimately resulted in slow down of GDP growth.

Asian Development Bank (ADB) report of 19th March, 2012 titled “Food Price Escalation in South Asia” noted that the region suffers from a higher

overall food inflation rate than the rest of developing Asia. The report further pointed out that the region, with a large number of people already living close to the poverty line, is one of the most vulnerable regions in the world to food price shocks. The World Bank has also rated high food prices as the biggest challenge facing most developing countries. This rising trend in inflation is not specific to Pakistan. Regional inflation is

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estimated to have also risen in India, Bangladesh and Thailand (Table 7.1).

Table: 7.1 Regional Countries Food Price Inflation Pakistan India Bangladesh Thailand Sri Lanka

CPI Food CPI Food CPI Food CPI Food CPI Food Jul-11 12.4 17.1 8.4 8.2 11.0 13.4 4.1 7.2 7.4 9.3Aug-11 11.6 13.2 9.0 9.6 11.3 12.7 4.2 8.4 7.0 8.2Sep-11 10.5 9.9 10.1 9.6 12.0 13.8 4.1 8.9 6.4 6.6Oct-11 11.0 11.7 9.4 10.2 11.6 10.9 4.2 9.9 5.1 3.8Nov-11 10.2 10.0 9.3 8.5 11.6 12.5 4.1 10.2 4.7 2.1Dec-11 9.7 9.5 6.5 0.7 10.6 10.4 3.6 9.1 4.9 2.5Jan-12 10.1 9.2 5.3 -0.5 11.6 10.9 3.4 7.7 3.8 -0.2Feb-12 11.0 10.5 8.8 6.1 10.4 8.9 3.4 7.2 2.7 -4.1Mar-12 10.8 9.8 9.5 9.9 10.1 8.3 3.4 7.1 5.5 -2.5Apr-12 11.3 10.7 - - 9.9 8.1 2.7 4.9 6.1 0.2Source: PBS, BBS, Ministry of Commerce & Industry India, Bank of Thailand.

Food insecurity is a multi dimensional problem and deserves to be tackled through a multi pronged strategic approach where demand, supply and distribution factors need to be taken into account. Availability and access, two important components of food security needs to be addressed simultaneously. Food carries the largest weight in three price indices and hence influences the movement of these indices even with slight variation in prices. The most visible impact of rising food prices on the economy is acceleration of inflationary pressure. In such a situation controlling the inflation becomes unmanageable. Pakistan is experiencing double-digit inflation over the last several years mainly due to increase in prices of food.

Inflation is generally measured by the Consumer Price Index (CPI). The other measures of inflation used in Pakistan are the Wholesale Price Index (WPI) and Sensitive Price Indicator (SPI).

The Pakistan Bureau of Statistics (PBS) has changed the base year of the price indices from 2000-01 to 2007-08, which by comparison with the previous base has undergone considerable change in terms of revision to commodity groups; their weights derived from Family Budget Survey 2007-08; and, coverage of items to capture the changing pattern of consumption of the people.

The old basket of commodities in the CPI has been revised and the commodities increased from 374 to 487 items and the commodity groups from 10 to

12. The coverage of cities has also been increased from 35 to 40. Proper representation has been given to large cities (population of 500,000 and above), medium cities (population 100,000 to 500,000), medium small cities (population 50,000 to 100,000) and small cities (population below 50,000). The food group weight has been reduced from 40.3 percent to 34.8 percent and 21 items in the old basket have been dropped while 111 new items have been added. Health and Restaurant two new sub indexes have been included. The sub index of transport and communication in the old base year has been split into two separate sub groups as transport and communication group. Rent being an important component of CPI is now computed on the basis of real rental value rather than using wage rates and prices of construction materials. In the CPI series with base 2000-01, the coverage in terms of income groups is as below:

i. Up to Rs. 3000 ii. Rs. 3001 to Rs. 5000 iii. Rs. 5001 to Rs. 12000, and iv. Above Rs. 12000

In the new series with base 2007-08, the income groups have been divided into five income quintiles as under:

i. Up to Rs. 8000 ii. Rs. 8001 to Rs. 12000 iii. Rs. 12001 to Rs. 18000, and iv. Rs. 18001 to Rs. 35000 v. Above Rs. 35000

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The basket of goods that makes up the WPI has also been revised for the base year 2007-08 due to change of consumption patterns. In the current series of WPI, items are categorized into five commodity groups namely: (i) food products, beverages and tobacco, textiles, apparel and leather products (ii) agriculture forestry and fishery products (iii) ores and minerals, electricity gas and water (iv) other transportable goods except metal products, machinery and equipment (v) metal product machinery and equipment. A set of 463 items have been selected instead of 425 items to

accommodate changes in the production and sales of commodities in the wholesale market in 21 major cities instead of 18; with coverage of 112 commodities.

The SPI indicates the weekly change of prices of 53 selected items of daily use prevailing in 17 major cities as consumed by six groups (Table 7.2) whose monthly income ranges from Rs. 8,000 to Rs. 35,000 per month and an overall households (“combined”) category.

Table:7.2 Inflation by Consumer Income Groups

Combined Upto Rs.8000 Upto Rs.8001-12000

Upto Rs.12001-18000

Upto Rs. 18001-35000

Above Rs.35000

Source: Pakistan Bureau of Statistics (PBS)

The key changes in the computation of the various indices are summarized in Table 7.3 below:

Table:7.3 Price Indices in Pakistan Base Year 2007-08=10 Base Year 2000-01=100

Features CPI SPI WPI Features CPI SPI WPI Cities covered 40 17 21 Cities covered 35 17 18

Markets covered 76 53 21 Markets covered 71 53 18

Items covered 487 53 463 Items covered 374 53 425

Commodities covered 89 - 112 Commodities covered 92 - 106

No. of commodity groups 12 - 5 No. of commodity groups 10 - 5

No. of price quotations 148048 11236 2366 No. of price quotations 106,216 11236 1,550

Reporting Frequency Monthly Weekly Monthly Reporting Frequency Monthly Weekly MonthlyIncome Groups (in base year) with separate basket Six Quintile Six Quintile - Income Groups (in base

year) with separate basket Four Four -

Source: Pakistan Bureau of Statistics (PBS)

Inflationary Trends

The year 2011-12 (Jul-Apr) witnessed both demand pull and cost push inflation when viewed in the backdrop of the affects of the floods of 2010 and heavy rains in 2011, which almost wiped out the major and minor standing crops in Sindh province, created disruption in the supply chain which resulted in surging inflation. The global spikes in commodities and fuel prices also exerted pressure on domestic inflation.

Inflation on year to year basis reveals that the CPI was highest in July 2011 at 12.4 percent. However, in December 2011 it declined to single digit at 9.7

percent. Thereafter it increased steadily and reached 11.3 percent in April 2012. Food inflation on a year to year basis was highest in July 2011 and lowest in January 2012 at 9.2 percent. Non-food inflation was lowest in July 2011 at 9.2 percent and highest at 11.6 percent in April 2012. Core inflation during the last nine months of the year remained almost at double digit levels except in July 2011 when it dropped to single digit at 9.5 percent (Table 7.4). The main factor contributing to the rise of non-food inflation was the upward adjustment of energy, gas and fuel prices.


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Table 7.4 Inflation on year on year (Y-o-Y) Basis %Change Commodity Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 CPI 12.4 11.6 10.5 11.0 10.2 9.7 10.1 11.0 10.8 11.3 Food 17.1 13.2 9.9 11.7 10.0 9.5 9.2 10.5 9.8 10.7 Non-Food 9.2 10.4 10.9 10.4 10.3 9.9 10.7 11.5 11.5 11.6 Core 9.5 10.0 10.6 10.4 10.4 10.1 10.2 10.6 10.8 10.8 WPI 20.3 18.7 17.0 15.4 12.0 8.3 8.7 7.2 4.5 3.8 SPI 12.7 11.9 8.7 8.2 5.9 5.1 6.8 8.3 8.4 9.7

The Consumer Price Index (CPI) on average basis recorded as 10.8 percent during Jul-Apr 2011-12 as compared to 13.8 percent during the same period last year. The two broad component of CPI, food and non-food inflation recorded an increase of 11.1 percent and 10.7 percent respectively during the period under review compared to 18.8 percent and 10.8 percent during Jul-Apr 2010-11. While the

Wholesale Price Index (WPI), during Jul-Apr 2011-12 recorded as 11.2 percent as against 21 percent last year. Food and non-food under WPI was noted as 6.7 percent and 13.3 percent during current period whereas it was recorded to be 23.5 percent and 19.9 percent during the same period last year. The following table and graph represent the trends in the CPI, WPI and SPI.

Table:7.5 Rate of Inflation on the basis of various price indices (Average percent)

Items 2010-11(Jul-Apr) 2011-12(Jul-Apr) A Consumer Price Index 13.8 10.8 Food 18.8 11.1 Non-Food 10.8 10.7B Wholesale Price Index 21.0 11.2 Food 23.5 6.7 Non-Food 19.9 13.3C Sensitive Price Indicator 18.1 8.5

CPI inflation during the period (Jul-Apr) 2011-12 increased by 10.8 percent on average and that of food increased by 11.1 percent. The food group with 34.8 percent weight in the CPI basket has a

considerable effect on overall prices. A slight variation in food prices has a large impact on inflation (Table 7.6).

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Fig-7.2: CPI (Food, Non-food), WPI (Food, Non-food) and SPI (Percent)

2011-12(Jul-Apr)2010-11(Jul-Apr)

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Table:7.6 Rate of Inflation on the basis of Food and Non-Food Groups

Items 2010-11(Jul-Apr) 2011-12(Jul-Apr)

A Consumer Price Index (CPI) 13.8 10.8B Food Group) 18.8 11.1C Non-food Group 10.8 10.7D Core 9.3 10.4


Both supply and demand side factors are responsible for food price escalation. These included supply disruption on account of the natural calamities during the year as well as the increase in transportation cost due to high fuel prices; on the demand side, the price hike is the consequence of the inflationary gap measured as the difference between monetary expansion and growth of overall national productivity.

The reasons for the rising food prices are manifold. The demand and supply side factors responsible for the food price hike in 2007-08 also seem to continue in the current food price hike. These include rapid economic growth in emerging countries leading to the increase in international food demand, lower agricultural productivity due

to the scarcity of water in certain regions, supply short fall in the global food markets and oil supply shocks resulting from geopolitical instability in the Middle East etc.

The non-food prices increased at a slower pace of 10.7 percent than food prices. The divergent trend is due to different factors influencing these two broad components of CPI differently, such as items coverage, nature of items and impact of seasonal variation and availability etc. Among the non–food items, the hike in fuel related items such as diesel, petrol, gas, CNG and power tariff rates pushed the production and transportation cost up thereby accelerating inflation.

Core inflation which is nonfood - nonenergy is estimated at 10.4 percent during Jul-Apr 2011-12.

Table-7.7: (Percent) Change In Price Indices

Commodity Weights On Average Basis (%) Point Contribution

July –Apr July –Apr July -Apr July –Apr 2010-11 2011-12 2010-11 2011-12

General (CPI) 100.0 13.8 10.8 13.8 10.8Food, & Non Alcoholic Beverages 34.8 18.8 11.1 6.6 3.9Alcoholic Beverages& Tobacco 1.4 11.8 7.5 0.2 0.1Non-Food 65.2 10.8 10.7 7.0 6.9

0 2 4 6 8 10 12 14 16 18 20

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Food Group)

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Fig: 7.3 Inflation by Groups

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Table-7.7: (Percent) Change In Price Indices

Commodity Weights On Average Basis (%) Point Contribution

July –Apr July –Apr July -Apr July –Apr 2010-11 2011-12 2010-11 2011-12

Non-Food Non Energy 53.5 9.3 10.4 5.0 5.6Clothing & Foot wear 7.6 11.4 14.9 0.9 1.1Housing, Water ,Elec. Gas & other Fuel 29.4 11.0 7.5 3.2 2.2Furnishing &Household Equip. Maintenance

4.2 9.2 17.4 0.4 0.7

Health 2.2 8.1 11.1 0.2 0.2Transport 7.2 11.2 15.5 0.8 1.1Communication 3.2 13.8 0.6 0.4 0.02Recreation & culture 2.0 5.3 5.7 0.1 0.1Education 3.9 6.6 12.3 0.3 0.5Restaurant & Hotels 1.2 16.5 13.7 0.2 0.2Miscellaneous 2.1 13.3 19.9 0.3 0.4Source: Pakistan Bureau of Statistics (PBS) Inflation by Income Groups

Inflation by income groups affects the consumption pattern of various income groups. The current CPI covers the consumption of those households whose monthly income ranges from Rs. 8,000 to Rs. 35,000 per month. Table 7.8

reflects the highest incidence of inflation (11.4 percent) in the highest income earning group. As already stated food carries the highest weight (34.8 percent) in consumer items. This reveals the fact that a greater portion of expenditure of an average household is spent on food whereas the prices have recently increased significantly.

Table:7.8 Inflation by Consumer Income Groups Fiscal Year Combined Upto

Rs.8000 Upto Rs.

8001-12000 Upto Rs.

12001-18000 Upto Rs. 18001-

35000 Above Rs.35000

Spliced with Base Year 2007-08 = 100 2008-09 17.0 18.0 17.8 18.1 17.6 16.8 2009-10 10.1 10.5 10.5 10.6 10.3 9.8 2010-11 13.7 14.5 14.3 13.0 14.7 13.3 Jul-Apr 2010-11 13.8 14.8 14.6 13.2 14.9 13.4 2011-12 10.8 9.8 10.2 10.3 10.6 11.4 Source: Pakistan Bureau of Statistics (PBS)

9.0

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-11

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12

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-12

Fig-3: Monthly % Change of CPI, Food and Non-Food

CPI Food Non-Food

Inflation

105

Wholesale Price Index

The wholesale price index on annual average basis has increased by 11.2 percent during (Jul-Apr) 2011-12. The increase in the food and non-food group averaged 6.7 percent and 13.3 percent respectively. The 14 major commodities covered under various sub groups of WPI contributed about 8 percent point to the overall increase in WPI. The

largest increase in wholesale prices was recorded for fertilizer at 55.5 percent, followed by furnace oil 36 percent, gram (whole), diesel and kerosene oil at 27 percent each (Table 7.9). Further analysis of the acceleration in wholesale prices reveals the considerable spike in prices of cotton, cement, vegetable ghee, fresh vegetable, milk, meat, rice and tea are the major contributory factors in the increase in WPI.

Table: 7.9 Percentage point contribution of major WPI items

Weight %Change Impact Fertilizer 2.9 55.5 1.6Furnace Oil 3.3 35.9 1.2Gram (Whole) 0.5 27.6 0.1Diesel Oil 5.3 27.3 1.4Kerosene Oils 0.2 26.5 0.1Vegetable Ghee 1.6 23.4 0.4Meat 3.5 23.8 0.8Vegetables 1.2 24.3 0.3Fresh Milk 4.4 18.5 0.8Rice 2.4 22.1 0.5Tea 0.7 18.9 0.1Cotton 1.2 15.2 0.2Soaps 0.8 17.4 0.1Cement 1.8 15.4 0.3Total 30 8.0Source: Pakistan Bureau of Statistics (PBS)

910111213141516171819

2008

-09

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pr

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Fig-7.8: Inflation By Income Groups CombinedUpto Rs.8000Upto Rs. 8001-12000Upto Rs. 12001-18000Upto Rs. 18001-35000Above Rs.35000


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Table: 7.10 (Percent) Change In Price Indices Commodity Weights On Average Basis (%) Point Contribution

July –Apr July -Apr July –Apr July –Apr 2010-11 2011-12 2010-11 2011-12

General(WPI) 100.0 21.0 11.2 21.0 11.2Agriculture Forestry & Fishery 42.1 30.7 1.6 12.9 0.7Non-Food 57.9 19.8 13.3 11.5 7.7Ores & Minerals 12.0 15.1 11.2 1.8 1.4Food Products, Beverages 31.1 23.4 6.7 7.3 2.1Other Transportable Goods 22.4 11.6 28.3 2.6 6.3Metal Products Machinery 8.7 13.1 21.4 1.1 1.9Source: Pakistan Bureau of Statistics Sensitive Price Indicator (SPI) The SPI measures the changes in weekly prices of 53 essential items. During the current fiscal year (July—April) 2011-12, the increase in SPI is estimated at 8.5 percent over the corresponding increase of 18 percent last year. An item wise review of these 53 items which can be further categorized into food, non-food, utility and transport groups, indicates that the majority of the

increase came from the increase in the prices of 11 basic items. These few items account for 40 percent of the weight in the SPI and contributed around 4.0 percent to the overall increase in the SPI. The contribution of onion is estimated at 0.6 percent, gram pulse 0.2 percent, tomatoes 0.2 percent, tea 0.4 percent, beef 0.5 percent, mutton 0.2 percent, rice 0.2 and vegetable ghee 0.1 percent (Table7.11).

Table:7.11 Essential items point contribution in SPI

Items Unit SPI Weight (% Change)

April 12/ July 11 Contribution

Onions KG 1.4 40.5 0.6Gram Pulse KG 0.6 36.4 0.2Tomatoes KG 1.2 20.1 0.2Tea (Packet ) 200 GM. 2.2 17.4 0.4Beef KG 4.3 11.7 0.5Mutton KG 2.1 10.8 0.2Rice Basmati Broken KG 1.9 8.4 0.2

0

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Fig: 7.9 Percent Change of major commodities in WPI

Inflation

107

Table:7.11 Essential items point contribution in SPI

Items Unit SPI Weight (% Change)

April 12/ July 11 Contribution

Milk Fresh LTR 16.8 7.8 1.3Veg. Ghee (Loose) KG 2.7 4.8 0.1Chicken Farm KG 3.6 3.5 0.1Cooking Oil (Tin) KG 2.3 3.5 0.1Total 40.0 4.0

The current increase in the prices of edible oil and rice represents the global price trend in the prices of these commodities and the domestic demand-supply situation. Palm oil prices in international market increased from $1,088 per ton in July 2011 to $1,152 per ton in March 2012; an increase of 6 percent. When the prices of basic inputs increase,

the overall price is bound to show an increase too. The price of rice has increased by 17.2 percent in the international market. Pakistan, being part of the global economy, cannot remain immune to such global developments on the price front. These are then reflected in the local markets.

Fig7.7

05

1015202530354045

Oni

ons

Gra

m P

ulse

Tom

atoe

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ket )

Bee

f

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ati

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)

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)

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Fig: 7.11 Change in prices of essential items in SPI (% CHANGE) April 12/ July 11

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International Prices of Major Commodities

Wheat ($/Ton)Rice ($/Ton)Sugar ($/Ton)

Crude ($/Brl)Palm Oil ($/Ton)

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Domestic Prices of Major Commodities

Wheat (Rs/Kg)Rice Basmati (Rs/Kg)Sugar (Rs/Kg)Cooking Oil (Rs/2.5 Kg)


108

A review of the price trend of essential commodities during the period (Jul-Apr) 2011-12 suggests that the current price hike is the outcome of rising food prices which influenced overall inflation. Prices of vegetable, fruit, meat and chicken (farm) etc. experienced larger increase during the period July 2011 to April 2012. The prices of essential items have increased for a

variety of reasons. The increase in price of chicken (farm), fresh milk, beef and mutton is attributable to supply shortage of these items in the market. The increase in prices of tomatoes and onion is owing to damage to the crops by the floods as well as seasonal volatility. Details of the commodity wise movement of prices are given below: (Table-7.12).

Table:7.12 Prices of Essential Items Items Unit July Aug Sep Oct Nov Dec Jan Feb Mar Apr %Change 2011 2011 2011 2011 2011 2011 2012 2012 2012 2012 Wheat Kg 25.4 25.4 25.9 26.2 26.7 27.3 27.4 27.4 27.5 27.4 7.9Wheat Flour Kg 29.7 28.6 29.7 29.9 30.2 30.7 30.7 30.8 30.9 31.0 4.4Rice Basmati Kg 57.3 58.9 58.9 59.1 59.9 59.7 59.1 59.0 60.1 62.1 8.4Rice Irri-6 Kg 43.7 44.7 45.3 45.2 45.2 45.0 45.4 45.4 46.0 46.9 7.3Masoor Pulse Kg 107.5 106.0 106.1 105.7 104.6 101.2 98.8 98.3 101.6 100.9 -6.1Moong Pulse Kg 140.3 139.5 137.1 134.0 129.6 124.3 120.9 118.8 122.5 122.6 -12.6Mash Pulse Kg 154.5 153.3 150.8 148.6 147.3 145.1 143.0 141.4 143.4 141.8 -8.2Gram Pulse Kg 72.4 72.9 72.7 72.5 71.6 71.4 70.9 75.2 97.3 98.7 36.3Beef Kg 233.7 239.8 244.6 249.1 252.2 252.2 253.5 257.1 259.6 261.0 11.7Mutton Kg 451.1 458.1 463.6 469.9 477.1 479.8 485.0 491.9 498.6 499.9 10.8Eggs Dozen 79.0 79.8 81.8 82.7 88.5 100.4 116.8 103.5 90.4 72.4 -8.4Sugar Kg 71.3 75.1 75.4 70.0 65.2 53.7 51.7 50.3 54.9 55.6 -22.0Milk Fresh Liter 55.9 56.0 56.1 56.5 57.1 57.7 57.8 58.0 59.0 60.2 7.7Veg.Ghee 2.5Kg 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5Veg.Ghee (loose) Kg 166.2 166.4 165.9 161.8 160.8 160.4 161.5 161.6 170.3 174.2 4.8Cooking oil 2.5Ltr. 495.0 495.0 495.0 495.0 495.0 495.0 495.0 495.0 497.6 512.4 3.5Potato Kg 31.6 31.0 31.4 29.4 28.5 21.8 18.6 18.3 18.9 23.5 -25.6Onion Kg 18.2 24.0 32.3 42.7 53.2 36.0 43.4 37.6 31.8 25.6 40.7Tomato Kg 41.8 36.8 47.7 76.5 78.1 61.6 49.4 43.1 33.3 50.3 20.3Red chillies Kg 253.4 252.6 283.1 313.8 319.5 318.2 316.4 311.7 307.5 308.4 21.7Tea pack 200 Gms 121.1 121.1 131.6 131.6 131.6 131.6 131.6 134.5 140.0 142.1 17.3Chicken Farm Kg 160.8 164.4 143.5 132.1 127.1 131.9 160.3 162.2 156.9 166.5 3.5Source: Pakistan Bureau of Statistics (PBS)

The prices of pulses show a mixed trend. The gram pulse presents an increase of 36 percent. This was due to the prolonged winter season and unfavourable climate resulted in delay of its supply as a result gram pulse was imported while the prices in international market were also rising. Tomato being a heavy weight item, its prices remained high during April 2012, and at one point

in time it showed an increase of 67 percent, this was due to seasonal affect as major crops of tomatoes in Sindh was destroyed. Now with the arrival of this vegetable from Punjab, a declined trend in its prices was noted in May 2012. The SPI of the last two weeks of April and first two weeks of May 2012 suggests a negative trend as given in the table below.

Table 7.13: SPI (53 Items) 2007-08=100

Week ended on

SPI for lowest income group

Percentage Change over Combined SPI

Percentage Change over prev. week

2011-12 corr. Week

2010-11 prev. week

2011-12 corr. Week

2010-11 05/04/2012 174.76 0.95 7.89 183.66 1.05 9.8712/04/2012 175.47 0.41 7.88 184.54 0.48 10.0019/04/2012 175.22 -0.14 7.29 184.36 -0.10 9.4826/04/2012 174.41 -0.46 7.03 183.53 -0.45 9.2403/05/2012 174.17 -0.14 7.90 183.31 -0.12 9.3010/05/2012 174.07 -0.06 7.55 183.28 -0.02 8.97

Inflation

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Regional Prices

Prices of essential consumer items prevailing on 10th May, 2012 in Pakistan as compared with neighboring countries including India, Bangladesh, Sri Lanka, Iran and Afghanistan indicate that prices of rice, beef, chicken (farm), sugar and red

chilies were lower in Pakistan than in the other regional countries. Prices of 08 items i.e. rice basmati, beef, mutton, chicken (farm), sugar, tomatoes, red chilies and garlic are lower in Pakistan as compared to India.

Table 7.14: Prices of Selected Essential Items in Neighboring Countries Value in Pak Rupees Items Unit Islamabad New Delhi Dhaka Colombo Tehran Kabul 10/5/2012 10/5/2012 2/5/2012 2/5/2012 15/4/2012 12/4/2012 Wheat Kg 27.8 27.2 39.1 -- -- 54.0Wheat Flour Kg 30.3 28.9 38.0 85.0 -- 58.0Rice Basmati Kg 100.1 160.5 150.7 127.5 216.8 135.0Masoor Pulse Kg 118.1 91.8 111.6 106.2 222.2 220.0Moong Pulse Kg 131.9 119.0 122.8 106.2 259.2 202.0Mash Pulse Kg 156.9 143.5 122.8 106.2 -- 276.0Gram Pulse Kg 113.8 88.4 78.1 106.2 222.2 127.0Beef Kg 280.0 283.0 290.2 368.3 1133.3 496.0Mutton Kg 556.9 567.0 502.3 708.2 1851.6 652.0Chicken Farm Kg 148.9 321.0 178.6 311.6* 318.5 309.0Eggs Dozn 85.1 83.0 117.2 76.4 171.8 127.0Sugar Kg 58.8 59.5 69.2 87.1 133.3 92.0Veg. Ghee (loose) Kg 206.0 147.9 468.9 -- -- 190.0Edible Oil(Dalda) Ltr 206.0 183.6 145.1 208.9 244.4 181.0Potato Kg 35.8 28.9 22.3 70.8 459.2 54.0Onion Kg 36.9 23.8 20.1 63.7 459.6 54.0Tomato Kg 36.3 37.4 16.7 56.7 162.9 127.0Red Chilies Kg 321.3 378.0 -- -- 888.8 398.0Garlic Kg 126.3 227.0 78.1 141.6 259.2 147.0Tea Kg 710.6 544.0 362.8 424.9 -- 469.0Source: Planning & Development Division -- Not available, * : Price of chicken is without feather Price Stabilization Measures

The government is focused to restrict inflation to 12 percent during the current fiscal year 2012. Different policy measures have been taken to deal with food and fuel price hikes and to contain the inflation through monetary policy, augmenting supply, streamlining distribution and interventions to stimulate productivity.

Given that the average inflation for (Jul-Apr) 2011-12 was 10.84 percent and in view of the international food and fuel price trend the government is keeping a close watch on the movement of price trend through weekly ECC and Cabinet Meetings. In addition to the above, the National Price Monitoring Committee (NPMC)

also monitors the prices of essential commodities in consultation with the Provincial governments and the concerned Federal Ministries/ Divisions and Organizations. The NPMC has so far held twelve meetings to monitor the price and supply situation. The SBP controls inflation through the policy rate under the monetary policy. The recent inflationary pressure has necessitated a tight monetary policy to suppress aggregate demand. The State Bank of Pakistan continued to keep money supply on a tight leash. To maintain fiscal discipline, the government has also focused on prudent expenditure management. Expenditures are being contained through austerity measures and administrative mechanisms. The Senate Standing Committee on Finance Revenue, Economic Affairs, Statistics and Planning Division has


110

recently approved the report of the sub committee on the control of price of essential commodities which is primarily aimed at finding ways and means to control prices.

Flood Impact

Severe monsoon rains have triggered floods in Southern Pakistan of unprecedented scale, both in terms of volume and spatial coverage. According to report of ADB, it is estimated that approximately 9.6 million people have been affected in Sindh and Balochistan as a result of the floods. The overall damage from 2011 floods is estimated at Rs 324.5 billion (1.6 percent of GDP),

with direct damages amounting to 1.3 percent of GDP and indirect losses of 0.2 percent of GDP. The floods remained confined to Sindh and Balochistan, with almost 96 percent of the damage occurred in Sindh. The flood in terms of their economic impact, especially in Sindh was more devastating and caused an estimated damage of Rs 311 billion (6.1 percent of provincial GDP) in the province. The floods impacted the richer districts on the left bank of Indus, the agricultural heartland of the province. The damage just in agriculture is estimated to be Rs. 151 billion. On the other hand, damages in Balochistan in 2011, are Rs. 12 billion, (1.4 percent of provincial GDP).

Table 7.15: 2011 Kharif Area Affected by Flood

Province Crop Area Damaged (000‟ ha)

Area Damaged (000 Ha)

Cotton Rice Sugarcane Maize Vegetables Fruit Other

Balochistan 21.42 1.29 14.30 - - 1.78 0.17 3.88Sindh 859.61 494.94 163.85 88.40 - 99.24 13.19 -Total 881.03 496.22 178.14 88.40 - 101.03 13.36 3.88

The floods have had a large and direct impact on the Kharif cropping season. It has been estimated by the World Bank and Asian Development Bank, that about 10 percent (142,434 ha) of the affected Kharif crop area will not be available for cultivation in Rabi and 5 percent in the Kharif 2012. The main Rabi crop in Pakistan is wheat which is grown on some 8.5 million ha. In Sindh 95 percent of the land was allocated to wheat in Rabi 2010. There is a high possibility that wheat planting in Sindh may face substantial constraints, mainly due to fact that the flood waters have not fully receded. In Balochistan, water have receded except for some low lying areas and, provided the necessary support system for land clearing and input supplies are put in place for the planting season, wheat planting may not be substantially affected. However, damage to watercourses and tube wells, which are a critical source of supplementary water, may affect yields. Another factor that may contribute to decrease in the area under wheat will be the delayed start of sugarcane crushing but a recovery in the gap may be filled by the early clearing of the damaged cotton areas. SUPARCO estimates 0.5 million tons loss of

wheat production in Sindh due to non availability of land. These damages of crops may affect the supply position and as a result prices may rise. The increase in wheat procurement prices from Rs. 950 per maund to Rs. 1,050 per maund may add to price increase.

Future Outlook

The government is focusing on restricting inflation to 12 percent during the current fiscal year 2011-12. The current trend of inflation reported during the first 10 months Jul-Apr 2011-12 suggests that inflation has been stabilized on account of pursuing tight monetary policy and declining trend in global commodity prices. Inflation is likely to further decelerate gradually over the next few months, as better crops production and better management of supply chain may bring price stability in the country. The decline in inflation may continue further by falling global commodity prices and steps towards fiscal consolidation to contain inflation. However, long term solutions lie increase in agricultural investment; strong market integration; and, regional cooperation to secure food supplies for the country’s growing population.

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Trade and Payments

The unfavorable global environment has slowed down the world output and trade volume during 2011; world output which grew by 5.3 percent in 2010 decelerated to 3.9 percent in 2011. This slowing down of the global economic activity has caused a sharp decline in the growth of world trade. Against the strong pick up of nearly 13.0 percent in 2010 the growth of world trade dropped to 5.8 percent in 2011. The global economic slowdown and consequential decline in the growth of world trade has also depressed the international commodity prices. The prices of non-fuel commodities witnessed a deceleration from 26.3 percent in 2010 to 17.8 percent in 2011; and, are projected to grow negatively by 10.3 percent in 2012.

These developments can be attributed to the ongoing European Sovereign Debt Crisis, the turmoil in the Arab Countries and the natural disasters that hit Thailand and Japan which caused disruptions in the supply chain.

The growth in world output and trade volume is projected1 to decelerate further during 2012 due to the downside risks of deepening of the sovereign debt crisis and worsening financial stress, increase in oil prices, and geo-political risks. It is projected that world output will grow by 3.5 percent and trade volume will increase by 4.0 percent during the period.

Amid the difficult global economic environment, the slowing down of the world trade, the drop in international commodity prices, and the energy

shortages domestically, the exports from Pakistan remained higher by US$ 14.0 million during July-April 2011-12 over the same period last year and stood at $ 20,474 million. During the period July-April 2011-12, the growth of imports at 14.5 percent remained more or less the same as the corresponding period’s growth in the previous period. So as exports declined imports continued to grow highlighting the dominant role of external developments. Pakistan’s exports growth would have been in much better position had there been normalization in international prospects during the period. In fiscal year 2011-12, workers’ remittances grew by $ 1.83 billion over the last year.

Current Account Balance

The current account deficit stood at $ 3,394 million during July-April 2011-12.This deficit in the current account was largely caused by the widening of trade and services account deficit. However, continued support from current transfers in the form of workers’ remittances helped in containing further increase in the current account deficit during the period under review.

The trade deficit expanded mainly due to the 14.5 percent growth in imports and the 0.1 percent increase in exports; thereby widening the trade deficit by 49.2 percent during the period. The major factor behind the widening of the trade deficit was the sharp rise in the import bill during July-April 2011-12 which increased due to the higher international prices of crude oil

1 : World Economic Outlook April 2012, IMF

Chapter 8


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Table 8.1: Summary Balance of Payments US$ Million

Items July-June July-April* 2009-10 2010-11 2010-11 2011-12

Current Account Balance -3,946 214 466 -3,394Trade balance -11,536 -10,516 -8,499 -12,683 Goods: Exports 19,673 25,356 20,460 20,474 Goods: Imports 31,209 35,872 28,959 33,157Services Balance -1,690 -1,940 -1,225 -2,347 Services: Credit 5,229 5,768 4,917 4,101 Services: Debit 6,919 7,708 6,142 6,448Income Account Balance -3,282 -3,017 -2,465 -2,655 Income: Credit 561 716 563 668 Income: Debit 3843 3733 3028 3323Current Transfers Net 12,562 15,687 12,655 14,291 of which: Workers remittances 8,906 11,201 9,046 10,877Capital & Financial Account 5,272 2,262 772 1,367Capital Account 175 161 82 167Financial Account 5,097 2,101 690 1,200 Direct Investment In Pakistan 2,151 1,635 1,293 668 Portfolio Investment (Net) -65 338 295 -126 Other Investment 3,087 172 -846 721Net Errors and Omissions -60 16 -29 -515Overall Balance 1,266 2,492 1,209 -2,542Source: State Bank of Pakistan *: Provisional

Analysis on a comparative month to month basis shows that the current account balance remained under pressure during the months of September 2011, October 2011 and November 2011. The month of September 2011 witnessed the highest deficit in current account in the entire July-April 2011-12 period due to the fall in remittances and the increase in the trade deficit during the month. The current account deficit remained lower in the following months alongwith a surplus of $ 142 million in March 2012.

The monthly average exports increased by 0.1 percent during July-April 2011-12 and stood at $ 2,047 million per month as against the average of $ 2046 million per month during the comparable period last year.

The month-wise imports averaged $ 3,316 million during July-April 2011-12 and remained higher than the average import of $ 2,896 million in the same period last year. With the exception of March 2012, monthly imports remained higher in all the remaining periods of the current fiscal year 2011-

12, compared to the corresponding months of the previous year.

During July-April 2011-12, the services account deficit recorded an expansion of $ 1,122 million. This deterioration in the services account was primarily due to the 16.6 percent fall in services exports. In addition to this, the 5.0 percent increase in imports also contributed to the deterioration in

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Fig-8.1: Monthly Current Account Balance


Trade and Payments

113

the services account during the period under review.

Within services export, government services witnessed a major decline of 34.4 percent during July-April 2011-12 compared to the same period last year. This was the outcome of the absence of logistic support inflows during July-April 2011-12 as compared to $ 743 million in the corresponding period last year.

The other major categories of services export which showed a fall during July-April 2011-12 remained transportation, other business services and communication services; these services declined by $ 51.0 million, $ 68.0 million and $ 21.0 million respectively over the July-April 2010-11. On the other hand, the major service exports of insurance, computer and information and travel witnessed a major increase during July-April 2011-12.

Government services and travel remains the major

contributors to the overall increase in services imports during July-April 2011-12.

Workers’ Remittances

According to World Bank estimates the remittances flows to developing countries in 2011 increased by 8.0 percent from $ 325 billion in 2010 and is forecast to grow at 7 to 8 percent annually till 2014.

Compared to the 10.1 percent growth in South Asia, remittances to Pakistan witnessed a strong growth of 25.8 percent in 2011 over previous year. Pakistan has become the fifth largest remittances recipient developing country in 2011. The general upward trend in remittances during the period under review was composed of a per annum average growth from U.A.E of 32.2 percent followed by U.K. (30.1 percent), Saudi Arabia (27.3 percent), EU countries (25.3 percent), Other GCC Countries (15.1 percent) and USA (9.5 percent) during the period 2007-08 to 2010-11.

More recently, following the impressive performance of the last year, worker’s remittances continued to provide strength to the current account. During July-April 2011-12, worker’s remittances grew by 20.2 percent and stood at $ 10.9 billion. The cumulative increase of $ 1.83 billion during July-April 2011-12 over July-April 2010-11 is largely attributed to the government’s

efforts to divert remittances from the informal to the formal channel. Since the launch of the Pakistan Remittances Initiative (PRI), the share of worker’s remittances coming through the banking channel has increased considerably, from 75 percent in 2009-10 to 91 percent in 2011-12. PRI has taken a number of steps to enhance the flow of remittances through formal channels which

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Fig-8.2:Remittances By Country of Source FY 08 FY 09 FY 10 FY 11


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include: (a) preparation of national strategies on remittances (b) taking all necessary steps to implement the overall strategy (c) playing the advisory role for financial sector in terms of preparing a business case, relationship building with overseas correspondents, creating separate efficient remittance payment highways and (d) becoming a national focal point for overseas Pakistanis through round the clock call centre, separate web site etc.

Monthly analysis shows that with the exception of September and November 2011, the growth in workers’ remittances remained higher during July-April 2011-12 compared to the corresponding years. It also crossed the one billion mark during these months.

Country-wise data shows that remittances from almost all major traditional sources increased. The share of Saudi Arabia in overall remittances was

the largest; with UAE and USA having the second and third largest shares. Other countries like UK and Other GCC Countries also contributed to the increase in remittances during the period under review

Table:8.2. Country/Region Wise Cash Workers' Remittances ($ Million)Country/ Region Jul-Apr

2010-11 2011-12* % Change % Share USA 1,677.9 1,922.4 14.6 17.7U.K. 990.9 1,263.7 27.5 11.6Saudi Arabia 2,085.8 2,987.9 43.2 27.5UAE 2,091.3 2,386.3 14.1 21.9Other GCC Countries 1,063.5 1,226.6 15.3 11.3EU Countries 290.8 304.6 4.8 2.8Other Countries 846.4 785.7 -7.2 7.2Total 9,046.6 10,877.0 20.2 100.0Source: State Bank of Pakistan * Provisional

Financial Account

The financial account posted a surplus of $ 1,200 million during July-April 2011-12 against a surplus of $ 690 million in the corresponding period last year. Foreign direct investment declined by $ 625 million and portfolio investment witnessed a fall of $ 126 million. Other investment stood at $ 721 million during July-April 2011-12.

During the period July-April 2011-12, Foreign Direct Investment (FDI) declined by 48.3 percent. This decline was primarily due to lower investment in the telecommunication, financial business and

power sector during the period. The fall in FDI in Pakistan appears to be the result of factors such as energy crises and circular debt. However, the Oil & Exploration remained the major attraction during current fiscal year as its share in overall FDI stood at 69.8 percent with 37.9 percentage points increase during the period.

Foreign Exchange Reserves

In current fiscal year 2011-12, Pakistan’s foreign exchange reserves reached by $ 16.49 billion at the end-April 2012 compared to $ 17.05 billion in corresponding period last year.

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Fig- 8.3: Monthly Workers' Remittances


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This was mainly due to current account deficit and repayment of $ 400 million to the IMF.

On the other hand, the rising inflows of scheduled banks reserves on account of healthy rise in FE-25 deposits and trade NOSTROs helped increase reserves in scheduled banks by $ 1.10 billion.

Exchange Rate After witnessing the continuous decline in depreciation of average annual exchange rates during 2009-10 and 2010-11, the domestic currency remained under pressure through most of fiscal year 2011-12. This pressure is emerging from the deficit in the overall external account of the country during July-April 2011-12. As a result Pakistan’s currency vis-à-vis the US dollar depreciated during July-April 2011-12.

In absolute terms, the exchange rate averaged Rs. 85.50/US$ during July-April 2010-11, whereas it averaged at Rs. 88.55/US$ during July-April 2011-12. The Pak Rupee depreciated by 3.4 percent during July-April 2011-12 over the depreciation of 2.2 percent in July-April 2010-11 period due to the widening current account deficit and speculations on account of the repayment of IMF loan during the period.

Apart from the deficit in the current account balance during July-April 2011-12 other domestic factors as well as the speculative environment in the foreign exchange market added volatility to the exchange rate.

Real Effective Exchange Rates

Conceptually, the REER is defined as the weighted average of nominal exchange rates adjusted for relative price differential between the domestic and foreign countries. Given the weakness against the US dollar, the Pak Rupee depreciated by 8.8, 5.7 and 3.7 percent, against Yen, Euro and Great Britain Pound, respectively. Despite the depreciation against the US dollar and other major currencies in nominal terms, the Pakistan currency appreciated by 0.51 percent in real terms during Jul-Dec 2011-12 against an appreciation of 0.16 percent during Jul-Dec 2010-11. The appreciation in real terms was due to the sharp and persistent rise in the relative price index (RPI).

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Commodity-Wise Performance of Exports and Imports2 Exports

Group-wise analysis of exports growth suggests that the exports of the “other manufacturers” witnessed an impressive growth of 19.9 percent during July-April 2011-12 over the same period last year. Its share in overall exports also increased by 3.9 percentage points and stood at 20.0 percent during current fiscal year 2011-12. Jewelry, chemicals and pharmaceutical products, surgical goods & medical instruments, guar and guar products and engineering goods remained the prominent categories among the positive contributors to the overall increase in “other manufactures” group. Furthermore, these five items collectively added $ 668.6 million in the overall exports during July-April 2011-12. Jewelry exports have witnessed a significant $ 335.6 million increase over the last year and its share in “other manufactures” group also increased from 10.0 percent to 17.0 percent during July-April 2011-12. Moreover, cement exports also increased by 3.5 percent during July-April 2011-12 against the fall of 9.9 percent during July-April 2010-11. This increase in cement export receipts is mainly the outcome of higher unit values, which increased by 12.9 percent during the period. The decline in quantum exports of cement which witnessed a fall by 8.3 percent during the period tampered the increase in cement export receipts.

However, the overall increase in “other manufactures” group was offset to some extent by the negative growth of carpets (5.9 percent), leather garments (15.6 percent) and cutlery (6.3 percent) during July-April 2011-12. The export category of carpets, rugs and mats declined due to increased competition from the neighboring countries of Pakistan.

The value of exports from the food group stood at $ 3509.7 million during July-April 2011-12 compared to $ 3597.6 million in the corresponding period last year, thereby showing a negative

growth of 2.4 percent. In absolute terms this represents a fall of $ 87.9 million during the period. Further details reveal that the lower quantity of exports of most of the food items remains the major reason behind the overall decline. The unit values of different food items remained largely positive during the period. The major factors behind the overall fall in food exports remain wheat, rice and vegetables. In absolute terms these three items fell by $ 442.3 million during the first ten months of the current fiscal year 2011-12. Rice exports followed last year’s trend and declined by 3.2 percent during July-April 2011-12. This fall in rice export is due to the overall quantum exports of rice by 9.1 during the period. The major reason behind the fall in rice exports remained the higher availability of rice internationally. The other reason for the fall in rice exports was the higher proportion of non-basmati rice in the overall export quantum of rice.

Wheat exports declined due to the internationally lower demand and prices as quantity and unit value of wheat both witnessed a negative growth of 70.6 percent and 8.3 percent, respectively.

On the other hand, fruits exports witnessed a major increase during 2011-12; in absolute terms fruit exports increased by $ 70.5 million during July-April 2011-12 over the same period last year.

In contrast to the 32.1 percent growth in July-April 2010-11 textile exports declined by 9.6 percent during July-April 2011-12. This fall in textile is mainly attributed to decline in quantity exports; the majority of the textile categories show a negative growth in the quantities exported. The major reason behind this phenomenon is the energy crisis hitting the textile sector and the fall in international demand. Owing to this, the share of the textile sector in overall exports declined from 55.8 percent in July-April 2010-11 to 52.4 percent during July-April 2011-12 and on absolute term it fell by $ 1076 million during the period.

2 : The analysis of exports and imports is based on trade data released by Pakistan Bureau of Statistics (PBS) on Customs basis which differs from exchange record data by SBP.

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Table 8.3: Structure of Exports ($ Millions)

Particulars July-April % Change Absolute Change 2011-12* 2010-11*

A. Food Group Rice 1,735.2 1,792.2 -3.2 -57.0 Fish & Fish Preparation 259.3 234.4 10.6 24.9 Fruits 322.4 252.0 28.0 70.5 Vegitables 131.9 211.7 -37.7 -79.8 Wheat 112.7 418.2 -73.0 -305.5 Spices 38.6 38.7 -0.3 -0.1 Oil Seeds, Nuts & Kernels 23.4 14.5 60.6 8.8 Meat & Meat Preparation 141.6 122.0 16.0 19.6B. Textile Manufactures Raw Cotton 433.1 327.3 32.3 105.8 Cotton Yarn 1,451.7 1,880.0 -22.8 -428.3 Cotton Cloth 1,969.8 2,081.2 -5.4 -111.4 Knitwear 1,624.5 1,870.1 -13.1 -245.6 Bed Wear 1,453.1 1,686.0 -13.8 -232.9 Towels 556.5 607.8 -8.4 -51.3 Readymade Garments 1,326.6 1,396.5 -5.0 -69.9 Made-up Articles 472.7 509.0 -7.1 -36.3C. Petroleum Group Petroleum Products 291.9 752.9 -61.2 -461.0 Petroleum Top Naptha 518.4 388.5 33.4 129.9D. Other Manufactures Carpets. Rugs & mats 104.3 110.9 -5.9 -6.6 Sports Goods 269.2 262.9 2.4 6.2 Leather Tanned 358.7 370.8 -3.3 -12.2 Leather Manufactures 435.3 450.3 -3.3 -14.9 Surgical Goods & Medical.Inst. 249.6 212.6 17.4 37.0 Chemicals & Pharma. Pro. 909.0 725.5 25.3 183.5 Engineering Goods 230.1 196.4 17.2 33.7 Jewellary 649.7 314.1 106.9 335.6 Cement 387.3 374.2 3.5 13.1Source: PBS * Provisional

The negative effects of the energy shortages domestically and the slowdown of global demand are especially visible in the decline in the quantity of exports despite the increase in the unit values of the majority of items during the period July-April

2011-12. Due to this phenomenon, the quantum exports of high value added items such as knitwear, bed wear, towels and readymade garments have shown negative growth during the period under review.


118

Notwithstanding the higher international prices, the petroleum group export receipts declined by 29.0 percent during the first ten months of the current fiscal year compared to the same period last year. This decline in the petroleum group is due to the decline in quantum export as petroleum products and naptha fell by 68.4 percent and 13.9 percent respectively causing a decline of $ 331.0 million in net absolute terms in export receipts from petroleum group over the corresponding period last year. The circular debt problem in the country remained the major reason for the decline in the petroleum group exports during July-April 2011-12. Moreover, the share of the petroleum group also declined by 1.50 percentage points during the period under review.

Concentration of Exports

The process of decrease in concentration of exports items continued in the current fiscal year (July-April 2011-12) as the share of other items in overall exports increased to 39.0 percent against the 28.5 percent during 2006-07, a 10.5 percentage points increase during the period. Moreover, the share of the other items category witnessed a 6.2 percentage points increase during July-April 2011-12 compared to the same period last year. In spite of this structural change in exports of the country, the major share of Pakistan’s export is still concentrated in a few items with only three items (cotton manufactures, leather and rice) making up 61.0 percent of total exports during July-March 2011-12.

Table 8.4:Pakistan’s Major Exports (Percentage Share)

Commodity 06-07 07-08 08-09 09-10 10-11 Jul-Mar* 10-11 11-12

Cotton Manufacturers 59.7 51.9 52.6 50.6 52.9 53.7 50.1Leather** 5.2 5.8 5.4 4.5 4.4 4.5 2.2Rice 6.6 9.8 11.2 11.3 8.7 9.0 8.7Sub-Total of three Items 71.5 67.5 69.2 66.4 66 67.2 61.0Other Items 28.5 32.5 30.8 33.6 34.0 32.8 39.0Total 100 100 100 100 100 100 100Source: Pakistan Bureau of Statistics *Provisional, ** Leather & Leather Manufactured

Direction of Exports

Despite being concentrated in a few markets, Pakistan has witnessed some geographical diversification in exports. During 2005-06, 47.2

percent of the country’s exports were concentrated in five markets (USA, UK, Germany, Hong Kong and U.A.E.) of the world and remaining share of all other countries was 52.8 percent. This

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0255075

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RAW COTTON COTTON YARN COTTON CLOTH COTTON CARDED OR COMBED

YARN OTHER THAN COTTON

YARN

KNITWEAR BED WEAR TOWELS TENTS,CANVAS & TARPULIN

READYMADE GARMENTS

ART,SILK & SYNTHETIC TEXTILE

% G

row

th

Source: PBS

Fig-8.7: Textile Exports (July-April 2011-12) Quantity Unit Value

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concentration is on continuous decline since 2005-06 and recently the share of these five market stood at 35.2 percent whereas the share of all other countries increased to 64.8 during July-March 2011-12 compared to 52.8 percent share during 2005-06. This improvement in geographical

diversification was mainly the result of the Strategic Trade Policy Framework (STPF-2009-12) introduced by the government and the resulting increase in exports to China, Afghanistan and Bangladesh.

Table 8.5: Major Exports Markets (Percentage Share)

Country 05-06 06-07 07-08 08-09 09-10 10-11 Jul-Mar 10-11 11-12*

USA 25.5 24.6 19.5 18.9 17.4 16.0 15.9 14.7UK 5.4 5.6 5.4 4.9 5.3 4.9 5.0 5.1Germany 4.2 4.1 4.3 4.2 4.1 5.1 5.0 4.8Honk Kong 4.1 3.9 2.7 2.1 2.2 2.0 2.2 1.6U.A.E. 8.0 8.2 10.9 8.2 8.9 7.3 7.3 9.0Sub-Total 47.2 46.4 42.8 38.3 37.9 35.3 35.4 35.2Other Countries 52.8 53.6 57.2 61.7 62.1 64.7 64.6 64.8Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0Source: Pakistan Bureau of Statistics *Provisional

Imports

Structure of imports indicates that food group imports accounted for 11.4 percent of total imports and showed a negative growth rate of 1.7 percent during July-April 2011-12 compared to last year. This fall in the overall food import bill is the result of a decline in the quantity of imports of most of the food items despite the increase in the unit values of food group items.

Within food group imports, the major contribution came from sugar as its import bill declined by $ 665.0 million in absolute terms during July-April 2011-12 compared to the same period last year. This fall in sugar imports came on the back of improved sugar production domestically due to higher crop production of sugarcane during the fiscal year under review. Moreover, the import bill of spices and pulses also witnessed a fall during the period.

The import bill for edible oil increased by 16.5 percent and has added $ 273 million to this year’s import bill. Palm oil imports surged in quantity, value and per unit value as it increased by 5.1 percent, 18.3 percent and 12.5 percent, respectively. The higher import bill of palm oil is

the result of higher international prices and higher domestic demand during the period, resulting in an increase in the palm oil import bill in absolute terms by $ 292 million. In addition, the import bill for tea during 2011-12 also increased by 4.8 percent on the back of higher import prices during the period.

The Import of petroleum group products grew by 43.5 percent during July-April 2011-12 against the 8.4 percent growth in the corresponding period last year reflecting mainly the impact of higher international oil prices since per unit values of

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Price Effect Quantity Effect

% a

ge

Source: PBS

Fig-8.8: Sources of Change in Petroleum Imports (Jul-Apr 2011-12)


120

petroleum products and petroleum crude increased by 28.9 percent and 36.6 percent, respectively. Moreover, during July-April 2011-12, the petroleum group import bill increased by $ 3,815.3 million over the same period last year. Nearly 76.4 percent of this increase in the import bill is contributed by the price impact and 23.6 percent by the quantum impact.

The increase in the petroleum import bill is also evident from the international monthly average prices of oil. These surged from $ 76.4 per barrel in July 2010 to $ 120.5 per barrel in April 2012.

Moreover, the quantity of petroleum product imports increased by 31.7 percent while quantum imports of crude oil declined by 19.5 percent during July-April 2011-12. This phenomenon in quantum imports results from the effect of the circular debt problem in the country faced by refineries.

The import of consumer durables added $ 229.8 million to the overall import bill for July-April 2011-12. The contribution to the increase in consumer durables imports remained road motor vehicles. Their import bill increased by $ 229.3 million. Moreover, the import of electric machinery and appliances also increased by 0.1

percent during the period. During July-April 2011-12, the increase in road motor vehicle imports was the outcome of higher import of CBU (complete build-up unit) which increased by $ 234.3 million over the last year due to the import of cars and buses, trucks and other heavy vehicles categories increasing by 161.0 percent and 91.3 percent respectively during the current fiscal year period under review. Moreover, the complete knocked down-down (CKD)/semi-knocked-down (SKD) category of road motor vehicles also increased by 6.8 percent during July-April 2011-12. Within this category, motor cycles and buses, trucks and other heavy vehicles contributed positively during the period. Due to these developments, the import quantum and value of rubber tyres and tubes witnessed an increase of 25.4 percent and 14.4 percent respectively during July-April 2011-12.

Increase in the overall import bill of consumer durables is generally the outcome of the fall in duties on automobiles, deep freezers, air conditioners and beverages along with the cut in taxes announced by government.

Telecom imports grew by 22.9 percent during the first ten months of the current fiscal year. In absolute terms the import in the telecom sector witnessed an increase of $ 195.2 million. Out of the total increase in telecom imports, 65.4 percent has been contributed by mobile phone imports which grew by 29.0 percent and added $ 127.7 million to the import bill during July-April 2011-12 as compared to the corresponding period last year. This increase may be the result of increased availability of cheaper mobile phones in the country.

The machinery group imports decreased to $ 3148.4 million during the first ten months of the current fiscal year 2011-12 as against $ 3595.9 million in the corresponding period last year. Among the different items of the machinery group, textile machinery, air crafts, ships and boats and other machinery witnessed a decline during the period under review. The decline in textile machinery import may be attributed to the fall in external demand; decline in export prices; and, energy problems faced by textile sector.

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Fig-8.9: International Monthly Oil Prices (Average)

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Table 8.6: Structure of Imports ($ Million)Particulars July-April % Change Absolute

Change 2010-11 2011-12 A. Food Group Milk & milk food 129.5 134.3 3.7 4.9 Wheat Unmilled 5.2 0.0 -100.0 -5.2 Dry fruits 74.4 72.3 -2.8 -2.1 Tea 288.3 302.0 4.8 13.7 Spices 91.3 86.6 -5.2 -4.7 Edible Oil (Soyabean & Palm Oil) 1,660.3 1,933.6 16.5 273.3 Sugar 679.9 14.4 -97.9 -665.5 Pulses 344.6 320.3 -7.1 -24.3B. Machinery Group Power Gen. Machines 865.6 877.2 1.3 11.6 Office Machines 195.6 239.8 22.6 44.2 Textile Machinery 399.4 339.0 -15.1 -60.4 Const. & Mining Mach. 98.6 111.0 12.6 12.4 Aircraft Ships and Boats 713.5 305.8 -57.1 -407.7 Agriculture Machinery 77.6 103.0 32.7 25.4C. Petroleum Group Petroleum Products 4,919.9 8,354.8 69.8 3,434.8 Petroleum Crude 3,847.6 4,228.1 9.9 380.5D. Consumer Durables Electric Mach. & App. 674.8 675.3 0.1 0.5 Road Motor Vehicles 1,082.8 1,312.1 21.2 229.3E. Raw Materials Raw Cotton 852.8 369.5 -56.7 -483.4 Synthetic fibre 464.2 434.6 -6.4 -29.5 Silk yarn (Synth & Arti) 444.7 503.9 13.3 59.2 Fertilizer 499.6 1,081.7 116.5 582.1 Insecticides 122.3 110.4 -9.8 -11.9 Plastic material 1,263.8 1,287.5 1.9 23.7 Iron & steel and Scrap 423.9 446.8 5.4 22.9 Iron & steel 993.9 1,119.0 12.6 125.1F. Telecom 854.3 1,049.5 22.9 195.2Source: Pakistan Bureau of Statisics

On the other hand, the items which grew positively continued to be the power generating machinery, office machines, construction and mining machinery and agri machinery. Power generating machinery imports increased due to energy shortfalls in the country. As a result the import bill stood at $ 877.2 million during July-April 2011-12. The increase in import of construction and mining machinery reflects the increase in construction activities in the country. This improvement can be attributed to the start of public projects and is also the result of the increase in remittances which went primarily into the construction sector. The higher demand for agricultural machinery imports ($ 25.4

million) is mainly the outcome of remarkable improvement in the agriculture sector.

The import of products in the raw material group surged by 7.4 percent and accounted for 22.4 percent of total imports during the period of July-April 2011-12. Within raw material imports, raw cotton declined in absolute terms by $ 483.4 million mainly due to increased availability of the crop domestically. The prominent increase witnessed in the imports of fertilizer is due to decline in domestic production owing to gas shortages. As a result the import bill of fertilizer increased by $ 582.1 million over the last year. Of


122

this total increase around 87.6 percent was due to increase in quantity and the remaining 12.4 percent due to higher prices.

Direction of Imports

Despite being fairly concentrated in a few markets, Pakistan’s import sources are witnessing a change in direction since 2007-08. The combined share of Pakistan’s major imports markets (Saudi Arabia, Kuwait, Japan, U.S.A., Germany and U.K.) has been declining from the 36.7 percent in 2007-08 to 30.2 percent at present thereby showing a 6.5 percentage points fall during the period under review.

Table-8.7: Major Sources of Imports (Percentage Share) Country 07-08 08-09 09-10 10-11 Jul-Mar

10-11 11-12* U.S.A. 6.1 5.4 4.6 4.5 4.3 3.3U.K. 1.9 2.6 1.7 1.6 1.6 1.2Germany 3.2 3.8 3.4 2.3 2.3 2.5Japan 4.6 3.6 4.4 4.1 4.2 4.2Kuwait 7.5 6.6 6.9 8.2 6.8 8.4Saudi Arabia 13.4 12.3 9.7 11.3 11.7 10.6Sub-Total 36.7 34.3 30.7 32.0 30.9 30.2Other Countries 63.3 65.7 69.3 68.0 69.1 69.8Source: Pakistan Bureau of Statistics *Provisional

Measures/steps taken by the government regarding exports and imports

In July, 2009 the Federal Cabinet approved complete zero-rating of exports.

Incentives have been given to boost exports such as concessionary financing, duty free imports of raw material under temporary importation scheme/Duty Tax Remission on Exports (DTRE), duty drawback scheme, concessions in duty/taxes on import of machinery and raw material of priority export sectors, development of export clusters.

Through active trade diplomacy, Government is trying its level best to get better market access for the local

businesses in international markets by concluding Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs) with different countries.

Trade Development Authority of Pakistan (TDAP) is undertaking various export promotional activities through trade exhibitions and delegations in the new markets viz China, Hong Kong, Russia, Malaysia, Africa region, America and Eastern Europe etc.

The following measures have been taken during 2011-12 in the import / export regime, through Amendments in the Import Policy and Export Policy Orders:

0

100

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300

400

500

600

Price Effect Quantity Effect

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ion

Source: PBS

Fig-8.10 Source of Change in Fertilizer Import (Jul-Apr 2011-12)

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Amendments in Exports – Imports Policy orders during 2011-12

Sr. No. Gist of Amendment Rationale/Justification 1. Allowing export of organic brown sugar. To encourage local production of

organic brown sugar. 2. Allowing units registered under DTRE scheme also to import

inputs given in restricted list of the Import Policy Order (IPO), subject to fulfillment of conditions mentioned therein.

To bring DTRE users at par with normal importers.

3. Restricting import of exhausted batteries to industrial consumers only subject to a fool proof mechanism.

To safeguard environment.

4. Restricting disposal of ambulances before ten years imported as a donation in secondhand used condition by imposing duty taxes applicable at the time of import.

To avoid misuse of ambulances as commercial vehicle after import.

5. Importer duly registered with Oil and Gas Regulatory Authority for importing automotives engine/gear oil etc.

To safeguard consumers interest.

6. Another 17 categories were included in the positive list of items importable from India.

To reduce cost of doing business.

7. Allowing export oriented textile and leather sector to import accessories on import cum export basis from India.

To facilitate export sector.

8. Allowing raw material/inputs including polythene, polypropylene, newsprint and pure terephtalic acid from India through Wagha via land route.

To reduce cost of doing business.

9. Banning import of CNG cylinders and conversion kits. The ban shall however not apply in the following cases:

a) For which letters of credit established prior to 15-12-2011.

b) Public transport vehicle i.e. buses and vans.

To check fast depletion of existing gas resources.

10. Positive List with India has now been replaced with a Negative List of 1209 items.

To normalize Pakistan’s trade relations with India.

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9.2 Public Debt

Total public debt is a measure of government indebtedness. It includes all government and government guaranteed obligations denominated in rupee as well as foreign currency. It is an important means of bridging government financing gaps. However, excessive reliance on public debt and inappropriate public debt management raise macroeconomic risks, impede economic growth, and hinder economic development. Domestic and external debt should be treated separately. Domestic debt is a charge on the budget and must be serviced through government revenues and/or additional borrowings whereas external debt (both public and private) in addition to government

revenues is also a charge on the balance of payment and must be serviced from foreign exchange earnings, reserve drawdown, and additional borrowings.

As at end of March 2012, public debt stood at Rs. 12,024 billion registering an increase of Rs. 1,315 billion or 12.3 percent as compared to fiscal year 2011. The increased amount includes Rs. 391 billion consolidated by the government into public debt against outstanding previous years subsidies related to the food and energy sectors. Public debt as a percent of GDP stood at 58.2 percent by end-March 2012 compared to 55.5 percent of GDP during the same period last year.

Table-9.1 Public Debt 1990 1995 2000 2005 2008 2009 2010 2011 2012*

(In billion Rs.) Domestic Currency Debt 374 790 1,576 2,178 3,275 3,859 4,654 6,015 7,206Foreign Currency Debt 428 873 1,442 1,913 2,780 3,736 4,284 4,694 4,818Total Public Debt 801 1,662 3,018 4,091 6,055 7,595 8,938 10,709 12,024 (In percent of GDP) Rupee Debt 42.8 42.3 41.2 33.5 32.0 30.3 31.4 33.4 34.9Foreign Currency Debt 48.9 46.8 37.7 29.4 27.1 29.4 28.9 26.0 23.3Total Public Debt 91.7 89.1 78.9 62.9 59.1 59.7 60.4 59.4 58.2 (In percent of Revenue) Rupee Debt 235 245 308 242 218 208 224 266 251Foreign Currency Debt 269 270 281 213 185 202 206 208 168Total Public Debt 505 515 589 455 404 410 430 474 419 (In percent of Total Debt) Rupee Debt 46.6 47.5 52.2 53.2 54.1 50.8 52.1 56.2 59.9Foreign Currency Debt 53.4 52.5 47.8 46.8 45.9 49.2 47.9 43.8 40.1Memo: Foreign Currency Debt ($ Billion)

19.5 28.1 27.5 32.1 40.7 45.9 50.1 54.6 53.1

Exchange Rate (Rs./U.S.$, E.O.P)

21.9 31.1 52.5 59.7 68.3 81.4 85.5 86.0 90.7

GDP (in Rs. Billion) 874 1,866 3,826 6,500 10,243 12,724 14,804 18,033 20,654Total Revenue (in Rs. Billion) 159 323 513 900 1,499 1,851 2,078 2,261 2,871Source: State Bank of Pakistan, Budget Wing, Economic Adviser’s Wing & Debt Policy Coordination Office * End-March

Historically, public debt stock accounted for almost the same burden from domestic and external sources. However, government has increasingly focused on the domestic part over the last few years owing to non-availability of

sufficient external financing i.e. domestic borrowings inched up in share from 46.6 percent in fiscal year 1990 to 59.9 percent at end March, 2012.

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Table-9.3 Dynamics of Public Debt Burden 2007 2008 2009 2010 2011 2012* Public Debt to GDP 60.1 59.1 59.7 60.4 59.4 58.2Real Growth of Public Debt 2.3 8.3 5.2 4.3 1.1 2.4Real Growth of Revenues 11.9 -0.6 2.9 0.3 -8.4 1.5**Real Growth of Public Debt Burden -9.7 8.9 2.3 4.0 9.5 0.9Real Growth of GDP 6.8 3.7 1.7 3.8 2.4 3.7Source: Budget Wing, SBP and Debt Policy Coordination Office *End March, 2012 **Growth as compared to same period in 2011

If the primary balance (fiscal deficit before interest payments) is zero and the real growth in revenue is higher than the real growth in debt, the debt burden will ease. Pakistan saw a primary surplus in fiscal year 2004, however, since then it is running a primary deficit. In fiscal year 2009 the government was able to bring the deficit down to 0.1 percent of GDP from 2.5 percent in fiscal year 2008 as a result of fiscal consolidation and rationalization of expenditure. However since fiscal year 2010, owing to increased security expenditure, sustained food and energy subsidies and the great floods of 2010, the fiscal adjustment path was altered and the primary deficit reached 2.5 percent of GDP at the end of June 2011.

A similar pattern was witnessed in terms of real growth of revenues; from a high of 11.9 percent in fiscal year 2007 it declined to -8.4 percent in fiscal year 2011. On the other hand a gradual decline in

real growth of debt has been witnessed since fiscal year 2008. However, the real growth of debt has been greater than the real growth of revenues; and, this complemented by the primary deficit resulted in increase of the debt burden. The public debt stood at 4.7 times government revenues at the end of fiscal year 2011. Ideally the debt to revenue ratio should be 3.5 or lower.

9.2.2 Servicing of Public Debt

Increases in the outstanding stock of total public debt have implications for the economy in the shape of a greater amount of resource allocation towards debt servicing in the future. In order to meet debt servicing obligations, an extra burden is placed on limited government resources and might have costs in the shape of foregone public investment or expenditure in other sectors of the economy.

Table-9.4 Public Debt Servicing

2010-2011 2011-2012

Budgeted Actual Percent of Govt. Revenue

Percent of Current

ExpenditureBudgeted Actual*

Percent of Govt. Revenue

Percent of Current

Expenditure(In billion Rs.) % % (In billion Rs.) % %

Servicing of External Debt

76.8 68.4 3.0 2.4 76.3 45.9 2.6 2.1

Repayment of External Loans

174.4 154.2 6.8 5.3 243.2 94.5 5.4 4.4

Servicing of Domestic Debt

621.8 629.7 27.9 21.7 714.7 578.6 33.3 26.9

Servicing of Public Debt 872.9 852.2 37.7 29.4 1,034.2 719.0 41.3 33.4Source: Debt Policy Coordination Office * July-March, 2012

Public Debt

129

During the year 2010-11, servicing of public debt amounted to Rs. 852.2 billion as opposed to a budgeted amount of Rs. 872.9 billion (Table 9.4). The saving of Rs. 20.7 billion has mostly been due to stable dollar rupee parity; which reduced the amount used for interest and principal repayments of foreign loans in Rupee terms. Repayment of foreign loans stood at Rs. 154.2 billion as opposed to a target of Rs. 174.4 billion, while interest payments on foreign loans, which were budgeted at Rs. 76.8 billion, reached Rs 68.4 billion by end-June 2011. An amount of Rs. 629.7 billion was spent on account of servicing of domestic debt against the budgeted estimate of Rs. 621.8 billion. The increase in domestic debt servicing is partly the result of a tight monetary stance taken in order to arrest the monetary overhang caused by previous policies. As at the end of March 2012, servicing of the public debt stood at Rs. 719 billion against the budget amount of Rs. 1,034.2 billion.

9.3 Domestic Debt

Pakistan’s domestic debt comprises permanent debt (medium and long-term), floating debt (short-term) and unfunded debt (made up of the various instruments available under the National Savings Scheme) having shares of 21.6 percent, 54.5 percent and 23.9 percent respectively in total domestic debt. Banks’ preference of risk-free sovereign credit in view of mushrooming non-performing loans augured well for the government

securities market and overwhelming participation was witnessed in the auctions of T-Bills, PIBs and Government Ijara Sukuk.

The composition of major components shaping the domestic debt portfolio has undergone a transformation from a high dominance of unfunded debt to an increasing dependence on floating component of the domestic debt. The unfunded category comprising about 44.6 percent of the aggregate domestic debt stock in fiscal year 2002 has declined to 23.9 percent by end March, 2012. Contrary to this, the share of floating debt to total domestic debt has reached 54.5 percent by end-March 2012 as compared with 31.4 percent in fiscal year 2002 indicating an over reliance on shorter duration instruments i.e. 54.5 percent of the total domestic debt has the duration of 0.31 years at end March 2012 which is fairly low owing to market appetite for shorter duration reflecting inflationary expectations and higher interest rates in the second half of the fiscal year 2012. Undue reliance on short-term sources of financing raises the rollover or refinancing risk for the government. Failure to issue new debt in order to mature a large amount of outstanding short term debt may trigger a liquidity or debt rollover crisis. The increase in frequency of such operations (due to their short term nature) coupled with any adverse rise in interest rates may leave the government vulnerable to the high cost of debt. The trends in domestic debt are discussed in the following graph:

200

700

1200

1700

2200

2700

3200

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FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12-Q3

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Fig-9.3 Trends in Permanent, Floating & Unfunded Debt

Permanent DebtFloating DebtUnfunded Debt


130

9.3.1 Outstanding Domestic Debt

The total domestic debt was positioned at Rs. 7,206.9 billion at end-March 2012, representing an increase of Rs. 1,190.5 billion in the first nine months of the current fiscal year. This increase stems from net issuance of market debt namely Treasury bills (Rs. 576.4 billion) and PIBs (Rs.

307.5 billion). In relation to GDP the domestic debt stood at 34.9 percent which is higher than end-June 2011 level at 33.4 percent. The domestic debt grew by 19.8 percent in first nine months of current fiscal year. The focus on deficit financing through internal sources owing to lower external receipts has been the major cause.

Table-9.5 Trends in Domestic Debt 2002 2003 2004 2005 2008 2009 2010 2011 2012* (In billions Rs.)Permanent Debt 424.8 468.8 570.0 526.2 616.8 685.9 797.7 1125.3 1554.6Floating Debt 557.8 516.3 542.9 778.2 1637.4 1903.5 2398.7 3235.4 3926.9Unfunded Debt 792.1 909.5 899.2 873.2 1020.4 1269.2 1457.5 1655.8 1725.4Total 1774.7 1894.5 2012.2 2177.6 3274.5 3858.7 4653.9 6016.4 7206.9 (In percent of GDP)Permanent Debt 9.7 9.7 10.1 8.1 6.0 5.4 5.4 6.2 7.5Floating Debt 12.7 10.7 9.6 12.0 16.0 15.0 16.2 17.9 19.0Unfunded Debt 18.0 18.9 15.9 13.4 10.0 10.0 9.8 9.2 8.4Total 40.3 39.3 35.7 33.5 32.0 30.3 31.4 33.4 34.9 (In percent of Total Debt)Permanent Debt 23.9 24.7 28.3 24.2 18.8 17.8 17.1 18.7 21.6Floating Debt 31.4 27.3 27.0 35.7 50.0 49.3 51.5 53.8 54.5Unfunded Debt 44.6 48.0 44.7 40.1 31.2 32.9 31.3 27.5 23.9Memo: GDP (in billion of Rs.) 4402 4823 5641 6500 10243 12724 14804 18033 20654Source: Budget Wing, Ministry of Finance * End-March

The following section highlights the developments in the various components of domestic debt during first nine months of the outgoing fiscal year.

I. Permanent Debt

Permanent Debt mainly consists of medium to long term instruments including Pakistan Investment Bonds (PIBs), Government Ijara Sukuk bond, Prize Bond etc. PIBs are non-callable instruments, with semi-annual coupon payment. PIBs are issued in tenors of 3, 5, 7, 10, 15, 20 and 30 ‐years maturity. The 3, 5 and 10 years tenor are most liquid while longer maturities are thinly traded. Government Ijarah Sukuks are medium term Shariah compliant bonds currently issued in 3 years tenor. The purpose of issuance was to raise money from Islamic banking which has grown substantially in Pakistan in recent years.

The total share of permanent debt in the government’s domestic debt stood at Rs. 1,554.6

billion as at end-March 2012 compared to Rs. 1,125.3 billion in 2011 registering an increase of Rs. 429.3 billion. The share of permanent debt in total domestic debt inched up from 18.7 percent in 2011 to 21.6 percent at end March 2012. Sizeable receipts from Government Ijara Sukuk bond and Pakistan Investment Bonds contributed to this expansion. Government mopped up net of retirement Rs. 80.5 billion through successful auctions of Ijara Sukuk bond and Rs. 307.5 billion through Pakistan Investment Bonds during July-March, 2012.

II. Floating Debt

Floating debt consists of short term domestic borrowing instruments such as Treasury Bills and State Bank borrowing through the purchase of Market Related Treasury Bills (MRTBs). Treasury Bills are zero coupon or discounted instruments issued in tenors of 3 months (introduced in 1997), 6 months (introduced in 1990) and 12 months

Public Debt

131

(introduced in 1997). The share of 3 months, 6 months and 12 months maturity in total T-Bills portfolio is 9 percent, 20 percent and 71 percent respectively as at end-Mar 2012. In order to raise short term liquidity, the government borrows from the domestic banks through auction in the form of Treasury Bills. The auction of Treasury bills is arranged by the State Bank of Pakistan (SBP) twice a month. Treasury Bills having maturity of 6 months are also created by SBP on average rate of interest of previous auction on need basis.

Floating Debt share in overall public debt and domestic debt stood at 32.7 percent and 54.5 percent respectively as at end-March 2012. During July-March, 2012, the floating debt grew by Rs. 691.5 billion or 21.4 percent. Around 58 percent of the total increase in government domestic debt stock was contributed by floating debt instruments during July-March, 2012.

Much of the proceeds accrued through Market Treasury Bills (MTBs) as Rs. 576.4 billion was added to the stock of June 30, 2011. On the other hand, government borrowed Rs. 167.3 billion by issuing Market Related Treasury Bills (MRTBs) to SBP.

III. Unfunded Debt

Unfunded Debt made up of the various instruments available under the National Savings Scheme (NSS). A number of different schemes are offered under NSS in the investment horizon of 3 years to 10 years. The total share of unfunded debt in the government’s domestic debt stood at Rs. 1,725.4 billion or 23.9 percent on end-March 2012. The stock of unfunded debt increased by Rs. 69.6 billion or 4.2 percent compared with fiscal year 2011. Net receipts in Regular Income Scheme were up by 17.2 percent in July-March, 2012, as the stock increased from Rs. 182.6 billion in June, 2011 to Rs. 214 billion at end-March 2011. Special NSS Schemes including Bahbood Savings Certificates and Pensioner’s Benefits Accounts registered a combined nominal increase of Rs. 49.3 billion compared to Rs. 59 billion during July-March 2011. Rates of return on NSS instruments were revised downward in October 2011 and January 2012 in response to the decrease in the benchmark discount rate.

9.3.2 Duration of Domestic Debt

As at end March 2012, duration of domestic debt stood at 2 years excluding SBP Market Related Treasury Bills (MRTBs). Duration including MRTBs stood at 1.61 years. This estimate of duration may be a little inconsistent owing to the non-availability of actual maturity profile of NSS and manual operations of Central Directorate of National Savings (CDNS). A behavioral analysis was undertaken to estimate the maturity of NSS instruments. Generally, across the globe, governments desire to incur the lowest annual debt servicing cost while ignoring portfolio risks. It is important for the government to take necessary measures to lengthen the maturity profile of domestic debt. Though this may result in additional debt servicing cost in the short term, it would certainly help in reducing the associated liquidity and refinancing risks in the domestic debt portfolio.

9.4 External Debt and Liabilities

Pakistan’s external debt and liabilities (EDL) include all foreign currency debt contracted by the public and private sector, as well as foreign exchange liabilities of the State Bank. EDL has been dominated by Public and Publically Guaranteed Debt having share of 76 percent owing to current account deficit which is financed through loans from multilateral and bilateral donors. Debt obligations of the private sector are fairly limited and have been a minor proportion of EDL (6 percent). Borrowing from IMF contributed 13 percent in EDL Stock which was intended for Balance of Payment (BoP) support and is reflected in foreign currency reserves of the country. The explicit concessional terms of loans (low cost and long tenors) contracted with international financial institutions or donor countries have concealed the inherent capital loss associated with foreign currency debt to some extent. However, the analysis of currency movement of last 20 years reveals that cost of foreign currency borrowing adjusted for exchange rates movement has been 1.5 percent lower than the average domestic interest rates.

Pakistan External Debt and Liabilities (EDL) stock was recorded at $60.3 billion as of March 2012. During July-March 2012, $179 million was added

Pakistan E

132

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III. Private Non-Guaranteed Debt

The share of private non-guaranteed debt in total EDL stood at 6 percent at end-March 2012. The

stock of private non-guaranteed debt decreased by $147 million; from $3.48 billion in June 2011 to $3.34 billion by end-March 2012.

Table-9.6: Pakistan External Debt and Liabilities 2004 2005 2006 2007 2008 2009 2010 2011 2012-

Q3 1. Public and Publically Guaranteed debt 29.9 31.1 32.9 35.3 40.6 42.6 43.1 46.7 46.4 A. Medium and long term(>1 year) 29.9 30.8 32.7 35.3 39.5 41.1 42.3 46.1 45.8 B. Short Term (<1 year) 0.0 0.3 0.2 0.0 1.1 1.5 0.8 0.6 0.62. Private Non-guaranteed Debt (>1 yr) 1.7 1.3 1.6 2.3 2.9 3.3 3.4 3.5 3.33. IMF 1.8 1.6 1.5 1.4 1.3 5.1 8.1 8.9 8.1Total External Debt (1 through 3) 33.4 34.0 36.0 39.0 44.9 51.1 54.6 59.1 57.84. Foreign Exchange Liabilities 2.0 1.8 1.6 1.5 1.3 1.3 1.3 1.0 2.5Total External Debt & Liabilities (1 to 4)

35.3 35.8 37.6 40.5 46.2 52.3 55.9 60.1 60.3

(of which) Public Debt 31.3 32.1 33.9 36.5 40.9 46.3 49.5 54.6 53.1 (In percent of GDP)

Total External Debt (1 through 3) 34.1 31.1 28.2 27.3 27.4 31.5 30.9 28.1 25.41. Public and Publically Guaranteed debt 30.6 28.4 25.8 24.7 24.8 26.3 24.5 22.1 20.1 A. Medium and long term(>1 year) 30.5 28.1 25.7 24.7 24.1 25.4 24.0 21.8 19.8 B. Short Term (<1 year) 0.0 0.2 0.1 0.0 0.7 0.9 0.4 0.3 0.22. Private Non-guaranteed Debt (>1 yr) 0.02 0.01 0.01 0.02 0.02 0.02 0.02 0.02 0.013. IMF 1.8 1.5 1.2 1.0 0.8 3.2 4.6 4.2 3.54. Foreign Exchange Liabilities 2.0 1.6 1.2 1.0 0.8 0.8 0.6 0.5 1.1Total External Debt & Liabilities (1 to 4)

36.1 32.7 29.5 28.3 28.2 32.3 31.5 28.5 26.5

Memo: GDP (in billion of Rs.) 5641 6500 7623 8673 10243 12724 14804 18033 20,654Exchange Rate (Rs./U.S. dollar, Period Avg.) 57.6 59.4 59.9 60.6 62.5 78.5 83.8 85.6 90.8Exchange Rate (Rs./US$, EOP) 57.9 59.7 60.2 60.6 68.3 81.4 85.5 86.0 90.7GDP (in billions of U.S. dollars) 98.0 109.5 127.4 143.0 163.8 162.1 176.5 210.8 227.8Source: State Bank of Pakistan, EAD and Debt Policy Coordination Office

9.4.1 Composition of Foreign Economic Assistance

The total amount of foreign economic assistance received in the first nine months of 2011-12 stood at $1,660 million. The composition of this assistance is as follows:

I. Commitments

The commitments of foreign economic assistance were $4,580 million during 2010-11, while during July-March 2012, total commitments amounted to $1,967 million. About 76 percent of total commitments during July-March 2012 were in the shape of project aid while the remaining comprised non-project aid. Out of total non-project aid, share of BOP/budgetary support was 78 percent.

II. Disbursements

During July-March 2010-11, disbursements of $1,660 million were for different purposes like Project Aid ($1,113 million), Programme-loans/Budgetary Support ($99 million) and relief ($448 million). Project aid accounted for 67 percent of the total disbursements.

9.4.2 External Debt Servicing

During fiscal year 2011, external debt servicing summed to US$ 4,799 million that is 14.3 percent lower than the previous year. A segregation of this aggregate number shows a payment of US$ 2,348 million in respect of maturing EDL stock where interest payments were US$ 963 million. US$ 1,488 million was rolled-over.

Pakistan E

134

Table-9.7 Servicing

Years

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12* Source: Sta*July-Marc

Servicing first nine $3,567milpaid again$633 millWhen com60.1 billirelatively made dur2012 signmost of tNotwithstover next

9.4.3 Imp

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2,326 2,558 3,986 3,880 3,311 2,325

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in million of U1,300 1,200 1,600 1,723 1,488 1,243

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135

EDL to remain below 2 times of FEE. Improvement was observed in the EDL-to-FEE ratio, which was 1.3 in fiscal year 2011 compared to 1.5 in fiscal year 2010 at the back of strong workers’ remittances and a positive turn-around in export earnings. The improvement of this ratio

suggests that Pakistan’s stock of external debt and liabilities is growing at a slower rate than its foreign exchange earnings. During July-March 2012, the ratio stood at 1.7against 1.3 during the same period last year.

Table-9.8 External Debt Sustainability (in percent) External Debt Indicators 2007 2008 2009 2010 2011 2012* Non Interest Current Account/GDP -3.8 -7.1 -4.5 -1.4 0.8 -1.2EDL/FEE (times) 1.2 1.2 1.5 1.5 1.3 1.7EDL/FER 2.5 4.0 4.2 3.3 3.3 3.6EDL/GDP 28.3 28.2 32.3 31.5 28.5 26.5EDL Servicing/FEE 12.6 11.7 18.0 16.5 11.4 10.0STD/EDL 0.1 2.4 2.8 1.4 1.0 0.9Source: EAD, SBP & Debt Policy Coordination Office * July - March 2012 FEE: Foreign Exchange Earnings; STD: Short-term Debt; EDL: External Debt and Liabilities; FER: Foreign Exchange Reserves

A decrease in EDL in relations to Foreign Exchange Reserves reflects the consolidation of foreign exchange reserves and a general improvement of the country’s repayment capacity or vice versa. On the onset of SBA in 2008, the ratio declined to 3.3 in 2009-10 as EDL growth slowed and foreign exchange reserves shored up. The ratio did not improve in fiscal year 2011 mainly because of stagnation in reserves and lower growth in EDL stock. By end-March 2012, the ratio deteriorated slightly to 3.6 compared to 3.3 by end June 2012 mainly because of drawdown on reserves owing to lower Foreign Direct Investments and other non-debt creating flows.

A major improvement has been witnessed in EDL-to-GDP ratio as it improves from 31.5 percent in fiscal year 2010 to 28.5 percent in fiscal year 2011. By end-March 2012, EDL as a percent of GDP stood at 26.5 percent, thereby showing a decrease of 2.0 percentage points in first nine month of current fiscal year. This improvement is mainly due to faster growth in nominal GDP in relation to slower growth in external debt owing to lower financing from external sources.

External Debt Servicing as a percentage of Foreign Exchange Earnings has been declining since fiscal year 2010 and stood at 11.4 percent during fiscal year 2011 owing to strong workers’ remittances

and a positive turn-around in export earnings. A generally acceptable threshold requires a country’s EDL servicing to remain below 20 percent of FEE. The current levels of servicing are bound to increase as IMF-SBA repayments initiate in fiscal year 2012, that require serious efforts to enhance the export earnings.

Pakistan’s level of Short Term Debt (STD) as a percentage of EDL has historically been lower than most other developing countries. It was just 0.1 percent in 2006-07. Fiscal year 2009-10 has seen an improvement in STD as a percentage of EDL to 1.4 percent which decreased to 1 percent in fiscal year 2010-11. During July-March 2012, the ratio stood at 0.9 percent.

9.5 Pakistan’s Link with International Capital Market

The first ten months of the current financial year witnessed a period of substantial volatility in the global markets, largely as a consequence of fears relating to the Eurozone’s peripheral economies. The Emerging Market Bond Index (“EMBI”), a benchmark index for measuring the total return performance of international government bonds issued by emerging market countries, has depicted an increase over June 2011 levels, implying an increase in costs for tapping international debt


136

capital markets. However, since January 2012 the EMBI has shown a slight decrease indicating that the debt capital markets might be improving, however, uncertainty with respect to the Euro area remains and continues to affect the credit risk appetite of global investors. In the backdrop of prevailing uncertainty in the global markets, the situation for Pakistan is further affected by concerns over higher commodity prices, consequent energy shortages, flood etc. Given the general risk awareness and volatility prevailing in the international markets, Pakistan has not issued any new debt instrument since 2008. The government plans to tap the global markets once the conditions become more favourable.

9.6 Recent Performance of 2017 And 2036 Eurobonds

Pakistan has witnessed an increase in spreads on its 2016, 2017 and 2036 Eurobonds in the first ten

months of 2010-11. External factors mainly contributed to the spread performance of Pakistan’s bonds over the past year, with an overall tightening witnessed since the beginning of 2012. However, levels remain high when compared to levels seen at the beginning of 2010.

The Eurobond maturing in 2016 is currently (as of May 9th, 2012) trading at a spread of UST+1098 basis points. The 2017 maturity bond, that had an issue spread of UST+200 basis points, is trading currently at a spread of UST+1157 basis points. The 2036 bond, compared to the issue spread of UST+302 basis points and a spread of 681 basis points last year, is trading currently at a spread of UST+1002 basis points. The following table contains the latest position of bond issued by Pakistan along with their current yields.

Table-9.9 Selected Secondary Market Benchmarks

Issuer Ratings (Moody’s/S&P) Coupon (%) Maturity Spread over UST

(bps) Yield (%)

Pakistan B3/B- 7.125 Mar 2016 1098 11.714Pakistan B3/B- 6.875 Jun 2017 1157 12.312Pakistan B3/B- 7.875 Mar 2036 1002 13.024Source: Bloomberg, as at May 9th, 2012

9.7 Conclusion

Pakistan’s public debt position declined slightly in the current fiscal year. A host of internal and external factors contributed to the decline. Higher interest payments, large subsidies specially food

and energy, growing security spending needs, narrow tax base and rising international commodity prices have resulted in large twin account (i.e. fiscal and current account) deficits. Prudent government policy will be necessary to address the issue of public debt.

137

Education

Introduction

The primary objective of government policy in the last few years has been to improve the level and quality of education in Pakistan. The government vision is to expand primary education and this measure can be used to assess whether government schools have increased their coverage, by increasing enrolments faster than the growth in population, especially at the primary level because that level forms the core of the literate population. Literacy and primary school enrolment rates in Pakistan have shown improvement during last five years but they are still lagging behind other countries of the region. Scarcity of resources and inadequate provision of facilities and training are the primary obstacles in imparting and expanding education. The present government’s strategy for the sector includes improving the functioning and utilization of existing schools, improving the quality of education, increasing enrolment, improving access to education and expanding the primary education system.

Under the 18th constitutional amendment control and management of the education sector has been devolved to the provinces. They are now responsible for the key areas of the education sector i.e. curriculum and syllabus, centers of excellence, standards of education up to intermediate level (Grade 12) and Islamic education. Planning and policy and standards of education beyond Grade 12 are covered under Federal Legislative List. All the provinces have shown their commitment to the National Education Policy 2009.

This chapter presents an overview of the National Education Policy, followed by a discussion of

literacy and enrolment statistics. Educational budget and programmes and issues related to technical and vocational training are discussed next, followed by a description of the activities and achievements of the Higher Education Commission. The last section presents a brief summary of the Annual Status of Education Report Survey.

National Educational Policy 2009

The National Educational Policy (NEP) 2009 is a milestone which aims to address a number of issues including:

quality and quantity in schools and college education

universal primary education

improved Early Children Education (ECE)

improved facilities in primary schools

converting primary schools to elementary schools

detaching classes XI-XII from college education

adopting a comprehensive definition of ‘free’ education

achieving regional and gender parity especially at elementary level

provide demand based skills and increase in the share of resources for education in both public and private sectors

The policy also defines the role of government at the federal as well as the provincial level in the field of education.

Chapter 10


138

Literacy

The National Education Policy 2009 proposes that the literacy rate be increased up to 86 percent by 2015 through up-scaling of ongoing programmes of adult literacy and non-formal education in the country and achieving universal primary education and ensuring zero-drop rates at the primary level. The provinces will allocate a minimum of 4 percent of education budget for literacy and non-formal education. Existing school infrastructure wherever feasible shall be used for literary and non formal education. Literacy is one of the important indicators of education because its improvement is

likely to have a longer run impact on other important indicators of national welfare. According to the latest Pakistan Social and Living Standards Measurement (PSLM) Survey 2010-11, the literacy rate for the population (10 years and above) is 58 percent during 2010-11, as compared to 57 percent in 2008-09. Literacy remains much higher in urban areas than in rural areas and much higher for men than for women. Province wise data suggest that Punjab leads with 60 percent literacy followed by Sindh with 59 percent, Khyber Pakhtunkhwa with 50 percent and Balochistan with 41 percent. The details are given in Table 10.1.

Table 10.1: Literacy Rate (10 Years and Above)-Pakistan and Provinces (Percent)

Province/Area 2008-09 2010-11 Male Female Total Male Female Total

Pakistan 69 45 57 69 46 58Rural 63 33 48 63 35 49Urban 81 67 74 81 67 74Punjab 69 50 59 70 51 60Rural 63 39 51 64 42 53Urban 82 71 76 80 71 76Sindh 71 45 59 71 46 59Rural 61 22 43 60 22 42Urban 81 65 73 82 68 75KPK 69 31 50 68 33 50Rural 67 27 47 67 29 48Urban 76 48 62 77 50 63Balochistan 62 23 45 60 19 41Rural 57 16 38 54 13 35Urban 78 47 64 79 40 61Source: Pakistan Social and Living Standards Measurement Survey, 2010-11

Primary Enrolment Rates

Gross Enrolment Rates (GER)

The GER or the participation rate is the number of children attending primary schools divided by the number of children who ought to be attending. The GER at the primary level excluding katchi (prep) for the age group 5-9 years at national level during

2010-11 increased to 92 percent from 91 percent in 2008-09. Amongst the provinces, Punjab shows a marginal increase from 97 percent in 2008-09 to 98 percent in 2010-11. Sindh remained stable with 84 percent, Khyber Pakhtunkhwa improved from 87 percent to 89 percent and Balochistan declined slightly from 75 percent to 74 percent in 2010-11. The details are given in Table 10.2.

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Table 10.2: National and Provincial GER (Percent)


Pakistan 99 83 91 100 83 92Punjab 102 92 97 103 93 98Sindh 93 75 84 94 72 84Khyber Pakhtunkhwa 102 70 87 101 76 89Balochistan 93 54 75 92 52 74Source: Pakistan Social and Living Standards Measurement Survey, 2010-11

Net Enrolment Rates (NER)

The NER at the primary level refers to the number of students of primary school age enrolled in primary schools divided by the number of children in the age group for that level of education. In other words, for Pakistan, the official primary NER is the number of children aged 5 to 9 years attending primary level divided by the total number of children aged 5 to 9 years.

Table 10.3 show the Net primary level enrolment rates at the national/provincial (excluding katchi

abadies) level for the age group 5-9 years. The NER at the national level during 2010-11 slightly decreased to 56 percent from 57 percent in 2008-09. Punjab shows a decrease from 62 percent in 2008-09 to 61 percent in 2010-11. Sindh also shows decrease from 54 percent to 53 percent in 2010-2011, Khyber Pakhtunkhwa witnessed a decrease from 52 percent to 51 percent and Balochistan improved from 44 percent in 2008-09 to 47 percent in 2010-11.

Table 10.3: National and Provincial NER at Primary Level (Percent)


Pakistan 61 54 57 60 53 56Punjab 64 60 62 62 59 61Sindh 57 49 54 57 48 53Khyber Pakhtunkhwa 58 45 52 57 45 51Balochistan 51 36 44 56 35 47Source: Pakistan Social and Living Standards Measurement Survey, 2010-11

Educational Institutions and Enrolment

i) Pre-Primary Education

Pre-Primary education is the basic component of Early Childhood Education (ECE). Prep or Katchi classes are for children between 3 to 4 years of age. An increase of 7.4 percent in Pre-Primary enrolment (9.41 million) in 2010-11 over 2009-10 (8.76 million) has been observed and it is estimated to increase by 4.8 percent to 9.86 million in 2011-12. [Table 10.4].

ii) Primary Education (Classes I – V)

A total of 155,495 Primary Schools with 440,523 Teachers were functional in 2010-11. An increase in primary enrolment (19.16 million) over 2009-10

(18.77 million) was observed during 2010-11. It is estimated to increase by 2.2 percent to 19.57 million in 2011-12. [Table 10.4].

iii) Middle Education (Classes VI-VIII)

A total of 41,951 middle schools with 334,984 teachers were functional in 2010-11. An increase in middle enrolment (5.64 million) in 2010-11 over 2009-10 (5.50 million) has been observed during 2010-11. It is estimated to increase by 1.3 percent (5.72 million) in 2011-12. [Table 10.4].

iv) Secondary Education (Classes IX-X)

A total of 25,209 secondary schools with 452,779 teachers were functional in 2010-11. An increase


140

in secondary enrolment (2.63 million) in 2010-11 over 2009-10 (2.58 million) has been observed during 2010-11. It is estimated to increase by 3.6 percent to 2.73 million in 2011-12. [Table 10.4].

v) Higher Secondary / Inter Colleges (Classes XI-XII)

A total of 3,435 higher secondary schools and inter colleges with 81,183 teachers were functional in 2010-11. An increase in secondary enrolment (1.19 million) in 2010-11 over 2009-10 (1.17 million) has been observed. It is estimated to increase by 8.7 percent to 1.291 million in 2011-12 [Table 10.4].

vi) Degree Colleges Education (Classes XIII-XIV)

An enrolment of 1.02 million students is expected during 2011-12 in degree colleges against an enrolment of 0.76 million in 2010-11. A total of 1,558 degree colleges with 36,349 teachers were functional during 2010-11. [Table 10.4].

vii) Universities Education (Classes XV onwards)

An enrolment of 1.41 million is estimated in 2011-12 in higher education (universities) over 1.11 million in 2010-11. There are 135 universities with 63.557 thousand teachers in both private and public sectors are functional during 2010-11. [Table 10.4].

Overall Assessment

The overall educational situation, based on key indicators such as likely enrolments, number of institutes and number of teachers, has shown a slight improvement. The number of enrolments during 2010-11 was 39.9 million as compared to 38.2 million during the same period last year. This shows an increase of 4.4 percent. It is estimated to increase to 41.6 million during 2011-12. The number of institutes stood at 227,800 during 2010-11 as compared to 228,400 during the same period last year. This shows a decrease of 0.3 percent. However, the number is estimated to increase to 228,300 during 2011-12. The number of teachers during 2010-11were 1.41 million compared to 1.39 million during the same period last year showing an increase of 1.7 percent. This number is

estimated to increase further to 1.45 million during the year 2011-12. [Table 10.4].

0

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Education

141

Table 10.4: Number of Mainstream Institutions, Enrolment and Teachers by Level (Thousands) Year Enrolment Institutions Teachers

2009-10 2010-11 2011-12 (E)

2009-10 2010-11 2011-12 (E)

2009-10 2010-11 2011-12(E)

Pre-Primary 8762.5 9412.5 9863.2 - - - - - -

Primary* 18771.6 19157.6 19571.0 157.5 155.5 154.6 441.7 440.5 435.5Middle 5504.5 5643.7 5717.5 41.3 42.0 42.6 331.5 335.0 342.6High 2583.4 2630.1 2725.1 24.8 25.2 25.8 447.1 452.8 463.9Higher Sec./ Inter

1166.0 1187.8 1291.0 3.3 3.4 3.6 77.2 81.2 85.0

Degree Colleges 478.4 760.9 1015.2 1.4 1.6 1.7 30.8 36.3 45.4Universities 935.6 1107.7 1413.5 0.132 0.135 - 57.8 63.6 72.6Total 38202.0 39900.3 41596.5 228.4 227.8 228.3 1386.1 1409.4 1445.0Source: Ministry of Professional & Technical Training, AEPAM, Islamabad E: Estimated,*: including Pre-primary and Mosque Schools Education Programme under PSDP 2010-11

Financial

During the fiscal year 2010-11, an amount of Rs. 2.87 billion was provided in the Federal PSDP for expansion and development of basic and college education. The provincial governments were allocated Rs.26 billion (Punjab, Rs. 10.4 billion, Sindh Rs. 4.5 billion, KPK Rs. 9.3 billion and

Balochistan Rs. 1.6 billion) for schools and college education.

Physical Achievement

Expenditures for basic missing facilities were provided to 180 schools to develop and improve basic and college education. The province/area wise details are given in Table 10.5.

Table 10.5: Province/Area wise provision of missing facilities in Schools (Numbers)

Sindh Khyber Pakhtunkhwa Balochistan AJK Gilgit

Baltistan FATA Total

50 32 26 22 25 25 180 Note: Excluding Punjab Province as it had its own programme.

Introduction of M.Com. classes at FG College of Commerce, H-8/4, Islamabad and up-gradation of 5 primary schools to middle level remained in progress. A number of scholarships were provided to needy and talented students at all levels. A total of 180 students from Balochistan and FATA were enrolled in quality institutions and provided scholarships. Work continued on the 4 Polytechnic Institutes. Work on construction of 14 Cadet Colleges also continued. Rs. 1 billion was spent under the Canadian Debt Swap Projects on in-service training of 40,000 teachers, head teachers and master trainers. Provision of scholarships to 200 student-teachers, repair and maintenance of 25 teachers training institutions were also in progress. The Academy of Educational Planning and Management (AEPAM) has provided training to

200 principals, head teachers, district education officers and educational administrators for their capacity building.

The achievements of provincial educational departments

Punjab: Campaign for enhancement of literacy was launched specially for promotion of primary education for girls in rural areas. The revamping of existing science laboratories of 1,000 schools was completed. Construction of library rooms was completed in 450 elementary schools.

Sindh: In order to improve the quality of teachers, B.Ed classes were introduced at the Provincial Institute of Teachers Education (PITE) at Benazir Abad. Early childhood education and early


142

learning programmes have been introduced in the province. Post-graduate courses have been introduced in degree colleges as well.

Khyber Pakhtunkhwa: A total of 100 Primary schools on need basis have been completed and 300 additional class rooms have been constructed. Stipend to girl students was provided to reduce the drop-out rate. Construction of library blocks, boundary walls and provision of water facilities have been completed in various degree colleges of the province.

Balochistan: A total of 50 primary schools were upgraded to middle level. Buildings were provided for various shelter-less primary schools. Rehabilitation of the Government Degree College and provision of residence facilities for lecturers remained in progress.

Development Programme 2011-12

Financial

An allocation of Rs. 2.51 billion was made for the financial year 2011-12 for development projects for education. This includes Rs. 677.4 million for projects under the Capital Administration and Development Division (CADD), and Rs. 1.65 billion for the teacher training programme under CIDA, Rs. 30.3 million for projects of education in cantonment and garrison areas under Ministry of Defense, Rs. 1.7 million under the Cabinet Division for printing of a comprehensive biography of Faiz Ahmad Faiz in Urdu, Rs. 82.3 million for Kashmir Affairs and Baltistan Division and Rs. 23.7 million for scholarship schemes under Inter Provincial Coordination Division.

Major Programmes

1. Establishment of degree colleges for boys at Shihala and for girls at Bhara Kahu, Islamabad.

2. The construction work on provision of computer labs in 119 schools is going on. The academic activities in Degree College for Women at Sector I-14 are expected to start from September 2012.

3. An allocation of Rs. 1.65 billion under Canadian Debt Swap has been made for capacity building of teacher training institutes

(For Islamabad, AJK, Gilgit-Baltistan and FATA Rs. 150.0 million, for Punjab Rs. 705.1 million, for Sindh Rs. 315.9 million, for KPK Rs. 260.6 million and for Balochistan Rs. 181.8 million).

4. An allocation of Rs. 81.3 million has been made for provision of scholarships; three schemes under Inter-Provincial Coordination Division and one scheme under the Defense Division. A scheme for provision of quality education to 200 students belonging to Balochistan and FATA for studying in quality institutions of other provinces has also been launched.

Technical and Vocational Education

There is a need to enhance and upgrade technical and vocational education in the country to cater to the labour demand in emerging sectors. In this context the government is endeavoring to focus on enhancing productivity and skill development industries particularly in the SME sector and in economic opportunities within and outside the country.

The National Vocational and Technical Training Commission (NAVTTC) is an apex body and a national regulatory authority that has been set up to address the challenges of technical and vocational education and training (TVET) in the country. It is involved in policy making, strategy formulation, and regulation and revamping of the TVET system. The commission is establishing and promoting linkages among various stakeholders at the national as well as international level. Since 2006, the commission has given a high priority to un-addressed areas and challenges faced by TVET. In order to combat these challenges during 2011-12, following steps have been taken:

NAVTTC has developed 60 new curricula of different vocational trades and technologies, which are being taught in public and private sector institutes across the country.

A MoU has been signed between NAVTTC and the Sri-Lankan Tertiary and Vocational Education Commission to share copy rights of their 107 National Skill Standards and Training Learning Resource.

Education

143

A total of 134,118 youth received vocational and technical training under the President’s Funni Maharat Programme and Prime Minister’s Hunermand Pakistan Programme.

117 new Vocational Training Centres were established in 72 tehsils of the country which were hither to without any TVET Centre.

NAVTTC is assigned by its Act to establish an internationally acceptable system of accreditation for TVET institutions. NAVTTC has formulated a mechanism and has obtained consensus of the stakeholders in the provinces on this mechanism. This is the first ever attempt in Pakistan to develop such a system involving the TVET Sector. NAVTTC has formulated a framework for accreditation of TVET institutes (public and private) throughout the country. In this connection a manual for accreditation in consultation with the concerned stakeholders has been developed and is under implementation.

NAVTTC has signed a MoU with Asia-Pacific Accreditation and Certification Commission (APACC), Manila. Under which one institute, the Construction Technology Training Institute, Islamabad has been accredited. While nine other institutes are in the process of accreditation. Moreover, the initial phase of accreditation of 12 institutes (both from public and private sectors) has started from March 30, 2012.

The Code of Conduct and Professional Ethics for Technical and Vocational Training (TVT) was developed and printed for implementation. The code serves as an instrument and provides an important base for promoting good practices in teaching and learning of international standards.

An agreement for Technical and Vocational Education and Training (TVET) Reform Support Programme for a period of five years at a cost of €42.40 million has been signed with the GIZ (German Development Agency).The programme is aimed at reforming the TVET sector as whole. The reform components cover (i) TVET governance and institutional buildings (ii) national qualification framework and human resource

development and (iii) effective and innovative training delivery and labour market information services.

NAVTTC has signed a memorandum of understanding with the well known Pakistani NGO-AKHUWAT for providing interest free loan of Rs. 50,000 to the successful trainees of NAVTTC. All NAVTTC trainees are expected to benefit from this scheme.

NAVTTC has constituted 22 advisory groups of experts from different industries and chambers of commerce. The advisory group is expected to play a major role in articulating the criteria for providing quality training to the required skilled force.

NAVTTC has constituted Project Monitoring Advisory Committees at the Tehsil level for monitoring the NAVTTC sponsored training programmes. These committees are comprised of notable and dedicated volunteers without any political affiliation.

NAVTTC has acquired ISO 9001 Certification as a step towards a better managed and efficient system.

NAVTTC has developed institutional linkages with a number of the world’s important organizations dealing with TVET sector. These organizations are:

• United Nations Educational, Scientific & Cultural Organization (UNESCO)

• United Nations Industrial Development Organization (UNIDO)

• British Council (BC)

• European Union (EU)

• Turkey International Cooperation Agency (TIKA)

• International Labor Organization (ILO)

• Colombo Plan Staff College for Technician Education (CPSC) for Human Resources Development in Asia and the Pacific Region, Philippines.

• Japan International Cooperation Agency (JICA).

• Korean International Cooperation Agency.


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Higher Education Commission

Since its inception in 2002, the Higher Education Commission (HEC) has been striving to encourage universities to play a greater role in the economic development of the country. After implementing the MTDF 2005-2010, HEC has proposed its next five year plan viz. its second MTDF – 2010-2015 to create the knowledge capital and technology required to enable Pakistan to join the ranks of the industrially advanced countries within the next decade. The few prime physical targets of the proposed 5-year plan are:

(i) Promoting excellence in learning and research

(ii) Developing leadership, governance and management

(iii) Universities building economies and communities

(iv) Financial management and sustainability

(v) Research, innovation and entrepreneurship Key achievements of the Higher Education Commission are as follows:

Human Development

Human resource development within the higher education sector lies at the heart of the HEC’s reform process. This is an area in which vital and significant progress has been made. With the dual objective of increasing institutional capacity and enhancing local research activities, the major thrust of the programmes in this area have been primarily aimed at improving the academic qualifications of university faculty. However, scholarships schemes are also open to individuals working in the private or government sectors as well as Pakistani students. The projects and programmes are given in Table-10.6.

Table 10.6: Projects/Programmes (Numbers)

Project Name Scholarship Availed

Scholars Completed Studies

Provision of HE Opportunities for Students of Balochistan/ and FATA 2000 28

Japanese Need Based Merit Scholarships Program 950 935

Financial Support for Meritorious Needy Students Program 165 148

Indigenous PhD Scholarship Schemes 1512 819692 People are placed in HEIs under Interim Placement of Fresh PhDs Programmes. Source: Higher Education Commission

HEC is also playing its role in running different scholarship programmes to enhance academic

qualification at various levels on merit basis in line with requirements. The details are given in Table 10.7.

Table 10.7: Scholarships (Numbers)

Project Name ScholarshipsAwarded

Scholars Proceeded

Scholars Completed

Studies Post-Doctoral Fellowship Programmes 590 477 4491000 Cuban Scholarships for Studies in General Comprehensive Medicine 604 604 N/A

US needs based Scholarship Programme for Pakistani University Students 901 901 659

MS / M. Phil leading to PhD Scholarships for teachers of Weaker Universities. 21 21 1

MS leading to PhD Faculty Development Programme of UESTP/UETs Universities. 189 117 2

Overseas scholarship scheme for PhD in selected fields Phase - 1 19 19 383Overseas Scholarships Phase-II 1439 1200 132Fulbright Scholarship Programme 233 233 24Source: Higher Education Commission

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international level. Almost 45 research journals are now in the Institute of Scientific Information (ISI) master list with 11 journals having an impact factor.

Plagiarism Eradication System

The HEC's goal is to combat plagiarism effectively in an academic environment in all institutions of Pakistan while ensuring that the students and academicians know that stealing intellectual property is unethical and leads to serious consequences. HEC is committed to eradicate plagiarism from higher education institutes. For this, the IT Division had sought a technological solution and acquired an online software tool to assist in identifying plagiarized material. The software tool, “Thenticate” is one of the leading software used globally for this purpose.

Anti-Plagiarism Service “Turnitin”

Plagiarism detection service ‘Turnitin’ has been provided to all public and private sector HEIs by the HEC in order to facilitate authentication of contents. Some of the salient features of this strategy are as follows:

Unlimited accounts have been acquired for a one year period and each university has been

given 1000 user accounts. The service is provided to a focal person nominated by the university, who will be the resource person for faculty members.

Technical support and facilitation through emails, phone and personal visit

Updating Turnitin guidelines for instructors and circulation of the same to universities

Monitoring usage by the universities

Involved focal persons for conducting training sessions at respective campuses

For the past three years, all public sector universities have been provided with campus version of plagiarism detection solution, named as Turnitin. This online service is available at http://www.turnitin.com and 1000 licenses for each of the public sector universities/ institutes have been acquired for teaching faculty, post graduate students and researchers in order to address the issue at the grass root level. This year HEC has provided ten (10) months trial access to Turnitin service to all the Private sector universities/ institutes, after having negotiations with I Paradigm (Turnitin parent company).

Table 10.9: Plagiarism Eradication System Facilities (Numbers) Key Indicators 2008 2009 2010 2011 No. of Universities given access to Turnitin 10 50 13 54No. of Registered Instructors - 763 2263 4144No. of Registered Students - 2094 6855 15811No. of Submission for Originality Report 2885 10446 69042 146297Source: HEC

In person and remotely managed trainings are arranged for the focal persons of all the universities to rise to the level of master trainer, so that they can in turn extend trainings in-house to their respective universities/ institutes’ faculty and post graduate students. All universities’ users are also encouraged to go through the training material available at the Turnitin site and webinars arranged by the service provider on a regular basis. In addition, a master trainer program was also arranged through the Turnitin service provider for the focal persons nominated by the

universities/institutes while selecting top ten (10) extensive users of Turnitin Service.

Impact of Plagiarism Policy

The zero tolerance policy of the HEC towards plagiarism has had a positive impact on research activities being carried out in higher education institutions and R&D organization. Because of increased awareness about proper documentation, literature referred during research activities has improved and researchers are more vigilant in citing information in their scholarly works.

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Financial Scenario

For efficient allocation and disbursement of public funds, HEC has developed a formula based funding mechanism that assigns appropriate weights to different need and performance indicators along with students and faculty strength. The detail of recurring funds released to higher education sector during last 4 years is given in Table 10.10.

Table 10.10: Recurring Grant Released (Rs. Million) 2007-08 12,536.52008-09 15,766.42009-10 21,500.02010-11 29,057.0Source: HEC Note: For the year 2011-12, Rs. 26.9 million have been allocated as annual recurring grant out of which 55 percent has been released so far. To streamline and support institutional processes and operations, the HEC has successfully introduced/installed SAP Enterprise Resource Planning (ERP) application in its offices. The HEC has introduced a tenure track system, which offers a market based competitive salary package to attract and retain intelligentsia in public sector institutions of higher learning. Currently, there are 1,257 tenure track teachers working in different public sector universities. In addition to recurring funds, development funds were also released under the “Subsidy to Scholars under Cultural Exchange Programme”. The details are given in Table 10.11.

Table 10.11: Subsidy to Scholars (Rs. Millions) Year Subsidy Tendered 2008-09 21.52009-10 77.02010-11 75.72011-12 13.5Total 187.8Source: HEC

Planning & Development

In the development portfolio of HEC, there are 174 ongoing projects. Only 3 new projects were allowed to be included in the current year PSDP. Up till March 2012, 70 percent of the original allocated funds have been released to development

projects. The HEC expects to complete 48 development projects during the current financial year. The year wise breakup is given in Table 10.12. and Fig-10.5.

Table 10.12: Development Expenditure(Rs. Billions)Financial Year Allocation Releases 2008-09 18.00 16.422009-10 22.50 11.302010-11 15.76 14.06*2011-12 14.00 8.96Total 70.26 50.74Source: HEC *The releases are till Dec. 2011

Education Survey

Annual Status of Education Report (ASER) is a citizen led household based learning survey mostly in rural and selected urban areas. It measures learning levels of children 5-16 years the same age group as identified for compulsory education in Article 25 A of the Constitution of Pakistan. ASER is conducted each year across Pakistan and will continue up to 2015. It is led by the Idara-e-Taleem-o-Aagahi (ITA) in collaboration with the National Commission for Human Development (NCHD), Sindh Education Foundation and many other Civil Society Organizations (CSOs). In 2011, 84 rural and 3 urban city districts, 2,502 villages, 97 urban blocks and 3,642 government/private schools were surveyed. The survey included 49,793 households and 146,874 children. The ASER 2011 Survey was conducted in 84 rural and 3 Urban districts (Lahore, Peshawar and Karachi)

18.00

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Fig 10.5: Development Expenditure Allocation

Releases


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of Pakistan by 5000 active citizen volunteers throughout Pakistan.

Box 1 ASER 2011 National Summary (RURAL)

Enrolment Characteristics

In 2011, 79.9 percent of 6-16 year olds in rural Pakistan were enrolled in schools while 20.1 percent were out of school. This number has held steady since 2010. Nationally there is a persistent gender gap in out of school children with more girls than boys being out of school except for the 14-16 age group where slightly more boys are out of school than girls (boys 3.1 percent, girls 2.9 percent)

Pre-school enrollment (3-5 years) was 42.8 percent, which is quite close to the overall EFA/National Plan of Action (NPA) target of 50 percent enrolment in pre-school by 2015. The highest enrolment in this age group was 51.3 percent in Punjab and lowest in Gilgit-Baltistan (29.4 percent) with majority enrolled in government schools. For urban areas this trend is highest in Karachi (68.9 percent) with majority of children in private schools

Private school enrolment is on the rise: Nationally, non-state private school enrolment stood at 25.5 percent. Highest private school enrolment was

seen in Gilgit-Baltistan (43.6 percent) with FATA (40.5 percent) and Punjab (33.2 percent) close behind

Madrasah enrolment increased from 0.9 percent in 2010 to 2.1 percent in 2011

According to provincial data, highest Madrasah enrolment was found in Balochistan at 6.5 percent while district wise data show that Bahawalpur had the highest Madrasah enrolment (6.4 percent)

No major changes in Drinking Water and Toilet Facilities National figures for 2011 do not show any significant improvement in the proportion of schools with useable

water and toilet facilities. Of the total government primary schools surveyed, 55.4 percent had useable water facility and 43 percent had a functional toilet

In ASER 2010, it was found that 57.5 percent of the government primary schools surveyed had useable water while 45.3 percent had a functional toilet

Facilities in government schools have improved most in Punjab followed by Khyber Pakhtunkhwa (KPK). In Punjab 80 percent government schools have a useable water facility and 70 percent have a functional toilet whereas in KPK 59 percent government schools were found with a useable water facility and 52 percent with a functional toilet

Arithmetic Competencies Improved but Basic Reading Levels show a Decline

Like 2010 the ASER 2011 evidence is most worrying on learning levels across school systems

Arithmetic levels have improved: Basic arithmetic levels estimated in ASER 2011 show a slight improvement. For example, nationally, the proportion of class 5 children able to solve a 3 digit division problem has increased from 34.3 per cent in 2010 to 37.3 per cent in 2011. The improvement is most visible in the provinces of Punjab, Gilgit-Baltistan and Balochistan.

Urdu reading levels are estimated to have declined slightly: The proportion of children in class 5 able to read a class 2 level Urdu story text has dropped from 51.6 per cent in 2010 to 47.4 per cent in 2011. Balochistan, however, has shown a visible improvement. The proportion of children in class 5 able to read a class 2 level Urdu story text has increased from 26.1 percent to 41.7 percent.

English Reading Levels: In ASER 2010, 42.3 percent of class 5 students were reported as being able to read sentences compared to 40.6 percent of class 5 students who could read sentences in the previous year.

Children's Attendance has Declined Overall student attendance in government schools (rural) was recorded at 79.7 percent. This is a drop from the

2010 attendance level of 81.5 percent. The highest attendance level was found in Azad Jammu Kashmir (88.5 percent) while the lowest was in Sindh (61.6 percent).

Education

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Class 2 sitting together with other Classes: Nationally, for rural government schools, about half of all classes visited are multigrade. For example, at the

national level class 2 children were sitting with one or more other classes in 44 percent of the surveyed schools. This figure was 11.3 percent for class 8.

Private Tuition Trends: Of the enroled children in the rural sample, 11 percent reported paying for private tutors. The incidence of attending private tutors was lower among children in public sector schools (7.1 percent) as

compared to children in private sector schools (24 percent). Children in Punjab (20.2 percent) are by far the most intensive users of private tutors in the country.

Mothers’ Literacy: Mother’s literacy stood at 34.5 percent. Lowest being 12.8 percent in FATA and highest being in Punjab (41.6

percent) Source: ASER-Pakistan 2011 Conclusion

The government of Pakistan is committed to improving both the quality and the coverage of education through effective policy interventions and expenditure allocations. While literacy and enrolment rates are lagging behind other countries

in the region, they have been improving over the past five years. To achieve the goals of providing higher quality education and expanding the coverage of educational services, more resources will need to be allocated to providing training and high quality facilities

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Health and Nutrition

Access to good health can contribute positively to the economic and social development of a country. Thus, key issues that impact the health status of people ought to be addressed through a diverse set of policy tools comprising short and long term measures to secure better health outcomes.

The people of Pakistan have grown healthier over the past three decades. The vision for the health sector comprises a healthy population with sound health, enjoying good quality of life through the practice of a healthy life style. In order to achieve this vision, significant measures have been taken toward disease prevention, health promotion, greater coverage of immunization, family planning, and provision of female health worker services.

This chapter is structured as follows: the next section presents the National Health Policy and its primary objectives, followed by an overview of the state of health indicators, expenditures, and

facilities in Pakistan. The targets and accomplishments for the 2011-12 are then described, followed by a discussion of the government’s special focus on cancer treatment and the response waged to counter dengue outbreaks. The chapter then focuses on the challenges of narcotics trafficking and the burdens of growing incidence of drug addiction in Pakistani society. The government’s efforts at augmenting food security and enhancing the availability and uptake of nutrients are examined before presenting conclusions.

National Health Policy

In light of the health related MDGs, reducing child and maternal mortality by 2015 is a high priority for the government of Pakistan. Health spending has increased progressively over the years as the National Health Policy adopted in 2009 focuses on making the population healthier. Some of the important targets of the policy are summarized in the table below:

Table:11.1 National Health Policy 2009 Health Sector Indicators (Baseline, Benchmarks and Targets)

Indicators Baseline Benchmarks and Targets 2006-07 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

I <5 mortality rate (per 1000 lb) 94 78 73 68 65 60 55II Infant mortality rate (per 1000 lb) 78 66 62 58 55 48 43III Maternal mortality ratio (per

100,000 lb) 276 240 220 200 175 165 150

IV % of children (12-23 months) fully immunized (disaggregation by gender and income)

76 (47) 78 80 82 84 84 85

V TB - Case detection rate (SS+) - %

51 74 77 79 80 83 84

VI TB - Treatment success rate - % 87 87 88 88.5 89 90 91Source: National Health Policy 2009 Note: lb refers to Live Births

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The objectives of the health policy are being achieved through the following targeted interventions.

i. Making the health system more responsive and accountable

ii. Introducing reforms in the health sector to make pragmatic progress in meeting MDG targets and tackling effectively newly emerging and re-emerging health issues

iii. Effectively engaging private health sector and civil society organizations to improve health outcomes

iv. Prioritizing vulnerable and disadvantaged groups in society as recipients of social uplift programmes.

Despite these positive efforts, the health indicators have been slow to improve due to various external and natural factors. Communicable diseases still account for a major cause of death. Maternal health problems are widespread and the current infant mortality at 63/1000 is the highest in South Asia.

Analysis suggests that:

(i) Infectious and nutritional deficiency related diseases dominate the causes of mortality in the country.

(ii) Health status varies between urban-rural

locations and by economic status.

(iii) Health achievements in Pakistan contrast

sharply with those of its neighbours.

Special efforts and considerable resources are required to achieve the desired health outcomes.

Health Indicators

The most recent data on health performance of other South Asian countries suggest that Pakistan lags behind in infant mortality rate (at 63 per 1000 live births) and the under 5 years mortality rate (at 86.5 per 1000 live births). These indicators continue to remain high mainly on account of unhealthy dietary habits, water borne diseases, malnutrition and rapid population growth. However, the average life expectancy at 66 years compares well with India, Nepal and Bangladesh. Pakistan is committed towards achieving the MDGs. The MDGs 4, 5 and 6 relate to child mortality, maternal health and combating HIV & Aids, Malaria and other diseases. Considerable efforts and immense resources are required to achieve the desired health outcomes.

Table 11.2: Regional Human Development Indicator Country Life Expectancy

2011 Mortality Rate

under 5 per 1000 2010

Infant Mortality Rate per 1000

2011

Population Growth Rate (%)

2011 Pakistan 65.99 86.5 63.26 2.03India 66.80 62.7 47.57 1.34China 74.68 18.4 16.06 0.49Indonesia 71.33 35.3 27.95 1.07Bangladesh 69.75 47.8 50.73 1.57Sri Lanka 75.73 16.5 9.70 0.93Malaysia 73.79 6.3 15.02 1.58Nepal 66.16 49.5 44.54 1.60Thailand 73.60 13.0 16.39 0.57Philippines 71.66 29.4 19.34 1.90Source: World Development Report 2011


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Health Expenditure

To maintain the expansion of health facilities, the financial allocation for the health sector has been increasing steadily. However, the massive floods of 2010 caused a significant downwards rationalization of health and nutrition expenditures which had to be diverted to the relief and rehabilitation effort. Total health expenditures

(federal and provincial) declined from Rs. 79 billion in 2009-10 to Rs 42 billion in 2010-11. For 2011-12 these have been increased to Rs 55.12 billion; comprising Rs 26.25 billion as development expenditure and Rs 28.87 billion as non-development (current) expenditure. Rs 15.72 billion has been provided in the federal PSDP for 2011-12.

Table 11.3: Health & Nutrition Expenditures (2000-01 to 2011-12) (Rs. Billion) Fiscal Years Public Sector Expenditure (Federal and Provincial) Percentage

Change Health

Expenditure as % of GDP

Total Health Expenditures

Development Expenditure

Current Expenditure

2000-01 24.28 5.94 18.34 9.9 0.722001-02 25.41 6.69 18.72 4.7 0.592002-03 28.81 6.61 22.21 13.4 0.582003-04 32.81 8.50 24.31 13.8 0.572004-05 38.00 11.00 27.00 15.8 0.572005-06 40.00 16.00 24.00 5.3 0.512006-07 50.00 20.00 30.00 25.0 0.572007-08 60.00 27.22 32.67 20.0 0.572008-09 74.00 33.00 41.10 23.0 0.562009-10 79.00 38.00 41.00 7.0 0.542010-11 42.00 19.00 23.00 (-)47 0.232011-12 55.12 26.25 28.87 31.24 0.27

Source: Planning & Development Division

Health Facilities

The health facilities and health related manpower have expanded substantially due to the greater focus on health sector programmes over the last

three decades. This has resulted in the establishment of a large network of health facilities with 108,137 hospital beds, 149,201 doctors, 10,958 dentist and 76,244 nurses by 2011. The current position of health personnel is as follows:

15

25

35

45

55

65

75

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2002

‐03

2003

‐04

2004

‐05

2005

‐06

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‐07

2007

‐08

2008

‐09

2009

‐10

2010

‐11

2011

‐12

Pak Rs (b

illion)

Year

Fig: 11.1 Health & Nutrition Expenditures

Health & Nutrition Expenditures

Decline due to rationalization on account of Flood 2010

Source: Planning and Development Division


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Table 11.4: Healthcare Facilities Health Manpower 2009-10 2010-11 2011-12 Registered Doctors 139,555 144,901 149,201Registered Dentists 9,822 10,508 10,958Registered Nurses 69,313 73,244 76,244Population per Doctor 1183 1,222 1,206Population per Dentist 16914 16,854 16,426Population per Bed 1592 1,701 1,665Source: Planning & Development Division

Insufficient health spending and rapid population growth have contributed to continuing low facilities to population ratios particularly in the case of dentists, nurses and hospital beds. The potential pay off of investing in and improving the overall health services is enormous.

The health care system in Pakistan comprises both public and private health facilities. The public sector until recently was under the domain of the Ministry of Health. However, under the 18th amendment of the constitution of Pakistan, the Ministry of Health has been devolved in June 2011 and the functions of the ministry have been transferred to provincial health departments. The provinces are now responsible for developing their own strategies, programmes and interventions based on their local needs.

The private health system now stretches across the spectrum from primary to tertiary care and exists all over the country in both urban and rural areas. This sector provides varying levels of care and constitutes a diverse group of doctors, nurses, pharmacists, traditional healers and laboratory technicians. The services they provide include hospitals, nursing homes, and maternity clinics. The private sector has developed considerably by capitalizing on the existing demand. The majority of the private sector hospitals in Pakistan follow either a sole proprietorship or a partnership model organization. People sometime prefer private health services over public health care due to concerns about quality of care in public facilities.

Given the complex nature of the healthcare delivery system in Pakistan and the limited resources available to the health care sector, concerted efforts are required through inter-

sectoral collaboration focusing on the disadvantaged segment of population.

Health insurance is one of the complementary interventions for the safety net beneficiaries with the purpose of improving their access to health care services and reducing income loss due to catastrophic shocks. An important consideration in social insurance relates to the extent of health cover to be provided. Zakat, Bait-ul-Mal, Workers Welfare Fund, Employees Old Age Benefit and Workers Participation Fund are all forms of social security. These funds provide assistance in a limited number of cases to cover medical treatment costs.

Targets and Achievements during 2011-12

The targets for the health sector during 2011-12 included establishment of 10 rural health centres (RHC), 50 basic health units (BHUs) and renovation of 20 existing RHCs and 50 BHUs. The manpower targets include the addition of 5,000 doctors, 500 dentists, 4,000 nurses, 5,000 paramedics and 550 traditional birth attendants. Under the preventive program, about 7.5 million children were targeted to be immunized and 22 million packets of oral rehydration salt (ORS) were to be distributed during 2011-12.

The achievements in the health sector during 2011-12 included the establishment of 7 rural health centres (RHCs), 30 basic health units (BHUs) and renovation of 15 existing RHCs and 35 BHUs and addition of 4,000 hospital beds. The manpower development achievements include entry of 4,300 new doctors, 450 Dentists, 3,000 nurses and completion of training for 9,500 Lady Health Workers (LHWs). 60 percent of the set target was


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achieved in the case of BHUs and 95 percent in the case of training of Lady Health Workers. Under the preventive program, about 7 million children

were immunized and 20 million packets of ORS were distributed till March, 2012.

Table: 11.5 Physical achievements 2011-12

Sub Sectors Targets (Number) Estimated achievements (Numbers) Achievement (%)

A. Rural Health Programme New BHUs 50 30 60New RHCs 10 7 70Strengthening/ Improvement of BHUs 50 35 70Strengthening/ Improvement of RHCs 20 15 75B. Hospital Beds 5000 4000 80C. Health Manpower Doctors 5000 4300 86Dentists 500 450 90Nurses 4000 3000 75Paramedics 5000 4500 90TBAs 550 500 91Training of LHWs 10000 9500 95D. Preventive Programme Immunization ( Million Nos) 7.5 7 93Oral Rehydration Salt (ORS) (Million Packet) 22 20 91


Health Programs

In pursuance of the 18th amendment to the constitution of Pakistan, the health sector has been devolved to the provinces and the federal Ministry of Health has been abolished. However, national planning in the health sector and cooperation with the provinces and international development partners is vested with the Planning and Development Division. All the vertical health programs have also been devolved to the provinces. However, upon request of the provinces, the Council of Common Interests (CCI) in its meeting held on 28th April 2011 decided that the federal government (Planning and Development Division) shall fund these programs till currency of the 7th NFC award at a predefined share. Accordingly, the following national health programmes continue to be financed by the federal government in the post devolution scenario till 2014-15.

1. National Program for Family Planning and Primary Health Care

The program has recruited more than 103,000

LHWs as of March 2012. More than 60 percent of the total population and 76 percent of the target population is covered by LHWs. Out of 30 million children, about 16 million were immunized by LHWs during National Immunization Days (NIDS) Similarly, in high risk districts out of 5 million target women, 4.5 million were vaccinated by LHWs.

2. Expanded Program on Immunization

The National EPI Program provides immunization against the seven killer diseases - childhood tuberculosis, poliomyelitis, diphtheria, pertussis, neonatal tetanus, measles and hepatitis B. Initiated in 1978, the EPI programme is an effective public health intervention that has a great impact on the health of the population. By reducing the cost of treating diseases, immunization offers opportunities for poverty reduction. Every year a nation wide National Immunization Day (NID) is carried out to give polio vaccine to all children below 5 years of age. The mass immunization campaign has gained a great deal of acceptance across the country.


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3. Malaria Control Program

Malaria is the second most prevalent and devastating disease in the country and has been a major cause of morbidity in Pakistan. More than 90 percent of the disease in the country is in the 56 highly endemic districts, mostly located in Balochistan (17 districts), FATA (7 agencies) and Sindh (12 districts). More than 40 percent of the reported cases from these districts are due to flaciparum malaria which is the more dangerous form of malaria. The Federally Administrated Tribal Areas (FATA) is the second highest malaria affected belt of the country accounting for 12-15 percent of the total case load of the country.

The National Strategy for Malaria Control is based on the following six key Roll Back Malaria (RBM) elements.

1) Early diagnosis and prompt treatment.

2) Multiple prevention

3) Improved detection and response to epidemic

4) Developing viable partnership with national and international partners

5) National commitment

6) Intensive and comprehensive public education activities to enhance public awareness of malaria, treatments and prevention

4. National TB Control Program

Pakistan is sixth amongst the top 22 high disease burden country. National Tuberculosis Control Programme (NTP) has achieved 100 percent Directly Observed Treatment System (DOTS) coverage in the public sector; in the last five years NTP and partners have provided care to more than half a million TB patients in Pakistan. Despite this the global target of 70 percent case-detection has not been achieved. There are certain areas where there is room for the NTP to further improve such as, at the client level - suspect management, contact management, quality bacteriology services; at the community level, the NTP can strengthen engagement with all care providers through public private

partnership and inter-sectoral collaboration, monitoring and supervision, research for evidence based planning and Advocacy, Communication and Social Mobilization (ACSM). The prevalence rate of TB is nearly 300 per 100,000 of population whereas the absolute number of cases is 211,500 and the treatment success rate is 91 percent. The percentage of TB case-detection rate is 80 percent and cure rate is 74 percent.

5. HIV/ AIDS Control Program

The government is implementing an HIV/ AIDS Control Programme since 2003 at a cost of Rs 2.9 billion for five years. The major focus is on Behaviour Change Communication (BCC), services to high-risk population groups, treatment of Sexually Transmitted Infections (STIs), supply of safe blood and capacity building of various stakeholders. A total of 4,500 HIV positive cases have been reported to the national and provincial AIDS Control Programmes. These include 2,700 full blown AIDS. Around 1,030 patients are receiving free treatment through 12 AIDS Treatment Centers.

6. National Maternal and Child Health Programme

National Maternal and Child Health Programme has been launched in order to improve maternal and neonatal Health services for all, particularly the poor and the disadvantaged, at all levels of the health care delivery system. It aims to provide improved access to high quality mother and child health and family planning services, train 10,000 community health and nutrition women workers, provide Comprehensive Emergency Obstetric and National Care (EMONC) service in 275 hospitals/ health facilities, provide basic EMONC services in 550 health facilities, and family planning services in all health outlets.

7. National Programme for Prevention and Control of Blindness

The National Programme for Prevention and Control of Blindness (NP-PCB) was launched by the federal Ministry of Health in 2005. The Program is in line with “VISION 2020”, the


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global initiative of WHO for elimination of preventable causes of blindness by the year 2020. An allocation of Rs. 246.9 million was made for this program during 2011-12.

Cancer Treatment

The Pakistan Atomic Energy Commission (PAEC) is playing a vital role in the health sector by using nuclear and other advanced techniques, for diagnosis and treatment of cancerous and allied diseases, as well as national cancer awareness and prevention programmes.

Presently the PAEC is operating 14 modern cancer hospitals in the country while four others are in the final stages of completion and are expected to start functioning by June 2012. These hospitals are manned by skilled teams of more than 2,000 professionals; including doctors, engineers, scientists, paramedical, technical and other supportive staff. These hospitals bring facilities for early diagnosis and treatment of cancer within the reach of a very large proportion of the population of the country. The major services provided at these hospitals are diagnostic and therapeutic nuclear medicine, hormonal assays, radiotherapy, chemotherapy, indoor/wards facilities, breast care clinics, biochemistry, ultrasonography, color Doppler, diagnostic radiology, histopathology, hematology, molecular based diagnostics and cancer prevention and awareness programmes. About 527,633 patients were treated from July to March 2012. Work continues in the following areas:

• Research continued on various International Atomic Energy Agency (IAEA) TC/ Regional Cooperative Agreement (RCA) projects and others in collaboration with different international/ national organization.

• The cancer awareness and prevention/control campaign was launched especially for early diagnosis of breast cancer and treatment leading to better prognosis through arranging lectures, seminar, and workshops in remote areas, and through print and electronic media and mobile breast care clinics.

• Provision of state of the art treatment (radiation therapy) facility at Atomic Energy Medical Centre (AEMC), Karachi.

In order to provide better treatment facilities to the patients at their door steps, the PAEC continued working on the following projects:

4 Hospitals (3 in KPK and 1 in Sindh province) have almost been completed and out patient departments have started working. These hospitals are expected to start functioning at full capacity by June 2012.

Addition of latest and advanced diagnostic and therapeutic facilities on par with international standards is also underway and Positron Emission Tomography- Computed tomography (PET/ CT) facility at the PAEC Cancer Hospital Institute of Nuclear Medicine and Oncology (INMOL) in Lahore has been added and patients throughout Pakistan are benefitting from these facilities.

PAEC Cancer Registry Programme (PCRP), started in 2007, is now in completion phase and is expected to be completed in August 2012.

Patients in remote areas also benefited with mobile breast care clinics being arranged on fortnightly and monthly basis for awareness, diagnosis and treatment of patients.

Dengue Epidemic and Control Programme

In Pakistan, the outbreak of Dengue Hemorrhagic Fever (DHF) was first reported in Karachi in 1994, followed by outbreaks in 2005, 2008, and most recently in 2011. Heavy monsoon rains in Punjab provided ideal conditions for dengue-bearing mosquitoes to thrive in stagnant water. Although the disease spread in all provinces, Punjab was badly affected.

21,292 confirmed cases of dengue were reported in Punjab in 2011, 352 of these cases were fatal. No deaths have been reported so far in 2012. In order to prevent the dengue epidemic, the following steps have been taken:


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The Punjab government has established a provincial task force headed by the Chief Minister of Punjab.

A provincial steering committee headed by the Chief Secretary of the province has been constituted.

District implementation committees headed by DCOs are operational.

Chief Minister (CM’s) Dengue Research and Development (R&D) cell was established to carryout applied and operations research on dengue.

Emphasis is placed on utilizing latest technology for combatting dengue epidemics. A system has been developed and put in place for online dengue case surveillance, while Global Positioning System (GPS) mapping of cases, vector, and digital monitoring of dengue prevention and control activities are being carried out.

Environmental management measures have also been taken including proper disposal of waste water, de-silting operations, supply of safe water, time repair of leaks in plumbing systems, use of water filters, management and regulation of used tyres, and cleanliness drives in eateries.

All teaching hospitals have established isolation wards and high dependency units with all facilities. On the average 200 extra beds were allocated for dengue patients in each teaching hospital. About 10,000 bed nets treated with insecticide were provided to each hospital for dengue isolation wards.

For the arrangements of platelets, cell separator machines with platelet kits were made available on an urgent basis at the Institute of Blood Transfusion Services, Jinnah Hospital Lahore, Children’s Hospital Lahore and Lahore General Hospital. In other hospitals centrifuge machines have been provided for platelet segregation.

Delegates of dengue experts from Sri Lanka and Indonesia also visited Pakistan to review the strategies and provide guidance on larva surveillance and capacity building on vector control and case management. Job positions

of 875 sanitary patrols, 337 CDC supervisors, 292 LHW’s and 66 data entry operators were created. The creation of 718 positions of lady sanitary patrols is under process.

In Khyber Pakhtunkhwa a total of 386 confirmed cases with 7 deaths were reported from Peshawar, Abbotabad, Mansehra, Haripur, Mardan, Swat and Nowshera. Rs 55 million was released for purchase of larvicides, insecticides, spray machines, foggers, and social mobilization activities. To address future dengue outbreaks a scheme at a cost of Rs 265.7 million has been approved. The scheme will be implemented in all 25 districts of the province for three years. Main components of the scheme include institutionalization, advocacy, social mobilization and communication, vector control and surveillance, disease management and surveillance, and research and development.

In Sindh, a total of 1,547 suspected cases were reported out of which 1,326 were from Karachi and 221 were from the rest of Sindh. 18 of these cases were fatal, 16 from Karachi and 2 from the rest of Sindh. Sindh’s response to this outbreak includes detailed situation analysis (need assessment and gap analysis) of epidemiology and entomology of transmitting vectors. Provincial Strategic planning for sustained control of vector borne diseases involve:

Adopting integrated diseases control for dengue, malaria and leishmaniasis

Restructuring of vector control programme to fill existing planning

Capacity building of care providers for clinical management of dengue cases using guidelines specific to Pakistan

Development of coordination and collaboration with UN Agencies, other line department and development partners for resource mobilization and technical assistance

The incidence of dengue in Balochistan was much less compared to other provinces. However, the government of Balochistan also


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took necessary measures to overcome any emergency situation related to dengue.

Drug Abuse

Illicit drug consumption, production and trafficking have emerged as a serious global issue. Drug abuse has also affected Pakistan in many ways. Proliferation of drugs and psychotropic substances within Pakistani society and the subsequent increase in number of drug addicts are emerging challenges.

A Drug Control Master Plan (2010-14) has been prepared to reduce the health, social and economic cost associated with drug trafficking and substance abuse in Pakistan. The plan includes short, medium and long term initiatives for implementation of the National Anti-Narcotics Policy 2010. The Ministry of Narcotics Control in collaboration and cooperation with the provincial governments and other stakeholders, is taking measures to effectively implement the policy.

Currently, there are 16 ongoing development projects being implemented at a total cost of Rs.4.67 billion including local cost of Rs.2.13 billion and foreign aid of Rs.2.52 billion.

Table: 11.6 Drug Seizures S.No. Kind of Narcotics Quantity of Drugs

Seized (in Kgs) i Opium 8,725.006ii Morphine 1,249.000iii Heroin 1,641.014iv Hashish 65,445.850Source: Narcotic Control Division

Pakistan is one of the top three countries where the confiscation rate, seizure of narcotics, drugs and precursor chemicals is high. The seizures of narcotics by the Anti-Narcotics Force (ANF) during the period July 2011 – 15th February, 2012 are given in the table 11.6:

Food and Nutrition

The links between malnutrition, ill health and poverty are well known. Disease contributes to poverty due to the costs of illness and reduces earning capacity during and after illness. Good health is a first step towards prosperity and reduction of poverty. It is therefore, critical to move towards a system which will address health challenges and prevent households from falling into poverty due to poor health. In Pakistan, health sector investments are viewed as part of the government’s poverty alleviation endeavors.

Food security is a national priority. According to the recent National Nutrition Survey (NNS) 2011, about 32 percent children under the age of five years and 15 percent mothers are underweight. About 30 percent babies have low birth weight, reflecting the poor nutritional status of mothers.

The national food availability estimated through food balance sheets, has been satisfactory for major food items during the fiscal year 2011-12. The average calories estimated based on food availability has been 2,430 per capita per day. The overall food availability trend of essential food items for the last five years is given in the following table.

The consumption of essential food items shows slight improvement in calorie intake from 1,650 to 1,700 and protein from 44 to 46gm per capita per day in 2010-11 compared to data from the HIES 2007-08. The change in food consumption between 2007-08 and 2010-11 has mainly been through increase in cereals: wheat 3 percent, rice 12 percent, pulses 30 percent, vegetable ghee and oil 8 percent, meat 5 percent, fruits and vegetables 11 percent. Consumption decreased for sugar (1 percent) and milk (3 percent). Food consumption remained lower than food available and the minimum food basket1

1 Planning and Development Division 2012


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Table:11.7 Food Availability per capita Items Year/ units 2006-07 2007-08 2008-09 2009-10 2010-11 (E) 2011-12 (T)Cereals Kg 151.1 158.1 160.3 158.8 158.7 160.0Pulses Kg 7.7 7.2 5.8 6.8 6.7 7.0Sugar Kg 30.3 30.0 25.6 26.1 26.5 29.5Milk Ltr 164.7 165.4 167.2 169.1 169.8 170.0Meat Kg 19.2 20.0 20.0 20.5 20.9 21.5Eggs Dozen 5.4 5.5 5.6 5.8 6.0 6.0Edible Oil Ltr 12.8 12.8 12.5 12.6 12.6 13.0Calories per day 2398 2410 2425 2415 2420 2430Protein per day (gm) 69.0 72.0 72.5 71.5 72.0 72.5Source: Planning & Development Division E: estimated T: targets

The cost of the food basket for the fiscal year 2011-12 (July- March) fluctuated and a cumulative increase of about 1 percent from Rs.1,745 to Rs.1,767 was noted. The change in cost among provinces has been highest in Khyber Pakhtunkhwa with a 5 percent increase owing to lower availability with respect to demand and lowest in Punjab where there was a 2 percent decrease.

The nutrition related activities/programmes are summarized below:

Food security and social safety net measures especially for poor households continued to be in place to combat the impact of food inflation. The Benazir Income Support Program (BISP) and Pakistan Bait-ul-Mal’s Food Support Program for poorest of the poor households continued to provide cash incentive support during the year throughout the country.

Food quality control is also an important food security concern. A reference food laboratory for strengthening of food quality control system at the Nutrition Division of the National Institute of Health (NIH), Islamabad was completed during the year and is currently operational.

Nutrition improvement through micronutrient supplementation to address anemia, and vitamin-A deficiency in children under five

and women of child bearing age continued along with growth monitoring, counseling of breastfeeding and weaning practices and raising awareness through 98,000 Lady Health Workers in primary health care (PHC) continued across the country to cover more than 60 percent of the total population.

Micronutrient Deficiency Control Program to address major micronutrient deficiencies of iodine, iron and vitamin-A& D are being addressed through food fortification in the public and private sector. The emphasis during the fiscal year remained on improving the quality of fortified products.

Conclusion

This chapter discussed the state of health and nutrition in Pakistan. An overview of the National Health Policy and its primary objectives are presented, followed by a discussion of the state of health indicators, expenditures, and facilities in Pakistan. The targets and accomplishments for the 2011-12 are described, followed by a special focus on cancer treatment and the government’s response to dengue outbreaks. The chapter highlights the challenges of narcotics trafficking and growing incidence of drug addiction in Pakistani society. Finally the chapter documents the government’s efforts at augmenting food security and enhancing the availability and uptake of nutrients.

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Population Labour Force and Employment

Balanced growth in population is crucial for the welfare of the country or improving the productive capacity of the economy. It is important to know the size of a country’s population, its growth rate and other demographic attributes in order to analyze the dynamics of the population, labour force and employment and to estimate the quantity of goods and services that will be needed to meet future demand.

The population of a country plays a vital role not only in the economic development but also for the social well-being of the people. However, poor management of human resources can lead to social distress and reduced economic performance. Due to rapid population growth and lack of well-developed human resources, Pakistan is faced with socioeconomic crises including food insecurity, and unemployment. Nevertheless, with continuous efforts of the government, the situation has started to improve.

Due to improved health facilities and promotion of population welfare activities through the Ministry of Population Welfare the crude birth and fertility rates have been reduced considerably which has led to a reduction in the average growth rate of the population. This has been accompanied by an increased labor participation rate. However despite these improvements Pakistan is still lagging behind in comparison to its neighboring countries. For example, the fertility rate in Pakistan is still higher than neighboring countries like India, Bangladesh, Sri Lanka, Nepal and China. As a result population growth rate is not reducing considerably and at the same time dependency ratio is increasing. Therefore, it is imperative to put further efforts for development of better human resources.

Since its creation Pakistan has exhibited a continuously high rate of population growth. When measured by population size it has moved from the thirteenth largest country in 1950 to the sixth largest country in 2011. According to World Bank projection it will become the fifth largest country by 2050. This rapid increase in population leads to greater demand for food, infrastructure, and services and puts an enormous strain on food security and provision of basic services.

This chapter presents a discussion of the structure of Pakistan’s population and the evolution of demographic indicators, followed by a thorough overview of the structure of labour force, including unemployment statistics and details of government projects and programmes aimed at boosting employment opportunities.

Overview of Population and Demographic Indicators

The structure and growth pattern of population can be evaluated through certain key indicators. These are briefly explained below:

Crude Birth Rate: The average annual number of births during a year per thousand persons in the population at midyear is known as the crude birth rate. The birth rate is the main factor in determining the rate of population growth. It depends on both the level of fertility and the age structure of the population. The Crude Birth Rate (CBR) does not take into account the age or sex differences among the population. A crude birth rate of more than 30 per thousand is considered high and a rate of less than 18 per thousand is considered low. The global crude birth rate in 2011 was 20 per thousand. The CBR in Pakistan is

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estimated at 27.2 per thousand in 2011-12; in 2008 it was 25.0 per thousand. This indicates a marginally improving trend.

Similarly, the crude death rate measures the rate of deaths per one thousand people in a given population per year. A crude death rate of less than ten per thousand is considered as low while above twenty per thousand is considered as high. According to the World Population Data Sheet 2011, the global crude death rate in 2010 was 8 persons per thousand. In Pakistan it was 7.3 per thousand in 2011. It is worth mentioning that the crude death rate decreased from 7.7 per thousand in mid-year 2008 to 7.2 per thousand in mid-year 2012, which shows an improving trend (Fig.1).

Infant mortality in Pakistan has also improved as the country experienced a considerable decline in maternal and infant mortality. Infant mortality was 70.20 per thousand in mid year 2008, which reduced to 69.00 per thousand live births in mid year 2012. The major reason for this decline is provision of improved health facilities to control diarrhea and pneumonia which can be fatal for infants. Nevertheless, this decline is not significant, given the repeated pregnancies and

births. The status of maternal health is improving in Pakistan. The maternal death rate decreased from 400 per 100,000 live births in 2005-06 to 276 per 100,000 live births in 2010. This decline is the result of the strengthening of the four pillars of safe motherhood including family planning, antenatal care, clean safe delivery and essential obstetrical care.

Some of the selected demographic indicators for the period (2010-11 and 2011-12) are posted in Table 12.1.

Table 12.1: Selected Demographic Indicators 2010-11 (1st July) 2011-12 (1st July) Total Population (Million) 177.1 180.71Urban Population (Million) 65.3 67.55Rural Population (Million) 111.8 113.16Total Fertility Rate (TFR) 3.5 3.4Crude Birth Rate (Per thousand) 27.5 27.2Crude Death Rate (Per thousand) 7.3 7.2Population Growth Rate (Percent) 2.05 2.03Life Expectancy (Year) - Females 65.8 66.1- Males 63.9 64.3Source: P&D Division, National Institute of Population Studies The demographic indicators reflect improvement in the structure of the population and point to future trends. There is improvement in life expectancy and a fall in the population growth rate. Increase in life expectancy indicates the provision of a better living environment and health facilities in the country. The decline in fertility and the

resultant decline in population growth lead to a lower dependency ratio which may help in improving living standards in the country. However the population growth rate is still higher than other neighboring countries and is still a challenge for the government.

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5

10

15

20

25

30

2008 2009 2010 2011 2012

Cru

de B

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& D

eath

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Source: National Institute of Population Studies (NIPS) Population Census Organization

Fig-12.1: Population OverviewCrude birth rateCrude death ratePopulation (mln)

Population, Labour Force and Employment

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Age Composition of Population

The age composition of a population gives insight to the size of the future productive human resource. It also highlights changes in the dependency levels. During 2011, the under-15 population was 62 million, whereas 104 million were between the ages 15-59 years. The available projections of the population by age categories indicate that those below 30 years of age will constitute more than 53 percent of the total population by 2030. Countries, like Pakistan, having a very young age structure are more likely

to have large dependent population which puts a considerable stress on the economy. This higher percentage has a dual impact on the country’s future economic and social wellbeing. The growing youth population will only add marginally to the productive resources of the country but will put a large burden on health, education and decent jobs, if they are not trained properly. This will worsen both the economic and social situation. Conversely with effective government policies for their education and training, these youth can become a powerful force for economic development.

Table 12.2: Population by Age Groups Million Age Group 1998 2011 2015 2020 2025 2030 00-04 19.59 22.02 22.76 23.28 22.44 20.3505-09 20.72 20.40 21.33 22.35 22.95 22.1810-14 17.14 19.94 20.07 21.24 22.28 22.8815-19 13.73 20.27 20.12 20.01 21.19 22.2420-24 11.88 17.72 19.8 20.05 19.95 21.1425-29 9.76 15.25 17.13 19.71 19.98 19.8930-34 8.24 12.95 14.72 17.04 19.62 19.9135-39 6.32 10.83 12.4 14.62 16.94 19.5340-44 5.89 8.90 10.36 12.27 14.49 16.8145-49 4.68 7.32 8.49 10.2 12.01 14.3150-54 4.26 6.01 6.88 8.26 9.95 11.8455-59 2.86 4.83 5.53 6.57 7.93 9.6060-64 2.72 3.78 4.31 5.13 6.14 7.4565+ 4.64 6.81 7.82 9.39 11.39 13.93Total 132.43 177.03 191.72 210.12 227.26 242.06Source: National Institute of Population Studies, Planning & Development Division, June 2010

Regional Demographics

The Pakistan family planning indicators, though improving, do not compare favorably with other countries. Table 12.3 and 12.4 present a comparison of the family planning indicators with neighboring and some brotherly Islamic countries. It is evident from the data that the performance of Pakistan when compared with these countries is modest. Many Muslim countries such as Turkey,

Iran and Egypt have experienced a considerable decline in the Total Fertility Rate (TFR). In Pakistan an important reason for the slower decline is the low Contraceptive Prevalence Rate (CPR) due to the lack of awareness because of which people hesitate in practicing contraception. The following table provides a comparison with regional countries on TFR, CPR and the Population Growth Rate (PGR).

Table 12.3: Family Planning Indicators of Regional Countries-2011

Country Total Fertility Rate Contraceptive Prevalence Rate % Population Growth Rate%

Asia 2.1 67 0.9 Bangladesh 2.2 56 1.3 Bhutan 2.3 31 1.5


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Table 12.3: Family Planning Indicators of Regional Countries-2011

Country Total Fertility Rate Contraceptive Prevalence Rate % Population Growth Rate%

India 2.5 56 1.3 Maldives 1.7 35 1.3 Nepal 2.6 48 1.7 Sri Lanka 2.2 68 0.8 Pakistan 3.4 27 2.03 Source: i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) Population Projection by Planning Commission’s Working Group on Population Sector, 2010 ii) Sub Group II on Population Projections for the 10th Five Year People’s Plan 2010-15

Table 12.4: Family Planning Indicators of Muslim Countries-2011 Country Total Fertility Rate Contraceptive Prevalence

Rate % Population Growth

Rate% Egypt 1.7 60 2.6 Morocco 2.2 63 1.0 Turkey 2.0 73 1.1 Iran 1.6 73 1.0 Indonesia 2.1 61 1.0 Malaysia 2.6 55 1.6 Pakistan 3.4 27 2.03 Source: i) State of the world population 2011, United Nation Fund for Population Activities (UNFPA) Population Projection by Planning Commission’s Working Group on Population Sector, 2010 ii) Sub Group II on Population Projections for the 10th Five Year People’s Plan 2010-15

Fertility in Pakistan

The Total Fertility Rate (TFR) of a population is the average number of children that are born to a woman over her life time. The TFR is closely tied to the population growth rates of a country and can be a good indicator of future population trends. Awareness of contraception is increasing in the country. According to the Demographic and Health Survey of Pakistan 2006-07 by the Ministry of Population Welfare, 96 percent of women who have ever been married are aware of at least one family planning method compared to 78 percent in 1991.The survey also shows that less than 30 percent of married women were using contraception. The fertility rate per woman has been reduced to 3.4 percent in 2012 from 4.0 percent in 2006 and the population growth rate has come down to 2.03 percent.

The results are still not encouraging when compared with other developing countries of the region. Pakistan has the highest birth as well as total fertility rate among the Asian developing

countries. If this trend prevails, it is expected that Pakistan’s population will double in 2046, and other things remaining the same Pakistan’s rank in terms of the selected social and economic indicators in comparison with other developing Asian countries may deteriorate further. Therefore, vigorous efforts are needed to control population growth and reduce the TFR.

2.52.72.93.13.33.53.73.94.14.34.5

2006 2007 2008 2009 2010 2011 2012

Fig-12.2: Trend in Fertility Rate (%)

Source: Sub group II on population projection for the 10th Five Year People Plan 2010‐15 (Planning and Development Division)


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Reproductive Health

Reproductive health is a state of complete physical, mental and social well-being (and not merely the absence of disease or infirmity), in all matters relating to the reproductive system, and to its functions and processes. The provision of comprehensive, voluntary family planning and reproductive health services is a fundamental human right. Contrary to its importance, the general public is not sensitive about realizing and understanding the importance of reproductive health and as a result a large proportion of the population is reluctant to use contraception. The prevailing social mindset of son preference and the limited role of women in decision making for the welfare of the family hinder the effective implementation of any reproductive health program in many parts of the country.

The Rights of Women and Children

The future of a country depends largely on the quality of maternal guidance to the children and

the social and academic environment available to them. A healthy and educated mother, therefore, plays an extremely important role in making sure that her children are physically healthy, intellectually developed and academically active. Similarly every child has the right to avail good quality health care, safe drinking water, balanced diet and clean and safe environment. The first focus of population welfare, therefore, has to be on the education and health of a country’s female population which has direct relevance to children’s future. At the International Summit on Population and Development in 1994, nations of the world agreed that progress in addressing population issues could be better achieved through empowering women and girls to participate in their societies and economies on equal footing with men and boys and to make fundamental decisions about their lives, including decisions related to the timing and spacing of pregnancies and births.

Box 1 Measures for Empowering Women

• Equal access to education, training and science and technology

• The government has signed national and international commitments like Convention On Elimination of all Forms of Discrimination Against Women(CEDAW) and Millennium Development Goals(MDGs)

• Increase of women quota up to 10% for recruitment in public sector

• Reservation of thirty three percent seats for women in all local bodies, seventeen percent seats have been reserved in the Senate, Provincial Assembly and in National Assembly

• Protection of women against harassment at workplace

• Benazir Income Support Programme (BISP) for enhancing the confidence of women

• Establishment of working women hostel, provision of transport facilities to female employees and establishment of day care centre are part of the government initiatives to resolve the problems faced by employed women

Population Welfare Programme

Since 2002 the service delivery of the Population Welfare Programme has been under the administrative control of the provinces. Now the provincial governments are responsible for implementing the Population Welfare Programme. The federal government will be funding the

programme for a four year period. The population welfare department played an impressive role in the promotion of health and family planning related services throughout the country. Major achievements are listed as below:

The population welfare program has established 2,891 family welfare centres


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(FWC) during 2010-11. The FWC is one of the main service delivery networks of the program established in rural and urban areas for the provision of Mother Child Health Services (MCH), contraceptives and the treatment of minor ailments.

Reproductive Health Services-A Centres (RHSA) are hospital based units which provide the full range of family planning methods including contraceptive surgery services. These centres also assist in public health education campaigns and raising awareness about personal hygiene. There are 207 RHS-A centres functioning throughout the country.

At present 292 Mobile Service Units (MSU) are functioning in the country. The MSU extends reproductive health and family planning services to villages through regular (twice a week) camping services.

The hospitals registered as RHS-B Centres are providing training for doctors and paramedics. During 2010-11, the government launched 133 RHS-B Centers.

Registered Medical Practitioners, Hakims and Homeopaths are a significant source of health care provision in both the urban and rural areas of the country.

Table-12.5: Physical and Contraceptive Users Targets (Cumulative Number) Name of Service Outlet / Unit

2010-11 (Target)

2010-11 (Achievement)

2011-12 (Target)

Public Sector Family Welfare Centers (FWCs) 3084 2891 3427 Reproductive Health-A Centers 258 207 269 Mobile Service Units (MSUs) 293 292 300 Contraceptive users (million) 9.953 2.734 10.241 Private Sector RHS-B Centers 145 133 184 Registered Medical Practitioners (RMPs)

24273 9297 27576

Hakeems and Homeopaths 13925 8071 14009 Source: Planning and Development Division

Urbanization

Urbanization is a process which involves the absolute and relative growth of towns and cities within defined areas. Major reasons for urbanization are better economic opportunities and living conditions as compared to rural areas. Due to the growing needs and limited work opportunities people are rapidly moving towards urban centers. Resultantly urbanization has been accelerated worldwide. This is the first time in human history that the majority of the world's population has been shifted to urban areas. At present 3.3 billion people (more than one half of world population) are living in urban areas. It is predicted that by 2030 at least 60 percent of the population will be living in cities. In developing countries, about 60 million people move from rural to urban areas each year and this rate of movement is expected to continue.

In Pakistan cities are growing rapidly as a result of the movement of people from rural areas in search of jobs, opportunities to improve their lives and make a better future for their children. Moreover the lack of basic facilities in rural areas like electricity, sanitation, safe drinking water and schooling are some of the reasons for rapid urbanization. The population in urban areas increased from 65.28 million in 2011 to 67.55 million in 2012. This means that within a year, two million people shifted from rural to urban areas in Pakistan. The annual population growth in urban areas is expected to increase further in coming years which may cause socio economic problems in future.

In order to cope with the situation, the government is not only trying to create a better economic and healthy environment in urban areas but also provide basic facilities in slum areas. Some of the reforms to manage urbanization are:


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Provision of adequate infrastructure, such as roads, houses, electricity, water and sanitation services, public transportation, schools and health clinics.

Transforming slums into legitimate communities.

Government supportive policies for agricultural sector.

Table 12.6: Urban and Rural Population (Million)Mid-Year Urban Population Rural Population 2008 57.32 105.062009 60.87 109.072010 63.05 110.462011 65.28 111.822012 67.55 113.16Source: Planning and Development Division

Labour Force and Employment

The labour force can be defined as that part of the economically active population which can supply labour for production of goods and services in the

country. Pakistan has a very large labour force due to its large population size. Since independence, six labour policies have been announced by the government. These were announced in 1955, 1959, 1969, 1972, 2002 and 2010. These policies laid down the parameters for the growth of trade unionism; protection of workers’ rights; the settlement of industrial disputes and the redress of workers grievances. The policy of 1972 was the most progressive one in terms of reforming the labour laws. The present government, recognizes that there should be a cordial relationship between workers and employers and at the same time both must enjoy reasonable benefits without inflicting any set back on the economy. This is only possible if there is a mutual awareness and understanding between workers and employers of the rights and obligations.

The labour policy 2010 has been developed within a framework of objectives and initiatives; some of which are summarized in Box-2

Box 2 Labour Policy 2010

Objectives

Promotion of employee’s social security and social insurance programme

Adequate security of jobs should be available to the workers

Conditions should be created so that workers and employers are committed to enhancing labour productivity

Promotion of higher jobs be ensured at all levels based on suitability and merit

Forced labour in all its forms to be eliminated

Just and humane conditions of work be guaranteed to all workers

Initiatives

The government has increased the minimum wages from Rs.7,000 to Rs.8,000 per month (announced by Prime

Minister on 1st May, 2012).

Consolidation of labour laws is underway

Mine workers, whether contracted or permanent, will be provided with the same protection as other workers

The government has started the process to regularize/confirm contract employees

Elimination of gender discrimination

Special emphasis on education of workers children

Regulate and control child labour


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According to the Labour Force Survey (LFS) 2010-11, Pakistan has a labour force of 57.24 million people which is 0.91million more than the

previous year. The total number of people employed during 2010-11 was 53.84 million, 0.63 million more than the preceding year.

Table-12.7: Civilian Labour Force, Employed and Unemployed for Pakistan (Million)YEAR 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Labour Force 45.5 50.05 50.33 51.78 53.72 56.33 57.24Employed 42 46.95 47.65 49.09 50.79 53.21 53.84Unemployed 3.5 3.1 2.68 2.69 2.93 3.12 3.40Source: Various Issues of Labour Force Survey, 2010-11

Labour Force Participation Rates

The Labour force participation is estimated on the basis of the Crude Activity Rate (CAR) and 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 RAR gives a relatively better picture of change in the labour force participation in the country because it is comprised of the active labour force. Between 2008-09 and 2010-11, the CAR showed a mixed trend in the rural areas. The male CAR decreased from 49.2 percent to 48.6 percent whereas at the same time the female CAR increased from 18.5 percent to

19.4 percent. Therefore the net effect on participation in rural areas was zero. In the case of the urban areas the female CAR increased more than the male CAR and there was an increase in the overall participation rate. The RAR for the rural areas shows a marginal decrease during the 2009- 2011 period. There is a marginal increase in the female RAR and a decrease in the male RAR. However in the urban areas both male and female RAR increased which on aggregate eliminated the effect of reduction in the rural RAR. Therefore as a whole, no change has been seen in RAR at the country level. An important insight in this change is that female participation is increasing in urban areas. This is a good sign of female empowerment.

Table-12.8: Labour Force Participation RatesIndicators 2008-09 2009-10 2010-11 Indicators 2008-09 2009-10 2010-11

Crude Activity (Participation) Rates (%) Refined Activity (Participation) Rates (%)Pakistan PakistanTotal 32.8 33.0 32.8 Total 45.7 45.9 45.7 Male 49.6 49.5 49.3 Male 69.3 68.8 68.7 Female 14.9 15.5 15.6 Female 20.7 21.5 21.7 Augmented AugmentedTotal 38.8 38.8 38.4 Total 53.9 53.9 53.5 Female 27.0 27.2 27.0 Female 37.5 37.9 37.4 Rural RuralTotal 34.3 34.5 34.3 Total 49.2 49.4 49.1 Male 49.2 49.0 48.6 Male 71.0 70.2 70.0 Female 18.5 19.3 19.4 Female 26.4 27.6 27.6 Augmented AugmentedTotal 42.7 42.6 42.2 Total 61.2 61.0 60.4 Female 35.6 35.8 35.4 Female 50.7 51.2 50.3 Urban UrbanTotal 29.9 30.0 30.0 Total 39.3 39.5 39.5 Male 50.4 50.6 50.6 Male 66.3 66.4 66.4 Female 7.6 7.8 8.1 Female 10.1 10.3 10.7 Augmented AugmentedTotal 31.0 31.1 31.0 Total 40.8 41.0 40.8 Female 9.9 10.1 10.1 Female 13.1 13.3 13.3 Source: Labour Force Survey 2010-11


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Table 12.9: Employment Trend and Changes from 1999-00 to 2010-11 (Million) Year Pakistan Rural Urban

Employed Change Employed Change Employed Change 1999-00 36.32 2.19 25.55 1.68 10.77 -0.012001-02 38.88 2.56 26.66 1.11 12.22 1.452003-04 42.00 3.12 28.81 2.15 13.19 0.972005-06 46.95 4.95 32.49 3.68 14.46 1.272006-07 47.65 0.70 33.11 0.62 14.54 0.082007-08 49.09 1.44 34.48 1.37 14.61 0.072008-09 50.79 1.70 35.54 1.06 15.25 0.642009-10 53.21 1.08 37.25 0.79 15.96 0.292010-11 53.84 0.63 37.85 0.60 15.99 0.03

Source: Various issues of Labour Force Survey (2010-11) Pakistan Bureau of Statistics

Age Specific Labour force Participation rates

There is an unambiguous disparity between the male and female participation rates in Pakistan in age groups of 15 to 29 and 60+. The total labour force participation rate increased from 32.81 percent in 2008 to 32.83 percent in 2010-11. The participation rate in the 10-14 age groups decreased for both males and females. There was a declining trend (1.10 percent) for males in the 15-

19 age groups whereas an increasing trend (0.70 percent) was found in females of the same age group. In case of the 20-24, 25-34 and 35-44 age groups both male and female participation has increased. In the 45-54 and the 55-59 age groups the participation rate has decreased compared to last year. In the 60+ category the male participation rate has decreased while an increasing trend is observed in the female group in this cohort.

Table-12.10: Age Specific Labour Force Participation Rate (%) Age Groups

2008-09 2009-10 2010-11 Total Male Female Total Male Female Total Male Female

10-14 13.1 16.2 9.5 12.6 15.4 9.2 11.8 14.3 8.815-19 37.0 52.7 18.9 37.1 52.7 19.2 36.4 51.6 19.620-24 53.8 85.4 22.7 54.7 84.5 23.9 53.8 84.3 24.225-29 57.5 96.6 22.8 58.0 96.3 24.7 58.9 96.8 25.030-34 58.8 97.9 24.6 59.1 97.6 26.4 59.5 98.2 25.935-39 62.2 98.5 27.7 62.2 97.4 29.0 62.5 98.4 29.040-44 62.7 98.2 27.6 62.4 97.7 26.6 64.2 98.3 30.045-49 62.6 97.3 26.8 65.0 97.4 29.5 64.8 97.8 28.650-54 63.1 95.9 24.5 64.7 96.4 29.3 63.5 96.6 28.155-59 62.8 93.7 26.4 62.6 93.3 28.0 61.5 92.2 26.360+ 38.6 56.4 15.2 37.6 55.5 13.5 37.3 55.0 11.9

Source: Labour Force Survey 2010-11

Employment by Sectors

Most of the labour force in Pakistan works in the rural areas where agriculture is the dominant activity. The total labour force working in the agricultural sector remained unchanged during the 2008- 2011 period. However, female participation has shown an increase of 1.4 percent during this period. Contrary to that the male participation shows a declining trend. The manufacturing and construction sectors are also playing an important

role in the provision of employment. The employment share by manufacturing sector has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11 and the share of construction sector has increased from 6.7 percent in 2009-10 to 7.0 percent in 2010-11. The Share of wholesale and retail trade has decreased from 16.3 percent to 16.2 percent while, the share of community / social and personel service sector has decreased from 11.2 percent to 10.8 percent in 2010-11.

Pakistan E

170

Table-12.1Major Indu

Total Agriculturehunting & ManufactuConstructioWholesale Transport/ communicCommunitpersonal se*Others Source: Pa

Employm

The struc12.12 suemployedpercent respectivehelpers apercent.

Table12.12

EmployersSelf emploUnpaid famEmployeesTotal Source: La

16%

Economic Sur

11: Employmeustry Divisions

e/ forestry/ fishing

uring on & retail trade storage & ation ty/social & ervice

akistan Bureau

ment Status

cture of empluggests that d category acc

of the toely. This is at 27.7 perc0f the unpa

2: Employmen

s oyed mily Helpers s

abour Force Su

7%

5%

11%

Fig-12.4: In

rvey 2011-12

ent Shares by s

Total 100 45.1

13.0 6.6

16.5 5.2

11.2

2.4 of Statistics, L

loyment as sthe emplo

count for 36 potal employfollowed by

cent and emaid family h

nt Status by S20

Total M1.2

33.3 29.7 35.8 100

urvey 2010-11

14%

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ndustry-wise E

2

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13.3 118.3 0

20.5 16.6 0

11.1 11

2.9 0Labour Force S

shown in Taboyee and sepercent and 39yed workfor

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)

male Total00 100 4.0 45.0

1.9 13.2 0.4 6.7

.6 16.3 0.2 5.2

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ble elf-9.9 rce

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ales

decreasmales indicatfrom 12010-1unpaidurban possibicounted

ale Total 0.1 1.33.1 34.265 29.11.8 35.400 100

45%

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2009-10 Male Fe100 136.6 7

13.9 18.5 0

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11.2 1

3.0 01

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tes that unpaid5.10 million 1. In the ru

d family helpareas. This

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2009-10 Male Fem

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Agriculture

Manufacturi

Construction

Wholesale &

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Community

Others

male Total 100 100 74.9 45.1

1.0 13.7 0.3 7.0 2.1 16.2 0.3 5.1

1.2 10.8

0.2 2.1

5 percent to ercent to17.3 d family helpin 2008-10 t

ural populatiopers is muchs indicates he services

areas.

male Total 0.1 1.4

13.6 39.966.3 27.7

20 36.0100 100

/ forestry / hunting

ing

n

& retail trade

storage & commun

y / social & persona

2010-11 Male Fe100 36.2 7

14.5 18.9

20.4 6.6

10.8 1

2.6

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ers have decrto 14.91 million the numbh larger thanthat there are not pro

2010-11 Male Fe

4 1.89 40.57 17.30 40.40 100

g & fishing

nication

al service

emale 100 75.4

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171

Table 12.13: Employment Status by Region (Million) 2008-09 2009-10 2010-11

Total Urban Rural Total Urban Rural Total Urban Rural Employers 0.60 0.46 0.14 0.67 0.50 0.17 0.77 0.53 0.24Self employed 16.91 4.59 12.32 18.21 4.90 13.30 18.77 5.01 13.76Unpaid family Helpers 15.10 1.84 13.26 15.48 1.82 13.67 14.91 1.83 13.08Employees 18.18 8.36 9.82 18.85 8.73 10.12 19.39 8.62 10.77Total 50.79 15.25 35.54 53.21 15.95 37.26 53.84 15.99 37.85Source: Labour Force Survey 2010-11, Pakistan Bureau of Statistics

Formal and Informal Sectors

The informal sector covers a wide range of labour market activities and plays an important and sometimes controversial role. It provides jobs and reduces unemployment but in many cases jobs are low paid. This sector employs 73.8 percent of Pakistan’s total labour force. The employment ratio in rural informal sector (76.5 percent) is higher compared to that in the urban areas (71.2 percent). Table 12.14 illustrates that the female employment rate in the rural informal sector is showing an increasing trend while in the urban informal sector; the employment rate has decreased (from 67.2 percent in 2008-09 to 63.1percent in 2010-11). According to the Labour Force Survey (LFS) 2008-09, the male employment rate in the

rural informal sector stood at 76.2 percent which remained constant in 2010-11. However, in the urban informal sector employment has increased from 70.6 percent to 72.4 percent during this period. The overall percentage of persons working in the informal sector shows an increase in both the rural (from 76.3 percent to 76.5 percent) and urban areas (from 70.4 percent to 71.2 percent).

The formal sector did not show any significant changes with respect to employment level during the 2008-2011 period. The total employment in this sector reduced marginally from 26.7percent to 26.2 percent. However in urban areas there was a significant reduction from 29.4 percent to 28.8 percent during this period.

Table 12.14: Formal and informal Sector-Distribution of non-Agriculture Workers (%) Sector 2008-09 2009-10 2010-11

Total Male Female Total Male Female Total Male Female Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 26.7 26.6 27.6 26.7 26.7 26.9 26.2 25.9 28.9- Informal 73.3 73.4 72.4 73.3 73.3 73.1 73.8 74.1 71.1Rural 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 23.8 24.0 22.2 23.7 23.8 22.3 23.5 23.8 21.0- Informal 76.2 76.0 77.8 76.3 76.2 77.7 76.5 76.2 79.0Urban 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0- Formal 29.4 29.1 32.8 29.6 29.4 31.6 28.8 27.6 36.9- Informal 70.6 70.9 67.2 70.4 70.6 68.4 71.2 72.4 63.1Source: Labour Force Survey 2010-11 Pakistan Bureau of Statistics.

Unemployment

Unemployment is the situation in which people, willing and able to work at the prevailing wage rate are unable to find jobs. In Pakistan the labour force is classified to include all persons who are

ten years of age and above and during the period are without work, currently available and seeking work. On the basis of the existing population of 180.71 million with a labour force participation rate of 32.83 percent, the total labour force is approximately 57.24 million.

Pakistan E

172

Table 12.1Area/sex 2008-09 2009-10 2010-11 Source: Pa

The unempercent inrural area4.8 percendue to suis perceivareas is glower churban arerelatively Contrary be the oppabove tabhas increapercent in

Table-12.1Province /A

Pakistan Rural Urban Punjab Rural

Economic Sur

15: UnemployUnTot

akistan Bureau

mployment ran 2009-10 toas unemploymnt in 2009-1

upportive polived that the greater becauance of emp

eas where embetter due to

to this percepposite. As is

ble, the unempased from 7.2n 2010-11. T

16: UnemployArea

Total2.1.1.1.1.

456789

10

2003

Fig-12.5: Un

rvey 2011-12

ment rate by aemployed labotal R

2.93 3.12 3.40

of Statistics, L

ate has increo 6.0 percent ment rate has 0 to 4.7 percices of goverunemployme

use in rural aployment co

mployment opo greater ecoption, the situevident from

ployment rate2 percent in The apparent

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2008-09 l Male 93 1.87 76 1.06 17 0.81 87 1.21 14 0.70

2004 2

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2

areaour force (in mRural

1.76 1.89 1.85

Labour Force S

eased from 5in 2010-11. decreased fro

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m the data in te in urban are2009-10 to 8

t reason of t

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1.17 1.23 1.55

Survey 2010-11

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loyment 9-10 e Female.91 1.2.12 0.7.79 0.44.18 0.7.68 0.4

2008 2009

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the industrial energy resourn in job opponomic develolife. The chat the unem

as shown in r provinces. e in Sindh h8-09 to 0.70 m

Pakhtunkhwa been observ

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Total 1 3.40 7 1.85 4 1.55 6 2.10 8 1.25

2010 2

al Rural

rate (%) Urb

4.7 4.8 4.7

sector is facirces and therortunities. It iopment but isomparison a

mployment raTable 12.1The numb

has increased million in 20

(KPK) a faved. Howeveemployed pn 2008-09 to

M

2010-11 Male Fem

2.22 1.14 1.08 1.31 0.76

2011

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an 7.1 7.2 8.8

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people o 0.07

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male 1.180.710.470.790.49


173

Table-12.16: Unemployed – Pakistan and Provinces MillionProvince /Area Unemployment

2008-09 2009-10 2010-11 Total Male Female Total Male Female Total Male Female

Urban 0.73 0.51 0.22 0.78 0.50 0.28 0.85 0.55 0.30Sindh 0.44 0.28 0.16 0.57 0.35 0.22 0.70 0.54 0.16Rural 0.14 0.06 0.08 0.24 0.12 0.12 0.15 0.10 0.05Urban 0.30 0.22 0.08 0.33 0.23 0.10 0.55 0.44 0.11KPK 0.56 0.36 0.20 0.55 0.35 0.20 0.53 0.32 0.21Rural 0.44 0.29 0.15 0.45 0.29 0.16 0.41 0.25 0.16Urban 0.12 0.07 0.05 0.10 0.06 0.04 0.12 0.07 0.05Balochistan 0.06 0.02 0.04 0.06 0.03 0.03 0.07 0.05 0.02Rural 0.04 0.01 0.03 0.04 0.02 0.02 0.04 0.03 0.01Urban 0.02 0.01 0.01 0.02 0.01 0.01 0.03 0.02 0.01Source: Labour Force Survey 2010-11 Employment Expansion policies

Employment expansion policies are based on accelerating the rate of growth of the economy along with a special emphasis on the development of the relatively more labour intensive sectors. The specific policies are as follows:

Micro Credit Facilities: The Khushali Bank was established to provide loans of up to Rs.30, 000 per person to unemployed people to set up their own business. Moreover, the SME Bank was established to provide financial assistance and business support to small and medium enterprises.

President’s Rozgar Scheme by National Bank of Pakistan (NBP): The National Bank of Pakistan has developed a full range of products under the President’s Rozgar Scheme with the brand name of “NBP KAROBAR”. Under this scheme, a loan up to size of Rs. 100,000 is given for a maximum period of five years with a grace period of three months for establishing the business.

National Vocational and Technical Education Commission: The National Vocational and Technical Education Commission (NAVTEC) was established with a view to overcoming skill gaps, and the non‐ availability and lack of standardization of proper curricula. NAVTEC initiated two major training programs (President’s Funnee Maharat Program and the Prime Minister’s Hunarmand Pakistan Program) in the country under the President and the Prime Minister’s directives. These programs remained focused on young men and women

throughout the country to provide them quality technical training. A stipend of Rs 2,000 per month is paid to the participants

Skill Development Councils: Five Skill Development Councils (SDCs) one each at Islamabad, Karachi, Lahore, Peshawar and Quetta has been established. These Councils are fulfilling the diversified training needs of the industrial and commercial sectors. The SDCs assess the training needs of their geographical areas; prioritize them on the basis of market demand and facilitate the training of workers through the public and private sector.

Overseas Employment: Overseas employment also provides an opportunity to developing countries to reduce poverty and to improve income distribution through growth in employment linkages. In 2011 the total number of registered Pakistani workers in different countries was 456,893. The Bureau Emigration and overseas employment is making concerted efforts to boost overseas employment.

Information Technology: The development of the IT and telecom sector has created considerable employment opportunities, both directly or indirectly, for educated unemployed in a wide range of areas like call centres, telecom engineering, telecom sales, customer services, finance and accounting etc. This is one of the fastest growing sectors of the economy.


174

National Internship Program: The first phase of the National Internship Program (NIP) has been completed. Under the first phase, 25,826 applicants were offered internship at the Federal, Provincial and District government levels. The second phase of the NIP was launched in February 2008. A total of 71,915 applications were received. So far 21,138 applications have been verified by HEC and NADRA and are being placed in ministries, divisions, departments and provincial governments and at district level.

Investing in Increasing Water Resources: Agriculture is the largest sector of Pakistan’s economy and provides employment to nearly 45 percent of the country’s work force. More than two‐ thirds of the county’s population lives in the rural areas and depends directly or indirectly on the agriculture sector for their livelihood. GDP growth originating in agriculture is more effective in raising the income of the poor and increasing overall employment than other sectors of the economy. The major constraint in Pakistan’s agriculture has been the lack of availability of water resources. The government is making a heavy investment to develop water resources which will not only be helpful in increasing water availability and electricity but will also expand the employment opportunities in the country.

Employee Projection Policies: Efforts are being made to establish an efficient, equitable and rights-based labour market that provides mechanisms to allow productivity growth in the economy and result in real wage increases. The Zakat fund provides a monthly subsistence allowance and a rehabilitation grant is given to all the needy Muslims. The Bait-ul-Mall Fund has different projects such as Individual Financial Assistance, Free Skill Development and the Food Support Programme for helping the needy people. The Public Sector Benevolent Fund and Group Insurance provide benefits to government employees especially in the form of education scholarships to their children and other financial aid at the time of emergency.

Export of Manpower

The government of Pakistan is making sincere efforts to boost overseas employment which will not only reduce the unemployment burden in the country but will also increase remittances and thereby help to improve the economy of Pakistan. In this regard, MoUs have been signed with several labour importing countries like Malaysia, Kuwait, and Qatar. The number of emigrants was 0.43 million in 2008 which increased to 0.46 million in 2011, as shown in Table 12.18

Table 12.17: Number of Pakistani workers registered for overseas employment through Bureau of Emigration & Overseas Employment during the period 2008-2011

S.# Countries 2008 2009 2010 2011 1 UAE 221765 140889 113312 156353 Kuwait 6250 1542 153 1733 Malaysia 1756 2435 3287 20924 Oman 37441 34089 37878 535255 Qatar 10171 4061 3039 51216 Saudi Arabia 138283 201816 189888 2222477 UK 756 556 430 308

Source: Bureau of Emigration and Overseas Employment

Saudi Arabia being a Muslim state is attractive for millions of Pakistani workers seeking jobs abroad. Due to this fact Saudi Arabia has become the largest market for Pakistani workers in the world besides the Gulf States such as United Arab

Emirate (UAE), Oman and Kuwait. The number of emigrants in Saudi Arabia has increased from 0.14 million in 2008 to 0.22 million in 2011. Presently Pakistan is exporting skilled, semi-skilled and unskilled labour. Table 12.18 presents labour export statistics during the 2008-2011 period.


175

Table 12.18: Workers Registered For Overseas Employment Year Highly Qualified Highly Skilled Skilled Semi-Skilled Un-Skilled Total 2008 9713 33173 177791 4209 205428 4303142009 4954 3260 182657 2465 210192 4035282010 7081 31650 165726 5181 153266 3629042011 6974 3018 171672 73247 201982 456893Total 28722 71101 697846 85102 770868 1653639Source: Bureau of Emigration and Overseas Employment

Conclusion

Historically, high population growth rate has been a major factor in Pakistan’s overall economic development. The government is committed to allocating funds and developing innovative policy measures to address the issue of managing population growth and the labour force. Improvements in health facilities and promotion of population welfare activities through the Ministry

of Population Welfare have contributed to a significant decline in the crude birth and fertility rates, thereby leading to a reduction in the average growth rate of the population. This has been accompanied by an increased labor participation rate. Despite these improvements Pakistan is still lagging behind neighboring countries. Therefore, it is imperative to put further efforts for development of better human resources.

177

Transport and Communications

Introduction

The technological advances in global communications and transportation have significantly catalysed the emergence of the global economy leading to integration of fragmented national markets of goods and services into a single global market. With these rapid developments, regions with adequate means of communications and transportation have grown economically and those lacking in these fields have lagged behind. The availability of an efficient transport and communications network is a pre-requisite for a meaningful economic cooperation amongst nations, particularly in the areas of trade and tourism for attracting foreign investment and realizing the potential gains from an outward oriented trade strategy.

Besides human capital (skill and education) a strong efficient and affordable means of transport and communications of the country contributes to the national economic growth by lowering domestic production cost, integrating markets, promoting economic opportunities and establishing links among the people. The transport and communications sector generates a large number of employment opportunities, and acts as a significant

tool in the fight against poverty. The sector is also a major contributor to government’s revenue through taxes and duties on its production and imports, fees on ownership and operation of vehicles and licensing of modern communications facilities.

Sustainable economic development is dependent on a robust and low cost transport system. Enhanced export competitiveness is also contingent upon the efficient performance of the sector. The government is committed to implementing a comprehensive and modernizing transport and logistic sector through continuous reforms in all of its sub sectors. The transport system consists broadly of roads, railways, air transport and ports shipping services.

13.1: Road Transport

Roads are the most important segment of Pakistan’s transport sector. Roads carry over 96 percent of inland freight and 92 percent of passenger traffic and are undoubtedly the backbone of the economy. The current road network is about 260,000 kms catering to eleven million vehicles of all types. The Province wise distribution of roads is given in the following Table:

Table 13.1: Estimated Length of Roads in Provinces (kms)

Years Category Punjab Sindh KPK Balochistan GB & AJK TOTAL

2007-08 Total 104115 80863 42369 29451 1552 258350 Low Type 33864 26301 13781 9579 505 84030 High Type 70251 54562 28588 19872 1047 1743202008-09 Total 104114 80863 42369 29452 1552 258350 Low Type 32949 25591 13409 9321 491 81761 High Type 71165 55272 28960 20131 1061 1765892009-10 Total 105085 81618 42765 29727 1565 260760 Low Type 32179 24993 13095 9103 480 79850

Chapter 13


178

Table 13.1: Estimated Length of Roads in Provinces (kms)

Years Category Punjab Sindh KPK Balochistan GB & AJK TOTAL

High Type 72906 56625 29670 20624 1085 1809102010-11 Total 105253 80625 42550 29500 1535 259463 Low Type 32147 24000 13000 9000 450 78597 High Type 73106 56625 29550 20500 1085 1808662011-12 Total 106455 80960 42975 29625 1580 261595 Low Type 32590 24335 13140 9125 465 79655 High Type 73865 56625 29835 20500 1115 181940Source: National Transport Research Centre (NTRC)

13.1-a: National Highway Authority

The NHA road network is around 12,000 kms, which is merely 4.6 percent of the overall road network but it takes 80 percent of Pakistan’s commercial traffic. Despite overall budgetary constraints during the fiscal year, and the effects of heavy floods in 2010 and law and order challenges NHA performed well. This performance in terms, of NHA projects is summarized below:

a. Completed Projects

NHA has completed 12 projects of flyovers,

bridges, interchanges and road up gradation during the last one year at a cost of Rs 19.6 billion.

b. Ongoing Projects

At present, 46 development projects on roads covering 2,985 kms are ongoing at a cost Rs 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers, interchanges. Province wise break up of these projects is given below:

Table 13.2: Province wise break up of NHA Projects Province Projects Road length (Km) Cost (Rs. Billion) 1 Punjab 14 315 48.22 Sindh 13 714 59.53 KPK, GB & AJK 12 738 73.14 Balochistan 7 1218 64.5 Total 46 2985 245.3Source: NHA

c. New Development Projects

During the financial year, NHA has launched/ awarded 16 new development projects covering a length of above 500 kms including construction of

a number of bridges, flyovers and interchanges costing Rs. 70,951 million. NHA is simultaneously constructing 12 bridges across the rivers. These are; on river Chenab 4, on rivers Sutlej 2, on river Swan 1 and on river Indus 5.

Box–1 2011 Pakistan Floods Preliminary Damages and Needs Assessment Survey. Report Jointly Prepared by the Asian Development Bank and the World Bank.

Pakistan experienced severe flooding after torrential monsoon rains hit southern Sindh and the adjoining areas of Punjab and north-eastern Balochistan in August 2011. Floods caused severe damage to infrastructure in the affected areas, coupled with the damages of 2010 floods that were still in the recovery phase, the losses in transport and communication sector are estimated at Rs. 26,468 million.


The damages in the transport and communications sector involve various categories of roads, railways, bridges, and


179

telecommunications infrastructure. Preliminary estimates indicate that approximately 8,385 km of the road network and 190 km of railway lines were damaged by the flood including bridges and allied structures. Most of the damages are on provincial highways and district roads in Sindh. Out of the estimated total damage and losses, the road subsector sustained the highest damage and losses of $299 million, followed by the railway subsector losses amounting to $3 million. The floods have impaired the road conditions which will continue to deteriorate faster if repairs, rehabilitation and restoration works remain deferred for a longer period. The indirect losses due to damage in the road sector would cause an increase in the road user cost during a phased recovery period.

The telecommunication infrastructure losses includes damages to cellular sites, exchange centers, equipment, power system and supporting civil works amounting to $1.9 million.

Recovery and Reconstruction Needs

The reconstruction needs of the sector have been estimated at $ 388 million, including $ 5 million for railways and excluding $ 2 million required in the telecommunication subsector as these were private assets with insurance coverage. Most of the reconstruction needs are in the road subsector amounting $ 383 million. The recovery strategy varies across each subsector based on the nature of the responsible agency and the importance of the infrastructure. For telecommunications, the private sector operations have mobilized and repairs carried out and telecom services restored. For roads, diversion routes were created and services restored. Emergency repairs on railway lines have been undertaken. As a short term measure, the National Highways Authority (NHA) has tasked the regional maintenance units to undertake the emergent works through pre-qualified contractors and using proceeds of the annual road maintenance funds. All reconstruction costs for railways and 10 percent of the road reconstruction costs are included in the short-term recovery phase for works to be completed within 12 months. The remaining road reconstruction will require careful prioritization to ensure efficient utilization of available resources since most of the restoration works are not complex and thinly spread across wider geographic area.

13.2 Pakistan Railways

An effective railway system of the country facilitates commerce and trade, reduces transportation cost and promotes rural development and national integration. Pakistan Railways has entered into the Public-Private Partnership business in; Passenger Trains, Rehabilitation of Locomotives, Management Operation of Terminal Facilities including Dry Ports. The Ministry of Railways has also adopted a “Track Access Policy” for private sector participation to operate freight and passenger trains on Pakistan Railways infrastructure. The Ministry of Railways is also in process of allowing private sector to operate on Pakistan Railways network under Public Private Partnership (PPP) frame work.

The Ministry of Railways has also created a “Real Estate Development and Marketing Company” as subsidiary of Ministry of Railways. The company will manage to commercialize the surplus lands of Pakistan Railways in order to overcome its financial challenges. In addition to the above, six factories including Locomotive Factory Risalpur,

Carriage Factory Islamabad, and four Concrete Sleeper Factories in Kohat, Khanewal, Sukkur and Kotri, are being corporatized for eventual privatization subject to approval of the government.

Restructuring of Pakistan Railways

The Cabinet Committee of Restructuring (CCOR) has approved a restructuring framework for Pakistan Railways. New Board of Directors of PR has been constituted by including academia, management professionals, rail experts and executive functionaries. The process for recruitment of a professional Chief Executive Officer and other technocrats is being undertaken. Repair of locomotives has been given a priority for restoration of Railway services and freight operations are also being prioritized for revenue generation. Financial viability is being ensured through improving revenue and support by GOP. It has been decided that adjustment of fares and freight pricing will be determined according to market conditions and cost of doing business. An asset management company is being established for optimum utilization of PR’s assets. Private Sector involvement is the focus moving forward,


180

Chamber of Commerce and Industries, Lahore has been engaged for their freight transportation from Karachi to Lahore. Commercial management of

rail operations and outsourcing of noncore functions is being initiated with an aim to improve efficiency of rail operations.

Table 13.3: Railways Passenger Traffic and FreightS. No. Subject 2009-2010 2010-2011 July-Feb 2012 1. Number of Passenger carried

(Million) 74.9 64.9 25.0

2. Passenger Traffic KM (Rs. Million) 23522.5 20618.8 16810.23. Freight carried Tones (Rs. Million) 5.8 2.6 0.94. Freight Tones Km (Rs. Million) 4846.9 1757.3 279.35. Route Km 7791.0 7791.0 7791.06. Freight Wagons 16499.0 18464.0 17698.07. Gross Earning (Rs. Million) 21,886.9 18,739.9 9359.0Source: Ministry of Railways Achievements during the Fiscal Year

Track: During the last financial year, 16 kms of track was rehabilitated on the Pakistan Railways network besides doubling of more than 15 kms of track.

Service Buildings: Construction of D Class railway station at new Multan city was carried out at a cost of Rs. 39.8 million which has facilitated the local population to a large extent. Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out at a cost of Rs. 24.0 million to improve facilities for the passengers.

Signaling: Signaling system of four railway stations damaged during the riots of 2007 was rehabilitated during the period.

Rolling Stock: During February of the current fiscal year, 52 new design passenger coaches were imported from China at a cost of Rs. 4.1 billion. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at the Pakistan Railway Carriage Factory Islamabad during last year.

Establishment of new Dry Port: A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through Public Private Partnership at a cost of Rs. 494.0 million.

Table 13.4: Earning of Pakistan Railways (Rs. Million) Fiscal Year Earning % Change 2007-08 19,973 -2008-09 23,160 16.02009-10 21,886 -5.52010-11 18,612 -15.02011-12 (July-Feb)

9359.0 -

Source: Ministry of Railways

13.3 Pakistan International Airlines (PIA)

A restructuring plan of PIA has been finalized which addresses corporate governance, human resource rationalization, financial and operational restructuring, engineering improvement, procurement and logistics, marketing and fleet, airport services and dispatch reliability among others. Increased fuel cost has been a major downside risk to the financial strength of PIA; and, effective measures have been put in place to mitigate the effect. Various other cost minimization and revenue enhancement measures have been put in place to reduce the revenue-expenditure gap in the medium term. Fleet renewal and addition is being planned. Route rationalization, code sharing and alliances are being pursued for moving to a new business model. Dispatch reliability will be improved through various initiatives including expansion of reliability system, use of reliability tools and standardized data exchange on maintenance. Strategic Business Units (SBUs) are being established for outsourcing of non-core functions of PIA. Rationalization of employment in PIA is being addressed through attrition and no new


181

hiring is being undertaken except for operational staff. A financial restructuring plan has been finalized which includes equity injection, rollover of loan and government guaranteed loans among others. A holistic view needs to be developed for revitalization of PIA entailing industry dynamics, aviation policy and strategic needs. This is the focus of the government.

Pakistan International Airlines Corporation earned increased revenue amounting to Rs. 116.02 billion in year 2011 as compared to 107 billion last year. Passenger revenue increased upto Rs. 7.76 million. New destinations including Zahedan and Madina also added in increasing the revenue.

A purchase agreement of five Boeings 777 has been signed. Chairman PIAC inaugurated the state of the art PIA Boeing-777 Flight Simulator installed at the PIA Training Centre, Karachi on October 30, 2011. The acquisition of this full flight simulator has resulted in improved training standards, better coordinated crew scheduling and planning.

Following new destinations have been introduced during the year 2011:

Karachi – Madina (Twice weekly with B747/A310 w.e.f July 2011)

Quetta – Zahedan (Twice weekly with ATR w.e.f Jan 2011)

Following new routes were introduced during the year 2011.

Peshawar - Kuala Lumpur

Sialkot – Riyadh & Sialkot - Dammam.

Table 13.5: PIA Performance Description 2011*Revenue Hours Flown 141,727Route KMS 460,719Revenue KMS Flown (000) 84,898Revenue Passenger carried (000) 5,953Revenue Passenger Kms (mil) 15,664Available Seats Kms (mil) 21,725Passenger Load Factor % 72.10Revenue Tonne Kms (mil) 1,678Available Tonne Kms (mil) 2,972Revenue Load Factor (%) 56.45Operating Revenue (mil) 117,356Operating Expense (mil) 132,970PIA Fleet (No. of Planes) 39Passenger Revenue (Rs. bn) 104.41Passenger Yield (2010: 6.12) 6.67Source: PIA * : PIA Data is on calendar year basis

13.4 Ports and Shipping 13.4 (a) Karachi Port Trust (KPT)

The Karachi Port Trust (KPT) came into being under the 1886 Act. With a 11.5 kilometers long approach channel, a depth of 12 meters and a turning basin of 600 meters, the Karachi Port provides safe navigation for vessels up to 75,000 metric tones deadweight. The KPT consists of two wharves; the East and West Wharf. The East wharf has 17 multipurpose berths and the West Wharf has 13 berths. Each of the Wharves has two dedicated container terminals and oil piers to handle liquid cargo. The KPT handled 27.8 million tones of cargo during the first 9 months of the current fiscal year. The data on cargo handled during the last five years is given in the following table:

Table 13.6: Cargo Handled at Karachi Port (000 M/Tones)Period Imports Exports Total 2007-08 25,517 11,676 37,1932008-09 25,367 13,365 38,7322009-10 27,892 13,528 41,4202010-11 28,589 12,843 41,4322011-12 (Jul-Mar)

19,196 8,586 27,782

Source: Karachi Port Trust


182

13.4 (b) Pakistan National Shipping Corporation

Shipping is a highly competitive market driven industry; its profitability is dependent on optimum utilization of vessels, strict cost controls and maximization in cargo lifting. The economic downturn has affected every sector of the maritime industry and the PNSC was no exception. Despite this PNSC remained profitable during the period under review. The Commercial performance of the PNSC translated into financial gains. The PNSC remained profitable during the first nine months of fiscal year 2011-12.

The consolidated revenue of the PNSC Group during July-March 2011-12 were Rs. 6640 million.

One dry Combi vessel was sold for demolition as it had completed its useful commercial life. The Commercial and Financial performance of the PNSC (un-audited) from July-March 2011-12 is given in the following tables.

Table 13.7: Commercial Performance (In Metric Tons)

Cargo Lifted Jul-Mar 2011-12 Liquid Cargo 5,804,294Dry Cargo 205,379Total (Dry + Liquid) 6,009,673Source: PNSC

Table 13.8: Financial Performance (Rs. in 000) Jul-Mar 2011-12 Revenue 6,639,971Fleet Expenses 5,173,907Gross Profit 1,466,064Other Income 327,412Expenses 1,541,464Profit before tax 252,012Source: PNSC

Table 13.9: PNSC-Fleet Deadweight Tonnage (In MT)Year No. of ships Total DWT 2007 14 536,8212008 14 536,8212009 11 477,2382010 10 633,2732011 11 646,6662012 10 628,409Source: PNSC

The Corporation intends to acquire four vessels on commercial loan / joint venture-basis. Acquisition of two vessels is in process, while two more will be acquired in next financial year.

13.4 (c) Gwadar Port

The Gwadar Port was inaugurated on the 20th of March, 2007 and started commercial operations from March 2008. The government has decided to import all bulk cargo comprising of Urea, Wheat and Coal through Gwadar Port. The total cargo handled at the port up till now is 4.1 million tones. Gwadar Port has earned total revenue since its start of operation amounting to Rs. 53.4 million.

13.4 (d) Port Qasim Authority

Port Qasim Authority was established in 1973 as a second deep sea port of Pakistan. Port Qasim caters around 40 percent shipping requirements of the country. PQA handled a cargo volume of 19.7 million tones during July-March 2011-12. The volume of import cargo during July-March 2011-12 stood at 14.7 million tones, while the exports handled during the same period was 4.9 million tones.

Table 13.10: Cargo Handled at Gwadar Port (000 Tones)Year Imports Exports Total 2008 231.6 - 231.62009 1218.1 - 1218.12010 705.9 - 705.92011 462.5 - 462.52012 541.2 - 541.2Source: Gwadar Port Authority

Table- 13.11: Cargo Handled at Port Qasim (00 Tones) Period Import Export Total 2007-08 21,502 4,922 26,4242008-09 19,445 5,584 25,0302009-10 19,226 6,380 25,6262010-11 19.511 6,657 26,1682011-12 (Jul-Mar)

14,722 4,942 19,664

Source: Port Qasim Authority


183

Box Item–2 Draft National Transport Policy (NTP)

To address the Transport Sector issues and implement government’s policies and strategies for sustainable growth, Ministry of Communications has prepared a draft National Transport Policy in consultation with all stakeholders. It covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports & Shipping and (iv) Aviation, NTP also includes the National Transport Corridor Improvement Program (NTCIP) to make it more productive and environment friendly. The broad objective of the draft National Transport Policy are:

To Provide safe, reliable, effective, efficient, affordable, accessible, sustainable and fully integrated transport system that will best meet the needs of freight & passenger access and mobility requirements and will be aimed at improving levels of service and cost effectiveness in a fashion that supports governments goal of increasing public welfare through economic growth, and social improvement, poverty reduction and infrastructure and development while being environmentally and economically sustainable and energy efficient.

National Trade Corridor Improvement Programme

“National Trade Corridor Improvement Programme (NTCIP)” has been launched in the country to revamp the whole transport sector including ports, roads, railway, aviation etc. and a frame work to develop and improve the North South corridor has been formulated. The framework takes a holistic and integrated approach to reduce the cost of doing business in Pakistan by improving the trade and transport logistics chain and bringing it up to key standards. The strategy also takes into account the regional and domestic scenarios, particularly with respect to rail, road and shipping sub-sectors, enhancing regional connectivity to improve links with the Central Asian States, China, Iran, Afghanistan and India. With the development of the North-South and East West trade links, energy and industrial corridors with these states would also be developed.

Progress on Studies in 2011-12 Study on Aviation Safety Audit by Civil Aviation Authority/Ministry of Defence has been completed

Work is underway for preparing a Ports Master Plan by the Ministry of Ports & Shipping with the help of international consultants.

Study on Financial Restructuring of Pakistan Railways is ongoing while consultancy firm is being hired for preparation of Pre-Feasibility of Peshawar-Jalalabad Railway Link

Pakistan Railways Revitalization Strategy (PRRS) has been prepared for the approval of Cabinet The Trucking Policy approved in October 2007 is being updated Procurement of consultants is on fast track for preparing an “Implementation Strategy” for the Trucking Policy.

13.5 Communications

The 21st century can safely be named the IT Century as no institution can run without the help of IT in the future. The advancement of IT has brought enormous benefits to individuals, businesses and organization. The world has developed into an information economy and the application of new technologies has become the centerpiece of activities.

Rapid development of Information and Communication Technology (ICT) infrastructure and its adoption is now a prerequisite for making national progress in the economy and in daily life as well. Modernization and development of telecom infrastructure has been correlated with increase in economic activities. The Information Technology (IT) revolution is probably the most important force shaping communities today.

Pakistan E

184

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187

the major contributor. In addition USF invested Rs. 3.5 billion during the 2011.

Foreign Direct Investment by the telecom companies is more than 30 percent of the total FDI in the country during the last six years. As in the investment scenario explained above, telecom companies reduced FDI because they have already laid down the required infrastructure. In 2011, telecom sector attracted over US$ 79 million FDI in the country which is about 5 percent of the total FDI in Pakistan in 2011.

Analysis of investment and FDI clearly reveals that the telecom sector of Pakistan needs an influx of new investment in the near future to boost these figures. The auction of 3G licenses is expected, that will bring more FDI into the country. An

improved economic condition of the country will further encourage investors to bring capital into Pakistan.

Table 13.12: Telecom Investment US$ (Million) 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Cellular 1,420.9 2,584.5 2,337.7 1,229.75 908.8 358.6 LDI 50.5 602.8 403.9 276.75 183.1 108.8 LL 0.3 40.6 342.1 57.37 22.5 18.2 WLL 259.4 747.0 52.8 82.11 23.0 10.2 Total 1,731.1 3,974.8 3,136.4 1,645.9 1,137.5 495.8 Source: PTA

Regulatory Intervention by PTA

• Spectrum Auction for 3G & Defunct Instaphone License

The Government of Pakistan announced spectrum auction for 3G and Instaphone license on 24th November 2011. The Ministry of Information Technology issued a policy directive to PTA with the objective of redefining the policy framework and setting guiding principles for the auction of 3G frequency leading to introduction of relevant services. It was announced by the Federal government that the auction would be transparent and competitive; the allocation will be neutral; and, usable for any available or upcoming technology. Similarly the auction of three blocks of 10 Mhz each, out of currently available 3G spectrum (1.9 GHz/2.1Ghz band), shall be announced by PTA. The license of defunct Instaphone along with allocated frequency will also be auctioned.

• WLL Spectrum Auction in 1.9 GHz and 3.5 GHz Frequency Band

During the de-regulation of the telecom sector in 2004-05, significant portion of the frequency spectrum in 1.9 GHz and 3.5 GHz bands was auctioned for WLL licensees. However, with unprecedented growth of wireless broadband services and introduction of new players in the market, it became imperative for the government to allocate more spectrum resources to WLL operators. In this regard, PTA has been entrusted with the task of carrying out the auction of the WLL spectrum as per guidelines provided in the Policy Directive issued by Ministry of IT on 16th December 2011 for spectrum auction of available frequency in 1.9 GHz and 3.5 GHz. The Information Memorandum for WLL auction is available on the PTA website. The base price for 3.5 GHz band is set at USD 28.2 million (covering all telecom regions) and the base price for 1.9 GHz

1,905 1,8241,439

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79

3521

51405410

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2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

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ion

Source: PTA

Fig-13.10: Foreign Direct Investment

FDI in Telecom

Total FDI


188

band is set at USD 88.75 million (covering all telecom regions).

• Mobile Banking Introduction of efficient mobile banking services in the country can utilize the strengths of mobile networks to provide financial services to the large unbanked (rural, poor) population as well as increase the overall efficiency of the banking sector in Pakistan. The State Bank of Pakistan introduced the Branchless Banking Regulations in March 2008. Subsequently, the Ministry of IT issued the Policy Directive (May 2008) to support the technical implementation of mobile banking in the country. The government under the Policy Directive states that a relevant telecom sector policy framework is required to complement SBP Branchless Banking Regulations. For implementation of this Policy Directive, PTA drafted the Third Party Service Providers (Branchless Banking) Regulations 2011.

In order to provide an enabling regulatory environment and develop cooperation for a simplified mobile banking framework that can allow license holders to take on branchless banking activity and harness the full potential of such services, the Pakistan Telecommunication Authority and the State Bank of Pakistan (SBP) signed a Memorandum of Understanding (MoU) on 11th January, 2012. With this MoU, both the institutions have shown their interest and

commitment in stimulating the mobile banking services in the country. The SBP and PTA would act as facilitators for third party service providers for mobile banking in Pakistan.

• Cellular Mobile Network Quality of Services Regulations, 2011

To ensure that mobile operators maintain quality of service the PTA has prepared the Cellular Mobile Network Quality of Services (QoS) Regulations, 2011. These regulations apply to all cellular mobile operators and identify the minimum quality of service standards and associated measurement, reporting and record keeping tasks (except packet switched or GPRS/EDGE services). The Regulations have been gazette notified.

• GPRS/EDGE Service Quality of Service Regulations, 2010

In order to maintain Mobile cellular Quality of Service, Pakistan Telecom Authority prepared GPRS/EDGE Key Performance Indicators (KPIs) following the international standards and consulting the industry. Further these KPI’s have been incorporated in the regulations. These regulations are applicable to all cellular mobile communication service licensees for the purpose of laying down quality of service parameters for GPRS/EDGE services, to ensure consumer satisfaction in line with the criterion determined by the Authority from time to time.

Table 13.13: Pakistan Telecommunication – Subscribers Category (Nos.) Years FLL Subscribers WLL Subscribers Mobile Phones Broadband

Subscribers 2007-08 4,548,350 1,155,188 88,019,812 168,082 2008-09 3,526,634 2,617,616 94,342,030 413,809 2009-10 3,419,271 2,659,824 99,185,843 688,3732010-11 3,016,852 2,704,873 108,894,518 1,491,491Jul-March 2011-12

3,098,117 2,968,813 118,316,916 1,912,152

Source: PTA

13.6 Electronic Media

13.6 (a) Pakistan Electronic Media Regulatory Authority

The electronic media in Pakistan, remained dominated, since independence, by the state-run Pakistan Broadcasting Corporation and Pakistan

Television. Pakistan Television was launched in November 1964. As access to diverse sources of information was limited and people could not keep abreast of the rapidly growing developments around them, the government in 2002 opened up the electronic media to the private sector in the country. Pakistan Electronic Media Regulatory


189

Authority (PEMRA) as a statutory body was set up with a view to facilitate through licensing and to regulate the growth of the electronic media in the private sector. PEMRA is mandated for regulating the establishment and operation of all broadcast media that is satellite TV, FM radio and distribution services like Cable TV, DTH (Direct To Home), IPTV (Internet Protocol TV), Mobile TV etc. in the country.

Economic Contribution

Investment friendly policies of the government have been conducive to the development of the electronic media industry in the private sector. According to estimates there has been a cumulative investment of approximately U.S. dollar 2.5 billion in the electronic media industry in Pakistan. New jobs to more than 200,000 people of diversified skills and qualifications have been provided. In addition, over 7 million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum, it is estimated that the cumulative

investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year. This expansion in investment would in turn have a multiplier effect on increasing job opportunities for skilled media personnel and journalists, expanding work of media production houses, advertising agencies and proliferation of the performing arts.

Present Status of Private Electronic Media

During the last decade the country has witnessed a massive spurt in the number of TV channels and FM Radio stations in the private sector which is unmatched in the South Asian region. The unprecedented growth of TV channels, Cable TV and FM Radio stations has indeed contributed remarkably in raising the standards of public awareness and literacy. The massive growth which has taken place in the electronic media in the private sector in the last one decade is as follow:

Table 13.14: PEMRA Performance

Sr.No. Category Licenses Issued in 2011-12 Total Licenses Issued

i. Satellite TV Channels 06 89ii. Landing Rights Permission to TV Channels 10 26iii. FM Radio licenses 06 157iv. Cable TV Licenses 600 3,000v. Multimedia, Multi Channels

Distribution System (MMDS) -- 6

vi. Internet Protocol Television (IPTV) -- 01vii. Mobile TV license 04 04viii. Mobile Audio Licenses 02 02

Source: PEMRA 13.6-(b) Pakistan Television Corporation Limited (PTV)

PTV has launched Sports Channel on 11-01-2012. To eliminate the disparity and uplift the socio-economic conditions PTV is gradually extending its signals in remote and economically backward areas. Prime Minister inaugurated the Rebroadcast Station at Bhimber on 12-03-2012 RBS in Neela-But, Jura, Athmaqam, Karan, Dhudhnial, Sharda , Kel and Mirpur, Palandri are in progress. RBS at Badin is in progress and National News Bureau at Larkana is almost completed. Prime Minister

inaugurated TV Centre at Multan on 30-12-2011. RBS at Besham and Kohat are ready for inauguration; RBCs at Buneer, Kund Bangla and Pooran are in progress. RBCs at Kharan, and Bar Khan are in progress. RBS Chilas, Gahkuch, Khaplu, Shigar are ready for inauguration and RBS at Aliabad/Karimabad, Jaglot/Bunji and Astore are in progress. PTV will launch English channel shortly. In fiscal year 2011-12 TV sets were 12,252 million in the country.


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13.6-(c) Pakistan Broadcasting Corporation

Pakistan Broadcasting Corporation is the largest radio network in the country with a listenership larger than all private radio channels in the country. Its mission is to entertain and educate people through music programmes, features and plays.

Following are the prominent services of PBC:-

National Broadcasting Services was launched on 28th August, 2008. NBS has seventeen hours daily transmission from 7 am to 12 midnight. The programmes are originated from Islamabad and provincial capitals.

PBC World Service broadcasts daily Urdu programmes of 8 hours and 30 minutes duration for the audience living abroad.

PBC External Services, broadcast programmes for 8 hrs daily in 11 foreign languages covering Afghanistan, Iran, China, India, Bangladesh, Nepal and Sri Lanka.

Central Production Units (CPU) produce music, drama, features, documentaries and programmes for special occasions. CPU has over 2 million minutes recording in its archives which are being digitized.

Pakistan Broadcasting Corporation has established different FM Stations to cater to the infotainment and educational needs of listeners in their respective languages all over the country.

These stations are broadcasting programmes in their respective local/regional languages and in Urdu with a ratio of 70/30 respectively. Total broadcast hours of these FM Stations are 260 hours daily.

PBC News is putting on air 117 News bulletins daily. These include National, Regional, External and Local News bulletins besides resume of National Assembly and Senate. In addition PBC news launched the broadcast of FATA News, special news bulletins from PBC Hyderabad on rain/ flood situation and ongoing rescue and relief activities in Urdu and Sindhi languages.

PBC has nine approved development projects in hand for which an amount of Rs. 217.7 million has been allocated in 2012. The details of these projects are given below:-

1 Balancing and Modernization of

equipment.

2 2 X 100 KW SW transmitters and HF aerial system Landhi Karachi.

3 Up-gradation of PBC Larkana from 10 KW Medium Wave to 100 KW MW transmitter.

4 Replacement of 100 KW MW transmitters at Multan, Hyderabad & Muzaffarabad.

5 Establishment of PBA and IT Centre at Lehtrar Road, Islamabad.

6 100 KW MW transmitter at Gwadar.

7 Establishment of 47 FM Radio Stations all over Pakistan.

8 Replacement of 100 KW MW with 400 KW Medium Wave transmitter Peshawar under USAID programme.

9 Replacement of 10 KW MW with 100 KW MW transmitters D.I. Khan under USAID programme and shifting of Broadcasting House.

10 Installation of 100 KW MW transmitter and BH at Turbat.

13.7 The Pakistan Post

To provide trust worthy, efficient and time sensitive services to the customers, Pakistan Post has offered full blend of Express Mail and Financial Services. It provides services through a network of 12,035 (1,797 urban and 10,238 rural) post offices across the country. Some salient achievements of the Post Office department are given below:

Benazir Income Support Programme (BISP)

Complete web-based tracking and monitoring system for disbursement of funds for Benazir Income Support Programme (BISP) has evolved that includes continuous processing, monitoring and reconciliation of the specialized money orders scheme. During the 1st nine months of the current


191

fiscal year (July-March) total 8,621,193 BISP Money Orders along with required funds for Rs.17,242.4 million were received from BISP authorities, out of which 97 percent Money Orders amounting to Rs.16,642.0 million have been paid within prescribed period of time.

Western Union Money Remittances Business

During the first nine months of current fiscal year (July-March), Pakistan Post has received the foreign remittances amounting of Rs. 9,247.9 million.

Establishment of “Small & Smart” Express Centers

To provide quality services to the customers, 55 Small and Smart Express Centers have been set up in the urban areas. These Express Centers are fully computerized and automated and cater the requirements of the public. These canters facilitate the customers, particularly in trade, commerce and business. The services offer in these centers include: Urgent Mail Service, urgent Money Order Service, Expedited Mail Service, Fax Mail, Fax Money orders, Payment of incoming foreign remittances through Western Union, Acceptance of Utility Bills, Traditional Services, Booking of Inland and Foreign Parcels.

Achievements of Saving Bank

Pakistan Post has been doing Saving Bank work as an agency function on behalf of the Ministry of Finance under the government Savings Bank Act-1873 on commission basis. During the period July-March 2011-12 an amount of Rs. 160,266.9 million has been collected through National Savings Schemes and earned commission amounting to Rs. 801.3 million during this period.

Postal Life Insurance

Total Policies are 382,019, for a sum assured Rs. 49,507.9 million and a Premium Income is Rs. 1,993.8 million.

Computerization Counter Automations System

Over one hundred General Post Offices including renovated post offices through out Pakistan have been provided with counter computerization facilities for the better service quality to the customers through a LAN based system.

Computerized Pension Payment System

Over 1.4 million Civil and Military pensioners are being served by Pakistan Post about 1.3 million pensioners has been disbursing pension from Pakistan Post. The pensioners are receiving the pension in a hassle free environment. Pakistan Post is also disbursing pension to over 40,000 PTCL pensioners. Pakistan Post has also developed a separate system for PTCL pension disbursement.

Conclusion

With the continuing expansion of the transportation and communication sector throughout the country, Pakistan is preparing for the future in various areas from creating vast transport networks to building up a sustainable information technology infrastructure with the objective of setting the foundations for continued growth and success. Despite such challenges in areas of natural disaster recovery and difficult terrain to develop upon, transportation developments have continued, and expect to expand. Communications infrastructure has widened despite challenges with security, power outages and rough terrain in which to build upon. The cellular mobile sector has been a major contributor to the expanding market for telecommunication and the various technologies that come with it, bringing the country to high standards of telecommunication structures on par with the rest of the world. This area is expected to grow at an accelerated pace due to demand, however it is important that capital and investments come with it. Overall, the transportation and communication arena remains strong, is changing, expanding and seeking to meet with the needs of Pakistan’s citizen.

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Energy

Energy is considered to be the lifeline of economic development. For a developing economy with a high population growth rate, it is important to keep a balance between energy supply and emerging needs. If corrective measures are not effectively anticipated significant constraints start emerging for development activities.

The rise in global energy demand has raised questions regarding energy security and increased the focus on diversification, generation and efficient allocation. The answer lies in the

attainment of optimal energy mix through fuel substitution by promoting energy efficiency and renewable energy and interregional co-operation. However, oil and natural gas will continue to be the world’s top two energy sources through 2040; accounting for about 60 percent of global demand. Gas being the fastest growing major fuel source over this period is expected to grow at 1.6 percent per year from 2010 to 2040 as estimated by “The Outlook for Energy: A View to 2040” is given in Figure-14.1.

Pakistan’s economy has been growing at an average growth rate of almost 3 percent for the last four years and demand of energy both at production and consumer end is increasing rapidly. Knowing that there is a strong relationship

between economic growth and energy demand, the government is making all possible efforts to address the challenges of rising energy demand (Box-1).

2010

20102010

20102010

2010 2010

2040

2040

2040

2040 2040

20402040

0

50

100

150

200

250

Oil

Gas

Coa

l

Nuc

lear

Bio

mas

s/W

aste

Hyd

ro

Oth

er

Ren

ewab

le

Quadrillions British Th

ermal Units

Figure 14.1: Global energy demand by fuel type (Quadrillion BTUs)

Latin America and China are the biggest users of hydro power, which makes up over 80 percent of total Hydro/Geo supplies

From its peak in 2025, coal will decline by more than 10 percent of total Hydro/Geo

Source: The Outlook for Energy: Aview to 2040

Chapter 14


194

Box- 1 Reforms of Present Government addressing Energy Crises

Oil Sector Reforms

The Federal Government, in pursuance of its deregulation policy, has deregulated prices of Motor Spirit (MS), High Octane Blending Component (HOBC), Light Diesel Oil (LDO), Jet Propellant 1 (JP1), Jet Propellant 4(JP4) and Jet Propellant 8 (JP8) w.e.f. June 1st, 2011. Refineries and Oil Marketing Companies (OMCs) are allowed to fix and announce their ex-refinery price and ex-depot prices of above mentioned products on monthly basis. Under the deregulation framework POL prices have been linked with Pakistan State Oil (PSO) actual import price. In case of non availability of PSO import prices, the refineries will fix their ex-refinery price as per existing Import Parity Pricing (IPP) formula.

Gas Sector Reforms

To mitigate the gas shortage, government has designed different policies not only for exploration of new local gas reserves but also for import of gas like Liquefied Natural Gas (LNG) most mentionable are Liquefied Petroleum Gas (LPG) Policy 2011 and Liquefied Natural Gas (LNG) Policy 2011.

Coal Sector Reforms

Federal and Provincial Governments are endeavoring to harness the huge coal resources of Thar by utilizing it as a source of energy for power generation through international investment.

As part of promotional activity to increase the share of coal, the Government of Sindh has leased out a coal block for an integrated mining project to many companies like M/s Engro Powergen (Pvt.) Limited, M/s Cougar Energy UK limited, M/s Oracle Coalfield Plc, UK, M/s Bin Daen Group, UAE and M/s China National Machinery Import & Export Corporation of China (CMC) for coal mining and installing coal-fired power plant

Power Sector Reforms

Government of Pakistan (GoP) initiated structural reforms in the power sector under the Power Sector Reform Plan (2010) finalized by Cabinet Committee on Restructuring (CCOR). Implementation of Power Sector Reform Plan 2010 has been expedited and upgraded under the Power Sector Recovery Plan 2011. The plans are based on the following key pillars: Improved governance structure: b) Supportive legal framework c) Financial sustainability; (d) Supply side management; (e) Demand side management and f) Promote private sector participation in the sector.

Power Sector Subsidy

The timely payment of tariff differential subsidy (TDS) is being ensured along with subsidies for KESC and FATA on monthly basis. All subsidy claims till December 2011 (Rs.56 billion) have been disbursed. GoP started 2012 with no outstanding claims of TDS against any power sector company. For 2012, overall subsidy is estimated to be Rs.91 – 125 billion. Monthly financial planning is being implemented for smooth financial flow. General Sales Tax (GST) exemption withdrawn for lifeline and agriculture consumers (Rs. 10 billion budgeted by GoP for 2012). GoP aims to phase out subsidies to power sector which have cost rupees one trillion in last 4 years.

Resolution of Circular Debt

Circular debt refers to the unpaid bills by Pakistan Electric Power Company (PEPCO) to key players especially Oil companies, Gas companies, Independent Power Producers (IPPs) and Water and Power Development Authority (WAPDA).

Energy

195

Stock Issue

• Recovery of receivables of Distribution Companies (DISCOs) of Rs. 354 billion (Feb 2012) is essential to clear the circular debt against payables of Rs. 398 billion (April 2012).

• Unpaid power tariff differential subsidy (Rs. 301billon) until 30 June 2009 picked up by GoP through Power Holding Private Limited (PHPL) company. Stock of Rs.120bn of outstanding tariff differential subsidy (TDS) for FY10 was picked up by the Federal Government in May 2011.

• Debt swap of Rs. 150 billion has been done which covers sizeable proportion of circular debt.

Flow Issue

• Efforts for 100 percent recovery of current bills are underway along with disconnection of defaulters after 45 days (reduced from 90 days) without any exemption/discrimination. A total of 210,301 disconnections carried out during July-Feb 2012.

• Two months security deposit shall be paid by new and defaulting consumers to get a reconnection.

• Refund of General Sales Tax (GST) on uncollected bills of more than 180 days has been approved

Supply Side Management

• 3,400 MW has been added since 2008. • Most efficient plants are being dispatched to

maintain to conserve fuel. • Economic dispatch to conserve fuel is being

implemented. • Gas Supply to Karachi Electric Supply

Corporation (KESC) has been increased to improve fuel mix and ensure maximum supply.

• Change Combined Cycle plants to coal (24 months).

• Mangla raising project is completed and the project is also inaugurated.

• Diamer Bhasha Dam of 4,500MW generation capacity inaugurated

• 1400MW Tarbela 4th extension initiated.

Demand Side Management

• Lines losses reduced from 20.4 percent (FY10) to 19.6 percent (FY11). Loss mapping in each Distribution Companies (DISCOs) is in progress to exactly pin-point the losses and their sources to achieve the target of 18.7 percent losses in FY12.

• Load Management conservation measures to save about 1000MW put in place.

• Promote Private Sector Participation in the Sector • Expression of Interest (EOI) for private bidders

issued for O&M contracting for Generation Companies (GENCOs).

• GoP in the process of finalizing Operations and maintenance (O&M) contracting wherever required for Distribution Companies (DISCOs).

• Work on coal fired plants has been expedited. During 2011-12, energy outages in Pakistan continued to be the dominant constraint in its growth. Yet, traces of energy supply shortages can be traced to the independence of the country. Till the 1980s less than two-third of the energy requirements were met through its own domestic resources. In the 1990s Pakistan was still engaged in various efforts to bridge the wide gap between increasing demand and limited energy supply. Further in the early 2000s, the energy sector (especially its sub sector electricity) received greater attention because of the faster rate of growth in its demand. By 2011-12, electricity and gas shortages are considered to be the primary cause of constrained production activities in a number of industries. Energy intensive industries (Petroleum, Iron and Steel, Engineering Industries and Electrical) shaved off 0.2 percentage points from real GDP growth in 2010-11 and in 2011-12. Also, the estimated cost of power crises to the economy is

approximately Rs.380 billion per year, around 2 percent of GDP, while the cost of subsidies given to the power sector to the exchequer in the last four years (2008-2012) is almost 2.5 percent of GDP, (Rs. 1100 billion). The liquidity crunch in the power sector has resulted in under utilization of installed capacity of up to 4000MW. It has also affected investment in power sector.

Flood was one of the factors which caused electricity and gas shortage as it damaged the distribution network (i.e., 90 percent of distribution transformers to the petroleum and gas fields). “The total damage to the energy sector was of Rs 1.2 billion (US$ 14.2 million) according to Asian Development Bank Report, “2011 Pakistan Floods; Preliminary Damage and Needs Assessment”. Lower accumulation of water reserves in dams along with high international prices of oil has compounded the pressure on


196

electricity as there is still significant share of oil (furnace) in electricity generation (about 35.1 percent) which is vulnerable to the international prices. Further the oil refineries have also been running below capacity, thus constraining the supply of oil and other fuels. Likewise, in the gas sector, Pakistan faced severe shortages that exceeded approximately 2 billion cubic feet per day as local production was unable to keep pace with the requirements of the country. This was due mainly to the depletion of existing resources, unfavorable law and order situation and lukewarm interest of exploration and production companies etc. However, the geographical location of the country makes it a favourable potential market for the import of natural gas from its neighboring countries like Iran, India and Turkmenistan. The government has, therefore, taken the initiative to import gas from these countries. The initial projects in this regard are Iran-Pakistan Pipeline and Turkmenistan-Afghanistan-Pakistan-India gas pipeline. To mitigate the energy crisis, the government has notified the Liquefied Natural Gas (LNG) Policy 2011 which encourages private parties to develop LNG projects and sets them free to participate in any segment of the LNG value chain. In order to solve issues in power sector, the government has decided to construct five multi-purpose water

storages in the country during the next 10 -12 years. The Diamer Basha Dam Project - the world's highest Roller Compacted Concrete Dam - is the most mentionable achievement. Also Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA-1000) electricity trade.

To ensure energy security and sustainable development in the country, the government is also taking all possible measures to diversify its energy mix. In this the regard government has given due attention to fast track the development of Alternative / Renewable Energy (ARE) resources in the country. The Alternative Energy Development Board (AEDB) has updated the Renewable Energy (RE) Policy, 2006, in consultation with the provinces and other stakeholders. The policy includes all (Alternative Renewable Energy (ARE) technologies including Wind, Solar, Hydro, Biogas, Cogeneration, Waste-to-Energy, and Geothermal; providing extremely attractive financial and fiscal incentives to both local and foreign investors while offering them a level playing field. It is expected that with the approval of the policy and government’s keen interest in energy sector, the situation will improve significantly in near future.

Pakistan’s Energy Sector1 Figure 14.2: Pakistan’s Energy Sector Consumption and Supply 2010-112

1 Data on variables of energy is given on calendar year instead of fiscal year 2TOE (tonne of oil equivalent) is a unit of energy. It is considered as an amount of energy released by burning one tonne of crude oil approximately equal to 42 GJ. [1 TOE = 41.868 GJ = 11, 630 Kilowatt Hours =39.683 million Btu]

Natural Gas (47.6%)

Petroleum Products (16.3%)

Crude Oil (15.7%)

Oil (32.0%)

Coal (6.7%)

Electricity (13.1%)

Energy Supply (64.5 million TOE) by Share of

Sources

LPG (0.5%)

Transformation (−17.8 million TOE) Diversions (−7.4 million TOE)

Statistical Differ (−0.5 million TOE)

Energy Consumption (38.8 million TOE) by Share of

Sectors

Energy Consumption (38.8 million TOE) by Share of Sources

Oil Products(29 %)

Coal(10.4 %)

Gas(43.2 %)

LPG(1.3%)

Electricity(16.2 %)

Energy

197

14.1 Energy Consumption

Pakistan’s total energy consumption stood at 38.8 million tonnes of oil equivalent in 2010-11. The relative importance of the various sources of energy consumption of Liquid Petroleum Gas (LPG), electricity and coal has been broadly similar since 2005-06. The share of gas consumption stood at the highest equal to 43.2 percent of the total energy mix of the country,

followed by oil (29.0 percent). As shown in Fig-14.3, the major consumption source of natural gas witnessed an increase in share by almost 4 percentage points during 2010-11 compared to 2005-06. This is due to the substitution effect to a cheaper source from an expensive source. Since oil is the more expensive fuel because of Pakistan’s imports at the high international prices the share of oil consumption declined by 3.0 percentage points during the period under review.

The consumption of petroleum products showed a continuous declining trend since 2001-02. However due to positive changes in years 2004-05, 2007-08 and 2009-10, the overall average for last ten years became positive 1.1 percent per annum. The longer term trend suggests that composition of

annual energy consumption is shifting from petroleum products to other energy sources due to volatile prices of oil. Thus consumption of gas, electricity and coal has increased at an average of 5.1 percent, 4.8 percent and 7.7 percent per annum for last ten years as shown in Table 14.1.

Table:14.1: Annual Energy Consumption

Fiscal Year

Petroleum Products Gas Electricity Coal Tonnes (000) Change (%) (mmcft) Change (%) (Gwh) Change (%) M.T*

(000) Change (%)

2001-02 16,960 -3.9 824,604 7.4 50,622 4.2 4,409 9.02002-03 16,452 -3.0 872,264 5.8 52,656 4.0 4,890 10.92003-04 13,421 -18.4 1,051,418 20.5 57,491 9.2 6,065 24.02004-05 14,671 9.3 1,161,043 10.4 61,327 6.7 7,894 30.22005-06 14,627 -0.3 1,223,385 5.4 67,603 10.2 7,714 -2.32006-07 16,847 15.2 1,221,994 -0.1 72,712 7.6 7,894 2.32007-08 18,080 7.3 1,275,212 4.4 73,400 0.9 10,111 28.12008-09 17,911 -0.9 1,269,433 -0.5 70,371 -4.1 8,390 -17.02009-10 19,132 6.8 1,277,821 0.66 74,348 5.7 8,139 -3.0

Oil Gas LPG Electricity Coal

2005-06 32.0 39.3 1.8 16.2 10.62008-09 29.0 43.7 1.5 15.3 10.42010-11 29.0 43.2 1.3 16.2 10.4

32.0

39.3

1.8

16.2

10.6

29.0

43.2

1.3

16.2

10.4

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Shar

e in

per

cent

age

Figure 14.3: Energy Consumption by Sources in %: A Comparison between 2005-06, 2008-09 & 20010-11

Source: Hydrocarbon Development Institute of Pakistan


198

Table:14.1: Annual Energy Consumption

Fiscal Year

Petroleum Products Gas Electricity Coal Tonnes (000) Change (%) (mmcft) Change (%) (Gwh) Change (%) M.T*

(000) Change (%)

2010-11 18,887 -1.3 1,240,671 -2.91 77,099 3.7 7,717 -5.2Avg. 10 years

1.1 5.1 4.8 7.7

July-Mar 2010-11(e) 13,802 − 939,950 − 56,194 − 5,850 −2011-12** 13,879 0.6 957,275 1.8 54,595 -2.8 4,730(e) -19.1Source: Hydrocarbon Development Institute of Pakistan *: Million Ton −: Not Available e: Estimated **: Consumption of electricity for AJK and KESC for the months Jan to Mar 2012 is not available

14.2-a Petroleum Product

During the first three quarters of current fiscal year the overall consumption of petroleum products increased to 13,879 million tonnes in the period July-March 2011-12 compared to 13,802 million tonnes in corresponding period of 2010-11 thus posting a positive growth of 0.6 percent. The major decline was in the agriculture sector (40.8 percent) followed by the government sector (20.3 percent). Similarly the power sector and household sector had also shown negative growth in the consumption of petroleum products for the period under discussion posting -5.2 percent and -8.0 percent respectively. Although petroleum products

considered as necessary inputs of the power sector, yet the negative growth in power as well as household sector can be attributed to changes in demand behavior toward relatively cheaper alternatives. The industry sector had shown positive growth of 24.2 percent in the consumption of petroleum products during the period of July-March 2011-12 when compared with July-March 2010-11, mainly due to recovery in economic activity. The transport sector usually consumes high quantity of petroleum products but surprisingly this sector showed a relative small growth of 3.5 percent during the period under consideration.

Table 14.2: Consumption of Petroleum Products (000 tones) Year House

holds (000

tonnes)

Change (%)

Industry (000

tonnes)

Change (%)

Agriculture (000

tonnes) (a)

Change (%)

Transport (000

tonnes)

Change (%)

Power (000

tonnes)

Change (%)

Other Govt (000

tonnes)

Change (%)

Total 000

tonnes)

2001-02 335 -25.7 1,612 -16.2 226 -11.4 8,019 -1.7 6,305 -2.8 464 24.7 16,9602002-03 283 -15.5 1,604 -0.5 197 -12.8 8,082 0.8 6,020 -4.5 266 -42.7 16,4522003-04 231 -18.4 1,493 -6.9 184 -6.6 8,464 4.7 2,740 -54.5 309 16.2 13,4212004-05 193 -16.5 1,542 3.3 142 -22.8 9,025 6.6 3,452 26 317 2.6 14,6712005-06 129 -33.2 1,682 9.1 82 -42.3 8,157 -9.6 4,219 22.2 359 13.2 14,6272006-07 106 -17.8 1,596 -5.1 97 18.3 7,982 -2.1 6,741 59.8 325 -9.5 16,8472007-08 121 14.1 1,071 -32.9 109 12.7 9,384 17.6 7,084 5.1 311 -4.5 18,0802008-09 97 -19.5 969 -9.5 70 -36.2 8,837 -5.8 7,750 6.9 367 18.2 17,9112009-10 90 -7.5 985 1.6 58 -16.9 8,861 0.3 8,814 16.4 323 -12.0 19,1312010-11 85 -5.6 1,355 37.6 41 -29.3 8,892 0.3 8,139 -7.7 374 15.8 18,887Avg. 10 years -14.6 -2.0 -14.7 1.1 6.7 2.2

July-Mar 2010-11 67.3 - 919.2 - 35.8 - 6,599.1 - 5,913.4 - 267.4 - 13,8022011-12* 61.9 -8.0 1,141 24.2 21.2 -40.8 6,832.9 3.5 5,608.8 -5.2 213.1 -20.3 13,879Source: Hydrocarbon Development Institute of Pakistan (a) High Speed Diesel (HSD) consumption in agriculture is not available separately and is included under transport sector. Agriculture sector represents only Light Diesel Oil (LDO) *: Oil/POL product consumption for the month March 2012 is missing The share of Punjab in consumption has declined from 59.3 percent during the last fiscal year to 57

percent in 2010-11. There was an increase in the share of Sindh to 24 percent this year as compared

Energy

199

to 21.4 percent last year. The share of Balochistan and Khyberpakhtunkhwa (KPK) remained constant over the last four years with Balochistan having a

relatively higher share than KPK in the consumption of petroleum products as is evident from the figure below

14.2-b Natural Gas

The consumption pattern of gas by different users since 2001-02 is presented in Table 14.3. The analysis of the sectoral consumption of gas indicates that during July-March 2011-12, the consumption of gas in the cement sector was 1.4 billion cubic feet compared to 0.6 billion in the corresponding period during 2010-11 thus posting a positive growth of 133 percent during the period under review. The industrial sector experienced a

decline in consumption of gas and posted a negative growth of 12.5 percent during 2010-11. This sector also showed negative growth of 6.8 percent during July-March 2011-12 when compared to the same period during 2010-11. The transport sectors is the most significant sector; posting a positive growth in gas consumption of 14.2 percent during 2010-11 as compared with 2009-10 and a positive growth of 10.8 percent during July-March 2011-12 as compared with the same period during 2010-11.

Table 14.3: Consumption of Gas (Billion Cft) Year Household Change (%) Commercia

l Change

(%) Cement Change (%) Fertilizer Change

(%) Power Change (%) Industrial Change

(%) Transport

(CNG) Change

(%) Total

2001-02 144 2.1 22 4.8 7 0.0 178 1.7 315 12.1 151 8.6 7 66.6 8252002-03 154 6.9 23 4.5 3 -57.1 181 1.7 336 6.7 165 9.3 11 53.6 8722003-04 155 0.6 24 4.3 8 166.7 185 2.2 470 39.9 193 17.0 16 40.1 1,0512004-05 172 11.0 27 12.5 13 62.5 190 2.7 507 7.9 226 17.1 24 54.1 1,1612005-06 171 -0.6 29 7.4 15 15.4 198 4.2 492 -3.0 279 23.5 39 59.1 1,2232006-07 186 8.8 31 6.9 15 0.0 194 -2.0 434 -11.8 307 10.0 56 45.2 1,2222007-08 204 9.7 34 9.4 13 -15.1 200 3.1 430 -1.0 323 5.1 72 27.6 1,2752008-09 214 4.9 36 4.8 7 -42.6 201 0.5 404 -6.0 319 -1.1 88 22.5 1,2692009-10 219 2.4 37 4.1 2 -73.4 220 9.4 367 -9.2 334 4.5 99 12.2 1,2782010-11 232 5.9 36 -1.3 1 -27.8 228 3.6 337 -8.0 292 -12.5 113 14.2 1,241Avg. 10 years 5.2 5.7 2.9 2.7 2.8 8.1 39.5

July-Mar 2010-11(P) 185.9 - 27.2 - 0.6 - 166.9 - 254.4 - 223.6 - 81.4 - 940.0

2011-12 (P) 205.4 10.5 29.4 8.1 1.4 133.3 159.0 -4.8 263.5 3.6 208.5 -6.8 90.2 10.8 957.3

Source: Hydrocarbon Development Institute of Pakistan P: Provisional

Punjab

Sindh

KPK

Balochistan

A.J. Kashmir0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2008 2009 2010 2011

Perc

enta

ge S

hare

in T

otal

Con

sum

ptio

n

Years

Figure 14.4: Share of Provinces in Consumption of Petroleum Products

Source: Directorate General of Petroleum Concessions (DGPC)

Pakistan E

200

Like petroconsumpti%) followrespective4.4 percen

14.2-c Ele

The elect77,099 GW10, howevits consum194 GWh decrease 2011-12 household-11.9, -1014.4). Table 14.4: CoYear T

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Avg. 10 years July-March 2010-11 (e) 2011-12* Source: Hydroc(e): Estimated *

The shaconsumptfigure bel

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Economic Sur

oleum production of natural

wed by Sindh (ly have smal

nt.

ectricity

tricity consumWh as compaver during themption decrea

in correspondof almost 3 agriculture,

d sector also sh0.1 and -7.0

onsumption of ElectTraction Househ

GWh (000)

C

11 23.210 23.6

9 25.812 27.613 30.712 33.3

8 33.75 32.32 34.21 35.9

− 25.81 24.0

carbon Development*: The electricity con

are of the tion for the lalow. It shows

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

20

Figure 14.6:

Source: Directorate

rvey 2011-12

ts, the share ogas in 2010-135.3%). Balocler shares of

mption duringared to 74,348e period July

ased to 54,595ding period 20percent. Durcommercial,

how negative percent resp

tricity by Sectors hold CommeChange

(%) GWh (000)

1.8 3.01.7 3.29.3 3.77.0 4.1

11.2 4.78.5 5.41.2 5.6

-4.2 5.35.9 5.65.0 5.84.7

- 4.2-7.0 3.7

Institute of Pakistannsumption data of AJ

provinces ast four year that this shar

006 2

Share of Prov

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2

of Punjab in 1 is higher (5chistan and KP7.1 percent a

g 2010-11 w8 GWh in 200-March 2011-

5 GWh from 010-11 postinring July-Mar

industrial agrowth of -13

pectively (Ta

ercial InduChange

(%) GWh (000)

7.1 15.18.5 16.2

15.6 17.410.8 18.614.6 19.814.9 21.13.7 20.7

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- 15.8-11.9 14.2

n JK and KESC for the

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A.J. Kashmi

2007

vinces in Cons

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the 3.2 PK and

was 09--12 56, g a rch and 3.6, able

ustrial AgrChange

(%) GWh (000)

5.6 57.3 67.4 66.9 76.5 76.6 8

-1.9 8-6.8 82.6 97.1 94.1

- 6-10.1 5

e month January to M

city the ned

almost averageKPK 1share in

SinShare

FigureCon

ir'

2008

sumption of E

s (DGPC)

Sou(DG

riculture SChange

(%) GW

.6 14.36.0 7.16.7 11.77.0 4.57.9 12.98.2 3.88.5 3.78.8 3.59.7 10.29.0 -7.2

6.4

6.6 -.7 -13.6

March 2012 is not ava

constant in e Punjab has 11.4 percent n electricity c

ndh's e, 35.3

KPShar

e 14.5: Share ofnsumption of N

Pu

S

Balochis

2009Years

Electricity

urce: Directorate GPC)

treet Light Wh Change

(%) G(0

212 -0.5244 15.1262 7.4305 16.4353 15.7387 9.6415 7.2430 3.6458 6.5456 -0.4

8.1

321 -323 0.6

ailable

all provinc62 percent, Sand Baloch

consumption.

PK's re, 4.4

f Provinces in atural Gas

unjab

Sindh

KPKstan'

2010

General of Petro

Other Govt. (GWh

000) Change

(%) 3.5 0.03.4 -2.93.7 8.83.8 2.74.0 5.34.4 10.04.5 2.34.3 -4.44.5 4.74.8 6.7

3.3

3.5 -6.7 91.4

es over timeSindh 20.2 pehistan 5.5 pe

Punjab'sShare, 53.

Balochistan's Share, 7.1

K'

2011

oleum Concession

Total (GWh)

50622526565749161327676037271273400703717434877099

56,19454,595

e. On ercent, ercent

s .2

ns

Energy

201

14.2-d Coal

Pakistan has huge coal resources estimated at over 185 billion tonnes; including 175 billion tonnes, identified at Thar coalfields in the Sindh province. Pakistan’s coal generally ranks from lignite to sub-bituminous. The major user of coal are the cement sector and brick kilns; about 60 percent of total coal was consumed by cement while 39 percent

was consumed by the brick kiln industry during the period 2010-11. The longer term trend analysis shows that for the last ten years, on average, the cement sector and brick kilns have been the highest consumers of coal. The reason for the high share of consumption of coal in the cement industry is due to switching over to coal from furnace oil which has increased the utilization of indigenous as well as imported coal (Table 14.5).

Table 14.5: Consumption of Coal by Sectors Year Household Power Brick Kilns Cement Total (000

metric tonnes)

(000 metric tonnes)

Share (%) (000 metric tonnes)



Share (%)

2001-02 1 0.0 249 5.7 2,578 58.5 1,581 35.9 4,4092002-03 1 0.0 204 4.2 2,607 53.3 2,078 42.5 4,8902003-04 1 0.0 185 3.0 2,589 42.7 3,289 54.2 6,0652004-05 − − 180 2.3 3,907 49.5 3,807 48.2 7,8942005-06 − − 149 1.9 4,222 54.7 3,343 43.3 7,7142006-07 1 0.0 164 2.1 3,278 41.5 4,451 56.4 7,8942007-08 1 0.0 162 1.6 3,761 37.2 6,187 61.2 10,1112008-09 1 0.0 113 1.3 3,275 39.0 5,002 59.6 8,3902009-10 − − 126 1.5 3,005 36.9 5,008 61.5 8,1392010-11(P) − − 97 1.3 3,004 38.9 4,617 59.8 7,717Avg. 10 years

0.0 2.5 45.2 52.3

Jul-Mar 2010-11 − − 44.6 3,305.5 2,500.0 5,850.02011-12(P) − − 56.0 25.6 2,274.0 -31.2 2,400.0 -4.0 4,730.0Source: Ministry of Petroleum Natural Resource & Hydrocarbon Development Institute of Pakistan −: Not available P: Provisional

14.3 Supply of Energy

Primary energy supply has increased by 2.3 percent during current year when compared with last year. The availability of energy per capita in

2011 remained 0.372 TOE compared to 0.371 TOE in 2010 posting a positive growth rate of 0.16 percent (Table 14.6). Due to population growth rate of almost 2 percent, the balance between energy supply and emerging needs was outset.

Table 14.6: Primary Energy Supply and Per Capita Availability Year Energy Supply Per Capita

Million TOE Change (%) Availability (TOE) Change (%) 2001-02 45.07 1.5 0.32 -1.252002-03 47.06 4.4 0.32 0.002003-04 50.85 8.1 0.34 6.252004-05 55.58 9.3 0.36 5.882005-06 58.06 4.5 0.37 2.782006-07 60.62 4.4 0.38 2.702007-08 62.92 3.8 0.39 2.632008-09 62.55 -0.6 0.38 -2.562009-10 63.09 0.9 0.36 -5.262010-11 64.52 2.3 0.36 0.00Source: Hydrocarbon Development Institute of Pakistan.−: Not Available estimated


202

Analysis of the composition of final energy supplies in the country suggests that the supply of coal during last ten years grew at an average rate of 7.5 percent per annum followed by gas, electricity,

petroleum products and crude oil with average growth rates of 5.7 percent, 3.4 percent, 2.1 percent and 0.4 percent, respectively.

Table 14.7: Composition of Final Energy Supplies

Year Crude Oil Petroleum Products

Gas Electricity Coal

Million Barrels

Change (%)

(Mln.T.) Change (%)

(bcf)(a) Change (%)

(000Gwh) (b)

Change (%)

(Million Tonnes)

Change (%)

2001-02 75.2 2.1 18.1 1.6 923.8 7.7 72.4 6.3 4.4 7.32002-03 76.0 1.1 17.5 -2.9 992.6 7.4 75.7 4.6 4.9 11.42003-04 80.3 5.7 14.9 -14.9 1,202.7 21.2 80.9 6.9 6 22.42004-05 85.3 6.2 16.2 8.3 1,344.9 11.8 85.7 5.9 7.9 31.72005-06 87.5 2.6 16.5 2.2 1,400.0 4.1 93.8 9.5 7.7 -2.52006-07 85.3 -2.5 18.6 12.9 1,413.6 1.0 98.4 4.9 7.9 2.62007-08 90.5 6.1 19.8 6.1 1,454.2 2.9 95.9 -2.5 10.1 27.82008-09 86.1 -4.8 19.8 0.1 1,460.7 0.4 91.8 -4.3 8.4 -16.82009-10 76.8 -10.9 20.2 1.9 1,482.8 1.5 95.6 4.1 8.2 -2.42010-11 75.3 -1.9 21.3 5.5 1,471.6 -0.8 94.7 -0.9 7.7 -6.1Avg. 10 Year 0.4 2.1 5.7 3.4 7.5

July-Mar 2010-11(e) 56.6 - 16.0 - 1,110.0 - 69.0 - 5.9 -2011-12 (e) 53.9 -4.9 14.8 -7.8 1,164.9 4.9 64.8 -6.1 4.7 -20.3Source: Hydrocarbon Development Institute of Pakistan (HDIP) (a): Billion cubic feet, (b): Giga Watt hour , (e): Estimated *: Coal and electricity data is estimated on the basis of six months **: Hydel generation for the month of March 2012 is missing. Thermal Generation from WAPDA for the months of Feb to Mar 2012 is missing The main hurdle in the supply of energy was accumulation of the massive circular debt. The major problems which cause accumulation of circular debt were the partial transfer of tariff as determined by National Electric Power Regulatory Authority (NEPRA), heavy line losses (present level of line losses are almost 20 percent), incomplete corporatization, weak governance and costly fuel mix putting an extra financial burden on meeting the cost of fuel oil due to constant increase in the oil prices, etc. The government has made all possible attempts to address this issue. The government has transferred bank loan liabilities of Rs 216.0 billion (as of 30-06-2009) and Rs. 85.114 billion from the books of power companies and placed these amounts with the Power Holding (Pvt) Ltd (PHPL) in November, 2011. The government has repaid these loans to the bank along with markup.

During 2010-11 the Finance Division released Rs. 65 billion as well as Rs. 120 billion as tariff subsidy to Pakistan Electric Power Company (Pvt) Ltd (PEPCO) over and above the budgetary allocation to overcome its operational shortfall and relax the Circular Debt.

With the approval of the Cabinet, funds amounting to Rs. 142.0 billion have been raised from the banks in March 2012 and paid to Independent Power Producers (IPPs) by PEPCO. Another transaction for raising funds to the tune of Rs. 20 billion is in process for payment of overdue of Independent Power Producers (IPPs) / Gas Companies/ Pakistan State Oil (PSO) etc to overcome/reduce the Circular Debt.

The power sector was allowed to transfer the cost of power to the consumers through the

Energy

203

tariff increases of 6%, 12% and 6% at the start of the three quarters on 1st Jan, 1st April and 1st October 2010.

To enable the Power Sector to meet its cash shortfall, the following Tariff Differential Subsidies have been released during the period:

Table 14.8: Tariff Differential Subsidies (Rs. in billion)

2008-09 2009-10 2010-11 2011-12 (upto Mar-12) 109.173 178,841 346.096 93.250

Source: Corporate Finance Wing

Because of the policy implementation by the government the inter circular debt has shown a

declining trend over the period July-Mar 2011-12 as shown in figure below:

14.3-a Crude Oil

The total supply of crude oil for the fiscal year 2010-11 was 75.3 million barrels, equal to 10.1 million TOE, out of which 68.1 percent was imported and 31.9 percent was locally extracted. The balance recoverable reserves of crude oil in the country as on December 31st, 2011 have been estimated at 247.53 million barrels in the country. The average crude oil production during July 2011 to Mar 2012 remained 66032 barrels per day as against 65997 barrels per day during the corresponding period of last year, showing an increase of 0.05 percent. During the period under review, 39669 (60 percent) barrels per day were

produced in northern region and 26364 (40 percent) barrels per day in southern region, as against 34762.28 (53 percent) barrels and 31234.22 (47.33 percent) barrels produced per day respectively in the same period last year. During July 2011 to March 2012, production of crude oil has increased by 14.11 percent from northern region whereas production decreased in southern region by 16 percent, as compared to same period last year overalls 0.05 percent oil production increased in the country. The company wise detail of production of crude oil during July-March 2011-12 and corresponding period of the last fiscal year is as given below:

Intercircular Debt

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Jul Aug Sept Oct Nov Dec Jan Feb Mar

Rs in

Million

July-March 2011-12

Figure 14.7: Inter Corporate Circular Debt for period July-March 2011-12

Source: Corporate Finance Wing


204

Table 14.9: Production of Crude Oil (BOPD) Region 2010-11 July-Mar July-Mar Change (%)

2010-11 2011-12 Northern Region 35,367.74 34,762.28 39,668.59 -1.71Dewan Petroleum (Pvt) Ltd 207.38 211.21 193.48 1.85Oil & Gas Development Company Limited (OGDCL) 18,526.47 18,236.27 21,036.58 -1.57Orient Petroleum International Inc (Opii) 680.38 658.18 886.16 -3.26Pakistan Oilfields Limited (POL) 3,327.12 3,401.00 2,844.97 2.22Pakistan Petroleum Limited (PPL) 5,138.52 4,925.16 6,130.21 -4.15MOL Pakistan Oil & Gas Co 7,487.87 7,330.47 8,411.34 -2.10Mari Gas Company Limited (MGCL) − − 165.84 −Southern Region 30,498.44 31,234.22 26,363.50 2.41Oil & Gas Development Company Limited (OGDCL) 18,315.59 18,615.34 16,498.27 1.64BP Pakistan Exploration & Production Inc (BP) 8,362.90 8,625.89 6,646.82 3.14Pakistan Petroleum Limited (PPL) 1,140.31 1,233.66 402.24 8.19BHP Petroleum Pakistan (BHP) 2,169.09 2,228.26 2,306.30 2.73OMV (Pakistan) Exploration (OMV) 52.16 54.28 49.23 4.06eni Pakistan Limited (eni) 332.98 355.34 327.89 6.72Mari Gas Company Limited (MGCL) 17.55 7.30 63.46 -58.40Petroliam Nasional Berhad (PETRONAS) 107.86 114.15 69.29 5.83Total: 65,866.18 65,996.50 66,032.09 0.20Source: Ministry of Petroleum & Natural Resources

The share of Sindh in the total production was 46 percent during 2010-11 with a declining trend seen over the last four years. Initially the share of Punjab in the production of crude oil declined in 2009 after which it has became almost static. The share of KPK in crude oil production increased

from 5.3 percent in 2005-06 to 32.6 percent which is the second highest amongst the provinces in 2010-11. Balochistan’s share remained very small and constant at around 0.1 percent during the last four years as shown in the figure below:

Punjab

Sindh

KPK

Balochistan0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011

Percen

tage Share in

Total Produ

ction

Years

Figure 14.8: Share of Provinces in Production of Crude Oil

Source: Directorate General of Petroleum Concessions (DGPC)

Energy

205

14.3-b Petroleum Products

Petroleum products are produced from the processing of crude oil at petroleum refineries and the extraction of liquid hydrocarbons at natural gas processing plants. These products are further classified into Energy and Non-Energy products. Energy products include Motor Spirit, Kerosene, High Octane Blending Component (HOBC), High Speed Diesel Oil (HSD), Light Diesel Oil (LDO), Furnace Oil (FO), Aviation Fuels, Naphtha and Liquefied Petroleum Gas (LPG), while Non-Energy products include Lube Oil, Solvent Oil, Mineral Turpentine (MTT), Jute Batch Oil (JBO), Asphalt, Process Oil, Benzyne Toulene Xylene (BTX), Wax and Sulphur etc. During 2011 the

total production of petroleum products (energy and non-energy) remained 9.40 million tonnes compared to 9.53 million tonnes during 2009-10; thus posting a negative growth of 1.36 percent. Out of 9.40 million tonnes 8.91 million tonnes are energy products while 0.49 million tonnes are non-energy products. In these products diesel has the highest share of 34.9 percent followed by Furnace Oil (FO) having 25.9 percent. Motor Spirit and High Octane Blending Component (HOBC) together have 13.3 percent while Aviation Fuels, Naphtha and Liquefied Petroleum Gas (LPG) hold 8.8 percent, 8.6 percent and 1.9 percent respectively. Non-Energy products together have 5.3 percent share in the total production of petroleum products.

The total import of petroleum products were 12.37 million tonnes while total export of petroleum products were 1.57 million tonnes in 2010-11. This is shown in Table 14.10. During the period July-

March 2011-12 there was a negative growth of 27 percent in the export of petroleum products and a positive growth of 37.7 percent in the import of petroleum products.

Table 14.10: Imports and Exports of Petroleum Products (Million Tonnes) Imports Exports

Products Quantity in million Tones Products Quantity in

million Tones 100 Octane Aviation Fuel (100LL) 0.80 Naphtha 0.79High Speed Deisel (HSD) 3.78 High Speed Deisel (HSD) 0.12High Sulphur Furnance Oil 5.60 Jet Propellant (Aviation Fuel) JP-1 0.64Low Sulphur Furnance Oil 1.06 Furnance Oil 0.004Motor Spirit 1.13 Motor Spirit 0.02Total 12.37 Total 1.57Source: Hydrocarbon Development Institute of Pakistan

1.70

0.070.42

0.02 0.01 0.00

1.92

0.39

3.19

0.02

1.58

0.00 0.10 0.000.000.501.001.502.002.503.003.50

Ener

gy P

rodu

cts

Non

-Ene

rgy

Prod

ucts

Ener

gy P

rodu

cts

Non

-Ene

rgy

Prod

ucts

Ener

gy P

rodu

cts

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ucts

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rodu

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Prod

ucts

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rodu

cts

Non

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Prod

ucts

Ener

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rodu

cts

Non

-Ene

rgy

Prod

ucts

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gy P

rodu

cts

Non

-Ene

rgy

Prod

ucts

Attock Refinery Ltd

BYCO Petroleum Pakistan Ltd

Dhodak Refinery Ltd

National Refinery Ltd

Pak-Arab Refinery Ltd

Pakistan Refinery Ltd

ENAR Petroleum Refining Facility

(EPRF)

Perc

enta

ge S

hare

Refineries

Fig-14.9: Share of Refineries in Petroleum Products Productions during 2011

Source: Oil Refineries, Directorate General of Petroleum Concession, Directorate General of Oil and Directorate General of Gas


206

14.3-c Natural Gas

The consumption of increasing natural gas is rapidly. As on December 31st 2011, the balance recoverable natural gas reserves have been estimated at 24.001 Trillion Cubic Feet. The average production of natural gas during July-March 2011-12 was 4236.06 million cubic feet per day (Mmcfd) as against 4050.64 (Mmcfd) during the corresponding period of last year, showing an

increase of 4.57 percent. Natural gas is used in general industry to prepare consumer items, to produce cement and to generate electricity. In the form of CNG, it is used in transport sector and most importantly to manufacture fertilizer to boost the agricultural sector. Currently 27 private and public sector companies are engaged in oil and gas exploration & production activities. Company wise total natural gas production is as under:

Table- 14.11: Production of Natural Gas (Mmcfd)

Company 2010-11 July-Mar July-Mar Change

(%) 2010-11 2011-12 BHP Petroleum Pakistan (BHP) 392.13 399.77 446.08 11.58eni Pakistan Limited (eni) 478.24 486.89 468.88 -3.70Dewan Petroleum (Pvt) Ltd 28.56 28.88 27.09 -6.20Hycarbex-American Energy, Inc − − 6.36 −Mari Gas Company Limited (MGCL) 509.86 502.02 552.68 10.09Oil & Gas Development Company Limited (OGDCL) 862.12 853.74 1,026.18 20.20OMV (Pakistan) Exploration (OMV) 443.52 446.43 402.32 -9.88Orient Petroleum International Inc (Opii) 13.38 13.01 17.44 34.05Pakistan Oilfields Limited (POL) 21.23 21.46 20.59 -4.05Pakistan Petroleum Limited (PPL) 760.36 765.58 786.33 2.71Tullow Oil Plc (Tullow) 0.38 0.50 − −Petroleum Exploration (Pvt) Limited (PEL) 26.87 27.57 24.43 -11.39BP Pakistan Exploration & Production Inc (BP) 176.83 189.61 130.50 -31.17Petroliam Nasional Berhad (PETRONAS) 13.24 13.52 12.94 -4.29MOL Pakistan Oil & Gas Co 305.04 301.85 313.78 3.95Total: 4,031.76 4,050.83 4,235.60 4.56Source: Ministry of Petroleum & Natural Resources

Historically, indigenous natural gas is one of the types of fuel used by thermal power plants while the other type of fuel being imported is furnace oil. With the significant increase in international prices of furnace oil, initially the power sector retained the lion's share in the allocation of natural gas. However, the gas companies did not sign long-term agreements with the public sector utilities and subsequently, the allocation of gas to the public sector plants were allocated on as-and-when-available basis. This pattern continued for a considerable period up to the mid eighties. However, with the passage of time, natural gas became a scarce resource because of major use in the domestic, fertilizer and transport sectors. Thus

the allocation of natural gas for the power sector has declined significantly.

(i). Liquefied Petroleum Gas (LPG):

LPG currently contributes only 0.5 percent to the total primary energy supply in the country. However, 87 percent of its demand is met through local production. The rest is imported. This lower share is mainly due to local supply constraints and the higher price of LPG in relation to competing fuels like fuel wood, dung etc. Currently, in Pakistan, out of 27 million households, approximately 6 million are connected to the natural gas network while the rest are relying on LPG and conventional fuels such as coal, firewood, kerosene, biomass etc. LPG has thus

Energy

207

become a popular domestic fuel for those who live in areas where the natural gas infrastructure does not exist. The annual total supply of LPG remained 467,476 tonnes; 1, 281 tonnes were produced daily during 2012, out of this 46 percent

is produced in the private sector while 54 percent is produced in the public sector. The three main sources of LPG are; refineries 32 percent, gas producing fields 55 percents and imports 13 percent. The details are given in the figure below:

(ii).Compressed Natural Gas (CNG):

CNG as an alternative fuel for automobiles was introduced in 1992 to reduce the dependency on expensive imported fuel and to protect the environment. During the past few years, a tremendous growth in this sector was witnessed on account of the price differential between CNG and petrol which led to increase in conversion of vehicles into CNG. As a result to meet the growing demand a significant increase in CNG stations was witnessed. According to an estimate presently there are 3,331 CNG stations operating in the country.

(iii).Liquefied Natural Gas (LNG):

Realizing the widening gap between demand and supply of natural gas the government is encouraging LNG import through the private sector. Various investors have shown an interest.

In this regard OGRA has issued provisional licenses for construction of a LNG terminal, operation, sales and marketing of Regassified liquid natural gas (RLNG) / Liquid natural gas LNG. It is expected that RLNG volume of 1400 MMsfcd will be added to the system. In Pakistan import of LNG is considered to be beneficial for power companies as these companies are importing considerably more expensive furnace oil as input for power. In this context, the government has signed a Memorandum of Understanding (MoU) with Qatar for the import of 500 mmcfd and is exploring other avenues with Algeria and Malaysia which are prospective suppliers of LNG.

14.3-d Electricity

During 2010-11, electricity generation was 94,653 GWh. The contribution of Hydel in electricity generation increased to 33.6 percent in 2010-11 as

9.3 5.7 9.6

117.4

6.120.3

7.30.4

10.6 5.720.7

5.9

38.345.6

14.4

90.2

60.1

0

20

40

60

80

100

120

140

Atto

ck R

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ery

Ltd

Paki

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JJV

L

Impo

rts

Sector Fields Imports

Ann

ual (

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Tonn

es)

Sources of LPG

Fig-14.10: LPG Supplies by Source during 2011

Source: Oil Refineries, Directorate General of Petroleum Concessions (DGPC), Directorate General of Oil (DGO) and Directorate General of Gas (DGG)

Pakistan E

208

comparedbecame agenerationalmost 38for gas. It29.4 percremained generationbelow:

Power gethermal, hydroelec6,481 MWand Devthermal pprivate cothermal pMW. AboMW) is (Independoperates pOut of tinstalled generationabout 14annual hy

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209

Also Laraib Energy Limited (“Laraib”) is the owner and developer of 84 MW hydroelectric powers generating complex known as the New Bong Escape Hydroelectric Power Complex (the “Project”) on the Jhelum River in Azad Jammu and Kashmir (AJ&K). The Project has the distinction of being Pakistan and AJ&K’s first hydropower IPP. By developing a bankable framework this trendsetting project has paved the way for rapid and full scale development of Pakistan and AJ&K’s hydropower potential. Finally, the United States and Pakistan signed implementation agreements to upgrade three Pakistani thermal power stations at Jamshoro, Muzaffargarh, and Guddu. The rehabilitation, commissioned by the Pakistani companies, will restore approximately 305 MW of lost power generation capacity and bring a measure of relief to the people of Pakistan over the course of the next 12 months.

14.3-e Nuclear Energy

Pakistan Atomic Energy Commission (PAEC) is responsible for planning, construction and operation of nuclear power plants in the country. PAEC is currently operating three nuclear power plants i.e. Karachi Nuclear Power Plant (KANUPP) and Chashma Nuclear Power Plant Unit-1 and 2 (C-1 & C-2). The construction of two more units C-3 and C-4 of being 340 MW each is in progress.

KANUPP, located at Karachi, completed its design life of 30 years in 2002. After refurbishments and safety retrofits, it is now operating on extended life. C-1 located at Chashma is performing very well since its commercial operation. Third nuclear power plant that is also located at Chashma being an improved version of C-1 had also started commercial operation on 18 May 2011, three months ahead of its schedule. Performance of the operating nuclear power plants of Pakistan is shown in the Table 14.12:

The under construction nuclear power plants C-3 and C-4 are of 340 MWe each. The first concrete of these plants has been poured and commercial operation of C-3 and C-4 is expected in 2016 and 2017, respectively.

The government has mandated to Pakistan Atomic Energy Commission (PAEC) for the installation of 8,800 MW nuclear power capacities by the year 2030. Technical and engineering infrastructure is in place to provide technical support to existing, under construction and future nuclear power plants. It also has a network of in-house educational and training institutions that encompass all major facets of nuclear science and technology.

Table 14.12: Performance of the Operating Nuclear Power Plants in Pakistan

Plants Gross Capacity (MW) Grid Data Commercial

Data

Electricity sent to Grid July-March 2012

(million KWh) Lifetime (billion

KWh) KANUPP 137* 18-Oct-71 7-Dec-72 329.1 12.07 C-1 325 13-Jun-00 15-Sep-00 1477.3 22.17 C-2 325 14-Mar-11 18-May-11 1790.7 2.22 Source: Pakistan Atomic Energy Commission * KANUPP re-licensed at 98 MW (gross) after completing design life 14.3-f Coal

Pakistan has huge coal reserves which are estimated at over 185 billion tonnes; including 175 billion tonnes identified at Thar coalfields in Sindh province. Pakistan’s coal generally ranks from lignite to sub-bituminous. The total production of coal during 2010-11 was 7.7 million tonnes as

compared to 8.1 million tonnes in 2009-10; showing a negative growth of 5.1 percent. In 2010-11 the import of coal was 4,267 million tonnes compared to 4,658 million tonnes in 2009-10; a decline of 8.4 percent. The long trend shows that there was an increase of production of coal; an average 7.7 percent change occurred in last ten years.


210

Table 14.13: Production of Coal, Share and Percentage Change

Fiscal Year Imports Domestic Production Total Tones (000) % Share Tones (000) % Share Tones (000) % Change

2001-02 1,081 24.5 3,328 75.48 4,409 9.02002-03 1,578 32.3 3,312 67.73 4,890 10.92003-04 2,789 46.0 3,275 54.01 6,064 24.02004-05 3,307 41.9 4,587 58.11 7,894 30.22005-06 2,843 36.9 4,871 63.14 7,714 -2.32006-07 4,251 53.9 3,643 46.15 7,894 2.32007-08 5,987 59.2 4,124 40.79 10,111 28.12008-09 4,652 55.4 3,738 44.55 8,390 -17.02009-10 4,658 57.2 3,481 42.77 8,139 -3.02010-11 4,267 55.3 3,450 44.71 7,717 -5.2Avg. 10 years 46.3 53.7 7.7July-Mar 2010-11 3,500e 59.8 2,350e 40.2 5,850e −2011-12 2,700c 57.1 2,030c 42.9 4,730c -19.15Source: Hydrocarbon Development Institute of Pakistan e: Coal data is estimated on the basis of six months c: Coal import is estimated on the bais of six months data while the production from FATA is not available

The Federal and Provincial governments are endeavoring to harness the huge coal resources of Thar by utilizing these as a source of energy for power generation through international investment. As part of the promotional activity to increase the share of coal, the Government of Sindh has leased out a coal block for an integrated mining project. The details are as under:-

1. Government of Sindh has entered into a joint venture with M/s Engro Powergen (Pvt.) Limited for Coal Mining in Block-II and established a Company under Companies Act, 1984 viz. “ Sindh Engro Coal Mining Company” for development of coal mines and installing 600-1000 MW Power Plant

2. M/s Cougar Energy UK limited has been allocated Block-III in Thar coalfield for extraction of under ground Coal Gasification and establishing a 400 MW power plant

3. M/s Bin Daen Group, UAE has been allocated Block-IV in Thar coalfield for coal mine and installing 1000 MW Power Plant

4. One block has been allocated to Planning Commission of Pakistan for a Pilot Project of

50 MW based on Underground Coal Gasification Project in Block-V

5. M/s Oracle Coalfield Plc, UK has been allocated Block-VI in Thar coalfield for developing coal mine and installing power plant of 300 MW extendable up to 1000 MW

6. M/s China National Machinery Import and Export Corporation of China (CMC) conducted a feasibility study for 400 MW integrated coal mining and coal fired power plant at Sonda-Jerrick in district Thatta

7. The Government of Sindh is entering into a Joint Venture with M/s Al-Abbas Group company and allocated an area in Badin coalfield for developing coal mine and installing Coal-fired Power Plant of 300-600 MW

14.4 Performance of Major Oil and Gas Companies

During 1st July 2011 to 31st March 2012, so far eight (8) oil and gas discoveries have been made in the country. Details are as under:

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Table 14.14: Oil and Gas Discoveries during July-March 2011-12 Discovery Discovery Date Status Company Total Depth

in Meters Current Production Oil

(BOPD) Gas (Mmcfd)

Mulaki-1 July-11 Oil & Gas United Energy Pakistan (UEP)

2,080.0 92.26 14.68

Maru South-1 August-11 Gas Oil and Gas Development

Company Limited (OGDCL)

720.0 − −

Halini-1 October-11 Oil Mari Gas Company Limited (MGCL)

5,350.0 649.29 −

Zin X-1 December-11 Gas Oil and Gas Development


2,300.0 − −

Gharo-1 February-12 Oil United Energy Pakistan (UEP)

1,334.7 501.74 0.04

Mohano-1 February-12 Oil United Energy Pakistan (UEP)

1,727 187.65 0.07

Suleman-1 March-12 Gas Oil and Gas Development


4,575 − −

Pir Apan-1 March-12 Gas United Energy Pakistan (UEP)

2,155 327.28 10.6

Total 1758.22 25.39 Source: Ministry of Petroleum & Natural Resources

The Councils of Common Interest (CCI)

approved Tight Gas (Exploration & Production) Policy, 2011 that offers 40 percent higher price than the price announced in Exploration & Production Policy, 2009, with an incentive of additional 10 percent price if the discoveries are made within a period of 2 years to attract exploration companies to invest in tight gas fields. Tight gas reserves are estimated at 24 trillion cubic feet. Initially 100-150 Mmcfd would be added depending on its success rate.

Economic Coordination Committee (ECC) has approved Low BTU Gas Pricing Policy, 2012.

Petroleum Policy 2009 is reviewed and Petroleum (Exploration & Production) Policy, 2012 is being promulgated shortly.

The Ministry of Petroleum & Natural Resources is also working on Shale Gas Policy

to encourage the investors to exploit these reservoirs.

14.4-a Oil and Gas Development Company Limited (OGDCL):

OGDCL is the local market leader in terms of reserves, production and acreage. It is the first Pakistani Exploration and Production Company to list its shares on the London Stock Exchange. Equipped with a forward looking professionally developed Business and Strategic Plan, competent professionals to implement the same and robust balance sheet OGDCL is ready to take on the challenges of an internationally listed company. OGDCL had spaded 7 wells (1 Exploratory / Appraisal & 6 Development wells) during the period July to December 2011. In the previous year during the corresponding period 7 wells (2 Exploratory / Appraisal & 5 Development wells) were spaded. The details of the Oil, Gas, LPG and sulphur’s production is given below:


212

Table 14.15: Physical Performance of OGDCL S. # Name of Activity July-Dec July-Dec Change (%)

2010 2011 1 Total 7 7 − i Exploratory Wells 2 1

ii Development / Appraisal Wells 5 6 2 Production i Oil (Barrels) 6,656,408 (36,176) 6,611,728 (35,933) -0.7

ii Gas (MMcft) 152,934 (831) 158,933 (864) 3.8 iii LPG (MT) 21,646 (118) 17,613 (96) -22.9 iv Sulphur (MT) 12,435 (67.5) 12,750 (69.2) 2.5

Source: Ministry of Petroleum &Natural Resources (MP&NR), Oil & Gas Development Company Ltd (OGDCL) Figures in braces show daily average production 14.4-b Oil & Gas Regulatory Authority (OGRA):

The Oil and Gas Regulatory Authority (OGRA) is mandated by the government to regulate the oil and gas sector to promote competition and attract investment. In March 2006, it was also given the task to compute and notify prices of petroleum products as per the Federal Government approved formula. OGRA computes and notifies ex-refinery price of High Speed Diesel (HSD) and Superior Kerosene Oil (SKO) including ex-depot prices of SKO and IFEM (In land Freight Equalization Margin) on monthly basis. Furthermore, OGRA has been assigned to monitor the pricing of petroleum products. OGRA has also been assigned to submit quarterly reports on pricing of petroleum products indicating the trend in international markets and petroleum products pricing announced

by Oil Marketing Companies (OMCs)/refineries along with analysis/findings and suggestions, if any, on regular basis to ECC.

14.4-c Sui Northern Gas Pipelines Limited (SNGPL):

During 2010-11 SNGPL earned a profit after tax of Rs. 2,361 million and paid an amount of Rs. 1,228 million in corporate taxes. During the current year SNGPL extended its transmission network to a length of 7,613 Km.

14.4-d Sui Southern Gas Company Limited (SSGCL):

SSGCL earned a profit after tax of Rs. 4,795 million during 2010-11. During the current year SSGCL extended its transmission network to a length of 3,337 Km.

Table 14.16: Physical Performance of SNGPL and SSGCL S. No Name of Activity 2010-11

SNGPL 2010-11 SSGCL

1 Sector-Wise Gas Consumption (mmcf) Power 321 218 Fertilizer 116 66 Cement 2 2 CNG/Transport 231 80 General Industry 302 202 Commercial 72 28 Domestic 416 231 Total 1,460 8272 New Connections (Nos.) Domestic 256,172 120,159 Industrial 231 179 Commercial 1,246 844 Total 257,649 121,182Source: Sui Northern Gas Pipeline Ltd (SNGPL), Sui Southern Gas Pipeline Ltd (SSGC)

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213

14.5 Performance of Power Sector Authorities

14.5-a National Electric Power Regulatory Authority (NEPRA)

The National Electric Power Regulatory Authority is exclusively responsible for regulating the electric power services and safeguarding the interests of investors and consumers. NEPRA grants licenses for generation, transmission and distribution of electric power; determines tariff rates, charges and other terms and conditions for supply of electric power; prescribes and enforces performance standards and addresses the complaints of electricity consumers. As a regulator NEPRA extends advice/recommendations to the concerned entities, including the government, to make the power more efficient and sustainable. During the period July-December 2011, NEPRA announced the Upfront Tariff for Wind Power Producers. Upfront tariff for coal based technologies is also in the pipeline and will be announced after consultations with the Private Power and Infrastructure Board (PPIB). NEPRA processed 25 applications for grant of generation licenses for power plants with a cumulative capacity of approximately 600 MW; out of which 15 were granted generation licenses while the others were at an advanced stage of processing and

expected to be finalized soon. Besides these, one distribution license was also granted. Since NEPRA determines electricity tariffs in accordance with the Tariff Standards and Procedure Rules, 1998 during the period July-December 2011, 13 tariff determinations and 149 tariff adjustments were issued relating to different Generation Distribution Companies.

Pursuant to amendment in Section 31 of NEPRA Act (XL of 1997), through promulgation of Ordinance No.XVIII of 2009 dated July 31, 2009, Ordinance No.XXIX of 2009 dated November 26, 2009 and Ordinance No.XIV of 2010 dated April 20,2010, NEPRA was mandated to determine the overall electricity tariff on a quarterly basis and intimate the same to the Federal Government for notification in the official Gazette. The ordinance lapsed in August 2010. Thereafter, tariff determination on an annual basis and adjustment on account of variation in fuel cost component of consumer-end-tariff is being determined by NEPRA on a monthly basis in pursuance of the Finance Bill 2008. The status of complaints during July-December 2011 has been summarized below:

Table 14.17: Physical Performance of NEPRA (July – December 2011) DISCOS Complaint

Sent to DISCOS

Redressed by DISCOS

Under Process

Consumer advised to approach DISCOS

Total Disposed off

Total Complaints

(1) (2) (3) (4) (5) = (2) + (4) (6) = (1) + (4) PESCO 80 64 16 31 95 111IESCO 29 29 0 29 58 58GEPCO 11 10 1 6 16 17FESCO 24 23 1 22 45 46LESCO 37 34 3 62 96 99MEPCO 167 162 5 116 278 283HESCO 105 103 2 56 159 161QESCO 1 1 0 3 4 4KESCO 59 59 0 52 111 111SEPCO 15 14 1 69 83 84Total 528 499 29 446 945 974Source: National Electric Power Regulatory Authority (NEPRA)


214

14.5-b Water and Power Development Authority (WAPDA)

The installed capacity in the PEPCO system is 20,986 MW as of June 2011; with hydro 6627 MW and thermal 14,359 MW. The hydropower capacity accounts for 31.6 percent, thermal 65.3 percent and Nuclear 3.1 percent. Of this 4829 MW is owned by ex-WAPDA GENCOs, 448 MW by rental, 650 by PAEC and rest by IPPs. There is 55-MW of isolated generation capacity in Pasni and Punjgoor areas. WAPDA is executing, on priority basis, the projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, 7100 MW-Bunji, 4320 MW-Dasu, 740-MW Munda Dam and most mentionable 4500 MW-Diamer Bhasha Dam

projects, to cope with the increasing demand of power. Almost 96 percent work on the main dam at Mangla, spillway and allied facilities had been completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam had been completed.

In an attempt to reduce the energy crises, Prime Minister Yousaf Raza Gilani laid the foundation stone of the Diamer Bhasha Dam in Gilgit-Baltistan on October 18, 2011. The dam is being built about 40 kilometres from Chilas on the Indus River and will have a capacity of producing 4,500 megawatts of electricity. Some salient features of the dam are given in Box-2:

Box-2 (Diamer Basha Dam Project)

Project

The project is located on Indus River, about 315 km upstream of Tarbela Dam, 165 km downstream of Gilgit and 40 km downstream of Chilas. The proposed dam would have a maximum height of 270 m, and impound a reservoir of about 7,500,000 acre feet (9.25×109 m3), with live storage of more than 6,400,000 acre feet (7.89×109 m3). Mean annual discharge of Indus River at the site is 50,000,000 acre feet (6.2×1010 m3).

Salient Features

• Total installed capacity 4500 MW • Availability of about 6,400,000 acre feet

(7.89×109 m3) annual surface face water storage for supplementing irrigation supplies during low flow periods.

• Reduction of dependence on thermal power, thus saving foreign exchange.

• Creation of massive infrastructure leading to overall socio-economic uplift of the area and standard of living of people.

• Minimum operation level having expected length equal to 1060 m.

i). Electricity Generation & Power Transmission

Due to alarming increase in fuel prices, the need for cheaper hydro power has gained more importance. Unfortunately the composition of electricity generation shows that the hydro

potential has not been utilized fully. The hydro potential which is located in the north is still largely untapped. The hydro generation accounted for 31.9 percent during July-March 2011-12 accounted 33 percent in total electricity generation while during 2011-11 it came up to 35.6 percent compared to 31.9 percent during 2009-10. The

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215

trend of hydro-thermal energy generation for the last five years is given in the following table.

Table 14.18: Electricty Generation Year Hydro (Gwh) % age Thermal (Gwh) % age Total (Gwh) % Change 2006-07 31,942 36.4 55,895 63.6 87,837 6.82007-08 28,667 33.2 57,602 66.8 86,269 -1.82008-09 27,763 32.9 56,614 67.1 84,377 -2.22009-10 28,492 31.9 60,746 68.1 89,238 5.82010-11 32,259 35.6 58,316 64.4 90,575 1.5July-Mar 2010-11 24,105 36.0 42,823 64.0 66,928 −2011-12 22,411 33.0 45,534 67.0 67,945 1.5Source: Pakistan Electric Power Company (Pvt) Limited (PEPCO), National Transmission & Distribution Company Limited (NTDC) Total energy includes import from Iran, Gwh : Giga watt hours

To carry power from power generation station to the consumers’ network, the role of transmission and primary lines network is very essential. Not only the length of network-lines is important but the transformation capacity of the grid-stations is also of equal value. The length of transmission lines was 7367 KM for 220kV and 23995 KM for 132-kV level at the end of June 2010. This has gone up to 7427 KM for 220 kV and 26321 KM for 132 level at the end of June 2011, showing a combined increase of 2386 KM.

The transformation capacity of 220 kV substations was 15014 MVA3 at the end of June 2010, which as 16494 MVA by the end of June 2011 showing an increase of 1480 MVA. It has further gone up 17671 MVA by the end of December 2011

showing an increase of 1177 MVA over June 2011. Similarly, the 132 kV transformation capacity which was 26569 in June 2010 has gone up to 30137 MVA by June 2011 and up to 31016 MVA by the end of December 2011 thus showing an appreciable increase of 4447 MVA over June 2010 figures.

ii). Growth in Consumers.

The number of consumers has been increasing due to rapid expansion of electric network to villages and other un-electrified areas. During July-March 2011-12 the number of consumers has been increased to 20.85 million as compared to 20.12 million in the comparable period of last year. The trend of increase in number of consumers during the last five years is given in the following table:

Table 14.19: Number of Consumers Year Domestic Commercial Industrial Agriculture Others Total 2006-07 14,354,368 2,151,971 233,162 236,255 10,798 16,986,5542007-08 15,226,711 2,229,403 242,401 245,640 11,211 17,955,3662008-09 15,481,734 2,256,837 250,593 254,891 11,504 18,255,5592009-10 16,673,015 2,362,312 263,507 271,268 12,122 19,582,2242010-11 17,322,140 2,421,221 273,067 280,603 12,452 20,309,483July-March 2010-11 17,157,541 2,404,136 270,445 279,021 12,354 20,123,4972011-12 17,808,962 2,466,049 284,049 282,639 12,745 20,854,444Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority 3 MVA is MegaVolt Ampere. To convert it into MW one should know the power factor of the system because MVA = PF x MW. However, if the PF is unity then MVA = MW. A PF of UNITY suggests that the load is purely resistive with neither capacitive nor inductive components in the load or source. Of course this can mean such components have been balanced artificially.


216

iii). Village Electrification

The village electrification program is an integral part of the total power sector development program in order to provide basic necessity of life to all the people of Pakistan, raise the productive capacity and socio-economic standards of the population living in rural areas.

Table 14.20: Village Electrification Year Addition

During the Year

Progressive Total

Growth (%)

2006-07 14,203 117,456 -2007-08 10,441 127,897 8.92008-09 9,868 137,765 7.72009-10 15,062 152,827 10.92010-11 11,705 164,532 7.7July-Mar 2010-11 7,283 160,110 -2011-12 6,558 171,090 6.9 Source: Water and Power Development Authority

Between the period 30th June 2011 to March 2012, 6,558 was the progressive number of electrified villages. The trend of village electrification during past 05-years period is provided in Table 14.20:

iv). Electricity Consumption by Economic Group

The consumption of electricity by economic group identifies the domestic sector as the largest user for the past many years. Even during the current year 2011-12, the consumption pattern, more or less, remained the same with domestic share of 43 percent, industrial 26 percent and agricultural about 12 percent. During July-March 2011-12, consumption of electricity has increased in every economic group including domestic, commercial, industrial and public lighting which is a positive indication. The consumption trend of electricity by economic group for the past 05-years is given below:

Table 14.21: Consumption of Electricity by Economic Group (Million Kwh)Year Domestic Comm-

ercial Industrial Agri-

culture Public

LightingBulk

Supply Traction Supply

to KESCTotal

2006-07 28,990 4,290 17,603 8,097 316 3,267 12.0 4,905 67,4802007-08 28,751 4,358 17,299 8,380 340 3,332 8.0 4,072 66,5402008-09 27,787 4,203 16,035 8,695 347 3,198 5.0 5,014 65,2842009-10 29,507 4,466 16,371 9,585 372 3,367 2.3 5,208 68,8782010-11 30,973 4,683 17,700 8,847 3,644 3,644 2.0 5,449 74,942July-Mar 2010-11 22,691 3,450 13,255 6,485 261 2,680 0.5 3,976 52,7992011-12 23,137 3,483 14,023 6,298 280 2,716 0.5 4,319 54,257Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority v). Power Losses

The National Transmission & Dispatch Company Limited (NTDC) and Distribution Companies (DISCOs) have invoked various technical and administrative measures to improve operational and managerial efficiency to reduce power losses. The measures have given positive signs resulting in the reduction of power losses and increase in revenue. Certain measures such as renovation, rehabilitation, capacitor installation and strengthening the distribution system network are a continuous process for controlling/reducing wastage of power/energy. The Transmission and Distribution losses for the past five years are given

below which indicate steady trend of efficiency increase:

Table 14.22: Transmission & Distribution Losses of Net System Energy Year Transmission & Distribution

(T & D) Losses (%) 2006-07 21.52007-08 21.32008-09 21.12009-10 20.92010-11 20.8July-Mar2010-11 19.82011-12 19.5Source: National Transmission & Dispatch Company Ltd, Water & Power Development Authority

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14.5-c Private Power and Infrastructure Board (PPIB)

The Private Power and infrastructure Board (PPIB) is a ‘One Window” facilitator to the private investors in the fields of power generation on behalf of the Government of Pakistan (GoP). PPIB is currently processing thirty eight (38) multiple fuel (Oil, Coal, Gas, Cogeneration and Hydel) Independent Power Producer (IPP) projects with a cumulative capacity of around 10,457 MW. Out of these thirty eight projects, a total of twelve (12) new IPPs having a cumulative capacity of over 2400 MW have been commissioned since March 2009; while other companies are aggressively working to achieve the financial close/ commissioning of their respective projects.

The year wise actual/expected capacity additions of IPPs upto year 2019 are as follows:

Table 15.23 Actual/expected capacity additions of IPPs upto year 2019 Year (MW)Project already commissioned

2,409

2013 4592014 1262015 5292016 5522017 1,6822018 4,1522019 548Total 10,457Source: Private Power and Infrastructure Board

14.5-d Karachi Electric Supply Company Limited (KESC)

The Karachi Electric Supply Company Power Utility has posted earnings before Interest, Tax, Depreciation and Amortization (EBITDA) of Rs. 5.0 billion compared to Rs. 2.7 billion during the same period last year. This growth has largely been driven by the improvement in Transmission and Distribution (T&D) losses; which have come down to 29.6 percent - a reduction of 1.6 percent Year on Year and 2.9 percent on Quarter on Quarter basis. This was also made possible with the improvement in efficiency of the generation fleet through investment in state of the art new plants. During the 3rd Quarter of 2012, all the three Gas Turbines each of 116 MW of the Bin Qasim Power Station-

II (BQPS-II) 560 MW combined cycle plant have been successfully commissioned and the steam turbine will be successfully operative shortly which will further boost up the profitability of the Company and take the overall KESC generation fleet efficiency to 40 percent.

14.6 Alternative Sources of Energy

The government in its bid to diversify its energy mix, has been giving due attention to fast track the development of Alternative / Renewable Energy (ARE) resources in the country. With this very objective in view the Government of Pakistan in May 2010 gave the Alternative Energy Development Board (AEDB) the mandate to implement Alternative / Renewable Energy (ARE) commercial projects on its own or through joint venture or partnership with public or private sector entities in addition to its mandates under the ordinance. Along with the AEDB, the Pakistan Council of Renewable Energy Technologies (PCRET) has also been acquiring and updating know how for the promotion and mass propagation of Renewable Energy Technologies in the field of Solar, Micro-hydel, Wind etc. The main function of PCRET is to develop, acquire, adapt, promote and disseminate Renewable Energy Technologies in the country.

Measures taken by AEDB during this fiscal year

AEDB initiated a number of supportive measures that were required to be taken for laying a strong foundations of the ARE sector in Pakistan. In this regard:

New wind corridors in areas outside Sindh have also been identified. Resource assessment of these corridors is underway and a number of wind measuring masts are being installed in all four provinces.

National Grid Code for wind power projects has been amended. Grid Integration Plan 2010 -2015 for wind power projects is developed by AEDB to support National Transmission and Dispatch Company (NTDC).

Regional Environmental Study has been conducted by AEDB to support wind power


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projects. Guidelines for environmental assessment have also been developed.

Asian Development Bank has been taken on-board to provide guarantee to the wind power project developers in order to mitigate the country risk.

Local manufacturing of micro wind turbine has been started. Manufacturing for large wind turbines is also being initiated. The turbine towers for the first project are being manufactured in Pakistan.

Issues related to financing of projects have been resolved and now leading financing agencies like International Finance Corporation (IFC), Asian Development Bank (ADB), Organization of the Petroleum

Exporting Countries (OPIC) and Economic Cooperation Organization (ECO) Trade Bank etc. are offering financing to wind power projects in Pakistan.

Measures taken by Pakistan Council of Renewable Energy Technologies (PCERT) during this fiscal year

The Council had also strived to strengthen its developmental efforts by introducing various projects in the public sector for the development and promotion of suitable technologies to produce materials and devices in the field of Renewable Energy despite the number of hurdles in the development and promotion of renewable energy technologies. Some of the notable projects and their status are as under:

Table 15.24: Projects by Pakistan Council of Renewable Energy Technologies (PCERT)

No. Type Present Status Target 2011-15 Target 2016-20 1. Micro-hydel Plants (MHP) in Gilgit

Baltistan, AJK & Khyber Pakhtonkhwa and Canal-falls

485 units generating 8 MW (electrifying 70,000 houses)

5 MW (electrifying 25000 houses)

20 MW (electrifying 100,000 Houses)

2. Biogas Plants Cooking, lighting Irrigation and power generation

4000 units. Producing 18000 M3/day 50,000 units. Producing 0.300 million M3/day

50,000 units. Producing 0.300 million M3/day

3. Solar Water Heaters Manufacturing through private sector with PCRET

Technical services

Designed & developed 05 different models of SWH for commercialization.

10,000 units (125-260 liters each)

25000 units 125-260 liters/day

Solar Dryers Manufacturing through private sector with PCRET Technical

services

Designed & Developed 03 different models of 20,100 & 500 Kg capacities

50,000 units 100,000 units

Solar Cooker Manufacturing through private sector with PCRET Technical

services

Designed & developed box and dish type solar cookers for commercialization

100,000 units 200,000 units

4. PV Modules Production Manufacturing through private sector with PCRET

Technical services

Developed Solar Cell production capacities up to pilot scale.

5 MW 20 MW

5. Wind Turbines 100% subsidy 155 units of 0.5-10 KW capacity electrifying 1600 houses.

1000 units 10 MW electrifying 50,000

houses

1000 Nos. 10 MW electrifying 50,000

houses Source: Pakistan Council of Renewable Energy Technology (PCERT) (i) Mega Wind Power Projects

In addition to the above mentioned projects, AEDB also issued Letters of Intent (LoIs) to 43 IPPs pursuing development of wind power projects. Land was allocated to 19 IPPs for 50 MW wind power projects each in Gharo Keti Bander Wind Corridor. Projects with a cumulative capacity of approx. 950 MW are at various stages of development on these lands.

(ii) Biodiesel

Main achievements in this fiscal year are:

Pilot Energy plantations for Biodiesel cultivated on 650 acres under study;

Biodiesel production initiated with PSO;

First Biodiesel refinery with the capacity of 18,000 Tons / annum Capacity has been set up at Karachi.

SRO 474(1)12008 exempts custom duties and sales tax on Biodiesel production equipment and material.

Amendments in OGRA Ordinance for Bio fuels pricing approved.

Energy

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Proposal for undertaking a feasibility study to set up 10,000 tons per annum Biodiesel production facility is in search of funding.

Barriers to implementing Biodiesel Policy identified at the National Stakeholders Conference. Task force for barrier removal established.

Registration of Jatropha seeds under process

(iii) Biogas Projects

Pakistan produces a huge amount of municipal waste (up to 50,000 tons / day) and agricultural waste in the form of Biogas, Cotton Sticks, and Rice Husk etc. Converting this waste into energy can generate up to 5,000MW of power. Pakistan offers lucrative opportunities in this sector in which a number of projects are already being implemented.

So far Pakistan Council of Renewable Energy Technologies (PRET) has installed 4015 biogas plants (with net generation capacity of 17980 M3/day) on cost sharing basis throughout the country. During the period in reference, 234 biogas plants have been installed. PCRET has installed 1000 biogas plants of 5 cubic meters each with annual production of 1.941 Million cubic meter gas, 1.567 Million kg of manure and 4.7 Million kg of carbon dioxide abatement. In addition the Council has installed 30 commercial size biogas plants ranging from 50-250 M3 by executing technological support for irrigation and power generation.

A World Bank funded project for carrying out a detailed study for Biomass / Waste-to-Energy projects in 20 cities of Pakistan has been initiated. Another Waste to Energy Study, funded by U.S Trade and Development Agency (USTDA) is being carried out for Karachi to generate 5-10MW power.

AEDB has issued a LoI to set up a 12MW Biomass to Energy power project in Sindh, based exclusively on Biogas / Agricultural Waste. The project is jointly sponsored by investors from US and local entrepreneurs, the SSJD Bio Energy. Another LoI has been issued to M/s Lumen Energia Pvt Ltd. to set up a 12MW power plant at Jhang based on agricultural waste like cotton stalk,

rice husk, sugarcane trash, biogas, wheat chaff and other crops as multi-fuel sources. AEDB has issued a letter of intent to M/s Pak Ethanol (Pvt) Ltd. to set up a 9 MW biogas power project at Pak Ethanol (Pvt) Ltd, Matli, and Sindh.

(iv) Small Hydro

Productive Use of Renewable Energy (PURE) Project is being implemented to install 103 hydro power plants in Khyber Pakhtonkhwa (KPK) and Gilgit Baltistan (GB), with the total cost of US$ 19.5 million. Another project for 250 plants is under preparation for the same areas. Eight hydro projects have been initiated under the Renewable Energy Development Sector Investment Program (REDSIP) with the support of the Asian Development Bank (ADB). These projects are being implemented in KPK and Punjab with an estimated cost of US $ 290 million. Another 2 small hydro power projects have been initiated under REDSIP. The Government of Punjab has issued LOIs to private investors for establishment of 10 small hydro projects with a cumulative capacity of 142MW at different locations in Punjab. AEDB has initiated a program with the assistance of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) support to assist the provinces to solicit private investments in small hydro sector; under this program pre-feasibility study for 25 hydro sites in AJK, Sindh, Punjab and KPK with the cumulative capacity of 284.14MW has been completed. Public sector Hydro power projects are initiated in (a) KPK (worth U$ 150.99 Million, of 17.0MW, 36.6MW and 2.6 MW), (b) Punjab (worth U$ 138.74 Million, of 5.38MW, 4.04MW, 2.82MW, 4.16 MW and 7.64MW) and (c) Gilgit Baltistan (worth U$ 71.12 Million, of 26MW and 4MW

(v) Solar

In Solar Energy, 6 LOIs for cumulative capacity of 148 MW On-Grid Solar PV power plants have been issued by AEDB. Additionally 3 LoIs of 70 MW capacities have been issued by Punjab Power Development Board (PPDB). The sponsors are preparing feasibility studies. Solar Village Electrification Program was initiated under the Prime Minister’s directive. Three thousand Solar Home Systems have been installed in 49 villages of district Tharparkar, Sindh. Another 51 villages


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in Sindh and 300 villages in Balochistan have been approved for electrification using solar energy and will be implemented shortly. AEDB is also doing the Parliamentarian Sponsored Village Electrification Program and has so far prepared and submitted 27 feasibilities for approval. Funds for three schemes have so far been released under People Work Programs-II PWP-II and the schemes are being implemented.

These government’s policies aim to meet the demand fully with an emphasis on exploration of indigenous resources including hydel, coal, domestic gas and renewable and imported energy in a timely manner. Sectoral deficiencies are being improved. Institutions are strengthened and private sectors’ involvement is being enhanced to promote the culture of public private partnership leading to lessen the burden on public resources. In this context the government held two National Energy Conferences in 2011 and 2012. To address the present energy crises the following recommendations were made:

Equitable load shedding among all provinces.

Reduction in number of working days for government offices along with implementation of street-light conservation plan as recommended by the Ministry of Water and Power.

Closing down of all commercial centers throughout the country at 8pm except for weekends. For saving energy the government has decided to have different office hours during winter and summer time.

Allocation of additional gas to the power sector (ideally 207mmcfd giving 1000MW)

Subsidy for solar agri tube wells through easy financing

The government will also cut power supply to advertisement billboards and would replace all the regular bulbs with energy-savers.

To ensure the smooth supply of power the government will allocate additional gas to power companies.

To limit the use of energy by government offices, prepaid meters in all federal and provincial government buildings will be installed. Also cases related to power thefts will be registered and immediate action against the culprits will be taken. Provinces to help in prompt registration of FIRs, designating special magistrates and nominating focal persons. e.g., Home Secretary at the provincial and the District Coordination Officer (DCO) at the district level for expeditious disposal of electricity theft cases.

Upfront tariff for all types of fuels by NEPRA and tariff increase of 12 percent

Expedite conversion of steam based IPPs/GENCOs to coal

Conclusion

Energy needs are indelibly linked to Pakistan’s economic and sustainable growth capabilities. Pakistanis have been in increasing in demand across the various areas of energy sources. With a growing economy and the desire for vast production and consumption across the country, the energy demands remain high. With energy shortages as a main challenge, the government is working tirelessly to ensure such problems are remedied. Given the need for energy, the Government of Pakistan is doing the utmost to promote renewable energies, various energy sources and energy efficiency. There are various projects that speak to the endless possibilities of building up Pakistan’s renewable energy sources. These hope to continue and expand in coming years

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Social Safety Nets

Background

Since 2007-08 the economy has been under considerable pressure due to both domestic and external developments. The global financial crisis hit the country hard when it was already facing a balance of payments crisis stemming from high food and fuel prices in the world markets. The combined effects of the global food and fuel crises adversely affected the economy resulting in unsustainable current account and fiscal deficits and unprecedented high inflation. Moreover, the unstable law and order situation in the country and struggle against extremism put severe strains on the government’s finances. These adverse developments led to the signing of an IMF Standby Arrangement Programme. The catastrophic floods of 2010 and 2011 further exacerbated the situation. The floods led to a huge loss of life in 2010, affecting approximately 20 million people directly and a much larger proportion indirectly. Moreover, the huge damage to crops and infrastructure also severely affected the economy at large, which disrupted the supply chain and business activities in the affected areas. This supply shock resulted in high inflation. The floods of 2010 were followed by the rains of 2011, which though of lower intensity compounded the negative impact on the economy and added to the pressures on prices and the welfare of the people.

This chapter describes the impact of prices on household expenditures and welfare of the people in Pakistan and the steps taken by the government to mitigate some of the adverse effects through the

series of safety nets that have been put in place to protect the poor and vulnerable.

The Effect of Prices on the Welfare of the Poor

The inflationary pressure on the economy has increased during the last four years due to a combination of the external and domestic shocks described above. Inflation which had increased rapidly during 2007-08 by 17.0 percent for the consumer price index overall and 23.7 percent for food items respectively has started to come down. According to Pakistan Bureau of Statistics during the period July-March 2011-12 it was 10.8 percent for the consumer Price Index overall and 11.2 percent for food. The rise in price indices was mainly driven by food inflation, which rose rapidly during this period. Prices of basic food commodities like wheat, wheat flour, eggs, fresh fruits, chicken, potatoes, rice, vegetable and cooking oil rose sharply during 2008-10. While a sharp increase in world food prices and international oil prices since 2007 were mainly responsible for the escalation of prices, a number of domestic factors also contributed to the price hike.

The government has brought down inflation in the current fiscal year due to a stringent demand management policy, better supply chain arrangements, tight monetary policy and regularly monitoring of the price and supply position of all essential items by taking all the provincial governments on board.

Chapter 15


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It has been observed that South Asia’s poor are particularly vulnerable to food price rises while its economies suffer from higher than average overall inflation when compared to the remainder of developing Asia. ADB estimated the price elasticity of poverty with respect to food prices, which measures the percentage increase in poverty when food prices increased by 1 percent using the

latest POVACL (World Bank) database. The analysis simulates the effect of rising food prices by 10 percent, 20 percent and 30 percent on the change in percentage of poor and the total headcounts of poor in South Asia. Table 15.1 shows the impact of the food prices on poverty for South Asian countries vs. Developing Asia

Table 15.1: Impact of food price increases on Poverty for South Asia vs. Developing Asia ($1.25-a-day

Poverty Line) Change in percentage of poor

(in percentage points) with an increase in food prices by:

Change in number of poor (in millions) with an increase in food

prices by: 10% 20% 30% 10% 20% 30%Bangladesh 2.5 5.0 7.5 3.8 7.7 11.5Bhutan 1.8 3.5 5.3 0.01 0.02 0.03India 2.7 5.4 8.1 29.5 59.0 88.5Nepal 2.0 4.1 6.1 0.6 1.1 1.7Pakistan 2.2 4.5 6.7 3.47 6.9 10.4Sri Lanka 1.2 2.4 3.6 0.24 0.47 0.71South Asia average 2.1 4.1 6.2 37.6 75.2 112.8Percentage of increase in total poor in developing Asia by South Asia

- - - 58.4% 58.4% 58.4%

Developing Asia 1.9 3.9 5.8 64.4 128.8 193.2Source: Food price escalation in south Asia - A serious and growing concerns, Asian Development Bank, February 2012

The progress on poverty alleviations its correlates and Millennium Development Goals is presented in Box-1

4.4

3.5

3.1 4.6

9.3

7.9

7.8

12.0

17.0

10.1 13

.7

10.8

3.6

2.4 2.9

6.0

12.5

6.9

10.3

17.6

23.7

12.6

18.3

11.2

0

3

6

9

12

15

18

21

24

27

30

2000

‐01

2001

‐02

2002

‐03

2003

‐04

2004

‐05

2005

‐06

2006

‐07

2007

‐08

2008

‐09

2009

‐10

2010

‐11

2011

‐12

(Jul‐M

ar)

Fig-15.1: Consumer Price Index and Food Inflation CPI Food


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Box-1 Poverty Alleviation and Millennium Development Goals

The UNDP’s Human Development Report, 2011 ranks Pakistan at 145th with HDI value of 0.504. The report shows gradual increase in the value of HDI from 0.503 in 2010 and 0.499 in 2009, through Pakistan’s rank has slipped a little during 2011. Other composite indices place Pakistan at a lower rank. The Inequality Adjusted Poverty Index is 0.346 and multi-dimensional poverty index for Pakistan is 0.264. These indices weight inequality and non-income dimensions of poverty more.

Pakistan Social and Living Standards Measurement Survey 2010-11 shows mixed results in terms of the education enrolment indicators. Literacy rate (10+) has improved from 57 percent in 2008-09 to 58 percent and adult literacy improved from 54 percent to 55 percent in the same period, while Primary and Middle school Gross Enrollment Rate also registered a one percentage point improvement. However, slippage on the primary and secondary Net Enrollment Rate is an area of concern for policy makers, particularly after devolution of the subject to the provinces.

Immunization of children also improved during 2011. The PSLM also reported trends in terms of the water supply and sanitation indicators. Whereas the sanitation situation at household level has registered an improvement (in terms of 66 percent of population using flush toilets compared to 63 percent in 2008-09), the access to drinking water to urban and rural population of Pakistan is 94 percent and 84 percent respectively, with an average of 87 percent in 2011.

A committee of poverty experts has been constituted in Planning and Development Division to estimate Poverty Headcount as well as poverty correlates. The committee is working on its task in a professional ways considering all dimensions of poverty and report of the committee will be available shortly.


Profile of Consumption Expenditure

The trends in household consumption expenditure provide an effective insight into understanding the dynamics of poverty in the country. Table-15.2 reveals the per capita consumption expenditure in urban/rural areas and by quintiles. The average per capita expenditures for the richest class in the urban areas are more than four and half times those

of the poor class. Analysis along similar lines for rural areas indicates that these averages are more than three and half times those of the poor class. The average per capita expenditure is almost the same for poor in rural and urban areas whereas for the rich class it is higher in urban areas than in the rural areas, indicating that more wealth is concentrated in urban areas compared to rural areas.

Table-15.2 Per Capita Monthly Household Consumption Expenditure by Quintiles & Region

Quintiles Per Capita Monthly Household Consumption Expenditure

2007-08 2010-11 Urban Rural Total Urban Rural Total

1st 906 868 874 1441 1426 14282nd 1216 1208 1210 1985 1966 19703rd 1547 1522 1529 2469 2468 24684th 2032 1998 2011 3217 3195 32035th 4334 3566 3984 6679 5312 6073Ratio of highest to lowest quintiles

4.78 4.11 4.56 4.63 3.73 4.25

Source: Federal Bureau of Statistics Table 15.3 compares the percentage of monthly consumption expenditure by commodity groups. The consumption expenditure pattern for different

commodity groups shows consistent trend from 2007-08 to 2010-11. The share of food expenditure is relatively higher compared to the other


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commodity groups. It had increased from 43.05 percent in 2005-06 to 44.22 percent in 2007-08. Since the international food price hike of 2008 and the domestic shocks following the floods it increased further to 48.91 percent in 2010-11.

Further analysis reveals that consumption expenditure in apparel, textile, and footwear, housing, education, transport, communication and recreation and entertainment has, as expected,

shown a decreasing trend since 2007-08 while consumption expenditure on fuel and lighting, cleaning and laundry has shown a slightly increasing trend as compared to 2007-08.

Food price inflation and slow growth over a number of years resulting from the combination of international and domestic shocks has led to a greater share of expenditures going to the essential food, fuel, lighting etc.

Table 15.3: Percentage of Monthly Consumption Expenditure by Commodity Groups Commodity Groups 2005-06 2007-08 2010-11

Urban Rural Total Urban Rural Total Urban Rural Total Food, drinks & tobacco

35.17 49.56 43.05 37.85 48.87 44.22 41.08 54.71 48.91

Apparel, textile, foot-wear

4.90 6.42 5.73 4.71 6.06 5.49 4.66 5.45 5.11

Transport & communication

7.12 5.39 6.17 6.55 5.92 6.18 6.69 5.51 6.01

Cleaning & laundry 3.54 3.61 3.58 3.77 3.49 3.60 3.55 3.83 3.71Recreation & entertainment

1.04 0.32 0.65 1.09 0.42 0.70 0.77 0.19 0.44

Education 5.20 2.41 3.67 5.26 2.94 3.92 4.82 2.51 3.49Housing (rent & other costs)

22.74 8.94 15.19 22.11 9.99 15.10 21.04 8.67 13.93

Fuel & lighting 7.39 8.41 7.95 6.82 8.09 7.55 7.06 8.01 7.60Miscellaneous 12.91 14.94 14.02 11.85 14.23 13.23 10.32 11.13 10.78Source: Federal Bureau of Statistics Table 15.4 shows the percentage share of expenditure on major food items. Out of the total food expenditure 17 food items contributed 82.52 percent. These items contribute 84.61 percent in rural areas and 78.80 percent in urban areas. Comparison of the same 17 food items with the year 2007-08 shows that the overall expenditure level has slightly increased in both urban and rural

areas. For food items the major share of consumption expenditure is incurred on wheat, milk, vegetable ghee, vegetables and sugar comprising 58 percent out of 82.52 percent. Wheat continues to be the major expenditure item in both rural and urban areas and its percentage share in aggregate has increased between 2007-08 and 2010-11.

Table 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11

Food Items 2007-08 2010-11 Urban Rural Total Urban Rural Total

Wheat 12.07 16.55 14.93 12.82 16.25 15.02Rice 4.21 4.28 4.25 3.56 3.74 3.67Pulses 2.25 2.41 2.35 2.53 2.60 2.57Vegetable ghee 6.76 9.81 8.71 5.75 8.59 7.58Tea 1.87 2.04 1.98 2.06 2.17 2.13Milk (fresh) 19.87 20.58 20.33 19.33 19.47 19.42Butter 0.39 1.49 1.09 0.32 1.22 0.90Mutton 2.55 1.12 1.64 3.80 3.10 3.35Beef 3.73 2.90 3.20 2.29 1.12 1.54Chicken 4.47 3.45 3.82 4.48 3.32 3.74Fish 0.95 0.54 0.69 0.62 0.44 0.51Fruits 4.71 3.27 3.79 4.30 3.01 3.47Vegetable 7.81 7.95 7.90 8.10 8.91 8.62

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Table 15.4: Percentage of Monthly Expenditure on 17 major Food Items, 2010-11

Food Items 2007-08 2010-11 Urban Rural Total Urban Rural Total

Salt 0.22 0.20 0.20 0.16 0.16 0.15Spices 2.07 1.76 1.88 2.63 2.20 2.35Sugar 4.09 5.14 4.76 5.91 7.74 7.09Gur 0.09 0.43 0.31 0.13 0.57 0.41Total 78.11 83.92 81.83 78.80 84.61 82.52Source: Federal Bureau of Statistics

Pro-Poor Expenditures

The government’s commitment to follow a sustained poverty reduction strategy and a minimum of 4.5 percent of GDP to social and poverty related expenditures is clearly reflected in the allocations to the pro-poor sectors shown in Table 15.5. The government prioritized 17 pro-poor sectors through the Medium Term Expenditure Framework (MTEF) in the PRSP-II, which provides a link between the policy priorities and the budget realties. Expenditure on pro-poor

sectors in 2007-08 stood at 5.57 percent of GDP. In 2008-09, these were 7.46 percent of GDP and in 2009-10, 7.57 percent of GDP. These expenditures were well above the requirement under the law. During 2010-11, total expenditures for these sectors were increased further and amounted to Rs 1245.541 billion, which is 6.9 percent of GDP. Already Rs. 919.564 billion expenditures have been made in these sectors during July-December of the current fiscal year. Box-2 present an overview of social protections programs in Pakistan.

Table 15.5: Budgetary Poverty Related Expenditures by Sectors (Rs. Million)Sectors 2007-08 2008/09 2009-10 2010-11 2011-12* Roads, Highways & Bridges 84,825 99,613 98,456 99,567 30,367Water Supply and Sanitation 19,817 22,204 25,459 28,506 11,788Education 182,646 240,378 259,525 322,334 156,990Health 61,127 83,714 94,399 106,017 46,842Population Planning 13,322 5,345 7,048 4,861 2,247Social Security & Welfare 18,942 29,129 54,571 55,171 24,934Natural Calamities 7,728 10,083 12,548 49,115 27,510Agriculture 83,493 88,912 104,815 115,511 41,732Land Reclamation 3,130 2,738 1,990 3,669 1,616Rural Development 23,334 16,362 20,391 19,109 12,724Subsidies 54,872 220,567 234,926 230,945 463,091Food Support Programme 4,370 12,420 0 0 0People’s Works Programme-I 1,420 3,329 8,417 5,049 2,222People’s Works Programme-II 2,748 28,000 31,754 21,300 2,902Low Cost Housing 597 583 1,828 373 101Justice Administration 7820 9,193 10,996 14,223 7,151Law and Order 2,429 104,658 143,639 169,791 87,347Total 572,620 977,228 1,110,762 1,245,541 919,564Total as % age of GDP 5.57 7.46 7.57 6.9 -Source: Ministry of Finance * July-December

An overview of social protection programmes of the country is presented in Box-2, which also

indicates targeted group of beneficiaries and financing arrangements for these programmes.


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Box-2 Social Protection Programs in Pakistan

S. No. Program Financing Type of Benefit Target Group Geographical

Coverage Managed By

1. Benazir Income Support Program (BISP)

Public Funds Cash as Income Support Married females belonging to ultra poor households

Nationwide Federal Government

2. Microfinance Donor Funded Cash as loan for establishing

business Provide financial services, credit to the poor for self employment and move them out of poverty

Nationwide RSPs/MFIs

3. Pakistan Bait-ul-Mal Public Funds Cash as income support grant for

daughters’ weddings, food supplement in education

Disabled persons, invalids, widows, orphans and household living below the poverty line


4. People’s Works Program Public Funds Cash for Work Provision of electricity, gas, farm to

market roads, good, water supply and other facilities to the rural poor


5. People’s Rozgar Scheme Commercial Bank Financed

Financing for Selected businesses* Unemployed educated persons Nationwide National Bank of Pakistan

6. Subsidy on Wheat, Sugar & Fertilizer

Public Funds In kind as social welfare Poor people of the country Nationwide Federal Government

7. Utility Stores Public Funds In kind as social welfare Poor people of the country Nationwide Federal Government

8 Zakat & Ushr Special levy on

bank balances & agricultural output

Cash “Deserving/ Needy” among Muslims

Nationwide Government & Zakat & Ushr Committees

9.

Child Labour and Children in Bondage

Public Funds Protection survival development and rehabilitation services

Working children facing abuse and exploitation

Nationwide Federal & Provincial Government, FATA, GB

10. Employees Old-Age Benefit Scheme

Contributory (Employers)

Cash Formal Sector Employees Nationwide Federal Government

11. Social Health Insurance Contributory (individuals)

Cash General Population Nationwide Federal Government

12. Workers Welfare Fund Contributory (Employers)

Housing, schools, health facilities Formal Sector employees Nationwide Federal Government

*: Community Transport, Community Utility Sores, Community Mobile Utility Stores and PCO/Tele-Centers with a maximum of Rs 200,000/- three new products including Commercial Vehicle, Shopkeepers and Primary Healthcare Equipments to Medical Graduates, Science Graduates and B-Pharmacy qualified individuals. The maximum limit ranges from Rs 500,000/- to Rs 700,000/-

Social Safety Programmes

Recognizing the need to protect the poor and the vulnerable, the government has launched several safety net programs. The following social safety net programs in particular minimize the adverse effects of poverty on the targeted population of the country.

I. Pakistan Poverty Alleviation Fund

The Pakistan Poverty Alleviation Fund (PPAF) is a flagship element of country’s poverty reduction strategy. It is sponsored and supported by the government with an endowment of Rs. 1,000 million and funded by the multilateral and bilateral donors like World Bank, International Fund for Agricultural Development, KfW Financial Cooperation Germany, US Department of Agriculture, Italian Government etc. The funding provided to PPAF is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization,

and capacity building institutional assistance for the partner organizations of PPAF.

The overall operational and financial outreach during the half year ended December 2011 remained satisfactory. Total disbursements for core operations during the period were Rs. 8,490 million. Loan (micro credit and enterprise development facility) disbursements were Rs. 6,766 million; water and infrastructure disbursements were Rs. 365 million; disbursements for education and health were Rs. 361 million; capacity building disbursements were Rs. 438 million; social mobilization disbursement were Rs. 220 million; and disbursements for livelihood enhancement and protection were Rs. 339 million. In addition to disbursement for core operations, Rs. 576 million (Rs. 273 million from donors' funding and Rs. 203 million from PPAF's own resources) was disbursed for project and flood relief activities.

By the end of December 2011, the total cumulative disbursements were Rs. 100 billion. Credit and

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enterprise development accounted for 59 percent of total disbursements followed by relief, rehabilitation and reconstruction activities (20 percent); community physical infrastructure (10 percent); human and institutional development (including social mobilization) (7 percent); livelihood enhancement and protection (1 percent); and health & education (3 percent). PPAF interventions are being carried out nationwide with 50% of the resources deployed in Punjab, 19 percent in Sindh, 16 percent in Khyber Pakhtunkhwa, 4 percent in Balochistan; 9 percent in Azad Jammu and Kashmir; 1 percent each in Gilgit Baltistan and Islamabad Capital Territory.

By the end of December 31, 2011, PPAF funding had been disbursed in urban and rural areas of 129 districts of the country (about 297,000 community organizations / groups) through 114 partner organizations of which 12 were focusing exclusively or predominantly on women. On cumulative basis, PPAF has financed 5,352,838 micro credit loans. More than 27,417 infrastructure, health and education projects were initiated and a total of 488,249 staff and community members were trained. In earthquake affected areas, PPAF provided financing to 122,000 households to build earthquake resistant homes and trained over 108,000 individuals in seismic construction and related skills.

II. Pakistan Bait-ul-Mal

Pakistan Bait-ul-Mal (PBM) is making a significant contribution towards poverty reduction through its various poorest of the poor focused services such as providing assistance to destitute, widows, orphans, invalid, infirm and other needy irrespective of their gender, caste, creed and religion. The following are the ongoing core projects/schemes:

a. Individual Financial Assistance (IFA): It is one of its major social dispensation programme to provide financial assistance to destitute and needy widows, orphans, invalid, infirm and other needy persons, to provide for free medical treatment for indigent sick persons, to provide stipend and financial assistance to brilliant but poor students. Under this head PBM has provided financial assistance of Rs. 734.901 million up to February

2012 and 13,171 beneficiaries from all over the country have benefitted from this scheme.

b. Child Support Programme (CSP): This is a cash transfer programme, in which cash incentive is provided to the parents for sending their children to schools. Rs. 300 per month is paid to the families with one child and Rs.600 per month to the families with two or more children of school age. Currently the programme is running in 12 districts. An amount of Rs. 66.754 million has been disbursed up to February 2012.

c. National Centres for Rehabilitation of Child Labour (NCsRCL): PBM has a proactive child labour rehabilitation policy and number of initiatives has been taken for the better`ment of working children. Efforts have been made to withdraw them from work places with a view to their mainstreaming into education by undertaking programmes for non-formal education. 159 centres have been established throughout the country on which Rs. 248.681 million has been spent up till February 2012.

d. Vocational / Diversified Vocational Dastkari Schools (V/DVDS): PBM has established Vocational / Diversified Vocational Dastkari Schools (VDS/DVDS) where poor widows, orphans and needy girls are given training in a variety of skills to make them self-sufficient to earn their livelihoods in a respectable manner. PBM has established 144 VDS and 15 DVDS throughout the country on which Rs. 93.876 million has been spent up till February 2012.

e. Pakistan Sweet Homes (PSHs): PBM has established Sweet Homes for Orphans having accommodation for 100 children in each home. A total of 28 Pakistan Sweet Homes (Orphanages) have been established so far on which Rs. 133.475 million has been spent up till February 2012.

f. Langer Programme: PBM is also working for provision of assistance to needy persons. It provided ration bags to those affected by natural disasters such as the floods of of Sindh and of KPK. In this regard an amount of Rs. 185.306 million expenditures were incurred up to February 2012.


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g. Institutional Rehabilitation through NGOs: It provides grant-in-aid to registered non-governmental organization (NGOs) for their projects aimed at institutional rehabilitation of the poor and deserving persons of the society. PBM has disbursed an amount of Rs. 24.383 million in this regard up to February 2012.

h. Jinnah Burn and Reconstructive Surgery Centre, Lahore: On 21st May, 2004, Pakistan Bait-ul-Mal, Health Department, Government of Punjab and Jinnah Hospital, Lahore signed a memorandum of understanding for construction of single purpose state-of-the-art burn and reconstructive surgery centre in Lahore. Pakistan Bait-ul-Mal has so far released Rs. 610 million for construction of the centre out of which Rs. 350 million have been released up to February 2012.

III. Benazir Income Support Programme

Benazir Income Support Programme (BISP) was

established by the Government of Pakistan in July 2008 with the primary objective of providing immediate relief to the poor enabling them to absorb the shock of rising prices of food and fuel. BISP has evolved over the past few years into the country’s main social safety net. It is committed to the fulfillment of the dream of making Pakistan a welfare state through poverty alleviation and women empowerment. It has made remarkable progress by providing much needed relief to over 4 million recipients including flood and bomb blast victims all across Pakistan. An amount of over Rs 122 billion up to March, 2012 has been disbursed to its recipients. The number of recipients is expected to increase to 7 million once the on-going processing of data collected during the nation-wide poverty scorecard targeting survey is completed. The BISP has launched the following pro-poor activities. Box-3 describes the eligibility criteria for BISP.

Box-3 Eligibility for BISP

Eligible households are identified through a targeting process, which consists of household surveys and the application of a Proxy Means Test Formula (PMT) that determines welfare status of a family on a scale between 0-100. Based on PMT, Nationwide Poverty Scorecard Survey was undertaken in 2010 with following features:

Resulted in the creation of the largest and most reliable data bank of socio-economic conditions of the country (details at family level) for planning social sector policies and strategies

First ever census of its kind in South Asia

Covered almost 27 million households in the country

Use of GPS devices to map the data of the entire country for informed decision making (to cope with natural disasters and other emergencies)

Families meeting the BISP eligibility criteria listed below are selected for monthly cash transfers:

Proxy Means Test (pmt) Score of 16.17 or below anywhere in Pakistan

One woman beneficiary per family Woman is CNIC holder

Source: Benazir Income Support Programme

Nation-wide Poverty Scorecard Targeting Survey: This survey was launched in October 2010 in all districts of the country, including AJK and Gilgit-Baltistan, with an initial target to cover almost 25 million households. The new system of

targeting was aimed at a much higher degree of objectivity, using international best practices, to minimize inclusion and exclusion errors. The use of Global Positioning System (GPS) devices was also made mandatory in this phase to uphold the

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dignity of households by conducting the survey at their doorsteps. The survey will be completed by June 30, 2012 and over 27 million households will be covered nationwide during this exercise. The task for data entry is entrusted to NADRA and data entry of all collected survey forms has been completed. During 2011-12, over 6.43 million eligible families have been identified through poverty scorecard census. It is expected that this figure will reach almost 7 million families by June 30, 2012.

Payment to Recipients: During the 2011-12, Rs 24.1 billion has been distributed among approximately 3.5 million - recipients up to March 2012. This included over Rs. 3.95 billion paid

through Smart Cards to 182,789 recipients and Rs. 826.38 million paid to about 1.3 million recipients through mobile phone banking. The rest of the cash transfers were made through the Pakistan Post money orders. In order to further improve the efficiency of the payment delivery mechanisms, BISP has signed agreements with several commercial banks during the current fiscal year to launch the Benazir Debit Cards in over 100 districts of Pakistan by June 30, 2012. So far 92,000 Debit Cards have been distributed and an amount of Rs.1.02 billion has been disbursed to the beneficiaries. A total of 4,803,126 Debt Cards are planned to be distributed by June 30, 2012. Box-4 contains the innovative payment mechanism used by BISP.

Box-4 Innovative Payment Mechanisms used by BISP

BISP is using alternate payment mechanisms including Benazir Debit Card, Smart Card and Mobile banking to efficiently make payments of the cash grants to its beneficiaries. 1. Benazir Debit Cards: In order to improve the efficiency of the payment delivery mechanisms and to provide

multiple payment mechanism to its beneficiaries for more timely and efficient services, BISP has signed agreements with several commercial banks during the current fiscal year to introduce Benazir Debit Cards for cash transfers in over 122 districts in Pakistan by June 30, 2012. Launched in Feb 2012 (in phases), 650,000 Debit Cards have been distributed and through these cards Rs. 1.95 billion have been transferred to the beneficiaries. BISP has planned to distribute Benazir Debit Cards to over 3.5 million beneficiaries by June 30, 2012. Beneficiaries are able to collect their cash benefits from ATM machines and/or bank designated franchises

2. Smart Card: BISP had signed a contract in early 2010 with United Bank Ltd. (UBL) for making payments to beneficiaries through smart cards in four of the test phase districts (Mianwali, Mirpurkhas, Multan and Sanghar). The beneficiaries were issued Smart Cards, and they collect their cash benefits through bank designated franchises. Over 183,000 beneficiaries are benefiting from this payment mechanism

3. Phone-to-Phone Banking: Another Alternate Payment Mechanism already in place is the Phone-to-Phone Banking (P-to-P Banking). It has been implemented in 7 districts. Beneficiaries are provided free mobile phones and SIM’s. An amount of Rs. 1.7 billion has been disbursed under this payment mechanism to around 137,000 beneficiaries in the piloted districts.

Source: Benazir Income Support Programme

Graduation Initiatives: Besides cash transfers, BISP has also launched various graduation programmes for its recipients to enable them to exit from the poverty trap. During 2011-12, the following progress has been made by these programmes:

Waseela-e-Haq: Under this programme, microfinance in the form of returnable soft loans

up to Rs. 300,000 are provided to recipients, selected through a monthly computerized random draw, for setting up small businesses. During the reporting period, 29 draws were held and a total of 34,807 recipients were pre-qualified. An amount of Rs. 943 million was disbursed to 6,281 recipients while 2,680 new recipients started their own businesses. It is planned to hold another 5 draws by


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June 30, 2012 to pre-qualify 10,000 additional recipients.

Waseela-e-Rozgar: Under this programme, BISP provides technical and vocational training to one member per recipient family to help them to secure their livelihood. BISP signed MOUs with several public sector training organizations and initiated training for the recipients and their nominees. On the other hand, a large number of private sector training institutions were also selected all across Pakistan through a competitive process. Training has commenced in the first quarter of 2012 in most of these institutions and so far 964 persons have been trained while 4,044 persons are currently enrolled. It is expected that by June 30, 2012 the total number of trained persons will be approximately 20,000. In addition, BISP organized vocational trainings for a batch of 173 recipients from Rawalpindi division during the 1st quarter of 2012 through the funds provided by a Chinese civil society organization.

Waseela-e-Sehat: Life insurance cover of Rs. 100,000 for the bread winners of BISP beneficiary families was launched from January 1, 2011. Over 3.5 million beneficiary families now have their bread earners covered under life insurance scheme launched by BISP in collaboration with State Life Insurance Corporation of Pakistan (SLIC). Over 900 cases have already been processed by SLIC during 2011-12. A comprehensive Health Insurance Scheme covering entire family of BISP beneficiary has also been piloted in District Faisalabad in April 2012. The same is planned to be extended in other districts of Pakistan in coming years.

Waseela-e-Taleem: BISP designed a co-responsibility cash transfer programme titled “Waseela-e-Taleem” for the primary education of the children of its recipients whereby 3 million children will be imparted education during 2012-2016. The programme is scheduled to be launched in 5 districts during the current fiscal year.

IV. Zakat

Zakat plays an important role in poverty alleviation. Zakat funds are utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled for their subsistence or rehabilitation. These poor segments of society are provided Zakat funds either directly through respective local Zakat Committee or indirectly through institutions i.e. educational, vocational, social institutions and hospitals, etc. As a consequence of the 18th constitutional amendment, the subject of Zakat has been devolved to the Provinces/Federal Areas. Up to February, 2012 a total amount of Rs.3,668.794 million was distributed in bulk amongst the provinces and other administrative areas. In addition to this, an amount of Rs.4,131.474 million has also been released in March 2012 as a reserve fund available within the Central Zakat Fund to Provinces/Federal Areas to provide financial assistance to mustahequeen. After devolution of the subject of Zakat the Provinces/Federal Areas are directly managing the distribution of Zakat and the beneficiaries.

V. Peoples Works Program-I & II:

Peoples Works programme (PWP) I & II are the welfare programmes comprising of small development schemes for provision of electricity, gas, farm to market roads, telephone, education, health, water supply, and sanitation facilities to the rural poor. PWP-I & II incurred expenditures of Rs 8.4 billion and Rs 31.8 billion during 2009-10 and Rs. 5.049 billion and Rs 21.30 billion during 2010-11 where as Rs 2.222 billion expenditure have been incurred between July-December 2011-12 on PWP-I and Rs 2.902 billion expenditures on PWP-II.

VI. Employees Old Age Benefits Institutions

Employees Old Age Benefits Institution (EOBI) provides monetary benefits to old age workers through various programmes such as Old Age Pension, Invalidity Pension, Survivors pension and Old Age Grants. During the period of July, 2011 to March 2012, Rs.7,961.208 million has been utilized for 350,485 beneficiaries, which is 17.8 percent higher compared to the corresponding

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period of last year. Furthermore, it is planned that 331,513 more beneficiaries will take benefit from the EOBI up to June 2012, an additional amount of Rs. 3,791.792 million is allocated for these beneficiaries.

VII. Workers Welfare Fund

Workers Welfare Fund (WWF) is also providing assistance to poor labourers all over the country. It provides funds for housing facilities for industrial workers and for other welfare programmes such as the Marriage Grant, Death Grant and scholarships etc. During the current fiscal year from July to March Rs. 77.021 million in expenditures has been incurred for scholarships. There are 1,456 beneficiaries of this program, who are children of poor workers. Another Rs. 636.930 million have been disbursed as Marriage Grants from which 9,138 families of the workers have benefited. WWF has also disbursed Rs. 341.200 million for Death Grants for 1,079 cases of mishaps of workers all over the country. Further, Rs 2,539.900 million expenditures have been incurred during July-April 2012 for 46 housing schemes which will benefit 15,000 families of workers.

VIII. Microfinance Initiatives

Microfinance has been widely recognized as an effective strategy to combat poverty by providing

financial services, especially credit, to the poor, to allow them to become economically active. The credit programs offer a small loan to the beneficiaries for self-employment purposes that can start or enhance their income streams, and eventually making them self-reliant and move out of poverty. Although micro credit has been the main thrust in the past, today microfinance is seen as encompassing a wide range of financial services such as credit, savings and insurance.

Microfinance services help the poor in accumulating assets and building income generating capacities that can provide better access to social services such as health and education, food security, and access to basic necessities of life. In addition, savings help them to manage their resources over time and to enable them to plan and finance their investments. Insurance becomes useful in order to mitigate the effects of unexpected shocks such as natural disasters. This has been very evident in 2010 and 2011, in the wake of floods and rains, crop failures, hike in prices, terrorism and macroeconomic shocks.

The microfinance industry provides services in three broad categories namely, micro-credit, micro-savings and micro-insurance. Details of the industry are provided in Table-15.6 below:

Table-15.6: Active Borrowers, Active Savers and Active Policy holders by Peer Group

Details

Micro-credit Micro-Savings Micro-Insurance Active

Borrowers (Million)

Value (PKR Million)

Active Savers

Value (PKR Million)

Policy Holders

Sum insured (PKR Million)

2009-10 1.98 25.1 2.8 9.6 3.81 53.72010-11 2.03 27.5 3.6 12.7 2.7 33.6Increase/ decrease (Net) 0.05 2.40 0.80 3.10 -1.11 -20.10

Increase/ decrease (%) 2.53 9.56 28.57 32.29 -29.13 -37.43

Source: Pakistan Microfinance Network (PMN). The objective of the microfinance initiative is to provide liquidity to the microfinance providers in response to tighter liquidity conditions and spikes in inflation. It is provided as a package through microfinance banks (MFBs), microfinance institutions (MFIs), Rural Support Programmes

(RSPs), and others including Commercial Financial Institutions (CFIs) and Non-government Organizations (NGOs). Table 15.7 presents the number of Micro-credit beneficiaries with Outstanding Loans Portfolio (OLP) and Disbursements by loan providers.


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Table 15.7:

MFP Active

Borrowers Outstanding Loans

portfolio (PKR) Million

Number of Loans

disbursed

Disbursements (PKR) Million

Total for Pakistan MF sector (year ended December 31, 2011)

1969,236 26,741.14 1800,262 36.72

MFBs First Microfinance Bank Limited 139,435 2,625.52 152,683 3,601.61Khushhali Bank 440,461 4,823.72 374,633 5,279.69Kashf Microfinance Bank 19,912 694.67 20,942 626.21Pak Oman Micofinance Bank 11,917 128.23 6601 150.08Tameer Bank 132,728 5,070.42 150,747 6,881.06Total for MFBS 744,453 13,342.56 705,606 16,538.64

MFIs AKHUWAT 42,069 355.16 43,307 569.43ASA – Pakistan 142,814 1,580.14 149,224 2,809.73ASASAH 14,975 170.81 10,080 184.73Community Support Concern 13,184 160.47 12,862 315.14Centre for Women’s Cooperative Development

7,214 127.51 4,107 214.08

DAMEN 21,036 459.31 24,591 605.31Kashf Foundation 265,825 2,645.16 150,555 3,306.42Orangi Charitable Trust 39,289 482.49 25,595 439.52SAFWCO 31,117 309.07 28,219 467.45Total for MFIs 587,523 6,290.42 448,540 8,911.82

RSPs National Rural Support programme 329,975 3,704.93 326,718 5,674.51Punjab Rural Support programme 61,446 675.55 53,895 916.40Sindh Rural Suport Organization 38,236 521.85 62,369 979.41Sarhad Rural Support Programme 2802 19.44 3020 43.51Thardeep Rural Support programme 44,317 407.08 46,725 669.60Total for RSPs 476,776 5,328.85 492,727 8,283.43

Others BRAC 97,547 979.86 96,186 1,653.09Jinnah Welfare Society 15,825 231.02 15,735 380.87Narowal Rural Development programme

2443 26.67 1949 137.89

Orix Leasing 16,022 179.18 12,010 260.03Organization for Participatory Development

20,907 301.98 799 17.29

Rural Community Development society

7049 47.95 19,982 446.54

Sungi Development Foundation 672 11.68 6641 86.37Swabi WWS 19 0.96 87 6.95Total for Other 160,484 1,779.30 153,383 2,989.03 Conclusion

Sustained growth on a consistent basis is needed to reduce poverty in the country. Macroeconomic stability is, of course, a pre-requisite for the sustained economic growth but it is not sufficient to reduce poverty. Rather, it is the foundation on

which to build a thriving economy. No single policy can completely address the needs of poverty reduction. Food-based interventions may play a supplementary and short term role in eliminating poverty. A multi-pronged approach is needed, which includes interventions to enhance incomes

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and ensure growth combined with safety nets programs to cater to the marginalized and those that cannot be included directly. This requires interventions in the production system, transfer of resources and employment programmes as well as effective safety net programs. The new growth strategy introduced by the Planning Commission focuses on enhanced growth through increase in productivity in a regulatory environment that enhances competition and promotes innovation. It focuses on markets, competition and youth and on vibrant cities that maximize the efficiency of

production and commerce by taking advantage of all growth linkages. Furthermore, successfully targeted social safety net programs, fair and broad based fiscal regimes, efficient labour markets that promote job creation, and high quality education opportunities for the youth are also interventions undertaken by the government to reduce poverty on a permanent basis. Government at all level is highly committed to poverty alleviation programs and all efforts are being made to ensure continuity of these programmes.

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Environment

Pakistan continued to face challenges in achieving environmentally sound development. This has become increasingly difficult in the backdrop of the consecutive floods and rains across the country as well as other exogenous and endogenous factors.

The quality of the natural environment is not only an extremely important issue from the point of view of individual survival but it will also emerge as one of the principal human security issues in Pakistan. The environmental challenges include climate change impacts, loss of biological diversity, deforestation and degradation of air and water quality. The fast growing population poses a significant challenge for Pakistan. The existing environment management capacity cannot sustain such a large population with a good quality of life.

This chapter discusses the various environment related issues and challenges faced by Pakistan, and the initiatives taken by the government to address and combat those challenges. The first section provides a review of government policies and programs intended to put a focus on environmental issues in Pakistan and actively combat the adverse impacts of climate change. The second section describes the state of the environment in Pakistan, and identifies key challenges and shortcomings in terms of air and water pollution and forestlands. Mangrove ecosystems and coastal resources are discussed next, followed by an overview of the 2011 floods and institutional responses to the disaster. The final section concludes the chapter.

Climate Change: The Evolution of Policies and Programmes

As a result of concerted efforts of the government, the word “environment” has been gradually achieving a greater and wider audience and acceptance in the country. Awareness about environmental issues has been rising and institutions have been built to address these issues. Civil society institutions working on environmental issues are strengthening and their influence has increased. The government, therefore, has effectively engaged to arrest the processes of environmental degradation through various programmes during the last three years. Some highlights of the government’s efforts to combat the adverse effects of climate change are listed below.

The National Climate Change Policy 2011 has been developed which provides a framework for addressing the issues that Pakistan face or will face in future due to the changing climate.

With the devolution of Ministry of Environment, Provinces now have more powers in policy formulation and implementation.

Improvements in weather forecasting which helps in sound and timely decision making in agricultural practices and better management of natural resources and disaster response.

The National Marine Disaster contingency plan was implemented by the Maritime Security Agency (MSA) by carrying out Barracuda-I and Barracuda-II exercises.

EURO - II standards for vehicle emissions were adopted for new manufacturing vehicles

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industries. Drinking water quality standards, Ambient air quality standards and Noise standards were also adopted..

17 Laboratories have been adopted with Provincial Agencies/Departments under Pakistan Environmental Protection Agency, (Certification of laboratories) Regulation 2000 for carrying out analysis of the industrial effluents, waste waters and other analytical research requiring Lab facilities in the country.

The Cartagena Protocol on bio safety was ratified.

Swiss Model of Vertical Shaft Brick Kiln (VSBK) was identified as an environment friendly and energy efficient brick manufacturing technology. Demonstrations for the model were held in collaboration with Bricks Manufacturing Associations.

Pakistan Clean Air Programme (PCAP) has been approved.

A National Impact Assessment Program (NIAP) is being jointly implemented by the Planning Commission/Planning and Development Division (Environment Section), Ministry of Disaster Management (Pakistan Agency and Environment Wing), Provincial EPAs and IUCN Pakistan. The Netherlands Commission for Environmental Assessment is providing technical support for NIAP and it is funded by the Embassy of the Kingdom of Netherlands. The objective of the program is to contribute to sustainable development in Pakistan through strengthening of the Environmental Impact Assessment (EIA) process and introducing Strategic Environmental Assessment (SEA) in the national development planning. The NIAP is housed in the Planning Commission of Pakistan since the Program Coordination Unit is primarily responsible for creating ownership for the program within the public sector, coordinating amongst the Program partners and ensuring post-program sustainability of the efforts.

The NIAP has achieved the following targets for SEA and EIA:

Formulation of SEA task force where SEA pilots are under consideration.

Awareness raising workshops for the policy and decision makers in order to make grounds for SEA

Capacity building through trainings on SEA.

Case studies on SEA from Pakistan were presented at international forums.

EIA regulation were reviewed and revised.

Extensive training programmes were held to build capacity; seminars and workshops were organized to raise awareness.

In response to the environmental and climate change related policies, a number of projects have been funded by the government to improve the capacity of relevant institutions to deal with increasing environmental degradation. In addition, there are number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment of the country. These projects include the National Environmental Information Management System, National Impact Assessment Program and the Pakistan Wetlands Program. After, the devolution of the Ministry of Environment on 28th June, 2011 the Ministry of Disaster Management took over the responsibilities of the environment sector at the federal level. Due to the limited resources at its disposal, government efforts alone are not sufficient to address challenges resulting from climate change. A much larger participation and support from other stakeholders including industry, civil society, and the public at large as well as the donors is needed to effectively respond to climate issues.

Pakistan is a signatory to major environmental conventions and protocols. As signatory to the United Nations Framework Convention on Climate Change (UNFCCC) and a member state of the World Bank, Pakistan qualifies for financial and technological assistance. At the UNFCCC Cancun conference the developed countries have committed to create a sizable “Green Climate Fund” with fast start finance. In order to benefit from international financial mechanisms, the Government of Pakistan expects to take the following measures:

Comment [MM1]: Please verify this rephrasing is reflecting the reality in Pakistan

Comment [MM2]: should this be "dissolution" or "dismantling"?

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Continue to assess how best to position Pakistan vis-a-vis other groups of developing countries in order to secure adaptation funding;

Ensure the access and effective use of the opportunities available internationally for adaptation and mitigation efforts e.g. through Global Climate Fund (GCF), Clean Development Mechanism (CDM), Adaptation Fund (AF), Global Environment Facility (GEF),World Bank’s Forest Carbon Partnership Fund (FCPF), etc.;

Establish a Pakistan Climate Change Trust Fund for financing climate change related projects;

Continue to push for transparent delivery of new and additional fast start funding by developed countries;

Develop public-corporate-civil society partnership for financing and implementation of climate change adaptation and mitigation projects;

Create domestic carbon market opportunities by introducing appropriate investment framework linked with regional banking institutions.

The Millennium Development Goals (MDGs) are the centerpiece of development efforts of the Government of Pakistan. The status of the MDGs with reference to environment sector indicators is presented below, (Table 16.1).

Table 16.1—The MDG targets and achievements

Name of Sector/Sub-Sector Year MDG Targets 2015 2004-05 2010-11 Forests cover including State and private forests/farmlands (%)

4.9 5.17 6.0

Area protected for conservation of wildlife (%) 11.3 11.3 12.0 No. of petrol & diesel vehicles using CNG fuel (000) 380 2740 920 Access to sanitation (national)% 42 48@ 90 Access to clean water (national)% 65 92@ 93 Number of continuous air pollution monitoring stations. 0 10 -- Number of regional offices of Environmental Protection Agencies

0 4 --

Functional Environmental Tribunals 2 3 -- Source: Environment Section, P&D Division, @ = Source (WHO/UNICEF)

Box1 Climate Change

Climate change is an area that has become increasingly important in recent years and raises issues of global justice and equity. Whereas the richer industrialized countries are primarily responsible for greenhouse gas emissions, it is the poorer developing countries who would most heavily bear the costs of climate change. It is major concern for Pakistan because of its large population and economic dependence on primary natural resources. Pakistan’s agrarian economy is heavily dependent on river water provided by melting glaciers

Pakistani cities are facing problems of urban congestion, deteriorating air and water quality and waste management while the rural areas are witnessing rapid deforestation, biodiversity and habitat loss, crop failure, desertification and land degradation. In this regard, the National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate. The policy provides a comprehensive framework for the development of an action plan for national efforts on adaptation and mitigation. The goal of the policy is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of the economy and to steer Pakistan towards climate resilient development

The main objectives of Pakistan’s climate change policy 2011 include

To pursue the sustained economic growth by appropriately addressing the challenges of climate change


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To integrate climate change policy with other related national policies To facilitate and strengthen Pakistan’s role as a responsible member of the international community in

addressing climate change challenges To focus on pro-poor gender sensitive adaptation while also promoting mitigation to the extent possible in a

cost effective manner To ensure water, food, and energy security of the country in the face of challenges posed by climate change To minimize the risks arising from expected increase in frequency and intensity of extreme events: floods,

droughts, tropical storms, etc. To strengthen inter-ministerial and inter-provincial decision making and coordination mechanism on climate

change To facilitate effective use of the opportunities, particularly financial, available both nationally and

internationally To foster the development of appropriate economic incentives to encourage public and private sector investment

in both adaptation and mitigation measures To enhance the awareness, skill and institutional capacity of relevant stakeholders To promote conservation of natural resources and long term sustainability

The climate change threats to Pakistan are: Considerable increase in frequency and intensity of extreme weather events, coupled with erratic monsoon rains

causing frequent and intense floods and droughts

Projected recession of Hindu Kush-Karakoram-Himalayan (HKH) glaciers due to global warming and carbon soot deposits from trans-boundary pollution sources, threatening water inflows into Indus River System (IRS)

Increased siltation of major dams caused by more frequent and intense floods

Increased temperature resulting in enhanced heat- and water-stressed conditions, particularly in arid and semi-arid regions, leading to reduced agricultural productivity

Further decrease in the already scanty forest cover from too rapid change in climatic conditions to allow natural migration of adversely affected plant species

Increased intrusion of saline water in the Indus delta, adversely affecting coastal agriculture, mangroves and breeding grounds of fish

Threat to coastal areas due to projected sea level rise and increased cyclonic activity due to higher sea surface temperatures

Increased stress between upper riparian and lower riparian regions on sharing the water resources

Increased health risks and climate change induced migration

The above threats are the cause of major survival concerns for Pakistan, particularly in terms of the country’s water, food, and energy security considerations

State of the Environment

Air

With an estimated 37 percent of its population living in cities, Pakistan is the most urbanized country in South Asia. Rapid urbanization has been accompanied by environmental problems such as pollution, waste management, congestion and the destruction of fragile ecosystems. Urban air pollution remains one of the most significant environmental problems facing cities. A substantial body of research demonstrates that high

concentrations of suspended particulate matter adversely affect human health; prolong a wide range of respiratory diseases and increases the probability of heart ailments.

The higher concentration of Suspended Particulate Matter (SPM) in the air is a major issue in Pakistan. The main sources of SPM are vehicular emission, industrial emissions, burning of solid waste, pollens, brick kilns and natural dust.

SPM can originate through natural phenomenon, such as unpaved roads and places uncovered by

Comment [MM3]: chapter on labor force/population mentions that urban unemployment higher than rural.

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239

green grasses or trees. Fine sized particles of soil may be raised in the form of dust cloud by driven motor vehicles and by strong wind. Another origin of fine particles is anthropological activities. These include emissions from the motor vehicle and industrial activity. Climatic and geographical conditions also affect the level of SPM in ambient air. These include the type of soil, temperature, wind speed, relative humidity and quantity of precipitations.

Several studies of air, water and noise pollution have been carried out by the Pakistan Environmental Protection Agency (Pak-EPA). In June 2011, Pak-EPA conducted a study to monitor the vehicular emissions in Islamabad. Vehicles were examined at 13 different locations of Islamabad. A total of 576 diesel, petrol and CNG driven vehicles were tested in 13 days. Nearly 43.5 percent of the total vehicles tested were found non-compliant of National Environmental Quality

Standards (NEQS). During this study, noise level was also monitored and found within safe limit except at two places where the noise level was recorded to be over the safe limit for a short period of time.

Ambient air quality data recorded by real time automatic monitoring stations in the five capital cities confirmed the presence of high concentration of suspended particulate matter. The level of PM (Particulate Matter size below 2.5 micron), which is mainly due to the combustion source, was reported to have reached an alarming level (2-6 times higher than the safe limit). The National Environmental Quality Standards (NEQS) for PM 2.5 is 25 micron/m3 annual average. The table and figure below show annual mean value of PM 2.5 in five capital cities.

Table 16.2: Annual Mean Value of Suspended Particulate Matter (PM 2.5) from June 2011-March 2012Sr. No. City Level (µg */m3)

1. Islamabad 87.052. Lahore 153.53. Karachi 52.914. Peshawar 74.535. Quetta 63.92

Source: Pakistan Environment Protection Agency. * µg = µg stands for microgram

The level of other pollutants in the ambient air like carbon monoxide (CO), Sulphur dioxide (SO2), Oxides of nitrogen (NOx), Ozone (O3) and Hydrocarbons (HC) are within safe limits according to National Environmental Quality

Standards (NEQS) for ambient air. Sometimes the concentration of NOx and SO2 goes higher than the safe limit at Lahore and Peshawar, but this happens for short periods of time and represents a short time exposure to the public.

87.05

153.50

52.91

74.5363.62

0.0020.0040.0060.0080.00

100.00120.00140.00160.00180.00

Islamabad Lahore Karachi Peshawar Quetta

Con

cent

ratio

n

Cities

Fig-16.1: PM 2.5

Comment [MM4]: if i'm not mistaken, this should be the greek letter mu and not a u. please verify.


240

Motorcycles and rickshaws, due to their two stroke (2-strokes) engines, are the most inefficient in burning fuel and contribute most to emissions. 2-stroke vehicles are responsible for emission of very fine inhalable particles that settle in lungs and cause respiratory diseases. The 2-stroke vehicles

industry is fast growing in Pakistan and has increased by 117 percent in 2010-11 when compared with the year 2001-02. Rickshaws have grown by more than 11.1 percent while motorcycles and scooters have posted a growth of 120.4 percent over 2001-02, (Table 16.3).

Table 16.3—Motor Vehicles on the Road (000 Nos.) Year Total Motorcycles/Scooter Rickshaws 2001-02 2561.9 2481.1 80.8 2002-03 2737.1 2656.2 80.9 2003-04 2963.5 2882.5 81.0 2004-05 3146.4 3064.9 81.5 2005-06 3868.8 3791.0 77.8 2006-07 4542.9 4463.9 79.0 2007-08 5126.3 5037.0 89.3 2008-09 5456.4 5368.0 88.4 2009-10 5501.2 5412.1 89.1 2010-11 5558.6 5468.8 89.8 Source: National Transport Research Centre

The use of coal in the power sector has been decreasing. This may be due to the fact that a number of plants have now been converted to natural gas. Likewise, there has been a reduction in coal usage for domestic purposes. Bricks kilns are

another source of pollution in many areas. Use of low-grade coal and old tyres in bricks kilns generate dense black smoke (soot) and other kind of emissions. The use of coal has increased by 64.2 percent for bricks kilns in 2010-11 when compared with year 2001-02 (Table 16.4).

Table 16.4: Consumption of Coal (000 M/Tons) Year Power Brick Kilns Household2001-02 249.4 2577.5 1.1 2002-03 203.6 2607.0 1.1 2003-04 184.9 2589.4 1.0 2004-05 179.9 3906.7 - 2005-06 149.3 4221.8 - 2006-07 164.4 3277.4 1.0 2007-08 162.2 3760.7 1.0 2008-09 112.5 3274.8 0.8 2009-10 125.5 3035.2 - 2010-11 96.5 4231.5 - Source: Hydrocarbon Development Institute of Pakistan - : Not Available

In the past few years, the CNG Sector has seen tremendous growth. 3,331 CNG stations are currently operational making Pakistan one of the largest users of CNG in the world. The use of CNG as an alternate fuel in the transport sector has helped to reduce air pollution to a considerable

extent including reduction of suspended particulate matter (SPM) emitted from the public transport as well as private vehicles. Since the country is facing a shortage of CNG, other alternative sources such as LNG are being considered as a part of environment friendly component.

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Table 15.5—Growth in CNG Sector As on CNG Stations (No.) Converted Vehicles (No.)

December 2000 150 120,000 December 2001 218 210,000 December 2002 360 330,000 December 2003 475 450,000 December 2004 633 660,000 December 2005 835 1,050,000 December 2006 1,190 1,300,000 16th May, 2007 1,450 1,400,000 February 2008 2,063 1,700,000 December 2009 3,051 2,000,000 June 2011 3,331 2,740,000 Source: OGRA, Ministry of Petroleum & Natural Resources

Water and Sanitation

Although 70.9 percent of earth’s surface is covered with water nearly 97 percent of this is saltwater. Most of the remaining 3 percent are in the polar ice caps, glaciers, atmosphere or underground reservoirs and hard to reach. Only 0.4 percent is available for direct use. Freshwater is a precious natural resource and fundamental to the survival of humans and most other land-based life forms.

Water Pollution

Water pollution has been a serious concern affecting not only humans but also plants and animals. The ecosystem of rivers, lakes, streams, and seas are deteriorating due to contamination of water from various sources. This situation is leading to many health problems including serious illnesses transmitted by polluted drinking water such as cholera, typhoid fever, hepatitis A and B, dysentery, etc. Dumping of solid and liquid industrial waste, improper disposal of human and animal waste, and residues of agriculture practices like fertilizer and pesticides are all major contaminants of drinking water. These pollutants are discharged directly into rivers and irrigation canals and also transmitted by rain water runoff and get mixed with ground water aquifer.

Drinking Water and Sanitation

Globally, access to drinking water was at 87 percent in 2011. In order to meet the MDG target, an additional 2 percent is needed by 2015. In Pakistan, statistics on access to drinking water is

impressive; according to the Pakistan Bureau of Statistics (PBS) report Pakistan Standard Living Measurement (PSLM) 2010-11, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent respectively, with an average of 87 percent in 2011.Hence access to the source of drinking water is satisfactory.

According to Pakistan Council of Research in Water Resources (PCRWR), the majority of the population in the country is exposed to the hazards of drinking unsafe and polluted water from both surface and ground water sources. As derived from the National Water Quality Monitoring Programme carried out by the PCRWR, the 4 major contaminants in drinking water sources of Pakistan were bacteriological (68 percent), arsenic (24 percent), nitrate (13 percent) and fluoride (5 percent). Similarly, the five years trend analysis has revealed that out of a total 357, only 45 water sources (13 percent) were found “safe” and the remaining 312 (87 percent) were “unsafe” for drinking purpose. In Pakistan about 68 percent of the drinking water consumption is from groundwater for both urban and rural areas.

Pak-EPA has conducted a 4 month study to monitor the water quality of Rawal Lake and its tributary. Samples were collected on monthly basis and analyzed at the Central Laboratory for Environmental Analysis and Networking (CLEAN). Parameters like biological oxygen demand (BOD), conductivity and total suspended solid were found to be higher than surface water standards. BOD was found to be 2 to 8 times and

Comment [MM5]: the subsequent paragraphs are suggesting that manys ources are polluted? if those paragraphs are true, then we need to add this sentence to the claim that access to drinking water is excellent.


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TSS 1.2 to 6.2 times higher than surface water guidelines.

Globally, improved sanitation coverage was just above the 60 percent mark in 2008, up from 54 percent in 1990, with over 2,500 million people still without access. Half of the people living in developing regions have no access to improved sanitation1.

Municipal sewage is a major source of surface water pollution. About 2 million wet tons of human excreta are annually produced in the urban sector of which around 50 percent go onto pollute water bodies. The National Conservation Strategy states that almost 40 percent of all disease related deaths are connected to water borne diseases. Other sources of water pollution are industrial effluents, solid waste, hospital waste, chemical fertilizers and pesticides.

In Pakistan sanitation facilities are improving. However, much improvement is needed for rural areas sanitation facilities. According to PBS Pakistan Standard Living Measurement 2008-09, 14 percent of all garbage collection facilities provided to the population are executed through municipalities, 7 percent through privately managed collection systems, and the remaining 79 percent have no system.

The most basic requirement for proper sanitation is safe disposal of excreta away from a dwelling unit, by using a sanitary latrine. There is a great variation in latrine coverage between provinces. Urban Sindh has the best coverage followed by urban Khyber Pakhtukhwa.

In most of the urban and rural population water is supplied from the ground water except for the cities of Karachi, Hyderabad, and part of Islamabad, which mainly uses surface water. Therefore, deteriorating ground water quality in Pakistan has serious implications for the environment and health of Pakistan’s population.

Different national and international reports have identified Pakistan as one of the most ‘water stressed’ countries in the world, facing lack of

1 UN-2011

water availability for irrigation, industry and human consumption. According to a World Bank report, water supply in Pakistan fell from 5000 cubic meters to 1000 cubic meters in 2010, and is likely to further reduce to 800 cubic meters per capita by 2020 due to growing population pressure, rapid urbanization and industrialization.

The government is committed to provide safe drinking water through clean drinking water initiatives and installation of water filtration plants. However, the execution and monitoring of government efforts are being hindered by limited resources, increasing population, fast growing urban development, industrialization, high operational and maintenance and poor cost recovery, lack of private sector participation, and low institutional capacities.

Strategy and Action Plans (Water & Sanitation)

Develop legal and policy frameworks regarding promotion of safe drinking water in Pakistan. This promotion would include desalinization of sea water.

Develop a water quality database to assist in decision making.

Establish a water quality monitoring and surveillance system based on enforceable water quality guidelines and standards. Conduct cyclic 4 seasonal water quality monitoring for major rivers and water reservoirs.

Address arsenic pollution of groundwater in Sindh and Punjab through specific initiatives including investigative studies and awareness raising programmes.

Develop legal and policy frameworks regarding promotion of safe drinking water in Pakistan.

Make installation of water treatment plants an integral component of drinking water supply schemes.

Develop an integrated approach that will guide the allocation of water, allocation of investment and pricing of water services, both in rural and urban areas.

Comment [MM6]: tonnes, right?

Comment [MM7]: 40 percent of disease related deaths, right?

Comment [MM8]: This heading also talks about drinking water, while the previous section also talks about sanitation. Makes sense to combine into one sub-heading?

Comment [MM9]: How did access to water remain at 90-95% with this precipitous drop in availability?

Comment [MM10]: don't capitalize unless that's the name of the initiative.

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Promote and devise methods for harvesting rain water using low-cost structures.

Clarify national sanitation policy in order to make it explicit and consistent.

Encourage and promote public toilets in all urban centres.

Develop systems for safe sewage disposal.

Awareness raising and bringing an attitudinal change.

Generate resources (locally and nationally) and ensure participation of stakeholders.

Guide appropriate technical choices.

Establish public-private-civil society collaborative arrangements.

According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, in Pakistan 92 percent people had gained access to source of drinking water by 2010 while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015. Moreover, 48 percent people have been using improved sanitation by 2010 while this ratio was 27 percent and 37 percent in 1990 and 2000 respectively. The MDG target for access to sanitation is 90 percent by 2015.

Forest

Currently Pakistan has only 5.17 percent of total land area covered with forest placing Pakistan among countries with low forest cover. The country’s forest area is divided into state-owned forests, communal forests and privately owned forests. Major forest types existing in Pakistan are temperate and subtropical conifer forests, scrub forests, riverine forests (irrigated plantations), liner plantation (roadside, canal-side) and mangrove forests. The existing forest resources in the country are under severe pressure to meet the fuel-wood and timber needs of a rapidly growing population. In addition to this, the wood based industries including housing, sports, matches and furniture are continuously growing.

Forests and REDD+ (Reducing Emissions from Deforestation and Degradation plus)

Increasing GHG emissions are contributing to global warming and leading to accelerated climate change. The REDD+ initiative facilitates trade between developed countries who are net emitters of GHG and the developing countries who are net non-emitters, since they do not have heavy industry that produce carbon but have forests that can stock excess carbon in the air. Under REDD+ mechanism, the emitters may trade their carbon to be consumed/stocked by forests in developing countries at a per ton cost to be calculated as per Certified Emission Reduction (CER). This process builds a nexus between climate change and forest carbon credits. Therefore, the concept of REDD+ was developed as an incentive based mitigation response from the Montreal Climate Change Negotiations (COP 11) in 2005 to address 17-25 percent reported global share from deforestation and forests degradation. This will involve enhancing existing forests and increasing forest cover. This concept has three important phases:

Readiness phase (2010-2012): enacting national strategies supported by appropriate capacity building

Pilot phase or Investments phase: ‘learning by doing’ through pilot projects. This is underway in some countries, before the enactment of international rules.

Implementation or Operations phase (2013-2020): performance-based payments are made, either by direct funding or via links to the global carbon market, leading to the global implementation of REDD+.

REDD+ Potential and Pakistan:

Pakistan has a low forest cover with diversified forest types from coastal mangrove and riverine ecosystem to alpine Chir Pine forests within placed diversified community. There is a decline in overall forest cover in Pakistan, with the amount of forests declining by just under 2 percent in the 1990s, but by more than 2 percent in just five years, from 2000 to 2005. This decline needs to be taken into account to get maximum benefits from

Comment [MM11]: toilets, surely?

Comment [MM12]: right?

Comment [MM13]: first paragraph on page 10 put the global access to water at 87 percent in 2011. It droped 5% in a year?

Comment [MM14]: on page 12, the MDG target for 2015 is stated to be 87+2= 89 percent? these reports need to be consistent.


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REDD+. The government is striving to reverse these negative trends and aiming to increase Pakistan’s forest cover to 6 percent by 2015.

The total carbon stock of conifer forests could be estimated as 58 mega tons on the basis of biomass estimations by Asia Least cost Greenhouse Gas Abatement Strategy (ALGAS). On the bases of FAO Deforestation data 1990-2005 and ALGAS, 389 mega tons of carbon potential could be estimated for all types of forests in Pakistan with an estimated annual return of US$ 54 million at a rate of US$ 15 per tonne of carbon credits2. Other estimates by Leadership for Environment and Development (LEAD) 2010 3 points to potential earnings of between $94.74 million and $315.8 million per year if deforestation is halted completely. This estimate reflects the limited data available and provides only an indicative estimate. The actual potential could be far greater, depending on the carbon price and the sectors included under REDD+.

Pakistan’s efforts with regard to the REDD+ initiative need to be significantly enhanced on a priority basis in order to achieve the global target and meet the basic requirements of REDD+ readiness phase. As Pakistan faces a high rate of deforestation and aims to reverse this trend, the active engagement in REDD+ is a unique opportunity to support this national priority. However, this needs to be driven by a focused strategic plan and supported by a scaling up of national technical and institutional capacity to deal with REDD+ mechanism.

Mangroves Ecosystem and Coastal Resources

The coastal belt of Pakistan extends up to 1,050 km along Sindh and Balochistan provinces. The total population in and around mangrove forests on the coast of Pakistan is estimated to be around 1.2 million people, nearly 900,000 of whom reside in the Indus Delta 4 . At least three quarters of the Delta’s rural population depend, directly or

2 Iqbal. K.M.J., and Ahmad. M., (2011) SDPI, Policy Paper Series # 38 September 2011 3 LEAD (2010) REDD+ Policy Brief 4. LEAD-Pakistan 4 (Salman 2002), and Sindh Forest Department 2012.

indirectly on fishing as their main source of income.

Pakistan’s commercial marine fisheries operate in and around the mangrove creeks on the coast of Sindh province. The annual value of fish caught from mangrove dependent fish species in the Indus Delta is estimated at around $20 million. Shrimps are also particularly important, with a domestic value of $70 million and an export value of about one and a half times this figure, and the export of mud crabs contributes an additional $3 million to the regional economy.

Beside these economic benefits, the mangrove forest benefits the ecosystem by providing nurseries for many species of fish and shrimp, stabilize shorelines and reduce coastal erosion, and protect coastal habitations from storm damage. It provides grazing grounds to at least 8,000 camels, 5,000 buffaloes and over 1,000 goats, in addition to providing other forest products like fuel wood, honey, and medicinal plants to local communities. It is estimated that one hectare of properly managed mangroves can yield 100 kg of fish, 25 kg of shrimp, and 15kg of crab meat annually.

Mangrove Forest Degradation

The most prominent and most sensitive ecosystem of the region is characterized by mangroves forest that form a number of direct and indirect linkages with the socioeconomic status and occupations adopted by the community. The figures from Sindh Forest Department (SFD) and IUCN-Pakistan estimated that 196,000 ha of mangrove forest in Pakistan has been lost up to 2007. According to the change analysis done by WWF-Pakistan at Keti Bunder site through satellite imaging, the mangrove cover has experienced a drastic decline of 20 percent, from 1992 to 2007.

Moreover, the creeks are also perceived to widen in future due to exacerbation of soil erosion along the Arabian Sea, which forces the mangrove forest towards instability and this instability trend has been continuous from 1992 to 2007, with a very nominal percentage of dense mangrove forests remaining stable during this time period. Similarly WWF-Pakistan also reported that the 0.5 million

Comment [MM15]: what's this? per tonne?

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hectares of fertile land in Thatta district alone is affected by sea intrusion.

The other major threats to mangrove ecosystem includes shortage of fresh water and resultant silt depositions, industrial and municipal pollution, dumping of waste, oil spills and leakages, and encroachment of settlements around mangrove forests. The Government of Pakistan has taken steps to halt the deforestation of mangroves by establishing protected areas and new plantations by forest department with the help of non-governmental organizations like WWF-Pakistan and IUCN.

Floods of 2011 and Policy Responses

In a Damage and Need Assessment Report jointly prepared by the Asian Development Bank and the World Bank, it has also been pointed out that in addition to causing loss of life, displacement of millions, and huge losses to the economy, the floods in 2011 have resulted in environmental damages, heightened environmental health risks and affected forests, wetlands and other natural systems. The floods have also caused contamination of drinking water, proliferation of disease vectors caused by stagnant water ponds, and accumulation of solid wastes – factors that would further exacerbate health risks for the affected population, particularly women and children. Environmental degradation and its effects on human health was already a significant development challenge in Pakistan, which has some of the highest prevalence rates in all of South Asia for child mortality, diarrhea and acute respiratory illnesses associated with environmental factors. The conditions created by the floods could result in a significant increase of these and other illnesses. No estimates are available for damages to other environmental resources such as wetlands and mangroves at this stage. To fill such damage data gaps, follow-up environmental studies have been proposed to address safe disposal of debris, leakage/spillage of hazardous and/or toxic substances and assess damage to cultural heritage sites.

The floods were initiated by a natural phenomenon; however, anthropogenic interventions exacerbated them, particularly as

destruction and degradation of natural ecosystems reduced their capacity to protect from flood. Also, development of settlements and croplands in floodplains as well as blocking of natural drainage routes created the conditions for the current human tragedy. To avoid such disasters in the future, strengthening the resilience of the Indus Watershed is urgently needed, involving an approach that combines structural and non-structural measures that are strategic, feasible, and affordable to minimize vulnerability to extreme weather events. Such an approach also calls for improved management of the Indus Basin’s major natural resources through strengthened coordination of flood-related actions within and among the provinces. Towards this end, the following priority actions are proposed to be undertaken:

Addressing environmental health priorities, including drinking water, sanitation, hygiene and indoor air quality

Reviewing/updating the flood protection strategy and master plan, and preparing a storm water drainage master plan; and

Preparing land use plans and building regulation, and strengthening legal and institutional frameworks.

The environmental damage caused by floods has been estimated at Rs. 2,762.7 million (US $ 31.8 million) and environmental recovery / reconstruction needs has been estimated at Rs. 2,873.6 million (US $ 33.02 million).

Environmental Considerations in Policy Response

The 2011 floods have caused wide-ranging damage to different sectors of the economy. The reconstruction and recovery needs are diverse and multi-faceted and work has to be undertaken on an urgent basis. However, these interventions, particularly those related to irrigation, agriculture, transport, health, education, housing, and water supply and sanitation are likely to cause negative environmental impacts. In order to ensure the sustainability of the reconstruction and recovery process, these negative environmental impacts ought to be addressed as an integral part of all sectoral plans.

Comment [MM16]: this sentence is not adding anything new

Comment [MM17]: I don't know if I understand the message here: reconsutruction efforts are going to create a carbon footprint. Is that the negative environmental impact being referred to here? Even if it is, it's hard to see the "social" impact here.


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The national environmental legislation (Pakistan Environment Protection Agency 1997), as well as the international financial institutions’ (IFIs) safeguards require that environmental and social assessments are carried out and management plans/frameworks are prepared prior to undertaking the interventions such as those recommended in the floods Damage and Need Assessment. However, details of the specific activities associated with the individual reconstruction and recovery plans in the majority of sectors are not currently known, hence the potentially adverse environmental and social impacts of these activities cannot be identified. Instead, it is proposed that a broad Environmental and Social Screening and Assessment Framework (ESSAF) be prepared for the overall reconstruction and recovery needs.

The ESSAF will define the environmental and social screening and assessment requirements of individual projects or interventions, and will guide the implementing agencies in identifying the appropriate type and level of environmental and social assessment to be carried out prior to undertaking each project or intervention in compliance with national as well as IFI’s safeguard requirements. The ESSAF will also define the

requirements for preparing appropriate environmental and social documents, and obtaining approvals/clearances of these documents from the relevant agencies. To ensure implementation of ESSAF, it is further proposed that each line agency (Provincial Disaster Management Authority / District Disaster Management Authority) appoints an environmental and social focal person within the department.

Conclusion

The Government of Pakistan has undertaken various steps to combat the negative impacts of climate change. This chapter provided an account of institutional change, including raising awareness, developing strategy and policies, and implementing programmes to actively address and reverse adversities faced due to global warming and the resultant climate change. The state of Pakistan’s atmosphere, including air and water quality, state of forestry, and coastal resources were described, identifying the key challenges that remain in these areas as well as new strategies that have been adopted (REDD+) by the government. The chapter identifies that it will be crucial to carefully evaluate disaster response and rebuilding strategies to make sure that they are environmentally sustainable.

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Contingent Liabilities

Introduction

Contingent liabilities are possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the government. Contingent liabilities should be examined in the same manner as a proposal for a loan, taking into account, inter alia, the credit-worthiness of the borrower, the amount and risks sought to be covered by a sovereign guarantee, the terms of the borrowing, justification and public purpose to be served, probabilities that various commitments will become due and possible costs of such liabilities. Hence, such off balance sheet transactions cannot be overlooked in order to gain a holistic view of a country’s fiscal position and unveil the hidden risks associated with the obligations made by the government outside the budget. Similarly, reported debt levels of a sovereign may be understated owing to the non-inclusion of contingent liabilities, explicit or implicit, which may materialize in future.

Table 1 Guarantees Outstanding as of March 31, 2012 (Rs. Billion)

Outstanding Guarantees extended to PSEs

487

-Domestic Currency 256-Foreign Currency 231

Memo: Foreign Currency (US$ Million) 2,544Source: Debt Policy Coordination Office

In the case of Pakistan, these include, for instance, explicit and implicit guarantees issued to Public

Sector Enterprises (PSEs) and unfunded losses of State Owned Entities. Total outstanding stock of government guarantees as of March 2012 stood at Rs. 487 billion.

The Fiscal Responsibility and Debt Limitation (FRDL) Act 2005 stipulates that the issuance of guarantees, including those for Rupee lending, bonds, rates of return, output purchase agreements and all other claims and commitments that may be prescribed from time to time as well as renewal of existing guarantees, should not exceed 2.0 percent of the estimated gross domestic product in any financial year. As of March 2011, Government of Pakistan issued new guarantees aggregating to Rs. 146.6 billion or 0.7 percent of GDP [as shown in Table 2].

Table 2: Guarantees Issued Details

Fiscal Year Issuance (Rs. Billion)

As % of GDP

2007 140.7 1.62008 138.8 1.42009 276.3 2.22010 224.0 1.52011 62.4 0.32012* 146.6 0.7Source: Budget Wing & Debt Policy Coordination Office * : July - March 2012

The outstanding contingent liabilities as of March 31, 2011 stood at Rs.487 billion against the end-June 2011 position of Rs. 559 billion (Table 3).

Annex 1


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Table 3: Guarantees Stock Guarantees 2010 2011 2012* Outstanding Guarantees (1+2) 603 559 4871- Domestic Currency (Rs. Billion) 329 301 2562- Foreign Currency (Rs. Billion) 274 258 231Foreign Currency (US$ Million) 3,246 2,999 2,544Source: Debt Policy Coordination Office * July-March 2012

Guarantees issued against commodity operations are not included in the stipulated limit of 2 percent of GDP as the loans are secured against the underlying commodity and are essentially self liquidating and thus should not create a long term liability for the government. The quantum of these guarantees depends on the supply-demand gap of various commodities, their price stabilization

objectives, volume procured, and domestic and international prices. The guarantees were issued against the commodity financing operations undertaken by TCP, PASSCO, and provincial governments. As of April 2012, the outstanding stock of Rs. 303.9 billion against the end-June 2011 position of Rs. 397.5 billion indicates a retirement of Rs. 93.6 billion on behalf of commodity financing operations.

i

Executive Summary

The Government remained focused on maintaining macroeconomic stability, growth, mobilizing domestic resources and increasing exports, balanced regional development and providing safety nets for the vulnerable groups. Despite numerous challenges, the economy performed better in 2011-12 than many developed and developing economies. These included sharp increase in fuel and commodity prices, recessionary trend globally and weak inflows. Domestically, economy was struck by heavy rains in Sindh and parts of Balochistan costing $ 3.7 billion. Notwithstanding these challenges, the Gross Domestic Product growth this year is estimated at 3.7 percent as compared to 3.0 percent last year.

In comparison, the global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. International Monetary Fund has maintained its growth forecast of 2.1 percent for United States in the year 2012, negative 0.3 percent for Euro area, 0.8 percent for United Kingdom, 5.7 percent for Emerging and Developing Economies after factoring China (8.2 percent) and India (6.9 percent) and 2.0 percent for Japan.

Despite global slowdown, Pakistan has managed to maintain its exports during July-April 2012 to last year’s level which saw a phenomenal growth. Remittances remained buoyant and estimated at close to $ 13 billion, an increase of 16 percent. Recessionary trend globally have, however, impacted capital flows to Pakistan. Current account balance was affected due to sharp increase in oil prices and import of 1.2 million metric tons of fertilizer.

Tax measures enforced by the Government in April 2011 has yielded dividend. July-April 2012 growth in FBR tax revenues demonstrated a growth of 24 percent with Rs. 1445 billion as compared to 1250 billion last year. Efforts are underway to reach the ambitious target of 1952 billion. Non-tax receipts have been less due to non disbursement of anticipated coalition support funds and delaying the expected auction of 3 G license to a later part of summer.


The economy is now showing signs of modest recovery. GDP growth for 2011-12 has been estimated 3.7 percent as compared to 3.0 percent in the previous fiscal year 2011. The Agriculture sector recorded a growth of 3.1 percent against 2.4 percent last year. The Large Scale Manufacturing (LSM) growth is 1.1 percent during July-March 2011-12 against 1.0 percent last year. Overall, the commodity producing sectors and especially the Agriculture sector have performed better. The Services sector recorded growth of 4.0 percent in 2011-12.

Flood Impact Assessment

This performance has been achieved despite severe monsoon rains triggered floods of an unprecedented scale in Southern Pakistan, engulfing 23 districts of Sindh Province and adjoining areas of northern Balochistan causing damages to crops, infrastructure and human settlements, thus adversely affecting national economy.

According to the World Bank and the Asian Development Bank (ADB) Damage and Needs


ii

Assessment (DNA) Report, approximately, 9.6 million people were affected in Sindh and Balochistan as a result of these rains. The total damages estimated to Agriculture, Energy, Transport and Communication, Health, Environment as well as the Forestry, Water Supply and Sanitation amount to Rs. 324.5 billion (US$ 3.7 billion).The rehabilitation and Cost of recovery is estimated at Rs. 239 billion (US$ 2.8 billion). This is in addition to damages of $ 10 billion to the economy during 2010 floods.

Commodity Producing Sector: The commodity producing sector has performed better in the outgoing fiscal year as compared to last year. Its growth rate this year was 3.3 percent against 1.5 percent during last year.

Agriculture Sector is a key sector of the economy and accounts for 21 percent of GDP. The supportive policies of the government resulted in a growth of 3.1 percent against 2.4 percent last year. Major Crops registered an accelerating growth of 3.2 percent compared to a negative growth of 0.2 percent last year. The major crops including Cotton, Sugarcane and Rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, preliminary estimates of wheat production showed a negative growth due to late receding of flood waters in lower Sindh which hampered the timely cultivation of the wheat crop. Livestock has witnessed a marginally higher growth of 4.0 percent against the growth of 3.97 percent last year. Fisheries sector showed a growth of 1.8 percent. Forestry recorded a growth of 0.95 percent as compared to the contraction of 0.40 percent last year.

Manufacturing Sector: The growth of the manufacturing sector is estimated at 3.6 percent compared to 3.1 percent last year. Small scale manufacturing maintained its growth of last year at 7.5 percent and slaughtering growth is estimated at 4.5 percent against 4.4 percent last year. Large Scale Manufacturing (LSM) has shown a growth of 1.1 percent during July-March 2011-12 against 1.0 percent last year. The Construction Sector has shown 6.5 percent growth as compared to negative growth of 7.1 percent last year. Mining and Quarrying sector recorded a positive growth of 4.4 percent during July-March of the fiscal year 2011-

12 against negative growth of 1.3 percent last year. Electricity and gas distribution witnessed a negative growth of 1.6 percent against - 7.3 percent last year.

Services Sector: The Services sector has registered a growth rate of 4.0 percent during July- March of the fiscal year 2011-12 against 4.4 percent last year. It is dominated by Finance and Insurance at 6.5 percent, Social and Community Services 6.8 percent and Wholesale and Retail Trade 3.6 percent.

Consumption: Real private consumption grew at 11.6 percent in fiscal year 2011-12 as compared to 3.7 percent growth last year and real government consumption grew at 8.2 percent as compared to 5.2 percent last year. Private consumption expenditure has reached 75 percent of GDP; whereas public consumption expenditures are 13 percent of GDP. Private consumption has increased on the back of sustained growth in remittances. Total consumption has reached 88.4 percent of GDP in fiscal year 2011-12 as compared to 83 percent last fiscal year. Furthermore, increase in rural income due to higher production of crops and sharp increase in commodity prices also supported the consumption demand.

Per capita real income grew at 2.3 percent in 2011-12 as compared to 1.3 percent growth last year. In dollar terms, it increased from $ 1258 in 2010-11 to $ 1372 in 2011-12.

Real Investment has declined from 13.1 percent of GDP last year to 12.5 percent of GDP in 2011-12; fixed investment has declined to 10.9 percent of GDP in 2011-12 from 11.5 percent of GDP last year. Similarly Private investment also contracted to 7.9 percent of GDP in 2011-12 as compared to 8.6 percent of GDP last year. Public investment as a percent of GDP is 3.0 percent in 2011-12 against the 2.9 percent last year. National savings are 10.7 percent of GDP in 2011-12 as compared to 13.2 percent in 2010-11.

Foreign Direct Investment stood at $ 668 million during July-April 2011-12 as against $ 1293 million last year. The capital flows were affected because of global financial crunch and euro zone crisis. Oil and Gas Exploration remained the major

Executive Summary

iii

sector for foreign investors. The share of Oil and Gas Exploration in total FDI during July-April 2011-12 stood at 70 percent.

Workers’s Remittances witnessed a strong growth of 25.8 percent in 2011 over the previous year 2010. During July-April 2011-12, worker’s remittances grew by 20.2 percent at $ 10.9 billion. The buoyancy in remittances is largely attributed to the government’s efforts to divert remittances from informal to formal channel. Data on remittances suggests that the monthly average for the period of July-April 2011-12 stood at $ 1.09 billion compared to $ 0.90 billion during the corresponding period last year. The upsurge in the remittances is attributed to the government’s efforts of redirecting these flows from informal to formal channels.

Fiscal Development: The Medium Term Budgetary Framework has improved the budget preparation process. Medium-term fiscal framework and budget policies have been incorporated into a medium-term Budget Strategy Paper on rolling basis, which include medium-term indicative budget ceilings for the recurrent and development budgets, and provides an opportunity to discuss the budget between technical and political levels prior to the presentation of the annual budget. The political level involvement includes Cabinet, Standing Committees on Finance & Revenue, and political parties. The Output Based Budget (OBB) has also been institutionalized in the federal government which presents policies of the ministries in the shape of goals, outcomes, outputs and medium-term budgets. The OBB also presents key performance indicators for the outputs to introduce government wide monitoring system.

18th amendment in the Constitution of the Islamic Republic of Pakistan was an historic step forward abolishing the concurrent list transferring additional functions to the Provinces. It was combined with a path breaking 7th National Finance Commission Award in 2010. In addition, the Government resolved long standing demands of the Khyber Pakhtunkhwa relating to Net Hydel Profit and Royalty and Gas Development Surcharge of Sindh and Balochistan. The award also acknowledged multiple criteria for transfer of

resources. Share of Balochistan has increased from 5.1 to 9.0 percent. Likewise, Khyber Pakhtunkhwa has been assigned 1 percent of the total divisible pool to mitigate the impact of campaign against extremism. This has allowed transfer of 70 percent of the divisible pool to the provinces and FATA and Gilgit-Baltistan. During the last two years, Federal Government has transferred over Rs. 800 billion additional over 2009-10 resource transfer of Rs. 633 billion. This should help the provinces to earmark more resources to social sectors and development of infrastructure.

Government continued its efforts to broaden the tax base and simplifying the tax structure. Efforts are underway to move towards two main taxes, i.e. income tax and sales tax. As a result, Special Excise Duties and Regulatory Duties have been abolished. A three years plan to phase out Federal Excise Duties is under implementation. Capital Gain Tax has been levied on sales of securities in the stock exchange. Sales tax exemptions and zero ratings have been withdrawn on all items including textile, leather, fertilizer, pesticides, sports goods and tractors except food items, health, education and agriculture produce. The Government has strengthened automated e-filing and electronic payment and refund system to ensure expeditious settlement of refund claims expeditiously. For this, a centralized sales tax refund cheque issuance system is now operational in the Federal Board of Revenue. Broadening the tax base identifying potential taxpayers has remained a key focus for which a dedicated unit has been established in the FBR. These efforts are now paying dividend. Federal Board of Revenue target for 2011-12 was set at Rs. 1952 billion. During first ten months, tax collection stood at Rs. 1,426.0 billion against Rs. 1,149.8 billion in the comparable period of last year, showing an increase of 24 percent. It does not include Rs. 19 billion collected by Sindh province on GST on services.

Efforts are being made to manage the fiscal deficit within acceptable level through an expenditure management strategy, austerity measures and reforms in public sector enterprises. The government is committed to simplification of tax regime, broadening the tax and mobilizing domestic resources. The operational expenditure of the federal ministries was reduced by 20 percent. A


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general ban was placed on recruitment and purchase of durable goods. Official transport assigned to entitled officers of BPS-20 to 22 was monetized to reduce expenditure on POL and repair and maintenance as well as drivers. Subsidy expenditure was rationalized. As a result of these efforts, overall fiscal deficit was at 5.0 percent of GDP in July-April 2012 against 5.5 percent of GDP of the comparable period of last year. It is noteworthy that containing the deficit during the period under review was quite challenging as the burden of financing fell directly on domestic sources due to the non materialization of external inflows.

Unlike the past, it was for the first time in many years that Public Sector Development Program did not face any cut. Despite huge financial constraints, the Government made a special effort to fully fund the PSDP. Accordingly, Rs. 304 billion were released that facilitated in completion of 200 projects. The Government efforts can be gauged from the fact that Rs. 2.2 trillion were provided during the last four years for PSDP.

Money and Credit: The SBP lowered the discount rate by cumulative 200 bps points to 12 percent during the first half of fiscal year 2011-12 in line with inflationary trend in the country. During the first eleven months of the current fiscal year (June 2011-11th May 2012) broad money (M2) witnessed an expansion of 9.1 percent as compared to 11.47 percent as compared to last year. The deceleration in money supply is primarily driven by the significant fall in the Net Foreign Assets of the banking system along with increased government borrowing and a one-off settlement of circular debt. Net Domestic Assets (NDA) during July 2011 - 11th May 2012 stood at Rs. 880.9 billion against Rs. 481.6 billion during the same period last year. The expansion in NDA is mainly contributed by a rise in demand for private sector credit and government borrowings. Conversely, Net Foreign Assets (NFA) witnessed a contraction. During July2011-11th May, 2012, credit to the private sector witnessed a net increase of Rs. 234.8 billion compared to Rs. 107.8 billion in the same period last year. Year-on-year growth in private sector credit was up 7.5 percent by 11th May, 2012.

The weighted average lending rate (including zero mark-up) on outstanding loans stood at 12.8 percent while the weighted average deposit rate (including zero mark-up) stood at 6.98 percent in March 2012. This resulted in a spread of 5.8 percent. The decline in the weighted average lending rate is due to the lag involved in contracting fresh loans in the new declining interest rate environment and the decline in banks return on government securities. It is pertinent to mention that since the SBP was following a tight monetary policy till August 2011 and the interest rates were moving up, the banking spread remained high.

Capital Markets: The KSE 100 index stood at 12,496 on June 20, 2011. It crossed the barrier of 14,000 and closed at 14,618 on 7th May, 2012, the highest level seen in last four years showing a growth of 17 percent over the closing index of last financial year. The Government has now levied Capital Gain Tax on securities. The net investment by the foreign investors in Pakistan’s Stock Markets during July-March, 2011-12 reflected a net outflow of US$176 million. This indicates that bullish trend observed in Pakistani equity market is due to the restoration of the confidence of local investors and institutions. During fiscal year 2011-12, the leading stock markets indices of the world observed mixed trends with negative growth of 18.1 percent in China to 19.03 percent positive growth in case of Philippines. Pakistani Stock market performed well as compared to markets of the world during the current fiscal year. This was mainly due to the steps taken by the government to boost the confidence of the equity market investors which included reforms in the Capital gains tax, etc.

The Government has enacted Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 which will further strengthen the country’s stock markets. The law requires stock exchanges to be demutualized within 119 days of its promulgation in accordance with timelines specified for completion of various milestones involved in demutualization exercise. Corporatization, demutualization of stock exchanges would entail converting their structure from non- profit, mutually owned organization to for-profit entities owned by shareholders.

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Demutualization would result in increased transparency at stock exchanges and greater balance between interests of various stakeholders by clear segregation of commercial, regulatory functions and separation of trading rights and ownership rights. Demutualization is well-established global trend and almost all stock exchanges worldwide operate in demutualized set up. The enactment of this law has brought Pakistan capital market at par with other international jurisdictions like India, Malaysia, Singapore, USA, UK, Germany, Australia, Hong Kong, Turkey among others. It will help expand market outreach, attract new investors, improve liquidity and enable stock exchange to attract international strategic partners.

Inflation: Price stability remained the priority of the government. The Government has constituted a National Price Monitoring Committee headed by the Finance Secretary with representatives of Federal Ministries and Provincial departments. The Committee meets every month. In addition, the Cabinet and the Economic Committee of the Cabinet monitors the prices of essential items and take corrective measures to ensure that prices remain under check. These efforts have yielded results. Inflation has declined for the third consecutive year. CPI was 10.8 percent during July-April, 2012 from a high of 25 percent in October 2008. It was in single digit in December 2012. This has been achieved despite sharp increase in international oil prices, effect of upward adjustment in the administered prices of electricity and gas, supply disruptions due to devastating floods of 2010 and heavy rains of 2011 and bank borrowings. Food and non-food inflation averaged 11.1 percent and 10.7 percent respectively against 18.8 percent and 10.8 percent in the same period of last year.

Trade and Payments: The Government pursued vigorously to secure concessional duties package on 75 items from the European Union. The World Trade Organization approved the package this year. It is expected that this will boost Pakistan’s exports to EU, one of the major trading partner of Pakistan. Exports witnessed a strong performance last year attaining the highest level ever of $ 25 billion showing a growth of 30 percent. It reflected both the price and quantity effect. Despite euro

zone crisis, impacting the demand for Pakistan goods, Pakistan has successfully maintained its exports at last year’s until April this year. Exports during July-April 2012 were $ 20.5 million compared to $ 20.46 billion last year. The Afghan Transit Trade Agreement (APTTA) has encouraged formal trade between Pakistan and Afghanistan and the volume has risen to around $ 2.5 billion annually. Efforts are underway to formalize Free Trade Agreements and Preferential Trade Agreements with many countries. It will help boosting Pakistan’s exports. Efforts are also in hand to normalize trade relations with India.

Imports grew by 14.5 percent and stood at $ 33.1 billion during July-April 2012. The current account deficit stood at $ 3.4 billion in the same period. It was largely as a result of high oil prices and import of fertilizers. Continued support from current transfers in the form of workers’ remittances helped in containing current account balance.

Pakistan has witnessed some geographical diversification in exports. During 2005-06, 47.2 percent of the country’s exports were concentrated in five markets (USA, UK, Germany, Hong Kong and U.A.E.) of the world and remaining share of all other countries was 52.8 percent. This concentration is on continuous decline since 2005-06 and recently the share of these five markets stood at 35.7 percent whereas the share of all other countries increased to 64.3 percent during July-December 2011-12. This improvement in geographical diversification was mainly the result of Strategic Trade Policy Framework (STPF-2009-12) introduced by the government and the resulting increase in exports to China, Afghanistan and Bangladesh.

Pakistan’s foreign exchange reserves reached to $ 16.5 billion at the end-April 2012 compared to $ 17.0 billion at end-April 2011. The exchange rate averaged at Rs. 85.50/US$ during July-April 2010-11, whereas it averaged at Rs. 88.55/US$ during July-April 2011-12. The Pak Rupee depreciated by 3.4 percent during July-April 2011-12 over the depreciation of 2.2 percent in July-April 2010-11 period.

Public Debt: Pakistan’s public debt stood at Rs. 12,024 billion as of March 31, 2012. During


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first nine months of the ongoing fiscal year, total public debt registered an increase of Rs. 1,315 billion which includes Rs. 391 billion consolidated by the Government into public debt against outstanding previous year’s subsidies related to food and energy sectors. Public debt as a percent of GDP stood at 58.2 percent by end-March 2012. During July-March 2012, $179 million was added to the EDL stock. At the end of March 2012, servicing of the public debt stood at Rs.720.3 billion against the budget amount of Rs. 1034.2 billion.

Population, Labour Force and Employment: Pakistan is endowed with demographic dividend with a bulging young population. They can be a productive asset of the country if put to proper training and skill development. Pakistan is also facing rapid urbanization. The population in urban areas has increased from 65.3 million in 2010-11 to 67.5 million in 2011-12. Accordingly, cities development is one of the key pillars of Pakistan’s growth framework.

According to the Labour Force Survey 2010-11, Pakistan has a labour force of 57.2 million people which is 0.9 million more than the last year. Out of this potential labour force, the total number of people were employed during 2010-11were 53.8 million, which is 0.6 million more than the last year. The total labour force working in the agricultural sector remained unchanged during the period 2008-2011. In manufacturing sector, the participation rate has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11. Efforts are being made to develop an efficient, equitable and rights based labour market that provides the mechanisms for productivity growth in the economy which results in real wage increases.

The government is making sincere efforts to boost overseas employment which will not only reduce the unemployment burden in the country but will also enhance remittances. In this regard, MoUs have been signed with number of labour importing countries such as Malaysia, Kuwait, and Qatar etc. Emigrants sent abroad in 2010 were 0.4 million and 0.5 million in 2011. Saudi Arabia, Gulf State including United Arab Emirate (UAE), Oman and Kuwait are the largest market of Pakistani workers.

Transport and Communication: The transport and communication sector is a major contributor to government revenues. Sustainable economic development is dependent on a robust and low cost transport system. Enhanced export competitiveness is also contingent upon the efficient performance of this sector. The government is committed to implementing a comprehensive and modernizing transport and logistics sector through continuous reforms in all of its sub sectors. The Ministry of Communications has prepared a draft National Transport Policy which covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports and Shipping and (iv) Aviation. This policy also includes the National Transport Corridor Improvement Program (NTCIP) to make it more productive and environment friendly.

The National Highway Authority completed 12 projects of flyovers, bridges, interchanges and the upgrading of roads during the last one year at a cost of Rs. 19.6 billion. At present, 46 development projects of roads covering 2,985 kms are ongoing costing Rs. 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers and interchanges. NHA has also launched and awarded 16 new development projects covering over 500 kms, including construction of a number of bridges, flyovers and interchanges costing Rs. 71 billion. NHA is simultaneously constructing 12 bridges across the rivers. These are: on river Chenab 4, on river Sutlej 2, on river Swan 1 and on river Indus 5.

The Cabinet Committee of Restructuring (CCOR) approved a restructuring framework for Pakistan Railways (PR). New Board of Directors of PR has been instituted, involving academia, management professionals, rail experts and executive functionaries. The Government arranged Rs. 6 billion loan for repair of locomotives and freight operations are also being prioritized for revenue generation. PR is being provided Rs. 2.3 billion per month from the budget to finance pay and pensions of Railway employees. An Asset Management Company is being established for optimum utilization of PR’s assets. Private sector involvement is the focus moving forward, the Chamber of Commerce and Industries Lahore has been engaged for their freight transportation from

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Karachi to Lahore. Commercial management of rail operations and outsourcing of non-core functions is being initiated with an aim to improve efficiency of rail operations. Private Sector is also running a passenger train.

During the financial year, 16 kms of track was rehabilitated on the Pakistan Railways network besides doubling the previous 15 kms of track. Construction of a D Class railway station at new Multan City, renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out. Signaling system of four railway stations damaged during the riots of 2007 was rehabilitated during the period. During February 2012, 52 new design passenger coaches were imported from China. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at the Pakistan Railway Carriage Factory Islamabad during the last year. A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through public-private partnership.

Teledensity in the country has increased by 68.3 percent in April 2012, showing 6.7 percent growth as compared to the previous year. Mobile penetration rose to 64.9 percent in 2011-12 against 60.4 percent in 2010-11. Fixed Local Loop teledensity now stands at 1.93 percent. Total mobile subscribers has reached 118.3 million by the end of March 2012. Subscribers of Local Loop (FLL + WLL) are 5.9 million, out of which 3.10 million belong to FLL and 2.8 million belong to WLL. Broadband subscribers reached 1.9 million at the end of February 2012.

There has been a cumulative investment of approximately US$ 2.5 billion in the electronic media industry in Pakistan. More than 200,000 new jobs with diversified skills and qualifications have been provided. Additionally, over 7 million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum in this sector, it is estimated that the cumulative investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year.

Energy: Energy is considered to be the lifeline of economic development. Pakistan’s economy has been growing at an average growth rate of almost 3 percent for the last four years and demand of energy both at the production and consumer end is increasing rapidly. The Energy Committee headed by the Finance Minister presented a well articulated Energy Recovery Plan to the Cabinet in November 2011 which was approved after due deliberations.

The Plan focused on: (i) improving governance structure: it included dissolution of PEPCO and replaced by Central Power Purchase Authority, constituting new Boards of Directors (BODs) of 8 DISCOs and NTDC comprising professionals, issuance of explicit guidelines of professionalizing the BOD, hiring professional CEOs for DISCOs, GENCOs and CPPA, and business plans for each DISCO and GENCO to be developed by the newly hired CEO and approved by the new Board; (ii) Supportive legislative framework: NEPRA law was amended authorizing NEPRA to notify fuel adjustment, Cabinet has approved amendment making electricity theft a serious crime; (iii) Financial Sustainability of the System: the Government has increased electricity tariff by 90 percent and Rs. 1.25 per kwh very recently to recover the full cost of electricity supply which is still Rs. 3 per kwh below the determined tariff; (iv) Resolution of Circular Debt: the Government has provided Rs. 1122 billion from the budget during the last four years to resolve circular debt issue. However, extremely low collection than required (90 percent of the billed amount) by DISCOs always leaves a high balance as receivables; (v) Supply Side Management: reduction in transmission and distribution losses as well as running the most efficient plants; (vi) Demand Side Management: Standard Operating Procedure (SOP) issued for recovery of private receivables, a limit of 45 days for payment overdue has been set for disconnection, Loss mapping in each DISCO initiated to identify losses and their sources, Government facilitating recovery of dues of Provincial and Federal Government departments, and Media campaign for prudent use of electricity; (vii) Promoting Private Sector Participation (viii) changing fuel mix and (ix) changing energy mix moving towards hydel and coal based generation. In addition, the Government has launched a major


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energy conservancy program that includes two holiday a week, closing the markets at 8:00 pm, lighting alternate pole of the Municipalities and using air conditioners in offices after 11:00 p.m.

The contribution of Hydel in electricity generation increased to 33.6 percent in 2011. Karachi Electricity Supply Corporation (KESC) contributed 8.3 percent, Pakistan Atomic Energy Commission (PAEC) 3.6 percent, Kot Addu Power Company (KAPCO) 6.2 and the Hub Power Company (HUBCO) 9.1 percent to total electricity generation. Independent Power Producers (IPPs) have contributed almost 25 percent. The Government is implementing a number of priority hydel projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, and Patrind in the private sector. Almost 96 percent of the work on the main dam at Mangla, spillway and allied facilities are completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam have been completed. 7100 MW-Bunji, 4320 MW-Dasu, 80 MW Kurram Tungi Dam, 740-MW Munda Dam and 4500 MW-Diamer Bhasha Dam are in the pipeline. Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA-1000) electricity trade. In addition, a number of thermal projects are under implementation including 747 Guddu refurbishment.

Pakistan has huge coal reserves estimated at over 185 billion tones. Thus the long term trend shows that there was an increase of production of coal; an average 7.7 percent change occurred during the last ten years. Federal as well as Sindh Governments are actively pursuing to provide necessary infrastructure at Thar for exploiting these coal reserves for power generation. Two blocs have been leased out on pilot basis. Efforts are underway to provide the missing transmission link between Matiari and Thar.

The Government is also working on different gas pipelines as well as import of LNG and LPG to address the gas shortages. In this regard, Liquified Natural Gas (LNG) Policy 2011 has been notified which encourages private parties to develop LNG projects and sets them free to participate in any segment of the LNG value chain. The gas sector

supply increased by 4.9 percent in July-March 2011-12 as compared with the corresponding period of last year. The average production of natural gas during July-March 2011-12 was 4236.1 million cubic feet per day (mmcfd) as against 4050.6 (mmcfd) during the corresponding period of last year showing an increase of 4.6 percent.

Social Safety Nets: The government is committed to a sustained poverty reduction strategy and to allocate a minimum of 4.5 percent of GDP to social and poverty related expenditures. The government prioritized 17 pro-poor sectors through the Medium Term Expenditure Framework (MTEF) which provides a link between the policy priorities and the budget realties. Expenditure on pro-poor sectors in 2007-08 stood at 5.6 percent of GDP, 7.5 percent in 2008-09, 7.6 percent in 2009-10. Total expenditures in 2010-11 were 6.9 percent of GDP. This was first year of the 7th National Finance Commission Award when 70 percent of the divisible pool was transferred to the provinces as well as transition was taking place as a result of 18th amendment.

The floods of 2010 and heavy rains of 2011 significantly hurt the efforts to improve standard of living of the people. The floods and rains affected approximately 20 million people directly and a much larger proportion indirectly; the loss to infrastructure and livelihood sources further impacted the people of these areas.

The Benazir Income Support Programme, a flagship program of the Government, has made a remarkable progress by providing much needed relief to over 4 million recipients all over Pakistan. Over the last 4 years, BISP was provided over Rs. 178 billion out which Rs. 153 billion were contributed from domestic resources. A total amount of Rs. 122 billion has been disbursed to its recipients up to March 2012. The number of recipients is expected to be increased to 7 million once the on-going processing of data collected during the “nation-wide poverty scorecard targeting survey” is completed. BISP has launched a number of programmes including (i) Payment to Recipients, (ii) Graduation Initiatives, (iii) Waseela-e-Haq, (iv) Waseela-e-Rozgar, (v) Waseela-e-Sehat and (vi) Waseela-e-Taleem to

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mitigate the impact of stabilization program as well as inflation.

The Pakistan Poverty Alleviation Fund (PPAF) is yet another element of the country’s poverty reduction strategy. The PPAF is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization, and capacity building. The overall disbursements for core operations during the period of July- December 2012 were Rs. 8.5 billion.

Pakistan Bait-ul-Mal is making a significant contribution towards poverty reduction through its various services by providing assistance to destitute, widows, orphans, invalid, infirm and other needy persons irrespective of their gender, caste, creed and religion through its ongoing core projects/schemes. A total of Rs. 1.8 billion has been utilised upto February 2012 on schemes such as individual Financial Assistance, child support program, vocational schools, sweet homes etc.

After devolution of the subject of Zakat, the Provinces/Federal Areas are directly managing the distribution of Zakat to the beneficiaries. Zakat funds have been utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled for their subsistence and rehabilitation. Up to March 2012, a total amount of Rs.7.8 billion was distributed amongst the provinces and other administrative areas.

Peoples Works Programme (PWP) I & II are welfare programmes comprising small development schemes providing village electrification, gas, farm to market roads, education, health and other services to create jobs at the local level. PWP-I & II have been provided over Rs. 38 billion during 2011-12.

Employees Old Age Benefits Institution provides monetary benefits to the old age workers through various programmes such as the Old Age Pension, Invalidity Pension, Survivors Pension and Old Age Grants. During the period of July-March 2012, Rs. 8 billion has been disbursed to 350,485 beneficiaries.

Workers Welfare Fund is also facilitating the poor labourers in industrial sector by providing funds for housing facilities and marriage grant, death grant and scholarships etc. During (July-March) 2011-12, Rs. 2.5 billion has been incurred for these schemes. Government has also taken various micro-finance initiatives in collaboration with all stakeholders to generate employment opportunities and to eliminate poverty.

The Government has provided huge subsidies during the last four years to the vulnerable and poor to mitigate the impact of stabilization, floods and international prices. These include: Rs. 1122 billion for the power sector, Rs. 104 billion for the petroleum sector in addition to foregone income of Rs. 136 billion from Petroleum Levy by adjusting it downward to keep the petroleum prices lower than the international market, Rs. 110 billion on fertilizer and Rs. 137 billion for food items such as sugar, wheat and subsidized items through Utilities Stores. In addition, Federal Government provided Rs. 42 billion to the flood affectees through Watan Card as well as Citizens Compensation Damages Program.

Environment: Pakistan continued to face challenges to achieve environmentally sound development. This has become increasingly difficult to achieve in the backdrop of back to back flooding and rains across the country as well as other exogenous and endogenous factors. The quality of the natural environment is not only an extremely important issue from the point of view of individual survival but it will also emerge as one of the principal human security issues in Pakistan. The environmental challenges include climate change impacts, loss of biological diversity, deforestation and degradation of Air and Water quality.

A number of projects have been funded by the government to improve the capacity of relevant institutions to deal with increasing environmental degradation. In addition, there are a number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment of the country. Government efforts alone, because of the limited resources at its disposal, are not enough and demand a much larger participation and


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support from other stakeholders including industry, civil society, and the public at large as well as the donors. National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate.

The level of access to drinking water is quite impressive in Pakistan. According to Pakistan Bureau of Statistics report (PBS) Pakistan Social and Living Standards Measurement Survey 2010-11, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent, with an average of 87 percent in 2011. Sanitation facilities are also improving. According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, 92 percent people had access to drinking water by 2010 in Pakistan while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015.

Going forward, the government will continue to pursue policy of macroeconomic stability, growth and creating jobs, mobilizing domestic resources, incentivizing the private sector, and strengthening the social safety nets.

State of Economy in 2008

It is important to appreciate the state of economy inherited by the democratically elected Government and the challenges it faced as the Government presents 5th budget for the first time in the history of Pakistan.

By the time this Government assumed responsibilities in March 2008, a combination of large exogenous price shocks (oil and food), global financial turmoil, huge expenditure on security and policy lapses during the political transition had set a stage for full blown crisis. More specifically:

Real GDP growth slowed down in 2007-08 reflecting weaker performance of the agricultural and manufacturing sectors.

Headline CPI 12-month inflation rose to 25 percent in October 2008, with core inflation (excluding energy and food) increasing to 18 percent.

External current account deficit widened to about $14 billion or 8½ percent of GDP in 2007/08.

Fiscal deficit rose to 7.6 percent of GDP in 2007/08 mainly because of a substantial increase in energy and food subsidies and import prices

Gross reserves declined from $ 16 billion to $ 11 billion

Domestic pressures and the global financial crisis led to rising dollarization and an outflow of deposits from the system in 2008 which contributed to a deterioration of liquidity conditions

Karachi KSE-100 index dropped by one third, prompting the Karachi Stock Exchange Board to impose a floor on the decline of all stock prices on August 27, 2008.

The Government had no choice but to go to IMF to strengthen international reserves and ensure fiscal stabilization. Just when the economy was transitioning from stabilization to growth, Pakistan was struck by the great floods of 2010. It caused severe damages to infrastructure, roads, bridges, power stations, refineries, schools, hospitals, crops and livestock. A large number of human lives were

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lost. The total loss was estimated to be around $ 10 billion. It was followed by yet another spell of severe rains in Sindh and parts of Balochistan in 2011 causing a loss of additional $ 3 billion.

The security development in the country during 2008-09, particularly in the North-West, required beefing up of security forces and mobilization of additional resources to deal with the situation. In addition, humanitarian crisis spawned by the security situation displacing over 3 million people resulted in huge budgetary costs.

Achievements since FY2008

Inspite of huge challenges during the last four years including global economic contraction especially in the advanced economies, financial turmoil, great floods of 2010, extraordinary rains in 2011, persistently rising energy prices, continuing security situation, the Government succeeded in:

Maintaining macroeconomic stability by pursuing tight monetary policy and fiscal discipline

Revival of Growth: Economy is recovering from the floods and exogenous shocks and real GDP growth is estimated at around 3.7 percent on the back of pick up in agriculture and large scale manufacturing growth as compared to 3 percent last year

Inflation: Average inflation seems remain close to the targeted 11 percent, declining from the peak of 25 percent

External Sector: Pakistan’s external account registered an unexpected improvement during FY11 providing much needed breathing space to the economy. The exports surged to $ 25.4 billion showing a growth of 28.4 percent whereas the imports registered an increase of 14.7 percent. As a result, the trade deficit, which had been a major factor in the deterioration of the external account in the past, remained in check, and contracted by 8.7 percent as compared to the preceding year. FY11 current account balance posted a small surplus of $ 0.3 billion as

compared to 8.5 percent deficit in 2008. This year, exports have maintained last year trend during July-April 2012 despite adverse global environment

Strong flow of remittances: The rising trend in remittances continued for the fourth consecutive year in FY12 as remittances are estimated close to US$ 13 billion as compared to $ 6.2 billion in FY08

Build up of Foreign Exchange Reserves: The improvement in the overall external balance despite the contraction in financial account surplus helped build up foreign exchange reserves during FY11. Thus, by the end of June 2011, Pakistan’s overall foreign exchange reserves stood at a record level of US$ 18.2 billion. Currently, these are at $ 16.4 billion despite repayment to the IMF as well as discharging all our obligations

Several New Initiatives of the Government

This Government has undertaken several new initiatives during the last four years. The most significant initiatives include:

7th National Finance Commission Award: The Award was path-breaking as (i) it moved away from population as the sole basis for horizontal distribution of resource and gave due weightage to population, poverty/ backwardness, revenue collection, revenue generation and inverse population density; (ii) it increased share of Balochistan to 9.09 percent (iii) 70 percent share of the divisible pool is now being transferred to the Provinces and Special Areas (iv) transfer to the provinces increased from Rs. 633 billion in FY10 under 6th NFC Award to Rs. 999 billion in FY11 and Estimated Rs. 1,204 billion in FY12

18th Amendment in the Constitution abolishing the concurrent list and transfer of 17 federal ministries to the provinces

Autonomy to Gilgit-Baltistan

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Additional Resources to less developed areas in 4 years: It included (i) Rs 32 billion to Gilgit-Baltistan in 2 years (ii) Rs 71 billion to AJK and (iii) Rs 110 billion to FATA

Public Sector Development Program: PSDP over a period of 4 years was Rs 2.2 trillion. Current year’s PSDP outlay is Rs 730 billion as compared to Rs 480 billion last year. It was spent to complete 657 projects in 4 years

Peoples’ Works Program: Rs 130 billion were earmarked under Peoples Works Program-II (Rs 110 billion) and Rs 20 billion under PWP-I in 4 years for implementation of hundreds of schemes for electrification, gas supply, road, water supply and sanitation

Citizens’ Damages Compensation Program: Federal Government provided Rs 42 billion to the flood affectees

Subsidies: Over the 4 years, Government has provided so far (i) over Rs 1122 billion towards tariff differential subsidy to maintain the notified tariff lower than the determined tariff (ii) Rs 104 billion in petroleum subsidy (iii) Rs 110 billion for fertilizer subsidy and (iv) Rs 137 billion in food subsidy. In addition, the Government lost Rs 136 billion in revenue by adjusting the petroleum levy downward

Benazir Income Support Program: Additional resources of Rs 178 billion allocated for disbursement through BISP to vulnerable groups including Rs 153 billion from the budget

Benazir Employees Stock Option Programme: Under this scheme, 12 percent shares of 80 State Owned Enterprises were transferred to 500,000 employees of those SOEs making them shareholder

Internship Program: The Government also provided 100,000 internship to Master degree holders paying them Rs 10,000 per month

Railways: Railway was provided Rs 119 billion over the last 4 years; Rs 85 billion under current budget and Rs 34 billion for development budget

Energy Sector: Government injected professionalism in power sector by restructuring Board of Directors of some PSEs, initiated alternate energy program, put hard budget constraint and resolved circular debt issue partially

Tax Simplification: The government took many steps to (i) simplify the taxation system (ii) minimum tax slab increased from Rs 100,000 to Rs 350,000 (iii) expanding the tax base by bringing new tax payers in the net (iv) improve the tax administration (v) Special Excise duties were eliminated (vi) gradual elimination of federal excise duty (vi) abolishing regulatory duties on 392 items (vii) elimination of zero ratings on key sectors

Doubling the FBR Tax Revenues: As a result of these efforts, FBR revenue has moved from Rs 1 trillion in 2007-08 to around Rs 2 trillion in 2011-12.

Pakistan Economic Survey

2011-12

Economic Adviser’s Wing, Finance Division, Government of Pakistan, Islamabad.

Contents

1. Growth and Stabilization ..................................................................................................... 1

2. Agriculture ........................................................................................................................... 2

3. Large Scale Manufacturing .................................................................................................. 3

4. Fiscal Development ............................................................................................................. 4

5. Money and Credit ................................................................................................................ 5

6. Capital Markets .................................................................................................................... 6

7. Inflation ................................................................................................................................ 7

8. Trade and Payments ............................................................................................................. 7

9. Public Debt .......................................................................................................................... 8

10. Education ............................................................................................................................. 8

11. Health and Nutrition ............................................................................................................ 9

12. Population, Labour Force and Employment ....................................................................... 10

13. Transport and Communications .......................................................................................... 11

14. Energy ................................................................................................................................. 14

15. Social Safety Nets ............................................................................................................... 15

16. Environment ........................................................................................................................ 16

17. Flood Impact Assessment ................................................................................................... 17

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HIGHLIGHTS


Real GDP growth for 2011-12 has been estimated at 3.7 percent as compared to 3.0 percent in the previous fiscal year 2011.

The commodity producing sector has performed much better in outgoing fiscal year as compared to last year; its growth rate is 3.28 percent against 1.47 percent last year.

Agriculture registered the growth of 3.13 percent against 2.38 percent last year.

Major Crops registered an accelerating growth of 3.18 percent compared to a negative growth of 0.23 percent last year. The major crops including Cotton, Sugarcane and Rice witnessed growth in production of 18.6 percent, 4.9 percent and 27.7 percent respectively. However, Wheat registered a negative growth of 6.7 percent mainly due to 2.6 percent decline in area under cultivation, sowing was also delayed because of late receding rain water in lower Sindh which resulted in a decline in both the acreage as well as the yields.

Minor Crops growth declined by 1.26 percent, due to rains affect in Sindh resulted in destruction of minor crops.

Livestock witnessed a marginally higher growth of 4.04 percent against the growth of 3.97 percent last year.

Fisheries sector witnessed a growth of 1.78 percent against the growth of 1.94 percent last year.

Forestry recorded growth at 0.95 percent as compared to the contraction of 0.40 percent last year.

Industrial sector contains 25.4 percent of GDP having sub sectors: manufacturing, construction, mining & quarrying and electricity and gas distribution.

Manufacturing Sector registered growth at 3.56 percent compared to the growth of 3.06 percent last year.

Small scale manufacturing maintained its growth of last year at 7.51 percent and slaughtering growth is estimated at 4.46 percent against 4.38 percent last year.

Large Scale Manufacturing has also witnessed a slight improvement. It has shown a growth 1.05 percent in July-March 2011-12 as against 0.98 percent last year.

Construction Sector has shown 6.46 percent growth as compared to negative growth of 7.09 percent in last year.

Mining and Quarrying sector recorded positive growth of 4.38 percent during the year 2011-12 against the negative growth of 1.28 percent last year.

Electricity and gas distribution witnessed a growth of -1.62 percent against the growth of -7.25 percent last year.

The Services sector has registered a growth rate of 4.02 percent in 2011-12 against the growth of 4.45 percent in the last year. This performance is dominated by Finance and

Highlights of the Pakistan Economic Survey 2011-12

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Insurance at 6.53 percent, Social and Community Services 6.77 percent and Wholesale and Retail Trade 3.58 percent. The contribution of transport, storage and communication is estimated at 1.25 percent.

Private consumption expenditure has increased to 75 percent of GDP; whereas public consumption expenditures is 13 percent of GDP. Total consumption has reached 88.35 percent of GDP in fiscal year 2011-12 as compared to 83 percent in the last fiscal year.

Real private consumption grew at 11.6 percent in 2011-12 as compared to 3.7 percent last year. Whereas, real government consumption grew at 8.2 percent in 2011-12 as compared to 5.2 percent last year.

Per capita real income grew at 2.33 percent in 2011-12 as compared to 1.33 percent growth in last year. In dollar term it increased from $ 1258 to $ 1372 in 2011-12.

Total investment has declined from 13.1 percent of GDP to 12.5 percent of GDP in 2011-12 as compared to last year.

Fixed investment has declined to 10.9 percent of GDP in 2011-12 from 11.5 percent of GDP as compared to last year.

Private investment witnessed a contraction of 7.9 percent of GDP in 2011-12 as compared to 8.6 percent of GDP last year.

Public investment as a percent of GDP increased to 3.0 percent in 2011-12 against the 2.9 percent last year.

National Savings are 10.7 percent of GDP in 2011-12 as compared to 13.2 percent in 2010-11.

Foreign Direct Investment in Pakistan stood at $ 666.8 million during July-April 2011-12 as against $ 1292.9 million last year.

Worker’s Remittances has increased to $ 10,876.99 million in July-April of 2011-12, as against $ 9,046.61 million in the comparable period of last year, posted a positive growth of 20.23 percent.

Agriculture

The agriculture growth this year stood at 3.1 percent as compared to 2.4 percent during 2010-11.

Cotton production has increased to 13,595 thousand bales in 2011-12 from 11,460 thousand bales in 2010-11 showing an increase of 18.6 percent.

Wheat production has decreased to 23,517 thousand tons in 2011-12 from 25,214 thousand tons in 2010-11 showing a decrease of 6.7 percent.

Rice production has increased to 6,160 thousand tons in 2011-12 from 4,823 thousand tons in 2010-11 showing an increase of 27.7 percent.

Sugarcane production has increased by 4.9 percent to 58.0 million tons in 2011-12 from 55.3 million tons last year.


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Gram production has decreased to 291 thousand tons in 2011-12, from 496 thousand tons in 2010-11 showing a decrease of 41.3 percent.

Maize production has increased to 4,271 thousand tons in 2011-12 from 3,707 thousand tons in 2010-11, showing an increase of 15.2 percent.

In minor crops, the production of mung and potatoes increased by 22.0 percent and 17.5 percent, respectively. However, the production of chillies, onion and masoor decreased by 78.3 percent, 15.4 percent and 12.8 percent, respectively.

Agriculture credit disbursement of Rs. 197.4 billion during July-March 2011-12 is higher by 17.0 percent, as compared to Rs. 168.7 billion over the same period last year.

The total availability of urea during Rabi 2011-12 was 3,526 thousand tonnes comprising of domestic production 2,160 thousand tonnes and imported supplies of 1,202 thousand tonnes.The total offtake was 2,710 thousand tonnes, leaving a stock of 800 thousand tonnes for next season. Likewise the total estimated availability of urea during Kharif 2012 will be around 3487 thousand tonnes comprising 800 thousand tonnes of opening stock, 2280 thousand tonnes of domestic production and 407 thousand tonnes of imported supplies.The total offtake is estimated around 3200 thousand tonnes during Kharif 2012 leaving a stock around 287 thousand tonnes.

The Rabi 2011-12 started with 224 thousand tonnes of DAP as opening stock. The total availability of DAP was 758 thousand tonnes including 271 thousand tonnes of imported supplies and 263 thousand tonnes of domestic production. The offtake of DAP during Rabi 2011-12 was about 572 thousand tonnes leaving behind 177 thousand tonnes of opening stock for Kharif 2012.Likewise estimated DAP availability during Kharif 2012 will be around 838 thousand tonnes comprising 177 thousand tonnes of opening stock, 361 thousand tonnes of domestic production and 300 thousand tonnes of imported supplies. The estimated demand is around 620 thousand tonnes during Kharif 2012, which reflects comfortable situation.

Large Scale Manufacturing

During the first nine months of the current fiscal year 2011-12, Large Scale Manufacturing (LSM) posted a growth of 1.05 percent as compared to growth of 0.98 percent during the same period last year.

The groups wise showing increase included: Pharmaceutical (10.9 percent), Paper and Board (8.4 percent), Wood Product (7.4 percent), Food Beverages and Tobacco (6.5 percent), Non-metallic mineral Products (2.9 percent), Leather Product (1.8 percent) and Textile (0.8 percent).

Items wise contribution in Large Scale Manufacturing indicates growth in Generating Sets (143.9 percent), Blankets (109.9 percent), Electric Transformer (31.2 percent), Heavy Machinery & equipments (21.0 percent), Sugarcane Machine (19.2 percent), Sugar (15.3 percent), Liquids/Syrups (14.1 percent), Tea blended (13.3 percent), Tablets (10.7 percent), Jeeps & Cars (8.8 percent), Footwear (6.2 percent), LPG (3.4 percent), Cement (2.9 percent) and Sugar (15.3 percent).


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Automotive Industry such as Buses, Cars, LCVs and two/three wheelers managed significant growth at 23 percent, 9.1 percent, 5.7 percent and 3.1 percent respectively as compared to -24.7 percent, 16.4 percent, 23.3 percent and 12.6 percent during the same period last year.

Mining and quarrying sector 4.4 percent in 2011-12 as against -1.3 percent last year. The main contribution to this modest performance came from Chromite, Flourite, Bauxite, Chalk and Natural gas which posted a positive growth of 591.5 percent, 111.3 percent, 82.2 percent, 82.2 percent and 4.0 percent respectively during the current financial year.

Fiscal Development

Fiscal deficit is recorded at 5.0 percent during July-March 2011-12 as compared to 5.5 percent last year.

The government is focused on prudent expenditure management and better resource mobilization to create fiscal space for providing support to growth. Additional efforts are being made to manage the fiscal deficit within the acceptable level through austerity measures and reforms in public sector enterprises.

The government has also announced various tax policy measures through Presidential Ordinance to generate additional revenues. Through a combination of Presidential Ordinance and withdrawal of SRO base exemptions, amendments have been made in the Sales Tax Act 1990, Income Tax Ordinance 2001 and Federal Excise Act 2005.

The following tax measures have been taken through these amendments:-

i. Levy of 15 percent surcharge on income and advance taxes

ii. Increase the rate of special excise duty from 1 percent to 2.5 percent, however Special excise duty was abolished in 2011-12.

iii. Withdrawal of special regime of assessable price for levy of GST at 8 percent on actual value of sugar.

iv. Removal of SRO based exemptions from fertilizer, pesticides, tractor and elimination of zero rating from plants, machinery and equipment.

v. Restriction of zero rating to registered person for export of textile, leather, carpets, sports goods and surgical goods.

vi. The withdrawal of exemptions and the left over amount of 15 percent flood relief surcharge contributed an additional amount of around Rs 50 billion during July-March, 2011-12.

Tax collection by the FBR was targeted at Rs 1952.3 billion for fiscal year 2011-12. Revenue

collections of FBR stood at Rs 1426.0 billion during July-April 2011-12, thereby reflecting 24.0 percent growth over Rs 1149.8 billion collected during the corresponding period last year. Among the four federal taxes, the highest growth 33.7 percent has been recorded in sales tax receipts, followed by customs 17.7 percent, and direct tax 22.6 percent. It does not include Rs. 19 billion collected by Sindh province on GST on Services.


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For July-April, 2012, direct taxes have been a major source of FBR tax revenue collection, contributing 37.0 percent of total receipts. Net collection was estimated at Rs. 528.9 billion.

Indirect taxes grew by 24.9 percent during July-April, 2012 and accounted for 62.9 percent of the total FBR tax revenue. Net collection was estimated at Rs.897.2 billion.

Total expenditure of Rs. 3721.2 billion was estimated for the full year, comprising of Rs. 2976.3 billion of current expenditure (80% of total), and Rs. 744.9 billion of development expenditure and net lending (20 % of total).

During July-March, 2011-12 total expenditures amounted to Rs 2641.9 billion against Rs 2262.6 billion in the same period last year. Current expenditures stood at Rs 2154.1 billion and development expenditures and net lending recorded at Rs 428 billion during July-March, 2011-12.

Total revenues reached to Rs 1747.0 billion during July-March, 2011-12 against Rs 1495.3 billion in the same period of last year. Within Revenues tax revenues stood at Rs 1379.2 billion including Rs. 1,321.5 billion of Federal and Rs 57.6 billion of provinces, and non tax revenues remained at Rs. 367.9 billion during the same period of fiscal year 2011-12.

Money and Credit

SBP lowered the discount rate by cumulative 200 bps points to 12 percent during first half of fiscal year 2011-12, to assist in boosting the private sector credit and investment.

Broad Money (M2) witnessed an expansion of 9.09 percent during July-11th May, 2011-12 as compared to 11.47 percent during the same period in 2010-11.

Net Domestic Assets (NDA) during July-11thMay, 2012 stood at Rs 880.9 billion against Rs 481.6 billion during the same period last year, reflecting an increase of 14.89 percent over the last year.

On the other hand Net Foreign Assets (NFA) of the banking system during the period under review declined to Rs 272.2 billion as compared to an increase of Rs 181.1 billion in the same period of 2010-11.

The credit to private sector witnessed a net increase of Rs. 234.8 billion during July 2011-11thMay, 2012 as compared to Rs 107.8 billion in the same period last year.

The weighted average lending rate (including zero mark-up) on outstanding loans stood at 12.80 percent while the weighted average deposit rate (including zero mark-up) stood at 6.98 percent in March 2012.

Government borrowing from the banking system for budgetary support and commodity operations stood at Rs 1,003.3 billion during July-11thMay, 2011-12 as compared to Rs. 506.5 billion in the comparable period of the last year. Government has borrowed Rs.442.3 billion from the State Bank of Pakistan, while Rs 642.1 billion borrowed from the scheduled banks.

During July 2011-11th May, 2012 loans for commodity finance registered a net retirement of Rs 81.6 billion against the retirement of Rs 101.1 billion in the same period of fiscal year 2010-11. The retirement was primarily concentrated in the second quarter of fiscal year


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2011-12 as the government released Rs 78 billion to procurement agencies for the settlement of accumulated subsidies.

During July 2011-11thMay, 2012 credit to public sector enterprises registered a sharp decline from Rs 10.6 billion in 2010-11 to Rs 142.6 billion.

Capital Markets

The Pakistan Stock Markets remained range bound during first half with predominately declining trend (9.2 percent). However, the KSE -100 index resumed momentum during the 3rd and 4th quarters of the FY 12.

The robust performance of Pakistani stock markets during 2nd half of 2011-12 was due to certain encouraging measures like considerable reduction in discount rate by the central bank during later period of the first half of CFY and increase in foreign exchange reserves. Further, the market sentiment was boosted by the promulgation of the Capital Gain Tax Ordinance.

Under the CGT Ordinance the National Clearing Company of Pakistan Limited (NCCPL) has been appointed as an intermediary entity to compute, determine, collect and deposit the CGT on listed securities. In addition, no question relating to the source/nature of money will be asked by the tax authorities if the money remain invested in the stock market for a period of 45 days (till June 30, 2012) and 120 days (till June 30, 2014) before and after the promulgation of CGT Ordinance.

The investment by foreign investors in the capital markets during the period from July, 2011 to March, 2012 depicted a net outflow of US$ 176.303 million. This reflects that present bullish sentiments in the equity markets are due to restoration of the confidence of the local investors.

The Pakistani Stock markets performed well during the current fiscal year as compared with the other world indices. This was mainly due to the steps taken by the current government to boost the confidence of the equity market investors which includes reforms in the Capital gains tax, etc.

The Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012, was promulgated with the signing of the bill by the President of Pakistan on May 7, 2012. The demutualization bill was approved on March 27, 2012, in a joint session of the Parliament.

The demutualization law provides a framework for the corporatization, demutualization and integration of the stock exchanges. The law requires the stock exchanges to be demutualized within 119 days of its promulgation in line with pre-defined timelines specified for completion of various milestones involved in the demutualization exercise.

The government conducted seven auctions of Pakistan Investment Bonds (PIBs) during 2011-12 (Jul-Mar) raising Rs. 159.246 billion.

During the period July - March, 2012 a total of six debt securities were issued through private placement including two Sukuk Issues of Rs.108.393 billion by Pakistan Domestic Sukuk Company Limited.


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In one of the major moves towards the development of a vibrant debt market in Pakistan, the Securities and Exchange Commission of Pakistan has recently approved notification of the Debt Securities Trustee Regulations (DST Regulations). The main objective of the DST Regulations is to protect the interests of debenture holders.

Inflation

The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 10.8 percent during (July-April) during current fiscal year 2011-12, against 13.8 percent in the comparable period of last year.

The food inflation on average basis is estimated at 11.1 percent and non-food 10.7 percent, against 18.8 percent and 10.8 percent in the corresponding period of last year.

The rise in non-food inflation has resulted from the upward adjustment in energy, gas, electricity and fuel prices.

Core inflation is estimated at 10.4 percent during July-April 2011-12.

The Wholesale Price Index (WPI) during July-April, 2011-12 on annual average basis has recorded at 11.2 percent against 21.0 percent last year.

The Sensitive Price Indicator (SPI) recorded at 8.5 percent during July-April, 2011-12 against 18.1 percent of last year.

The increase in overall inflation has driven by rise in world commodity and fuel prices, disruption in domestic supply chain by the floods.

However, inflation has been contained during current fiscal year as compared to last year due to tight monetary policy, better supply management and regular monitoring of prices and supply chain by the Cabinet and National Price Monitoring Committee.

Trade and Payments

In absolute terms, exports have increased from $20460 million in July-April 2010-11 to $ 20474 million in the period thereby witnessing a growth of 0.1 percent during the first ten months (July-April) of the fiscal year 2011-12.

Imports during the first ten months (July-April) of the fiscal year 2011-12 increased by 14.5 percent compared with the same period of last year, reaching to $33.15 billion.

Worker’s Remittances reached to $ 10877 million during July-April 2011-12 as against $ 9046 million in the comparable period of last year, depicting an increase of 20.2 percent.

Current Account Deficit stood to $ 3394 million in July-April 2011-12.

Services account deficit reached to $ 2,347 million during July-April 2011-12 as compared to $ 1,225 million during the same period last year.

Financial Account surplus during July-April 2011-12 stood at $ 1200 million as compared to $ 690 million in corresponding period last year.

Exchange rate of Pak Rupee depreciated by 3.4 percent during July-April 2011-12.


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Foreign Exchange Reserves stood at $ 16.5 billion at the end of April, 2012. Of which, reserves held with the State Bank of Pakistan stood at $ 12.04 billion and by banks $ 4.45 billion.

Public Debt

During first nine months of current fiscal year (2011-12), total public debt registered an increase of Rs.1,315 billion and stood at Rs.12,024 billion.

Public debt as a percent of GDP stood at 58.2 percent by end-March 2012 as compared to 55.5 percent of GDP during the same period last year.

The bulk of the increase in public debt in the first nine months of 2011-12 has been recorded under domestic debt that accounted for 91 percent of the total increase.

The total domestic debt is posted at Rs 7,206.9 billion at the end-March 2012; representing an increase of Rs.1,190.5 billion in the first nine months of the current fiscal year.

The domestic debt grew by 19.8 percent in first nine months of current fiscal year. The focus on deficit financing through internal sources owing to lower external receipts has been the major cause.

As at the end of March 2012, servicing of the public debt stood at Rs.719 billion against the budget amount of Rs.1034.2 billion.

Domestic debt comprises permanent debt, floating debt and unfunded debt having shares of 21.6 percent, 54.5 percent and 23.9 percent respectively in total domestic debt.

Pakistan External Debt and Liabilities (EDL) stock was recorded at $60.3 billion as of March 2012. During July-March 2012, $179 million was added to the EDL stock.

As a percentage of GDP in dollar terms, the EDL was down by 200 basis points in July-March, 2012 compared to fiscal year 2010-11 (28.5 percent) and approximately to 26.5 percent.

Education

According to the Pakistan Social and Living Standard Measurement (PSLM) Survey 2010-11 and last PSLM 2008-09, the literacy rate for the population (10 years and above) is 58 percent during 2010-11, as compared to 57 percent in 2008-09 . Literacy remains much higher in urban areas than in rural areas and much higher for men than for women. Province wise data suggest that Punjab leads with 60 percent literacy followed by Sindh with 59 percent, Khyber Pakhtunkhwa with 50 percent and Balochistan with 41 percent.

The Gross Enrolment Rates (GER) at the primary level excluding katchi (prep) for the age group 5-9 years at National level during 2010-11 increased slightly to 92 percent from 91 percent in 2008-09. Amongst the provinces, Punjab shows a marginal increase from 97 percent in 2008-09 to 98 percent in 2010-11. Sindh remained stable with 84 percent, Khyber Pakhtunkhwa improved from 87 percent to 89 percent and Balochistan declined slightly from 75 percent to 74 percent in 2010-11


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The Net primary level enrolment rates at the National/Provincial (excluding katchi abadies) level for the age group 5-9 years. The NER at the National level during 2010-11 slightly decreased to 56 percent from 57 percent in 2008-09. Punjab shows a decrease from 62 percent in 2008-09 to 61 percent in 2010-11. Sindh also shows decrease from 54 percent to 53 percent in 2010-2011, Khyber Pakhtunkhwa witnessed a decrease from 52 percent to 51 percent and Balochistan improved from 44 percent in 2008-9 to 47 percent in 2010-11

The overall number of enrolments during 2010-11 were 39900.3 thousands as compared to 38202.0 thousands during the same period last year. This shows an increase of 4.4 percent. It is estimated to increase to 41596.5 thousands during 2011-12. The number of institutes stood at 227.8 thousand during 2010-11 as compared to 228.4 thousand during the same period 2009-10. However, the number is estimated to increase to 228.3 thousand during 2011-12. The number of teachers during 2010-11 were 1409.4 thousand as compared to 1386.1 thousand during the same period 2009-10 showing an increase of 1.7 percent. This number is estimated to increase further to 1445.0 thousand during the year 2011-12.

A total of 134,118 youth received vocational and technical training under the President’s Funni Maharat Programme and Prime Minister’s Hunermand Pakistan Programme.

HEC is also playing its role in running different scholarship programmes to enhance the academic qualification at various levels on merit basis in line with requirement. During the period 2008-12 a number of 3996 scholarships were awarded under different programmes,3572 scholars proceeded to avail these programmes on merit basis and a number of 1650 scholars completed their studies.


At present, there are 972 hospitals, 4,842 dispensaries, 5,374 basic health units and 909 maternity and child health centres in Pakistan.

With availability of 149,201 doctors, 10,958 dentists, 76,244 nurses and 108,137 hospital beds in the country during 2011-12 compared to 144,901 doctors, 10,508 dentists, 73,244 nurses and 104,137 hospital beds last year, the population and health facilities ratio worked out 1,206 persons per doctors, 16,426 persons per dentist and 1,665 persons per hospital bed.

During 2011-12, 30 basic health units and 7 rural health centres have been constructed, while 15 rural health centres and 35 basic health units have been upgraded.

4,300 doctors, 450 dentists, 3,000 nurses and 4,500 paramedics have completed their academic courses and 4,000 new beds have been added in the hospitals.

9,500 Lady Health Workers (LHWs) have been trained and deployed mostly in the rural areas. Moreover, some 7 million children have been immunized and 20 million packets of ORS has been distributed.

In addition to ongoing various health programmes such as cancer treatment, AIDS prevention, Malaria Control Programme, this year special focus was given by Federal as well as Provincial Government to “Dengu Epidemic Control Programme”.


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The total outlay of health sector is budgeted Rs.55.1 billion which included Rs.26.2 billion for development and Rs. 28.9 billion for current expenditure which is equivalent to 0.27 percent of GDP during 2011-12 as compared to 0.23 percent in 2010-11.


Population of Pakistan is estimated 180.71 million during the year 2011-12. Population Growth Rate is 2.03 percent in 2011-12 while it was 2.05 percent in 2010-11

Urban population has increased to 67.55 million from 65.3 million in 2010-11 while rural population has increased to 113.16 million from 111.82 million in 2010-11

Total Fertility Rate (TFR) reported 3.4 children per women in 2011-12 as compared to 3.5 in 2010-11.

Contraceptive Prevalence Rate has decreased from 30 percent to 27 percent in 2011.

Life Expectancy rate has increased from 65.8 years to 66.1 years for female and 63.9 years to 64.3 years for male in 2011-12

Crude Birth Rate has improved from 27.5 per thousand to 27.2 per thousand and Crude Death Rate has decreased from 7.3 per thousand to 7.20 per thousand in 2011-12.

Infant Mortality Rate decreased to 69.0 per thousand in 2011-12 from 70.5 per thousand in 2010-11.

The total labour force has increased from 56.33 million in 2009-10 to 57.24 million in 2010-11.

The minimum wage of labour has been increased to Rs. 8,000 from Rs. 7,000 as announced by the Prime Minister of Pakistan on 1st May, 2012.

The total number of people employed during 2010-11 was 53.84 million, 0.63 million more than the preceding year.

Total unemployment rate has increased from 5.6 percent in 2009-10 to 6.0 percent in 2010-11.

The number of unemployed people increased from 1.94 million to 2.1 million in Punjab, in Sindh from 0.57 million to 0.70 million in 2010-11. In KPK the situation is different the unemployed people decreased from 0.55 million to 0.53 million and in Baluchistan unemployed people also increased from 0.06 million to 0.07 million in 2010-11.The unemployment rate is high in Punjab as compared to other provinces while in KPK unemployment decreased.

Agriculture sector is the largest provider of employment to 45 percent of total labour force. The employment share by manufacturing sector has increased from 13.2 percent in 2009-10 to 13.7 percent in 2010-11. The share of wholesale and retail trade has decreased from16.3 percent to 16.2 percent while, the share of community/social and personal service sector decreased from 11.2 percent to10.8 percent in 2010-11.


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Informal sector employs 73.8 percent of total labour force in 2010-11as compared to 73.3 percent in 2009-10.The employment ratio in rural informal sector is (76.5 percent) is higher as compared to that in the urban sector (71.2 percent) in 2010-11.

The Government of Pakistan is making sincere efforts to boost overseas employment. The number of emigrant was 0.36 million in 2010 which has increased to 0.45 million in 2011 which include 0.20 million unskilled, 0.17 million skilled, 0.073 million semi skilled, 0.0030 million highly skilled and 0.0069 million highly qualified workers.


The roads in Pakistan carry over 96 percent of inland freight and 92 percent of passenger traffic and undoubtedly the backbone of Pakistan’s economy.

Pakistan’s current road network is about 260,000 km which caters services to eleven million vehicles of all type.

NHA road network is around 12,000 km, which is merely 4 percent of the overall road network but takes 80 percent of Pakistan’s commercial traffic.

NHA has completed 12 projects of flyovers, bridges, interchanges and road up gradation during the last one year at a cost of Rs 19.6 billion.

At present, 46 development projects having length of 2,985 km are ongoing at a cost Rs 245 billion in different sections/packages. These projects include construction of roads, river bridges, tunnels, flyovers, interchanges.

During the current financial year, NHA has launched/ awarded 16 new development projects covering a length of above 500 km inclusive construction of a number of bridges, flyovers and interchanges costing Rs. 70,951 million. NHA is simultaneously constructing 12 Bridges across the rivers. These are; on river Chenab 4, on rivers Sutlej 2, on river Swan 1 and 5 on river Indus.

Heavy rains and floods severely damaged the Transport and Communication system during last two years

Preliminary estimates indicate that road network approximately 8,385 km and 190 km railway lines were damaged including bridges and allied structures.

The telecommunication infrastructure includes damages to cellular sites, exchange centres, equipment, power system and supporting civil works is amounting to $1.9 million.

Ministry of Railways has also adopted a “Track Access Policy” for private sector participation to operate freight and passenger trains on Pakistan Railways infrastructure.

Ministry of Railways has created a “Real Estate Development and Marketing Company” as subsidiary of Ministry of Railways.

Six factories including Locomotive Factory Risalpur, Carriage Factory Islamabad, and four Concrete Sleeper Factories in Kohat, Khanewal, Sukkur and Kotri, are being corporatized for eventual privatization subject to approval of the government.


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Cabinet Committee of Restructuring has approved a restructuring framework for Pakistan Railways.

During the last financial year, 16 kms of track was rehabilitated on Pakistan Railways network besides doubling more than 15 kms of track.

Renovation of Khudian Khas, Usmanwala, Raiwind and Kanganpur railway stations was carried out at a cost of Rs. 24.0 million to improve facilities for the passengers.

52 new design passenger coaches were imported from China at a cost of Rs. 4.1 billion. Remaining 150 passenger coaches will be manufactured at Pakistan Railway Carriage Factory Islamabad by June 30, 2013. In addition, 22 passenger coaches have been rehabilitated at Pakistan Railway Carriage Factory Islamabad during last year.

A new dry port was set up at Prem Nagar near Raiwind industrial area, Lahore through Public Private Partnership at a cost of Rs. 494.0 million.

Pakistan International Airlines Corporation earned increased revenue amounting to Rs. 116.02 billion in year 2011 as compared to 107.0 billion last year. A purchase agreement of five Boeings 777 has been signed.

Two new destinations have been introduced during the year 2011: Karachi – Madina and Quetta – Zahedan

Three new routes were introduced during the year 2011: Peshawar - Kuala Lumpur, Sialkot–Riyadh and Sialkot–Dammam.

Karachi Port Trust handled cargo 27.8 million tones during the first 9 months of the current fiscal year.

The consolidated revenues of PNSC group during July-March 2011-12 were Rs. 6,640 million as compared to Rs. 6772 million last year.

The Corporation intends to acquire four vessels through commercial loan / joint venture-basis. Acquisition of two vessels is in process, while two more vessels will be acquired in next financial year.

Total cargo handled on Gawadar port up till now is 4.1 million tones while Gwadar Port earned total revenue since its start of operation amounting to Rs. 53.4 million.

Port Qasim Authority handled a cargo volume 19.7 million tones during July-March 2011-12.

The volume of import cargo during July-March 2011-12 stood at 14.7 million tones, and exports handled 4.9 million tones during July-March 2011-12.

Ministry of Communications has prepared a draft National Transport Policy which covers all modes of transport sectors i.e. (i) Roads, (ii) Railways, (iii) Ports & Shipping and (iv) Aviation. This policy also includes the National Transport Corridor Improvement Program (NTCIP). This programme has been launched in the country to revamp the whole transport sector including ports, roads, railway, aviation etc. and provides a frame work to develop and improve the North South corridor.

Teledensity of the country has increased by 68.3percent in April 2012, showing 6.7percent growth as compared to the previous year.


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Mobile penetration rose 64.9percent in 2011-12 against 60.4percent in 2010-11 which shows an improvement of 4.3 percentage points in total teledensity.

Due to mobile substitution, Fixed Local Loop teledensity has been declining over the years and it stands now at 1.93 percent compared to 2.1 percent last year showing a decrease of 0.17 percent.

Total mobile subscribers reached 118.3 million by the end of March 2012 as compared to 108.9 million last year.

Subscribers of Local Loop (FLL + WLL) reached at 5.93 million, out of which 3.10 million belong to FLL and 2.83 million belong to WLL.

Broadband subscribers reached 1.9 million at the end of February 2012.

Revenues of the telecom sector during the 2011-12, standing at Rs. 363 billion compared to the last year 344.2 billion show an increase of 5.4 percent.

In 2011, telecom sector invested US$ 495.8 million with cellular mobile sector being the major contributor.

In 2011, telecom sector attracted over US$ 79 million Foreign Direct Investment (FDI) in the country which is about 5 percent of the total FDI landed in Pakistan in 2011. Auction of 3G licenses is expected which will bring more FDI in the country.

The Pakistan Telecommunication Authority and the State Bank of Pakistan have signed a Memorandum of Understanding (MoU) both the institutions have shown their interest and commitment in stimulating mobile banking services in the country.

There has been a cumulative investment of approximately US $ 2.5 billion in the electronic media industry in Pakistan. New jobs to more than 200,000 people of diversified skills and qualifications have been provided. In addition, over seven million people have been accommodated through indirect employment. With the current growth rate of more than seven percent per annum, it is estimated that the cumulative investment in the electronic media industry will reach above $ 3.0 billion by the end of the current financial year.

PBC External Services, broadcast programmes for 08 hrs daily in 11 foreign languages covering Afghanistan, Iran, China, India, Bangladesh, Nepal and Sri Lanka.

Central Production Units (CPU) produce music, drama, features, documentaries and programmes for special occasions. CPU has over 2 million minutes recording in its archives which are being digitized.

PBC News is putting on air 117 News bulletins daily. These include National, Regional, External and Local News bulletins besides resume of National Assembly and Senate. PBC news launched broadcast FATA News, special news bulletins from PBC Hyderabad on rain/ flood situation and ongoing rescue and relief activities in Urdu and Sindhi languages.

Pakistan Post provides services through a network of 12,035 (1,797 urban and 10,238 rural) post offices across the country.

Money Orders of Benazir Income Support Programme amounting to Rs.16,642.0 million have been paid within prescribed period of time.

55 Small and Smart Express Centres have been set up in the urban areas.


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During the period July-March 2011-12 an amount of Rs. 160,266.9 million has been collected through National Savings Schemes and earned commission amounting to Rs. 801.3 million during this period.

Energy

Primary energy supply during current year is 64.52 million TOE compared to 63.09 million TOE last year thus showing an increase of 2.3 percent. The availability of energy per capita in 2011 remained 0.372 Tone Oil Equivalent TOE compared to 0.371 Tone Oil Equivalent (TOE) in 2010 posting a positive growth rate of 0.16 percent.

The average crude oil production during July-March 2011-12 remained 66032 barrels per day as against 65997 barrels per day during the corresponding period of last year, showing an increase of 0.05 percent.

The industrial sector had shown positive growth of 24.2 percent in the consumption of petroleum products during July-March 2011-12 when compared with last year,.

Transport sector surprisingly showed a relative small growth of 3.5 percent in the consumption of petroleum products as consumption of petroleum product in transport sector remained 6,832.9 million tones during July-March 2011-12 compared to 6,599.1 million tones during corresponding period last year.

The consumption of petroleum products in the power sector was 8,139 million tones compared to 8,814 million tones last year which hampered the growth in this sector, thus posting negative growth of 5.2 percent in this sector.

The gas sector supply increased by 4.9 percent in July-March 2011-12 as the average production of natural gas was 4236.06 million cubic feet per day (mmcfd) during this period while it was 4,050.83 million cubic feet per day (mmcfd) in corresponding period last year.

Natural gas in the form of CNG posted a positive growth 10.8 percent during July-March 2011-12.

The contribution of Hydel in electricity generation increased to 33.6 percent in 2010-11. Water and Power Development Authority (WAPDA) remained the main contributor to electricity generation with 48.7 percent coming from this source. Karachi Electricity Supply Corporation (KESC), Pakistan Atomic Energy Commission (PAEC), Kot Addu Power Company (KAPCO) and the Hub Power Company (HUBCO) have 8.3, 3.6, 6.2 and 9.1 percent, respectively. Independent Power Producers (IPPs) have contributed almost 25 percent.

WAPDA is executing, on priority basis, the projects such as 969 MW-Neelum Jhelum, 1410 MW-Tarbela 4th Extension, 7100 MW-Bunji, 4320 MW-Dasu, 740-MW Munda Dam and most mentionable 4500 MW-Diamer Bhasha Dam projects, to cope with the increasing demand of power.

Almost 96 percent work on the main dam at Mangla, spillway and allied facilities had been completed and resettlement work is in progress. Likewise 99.7 percent work on Satpara and 72.1 percent on Gomal Zam dam has been completed.


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Pakistan is one of the beneficiaries of Tetra-partner power import project under the head of Central Asia-South Asia (CASA-1000) electricity trade.

The household sector consumed 44 percent of the total electricity generated followed by industrial (26 percent), government (12.3 percent), agriculture (10.4 percent) and commercial (6.8 percent) during July-March 2011-12.

The major users of coal are the cement sector and brick kilns; about 60 percent of total coal is consumed by cement while 39 percent is consumed by the brick kiln industry during current year as compared to 62 percent consumption of coal in cement industry and 37 percent in brick kiln industry last year.

Alternative Sources of Energy

• National Grid Code for wind power projects has been amended. Grid Integration Plan 2010 -2015 for wind power projects is developed by AEDB to support National Transmission and Dispatch Company (NTDC).

• Productive Use of Renewable Energy (PURE) Project is being implemented to install 103 hydro power plants in Khyber Pakhtunkhwa (KPK) and Gilgit Baltistan (GB), with the total cost of US$ 19.5 million.

• AEDB has initiated a program with the assistance of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) to assist the provinces to solicit private investments in small hydro sector; under this program pre-feasibility study for 25 hydro sites in AJK, Sindh, Punjab and KPK with the cumulative capacity of 284.14MW has been completed. Public sector Hydro power projects are initiated in (a) KPK (worth U$ 150.99 Million, of 17.0MW, 36.6MW and 2.6 MW), (b) Punjab (worth U$ 138.74 Million, of 5.38MW, 4.04MW, 2.82MW, 4.16 MW and 7.64MW) and (c) Gilgit Baltistan (worth U$ 71.12 Million, of 26MW and 4MW.

• AEDB has issued a LoI to set up a 12MW Biomass to Energy power project in Sindh, based exclusively on Biogas / Agricultural Waste. The project is jointly sponsored by investors from US and local entrepreneurs, the SSJD Bio Energy. Another LoI has been issued to M/s Lumen Energia Pvt Ltd. to set up a 12MW power plant at Jhang based on agricultural waste like cotton stalk, rice husk, sugarcane trash, biogas, wheat chaff and other crops as multi-fuel sources

• Three thousand Solar Home Systems have been installed in 49 villages of district Tharparkar, Sindh. Another 51 villages in Sindh and 300 villages in Balochistan have been approved for electrification using solar energy and will be implemented.

Social Safety Nets

Sanitation situation at household level has registered an improvement, in terms of 66 percent of population using flush toilets compared to 63 percent in 2008-09.

Benazir Income Support Programme launched by the government with the primary objective of providing immediate relief to poor. It has made remarkable progress by providing much needed relief to over 4 million recipients including Internally Displaced Persons, flood affectees and bomb blast victims all over Pakistan.


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Rs 122 billion up to March, 2012 have been disbursed to its beneficiaries. BISP has an allocation of Rs 50.00 billion for the fiscal year 2011-12.

BISP recipients are expected to be increased to 7 million once the on-going processing of data collection during the “nation-wide poverty scorecard targeting survey” is completed.

BISP has launched a number of programms of society safety including (i) Payment to Recipients, (ii) Graduation Initiatives, (iii) Waseela-e-Haq, (iv) Waseela-e-Rozgar, (v) Waseela-e-Sehat and (vi) Waseela-e-Taleem.

Pakistan Poverty Alleviation Fund is dedicated for micro credit, enterprise development, community based infrastructure and energy projects, livelihood enhancement and protection, social mobilization, and capacity building. The overall disbursements for core operations during the period of July- December 2012 are Rs. 8,490 million.

Pakistan Bait-ul-Mal is making a significant contribution in poverty reduction by providing assistance to destitute, Widows, Orphans, and other needy. Rs. 1777.5 million has been utilised upto February 2012 on various schemes.

Zakat funds have been utilized for assistance to the needy, indigent, poor, orphans, widows, handicapped and disabled. Up to March, 2012 Rs. 7800.268 million have been distributed in bulk amongst the provinces.

Peoples Works programme (PWP) I & II are providing electricity, gas, farm to market roads and other services to the rural poor. PWP-I & II incurred expenditures of Rs. 5.0 billion and Rs 21.3 billion during 2010-11 respectively where as Rs 2.2 billion expenditure have been incurred between July-December 2011-12 on PWP-I and Rs 2.9 billion expenditures on PWP-II.

Employees Old Age Benefits Institution provided benefits to the old age workers through Old Age Pension, Invalidity Pension, Survivors Pension and Old Age Grants and Rs. 7961.2 million has been utilized during July- March 2011-12.

Workers Welfare Fund utilised Rs. 2539 millions during July-March 2011-12 for housing facilities and Marriage Grant, Death Grant and Scholarships etc. for the industrial workers.

Government has also taken various micro-finance initiatives in collaboration with all stakeholders to generate employment opportunities and to eliminate poverty.

Environment

A number of projects have been funded by the government to deal with increasing environmental degradation. In addition, there are number of projects funded by the donors in which the government is a partner. These are being currently implemented to improve overall environment in the country.

Climate change is an area that has become increasingly important in recent years. In this regard, the National Climate Change Policy 2011 provides a framework for addressing the issues that Pakistan faces or will face in future due to the changing climate. The goal of the policy is to ensure that climate change is mainstreamed in the economically and socially vulnerable sectors of the economy and to steer Pakistan towards climate resilient development.


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Urban air pollution remains one of the most significant environmental problems, facing the cities. A substantial body of research demonstrates that high concentrations of suspended particulate matter adversely affect human health; prolong a wide range of respiratory diseases and increased the probability of heart ailments.

The higher concentration of suspended particulate matter (SPM) in the air is a major issue in Pakistan. The main sources of SPM are vehicular emission, industrial emissions, burning of Solid waste, pollens, brick kilns and natural dust. Motorcycles and rickshaws, due to their two stroke (2-strokes) engines, are the most inefficient in burning fuel and contribute most to emissions.

The situation of access to drinking water is quite impressive in Pakistan. According to Pakistan Bureau of Statistics report (PBS) Pakistan Social and Living Standards Measurement (PSLM) Survey 2010-11, access to drinking water to urban and rural population of Pakistan is 94 and 84 percent, with an average of 87 percent in 2011. In Pakistan sanitation facilities are improving. However, much improvement is needed for rural areas sanitation facilities. According to PSLM Survey 2007-08,the garbage collection facilities to the population is only 14 percent done through municipalities, 7 percent through privately managed and remaining 79 percent have no system.

According to a report released by the WHO/UNICEF Joint Monitoring Program (JMP) 2012, 92 percent people had gained access to drinking water in Pakistan by 2010 while this ratio was 85 percent and 89 percent in 1990 and 2000 respectively. The MDG target is to achieve the ratio of 93 percent by 2015. Moreover, 48 percent people have been using improved sanitation by 2010 while this ratio was 27 percent and 37 percent in 1990 and 2000 respectively. The MDG target for access to sanitation is 90 percent by 2015.

Damage and Need Assessment Report jointly prepared by the Asian Development Bank and the World Bank regarding floods 2011, it has been pointed out that in addition to causing loss of life, displacement of millions, and huge losses to the economy, the floods in 2011 have also resulted in environmental damages, heightened environmental health risks and affected forests, wetlands and other natural systems.

The Environmental damage caused by floods has been estimated at Rs. 2762.7 million (US $ 31.8 million) and Environmental recovery/reconstruction needs has been estimated at Rs. 2873.6 million (US $ 33.02 million).

Flood Impact Assessment

Severe monsoon rains triggered floods in Southern Pakistan at an unprecedented scale, both in terms of volume and intensity, engulfing all 23 districts of Sindh Province and adjoining areas of northern Balochistan Province.

Approximately, 9.6 million people were affected in Sindh and Balochistan as a result of the floods; 520 people died and more than 1180 people were injured.

According to World Bank and Asian Development Bank report, 27,000 sq.Km area damaged in Sindh province out of the total 27,370 sq. Km.

The flood caused total or partial damages to an estimated 998,376 housing units in Sindh and Balochistan.


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The highest damage occurred in the agriculture, livestock and fisheries sector, has been estimated at Rs.160 billion (US$ 1.84 billion).

The total damage caused by 2011 floods has been estimated [direct damage and indirect losses] amounting to Rs.324.5 billion (US$ 3.7 billion).

The total cost of recovery and reconstruction needs has been estimated at Rs.239 billion (US$ 2.7 billion).

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Pakistan: Flood Impact Assessment

Severe monsoon rains triggered floods in southern Pakistan of an unprecedented scale, both in terms of volume and amount of land flooded. Despite forecasts of below-average rainfall, heavy downpours began in mid-August, engulfing all 23 districts of Sindh province1 and adjoining areas of northern Balochistan province causing damage to crops, infrastructure and human settlements, thus affecting the national economy. The maximum rainfall during the year was from 1st July to 30th September, 2011.The peak rainfall was received in Mithi, Sindh. Being sandy area the rate of soil infiltration was very high and rate of runoff water was minimal.2

In Balochistan, flash flooding as well as overflowing local rivers and irrigation and drainage channels caused damages in 14 districts, the worst of which (5 districts) were confined in the southern and northern parts of the province

According to the World Bank and Asian Development Bank (ADB) Damage and Needs Assessment (DNA) report, approximately, 9.6 million people have been affected in Sindh and Balochistan as a result of the floods; 520 people were killed and more than 1,180 people were injured. The impact of the flooding in 2011 cannot be seen in isolation. In 2010, 20 million people

1 where cumulative rain fall varied from 400mm to around 1300mm [Source: Rapid Crop Damage Assessment,FAOand Supparco] 2 The other areas that received excessive rainfall were Mirpur Khas (866mm), Badin (647mm), Shaheed Benazir Abad (650mm), Umerkot (552mm), Dadu (485mm) and Padidan (423mm).

were affected by the largest floods in living memory3, many of the victims of the 2010 floods were still in the recovery phase when the 2011 floods struck. The 2011 floods compounded the damage of the previous disaster.

In severely affected areas, food insecurity and malnutrition were already at critical levels before this year‘s new wave of rains and flooding. Continuing rains and damaged infrastructure impeded the delivery of aid. Essential infrastructure including roads, bridges and markets had been severely damaged and many remained impassable. A large number of farmers lost their livestock on way to safe havens and through non-availability of fodder and exertion. There was hardly a place in the severely affected area that was free of standing water.

The sector wise breakdown of flood damages and respective reconstruction cost estimates are given in Table-1. These indicate that the agriculture sector received a major blow followed by housing, education, and financial, private sector and industries; economic growth is likely to decline. The minimum reconstruction cost amounts to a total of Rs. 239 billion (US$ 2747 million).

3 In comparison, the 2011 floods were driven by high intensity unprecedented rainfall on the eastern side of the Indus River. Both events demonstrate changing climate and weather pattern in the region and their intensity of recurrence.

Special Section


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Table 1: Flood Damages and Reconstruction Cost by Sectors Sectors Damages Reconstruction Cost Rs. million US$ million Rs. million US$ million Irrigation and Flood Management 4,763 55 9,526 109.5Housing 85,465 982.4 91,510 1051.8Agriculture, Livestock & Fisheries 160,107 1840 26,590 305.6Transport & Communication 26,468 304 33,902 388Energy 1,240 14 292 3.4Social & Gender 44 1 65 0.7Financial, Private Sector and Industries 27,254 313 8,178 94Education 12,014 138.1 22,589 259.7Health 1,258 14 864 9.9Water Supply & Sanitation 1,204 14 1,900 22Governance 1,953 22 4,768 54.8Environment 2,763 32 2,874 33Disaster Risk Management - - 1,827 21Social Protection - - 34,126 392.3Total 324,533 3730 239,011 2747Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.

As mentioned above, despite being substantially lower in intensity, because of their location and timing, the 2011 floods had a significant negative effect on the economy with lingering long term impact.

Summary of Damage and Needs by Sector Housing

The floods caused total or partial damage to an estimated 998,376 housing units in Sindh and Balochistan. An estimated 514,283 houses have been completely destroyed4 and another 484,093 partially damaged5. Sindh province has suffered the overwhelming majority of damage to housing stock with 99 percent of the total affected housing stock in this province. Out of the 992,679 houses affected in Sindh, 512,462 houses [493,606 kacha houses and 18,856 pucca houses] have been completely destroyed and the remaining 480,217 houses [403,790 kacha houses and 76,427 pucca houses] have been partially destroyed. In Balochistan, the total number of houses damaged is estimated to be 5,697 kacha houses, out of which 1,827 houses have been completely destroyed and

4 This primarily includes washed away, fully collapsed, or structurally damaged houses with foundation failure or erosion of supporting walls. 5 This mostly includes cases of repairable damage.

the remaining 3,876 houses have been partially destroyed.

In general, pucca houses have withstood the floods better but have still been vulnerable to collapsing of roofs, undermining of foundations, and scouring/erosion at the base of walls and corners. Furthermore, standing water has subjected submerged portions of walls to hydraulic pressure, often causing walls to overturn or tilt laterally. At places subsidence of the ground under water-logged foundations has resulted in cracking and collapse of walls. For kacha buildings, the impact has often been extreme and irreversible.

The damage to housing structures is estimated at Rs. 85,465 million (US$ 982.4 million) for completely destroyed and partially damaged houses. The reconstruction cost (completely destroyed and partially damaged houses) is estimated at Rs. 91,510 million (US$ 1051.8 million).6

6 These estimates are based on replacement of a destroyed house with a core unit of 500 sq. ft covered area, calculated on the basis of currently prevailing prices of materials and labour.


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Health

The floods caused by heavy rains in 2011 resulted in damage to the public health infrastructure in Sindh and Balochistan provinces. Basic health units and rural health centers suffered the most damage; accounting for 74 (52 percent) of the total 141 damaged facilities. In Sindh, of the total of 708 health facilities of various categories in the 11 districts where health sector facilities were affected, 113 (16 percent) were damaged out of which 28 (4 percent) were fully damaged, and 85 (12 percent) were partially damaged. In Balochistan, of the total of 193 health facilities in the 3 affected districts, 28 (15 percent) were damaged out of which 13 (7 percent) were fully damaged and 15 (8 percent) were partially damaged. The damage caused to the health sector in Sindh province constitutes 7 percent of its total health facilities (1,486). In Balochistan; 1 percent of the total health facilities (2,075) were damaged.

The total damage to this sector is estimated at Rs.1,258 million (US $ 14.3 million). Out of which, the direct losses for all health facilities was calculated as Rs. 431.85 million (US$4.9 million) [Sindh: Rs. 404.85 million (US$4.6 million) and Balochistan Rs. 27 million (US$0.3 million).On the other hand, there is no data available for calculating the indirect losses. However, the estimated amount required to meet short-term needs has been taken as proxy of indirect losses i.e., Rs. 826 million (US$9.4 million). The total cost of reconstruction for this sector is estimated at Rs. 863.7 million (US $ 9.8 million) for the fully and partially damaged health facilities.

Education

The total number of educational institutions affected by the floods is 4,096 (Sindh: 3,892; Balochistan: 204). The damaged institutions are 6.7 percent of the total institutions in the affected districts in the two provinces. In Sindh, 1,032 schools for females are damaged (385 are fully damaged and 647 are partially damaged) or 26.5 percent of the total of 3,892 damaged schools, and a total of 2,860 schools for males are damaged (1,022 are fully damaged and 1,838 are partially damaged). This means that 73.5 percent of the total of 3,892 damaged are male schools. In Balochistan, 51 damaged schools are females

schools (3 are fully damaged and 48 are partially damaged).These make up 25 percent of the total of 204 damaged schools, while the 153 damaged schools for males (17 are fully damaged and 136 are partially damaged) make up 75 percent of the total of 204 damaged schools.

The total damage and loss in both the provinces is estimated at Rs. 12,013 million including indirect loss of Rs. 1,856 million and direct loss of Rs.10,157 million. In Sindh, total damage and loss is estimated at Rs. 11,751 million including indirect loss of Rs 1,771 million and direct loss of Rs. 9,980 million. In Balochistan, indirect and direct losses are Rs. 85.1 million and Rs. 177.1 million respectively. The total cost of reconstruction to this sector for all the damaged institutions in Sindh and Balochistan is estimated at Rs.22,589 million.

Agriculture, Livestock, and Fisheries

Agriculture is a key sector of Pakistan‘s economy and accounts for 21 percent of GDP, 45 percent of employment and 60 percent of exports. Sindh has 30 percent and Balochistan 8 percent share in the national agricultural GDP. The livelihood of more than 60 percent of the total population is directly or indirectly dependent on agriculture sector. Furthermore, the agriculture sector has strong backward and forward linkages and as a result has a large impact on the overall economic performance. The sector’s performance has been weak over the last few years recording a growth of around 2 percent per year, mainly due to poor performance of the crop subsector. The performance of the livestock subsector has remained healthy and its share in agriculture GDP has surpassed the crop sector standing at around 55 percent. Due to limited rainfall, less than 240 mm in an average year, crop production is dependent on irrigation and more than 80 percent of land is irrigated. There are two main cropping seasons, namely, Kharif (summer) and Rabi (winter). The Kharif season starts in April and ends in October, and the main crops during this season are cotton, rice, sugarcane, maize, pulses, fruits and vegetables. The Rabi season, which starts in October and ends in April, is dominated by wheat production which is the main staple food in


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Pakistan. Other Rabi crops include fodder, vegetable, and fruits. Commercial production of fruit and vegetable, particularly for the main urban markets has increased rapidly in recent years, particularly close to major cities or where agro-climatic conditions are favorable. Important fruits include mangoes, citrus, dates and banana in the tropical and subtropical areas like Sindh, as well as a range of semi-temperate fruits like grapes, peaches, apples in Balochistan. Important vegetables include potato, tomato, chilies and onions.

Livestock is an integral part of the farming system and is the main asset for many farmers. Buffalo and cattle are mainly kept for milk, with draft power, meat and hides being other important products. Most households also have sheep, goat and poultry for domestic consumption as well as for sale. Fodder, wheat straw, maize thinnings and Stover are used for livestock. Animals are also grazed on rangelands (particularly in Balochistan), pastures and crop stubble. Concentrate feed is widely used in commercial poultry farms and for lactating cattle. In addition to the settled agricultural population, there are also a significant number of transhumants (Gujars) who move within the country as well as in the region and specialize in the rearing of sheep and goat. Their animals are mostly for sale to the large urban centers particularly during Eid times when it is traditional to sacrifice sheep or goats.

Pakistan has a significant fisheries sector producing about 1.00 million tons of fish products annually. About two thirds of this are from marine sources (70 percent from Sindh) and mostly comprise prawn and demersal species. The rest is from inland sources. Inland fisheries were largely restricted to the main rivers and canals. However, in recent years there has been a rapid increase in aquaculture with many farmers using small ponds and other water bodies. Supplies of fingerlings come from a few large government hatcheries but there has been a rapid increase in private sector activity in the area particularly in Sindh.

The heavy monsoon rains during this year caused renewed and devastating flooding in southern

Sindh and northern parts of Balochistan provinces. The subsequent breaches in the drainage canal [Left Bank Outfall Drain (LBOD)] at several locations resulted in submerging of vast areas. While it was mostly the right side of the river Indus hit by floods last year, this time it was mostly the left side. In Sindh, the central and southern districts of Badin, Dadu, Hyderabad, Kamber Shahdadkot, Khairpur, Larkana, Matiari, Mirpurkhas, Neushero Feroze, Sangar, Shaheed Benazirabad, Tando Allahyar, Tando Mohammad Khan, Thatta, Tharparkar, Umerkot have been the worst affected. The Provincial Disaster Management Authority (PDMA) and the Sindh Department of Agriculture Extension estimate that standing crops of cotton, rice, sugar cane, sorghum, vegetables and pulses have been destroyed on about 0.84 million hectares of land. Similarly the livestock sub sector also suffered heavy losses. The Directorate of Animal Husbandry, Sindh has reported that approximately 115,500 livestock have perished and about 5 million surviving livestock have been directly affected.

The floods have heavily impacted the agriculture sector, with damages to crops, livestock, fisheries, poultry and on-farm water distribution infrastructure. The total loss estimated is US$ 1,840.3 million, of which 89 percent is in the form of direct damage and 11 percent is in the form of indirect losses. Sindh suffered most with 94 percent of total damage and Balochistan with 6 percent. The losses were largest in the crops subsector, which accounted for 91.5 percent, including estimates of damages to Kharif crops; food and seed stocks; on-farm irrigation water facilities; and support services for crops, as well as indirect damages to the forthcoming Rabi 2011-12 and Kharif 2012 crops. The most affected crops are cotton with 74 percent damages to the overall planted area in the affected districts. In terms of the damage to different crops it is estimated that land area under rice 33 percent, sugarcane 34 percent, vegetables 79 percent and fruits 32 percent was affected adversely.


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Table-2: 2011 Kharif Area Affected by FloodProvince Crop Area

Damaged (000’ ha)

Area Damaged (000’Ha) Cotton Rice Sugarcane Maize Vegetables Fruit Other

Balochistan 21.42 1.29 14.30 - - 1.78 0.17 3.88Sindh 859.62 494.94 163.85 88.40 - 99.24 13.19 -

Total 881.04 496.23 178.15 88.40 - 101.02 13.36 3.88Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011.

The flood also substantially affected the livestock population causing death and loss in productivity mainly in Sindh. The deaths were mainly in small ruminants and productivity losses were mainly in large ruminants. Animals standing in mud and stagnant water for extended periods contracted various diseases. The losses in productivity occurred due to acute fodder shortage, debilitation and emaciation. Sources of livestock feed were fully inundated and the availability of fodder in local markets was very low. Facing an acute

shortage of feed, these livestock were left stranded. The productivity of milking animals dropped from an average of 7 or above litres to 2-3 litres (50-70 percent), and many young calves died due to the reduction of the milk in their mothers. The loss in productivity accounts for more than 50 percent of the total loss. Fisheries losses are estimated at around $3.4 million (0.2 percent) that accounts for private fish farms/ponds and hatcheries. A total of about 881 thousand ha or 53 percent of the fisheries areas was affected.

Table-3: Livestock, Poultry and Fisheries Damages in Flooded AreasProvince Large Animals

(000head) Small Animals

(000heads) Poultry Perished

(Million Nos.) Fishery/Pond

Damaged Balochistan 0.10 0.20 0.0 n/aSindh 33.8 81.2 1.14 393Total 33.87 81.4 1.14 393Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011

The summaries of preliminary loss estimates are shown in Table 4. Livestock damages, which include loss of animals, distress sales, and destruction of animal health support services, as

well as indirect damages due to reduced milk production, accounts for 8.3 percent of total losses. Fisheries losses are estimated at around $ 3.36 million (0.2 percent of the total losses).

Table-4: Estimated Direct and Indirect Losses (US$ million)Province Livestock Crop Fisheries/

Pond Total

Direct Indirect Sub-Total

Direct Indirect Sub-Total

Balochistan 0.41 7.94 8.35 87.84 7.58 95.42 n/a 103.77Sindh 45.51 99.28 144.79 1499.19 89.20 1,588.39 3.36 1,736.54Total 45.92 107.22 153.14 1,587.03 96.78 1,683.31 3.36 1,840.31Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

The total reconstruction cost to this sector is estimated at Rs.26,590 million (US$ 306 million) which focused on the restoration of normalcy in the agriculture sector; to support small and medium farmers through provision of seeds,

fertilizers, tools and implements along with support for land preparation, livestock based assistance package, partial subsidies for fishing communities as well as the partial rehabilitation of on-farm water management infrastructure.


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Energy

Power generation is provided by thermal plants, hydroelectric facilities and a small nuclear facility (300 MW). The 13 hydroelectric facilities (installed capacity 6,481 MW) are owned and operated by the Water and Power Development Authority (WAPDA), a public sector entity. Thermal power plants are owned by public and private companies. The public sector operates 13 thermal power plants (installed capacity 4,900 MW). About a third of Pakistan’s generation (5,987 MW) is provided by private sector companies (independent power producers or IPPs). Also, KESC operates plants with a total capacity of 1,955 MW. Out of the total 19,252 MW of the national installed generation capacity, dependable generation is about 17,523 MW in the summer and about 14,640 MW in the winter, depending on the annual hydrology.

Damage to the energy sector was modest, estimated at Rs. 1.2 billion (US$ 14.2 million). This comprised of direct damage of Rs. 456.5 million (US$ 5.2 million) and Rs. 783 million (US$ 9 million) of indirect damage. In the power sector the total damage was Rs. 281.5 (US$ 3.2 million) whereas in the petroleum sector total damage was Rs. 958 million (US$ 11 million):- out of which Rs. 783 million (US$ 9 million) relates to indirect losses as shown in table below. In the power sector the majority of the direct damage is in distribution network with about 90 percent of the damages being to distribution transformers. Damages to the petroleum sector are also very heavy, effecting only two upstream public owned (70 percent shares) gas fields.

Table-5: Damage and Losses in Energy SectorEntity Direct Damage

(Rs. million) Indirect Damage (Rs.million)

Total Damage (Rs.million)

Total Damage (US$ million)

Transmission 19.7 - 19.7 0.226Distribution 261.8 - 261.8 3.0Total Power 281.5 - 281.5 3.226Upstream Oil and Gas 175 783 958 11.0Total Damage 456.5 783 1,239.5 14.226Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

The immediate need for the power sector is Rs. 281.5 million (US$ 3.226 million) covering the direct damages suffered by the Public Sector Powers (PSPs). The needs for the petroleum sector

are only Rs. 10 million (US$ 0.115 million) as shown in Table 6 for damages not covered by insurance. Insurance cover for public sector companies has not been factored into the needs assessments.

Table-6: Recovery and Reconstruction Needs Assessment SummarySector Reconstruction and

rehabilitation/repair cost (Rs. million)

Total (Rs. million)

Total (US$ million)

Power 281.5 281.5 3.226Petroleum 10.0 10.0 0.115Total 291.5 291.5 3.341Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011 Transport & Communication The 796,095-square kilometer area of Pakistan and its almost 180 million inhabitants are connected through a transport and communications (T&C) network of 259,618 km of roads; 7,791 km of railways; 42 airports; and 34,950 km of

telecommunication lines and other infrastructure. The 11,800 km long national highways and motorways network is the spine of the primary transport corridor. This is supported by the provincial highways network of 37,400 km that fans out to the districts through 161,000 km of


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district roads (including farm-to-market and access roads) in rural areas and 54,000 km of municipal roads in urban areas.

In the two flood-affected provinces, the national highway system traverses 1,975 km in Sindh and 4,630 km in Balochistan. About 13,700 km of provincial highways and 31,900 km of district roads are located in Sindh and 11,800 km of provincial highways and 20,200 km of district roads are in Balochistan. The railway network of 7,791 km railway lines and 1,100 stations serve the long-distance main north south corridor and connections to other regions including Balochistan. Approximately 1,899 km of railway lines are in Sindh while 1,202 km are in Balochistan. Six international airports in major cities serve as hubs connecting to 19 regular and 17 feeder and other airports. The telecommunication infrastructure consists of 3,155 exchanges; 34,950 km of optical fiber transmission lines for the landline networks; and 25,554 transmission towers for the cellular telephone networks.

The rains and floods during August and September 2011 damaged the Transport and Communications (T&C) infrastructure in the province of Sindh and Balochistan. Based on the data received on the damages to the T&C Sector, a total of 5 districts in Balochistan and 18 in Sindh have been affected by the floods and the longer than usual spell and higher intensity of rains. It affected the network of national and provincial highways, district and

municipal roads. Damages to the road infrastructure were caused by submergence, high surface runoffs and ingress of water in roadway formation; floods have caused damages to railway tracks, bridges, stations and residential buildings under the administrative control of Pakistan Railways. There were no reports of damages by Civil Aviation Authority in the aviation sub-sector. In the communication sector, damages were reported to the buildings, equipments and transmission network of cellular and landline operators.

The reported damage is classified into two broad categories: Completely Destroyed (CD) and Partially Damaged (PD). For roads and railways, the data is segregated into lengths of roads, railway lines and number of affected structures. For telecommunication infrastructure, the reported damage is more specific. Four national highways were affected at various places; three in Sindh and one in Balochistan. On these highways, seven bridges were also reported to be partially damaged; all located in Sindh. About 1,955 km of provincial highways in Sindh, representing 15 percent of the provincial highway assets and 5,773 km of district roads were affected (including municipal and urban roads). On the contrary, damages in Balochistan are lower and comprised about 426 km provincial highways and district roads (about 1 percent of this road stock). A summary of loss and damage in Transport and Communication is given below:-

Table-7: Transport and Communication Damage and Loss Figures.Province Direct Damages

(Rs. million) Indirect Losses

(Rs. million) Total

(Rs.million) Roads Sindh 14,850 9,974 24,824Balochistan 1,095 108 1,203Subtotal 15,945 10,082 26,027Railways Sindh 277 - 277Balochistan - - -Subtotal 277 - 277Telecommunication 165 - 165

Total 16,386 10,082 26,468Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011


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The total reconstruction cost to this sector is estimated at Rs.33,902 million (US$ 388 million) including US$5 million for railways and US$ 2 million for telecommunication sub-sector and remaining US$ 383 million for the roads subsector.

Environment

Pakistan suffers a loss of 8.84 percent of its GDP each year from environment-related disease. Almost half of this cost is caused by mortality (4.13 percent of GDP) while the rest stems from the malnutrition caused by environment-related disease (4.71 percent of GDP). Approximately 90 percent of typhoid and diarrheal illness in Pakistan is attributable to inadequate drinking water, sanitation and hygiene. Up to 83,500 deaths a year are linked to these causes. Morbidity linked with waterborne diseases amounts to 74.5 million cases per year.

The environmental damages caused by the 2011 floods included: i) contamination of resources for

drinking water; ii) contamination of water resources that are used for other domestic usage; iii) stagnant water ponds resulting in proliferation of disease vectors such as mosquitoes; iv) solid waste and debris accumulation; v) agricultural lands affected by pollution and salt; vi) damage to soil through erosion; vii) damages to wetlands and mangroves; and viii) damages to protected areas and cultural assets.

The floods that recently affected Sindh and Balochistan have already impacted millions of people and are likely to have economic, social and environmental consequences for years to come. The 2011 floods have caused damages to the forests, plantation, nurseries, department infrastructure, and cultural heritage sites. These damages have been estimated to be Rs. 2,762.66 million (US$ 31.75 million). The reconstruction and restoration costs of the damages estimated at Rs. 2,873.59 million (US$ 32.79 million) are shown in table below.

Table-8: Total Cost to Address Environmental Needs Associated with the Floods

S.No Description Rs. in million US $ million1 Field investigations to determine damage to agriculture land caused by

pollution and salts

20.0 0.23

2 Study to estimate debris quantity and disposal arrangements 5.00 0.063 Rehabilitation of forests and plantation 589.18 6.774 Study to estimate damage to wetlands and mangroves 5.00 0.065 Rehabilitation of cultural sites 16.41 0.196 Study to estimate damage to cultural heritage sites 2.00 0.027 Storm water drainage master plan 714.00 8.208 Land use plans and building regulations in urban areas 604.00 6.949 Monitoring and evaluation, and information databases 442.00 4.8510 Strengthening the Legal and Institutional Framework 476.00 5.47

Total 2873.59 32.79Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011 Social and Gender Impact Barely one year has passed since the floods of 2010 devastated the lives of an estimated 20 million people nationwide. The flooding in 2011 was relatively localized; the impact on people and livelihoods was severe, but infrastructure damages were less so. In Sindh, 19 social welfare infrastructure units serving a population of 37,006 people were partially or fully damaged. In

Balochistan, 18,403 people were reported affected with no damage to social welfare infrastructure.

According to the report, 9.6 million people were affected including 744,000 displaced in the aftermath of the 2011 flood. Total deaths are reported as 520. The direct damage estimated costs are Rs. 39 million. Indirect costs are assessed as Rs. 4.6 million. According to the United Nation office for the Coordination of Humanitarian


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Affairs (UN OCHA), the situation remains alarming with poor coverage of all essential sectors. Failure to meet Rabi cultivation will have severe consequences on farm dependent households.

The UN reported that 2.5 million children and 1.2 million women were affected by the floods in 2011, while 744,000 people were displaced. With 46 percent of health facilities damaged, the vulnerability of women and children have increased in the affected areas. The children who are pushed out of schools are estimated at over 733,000. 60 percent schools were damaged in Sindh alone. Acute Respiratory Infections (ARI) and skin infections represent major health risks in flood affected areas. Women are at high risk due to disruption in the provision of pre and post natal care. Migration has taken place largely due to non-availability of fodder in flood affected areas. Approximately, 10-15 percent of the affected population is engaged in non-farm livelihoods, including fisheries, which are severely affected by the rains.

Water Supply and Sanitation

The government of Sindh had indentified seventeen (17) districts as flood affected where damages needed to be assessed. However, flood damage data was forthcoming only from thirteen (13) districts. From the Balochistan province flood damages were reported from Kalat, Lasbela, Nasirabad and Jaffarabad districts, and that too for the water supply sector only. The most obvious result from the data compilation is the finding regarding the relative damage distribution amongst the districts and talukas. In the Sindh province that has been largely affected in the 2011 floods the Shaheed Benazirabad (Nawabshah) district by far shows the most extensive damages both in the public water supply and sanitation sectors. Badin, Sanghar and Mirpurkhas districts also show significant damages to the water supply related infrastructure and facilities. More damages are reported in the sanitation sector as compared to the water supply sector. Shaheed Benazirabad (Nawabshah) district is the worst hit accounting for 42 percent of the overall damage cost in the public sanitation sector.

Total damages (both direct and indirect) for water supply and sanitation are estimated at Rs.1,160 million and Rs. 43.6 million in Sindh and Balochistan, respectively. Direct damages in Sindh are Rs. 456.6 million in 378 reported schemes in the flood affected districts. These damages include Rs. 147.6 million for public water supply and Rs. 253 million for public sanitation. An amount of Rs 56 million for community infrastructure damage is also included. In Balochistan, water supply and sanitation damages have been assessed at Rs. 43.6 million, in a total of 80 schemes. Indirect losses for Sindh have been calculated to at Rs 703.6 million. No such loss is calculated for Balochistan due to lack of data. Indirect losses which is derived from higher expenditures related to (i) supplying potable water (tankers, cost of hand pumps, water tanks, purification and disinfection processes), and (ii) cleaning, wells, sewers and pipes; and for the loss of revenue from interrupted water supply services.

The total reconstruction cost for water supply and sanitation is estimated at Rs.1,831.7 million and Rs.68.5 million for Sindh and Balochistan respectively.

Governance Infrastructure

Governance related institutions in the flood-hit districts of Sindh have suffered damage to their assets, which in turn eroded their already limited capacities. In Balochistan, reported damage to the governance sector was limited. Flooding caused by rains led to disruption of social and economic life and created a crisis. Demand of governance and related services in a crisis is much higher and ever more challenging to respond to effectively and promptly. Governance sector institutions in Pakistan, even before the disaster, faced many challenges.

Governance institutions in the 17 affected districts of Sindh have reported damage to 648 facilities including offices and residences. Aggregate covered area damaged or destroyed has been estimated to be slightly below 3 million square feet. In Balochistan, the 5 affected districts have reported damage to 18 buildings. The worst hit district in Sindh is Mirpurkhas where estimate of aggregate affected covered area is 845,000 sq feet, followed by Sanghar (299,000), Tharparkar


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(246,000), Shaheed Benazirabad (201,000), Dadu (186,000), Umerkot (171, 000), Khairpur (161,000), and Hyderabad (140,000).

The civil administration in Sindh suffered heaviest damage to its facilities. A total of 257 buildings were reported to have been partially damaged and 86 as completely destroyed. Partial damage to 11 Prison and 71 Police facilities and complete

damage to 3 Prison and 66 Police buildings have been reported. Additionally, 14 court buildings have been partially damaged and 10 have been reported as completely destroyed along with 21 Auqaf buildings which are reported as completely damaged and 10 as partially damaged. NADRA, Post Offices and other governance institutions shared the remaining disaster damage.

Table-9: Government infrastructure, Damage and Loss (Rs. in million) Provinces Direct damage Indirect Damage Total Sindh 1,555.83 369.23 1,925.06Balochistan 15.61 12.65 28.26Total 1,571.44 381.88 1,953.32Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011

In case of governance institutions service and productivity losses create complex issues. Disruption of services or functions and inability to respond to much bigger demand can and do impede relief and reconstruction. States of rule of law, justice, security, property and citizenship records and management capacities of public accounting and local level public management become exposed to risk of deterioration because of damage and serious inadequacy in the face of much higher volume of work demanded by recovery and reconstruction needs. Disruption of governance services and functions affect the condition of the population already suffering from the direct effects of the disaster. The economic loss to the population is complex to estimate as it would involve estimating economic value of security, justice and protection. Indirect loss to

governance institutions is estimated on notional costs of continued services and functions despite loss to their facilities, records and reduced staff productivity/availability in the damage quantification.

The value of reconstruction needs is based on the current government notified rates for contractors. It was challenging to gather information in precise categories on the types of construction required, pre-flood condition and the nature of damages. Consequently, suitable assumptions and broad classifications had to be used. In order to improve accuracy of the estimates- statistically and factually- sound assumptions have been used. Computations have been made in spreadsheet with stated assumptions, criteria and parameters clearly identified.

Table-10: Recovery and Reconstruction Needs Assessment Summary (Rs. in Million)

Province Reconstruction and Rehabilitation/Repair costs Capacity Building Total

Sindh 4,716.113 12.580 4,728.693Balochistan 36.572 3.700 40.272Total 4,752.685 16.280 4,768.965Source: World Bank and Asian Development Bank (ADB) Damage and Needs Assessment Report 2011 Irrigation and Flood Management

Sindh’s agriculture accounts for 17.4 percent of the provincial GDP and 50 percent of the employment. The Sindh irrigation system consists of Guddu, Sukkur and Kotri Barrages on the Indus River. These barrages divert water into fifteen canals -

four at Guddu, seven at Sukkur and four at Kotri Barrage commanding 2.5 million ha. A total of 2,240 km of drains and 5,835 tube wells complement the irrigation system. In Balochistan only about 767,120 ha land in 3 out of the 26 districts is irrigated by Indus Basin Irrigation


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System. The main canals are the Pat Feeder, Kirther and Uch canals. In remaining parts of the province there are many small basins where spate irrigation, karezes, small irrigation schemes, small dams and tube wells are the main sources of irrigation.

The damages reported are in 38 irrigation divisions of Sindh province (Rs. 3,936 million or US$ 45.2 million), and 14 irrigation divisions of Balochistan province (Rs. 827 million or US$ 9.5 million). In Sindh, fifteen divisions suffered damages exceeding US$ 2.5 million each. In Balochistan, three divisions have reported damages exceeding US$ 1.0 million. The damage estimates reflect the reconstruction requirement at depreciated value as most of the infrastructure is more than 15 years old. Indirect losses such as damage to crops due to flooding and disruption of irrigation supplies, siltation and water-logging of agricultural land are not covered in irrigation and flood sector.

The reconstruction cost estimated for Sindh province is Rs. 7,872 million (US$ 90.5 million) and for Balochistan it is Rs. 1,654 million (US$ 19

million). The proposed irrigation, drainage and flood protection sector reconstruction strategy is to restore all damaged infrastructures, and strengthen vulnerable and damaged sections before 2012 monsoon.

Social Protection and Livelihoods

The total affected population in flood hit districts of Sindh and Balochistan are based on the total affected area. Pakistan Social and Living Standards Measurement Survey (PSLM) data was used to calculate post-flood poverty levels; this was combined with damage to housing and agriculture to estimate the number of severely affected poor and vulnerable households who require assistance to cope with the negative impact of the floods. The total is in the range of 801,897 to 851,439, representing 52-54 percent of the total affected population. The majority of these are in Sindh (786,917 to 836,311) and the rest in Balochistan. Districts with over 50 percent, or more, severely affected households are Badin, Dadu, Khairpur, Matiari, Mirpurkhas, Sanghar, Tando Allah Yar, Tando Muhammad Khan, and Thatta in Sindh, and Kalat, Jaffarabad, and Lasbela in Balochistan.

Table-11: Summary Estimates of Cash Grants to Severely Affected Poor Households (Rs. in Million) Provinces No. of Severely Affected House Holds

(HHs) Cash Grant of Rs. 6,680 per

month for 6 months Sindh 836,311 33,519.35Balochistan 15,127 606.31

Total 851,439 34,125.66Source: World Bank and Asian Development Bank (ADB) Damages and Needs Assessment Report 2011 Government Response

In the immediate aftermath of the floods, the government responded through the mobilization of national, provincial and district resources including the deployment of civil and armed forces personnel. Several infantry platoons of the army as well as medical and engineering teams were deployed in disaster affected areas to carry out search and rescue operations, which were further supported by helicopters and dozens of navy and coast guard personnel and boats. To support the national and provincial Disaster Risk Management (DRM) institutions, the Prime Minister‘s Flood Relief Committee was also formed to monitor rescue and relief activities. Small-scale engineering works were also undertaken to strengthen flood mitigation infrastructure to avoid

further damage and loss of lives. During peak of this humanitarian crisis, almost 700,000 people were being housed in approximately 3,500 relief camp managed by the government, international partners, NGOs and civil society organizations. In January 2012, NDMA reported to World Bank and Asian Development Bank Damage and Needs Assessment, a report regarding the distribution of over 316,000 tents in the affected areas and 3.7 million ration packs, out of which 48,000 ration packs were distributed in Balochistan. To provide immediate cash assistance to the flood affected population in Sindh, the provincial government, with the support from the federal government, has disbursed approximately Rs. 10.3 billion through the Pakistan Card-based cash transfer scheme (Rs. 10,000 per family).


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The Government continued to mobilize shelter materials, non-food items (NFIs), bottled water and food rations. Provision of temporary shelter in public buildings had been arranged for those uprooted by the floods in 13 districts out of 23 in Sindh, which accommodated 194,969 people.

Initially the federal and provincial governments responded to the disaster through own resources, which however, were overwhelmed in the wake of the growing humanitarian crisis. Despite providing assistance during the unprecedented floods of 2010, the international community immediately responded to the appeal by the Government of Pakistan for international support for rescue and relief activities following 2011 floods. In December 2011, forty-six countries pledged a commitment of approximately US$ 260 million including support in cash and in-kind.

Furthermore, an emergency flood relief cell, established at the Ministry of Foreign Affairs, closely liaised with the members of the diplomatic community and international organizations to coordinate international assistance.

The United Nations (UN) undertook an Initial Rapid Needs Assessment to focus on the immediate relief phase for the following clusters: (i) emergency shelter; (ii) food security; (iii) health and; (iv) water sanitation and hygiene. Based on these cluster assessments, the UN launched a US$ 356 million Rapid Response Plan in September 2011. As of April 2012, approximately, US$ 171 million or 48 percent were received in response to the UN‘s appeal. In January 2012, the UN launched the Early Recovery Framework seeking a further US$ 439 million to continue flood response until September 2012.

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Tax Expenditure

A Note on Tax Expenditure 2011-12

Estimates of tax expenditures are being prepared by FBR and reported in the Pakistan Economic Survey since last few years as part of the budget process. The Tax Expenditure for the year 2011-12 works out to Rs. 185.496 billion. Details of Direct Taxes have been indicated first in the report, followed by Sales Tax and Customs Duty. Federal

Excise Duty has not been included due to very restrictive base and exemptions. Detailed are as follows:

Income Tax

The cost of exemptions, exclusions, substractions, deductions, rebates and credit etc that cause loss of Direct Taxes revenue comes to Rs. 69.608 (billion) has been reflected in Table -1 below:

Table-1: Income Tax Expenditure for 2010-11 and 2011-12 (Rs. in billion)

S. No Tax Expenditure Items Estimated Revenue Loss 2010-11 2011-12

1. Pensions & Gratuity 0.087 0.171 2. Income from Funds, Boards of Education, Universities and

Computer Training Institutes etc. 0.979 6.077

3. Donations and Contributions to Charitable Organizations 0.649 0.624 4. Independent Power Producers 0.870 46.939 5. Income from certain Trusts, Welfare and Charitable Institutions

and Non-Profit Organizations 1.360 0.205

6. Profits on Debt/interest from government securities and certain foreign currency accounts/books, profit on debt earned by certain non-resident individuals and institutions

0.049 1.461

7. Export of Information Technology 0.724 0.822 8. Capital Gains 21.840 2.108 9. Other Sectors/enterprise specific exemptions 19.950 11.201

Total 46.508 69.608

Sales Tax

Sales Tax exemptions are provided at the import stage and on domestic supply of goods and services. Previously, Sales Tax exemptions were available on certain items including tractors, fertilizers & pesticides etc. However, the Federal government rationalized these exemptions during last year. From 15-03-2011 onwards, tractors, pesticides and fertilizers have been made

chargeable to Sales Tax, resulting in reduction in the cost of exemptions.

Tax Expenditure in respect of Sales Tax is estimated at Rs. 24.300 billion for fiscal year 2011-12. Details have been worked out and are indicated in Table-2 below:

Annex 2


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Table-2: Tax Expenditure of Sales Tax for 2010-11 and 2011-12 (Rs. in billion)

S. No Sectors Estimated Revenue Loss 2010-11 2011-12

1. Fertilizer 9.138 02. Tractors 6.489 4.2803. Pharmaceutical Products 5.505 5.8004. Others 12.630 14.220

Total: 33.762 24.300 Customs Duty

Under the Customs law, exemptions or concessions are granted to goods that are imported into Pakistan through SROs, special classification in Chapter 99 of Pakistan Customs Tariff, and/or

through specific rate of tariff. On the basis of these provisions, the tax expenditure in respect of Customs Duty has been estimated at Rs. 91.588 (billion) for 2011-12. The details are given in the following Table-3:

Table-3: Tax Expenditure of Customs Duty for 2010-11 and 2011-12 (Rs. in billion)

SRO. No & date Tax Expenditure Items Estimated Revenue Loss 2010-11 2011-12

558(I)/2004 01-07-2004

Concession of Customs Duty on goods imported from SAARCand ECO countries. 0.073 0.055

570(I)/2005 06-06-2005

Exemption from Customs Duty on imports from Sri Lanka 0.148 0.196

1296(I)/2006 31-12-2005

Exemption from Customs Duty on imports from China 0.031 0.0002

894(I)/2006 31-08-2006

Exemption from Customs Duty on imports from Iran under Pak- Iran PTA 0.004 0.0009

1274(I)/2006 29-12-2006

Exemption from Customs Duty on imports under SAFTA agreement 0.116 0.151

659(I)/2007 30-06-2007

Exemption from Customs Duty on imports from China 10.867 13.762

1261(I)/2007 31-12-2007

Exemption from Customs Duty on imports from Malaysia 2.895 2.750

565(I)/2006 05-06-2006

Conditional exemption of Customs Duty on import of raw materials and components etc. for manufacturers of different sectors.

4.653 7.391

567(I)/2006 05-06-2006

General and conditional exemption of Customs Duty. 30.277 21.830

678(I)/2004 12-06-2004

Exemption of Customs Duty and Sales Tax to Oil Exploration and Production (E&P) companies on import of machinery equipment & vehicles

2.581 2.810

575(I)/2006 05-06-2006

Exemption of Customs Duty and Sales Tax on import of machinery, equipment, apparatus and other items 13.712 9.833

655(I)/2006 22-06-2006

Exemption from Customs Duty for vendors of Automotive Sector 9.315 12.851

656(I)/2006 22-06-2006

Exemption from Customs Duty for OEMs of Automotive Sector 19.073 19.196

809(I)/2009 19-09-2009

Exemption from Customs Duty on import of machinery & equipment by Industrial units registered with Ministry of Textile Industry

1.196 0.756

Total 94.941 91.588

Tax Expenditure

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Consolidated Summary

Based on the aforementioned estimates for individual taxes, the overall tax expenditure for

2011-12 has been estimated to be around Rs. 185.496 billion. The consolidated summary of the tax expenditure for fiscal year 2011-12 is given in Table-4:

Table-4: Tax Expenditure of Federal Taxes for 2010-11 and 2011-12 (Rs. in billion)S. No. Type of Tax Tax Expenditure

2010-11 2011-12 1 Income Tax 46.508 69.6082 Sales Tax 33.762 24.3003 Customs Duty 94.941 91.588

Total 175.211 185.496Note: The estimates for 2010-11 are for the full year while for the year 2011-12, they pertain to 10 months i.e. 1.7.2011 to 30.4.2012.

Pakistan Economic Survey 2011-12.pdf

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