Final project (economics for management)
Topic: Compare the macro-economic components of the Zardari and Nawaz Sharif’s tenure
Submitted to: Miss Maryam Rehmat
Submitted by: Hira Abdullah, Ayesha Azam, Mahnoor Naveed, Fizza Tahir, Misha Aamir.
Date of submission: 10th may 2018
Economy of Pakistan
Pakistan is a developing country and is among the eleven countries that have the potential to grow and can maintain its economic position in the 21st century. Because of the increasing population, political disturbances, lack of foreign investments, economy suffers a lot. But by each passing year, economy of Pakistan is getting better and better. World bank states that poverty in Pakistan has fallen from 64.3% in 2002 to 29.5% in 2014. Pakistan’s fiscal position also improved as the budget deficit has fallen from 6.4% in 2013 to 4.3% in 2016.
Zardari tenure 2009-2013:
The economic growth of the country during Zardari tenure was lowest. He ranks dead last in terms of economic growth and the economy at Zardari tenure was only 2.62%. Zardari tenure was the poorest period for the Pakistan.
Nawaz Sharif tenure 2013-2017
The economic growth in Nawaz sharif’s tenure was comparatively higher than zardari’s tenure. In the era of Nawaz sharif pakistan’s economy gradually increases because implementation of right policies at right time, however the policies affects economy for a shorter time period. For example, the first and foremost step of nawaz’s government is decrease the amount of surplus debts. Nawaz government also maintained a good reputation of Pakistani currency in open market operations. Furthermore aspects are discussed below.
GDP in 2013:
Average GDP growth rate during 2008-2013 was 2.9% and during the same period GDP rate in Bangladesh was 6.8% and Srilanka was 6%.The GDP rate in Musharaf era was 7% Such a significant drop in the growth rate could observed .Six percent growth rate is required to survive above poverty line. Zardari government couldn’t meet even a 4 per cent GDP growth. In 2007-2008 the GDP growth rate was 5% that dropped to 0.4% in 2008-2009. of global economy was observed.
Agriculture sector has contributed more in economic growth compared to other sectors. During 2012-2013 this sector contribution in GDP growth rate was 21.4%
16.0 % the industrial sector
14.5 % the services sector
45% labor force contributed to this sector
By the end of 2012-13, the country’s GDP per capita stood at $1368 in nominal terms.
Power wiped out 2% from our GDP due to severe power shortage during fiscal year 2012 and 2013.
Cotton ginning showed a negative growth of 2.9 percent that was 13.8% during 2011-2012.
The GDP ratio, of government debt which was 55 % in 2008, rose to 60% in 2012.
The per capita GDP grew only $30 during the same period.
War against terrorism affected the growth rate of GDP.
GDP of Pakistan in 2017
GDP is the gross domestic product by that we mean it tell us the total production of a country (within the boundaries of Pakistan) in one year. GDP of Pakistan in terms of purchasing power parity crossed $1 trillion ($1.060 trillion). Pakistan stood at 25th rank however it was 42nd in 2015. Pakistan moved fast on the path of development as the GDP growth had risen from 3.7% to 5.28% percent. GDP per capita raised up to $1629.
Agriculture is the largest sector of the Pakistan and GDP generated from agriculture is 19.33%
Industry is the second largest sector of Pakistan and GDP generated from industry is 20.88%
GDP generated from others sector(services) is total of about 59.59% s
Causes of increase
The main cause for the increase in GDP is that the standard of living of people got improved, technological advancement, stabilization of fiscal policies, security, governmental policies and literacy rate got improved etc. people started to invest instead of spending it on luxuries.
Following are the factors which directly affects the economy of country
1) Political stability
2) Peace among the country
3) Stability of economic policies
4) Balance of payment
5) Promotion of home industry
6) Overcoming of energy crisis
7) Strong currency etc.
Inflation is a general increase in the price level of the good and services in an economy over a specific period of time. Inflation is measured by the formula known as consumer price index which is a measure of the cost of a basket of goods and service across the country on a monthly basis. CPI is obtained by dividing the cost of market basket in given year by the cost of market prices in the base year multiplied by 100.
Inflation rate during in 2013
Inflation has always proved a major hurdle in the economic development of Pakistan. The inflation reached to highest level of 25.3 percent during October 2008 measured by consumer price index. Consumer price grew up by 80%. The inflation increased in first two years and afterwards in was stable. The core inflation also increased from 7.1 percent to 18 percent. Inflation was in double digit during Zardari era as Consumer price increased to 80% from 2008 to 2012 and during same period India had single digit inflation. During his era people started deficiency finance Petrol price was also increased from Rs62.8 to Rs103. During 2012-2013 inflation remained in single digit in Pakistan including core inflation, food and nonfood inflation, whole sale price index. It has put effect and impact on people. Budget deficit was also done in zardari tenure.
Inflation rate in 2017
Inflation rate in Pakistan was 4.1 in 2017. The target rate of inflation for the fiscal year 2016-2017 was 6%. Pakistan failed to meet the target rate but it was higher than the preceding year. The reasons for which Pakistan failed to meet the target, was low prices of oil and commodities in the international market, lower demand of goods and services, stable rupee and smooth supply of commodities and monitoring of prices at both federal and provincial levels were the major reasons behind contained inflation.
When the economy is not running at capacity, meaning there is unused labor or resources, inflation theoretically helps increase production. Healthy effects of inflation on the economy are left only when the inflation is of mild nature. Production increases because the profits of business men and industrialist rises and they try to produce more. Employment increases, investment increases, low inflation is helpful for the economic development and research and innovation are discouraged.
When inflation starts it is very difficult to control inflation at low rate. Inflation feeds on itself. Because of inflation, cost of living increases. Wages do not rise at the rate prices are raising. Those sections of the society who have fixed incomes, like salaried class, find difficulty in buying their daily needs.
Income inequalities increase.
When prices are rising and businessmen and big landlords make huge money, the distribution of money among various classes become unequal.
Decrease in saving.
During the rising prices the savings of the common people are adversely affected. Greater part of their income is used to buy the consumer goods.
Fewer exports and more imports.
Local goods become costly for the foreigners. They start buying from other countries. So inflation has adverse effects on the balance of payments.
Productive investments falls.
When prices are raising sharply, speculation and hoarding of commodities is encouraged. A person, by not selling goods for few days, can make huge profits. Thus businessmen become profiteers. Due to fast rising cost of raw materials, investment plans are disturbed.
One of the major and permanent economic problems faced by Pakistan is widespread unemployment. It is the situation when a person is able and willing to work but is unable to find one at the current wage rate. Existence of unemployment indicates imbalance between demand and supply of labor. Unemployment caused wastage of a country’s human resources. It is not only lack of income for the individual and country but it is also the root cause of many social and political problems. The present situation of Pakistan is that out of 189 million population, our labor force is 60 million. Out of this, 4 million are totally unemployed while about 6 million are partially employed.
Unemployment in 2013:
The unemployment rate has increased from 5.6% to 6.2% from 2009 to 2013.The rise in unemployment was because of limited involvement of Agriculture sector. The rate of unemployment was higher in Punjab than other provinces due to highest population. There were more illiterate workers than literate workers.
The number of unemployed people in Punjab in 2010-2011 was 2.10 million that increased to 2.28 million in 2012-2013.
Whereas unemployment rate in Sindh decreased from 5.2% in 2011-2012 to 5% in 2012-2013
In Punjab unemployment rate increased to 6.1%,
In Baluchistan increased to 4% and in KPK 8.5% during same period.
In Agriculture sector, the total labor force has decreased from 45% to 43.7% from 2009-13.
Unemployment rate was improved in Khyber pakhtunkhwa in 2012-13.
Unemployment was increased by 2% to 10.1% in urban areas and in rural areas in increased from 4.3% to 5%.
Unemployment in 2017
In 2017, the unemployment rate for Pakistan was 5.9 percent however it decreased from the year 2013 but it is not favorable for Pakistan. Half of put labor force is employed in agriculture alone. This is a clear sign of under development of Pakistan’s economy. In USA only 2% of the labor force is engaged in agriculture.
Causes of unemployment
The major causes of unemployment in Pakistan is because of Rapid population growth, poverty, scarcity of capital, mechanizing of agriculture and automation in manufacturing, slow industrial development, imbalance in education, illiteracy rate, seasonal unemployment and capital intensive industries etc.
Unemployment level can be reduce by controlling population, increasing capital formation, rapid industrial growth, technical training and skill formation, encouragement of self-employment, diversification of agriculture, change in social attitudes and government policies.
Pakistan’s trade with other countries in the form of imports and exports is about 30% of its GDP. This shows how important is the sector of foreign trade for our economy. Growth and stability of our national income and standard of living of people are closely linked with the foreign trade. The production of our farms and factories is supplied all over the world and on the other side these farms and factories are heavily depending on imported materials and machinery. Daily, goods worth million are pouring into Pakistan. Pakistan has trade relations with most of the countries of the world. Large number of commodities is exported and numerous goods and services are imported each year from around the globe.
Major exports of Pakistan 2013
Total export of Pakistan during 2012 – 2013 was US$ 15,883 million.
Rice “Semi or wholly milled (earned US$ 1,790,214.26 million.)
Single cotton yarn with 85% cotton (earned US$ 1,436,430.76 million).
kitchen and toilet linen(earned US$ 760,469.74 million)
Bed linen of cotton (earned US$ 673,166.26 million).
Leather garments(earned US$ 234 million)
textile exports(earned US$8.483 billion)
Jewelry earned(Rs.7,528 million)
Towels (earnedRs.5,575 million)
Fruits (earnedRs.5,359 million)
Major Exports market:
USA, China, Afghanistan, UAE, UK
Major Imports of Pakistan 2013
Major commodities of imports were Petroleum crudes (spend Rs.32,773 million)
Medicinal products (spend Rs.5,313 million)
Palm oil (spendRs.19,740 million)
Electrical machinery(spend Rs. 7,408 million)
Power generating machinery (spend Rs.11,779 million)
Plastic materials (spendRs.11,557 million)
Raw cotton (spend Rs.11,640 million)
Trade balance was US$15,675.00 million.
Major exports of Pakistan 2017
Textiles(earned USD 3803 million), cotton(earned USD 3497 million), knitted clothing(earned USD 2347 million), not knitted clothing(earned USD 2253 million), cereals(earned USD 1717 million), leather(earned USD 644 million), salt, lime and cement(earned USD 448 million), fruits, vegetables and nuts(earned USD 435 million), optical(earned USD 364 million) and rice(earned above 2 billion dollars).
Major export markets
Pakistan trade with a large number of countries but its exports are highly concentrated in few countries like USA, UAE, Chins, Afghanistan, Germany, UK, France and Bangladesh.
Major imports of Pakistan 2017
Oil(spend USD 10 billion, 35% of total imports), machinery(spend USD 4.1 billion), electronic equipment(spend USD 3.8 billion), iron and steel(spend USD 2.8 billion), plastics(spend USD 1.9 billion), organic chemicals(spend USD 1.9 billion), animals/vegetable fats and oil(spend USD 1.9 billion), vehicles(spend USD 1.7 billion), fertilizers(spend USD 1 billion), oil seeds( spend USD 748.9) and transport equipment 5%.
Major import markets
Pakistan’s imports are also highly concentrated in few countries like USA, UK, china, japan, Kuwait, Saudi Arab, Germany, and Malaysia.
Disequilibrium in trade
imports are more than the exports in Pakistan which tends to create disequilibrium in the balance of trade. To correct adverse balance of payments, 3 ways are suggested.
More exports( by making them competitive in prices improving the quality of products, increasing surplus of export goods and by controlling immoral practices)
Less imports( by restricting unnecessary imports and by producing substitutes locally)
Minimum expenditure on invisible items.
Saving and investment
Saving and investment are the key factors in the prosperity and economic development of a country. Saving indicates a sacrifice by not consuming the whole of one’s current income. Investment means the spending of the saved amount on items, which increases the income of the investors. Savings come from various sources. Private savings are done by individuals, families and business firms. Public savings means savings by the government. National savings are very important to maintain higher level of investment which is a key determinant of economic growth.
Investment in 2013:
The investment policy in 2013 was enchantment of 1997.Pakistan FDI was also increased USD 1,447 million in 2012-13.Many investments was done like less cost was used in business startup. Agricultural policies were done. Many investments were done in 2013.Interest rate also decreased to 9%.
Compared to other countries, Pakistan has low per capita income. A large part of our population is deprived of even basic necessities of life. Low income is a result of inadequate savings and investment. Our poverty does not allow us to save much. Thus we are caught in a vicious circle working as;
Low income_____low saving____low investment____low production____low income again.
National saving are about 14% of GDP. This rate is insufficient to achieve fast economic growth. Economist recommended a ratio of 20% or more. Low national savings affects availability of funds for economic development.
National savings in 2013:
The federal government saved rs390 billion in 2012-13 through national saving scheme.
Rising savings shortened the gap to 0.9% to 2.1% in preceding years. National savings was13.5% of GDP while 12.5% was in 2011-12 .Domestic saving was also decreased to 13.5 to 8.4%.Public debt stock also increased to 1699 billion than the last year. Revenue deficit in 2013 was also Rs. 649billion.7.5 billion loans was also due to economic problems.
Causes of low savings and investment
Consumption oriented society
Fast growing population
Inadequate chances for investment
Slow industrial growth
Feudalistic political system
Inadequate financial institution
Wastage of public money
Land and gold hungry people
Developing the habit in people to save.
Expansion of banking facilities
Discouraging use of luxuries
Economy in government expenditure
Progressive taxes on income and wealth
Tax on big landlords
Promoting industrial class
Better use of foreign remittance
Law and order situation must be improved
Proper guidance in technical and marketing matters should be provided to prospective investors.
Public finance 2013:
The total outlay for budget 2013 was Rs.3,203 billion. The development expenditure was Rs.591 billion. General Public Services expenditures was Rs.1,877 billion. The tax revenue for the year 2012-13 was 2,503,575 million of which the Federal Board Revenue collected was1,946,000 million. Non tax revenue was 730,331 million. The Non tax revenue was higher as compared to last year. The external debt in Pakistan in 2013 was 61 billion dollars that increased to 73 billion dollars in 2016.
Tough challenges faced by economy during Zardari tenure:
War against terrorism
Calamity of floods in 2010
Heavy Rain in Sindh IN 2011
Rise in debt servicing requirement
When Nawaz sharif took control of government in May 2013 he took steps to stem the increasing fiscal deficit. The loan from IMF of $6.6 billion prevented balance of payment crises. The budget deficit declined from 8.2% of GDP. In fiscal year 2013 to 4.6% in 2016.this was due to increasing tax revenues and better managing expenditure by government.
Reduction in budget deficit is because of the following reasons
Federal Board Revenue increases tax collection by 20%
Decrease in debt servicing expenses
Healthy growth in revenues
Contraction in total expenditure.
Through Improved administration
Public finance 2017
The total outlay for budget 2017 was Rs 4.75 trillion. The tax revenue was target at Rs 4.33tr, of which the Federal Board Revenue collected Rs 4.01tr.
Pakistan was touching that border line as its reserves stood at &14.3 billion on August 4,2017. External debt in Pakistan increased to 88891 USD Million in the fourth quarter of 2-17 from 85052 USD million in the third quarter of 2017.
Infrastructure improvement will allow Pakistan to get closer to its Millennium Development Goals set in terms of water supplies, sanitation, health and education. Apart from this Pakistan is lacking behind in social development due to poor infrastructure. Better communication systems and transportation system beyond this will improve our condition. Agriculture sector must be noticed.