Economic

Survey of
Pakistan
2003-04

An online publication by
Chapter 1. Growth and Investment
1. Growth and Investment
A modest pickup of growth in an
environment of extreme uncertainty caused by
various external shocks is one of the major
achievements of the outgoing fiscal year 2001-02.
Global economic downturn further aggravated by
the events of September 11, the prolongation of
catastrophic drought conditions, and heightened
tension with India after the events of December 13
are some of the major shocks which have
prevented Pakistan achieving higher economic
growth in fiscal year 2001-02.
The outgoing fiscal year has been the
most difficult and challenging year for the world
economy in general and Pakistan in particular.
This year has seen many epoch-making events
unfolding on the international scene with serious
economic consequences. It is well-known that the
world economy was already witnessing a
synchronized slow down along with deceleration
in trade growth and falling commodity prices
since late 2000. To a considerable extent, this
synchronicity was the result of common shocks,
including the increase in oil prices and the
bursting of the information technology (IT)
bubble, both of which had a worldwide impact.
For the first time since 1974-75, the world’s major
economies were decelerating in tandem.
The tragic events of September 11 and
their aftermath further exacerbated the difficult
situation and hastened the global downturn. By
the end of 2001, the world economy had slipped
into recession. Both developed and developing
countries have seen their economic growth
plunge. The United States, the European Union,
and Japan being the major growth poles of the
world economy, witnessed sharp deceleration in
their economic growth. International trade played
a major role in transmitting the slowdown in
these economies to developing countries. Table
1.1 presents the growth performance of selected
regions/countries for the period 2000-2002. As
shown in Table 1.1, the deceleration in growth
was witnessed across the board. Pakistan, being a
part of the global economy, had to face an
increasing difficult global environment
throughout 2001-02.
Pakistan’s growth performance during
the fiscal year 2001-02 was also adversely affected
by the prolongation of catastrophic drought
conditions. The acute shortage of irrigation water
and substantially lower than normal rainfall have
adversely affected the performance of major
crops, preventing agriculture to contribute its due
share to the overall economic growth of the
country. Heightened tension with India after the
incident of December 13 are yet another factor
which has clouded the growth environment in
Pakistan during the outgoing fiscal year.
The easing of macroeconomic policies in
advanced countries, notably in the United States
and in a number of emerging market economies,
particularly in Asia, to combat the aftermath of
September 11 are paying off. There is a general
consensus that the global slow down has
bottomed out and that the recovery would be
sooner than expected. The growth outlook for
2002 appears relatively brighter. The developing
countries will benefit from the pickup of growth
in advanced industrial countries. Pakistan, being a
developing country, is also likely to benefit from
improvement in external demand.
Chapter 1. Growth and Investment

Table 1.1
Regional Growth Performance
Real GDP Growth (%)
2002
Region/Country 2000 2001 (Projection)
World GDP 4.7 2.5 2.8
European Union 3.4 1.7 1.5
United States 4.1 1.2 2.3
Japan 2.2 -0.4 -1.0
Germany 3.0 0.6 0.9
Canada 4.4 1.5 2.5
Developing Countries 5.7 4.0 4.3
China 8.0 7.3 7.0
Newly Industrialized Asian Economics 8.5 0.8 3.6
Hong Kong SAR 10.5 0.1 1.5
Korea 9.3 3.0 5.0
Singapore 10.3 -2.1 3.2
ASEAN
Indonesia 4.8 3.3 2.5
Malaysia 8.3 0.4 3.0
Thailand 4.6 1.8 2.7
Philippines 4.0 3.4 4.0
South Asia
India 5.4 4.3 5.5
Bangladesh 5.5 4.5 3.9
Sri Lanka 6.0 0.4 -
Pakistan 2.5 3.6 4.5
Source: World Economic Outlook (IMF), April 2002,

Notwithstanding an increasingly difficult 3.3 percent, with agriculture growing by 1.9

external environment, heightened tension with
India, and continuing drought, Pakistan’s
economic growth not only remained relatively
resilient but improved over last year. The pickup
of growth was mainly contributed by
manufacturing and services.
The real GDP was originally targeted to
grow by 4.0 percent in 2001-02, with agriculture
and manufacturing growing by 2.0 percent and
6.2 percent respectively. While fixing the growth
target the continuation of drought like situation
with lesser degree and some slowdown in global
economy were anticipated. However, the
persistence of acute shortage of water for
irrigation purpose on the one hand and the events
of September 11 and their aftermath on the other,
compelled to revise the real GDP growth target to
percent and manufacturing by 3.8 percent.
Despite many difficulties, as enunciated
above, the real GDP growth staged a modest
recovery to 3.6 percent in 2001-02 as against the
revised target of 3.3 percent and last year's
achievement of 2.5 percent. This growth is
supported by a 1.4 percent, 4.4 percent and 5.2
percent growth in agriculture, manufacturing and
services, respectively. Two points need to be noted
as far as Pakistan's growth performance is
concerned. Firstly, when compared with major
economies of different parts of the world, Pakistan's
growth performance has been reasonably good (see
Table 1.1). Secondly, when growth decelerated all
around, it staged a modest recovery in Pakistan.
The persistence of drought has prevented Pakistan
achieving even higher economic growth. Drought
Chapter 1. Growth and Investment
not only affected major and minor crops but
livestock as well. Drought also affected the
performance of electricity & gas distribution
because hydel electricity generation declined,
forcing WAPDA to purchase expensive electricity
from the IPPs. Thus the value addition in electricity
and gas distribution registered a decline of 2.8
percent in 2001-02. For three years in a row, the
Table 1.2
Real GDP Growth With and Without Drought
Sector 1999-2000
Real GDP 3.9
Non-Agricultural GDP 3.1
Real GDP Growth Adjusted For Drought 4.0
Impact*
* The Real GDP growth is calculated by excluding value added in agriculture and electricity & gas distribution
It can be seen from the Table that Pakistan’s
non-agricultural GDP growth remained stable at
around 4.3 percent during the last two years.
Furthermore, when adjusted for drought impact
(excluding value addition of agriculture and
electricity & gas distribution), the real GDP is
provisionally estimated to grow by 4.7 percent as
against 5.2 percent of last year. What is important to
note is that, the slower growth in real GDP over the
last two years has been caused by catastrophic
drought. Had there been no drought, Pakistan’s
economic growth would have been around 5
percent.
The real GNP grew by 5.4 percent in 2001-
02 as against 2.5 percent last year, mainly because of
148.8 percent increase in net factor income from
abroad, which, in turn, is the result of a sharp
increase in the inflow of workers remittances. With
population growing by 2.2 percent, the real per
capita GNP at factor cost increases by 3.2 percent in
2001-02 as against a marginal increase of 0.2 percent
last year.
value addition in electricity and gas distribution has
registered negative growth.
To gauge the impact of drought on
Pakistan’s growth performance, it is imperative to
examine the performance of non-agricultural GDP.
Such information is given in Table 1.2:
(Percent)
2000-01 2001-02
2.5 3.6
4.2 4.3
5.2 4.7
Notwithstanding the pick-up of growth to
3.6 percent in 2001-02 from 2.5 percent last year,
the fact remains that Pakistan’s economic growth
has slowed over the last one decade for a variety
of reasons, including worsening of
macroeconomic environment, serious lapses in
implementation of stabilization policies and
structural reforms, adverse law and order
situation, inconsistent policies, and poor
governance. As against an average growth rate of
6.1 percent in the 1980s, the real GDP growth
slowed to an average of 4.9 percent in the first half
and 4.0 percent in the second half of the 1990s.
The large-scale manufacturing and services
sectors contributed largely to the deceleration of
growth in the 1990s. The former grew by an
average annual rate of 8.2 percent in the 1980s,
slowed to an average of 4.7 percent in the first half
and further to 2.4 percent in the second half of the
1990s. In fact, over the last decade, the large-scale
manufacturing lost almost three-fourth of its
growth momentum. The services sector also
slowed from an average growth of 6.6 percent in
the 1980s to 5.1 percent in the first half and further
Chapter 1. Growth and Investment

to 4.0 percent in the second half of the 1990s, the last one decade [See Table 1.3 and Figure-1].
losing one-third of its growth momentum during

Table 1.3
Growth Performance of Real Sector

Item Unit 1980’s 1990-95 1995-2000 2000-01 2001-02

A. GDP GROWTH RATE % 6.1 4.9 4.0 2.5 3.6
a. Agriculture % 4.1 4.2 4.9 -2.6 1.4
b. Manufacturing % 8.2 4.8 3.2 7.6 4.4
c. Large-scale Manufacturing % 8.2 4.7 2.4 8.6 4.0
d. Services % 6.6 5.1 4.0 4.8 5.1
As %
B. TOTAL INVESTMENT 18.6 19.5 17.1 15.9 13.9
of GDP
a. Fixed Investment 16.8 18.0 15.3 14.3 12.3
b. Public Investment 9.1 8.6 6.4 6.3 4.7
c. Private Investment 7.8 9.4 8.9 8.0 7.6
C. NATIONAL SAVING As % 14.7 14.9 12.7 15.1 15.4
of GDP
a. Domestic Saving 7.7 13.9 13.8 16.5 14.7
Source: Federal Bureau of Statistics

Growth decelerated in the 1990s because
both total and fixed investment as percentage of
GDP declined in the same period. Total
investment and fixed investment averaged 18.6
percent and 16.8 percent of the GDP, respectively
in the 1980s; declined to 17.1 percent and 15.3
percent respectively in the second half of the
1990s. The decline mainly emanated from public
investment which averaged 9.1 percent of GDP in
1980s but declined to 6.4 percent of GDP in the
second half of the 1990s. The public sector
investment has significant importance as a growth
stimulus in developing countries. As it is well-
known, a stable macroeconomic environment is
conducive to investment and therefore to growth.
Persistence of large fiscal and current account
deficits during most of the 1990s have been the
underlying cause of macroeconomic instability,
which in turn affected investment and impeded
growth.

Fig-1: Real GDP Growth

7 6.1
6 4.9
5 4
% Growth

3.6
4
3 2.5
2
1
0
1980's 1990-I 1990-II 2000-01 2001-02
 Chapter 1. Growth and Investment

National saving rate also witnessed a
decline from an average of 14.7 percent in the
1980s to 14.9 percent in the first and 12.7 percent
in the second half of the 1990s. [See Table-1.3].
National savings rate has picked up during the
last two years because of the significant
improvements in the current account balance. For
an investment friendly environment and
sustainable growth, a stable macroeconomic
environment is the key and its core elements
include low inflation, sustainable budget deficit,
realistic exchange rates, appropriate real interest
rates, and consistent policy.
Having discussed the overall growth and
investment relationship in the context of the 1990’s,
it is now appropriate to have a detailed discussion
on the growth performance of the components of
gross national product for the outgoing fiscal year
2001-02. The performance of the components of
national accounts over the last two decades along
with most recent three years, are documented in
Table 1.4.
Commodity Producing Sector
The growth performance of the
commodity-producing sector has improved during
2001-02 over last year. As against an almost flat
growth of last year, the commodity producing
sector grew by 2.1 percent in 2001-02. The
improvement has mainly come from agriculture,
which has registered positive growth as opposed to
negative growth of last year. [See Table 1.4]

Table 1.4
Growth Performance of Components of Gross National Product
(% Growth At Constant Factor Cost)
1980’s 1990’s 1999-2000 2000-01 2001-02
Commodity Producing Sector 6.5 4.6 3.0 0.2 2.1
1. Agriculture 5.4 4.4 6.1 -2.6 1.4
- Major Crops 3.4 3.5 15.1 -9.8 -0.5
- Minor Crops 4.1 4.6 -9.1 0.1 1.0
- Livestock 5.3 6.4 2.4 4.9 3.4
- Fishing 7.3 3.6 9.7 -3.7 4.0
- Forestry 6.4 -5.2 113.0 9.9 1.1
2. Mining & Quarrying 9.5 2.7 6.2 4.3 3.8
3. Manufacturing 8.2 4.8 1.4 7.6 4.4
- Large Scale 8.2 3.6 -0.2 8.6 4.0
- Small Scale 8.4 7.8 5.3 5.3 5.3
4. Construction 4.7 2.6 5.2 -0.4 0.9
5. Electricity & Gas Distribution 10.1 7.4 -9.8 -11.0 -2.8
Services Sector 6.6 4.6 4.8 4.8 5.1
6. Transport, Storage and
Communications 6.2 5.1 3.6 5.0 0.1
7. Wholesale & Retail Trade 7.2 3.7 2.9 5.2 2.2
8. Finance & Insurance 6.0 5.8 8.2 2.8 3.8
9. Ownership of Dwellings 7.9 5.3 5.3 5.3 5.3
10.Public Administration & Defence 5.4 2.8 7.0 1.2 18.2
11.Services 6.5 6.5 6.5 6.5 6.5
12.GDP (Constant Factor Cost) 6.1 4.6 3.9 2.5 3.6
13.GNP (Constant Factor Cost) 5.5 4.0 3.5 2.5 5.4
Source: Federal Bureau of Statistics and Economic Adviser’s Wing.
Chapter 1. Growth and Investment
Agriculture
Agriculture growth had suffered a severe
setback last year as a result of the catastrophic
drought. While major crops registered a negative
growth of almost 10 percent, the overall agriculture
recorded a negative growth of 2.6 percent last year.
While fixing the growth target for 2001-02, some
shortage of irrigation water was anticipated.
Accordingly, the overall agriculture was targeted to
grow by 2.0 percent and major crops were projected
to register a negative growth of 0.2 percent.
The drought conditions persisted all along
during 2001-02, resulting in water shortage of up to
51 percent of normal supplies as against 40 percent
of last year. The total flows of water in major rivers
also declined to 91.15 million acre feet (MAF)
against an average of 131.69 MAF. Rainfall has also
been below normal. The canal head withdrawals in
Kharif 2001 and Rabi 2001-02 seasons have also
witnessed significant decline. Thus the
unprecedented drought that engulfed the entire
country last year continued to have crippling effects
on Pakistan's agriculture during 2001-02 as well.
Notwithstanding severe water shortages
the farmers in Pakistan undertook various
measures to minimize its adverse effects. These
include judicious use of water, exploitation of under
ground water, purchase of water from tube wells,
improvements in cultural practices, and better
overall management. As a result, overall agriculture
registered a positive growth of 1.4 percent in 2001-
02 as against a decline of 2.6 percent last year and
the current year's revised target of 1.9 percent.
Major crops, though registered a negative
growth of 0.5 percent in 2001-02 as against the
target of a decline of 0.2 percent, have performed
relatively well when compared with a decline of
almost 10 percent last year. Major crops including
wheat, cotton and rice witnessed decline in
production by 2.9 percent, 1.1 percent, and 19.2
percent, respectively. However, the production of
sugarcane witnessed substantial increase of 10.2
percent during 2001-02. [See Chapter-2 for details]
Minor crops have grown slightly by 1.0
percent in 2001-02 as against the growth target of
5.0 percent growth and marginal increase of 0.1
percent last year. The performance of minor crops
is also affected by the prevalent long dry spell.
The minor crops include cereals, vegetables,
fruits, condiments, oil seeds, fodder and others.
Livestock sub-sector has witnessed a
modest growth of 3.4 percent in 2001-02 as
compared with the target of 2.8 percent and actual
achievement of 4.9 percent in 2000-01. The
production of milk, egg and mutton are estimated
to have gone up by 2.9, 2.3 and 2.6 percent,
respectively. The fisheries sector witnessed a
growth of 4.0 percent as against a decline of 3.7
percent last year. Components of fisheries such as
marine fishing (4.2 percent) and inland fishing
(3.7 percent), contributed to overall increase in
value added in the fisheries sub-sector. The value
added estimates of the forestry sub-sector
indicates slight improvement of 1.1 percent as
compared to 9.9 percent growth of last year. The
production of timber went up by 4.6 percent
whereas that of firewood declined by 0.8 percent.
Mining & Quarrying
The output in the mining and quarrying
sector has surpassed the target of 2.5 percent and
grew by 3.8 percent in 2001-02 as against 4.3
percent of last year. The production activity in the
sector is mainly concentrated in crude oil, natural
gas and coal, the collective weight of these three is
three-fourth of the value addition. The value
added in crude oil increased by 10.2 percent
followed by coal (2.5 percent) and natural gas (5.6
percent). The production activity in agric lay (-0.4
percent), barites (-4.8 percent), rock salt (-3.4
percent), china clay (-4.2 percent) and magnisite (-
16.5 percent) remained depressed.
Manufacturing
One of the most important developments
of 2000-01 was the sharp rebound in
manufacturing, which grew by 7.6 percent. While
fixing the current year’s target some slow down in
Chapter 1. Growth and Investment
global economy was anticipated. Accordingly,
manufacturing was targeted to grow by 6.2 percent.
However, as a result of the events of September 11
and December 13 and consequent developments
thereafter, the target for manufacturing was revised
downward to 3.8 percent. Against the revised target
of 3.8 percent, manufacturing grew by 4.4 percent in
fiscal year 2001-02.
Large-scale manufacturing accounts for 70
percent of overall manufacturing. Against an
impressive recovery of 8.6 percent last year, large-
scale manufacturing was targeted to grow by 6.5
percent in 2001-02. The events of September 11 and
their aftermath and heightened tensions with India
after the incident of December 13 seriously affected
industrial production. Accordingly, the target for
large-scale manufacturing was revised downward
to 3.2 percent for the year 2001-02.
Large-scale manufacturing registered a
growth of 4.0 percent during the first nine months
(July-March 2001-02) of the outgoing fiscal year as
against the revised target of 3.2 percent and last
year’s impressive growth of 8.6 percent. Given the
difficult regional and global economic
environment, the performance of large-scale
manufacturing sector has been satisfactory. The
major industries that registered positive growth
include sugar (9.2 percent), petroleum products
(18.7 percent), cooking oil (12.9 percent), jeeps &
cars (3.7 percent), LCV’s (15.0 percent), cotton
cloth (15.2 percent), paper & board (2.8 percent),
tea blended (1.3 percent), cotton yarn (4.8
percent), flakes & detergent (29.5 percent),
nitrogenous fertilizer (5.6 percent) and beverages
(11.3 percent). Seven out of 11 major industrial
groups posted positive growth while four
registered negative growth. The individual
industries that depicted negative growth include:
cosmetics (32.9 percent), phosphatic fertilizer (49.5
percent), paints & varnishes (14.5 percent), billets
(6.4 percent), cigarettes (3.1 percent), vegetable
ghee (6.1 percent), soda ash (2.4 percent), tractors
(26.2 percent), glass plates & sheets (17.2 percent),
TV sets (27.3 percent), buses (23.1 percent) and
cotton ginned (1.1 percent). Small-scale
manufacturing on the other hand continued to
grow by 5.3 percent in 2001-02.
Construction sector has improved its
growth performance by increasing marginally by
0.9 percent in 2001-02 as against previous year’s
negative growth of 0.4 percent. Electricity and gas
distribution sector continued to post negative
growth for the last three years. Consequently, the
value addition in electricity and gas distribution
registered a negative growth of 2.8 percent in
2001-02 as against a negative growth of 11 percent
last year. The continued drought has severely
affected WAPDA’s hydel electricity generation
capacity forcing it to purchase expensive
electricity from the IPPs. This has resulted in the
decline in the value addition of WAPDA by 40.4
percent over last year.
Services Sector
The Services Sector has been growing at a
faster rate than commodity producing sector of
the economy for quite sometime. It has
maintained the same trend in 2001-02. Services
sector grew by 5.1 percent as against 4.8 percent
of last year. Within this sector, the wholesale &
retail trade grew by 2.2 percent as against 5.2
percent of last year.
Finance and insurance sub-sector showed
slightly better performance as it grew by 3.8
percent during 2001-02 as against the target of 5.0
percent and last year’s achievement of 2.8 percent.
Transport & communication sub-sector registered
a marginal growth of 0.1 percent as compared to
5.0 percent of last year and against the target of
4.2 percent for the current year. Public
administration and defence has registered a
growth of 18.2 percent as against 1.2 percent last
year. Two minor sectors that is, ownership of
dwellings and social services, have maintained the
estimated growth of 5.3 percent and 6.5 percent,
respectively.
Sectoral Contribution to GDP Growth
Larger contribution to growth has been
originating from services sector for quite
Chapter 1. Growth and Investment

sometime. Table 1.5 depicts contributions from last three decades. The share of commodity-
major components of GDP to overall economic producing sectors declined from 61.6 percent in
growth. Almost 70 percent contribution to growth 1969-70 to 49.1 percent in 2001-02 while the share
(2.5 percentage point out of 3.6 percent of real of services sector increased from 38.4 percent to
GDP growth) has come from services sector 50.9 percent during the same period. Further
followed by manufacturing sector (21 percent) disaggregation of the commodity-producing
and agriculture (9 percent). The contribution sector shows that the share of agriculture has
towards growth is summarized in Table-1.5: declined substantially from 38.9 percent in 1969-
70 to 24.1 percent—a decline of almost 15
Table-1.5
percentage points in three decades but on the
Sectoral Contribution to the GDP growth
other hand the share of manufacturing has
(Percentage Points)
remained more or less stagnant over the last three
Sector 2000-01 2001-02
decades. This implies that the services sector has
Agricultue -0.65 0.33
gained at the expense of the ground lost by the
Manufacturing 1.18 0.75
agricultural sector. [See Table 1.6] Within Services
Services 1.92 2.53
sector the pattern has remained more or less the
Real GDP (Fc) 2.45 3.61
same for the last three decades with the exception
Source: Federal Bureau of Statistics. of changes in the share of transport, storage and
Sectoral Shares in GDP communication which expanded from 6.3 percent
of GDP in 1969-70 to 10.1 percent in 2001-02. The
The composition of the Gross Domestic details are given in Table 1.6:
Product has undergone drastic changes over the

Table 1.6
Sectoral Share of Various Sectors in Gross Domestic Product
(At Constant Factor Cost)
(Percent)
1969-70 1998-99 1999-2000 2000-01 2001-02(P)
Commodity Producing Sector 61.6 51.1 50.9 49.8 49.1
1. Agriculture 38.9 25.4 25.9 24.6 24.1
- Major Crops 23.4 10.3 11.5 10.1 9.7
- Minor Crops 4.2 4.9 4.2 4.1 4.0
- Livestock 10.6 9.3 9.1 9.3 9.3
- Fishing 0.5 0.9 0.9 0.9 0.9
- Forestry 0.1 0.1 0.1 0.3 0.3
2. Mining & Quarrying 0.5 0.5 0.5 0.5 0.5
3. Manufacturing 16.0 17.1 16.7 17.5 17.7
- Large Scale 12.5 12.1 11.7 12.4 12.4
- Small Scale 3.5 5.0 5.0 5.2 5.3
4. Construction 4.2 3.4 3.5 3.4 3.3
5. Electricity & Gas Distribution 2.0 4.7 4.4 3.8 3.6
Services Sector 38.4 48.9 49.1 50.2 50.9
6. Transport, Storage and 6.3 10.3 10.2 10.5 10.1
Communication
7. Wholesale and Retail Trade 13.8 15.2 14.9 15.3 15.1
8. Finance and Insurance 1.8 2.5 2.3 2.3 2.3
9. Ownership of Dwellings 3.4 5.9 5.9 6.1 6.2
10.Public Administration and Defence 6.4 6.1 6.5 6.4 7.3
11.Other Services 6.7 9.1 9.3 9.7 9.9
12.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0
(P) Stands for provisional. Source: Economic Adviser’s Wing, Finance Division
Chapter 1. Growth and Investment

Per Capita Income
Due to relatively slower growth in real
GDP in the 1990s, the per capita income grew at
an average rate of 1.4 percent per annum. The
fiscal year 2001-02 witnessed a real increase of 3.2
percent in per capita income, which is the highest
growth since 1995-96. At current prices, per capita
income grew by 9.2 percent in 2001-02 as against
the average growth of 6.3 percent during the last
four years (1997/98-2000/01) The developments
in per capita income are summarized in Table 1.7.

Table 1.7
Growth in Per capita Income
Per Capita Per Capita
Income at 1980- % Income at %
81 prices Growth current MP Growth
(Rs) (Rs)
1991-92 4326 3.9 10853 14.3
1992-93 4303 -0.5 11672 7.5
1993-94 4367 1.5 13271 13.7
1994-95 4505 3.2 15552 17.3
1995-96 4644 3.1 17059 9.7
1996-97 4601 -1.0 18983 11.3
1997-98 4575 -0.6 20415 7.5
1998-99 4662 1.9 21899 7.3
1999-2000 4719 1.2 22811 4.2
2000-2001 4730 0.2 24198 6.1
2001-02 4881 3.2 26413 9.2
Note: FC means factor cost and MP represents market prices. Source:1) Federal Bureau of Statistics
2) Economic Adviser Wing

Savings and Investment 12.3 percent of GDP, respectively in 2001-02. Public

Total investment stood at around 16
percent of GDP last year and there were indications
that with further improvement in investment
climate, the overall investment will rise further
during the outgoing fiscal year. However, the
events of September 11 and December 13 and their
aftermath greatly clouded the investment climate
and affected investor sentiment. As a result, total
and fixed investment declined to 13.9 percent and
sector investment declined to 4.7 percent in 2001-02
from last year’s level of 6.3 percent. This was in line
with government's conscious policy decision to
create greater space for the private sector. Private
sector’s fixed investment also declined, though
marginally, from 8.0 percent to 7.6 percent of GDP.
Had there been no extraordinary events during the
year, private sector investment would have surged.
Tables-1.8 reflects changing patterns of saving and
investment during last five years.

Table 1.8
Structure of Savings and Investment
(As Percent of GDP)
Description 1997-98 1998-99 1999-2000 2000-01 2001-02 (P)
Total Investment 17.3 15.6 16.0 15.9 13.9
Changes in Stock 2.6 1.6 1.6 1.6 1.6
Gross Fixed Investment 14.7 13.9 14.4 14.3 12.3
- Public Investment 5.2 6.0 6.0 6.3 4.7
- Private Investment 9.5 7.9 8.4 8.0 7.6
Foreign Savings 3.0 4.1 1.9 0.9 -1.5*
National Savings 14.3 11.4 14.1 15.0 15.4
Domestic Savings 15.2 12.3 15.6 15.9 15.2
Note: (P) stands for provisional Source: Economic Adviser’s Wing
*: The current account balance numbers (both including and excluding official transfers) are not comparable with the one
presented by IMF because of different treatment accorded to outright purchases from the Kerb market.
Chapter 1. Growth and Investment
While investment has declined, the
national savings as percentage of GDP has
increased from 15.0 percent last year to 15.4 percent
in 2001-02, mainly on account of a significant
improvement in the current account balance which
eliminated the need for recourse to foreign savings
to finance domestic investment.
It may be noted that national saving rate
has increased by 3.7 percentage points since 1998-
99. National savings, when adjusted for net income
from abroad, gives us domestic savings which
stood at 14.7 percent of GDP in 2001-02.
Chapter 2. Agriculture

2. Agriculture
Agriculture is the mainstay of Pakistan’s
economy. Nearly one-fourth of total output (GDP)
and 44 percent of total employment is generated in
agriculture. It also contributes substantially to
Pakistan’s exports. Agriculture also contributes to
growth as a supplier of raw materials to industry as
well as market for industrial products. Not only that
44 percent of country’s work force are employed in
agriculture but 67.5 percent of country’s population
living in rural areas are directly or indirectly linked
with agriculture for their livelihood. Whatever
happens to agriculture is bound to affect not only
the country’s growth performance but to a large
segment of the country’s population as well. Like in
South Asia, poverty in Pakistan is largely a rural
phenomena and agriculture will have to play a
critical role in the fight against poverty in the
country. It is because of
its central importance in reviving economic growth
and reducing poverty that the Government has
identified agriculture as one of the four major
drivers of growth (oil + gas, SMEs, and information
technology are the three other drivers of growth).
Agriculture has grown at an average rate of
3.5 percent per annum since 1991-92 (See Table 2.1)
with wild fluctuations – rising by 11.7 percent and
falling by 5.3 percent. The fluctuation in agricultural
growth has largely stemmed from fluctuation in
major crops which, in turn, is the result of the
behaviour of mother nature, pest attacks on crops,
adulterated pesticides, and relatively lesser attention
given to its sub-sectors other than crop farming. The
trends in agriculture growth since 1991-92 are
reported in Table 2.1.

Table 2.1
Agriculture Growth
(Percent)

Year Agriculture Major Crops Minor Crops

1991-92 9.5 15.5 2.4
1992-93 -5.3 -15.6 3.6
1993-94 5.2 1.2 12.6
1994-95 6.6 8.7 6.9
1995-96 11.7 6.0 4.9
1996-97 0.1 -4.3 0.9
1997-98 3.8 8.3 3.3
1998-99 2.0 -0.02 4.2
1999-00 6.1 15.1 -9.1
2000-01 -2.6 -9.8 0.1
2001-02 (P) 1.4 -0.5 1.0
P= Provisional.
Chapter 2. Agriculture
Fig-1: AGRICULTURE GROWTH
20
15
10
0
91-92 92-93 93-94 94-95 95-96
-5
-10
-15
-20
Agri Major Crops
The catastrophic drought that hit the agriculture
last year not only continued with severity but
resulted in water shortages of up to 51 percent of
normal supplies during the outgoing fiscal year.
Last year, agriculture faced water shortages of up to
40 percent of normal supplies. The total flows of
water in major rivers have declined to 91.15 million
acre feet (M.A.F) against an average flows of 131.69
million. Rainfall has also been below normal. The
canal head withdrawals in Kharif 2001 and Rabi
2001-02 seasons have also witnessed significant
decline. Thus the unprecedented drought which
caused serious damage to agriculture last year has
had crippling effect on agricultural production this
year as well.
Notwithstanding severe water
shortages, the value added in agriculture grew by
1.4 percent in 2001-02 as against a decline of 2.6
percent last year. Major crops, accounting for 40
percent of agricultural value added, registered
negative growth second year in a row. As against
a decline of 9.8 percent last year, value added in
major crops recorded a negative growth of 0.5
percent. Minor crops contributing 19 percent to
agricultural value added, managed to register a
positive growth of 1.0 percent as against almost
zero growth last year. Livestock is the second
largest (contributing 37% percent) contributor to
overall agricultural value added. Its growth
96-97 97-98 98-99 99-00 00-01 '01-02
Minor Crops
slowed to 3.4 percent as against 4.9 percent last
year. Fisheries expanded by 4 percent as against a
negative growth of 3.7 percent and forestry
depicted a growth of 1.0 percent as against 9.9
percent of last year. The situation of major crops
for the last five years is presented in Table 2.2
I. Crop Situation
There are two principal crop seasons in
Pakistan, namely the "Kharif" the sowing season of
which begins in April-June and harvesting during
October-December, and the "Rabi", which begins in
October-December and ends in April-May. Rice,
sugarcane, cotton, maize, bajra and jowar are
“Kharif" crops while wheat, gram, tobacco,
rapeseed, barley and mustard are "Rabi" crops.
Major crops, such as, wheat, rice, cotton and
sugarcane account for 90 percent of value added in
major crops. The value added in major crops
accounts for 41 percent of value added in overall
agriculture. Thus, the four major crops (wheat, rice,
cotton, and sugarcane), on average, contribute 36.5
percent to value added in agriculture. The minor
crops consisting of pulses, potatoes, onions, chilies,
garlic etc. account for 10 percent of value added.
The performance of the "Kharif" and "Rabi" crops is
discussed in the ensuing pages.
Chapter 2. Agriculture
Table 2.2
Production of Major Crops
(000 Tonnes)
Cotton
Year Sugarcane Rice Maize Wheat
(000 bales)

1997-98 9184 53104 4333 1517 18694

(-2.0) (26.4) (0.7) (1.7) (12.3)

1998-99 8790 55191 4674 1665 17856

(-4.3) (3.9) (7.9) (9.8) (-4.5)

1999-2000 11240 46333 5156 1652 21079

(27.9) (-16.0) (10.3) (-0.8) (18.0)

2000-01 10732 43606 4803 1643 19024

(-4.5) (-5.9) (-6.8) (-0.5) (-9.7)

2001-02 (P) 10613 48042 3882 1665 18475

(-1.1) (10.2) (-19.2) (1.3) (-2.9)
P: Provisional.(July-March) Source: Ministry of Food, Agriculture and Livestock.
*: Figures in parentheses are growth rates Federal Bureau of Statistics.

a) Main Kharif Crops:
i) Cotton:
Cotton is the important non-food cash crop
and a significant source of foreign exchange earning.
It accounts for 11.5 percent of value added in
agriculture and about 2.7 percent of GDP. In
addition to providing raw material to the local
textile industry, the lint cotton is a major export
item. Production of cotton is provisionally
estimated at 10.6 million bales for 2001-02, which is
1.1 percent lower than last year. The shortage of
irrigation water is mainly responsible for lower
production. Cotton was cultivated on an area of
3116 thousand hectares, which was 6.5 percent
higher than last year (2927 thousand hectares). The
crop however suffered from pest attack in some of
the cotton growing areas and as such its yield per
hectare declined by 8.6 percent. Area, production
and yield of cotton for the last five years are given in
Table 2.3.

Table 2.3
Cotton, Area, Production and Yield

Area Production Yield

(000 % %
Year (000 Bales) (Kgs/Hec) %Change
Hectare) Change Change

1997-98 2960 -6.0 9184 -2.0 528 4.3

1998-99 2923 -1.2 8790 -4.3 512 -3.0
1999-2000 2983 2.0 11240 27.9 641 25.2
2000-01 2927 -1.9 10732 -4.5 624 -2.7
2001-02(P) 3116 6.5 10613 -1.1 570 -8.6
P=Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock
Federal Bureau of Statistics.
Chapter 2. Agriculture

shortfall is attributed to the shortage of water which

Fig-2: Cotton production (000 bales)
14000 resulted in delayed plantation, as well as shift in
13000 area from irri to basmati rice – a relatively high
12000 valued cash crop. Rice was cultivated on an area of
11000 2114 thousand hectares, which was 11.1 percent
10000 lower than last year. The yield per hectare is also
9000 lower by 9.1 percent. Area, production and yield of
8000 rice for the last five years are given in Table 2.4.
7000
6000
5000 Fig-3: Rice production (000 Tonnes)
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02
5500

5000

4500

ii) Rice: 4000

3500

Rice is a highly valued cash crop and is also 3000

a major export item. It accounts for 6.7 percent in 2500

value added in agriculture and 1.6 percent in GDP.

2000
Production of rice during 2001-02 is provisionally
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02
estimated at 3882 thousand tonnes, which is 19.2
percent lower than last year. The

Table 2.4
Area, Production and Yield of Rice

Year Area Production Yield

(000 % (000 %
(Kgs/Hec) % Changes
Hectare) Change Tonnes) Change
1997-98 2317 2.9 4333 0.7 1870 -2.2
1998-99 2424 4.6 4674 7.9 1928 3.1
1999-2000 2515 3.8 5156 10.3 2050 6.3
2000-01 2377 -5.5 4803 -6.8 2021 -1.4
2001-02(P) 2114 -11.1 3882 -19.2 1836 -9.1
P: Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

iii) Sugarcane: baggase is useful as fuel and as an input to the paper

industry. Its shares in value added in agriculture
Sugarcane crop is highly water intensive and GDP are 6.3 percent and 1.5 percent,
cash crop and serves as a major raw material for respectively. Sugarcane was cultivated on an area of
production of white sugar and gur. Sugarcane tops 1000 thousand hectares during the current fiscal
and molasses are valued as livestock fodder while year, showing an increase of 4.1 percent over the
Chapter 2. Agriculture
last year. The size of the sugarcane crop is
provisionally estimated at 48042 thousand tonnes Fig-4: Sugarcane production
(000 Tonnes)
which are higher by 10.2 percent, as compared with 60000
last year. The yield per hectare has also increased by 55000
5.9 percent. The increased production is the result of
50000
judicious application of fertilizer and water,
45000
improvement in cultural practices and better
40000
management.
35000

The area, production and yield per hectare 30000

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02
for the last five years are given in Table 2.5.

Table 2.5
Area, Production and Yield of Sugarcane
Year Area Production Yield
(000 Hectare % (000 Tonnes) % (Kgs/Hec.) %
Change Change Change
1997-98 1056 9.4 53104 26.4 50288 15.5
1998-99 1155 9.4 55191 3.9 47784 -5.0
1999-2000 1010 -12.6 46333 -16.0 45904 -3.9
2000-01 961 -4.9 43606 -5.9 45376 -1.1
2001-02(P) 1000 4.1 48042 10.2 48042 5.9
P: Provisional. (July-March) Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

b) Main Rabi Crop
Wheat:
Wheat is the leading food grain of Pakistan,
and being the staple diet of the people it occupies a
central position in agricultural policies. It contributes
12.5 percent to the value added in agriculture and
2.9 percent to GDP. Wheat was cultivated on an
area of 7983 thousand hectares -
2.4 percent lower than last year. The size of the
wheat crop is provisionally estimated at 18475
thousand tonnes which is 2.9 percent lower than last
year. The long dry spell affected the crop both in
barani and irrigated area. The yield per hectare also
decreased by 0.5 percent. The area, production and
yield for the last five years are given in Table 2.6.

Table 2.6
Area, Production and Yield of Wheat
Area Production Yield
Year (000 % (000 %
hectares) tonnes) (Kgs/Hec.) % Changes
Change Change
1997-98 8355 3.0 18694 12.3 2238 9.0
1998-99 8230 -1.5 17858 -4.5 2170 -3.0
1999-2000 8463 2.8 21079 18.0 2491 14.8
2000-01 8181 -3.3 19024 -9.7 2325 -6.7
2001-02(P) 7983 -2.4 18475 -2.9 2314 -0.5
P= Provisional.(July-March). Source: Ministry of Food, Agriculture and Livestock.
Chapter 2. Agriculture
Federal Bureau of Statistics.
c) Other Major Crops

Fig-5: Wheat production (000 Tonnes)

Barring barley, all the other major crops
22000
have registered increases over the last year’s
20000 production. The production of maize during the
current year is provisionally estimated at 1665
18000
thousand tonnes, showing an increase of 1.3
16000 percent. The production of bajra and jowar of Kharif
crop registered an increase of 9 percent and 1.8
14000
percent, respectively. The production of gram and
12000 rapeseed & mustard, grew by 2.3 percent and 12.6
percent, respectively. While production of tobacco
10000
remained flat, production of barley declined by 7.1
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02

percent. The details are given in Table 2.7.

Table 2.7
Production of Other Major Kharif and Rabi Crops
(Production 000 tonnes)
2000-01 2001-02 % Change in
Crops
(Actual) (P) 2001-02 over 2000-01
KHARIF:
Maize 1643 1665 1.3
Bajra 199 217 9.0
Jowar 219 223 1.8
RABI:
Gram 397 406 2.3
Barley 99 92 -7.1
Rapeseed & Mustard 230 259 12.6
Tobacco 85.1 85.2 0.1
P= Provisional(July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

d) Minor Crops country’s requirement was met through imports.

During 2001-02, the total consumption is estimated
i) Oil Seeds: at 2.0 million tonnes and the local production is
estimated at 0.582 million tonnes to meet 29 percent
The major oilseed crops include: of the domestic consumption requirement while the
cottonseed, rapeseed, sunflower, soybean and remaining 71 percent would be met through
safflower. Total consumption of edible oils in 2000- imports. The edible oils are either imported
01 was 1.95 million tonnes. Local production directly or obtained by crushing the imported
accounted for 28.8 percent of the domestic oilseeds in the country. The imported oilseeds are
requirement while the remaining 71.2 percent of the mainly canola and sunflower. Production of oilseed
Chapter 2. Agriculture
crops during 2000-01 and 2001-02 is given in Table
2.8.

Table 2.8
Area and Production of Major Oilseed Crops
2000-01 2001-02 (P)
Area Production Area Production
Oilseed Oil Oilseed Oil
(000 (000 (000 (000
(000 Acres) (000 Acres)
Tonnes) Tonnes) Tonnes) Tonnes)
Cottonseed 7267 3606 433 7722 3612 433
Rapeseed/ 645 220 70 531 185 59
Mustard
Sunflower 154 108 38 262 184 64
Canola 83 42 15 118 59 21
Others* - - 06 - 05
Total Oil 562 582
*: Corn, Soybean, and Safflower. Source: Pakistan Oilseed Development Board.
P= Provisional

ii) Other Minor Crops: percent. The production of chilies is estimated to

The production of all the three major pulses
have increased this year. Production of Mung
increased by 10.5 percent, followed by Mash (7.4
percent) and Masoor (2.2 percent) during 2001-02.
Production of potato increased by 0.7 percent
while that of onion estimated to decrease by 11.2
have decreased by 46.6 percent in 2001-02 over the
last year because a bumper crop during 2000-01,
resulted in marketing problem and prices of chillies
went down by 50 percent. The farmers did not
receive reasonable return. The area, therefore,
decreased by 42.2 percent during 2001-02. Details
are given in Table 2.9.

Table 2.9
Area and Production of Other Minor Crops
2000-01 2001-02(P) %Change
Crops Area Production Area Production in
(000 hectares) (000 tonnes) (000 hectares) (000 tonnes) production
Masoor 46.1 27.0 47.2 27.6 2.2
Mung 219.2 104.5 240.4 115.5 10.5
Mash 45.7 25.7 55.1 27.6 7.4
Potatoes 101.5 1666.1 103.2 1678.5 0.7
Onion 105.6 1563.3 104.5 1387.4 -11.2
Chillies 84.5 174.6 48.8 93.3 -46.6
P= Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

II. Farm Inputs

i) Fertilizer: Fertilizer is the major farm input in
Chapter 2. Agriculture
agricultural production. Domestic production of shortages of irrigation water. The details are given
fertilizer during the first nine months (July-March in Table 2.10.
2001-02) of the current fiscal year has depicted a
nominal increase of 0.7 percent. On the other hand,
the import of fertilizer declined by 13.6 percent, thus
the total availability of fertilizer declined by 2.9
percent in the current year. The offtake of fertilizer
was also lower by 9.1 percent. The reduction in
offtake is mainly attributed to the

Table 2.10
Production and Off-take of Fertilizer
('000' N/tonnes)
Domestic % % % %
Year Import Total Offtake
Production Change Change Change Change
1997-98 1728.0 -2.1 713.7 -18.7 2441.7 -7.5 2646.0 9.7
1998-99 1886.0 9.1 860.0 20.5 2746.0 12.5 2583.8 -2.3
1999-2000 2263.0 20.0 662.8 -22.9 2925.8 6.5 2833.4 9.7
2000-2001 2298.0 1.6 579.0 -7.0 2877.0 -1.7 2966.0 4.7
2000-2001 (P) 1704.0 - 579.0 - 2283.0 - 2415.0 -
2001-2002 (P) 1716.1 0.7 500.0 -13.6 2216.1 -2.9 2196.4 -9.1
P= Provisional (July-March).. Source: National Fertilizer Development Centre.

ii) Improved Seed:
Improved seed has unique position among
the various agricultural inputs because the
effectiveness of all other inputs is mainly dependent
on the quality of seed used. The critical importance to
productivity is the authentic purity during the flow
of seed from plant breeders to farmers. During 2001-
02 (July-March), 184.5 thousand tonnes of improved
seed was procured while 131.9 thousand tonnes of
improved seed was distributed, which was 19
percent lower than the same period of 2000-01
because distribution of improved seed for paddy
and cotton had not been started until March, 2002.
The Federal Seed Certificate & Registration
Department regulates the quality of seed right from
breeder’s seed to certified seed. To achieve this task,
the department registers crop varieties for certified
seed production and inspects the standing crop in
order to assess the genetic purity, off-types plants,
weeds, other crop plants, and diseases in the field.
The seed from the inspected fields is also subject to
thorough investigation in the laboratory to
determine the analytical purity, germination, vigor
and moisture contents etc. There are about 360 seed
companies, including 5 multinational companies,
doing seed production and marketing in the
country. A total of 143 seed processing plants/units
are working in the country. It has enhanced the
seed processing capacity from 12.2 percent to 35.4
percent.
iii) Mechanization:
Agricultural mechanization has played an
important role in increasing agricultural production.
Mechanization of agriculture is crucial for achieving
self-sufficiency and surpluses in food production
through increasing productivity and reducing pre
and post harvest losses. Pakistan is making efforts to
modernize its agriculture and make its allied fields
Chapter 2. Agriculture
more efficient and productive. ADBP has allocated funds to the tune of Rs.6734
The prolong dry spell has affected the use million for financial year 2001-02 for tractor
of tractors and despite stagnant prices, the sale of financing. The Bank has so far disbursed loans
tractors has declined from 24651 last year to 18235 amounting Rs.1998 million for purchase of tractors
during July-April 2001-02 – a decline of 26 percent. of various makes up to 31st March, 2002. Prices of
The Agricultural Development Bank of Pakistan various tractors are given in Table 2.11.
(ADBP) has stepped up its efforts to mechanize
Pakistan’s agriculture. In this connection, the ADBP
is providing major portion of development loans for
purchase of tractors/attachments and installation of
tube wells, laser leveling, drip/sprinkler irrigation,
fodder cutter and bed sowing in order to bridge the
mechanized farm power gap in the country. The
Bank, over the years has disbursed a total amount of
Rs.68412 million for the purchase of 430864 tractors
up to March 31, 2002. The gradual increase in the
availability of farm power has enabled timely
disposal of crops while facilitating increased
cropping intensity resulting in increased agriculture
productivity. The

Table 2.11
Price of Locally Manufactured Tractors
(In Rupees)
Tractor Model 2000-01 2001-02 % Change

MF-240 (50-H.P) 313,000 313,000 -

MF-260 (60 H.P) - 375,000 -
MF-375E(75 H.P) - 490,000 -
MF-385(85 H.P) 585,000 585,000 -
FIAT-480 (55-H.P) 320,000 320,000 -
FIAT-640 (65-H.P) 459,000 459,000 -
KOREAN LT-400D - 435,000 -
UNIVERSAL U-640(65 HP) - 439,000 -
UNIVERSAL U-530 (53-H.P) 320,000 320,000 -
Source: Ministry of Food, Agriculture and Livestock.

iv) Plant Protection:
The plant protection is an important factor
amongst the agricultural inputs. Though it cannot
induce higher yields on its own but without
effective protection against the attack of pests and
diseases, the beneficial outcome of other inputs may
not be realized either. In this connection, public
sector provides facilities, such as, pest scouting,
advisory services and aerial spray to the farmers
while private sector is responsible for carrying out
plant protection measures including ground sprays.
During July-March 2001-02, 20.1 and 15.3 thousand
tonnes of agricultural pesticides were imported and
locally formulated, respectively by the private
sector.
Chapter 2. Agriculture
During winter (January to March 2002), the low
v) Irrigation: average rainfall not only affected the crop in barani
area but also reduced the inflow in the major rivers
It is well-known that an efficient irrigation for irrigated area. The details are in Table 2.12 (a&b).
system is a pre-requisite for increasing agricultural
production. Despite the existence of good irrigation
canal net work in the world, Pakistan still suffers
from wastage of a large amount of water in the
irrigation process. The continuation of the
unprecedented drought has worsened the
availability of irrigation water. The current fiscal
year has experienced overall water shortage to the
extent of 51 percent from the normal availability as
against 40 percent shortage of last year.

The total inflow of water (Indus at Tarbela,

Kabul, Jhelum at Mangla and Chenab at Marala)
averaged at 131.69 million acre feet (M.A.F.) during
the last 24 years (1977-78 to 2001-02). Against this
level of average inflow, the flows in major rivers
have declined to 91.15 MAF in 2001-02 or a
reduction of 30.8 percent. The canal head
withdrawals averaged at 99.12 MAF during 1977-78
to 2001-02, but it declined to 73.09 MAF in 2001-02,
thus registering a decline of 26.3 percent. Rainfall
has also been below normal. During the monsoon
season (July-September), the average rainfall has
been 126.4 mm historically but during the monsoon
season of 2001, the rainfall averaged 115.3 mm,
suggesting a decline of 8.8 percent.

Table 2.12 (a)

Irrigation Water Situation
Million Acre Feet
Average 2001-02 Shortage % Shortage
1977-78 to 2001-02

Inflow 131.69 91.15 40.54 30.8%

Canal withdrawals 99.12 73.09 26.03 26.3%

Source: Indus River System Authority.

Chapter 2. Agriculture
Table 2.12 (b)
Rainfall Recorded During 2001-02
(In Millimeter)
Monsoon Rainfall Winter Rainfall
(Jul-September) (January-March)
Average 126.4 66.5
Actual 115.3 37.8
Shortage 11.1 28.7
% Shortage 8.8 43.2
Source: Pakistan Meteorological Department

The canal head withdrawals in kharif 2001 (April-
September) has decreased by 8.4 percent and stood
at 54.7 million acre feet (MAF), as compared to 59.7
MAF during the same period last year. During the
Rabi season 2001-02 (Oct-March), the canal head
withdrawals decreased by 13.9 percent, as it went
down to 18.4 MAF compared to 21.4 MAF during
the same period last year, due to long dry spell and
lesser water flow in the rivers, as per province-wise
details given in Table 2.13.

Table 2.13
Canal Head Withdrawals (Below Rim Station)
(Million Acre Feet (MAF)
Kharif Kharif % Change in Rabi Rabi % Change in
Provinces (Apr-Sep) (Apr -Sep) Kharif 2001 (Oct-Mar) (Oct -Mar) Rabi 2001-02
2000 2001 over 2000 2000-2001 2001-02 over 2000-01
Punjab 31.49 27.24 -13.49 11.36 9.81 -13.64
Sindh 25.56 24.47 -4.26 8.50 7.10 -16.47
Baluchistan 1.81 2.11 16.57 0.92 0.91 -1.09
NWFP (CRBC) 0.81 0.84 3.70 0.62 0.61 -1.61
Total 59.67 54.66 -8.39 21.40 18.43 -13.88
Source: Indus River System Authority.
vi) Agricultural Credit: period last year, thereby registering an increase of 12
percent. Supply of agricultural credit by various
Agricultural Credit plays a key role in institutions since 1996-97 to 2001–02 (July-March) is
enhancing the agricultural production by providing given in Table 2.14
financial resources to the farming community. The
farmers can thus purchase primary inputs, e.g, b) Loan to Small Farmers
seed, fertilizer, pesticides and agricultural
machinery in time. Agricultural loans extended to According to Agricultural census 1990,
farming community during July-March, 2001-02 is there are 5.1 million farms in the country and 93
discussed briefly as under:- percent of these are small farms (upto 10 hectares),
accounting for 60 percent of total cultivated area.
a) Production and Development Loans The large farms are only 7 percent of total farms but
account for 40 percent of total cultivated area.
Agricultural loans amounting to Rs.32.6
billion were disbursed during July-March, 2001-02, The Agricultural Development Bank of
as against Rs.29.1 billion during the corresponding Pakistan (ADBP), disbursed Rs.17.7 billion to small
Chapter 2. Agriculture
farmers, including landless during the first nine
months of the FY 2001-02. Availability of credit to
this category now constitutes 88 percent of total
agricultural credit provided by the bank.
c) Loans for Newly Identified Priority Items
In line with the government’s efforts
towards strengthening agriculture sector, the bank
has earmarked Rs.4 billion exclusively for newly
identified priority items. These items include water
management, land development, soil improvement,
storages, farm mechanization, import substitution
and export based commodities.

Innovative cost effective technology for

achieving optimal production on least cost basis is
being transferred to farmers through the field
functionaries of the bank. In this regard, for tea
plantation at Shinkiari and palm oil at Thatta, the
bank financed for cultivation of tea on 450 acres and
477 acres respectively.

d) One Window Operations

A new concept of credit delivery has been

introduced in the country for the expeditious
delivery of credit to farmers with special reference
to subsistence and small farmers. Under this
scheme, all concerned officials are made available at
one place on each Monday and Thursday.

The ADBP officers, representatives of the

Board of Revenue/Patwari (alongwith all the land
record) and representatives of the Post Offices
(alongwith blank pass-books and other relevant
documents) remain present on these days at one
place to facilitate farmers in obtaining input loans up
to Rs.50,000/-.

Table 2.14
Supply of Agricultural Credit by Institutions
(Rs. in million)
Commercial Total
Year ADBP Cooperatives
Banks Rs.Million %Change
1996-97 11687.1 4410.7 4919.8 21017.6
1997-98 22363.0 5653.2 4722.9 32739.1 -
1998-99 30176.0 7236.0 5440.0 42852.0 30.9
1999-2000 24423.9 9813.5 5951.2 40188.6 -6.2
2000-2001 27610.2 13001.8 4369.2 44981.2 11.9
2000-2001 (July-March) 18858.7 7048.7 3194.0 29101.4 -
2001-2002 (July-March) 20161.7 11729.1 708.8 32599.6 12.0
Source: Ministry of Food, Agriculture and Livestock.
State Bank of Pakistan.
Chapter 2. Agriculture
III. Forestry
Pakistan is a forest deficit country with 4.2
million ha. (4.8%) of forest area out of 87.98 million
ha. of the total landmass. Total forests area of
Punjab, NWFP, Sindh, Baluchistan, Azad Kashmir
and Northern areas is 0.69, 1.21, 0.92, 0.33, 0.42, and
0.66 million hectares, respectively. Though the
forest resource is meager, it plays an important role
in Pakistan’s economy by employing half a million
people, providing 3.5 million cubic meters (mm3) of
wood and one-third of the nation’s energy needs.
Forests and rangelands support about 30 million
herds of livestock, which contributes more than US$
400 million to Pakistan’s annual export earnings.
Forestry sector plays an important role in soil
conservation, regulated flow of water for irrigation
and power generation, reduction of sedimentation
in water conveyances and reservoirs, employment
and maintenance of ecological balance. During the
year 2001-02, forests have contributed 270.7
thousand cubic meters of timber and 473.5 thousand
cubic meters of firewood as compared to 258.9
thousand cubic meters timber and 477.4 thousand
cubic meters firewood in 2000-01, respectively.
During 2000-01, Pakistan earned Rs.1.09
billion by export of various value added wood
products including the export earning of sports
good (Rs.356.5 million) as compared to Rs.1.5 billion
during the year 1999-2000. During the year 2000-01,
Pakistan spent an estimated amount of Rs.10.5
billion on imports of raw wood and wood products
from different countries of the world as compared
to Rs.7.056 billion during the year 1999-2000.
In order to overcome inadequacy of forest
cover, the Government of Pakistan has prepared
Forestry Sector Master Plan (FSMP) in 1992-93 for 25
years. This national document has identified
different strategies and programs and fixed the
physical and financial targets for each and every
category/group of program. The FSMP focuses on
eco-system management approach for the
conservation of renewable natural resources
through the active participation of all the
stakeholders especially local community at all levels
of planning and implementation of the master plan.
The Ministry of Environment, Local Government
and Rural Development organizes tree planting
campaigns twice a year at the beginning of spring
and monsoon seasons.
During spring and monsoon seasons of
year 2001, 131.62 million saplings (Spring 84.503 and
Monsoon 47.114 million) were planted as against
the target of 156.20 million sapling (Spring 101.244
million and Monsoon 54.955 million). Shortfall of
24.58 million saplings has been attributed to reduce
allocation of funds, lack of adequate nursery stock
and adverse climatic factors.
IV. Livestock and Poultry
a) Livestock
Livestock is an important sector of
agriculture in Pakistan, which accounts for nearly
37.5 percent of agricultural value added and about
9.4 percent of the GDP. Its net foreign exchange
earnings were to the tune of Rs.53.0 billion in 2000-
01, which is almost 12.34 percent of the overall
export earnings of the country. The role of livestock
in rural economy may be realized from the fact that
30-35 million rural population is engaged in
livestock raising, having household holdings of 2-3
cattle/buffalo and 5-6 sheep/goat per family
deriving 30-40 percent of their income from it. The
livestock include: cattle, buffalos, sheep, goats,
camels, horses, asses and mules. Population of
livestock for the last five years is given in Table 2.15.
Chapter 2. Agriculture
Table 2.15
Livestock Population (Million No’s.)
Species 1997-98 1998-99 1999-2000 2000-2001 2001-2002 (E)
Cattle 21.2 21.6 22.0 22.4 22.8
Buffalo 21.4 22.0 22.7 23.3 24.0
Sheep 23.8 23.9 24.1 24.2 24.4
Goat 44.2 45.8 47.4 49.2 50.9
Camels 0.8 0.8 0.8 0.8 0.8
Horses 0.3 0.3 0.3 0.3 0.3
Donkeys 3.7 3.8 3.8 3.9 3.9
E: Estimated. Source: Ministry of Food, Agriculture and Livestock (Livestock Wing)

Production from livestock sector includes: milk, blood, eggs, hides and skins and their production
beef, mutton, poultry meat, wool, hair, bones, fats, for the last five years are shown in Table 2.16.

Table 2.16
Livestock Products
Products Units 1997-98 1998-99 1999-2000 2000-2001 2001-2002(E)
Milk (000 Tonnes) 24215.0 24877.0 25566.0 26284.0 27031.0
Beef " 940.0 963.0 986.0 1010.0 1034.0
Mutton " 617.0 633.0 649.0 666.0 683.0
Poultry Meat " 284.0 310.0 327.1 339.0 355.0
Wool " 38.5 38.7 38.9 39.2 39.4
Hair " 16.7 17.3 17.9 18.6 19.3
Bones " 309.2 316.3 324.0 331.4 339.4
Fats " 115.2 117.8 120.6 123.5 126.5
Blood " 33.6 34.4.0 40.9 41.8 42.9
Eggs Million Nos. 6015.0 8261.0 7321.0 7505.0 7679.0
Hides " 7.3 7.5 7.6 7.8 7.9
Skins " 35.3 36.3 37.2 38.2 39.2
E= Estimated Source: Ministry of Food, Agriculture & Livestock (Livestock Wing).

b)Poultry associated with poultry production activities in one

Poultry production has emerged as a good
substitute of beef and mutton. Its importance can be
judged from the fact that almost every family in
rural areas and every fifth family in urban areas are
way or the other. Government is providing all
possible incentives to develop it at an accelerated
pace. The production of commercial and rural
poultry is given in Table 2.17.

Table 2.17
Production of Commercial Poultry and Poultry Products
Production Units 2000-2001 2001-2002(E)
Day Old Chick Million No's 319.7 334.3
Layers " 18.1 18.4
Broilers " 253.3 264.4
Breeding Stock " 6.2 6.2
Poultry Meat 000 Tonnes 256.1 266.8
Eggs Million No's 4348.0 4423.0
E: Estimated Source: Ministry of Food, Agriculture & Livestock (Livestock Wing).
Chapter 2. Agriculture

The production of rural poultry products for 2000- equipment shall be imported at 10 percent
01 and 2001-02 are given in Table 2.18. duty, if imported together with the plant.
The export of livestock & livestock products
Table 2.18 has been allowed.
Rural Poultry
(Million Nos.) - The imported plant and equipment not
Production 2000-2001 2001-2002 (E) manufactured locally, shall be subject to
custom duty of 10 percent with complete
Day Old Chick 31.0 32.0
exemption from sales tax.
Cocks & Cockribs 7.0 9.0
Layers 31.0 32.0
Following measures have also been taken to
E: Estimated Source: Ministry of Food,Agricul- meet Sanitary and Phytosanitary (SPS) requirements
ture & Livestock ( Livestock Wing). under WTO for quality assurance and to improve
exports of livestock and livestock products:
For promotion of livestock and poultry, the
government has provided the following incentives - Establishment of abattoirs are encouraged
in the agricultural package: in the private sector;

- Imported plant and equipment not - The National Veterinary Laboratory is

manufactured locally shall be subject to under construction for drug residue testing
custom duty of 10 percent, with complete in the livestock products. This will ensure
exemption from sales tax. quality in exported products;

- Capital structure of projects in agro-food - Steps have been taken to improve sanitary
industry will be entitled to debt-equity ratio and hygiene conditions of animal casing
of 70:30. processing units in the country.

- Projects will be entitled to financing from all V. Fisheries

banks and development finance
institutions.
- Expatriate personnel of the Units will be
allowed to import food items and other
consumable without any duty/taxes,
subject to maximum limit of $2,000 per
person per year.
- Import of breeding stock will be allowed
subject to the import duty of 10 percent.
- Locally manufactured machinery will be
provided credit.
- Parts and Components upto 5 percent of
initial C&F value of imported plant and
Fishery plays an important role in
Pakistan's economy and is considered to be an
important source of livelihood for the coastal
inhabitants. Apart from marine fisheries, inland
fisheries (comprising of rivers, lakes, ponds, dams
etc) are also very important source of animal
protein. Fisheries' share in GDP, though very little, it
contributes substantially to the national income
through export earnings. During the period July-
March 2001-02, 63.129 m. tonnes valued at Rs.5.9
billion fish and fishery products were estimated to
be exported. During the same period, the total fish
production is estimated at 654500 m. tonnes. Of
which, share of marine sector is 473000 m. tonnes
and inland contribution is 181500 m. tonnes.
Pakistan also exports a reasonable quantity
Chapter 2. Agriculture
of shrimp and fish and earns a substantial amount
of foreign exchange. Thus, during July-March 2001-
02, 63129 m. tonnes of fishery products were
exported to Japan, USA, UK, Germany, Middle East
and other countries.
The Government is taking a number of
steps to improve fisheries sector. Further, number of
initiatives are being taken by the Federal and
Provincial Fisheries Departments which, inter-alia,
include strengthening of extension services,
introduction of aquaculture techniques,
diversification of fishing efforts, improvement in
post harvest techniques, development of value
added products, enhancement of per capita
_____________________________
consumption and up-gradation of socio-economic
condition of the fishermen's community. Marine
Fisheries Department is also executing a project,
namely, "Establishment of a Hatchery Complex for
Production of Fish/Shrimp Seeds" which will play a
vital role for the development of fish/ shrimp
farming.
The total number of persons engaged in
fisheries sector during 2001-02 is estimated at
361000. Out of which, 137000 persons (37.9 percent)
were engaged in marine sector and 224000 persons
(62.1 percent) in inland fisheries, whereas the
persons engaged in fisheries sector in 2000-01 were
272240 persons−127181 (46.7 percent) in marine and
145059 (53.3 percent) in inland fisheries.
Chapter 3. Manufacturing Mining and Investment Policies

3.Manufacturing,
Mining and Investment Policies
Fiscal year 2000-01 has been the best however began with a positive note as large-scale
performing year for manufacturing sector in manufacturing continued to exhibit a rising trend
decade. This year had seen manufacturing until September 2001(see Table 3.1 and fig.1).
registering a stellar growth of 7.6 percent with Large-scale manufacturing grew by 5.3 percent in
major contribution coming from large-scale the first quarter (July –September) of the outgoing
manufacturing which recorded 8.6 percent fiscal year. The events of September 11 and their
growth. The challenge before us has been to aftermath adversely affected the performance of
sustain this growth during the outgoing fiscal this sector. As shown in table 3.1, the growth of
year 2001-02. However, while fixing the growth large-scale manufacturing slowed to 0.6 percent in
target of large-scale manufacturing, some slow October and turned negative to the extent of 5.7
down was anticipated for two reasons. Firstly, as percent in November 2001, that is, during the
a result of 8.6 percent growth in 2000-01, the base peak of Afghan War. Once the war ended, the
for large-scale manufacturing was already high. large-scale manufacturing staged an impressive
Secondly, the impact of possible slow down in recovery during the month of December and
global economy in general and the US economy in January when it grew by 6.8 percent and 16.3
particular was also taken into account. percent, respectively (see Table 3.1 and fig.1).
Accordingly, the large-scale manufacturing was
originally targeted to grow by 6.5 percent in 2001- Resultantly, the cumulative growth of
02. LSM reached 5.2 percent in the first seven months
(July-January) of the current fiscal year. Large and
The events of September 11 and positive growth in two successive months
consequent development thereafter adversely suggested that the worst was over as far as
affected the performance of this sector. Serious industrial production is concerned.
difficulties caused by the events of September 11
notwithstanding, Pakistan’s overall Table 3.1
manufacturing sector registered a growth of 4.4 Month-Wise Industrial Growth
percent and large-scale manufacturing grew by (July-March)
( percent)
4.0 percent during the outgoing fiscal year. When
Month 2000-01 2001-02
viewed at the backdrop of development that have July 6.4 3.6
taken place in many developing and transition August 10.3 4.1
economies after the events of September 11, the September 7.9 8.2
performance of large-scale manufacturing in October 11.1 0.6
November 0.3 -5.7
Pakistan appears more than satisfactory.
December -13.5 6.8
January 9.6 16.3
The large-scale manufacturing (LSM ) was February 21.2 -10.3
targeted at 6.5 percent in 2001-02. As a result of March 22.9 6.4
the events of September 11 and consequent Jul-March 7.6 4.0
(Cumulative)
development thereafter the target was revised
Source: Federal Bureau of Statistics.
downward to 3.2 percent. The fiscal year 2001-02
Chapter 3. Manufacturing Mining and Investment Policies

The month of February 2002 turned out to
be a “black month” for industrial production
because all major industrial groups registered
substantial negative growth with the exceptions
of textile and apparel. Several non-economic
factors were responsible for the poor
performance of industrial production in the
month of February 2002. Firstly, the working
days in the month of February 2002 were reduced
to 18-19 days because of the Eid and other
holidays. Secondly, the performance of February
2002 was measured against an extraordinarily
high base (21.2 percent growth in February 2001).
Thirdly, automobile production declined by 21
percent because car manufacturers created
artificial shortage by cutting their production.
Such behavior is tantamount to restraining the
country’s economic growth, especially when
automobile sector is the most protected industry
in Pakistan. Given the persistence of excess
demand, car manufacturers have never attempted
to match the demand by increasing capacity
utilization. Finally, the production of Phosphatic
fertilizer was 5.6 percent and Nitrogenous
fertilizer declined by almost 49.5 percent because
fertilizer industries were carrying excess stock
and wanted to export 200,000 tons. However,
exports could not be materialized, therefore the
industry had to cut fertilizer production. Excess
carry-over stock of fertilizer was due to the
decline in off-take which was mainly caused by
the prevalent drought situation. As a result,
industrial production declined by 10.3 percent in
February 2002.
Large-scale manufacturing bounced back
in March and registered a growth of 6.4 percent
over March 2001. This is an impressive recovery
considering the fact that large-scale
manufacturing had grown by almost 23 percent in
March 2001. In other words the performance of
March 2002 must be viewed against an extra-
ordinary high base of March 2001. The growth
surged upward to 4.0 percent on cumulative basis
during the first nine months (July-March) of the
current fiscal year. Whereas the cumulative
position for the seven month (July-Jan) had been
5.2 percent. If we exclude the index for the month
of February which shows abnormal behavior from
overall quantum index of July-March 2000-01 and
2001-02 for the sake of comparison, the growth is
as high as 5.4 percent for the current year as
against 4.7 percent last year. This shows the
gravity of the damage, the month of February has
inflicted on the growth figures of July-March,
2001-02.

Table 3.2
Group-wise and Month-wise Industrial Growth
(July-March, 2001-02)
(Percent)
Group Jul Aug Sep Oct Nov Dec Jan Feb Mar
a. Food, Beverages & Tobacco -1.0 1.5 16.5 5.7 -32.4 6.2 31.4 -11.8 13.0
b. Textile & Apparel 2.5 0.3 3.9 3.5 4.8 4.4 5.2 7.0 7.8
c. Leather Products -6.2 4.1 2.0 3.4 -1.7 -5.3 -6.4 -14.0 -6.7
d. Paper & Paper Board 7.5 -0.2 3.4 0.1 7.4 21.6 0.9 -10.9 -2.6
e. Chemicals, Rubber & Plastic 2.8 0.0 0.9 3.6 1.2 2.9 17.3 -21.1 -8.5
f. Petroleum Products 31.1 30.2 30.1 3.2 43.6 19.7 39.0 -10.9 2.4
g. Tyres & Tubes 2.7 100.1 18.6 25.6 12.7 0.6 -19.0 -29.4 -12.1
h. Non-Metallic Mineral Prod. 10.5 2.3 15.6 -9.2 -20.4 -8.9 -12.5 -21.5 46.4
i. Basic Metal Industries -17.5 -2.1 9.7 -3.2 -16.9 2.2 0.6 -20.3 -2.7
j. Metal Products & Machinery -1.9 20.3 6.0 -10.1 -15.8 6.1 9.4 -17.3 9.8
k. Automobile 5.7 13.5 22.7 -24.8 -22.7 41.9 -13.4 -21.0 26.7
Overall Growth 3.6 4.1 8.2 0.6 -5.7 6.8 16.3 -10.3 6.4
Source: Economic Adviser’s Wing, Finance Division.
Chapter 3. Manufacturing Mining and Investment Policies

Fig-1: Month-Wise Growth in LSM (2001-02)

18

15

12

-3

-6

-9

-12

-15
July

August

September

October

November

December

January

February

March
Table 3.3
Group-Wise Growth Performance
(July-March)
(Percent)
Group 2000-01 2001-02
Food, Beverages & Tobacco 9.1 6.1
(Sugar) (14.8) (9.2)
Textile and Apparel 2.7 4.4
Leather Products 9.3 -3.5
Paper Printing & Publishing 24.9 2.8
Chemicals, Rubber & Plastics 8.1 0.1
Petroleum Group 16.6 18.7
Tyres & Tubes 1.0 5.9
Non-Metallic Mineral Products 1.8 1.2
Basic Metal Industries 6.7 -4.7
Metal Products, Machinery & Equipment 0.1 3.3
Automobile 23.2 2.8
Overall Growth 7.6 4.0
Note: Figures for sugar, automobile and cement are Source: Economic Adviser Wing, Finance Division
taken for 12 months while for fertilizer, steel products and soda for 10 months

There are indications that industrial
production would accelerate during the
remaining three months. For example, the figures
available for the month of April for major
industries like cement, sugar and automobile
showed tremendous growth and analysts are
hopeful for continuation of a similar positive
trend in the remaining months of the fiscal year.
Sugar production stood at 3.0 million tons, which
is 9.2 percent higher than the corresponding
period of last year. Automobile production also
increased significantly in March and is likely to
accelerate further during the remaining months
of the current fiscal year. Cement production has
also picked up and registered a growth of almost
50 percent in March 2002 as against the
corresponding month of last year. There are signs
that industrial productions would accelerate in
the remaining months.
Chapter 3. Manufacturing Mining and Investment Policies

The main contributors to the modest
growth of 4.0 percent in July- March, 2001-2002
over the corresponding period of previous year
are petroleum group (18.7 percent), food,
beverage & tobacco group( 6.1 percent) textiles &
apparel group ( 4.4 percent) and tyres & tubes
(5.9 percent). Nine out of eleven groups registered
positive growth while the remaining two
recorded negative growth [See Table 3.3]. The
individual items that registered positive growth
are cotton cloth (15.2 percent), cotton yarn (4.8
percent) in textiles group; cooking oil (12.9
percent) and sugar (9.2 percent) in food,
beverages and tobacco groups; flakes &
detergents (29.5 percent) in chemical &
pharmaceutical group, and LCV’s (13.0 percent).
The individual industries which show negative
growth include air conditioners (76.9 percent),
bicycles (7.6 percent), tractors (9.6 percent),
phosphatic fertilizer (49.5 percent) and cosmetics
(32.9 percent). The production performance of
selected items is given in Table 3.4..

Table 3.4
Production of Selected Industrial Items of Large-scale
(July-Mar)
Item Units
1999-2000 2000-01 2000-01 2001-02 % Change
Cotton Yarn 000 tonnes 1669.9 1721.0 1286.2 1347.7 4.8
Cotton Cloth Mln. Sq. Mtr 437.2 490.2 358.0 412.3 15.2
Sugar 000 tonnes 2429.3 2789.1 2789.1 3044.7 9.2
Nitrogenous 000 N. tonne 1901.7 2004.7 1642.0 1733.6 5.6
Fertilizer
Phosphatic Fertilizer 000 N .tonne 166.5 292.2 242.6 122.6 -49.5
Vegetable Ghee 000 tonnes 698.1 834.8 631.5 592.7 -6.1
Cooking Oil 000 tonnes 92.0 106.8 81.2 91.7 12.9
Cement 000 tonnes 9314 9674 9674 9852 1.8
Cigarettes Billion Nos. 47.0 58.2 41.1 39.8 -3.1
Jeep& Cars Nos. 32841 40032 40032 41324 3.2
Tractors Nos. 35038 32413 32553 29440 -9.6
L.C.V Nos. 6656 6965 6965 7871 13.0
Motorcycles/Scooters Nos. 94881 117858 89299 94108 5.4
Bicycles 000 Nos. 534.1 569.6 426.0 393.6 -7.6
Paper & Paper Board 000 tonnes. 434.6 531.1 389.2 400.2 2.8
Flakes & Detergents 000 tonnes 52.3 64.0 45.9 59.5 29.4
Cosmetics 000 Cont. 283.5 384.7 286.7 192.4 -32.9
Toilet Soap 000 tonnes 83.3 70.7 54.3 55.5 2.2
Refrigerators 000 Nos. 211.5 272.3 176.7 201.2 13.8
Air conditioners 000 Nos. 4.8 7.1 5.2 1.2 -76.9
Source: Federal Bureau of Statistics

EVALUATION OF SELECTED INDUSTRIES OF
LSM.
Textile Industry
Inspite of drastic changes occurred in the
production patterns over the year, the textile
sector remained the backbone of the economy and
still contributing around 60 percent to export
earning and acting as major employer of
industrial labour force. The textile sector depends
on agriculture for supply of raw material,
therefore whatever happens to cotton crop is
Chapter 3. Manufacturing Mining and Investment Policies

likely to affect the performance of textile sector.
During the current fiscal year the textile sector
showed greater resilience to lower cotton crop
and performed well as far as production is
concerned. After suffering stagnation for last 5
year, textile exports started improving, especially
the value added product performed well in export
markets inspite of lower demand and depressed
prices in the international market. Foreign direct
investment (FDI) in the textile sector also
doubled from last year rising from US $ 4.6
million to $ 10.5 million in July–March, 2001-02.
The profiles of various components of
textile industry are given in the Table 3.5 below:-

Table 3.5
Installed Capacity of Textile Industry

July-March
% Change
2000-01 2001-02
Number of Mills 356.0 355.0 -0.28
Installed Capacity (000 Number)
- Spindles 8601.0 8680.0 0.92
- Rotors 145.0 145.0 0.00
- Looms 9.9 10.1 2.02
Working Capacity (000 Numbers)
- Spindles 6913.0 7101.0 2.80
- Rotors 69.0 63.0 8.70
- Looms 4.2 4.4 4.80
Source: Textile Commissioner Organization,
Federal Bureau of Statistics

Performance of Ancillary Textile Industry
The performance of various ancillary
textile industries is evaluated as under:-
A. Cotton Spinning Sector.
The spinning sector of textile is one of the
most important sectors. At present, it is comprised
of 445 textile mills (50 composite units and 395
spinning units) with 7.2 Million spindles and 64
thousand rotors in operation. The capacity
utilization stagnated at 87 percent in spindles and
45 percent in rotors, during July- March, 2001-02.
The production of cotton yarn increased
to 1347.7 thousand tones in July-March 2001-02 as
against 1286.2 thousand tones in the comparable
period of last year, thereby, registering a growth
of 4.8 percent, (The export of cotton yarn
remained more or less of last year’s level during
July-March 2001-02). The value of yarn export
however declined by 12.4 percent because of the
depressed international price of yarn. The decline
in yarn exports was compensated by the exports
of high value added products. This implies that a
shift is taking place from lower to higher value
added export products.
B. Weaving & Made-up Sector.
The weaving and made-up sector
comprising of hosiery, garments, towels, canvas,
and bedwear have three different sub-sectors in
weaving viz. integrated, independent weaving
units, and power looms units. The installed and
effective capacities in the sector are given in the
Table 3.6.
 Chapter 3. Manufacturing Mining and Investment Policies

Table 3.6 with approximately 60 percent capacity

Installed and Capacity Worked in Weaving utilization. The sector is not only catering
Sector for domestic demand, but also has export
(Nos.) potential and earns much needed foreign
Effective/
Installed exchange. Exports from this sector have
Category Capacity
Capacity provided $ 598 million in the form of
Worked
a) Integrated foreign exchange for knitwear during
Textile Units 10134 4500 July-March 2001-02 as compared to $ 668
b) Independent million during the same period of last
Weaving Units 17500 16500 year, thereby, showing a decline of 10.5
c) Power Loom 225258 190000
percent.
Sector
Total 252892 211000
b) Readymade Garments. The garment
Source: Textile Commissioner Organization.
industry provides highest value addition
in the textile sector. This sector is
The government is emphasizing more on
distributed in small, medium and large-
providing credit and other facilitative support to
scale units, most of them, having 50
diversify the products, especially to cater the
machines and below. This sector is
needs of the high value added sector like garment
attracting considerable investment and
industry. Last year, the textile industry invested
many new units are coming up in the
substantially in BMR for improving production
organized sector every year. This sub-
quality and moving towards more value addition.
sector is facing multi-dimensional
The textile industry needs around $ 1.5 billion
problems like high value addition in
worth of annual investment for BMR and
competing countries and inelasticity of
expansion over the next three years to meet the
the sector in shifting the burden of
challenges of the post-quota regime beginning
increased or decreased prices of yarn,
from January 2005.
cotton cloth or other inputs to the end
user. Against all these odds, the sub-
C. Cotton Cloth
sector has witnessed substantial growth
(22.4 percent) in terms of quantity
The production of cotton cloth in the mill
exported. However, due to 13.8 percent
sector has increased by 15.2 percent during July-
fall in the unit value, the dollar value of
March 2001-02 while non-mill sector registered a
exports increased by merely 5.6 percent
growth of 9.0 percent in the same period. The
during July-March 2001-02 over the
export of cotton cloth is also increased by 9.3
comparable period of last year, by
percent during July-March 2001-02 in quantitative
moving to $ 640.1 million this year as
terms, however, both production and export of
against $ 606.3 million last year.
cloth has increased in dollar term by 6.7 percent.
The performance of the sub-sectors is evaluated
c) Towel industry. This industry is
below:
comprised of about 6500 towel looms in
the country in both organized and
a) Hosiery Industry: - There are about 10,000
unorganized sector. It is mainly an
knitting machines working in the country
Chapter 3. Manufacturing Mining and Investment Policies
export-based industry with low demand
in the country. Its growth primarily
depends on export outlets, as such its
exports increased by 16.7 percent in
quantity terms and by 11.3 percent in
value terms, during July-March 2001-02.
d) Tarpaulin & Canvas. The production
capacity of this highest raw cotton-
consuming sector is 100 million sq.
meters. This is a low value added sub-
sector. The sector recorded 6.0 percent
increase in value of exports and 4.4
percent increase in quantity terms which
imply slight upward adjustment in the
unit value of exports. This sector is
mainly export based and 90 percent of its
production is exported.
D. Filament Yarn Manufacturing Industry
There are 25 units engaged in
manufacturing of three kinds of filament yarn,
namely acetate rayon yarn (one unit with capacity
to manufacture 3 thousand tones), nylon filament
yarn (3 units with installed capacity of 2 thousand
tones) and polyester filament yarn (21 units with
installed capacity of 95 thousand tones). The total
installed capacity of all these units is 100
thousand tones, against which it produced
approximately 78 thousand tones per annum.
Recently, hosiery sector has started consuming
synthetic Yarn for export of knitted garments
which are contributing in high value addition as
well as diversification in exportable products.
E. Art Silk and Synthetic Wearing Industry
The art silk and synthetic weaving
industry is mostly concentrated in the informal
sector and generally it is operated as family
owned power loom units comprising of 8 to 10
looms. There are approximately 90,000 power
looms in operation to prepare synthetic yarn in
the country. About 30,000 looms are engaged in
production of blended yarn and 60,000 looms are
producing filament yarn. The export of synthetic
textile decreased by 23.5 percent in terms of
quantity and 27.1 percent in terms of value during
July-March 2001-02 over the comparable period of
last year. This industry, like others in textile sector
has also experienced decline in unit value of
exports by 4.7 percent. The importance accorded
to SMEs by the government would go a long way
in promoting this sort of industry.
F. The Fertilizer Industry
Fertilizer is one of the key inputs used in
agricultural production. There are 10 fertilizer
units operating in the country (Five units are in
Punjab, three in Sindh and two in NWFP) with an
installed capacity of 5.6 million tones, out of
which nitrogenous fertilizer has a capacity of 4.9
million tons and phosphatic fertilizer has
production capacity of 0.7 million tons. Out of
these 10 units, five are in private sector with an
installed capacity of 3.7 million tons and five are
in public sector with capacity of 1.9 million tons.
The production of fertilizer has decreased by 0.5
percent and stood at 3793 thousand tones during
July-March 2001-02 (due to excess carry-over
stock and decline in fertilizer off-take owing to
severe drought conditions prevalent in the
country) as against 3813 thousand tones in the
corresponding period of previous year. The
production of fertilizer like urea, nitro phosphate
and supper phosphate increased by 5.6 percent,
6.9 percent and 11.26 percent respectively while
the production of ammonium nitrate and di-
ammonium phosphate declined by 15.7 percent
and 71.8 percent, respectively, during July March
2001-02 over the corresponding period of last
year.
Chapter 3. Manufacturing Mining and Investment Policies
G. Vegetable Ghee
The ghee and cooking oil production is
mainly concentrated in the private sector
comprising of nearly 150 units both in organized
and unorganized sectors. The overall installed
capacity of the ghee and cooking oil industry is
estimated at 2.7 million tones. The ghee
production is estimated at 0.59 million tones
during July- March 2001-02 as against 0.63 million
tones produced in the comparable period of last
year, which implies a decline of 6.1 percent.
However, the production of cooking oil witnessed
12.9 percent rise and stood at 0.092 million tones
in first nine months as against 0.081 million tones
in the comparable period of last year. This
production is meant for combined national
requirement of about 1.7 million tones for ghee
and cooking oil consumption. This also implies a
shift in consumption pattern from ghee to cooking
oil.
H. Sugar Industry
The sugar industry, having grown from
only 2 mills producing 10, 000 tones of Sugar in
1947 to 77 mills with ability to produce 5.5 million
tones. Out of the 77 mills, 38 are located in
Punjab, 32 in Sindh 6 in NWFP, and one in AJK.
In the past decade, 25 new mills have been setup,
and some of them are already in operation. As a
result, the production capacity has almost
doubled against the annual sugar requirement for
consumption. The industry is confronted with
inefficiency in production, partly contributed by
the quality and quantity of sugarcane availability.
The sugar season is over in May and the latest
estimates showed production of 3.04 million tones
as against 2.79 million tones in the last year,
thereby showing an increase of 9.2 percent. There
is a need to increase sugarcane yield at farms and
improve sugar recovery rate by adopting most
modern techniques for cultivation of sugarcane.
I. Cement Industry
There are 24 cement units in the country
with total installed capacity of 16300 thousand
tones. Out of these 24 units, 4 units with installed
capacity of 1831 thousand tonnes are in the public
sector and 20 units having capacity of 14,440
thousand tonnes are in the private sector. The total
production of cement is recorded at 9.8 million
tonnes during July-March 2001-02 as compared to
9.7 million tonnes in the same period of last year,
showing an increase of 1.8 percent. The sharp
fluctuation in cement prices and relatively lesser
demand for cement have been responsible for the
decline in cement production in the current fiscal
year. Cement production has however increased by
50 percent in the month of March 2002 and is likely
to increase further in April to June.
J. Automobile Industry
The performance of automobile industry
has been lackluster at best over the last five years.
During the current fiscal year the automobile
industry has registered mixed trend and the
production of LCVs, motorcycles, trucks and, jeeps
and cars increased by 15.0 percent, 5.4 percent, 5.7
percent and 3.6 percent, respectively during July-
April 2001-02. However, the production of tractors
declined by 26.2 percent, and the declining trend is
followed by buses 23.1 percent. The automobile
group as a whole registered an improvement of 1.9
percent in the first ten months of the current fiscal
year as against 23.3 percent growth in the
comparable period of last year. The installed
capacity of the major components of automobile
sector and production is given in Table 3.7.
Chapter 3. Manufacturing Mining and Investment Policies

Table 3.7
Installed and Operational Capacity of Automobile Industry
(Numbers)
Inst. Capacity 2000-01 July-April
Auto Vehicles (Single Shift ) 2000-01 2001-02
Cars 106000 39573 31406 32552
Trucks 12500 952 749 792
Buses 1900 1337 1163 894
LCV’s 28000 7424 5490 6315
Tractors 33000 32554 25347 18708
Motorcycles 340000 117858 89299 94108
Source: Federal Bureau of Statistics.

The automobile industry enjoys the status banks and financial institutions. The CIRC became
of the most protected industry in Pakistan where operational after promulgation of two ordinances in
the effective protection rate (EPR) ranges between September and November 2000. The original
701 percent to over 5000 percent. The local car borrowers are given the chance to settle their dues
assemblers are fighting for the share of market within 30 days or otherwise the CIRC starts
through non-price factors like advertisement and executing cases through the courts.
alliance with leasing companies. Against estimated
national demand for 100 thousand cars, the local car The strategy to auction the irretrievable sick
industry has never produced over 40 thousand cars. industrial units, is the last ditch attempt by the
government to solve the twin problems of sick
REVIVAL OF SICK UNITS industries and non- performing loans of the
NCBs/ DFIs. The CIRC has so far acquired 120
units involving Rs.16.1 billion and auctioned 48
The sick units are inimical to development
units involving Rs.6.4 billion of the NCBs/ DFI’s.
of financial institutions . To reinvigorate these units
and lessen the burden of financial institutions, the
PUBLIC SECTOR INDUSTRIES.
government has formed Corporate Industrial
Restructuring Corporation (CIRC) with a mandate
The Public Sector Industries had provided
to sell 868 such units through open public auction
nucleus for large scale capital goods producing
and complete the work within a year. These units in
industries in the Seventies. But the government
the private sector were identified by the CIRC in
started reducing its direct role in managing
consultation with the concerned banks as these
industries by resorting to the policies of
units were closed for many years and owed over
deregulation and privatization. Before the start of
Rs. 107 billion to the nationalized commercial banks
Privatization in 1990-91, there were twelve
(NCB’s) and DFI’s. The CIRC will take over these
holding corporations with 116 manufacturing
assets from the government owned banks and
units. As a result of massive privatization/
financial institutions at their book value and in
transfer of ownership, this number of units under
return, the government will issue bonds to these
administrative control shrank to 38 in 2002.
banks at the time of privatization of the unit or after
three years of take-over, whichever is earlier. The
During the period under review, the
CIRC had selected 101 cases for the process from six
public sector industries under the administrative
Chapter 3. Manufacturing Mining and Investment Policies

control of the Ministry of Industries & Production
continued to operate within the general economic
policy framework of focusing on optimal
utilization of existing capacities and adhering to
cost efficiency. Key performance indicators
present the following picture of performance
during July-June, 2001-2002 ( 8 months actual & 4
months projected) in comparison to the same
period last year.

Table 3.8
Performance of Public Sector Industries
(Excluding Pak Steel)
(Rs. In Million)

Item 2000-2001 2001-2002 ** % Change

Production Value* 6,500 6,282 -3.36

Net Sales 14,774 15,233 3.11
Pre-Tax Profit 754 879 16.57
Taxes and Duties 3,595 3,613 0.50
No. of Employees 11,140 8,355 -25.00
* At constant prices of 1987-88. Source: Expert Advisory Cell, Ministry of Industry & Production
** Actual for 8 months (July- Feb) and expected for 4 months (Mar- June)

Production Value for July-June 2001-2002 as against Rs. 14.8 billion

for the same period during last year, showing an
Production value (at constant prices of
increase of 3.1 percent. While NFC has reported
1987-88) of all operational units (excluding
an increase in its sales value from Rs.10.6 billion
Pakistan Steel) is expected to decline by 3.4
to Rs.11.2 billion, rising by 5.7 percent. The net
percent over last year. Production value of
sales of SCCP units increased by 15.4 percent
National Fertilizer Corporation (NFC) projected to
(from Rs. 1.1 billion to Rs 1.3 billion). The net sale
decline by 1.0 percent, followed by the State
value of PACO registered a decline of 21.0
Cement Corporation (SCCP) (1.1 percent). The
percent - declining from Rs. 881.0 million to Rs.
remaining two corporations namely, the State
696.4 million and in the case of SEC, the net sales
Engineering Corporation (SEC) and the Pakistan
value fell by 6.5 percent (from Rs.2.1 billion to Rs
Automobile Corporation (PACO) have projected a
2.0 billion).
decline in their production value by 6.3 percent
and 28 percent, respectively. The Federal
Pre- Tax Profit/ (Loss)
Chemical & Ceramics Corporation (FCCCL) and
the State Petroleum Refining & Petro-chemical
During 2001-02, an aggregate profit of
Corporation (PERAC) have reported nil
Rs.878.6 million (excluding Pakistan Steel) is
production because of transfer of Ravi Rayon Ltd.
expected as against an aggregate profit of Rs.753.7
under FCCCL to Atomic Energy Commission
million reported last year. Only two corporations
and National Refinery Ltd (NRL) under PERAC
namely, NFC & PACO have projected profit
to the Ministry of Petroleum & Natural Resources.
during the current year, whereas SEC & SCCP are
Net Sales estimated to have suffered losses in the current
financial year. The SCCP and SEP have
Net sales (excluding Pakistan Steel) of all
nevertheless shown signs of improvement in their
operational units are estimated at Rs. 15.2 billion
Chapter 3. Manufacturing Mining and Investment Policies

performance by reducing the size of their losses Employment

by Rs. 127.5 million and Rs. 93.0 million
respectively. The NFC, though projected profit
but the size of the profit is marginally lower than
last year ( Rs. 1.3 billion as against Rs. 1.4 billion ).
This decrease in the profits of NFC’s units is
mainly because of the increase in prices of inputs
i.e. natural gas, low sale price available in the
market and heavy losses incurred by Pak
American Fertilizer (New Plant) by Rs.534.7
million as against last year’s loss of Rs 686.7
million which is mainly on account of high
depreciation and financial charges. The PACO has
also projected decline in the profit from Rs.90.8
million (last year) to Rs.65.6 million in the current
year.
Total number of employees enrolled with
public sector corporations units (excluding Pak
Steel), by end June, 2002 is estimated at 8,355 as
compared to 11,140 on end June 2001. The number
of employees has dropped in SEC, SCCP and
PACO. In NFC, the number of employees has
increased by 35.
Overall Performance of Public Sector
Industries (Including Pakistan Steel)
Overall performance of public sector
industries (including Pakistan Steel) remained
bleak as summarized in Table 3.9.

Table 3.9
Performance of Public Sector Industries
(Overall)
Rs. In Million)
Description 2000-01 2001-02** % Change

Production Value* 12,212 11,747 -3.8

Net Sales 33,594 28,478 -15.2
Pre-Tax Profit 1,334 289 -97.1
Taxes and Duties 7,245 6,100 -15.8
No. of Employees 27,721 21,975 -20.7
* At constant prices of 1987-88. Source: Expert Advisory Cell,
** Actual for 8 months (July- Feb.) and estimated for 4 months (Mar-June)

Performance Of Pakistan Steel with built-in potential to expand its capacity to

over 3 million tones per annum. The Steel Mill is
Pakistan Steel was established with the producing coke, pig iron, billets, hot rolled
objective of enhancing domestic availability of coils/sheets, cold rolled coils/sheets, formed
basic raw material for engineering and sections like channels, angles, galvanized sheets
construction industries. It facilitated etc. The performance of Pakistan Steel (based on
establishment of downstream steel industries in major performance indictors) during the period
the country. The production capacity of Pakistan July-June is summarized in the Table 3.10:
Steel is 1.1 million tons of raw steel per annum
 Chapter 3. Manufacturing Mining and Investment Policies

Table 3.10
Performance of Pakistan Steel
(Rs. in Million
2001-2002
Item 2000-01 ( Projected) % Change

Production Value * 5,712 5,465 - 4.3

Net Sales 18,820 13,245 -29.6
Pre-tax profit 580 - 850 -247.0
Taxes & duties 3,850 2,488 - 35.0
No. of employees 16,581 13,620 -17. 8

*At constant prices of 1987-88. Source: Expert Advisory Cell, M/o Ind. & Prod.

The industrial estate of Pakistan steel
spread over an area of 1420 acres within its
periphery for the benefit of entrepreneurs,
attracted 22 downstream units so far along with
21 located in different parts of the country. The
downstream industries are basically producing
value added engineering goods such as steel
pipes (small, medium and large diameter),
seamless pipes, wire rod and baling hoops, small
sections, reinforcement bars, slag cement, slag
wool, automotive parts etc.
SMALL AND MEDIUM ENTERPRISES (SMES)
The government has declared SME sector
as one of the four major drivers of growth. There
has been a consensus among economists and
policy- makers that the foundation of
industrialization could not be established without
efficient network of the SMEs. It fosters
entrepreneurial culture and provides resilience in
the economy against global economic
fluctuations. The SMEs are confronted with
structural problems like weaknesses in the
financial, technological and management systems
beside lack of skills and marketing techniques. To
provide assistance in these areas the government
has established Small and Medium Enterprise
Development Authority (SMEDA). The SMEs
constitute over 90 percent of businesses in
Pakistan, and majority of them operate in the
undocumented informal sector. They represent a
significant component of Pakistan’s economy in
terms of both value addition and employment
generation. As they predominantly provide
employment to low-income groups, they are also
considered an important vehicle for poverty
reduction. The SMEs in particular, play a key role
in the manufacturing sector; providing 80% of
the total employment, contributing over 30% to
GDP, and generating one-fourth of the sector’s
export earnings
A sectoral analysis of the SMEs reveals
that the most significant areas of activity are
depicted in Fig-2. As evident from the figure
approximately, half of the total SMEs activity is
concentrated in five sub-sectors; grain milling,
cotton weaving, wood and furniture, metal
products and art silk. For the past three decades,
the fastest-growing export industries have been
dominated by the SMEs. Export contribution from
SMES emanates from sub-sectors, cotton weaving
and other textiles and, surgical equipment.
Chapter 3. Manufacturing Mining and Investment Policies
Fig-2: Share of Key Sub-sectors in SMEs
Others
35%
Wood & Furniture
10% Jewelery
4%
The SMEs exports, however, have largely
tended to dominate low value added sectors that
rely on traditional technologies. The SMEs sector
also suffers from low productivity. Despite their
numerical dominance, SMEs account for a
relatively small, albeit increasing, proportion of
value added among the organized sectors. The
fact that this sector employs 80 percent of workers
and produces only 30 percent of value added
indicates that, on average, the productivity in this
sector is low . While some of the units survive
due to efficiency in the resource use and linkages,
others survive despite being inefficient, merely by
evading taxes and circumventing state
regulations.
FOREIGN INVESTMENT
Pakistan attaches highest importance to
the inflow of foreign investment. Foreign direct
investment (FDI) being the single largest
component of private capital flows has
contributed to investment and growth in
developing countries, leading to the reduction in
poverty and improvement in the living standards.
The distribution of these flows has, however ,
remained uneven. The countries that have
received the lion share of the surge in FDI flows
during 1990s are the ones that followed open
Cotton Weaving
13%
Other Textiles
6%
Metal Products
7%
Carpets
4%
Art Silk
5%
Grain Milling
16%
trade and investment regime, maintained
macroeconomic stability, had large markets, a
predictable institutional environment without
excessive red- tapism has remained firm in place,
and possessed reasonably improved physical and
human infrastructure. The countries that lagged
behind in attracting FDI are the ones that faced
macroeconomic instability, pursued inconsistent
economic policies, had relatively poor physical
and human infrastructure, and bureaucracy not
responding to the initiatives with conviction.
Where does Pakistan stand today ?
Pakistan has succeeded, to a larger extent , in
restoring macroeconomic stability, it is following
consistent policies, its trade regime is liberal and
open, it is directing resources towards improving
human capital and physical infrastructure,
governance reform is top of the reform
programme, and making concerted efforts in
removing various irritants which affect business
climate.
The inflow of foreign investment in
Pakistan has been declining since 1995-96 for a
variety of reasons including : the saturation of
investment in power sector; the East Asian
financial crises of 1997; economic sanctions and
freezing of foreign currency accounts of May
Chapter 3. Manufacturing Mining and Investment Policies

1998; the IPP and the HUBCO issues, particularly
the way it was handled in the past; low levels of
foreign exchange reserves and threat of default on
external payments obligations; and disarrayed
relations with the International Financial
Institutions(IFIs). Over the last two and a half
years the government has succeeded in removing
the above listed constraints . For example , all the
IPP issues including the HUBCO one have been
resolved; foreign exchange reserves have reached
at a comfortable position; economic fundamentals
have improved; all economic sanctions have been
lifted ; Pakistan has acquired high credibility for
its reform programme from the international
financial institutions ; and stability in the
exchange rate has been restored. Investment
climate has further improved because of
Pakistan’s enhanced stature in the global order.

Table 3.11
Inflow of Net Foreign Private Investment (FPI)
(Million US $)
July – April
Country 2000-01
2000-01 2001-02
Port
Direct Total Direct Portfolio Total Direct Portfolio Total
folio
USA 92.7 -37.8 54.9 68.3 -36.3 32.0 179.9 -8.0 171.9
UK 90.5 -33.8 56.7 82.7 -31.4 51.3 24.1 -21.2 2.9
UAE 5.2 -10.9 -5.7 4.2 -10.0 -5.8 17.8 1.0 18.8
Germany 15.5 0 15.5 12.0 - 12.0 9.4 - 9.4
France 0.7 0 0.7 0.7 - 0.7 -7.6 0.3 -7.3
Hong Kong 3.6 16.3 -12.7 3.0 -9.7 -6.7 2.4 19.2 21.6
Italy 1.3 0 1.3 1.3 - 1.3 - - -
Japan 9.1 0 9.1 8.3 - 8.3 4.8 0.2 5.0
Saudi
56.6 -1.7 54.9 45.6 -1.9 43.7 2.2 0.1 2.3
Arabia
Canada 0.1 0.5 0.6 0.1 - 0.1 3.1 2.7 5.8
Netherland 4.8 -1.3 6.1 3.2 -1.5 1.7 -5.7 -0.8 -6.5
Korea 3.7 0 3.5 3.7 - 3.7 0.3 - 0.3
Singapore 3.7 1.2 4.9 3.1 0.8 3.9 3.3 -17.2 -13.9
China 0.1 0 0.1 0.1 - 0.1 - - -
Australia 1.5 0 1.5 1.5 - 1.5 0.4 - 0.4
Switzerland 3.6 -36.9 -33.3 3.0 -37.0 -34.0 6.8 22.4 29.2
Others 29.7 -3.4 26.3 18.2 -3.2 15.0 66.4 -0.3 66.1
Total 322.4 -140.4 182.0 259.0 -130.2 128.8 307.6 -1.6 306.0
Source: State Bank of Pakistan

Foreign direct investment was targeted at
$ 600 million in the outgoing fiscal year. However,
the events of September 11 and their aftermath
created temporary difficulties. During the first
ten months (July-April, 2001-02), the net foreign
investment stood at US $ 306.0 million as against
US $ 128.8 million, thereby, showing an increase
of 137.6 percent. This massive increase mainly
emanates from decline in outflow of portfolio
investment from $130.2 million in July-April 2000-
01 to only $1.6 million in the same period of last
year (see Table 3.11 )
Chapter 3. Manufacturing Mining and Investment Policies

Table 3.12
Inflow of (FDI) Foreign Direct Investment
(In Main Economic Group)
(Million US $)
Economic Group 1998-99 1999-2000 2000-01 July–April
2000-01 2001-02
1. Power 131.4 67.4 40.3 25.4 33.6
2. Chemical, Pharmaceutical & Fertilizer 54.1 119.9 26.3 22.0 15.3
3. Construction 13.9 21.1 12.5 9.0 10.4
4. Mining & Quarrying, Oil and Gas 112.8 79.7 84.7 66.9 134.6
5.Food, Beverages & Tobacco 7.4 49.9 45.1 44.6 6.4
6. Textile 1.7 4.4 4.6 4.2 11.7
7. Trade, Transport, Storage & Comm. 38.8 38.6 96.5 79.4 65.5
8. Machinery other than electrical 14.6 4.6 2.5 0.2 8.7
9. Electronic 1.2 2.3 2.8 2.5 15.2
10. Financial Business 24.4 29.6 -34.9 -33.5 4.3
11.Petro-Chemical & Refining 38.8 12.0 8.7 7.8 2.6
11. Cement 2.0 0.1 15.2 15.2 0.4
12. Others 31.2 40.3 18.1 18.2 32.5
Total 472.3 469.9 322.4 259.0 307.6
Source: State Bank of Pakistan

Foreign Direct Investment (FDI) increased by 18.8
percent and stood at US $ 307.6 million during
July-April, 2001-02 as against US $ 259.0 million
for the same period in the previous year. The
United States accounts for 58.5 percent of FDI
inflows, followed by U.K (7.8 percent) and U.A.E
(5.8 percent). The remaining amount of inflow is
unevenly distributed among various countries.
The group-wise break-up shows that 54.7 percent
of FDI has come in oil and gas and power sector
followed by trade, transport, storage &
communication (21.3 percent), chemical,
pharmaceutical and fertilizer (5.0 percent)and
electronics (4.9 percent).[See Table-3.12]
THE PRIVATIZATION PROGRAMME
Privatization has been an important
vehicle to attract FDI in developing countries.
Privatization proceeds accounted for 15 percent of
total FDI, and almost 50 percent of merger and
acquisition sales in developing countries.
Pakistan’s privatization programme during the
outgoing fiscal year was interrupted by the events
of September 11. It is, however now back on
track. High ticket items like banking and finance,
telecommunication, power and, oil and gas are on
strategic sale.
Privatization Commission Ordinance 2000
has been promulgated since September 2000 to
provide comfort to investors, assure transparency
in the sale process and increase the accountability
of the Privatization Commission. Between 1991–94,
66 units were privatized. By the end of 1997, the
total number of units privatized increased to 92
and by the end of 2000, number the privatized
units stood at 106. Gross privatization proceeds
stood at about Rs. 61 billion or US $ 1.8 billion.
Almost three-quarter of the proceeds came from
three units: Telecommunication (PTCL), KAPCO,
and Habib Credit & Exchange Bank. The status of
upcoming transactions are summarized in Table-
3.13.
Chapter 3. Manufacturing Mining and Investment Policies

Table 3.13
Upcoming Privatization Progamme

Company Type of Sale envisaged Targeted bidding

Date

Oil & Gas

Oil & Gas Dev. Corp Ltd. (OGDCL) 51% shares 4th Quarter 2002.
Pakistan State Oil (PSO) 51% Shares 3rd Quarter 2002.
Pakistan Petroleum Ltd. (PPL) 51% Shares 1st Quarter 2003.
Sui Northern Gas Pipelines Ltd. (SNGPL) 51% Shares 2003.
Sui Southern Gas Corporation Ltd. 51% Shares 2003
(SSGCL)

Power & Telecommunication

Pakistan Telecom Co. Ltd (PTCL) 26 % Strategic Sale with
management control.
Karachi Electrical Supply Corp. (KESC) 74% Shares
Faisalabad Electric Supply Corp (FESCO) 26-51% Strategic Sale
Genco (Jamshoro) 26-51 % Strategic Sale
3rd Quarter 2002.
3rd Quarter 2002.
4th Quarter 2002.
2nd Quarter 2003.

Banking & Capital Markets

United Bank Limited (UBL) 51 % Strategic Sale June 2002
Allied Bank Limited (ABL) 49% block sale 3rd Quarter 2002.
Habib Bank Limited (HBL) 5-10% IPO 4th Quarter 2002.
Habib Bank Limited (HBL) 51 % Strategic Sale 4th Quarter 2003.
Investment Corporation of Pakistan (ICP) Right to manage close-ended July 2002.
funds

MINING & QUARRYING. quality for export purpose. Presently about 50

The Minerals play a vital role in economic
development by providing raw material to key
industries. Pakistan has great potential in mineral
development. Various regional geological
surveys, conducted in the recent past, have
confirmed the potential in the metallic minerals of
copper , gold, silver, platinum, chromites, iron,
lead and zinc. As regards industrial minerals,
there is a vast potential of multi-coloured granite,
marble and other dimensional stones of high
minerals are under exploitation. Major mineral
products are coal, rock salt, other industrial and
construction minerals.
The mining & quarrying sector grew by
3.8 percent during July-March 2001-02 as against
4.3 percent growth achieved last year. Main
contributions came from coal and natural gas
which grew by 2.5 percent and 5.6 percent,
respectively. The extraction of some important
minerals is given in Table-3.14:
Chapter 3. Manufacturing Mining and Investment Policies

Table 3.14
Extraction of Principal Minerals

July-March
Units of the
Minerals 1999-2000 2000-01 2000-01 2001-02 % Change
quantity
Coal Million tones 3.2 3.3 2.4 2.5 2.5
Natural Gas 000 M.CU.MET. 23.2 24.8 18.4 19.5 5.6
Crude Oil Mln. Barrels 20.4 21.1 15.6 17.2 10.2
Chromite 000 tonnes 26.0 16.0 14.0 9.0 -35.7
Dolomite 000 tonnes 347.6 352.7 293.6 211.8 -27.8
Gypsum 000 tonnes 355 364 290.0 472.0 62.7
Limestone 000 tonnes 9.6 10.9 8.0 7.3 -8.7
Magnesite 000 tonnes 4.5 4.6 4.4 1.5 -65.9
Rock Salt 000 tonnes 1358 1394 1034.0 987.0 -4.5
Sulphur 000 tonnes 22.8 17.4 12.0 13.6 13.3
Baryte 000 tonnes 26.0 28.0 21.0 19.0 -9.5
Source: Federal Bureau of Statistics.

At present, the value addition is concentrated in 42.3 percent in July – March, 2002, as against 26.3
four principal minerals like gypsum, sulpher, percent in the last year. Nevertheless, it has
crude oil, and natural gas. These minerals emerged as the largest recipient of FDI. The FDI
account for most of the overall value addition of in Mining and Quarrying Sector is given in the
the mineral sector. The value addition in the Table 3.15.
sectors of gypsum has notably gone up by 63%,
while in case of Sulpher this increase is 13%, Two Australian mining companies, BHP
crude oil and the natural gas extraction have Minerals and Tethyan Copper Company (TCC)
increased by 10% and 6 % , respectively in are engaged in the exploration of copper, gold
financial year 2001-02. and other base metals in District Chagai,
Table 3.15 Baluchistan and they have proved a rich deposit
FDI Inflow in Mining and Quarrying of copper at Reko Diq and the M/s TCC is going
to develop the Mines, initially at a cost of about
US $ 170 million. Similarly a Chinese Company
Year US $ million % Share FDI M/s MCC has entered into a lease agreement
1997-1998 99.1 16.5 with GOP for the operation of Saindak Copper-
1998-1999 112.8 23.9
Gold Project in Baluchistan . Two Chinese
1999-2000 79.7 17.0
companies M/s Shenhua Group and CMC have
2000-2001 84.7 26.3
2001-2002* 121.7 42.3
also shown their interest for the establishment of
* (July - March,) Source: Economic Advisor Wing coal-fired power plants based on Thar and
Sonda/Jherruck coal fields in Sindh. MCC China
The Foreign Direct Investment (FDI ) in has also entered into a joint venture agreement
the Mining and Quarrying sectors was 17.0 with PMDC for the development and exploitation
percent in 1999-2000, but continues to increase of Duddar Lead-Zinc deposits in Baluchistan at a
thereafter. Its share in total FDI has increased to cost of about US $ 80 million.
__________________
Chapter 4. Income Distribution and Poverty
4. Income Distribution and Poverty
I. Assessing Global Poverty
The existence of widespread poverty in
the midst of global prosperity is undeniably the
most serious challenge confronting the world
today. It is an inescapable fact that, at the start of
the 21st Century, almost one – fifth of humanity
or 1.2 billion people subsist on less than $ 1 a day.
The problem of poverty has proved intractable as
the number of countries classified by the United
Nations as “least developed” have risen from 24
in 1971 to 49 in 2001. Of this heterogeneous group,
34 are in Africa, nine in Asia, five in the Pacific
and one in the Caribbean. It is a fact that the gap
between the rich and the poor has widened over
the years. Eighty percent of global GDP of $ 30
trillion accrues to only 20 percent of the world’s
population (living in OECD countries) and the
remaining 80 percent of the people only have a 20
percent share of the world income. The average
income in the richest twenty countries is 37 times
the average of the poorest twenty.
Poverty is a complex and multi-
dimensional phenomenon, which goes beyond the
notion of income, and encompasses social,
economic, and political deprivations. Lack of such
opportunities limits the abilities of the poor to
secure gainful employment and bring about an
improvement in their lives. Since poverty is a
multidimensional problem, solutions to poverty
can not be based exclusively on economic policies,
but require a comprehensive set of well-
coordinated measures. A new way of thinking
about development, the cornerstone of any
poverty reduction effort, is emerging. There is a
growing realization that a world where a few live
in comfort and plenty, while many live in abject
poverty is neither just, nor acceptable. At the
backdrop of this growing realization leaders of
149 states met at the Millennium Summit of the
UN and adopted the Millennium Development
Goals (MDGs) which set the target of reducing
poverty by on-half by the year 2015. Achieving
the target will not be easy. It will take
commitment and concerted efforts by citizens,
governments, and international agencies to turn
pledges in to reality.
The world is witnessing the change in
hearts and minds of the industrialized countries.
The development partners have shown their
strong willingness to enhance their development
assistance. Both the European Union and the
Untied States have committed themselves in
Monterrey, Mexico in March 2002 to enhance their
levels of development assistance in a phased
manner. This is a major development at the global
level to fight poverty and human deprivation and
must be welcomed by all the stakeholders.
However, given the extent and nature of poverty
in developing countries, much more needs to be
done to alleviate the sufferings of the people,
which in many cases exist because of lack of
adequate and timely flows of economic assistance.
At the same time, the effectiveness of economic
assistance should be measured by outcomes and
not necessarily by levels.
The consensus that emerged from the
Monterrey Conference is that each developing
country is primarily responsible for generating
Chapter 4. Income Distribution and Poverty
growth and reducing poverty through sound
macroeconomic policies and good governance.
However, it is equally true that no developing
country can really succeed in the task of poverty
reduction through its own efforts alone. In a
world of increasing economic integration the
success of the poverty reduction programs of
developing countries depend critically on
economic and financial policies of industrialized
countries. An enabling international environment
is required to foster growth in developing
countries. To achieve the MDGs, a three-pronged
strategy for external support has been advocated
which includes: enhancing the quantum of
economic assistance and its effectiveness,
improving market access and providing
meaningful debt relief.
Official Development Assistance
Official Development Assistance (ODA)
remains an essential supplement to domestic
resource mobilization of low-income countries.
The last fifteen years have witnessed a substantial
decline in ODA to developing countries. Net
ODA to developing countries has declined from $
58.3 billion in 1994 to 48.5 billion in 1999. This
decline has occurred at a time when ODA should
have increased, taking into account the focus on
poverty reduction at a number of UN conferences.
The present level of ODA is insufficient to fight
global poverty. Furthermore, not only have ODA
flows declined over the years, the transaction
costs of aid delivery have tended to rise
increasably, thereby eroding the effectiveness of
aid. Recent initiatives by the EU and US at the
Monterrey Conference have given hope that, at
least, the downward slide of ODA would be
halted.
It is equally important to note that
developing countries should not use ODA as a
permanent crutch but must treat this as a means
to stand on their own feet. Raising the
effectiveness of aid by creating a sound
environment, an appropriate framework for
investment, initiating structural reforms, ensuring
good governance, achieving high standards of
transparency, eliminating corruption, and
involving civil society is undoubtedly the prime
responsibility of developing countries.
Market Access
Trade is an important source of growth,
employment, and poverty reduction. It is also the
single most important external source of financing
development. Active promotion of trade in
developing countries could boost economic
growth, generate employment, and reduce
poverty. Increased market access is an effective
way for developing countries to attain economic
stability. Developing countries need a level
playing field with other market players thus
encouraging market based competition and
helping producers and consumers alike. Every
extra dollar of exports from a developing country
feeds a poor family and builds a better future for
them.
Debt Relief
Debt relief is an integral part of a
comprehensive concept of poverty reduction. It
has a critical role to play in helping poor countries
attain sustainable growth and development.
While the significant progress achieved so far in
implementing the enhanced HIPC initiative is a
significant development, it is equally essential to
evolve an effective mechanism for managing debt
overhang of heavily indebted non-HIPC countries
that are willing to redirect savings on account of
debt service payment for human capital
development, improving social indicators and
governance. Countries who are currently making
efforts to reform their economies but are
Chapter 4. Income Distribution and Poverty
burdened with huge debt overhang need
substantial debt relief to finance credible and
home grown reform programs. Meaningful and
substantial debt relief will, therefore, go a long
way in helping countries who are trying to help
themselves.
Good Governance
The promotion of good governance at
home and abroad is an essential prerequisite if
corruption is to be tackled and poverty to be
reduced in developing countries. Fighting
corruption at the global level is high on the
agenda of the international community. In many
countries higher incidence of poverty and poor
governance is linked to high levels of corruption.
The war against corruption needs to be globally
coordinated and black money should not find a
safe heaven anywhere. More concrete global
action is needed to curb money laundering, flight
of capital, tax evasion and illegal payments of
bidders on Government contracts.
The journey at the Millennium Summit to
fight poverty and build a partnership for
sustainable development received further impetus
at the Monterrey Conference. What is required
now is a follow up and serious implementation on
part of all the stakeholders. The follow up is
believed to be taking place in Johannesburg in
August 2002 where the world leaders will
assemble to discuss the issue of poverty
alleviation and sustainable development once
again.
Poverty is a war that must be fought
collectively because it is morally and ethically
repugnant. Pakistan is ready to play its role as a
responsible member of the international
community to create a world free of poverty,
inequality and deprivation___ a world which
offers hope, and a world we will be proud to
bequeath to our future generations.
II. Poverty and Inequality in Pakistan
The poor in Pakistan are not only
deprived of financial resources, but also lack
access to basic needs such as education, health,
clean drinking water, and proper sanitation.
Limited access to education, health, and nutrition,
undermines their capabilities, limits their ability
to secure gainful employment, and results in
income poverty and social exclusion; while also
making them vulnerable to exogenous shocks.
There are different approaches for
measuring poverty. Some only take into account
the income-dimension alone, while others go
beyond nominal earnings and measure well-being
through a holistic approach including
consumption, calorie intake, basic-needs etc.
There has been considerable debate on the
consistency, definition, and measurement
methodology of poverty in Pakistan however
there is general agreement that poverty afflicts
around one-third of the population.
Notwithstanding the debate on the actual level of
poverty the government has finalized the
methodology for determining the official poverty
line that can provide a consistent basis for
comparing poverty trends across the country.
The most commonly used measure of
poverty is the Head Count Ratio (HCR), which is
measured as a percentage of population whose
income or consumption level falls below the
poverty line. Based on the requirements of 2150
calories the government has adopted the official
poverty line in 1998-99 as Rs.650 per capita per
month. The poverty line assesses the limit beyond
which people are considered to be poor. It only
indicates the average consumption expenditure
necessary to satisfy some basic requirements.
Accordingly, Pakistan’s official poverty line
Chapter 4. Income Distribution and Poverty

signifies a person as poor if he or she falls below
the bracket of Rs. 650 per capita per month.
The decade–wise analysis indicates
improvement in income distribution during the
1960s. During this period the Gini Coefficient
declined from 0.386 in 1963-64 to 0.336 in 1969-70,
however inequality worsened during the 1970s as
the Gini Coefficient increased from 0.33 in 1970-71
to 0.373 in 1979 (See table 4.1). The trend again
reversed during the 1980s when large inflow of
workers remittances improved the income
distribution and lowered the incidence of poverty.
In recent years, trends in income
inequality have broadly followed the growth
performance of the economy. During the period
1984-88, Pakistan witnessed a high growth rate
(6.8 % average) that was accompanied by an
improvement in income inequality. While the
relatively slower growth rates during 1990-91 and
1992-93 were accompanied by rising income
inequality; with the Gini Coefficient rising from
0.407 to 0.41. However, when there was a decrease
in growth from 4.5% in 1993-94 to 1.9% in 1996-97,
it did not affect income inequality. During 1998-99
GDP increased by 4.2 percent but this increase in
GDP could not contribute towards decreasing
income inequality. Table 4.1 reflects the behaviour
of the Gini Coefficient and growth rates of real
GDP from 1963-64 to 1998-99.

Table 4.1
Household Income Distribution in Pakistan
Percentage Share of Income
Year Household Lowest Middle Highest Ratio of GDP
Gini 20% 60% 20% Highest 20% to Growth
Coefficient Lowest 20% Rates

1963-64 0.386 6.4 48.3 45.3 7.1 6.5

1966-67 0.355 7.6 49.0 43.4 5.7 3.1
1968-69 0.336 8.2 49.8 42.0 5.1 6.5
1969-70 0.336 8.0 50.2 41.8 5.2 9.8
1970-71 0.330 8.4 50.1 41.5 4.9 1.2
1971-72 0.345 7.9 49.1 43.0 5.4 2.3
1979 0.373 7.4 47.6 45.0 6.1 5.5
1984-85 0.369 7.3 47.7 45.0 6.2 8.7
1985-86 0.355 7.6 48.4 44.0 5.8 6.4
1986-87 0.346 7.9 48.5 43.6 5.5 5.8
1987-88 0.348 8.0 45.3 43.7 5.5 6.4
1990-91 0.407 5.7 45.0 49.3 8.6 5.6
1992-93 0.410 6.2 45.6 48.2 7.8 2.3
1993-94 0.400 6.5 46.3 47.2 7.3 4.5
1996-97 0.400 7.0 43.6 49.4 7.1 1.9
1998-99 0.410* 6.2 44.1 49.7 8.0 4.2
*: Economic Adviser’s Wing Source: Federal Bureau of Statistics.

The share of the lowest 20 percent and
highest 20 percent of households in income is
another indicator of income inequality. Table 4.1
indicates that the share of the lowest 20 percent
increased during the 1960s, followed by a decline
during the 1970s, again followed by an increasing
trend during the 1980s. During the 1990s the share
of the lowest 20 percent households in income
again declined and reached 6.2 % during 1998-99
compared to 49.7 percent of the highest 20%. The
 Chapter 4. Income Distribution and Poverty

behaviour of the income distribution for 1987-88

to 1998-99 is also depicted by Lorenz curve at
Fig. I. Another way to get an insight into the
Fig:1 Lorenz Curve
structure of income inequality is to analyze inter-
(1987-88 and 1998-99) sectoral disparity on rural-urban basis. As
100 indicated in Table 4.2, the lowest 20 percent of
90 Perfect Equality rural areas received only 8.3 percent of the total
80 income during 1979 while share of the highest 20
70
percent was 41.3 percent during the same year.
Income (%)

60
1987-88 . The share of the lowest 20 percent in rural areas
50
had declined to 6.9 percent in 1998-99 while the
40
30
1998-99 share of the highest 20 percent in rural areas had
20 increased from 41.3 percent in 1979 to 46.8 percent
10 in 1998-99. As opposed to rural areas, the share of
0 the lowest 20 percent households in urban areas
0 10 20 30 40 50 60 70 80 90 100 increased from 6.9 percent in 1979 to 7.6 percent
Households(%) in 1996-97 but decreased to 6.0 percent during
1987-88 1998-99 Perfect Equality

1998-99. On the other hand, the share of the

highest 20 percent in urban areas increased from
48.0 percent in 1979 to 50.0 percent in 1998-99.
Table 4.2
Household Income Distribution Rural-Urban
Rural Share Urban Share
Year Lowest Highest Gini-Co- Lowest Highest Gini-Co-
20% 20% efficient 20% 20% efficient
1979 8.3 41.3 0.32 6.9 48.0 0.40
1984-85 7.9 42.8 0.34 7.0 47.7 0.38
1985-86 7.9 40.0 0.33 7.5 45.0 0.35
1986-87 8.0 39.0 0.32 7.9 44.0 0.36
1987-88 8.8 40.0 0.31 6.4 48.1 0.37
1990-91 6.0 47.4 0.41 5.7 50.5 0.39
1992-93 7.0 44.8 0.37 6.1 48.9 0.42
1993-94 7.4 43.1 0.40 6.7 47.1 0.35
1996-97 7.3 49.3 0.41 7.6 47.0 0.38
1998-99 6.9 46.8 0.401* 6.0 50.0 0.33*
*: Economic Adviser’s Wing Source: Calculated on the basis of FBS's HIES Data for selected years.

The Gini Coefficient of the rural areas has urban areas also showed this improvement
increased from 0.32 in 1979 to 0.41 in 1990-91 but during the latter half of the 1990s.
decreased to 0.37 in 1992-93. It again increased to According to the caloric-based poverty
0.41 in 1996-97 but declined to 0.401 in 1998-99, definition (headcount ratio), the incidence of
suggesting an improvement in income poverty declined sharply from 46.5 percent in
distribution in rural areas. The Gini Coefficient of 1969-70 to 17.3 percent in 1987-88. However, the
momentum gained in the fight against poverty up
Chapter 4. Income Distribution and Poverty

till the 1980s was lost during the 1990s when percent in 1992-93, decreased to 21.8 percent in
poverty leveled off; while it rose again at the end 1996-97, and according to latest estimates
of the decade when per capita GDP growth increased to 28.2 in 1998-99 (Table 4.3).
became negligible. Poverty remained around 22

Table 4.3
Poverty: Head Counts
Percent

Year Total Rural Urban

1963-64 40.24 38.94 44.53

1966-67 44.50 45.62 40.96
1969-70 46.53 49.11 38.76
1979 30.68 32.51 25.94
1984-85 24.57 25.87 21.17
1987-88 17.32 18.32 14.99
1990-91 22.11 23.59 18.64
1992-93 22.2 23.91 17.71
1993-94 25.0 29.72 13.58
1996-97 21.8 25.98 12.44
1998-99 28.2 31.95 19.13

Source: Federal bureau of Statistics

Planning & development Division

Fig-2: Pakistan Head Count Ratio Trend

50
45
40
35
% of Population

30
25
20
15
10
5
0
63-64 66-67 69-70 79 84-85 87-88 90-91 92-93 93-94 96-97 98-99

Total Rural Urban

established, has consistently remained higher

III. Relationship between Agriculture and
than that in urban areas. The volatility of
Rural Poverty
agriculture thus has immense bearings on the
The incidence of poverty in rural areas, incidence of poverty in Pakistan. Crop failures in
where dependency on agriculture is well one year translate into higher poverty with a lag;
while higher agriculture growth contributes
Chapter 4. Income Distribution and Poverty
towards poverty reduction, also with a lag.
During the period 1985-1999 the correlation
between agriculture growth and poverty
headcount ratio remained negative, and the
coefficient of correlation is estimated at negative
0.32. For example a negative growth of 4.8 percent
of agriculture in 1983-84 led to an increase in the
incidence of poverty during 1984-85 as the
incidence of rural poverty increased. During 1986-
87 the agriculture sector grew by 3.25 percent and
Fig-3 :Relationship between agricultural growth and poverty
35
30
25
20
15
10
0 97-
86- 89-
87 90
-5
83-
84
-10
84-85 87-88 90-91
Agricultural growth
IV. Stylized Facts of Poverty
An analysis of poverty by socio-economic
groups, focusing on key demographic and
economic characteristics, reveals the following
stylized facts of poverty in Pakistan:
• Poverty increases with the size of the
household. Large households are more
likely to be poor in urban areas, as
compared to rural areas.
• Female heads approximately 7 percent of
all households. Poverty incidence among
consequently the incidence of poverty came down
to 17.32 in 1987-88. Similarly, poor harvest of
1992-93 resulted in negative agricultural growth
of 5.3 percent and thus a higher poverty incidence
in 1993-94. The severe drought in 1997-98, which
has affected the agriculture sector has also
impacted poverty (See.Fig-3). From this analysis
one can easily infer that higher agriculture growth
may lead to a reduction in poverty with a lag.
91- 95-
98
92 96
92-
93
92-93 93-94 96-97 98-99
Poverty Head Rural
this group is marginally higher than that
among the male-headed households.
• Households whose heads have no formal
education have the highest poverty rate
which 36 percent poverty falls as the
education attainment of the family
headed increases. The percentage of
literate household heads in non-poor
households is 52 % against only a 27 % in
poor households.
• The head of household engaged in
unskilled agriculture and services
Chapter 4. Income Distribution and Poverty
occupation are the poorest. While those
employed in trade, social services and
utilities are affected relatively less by
poverty.
• Incidence of rural poverty for those
households whose heads are
agriculturists is lower than all other
occupations except for those in
professional, management, or clerical
positions.
V. Poverty Reduction Strategy 1
Pakistan is faced with the twin challenges
of reviving growth and reducing poverty. This
requires rapid economic growth, which is
equitable in nature and broad based in its reach.
Keeping in view the factors responsible for
slowing growth and rising poverty the
government has formulated a comprehensive
economic revival program aimed at reviving
economic growth and social development. In the
same vein the government has adopted a multi-
pronged approach to promote pro-poor economic
growth and reduce poverty, which has been
articulated in the Interim-Poverty Reduction
Strategy (I-PRSP). The core principles of the
strategy include (A) engendering growth, (B)
implementing broad based governance reforms,
(C) improving income-generating opportunities,
(D) improving social sector outcomes, and (E)
reducing vulnerability to shocks.
A. Engendering growth
Engendering growth by correcting
macroeconomic imbalances and stabilizing the
economy has been made the central pillar of the
government’s economic revival program as
announced by the Chief Executive in his address
to the nation on December 15, 1999. The
government has adopted a sound macroeconomic
framework aimed at both stabilizing the economy
1 it provides physical, economic, and social security
Interim-Poverty Reduction Strategy Paper, 2001
and stimulating growth. It comprises five
building blocks, namely tax reforms, expenditure
management, prudent monetary policy, external
adjustment, and debt management.
B. Broad Based governance reforms
Implementing broad based governance
reforms are essential ingredients of the
government’s poverty reduction strategy.
Without governance reforms the enormous task of
reviving growth and reducing poverty cannot be
addressed. Sagging growth and rising poverty are
in part a reflection of the failure of governance
institutions in Pakistan. In fact, poverty in
Pakistan is not merely an outcome of economic
ills but a result of mis-governance over past years.
Poverty redressal is only possible when economic,
political, and social dimensions of governance are
addressed by forging a partnership between the
government, the private sector, and the civil
society.
The Chief Executive’s Seven Point
Agenda, as highlighted by the national
reconstruction program, aims at introducing
several cross cutting governance reforms that will
not only improve transparency and accountability
but will also result in more efficient delivery of
services and consequently a better life for the
poor. The main elements of the governance
agenda include devolution of power, civil services
reforms, access to justice, and fiscal and financial
transparency.
C. Improving income generating
opportunities
The core principles of Pakistan’s poverty
reduction strategy is to empower the people and
create greater opportunities for increasing real
incomes by improving access to productive assets,
mainly housing, land, and credit.
Housing is a fundamental human need as
Chapter 4. Income Distribution and Poverty
to the poor. However, depressed economic
growth, rising population, and rapid urbanization
has resulted in an increased demand for housing
infrastructure. The present backlog of housing
units is more than 4 million in the country with
the result millions are forced to live in Katchi
Abadis or under-serviced slum settlements.
Estimates for urban population living in Katchi
Abadis range from 35-50%.
Government policy regarding katchi
Abadis aims at regularization these settlements
through the provision of basic services. In this
connection, the framework announced by the
government, calls for the granting of proprietary
rights to residents of Katchi Abadis, which were
in occupation up to 23rd March 1985. New Katchi
Abadis established after 1985 would be
regularized on a case-by-case basis by district
governments. Occupants of Katchi Abadis in
urban areas making full payment of development
charges in lump sum within a period of three
months would get 50% concession on the said
charges; while no charges will be recovered in
respect of the land in Katchi Abadis under the
occupation of widows, orphans and disabled
persons.
The government is further developing a
systematic and comprehensive strategy based
upon the principles of human dignity and respect
for improving service delivery systems in existing
Table 4.4
Distribution of state land
Province Total Land allotted
B/w 01.07.2001-
31.03.2002
(Acres)
Punjab 12663
Sindh 8075
NWFP 17578
Balochistan 5089
TOTAL 43405
Katchi Abadis, low/under-serviced settlements,
and areas requiring urban renewal and
upgrading.
Access to cultivable land has a positive
impact on the food and nutritional requirements
of poor households. Though significant tracts of
land were distributed as a result of land reforms
during 1959, 1972, and 1977, however in the
absence of follow-up support systems in terms of
infrastructure (link roads, irrigation), micro credit
facilities, and other institutional support, these
reforms failed to bring about significant
improvements in the living conditions of farmers
who benefited from this redistribution.
Pakistan’s Poverty Reduction Strategy
proposes fundamental changes in rural land
holdings to address the issue of rural poverty
through the accelerated distribution of state
owned land to small farmers. For this purpose the
distribution of about three million acres of
available land will be fully supported with the
provision of infrastructure, technical packages for
grains and other crops, and effective application
of fertilizer and other inputs (Table 4.4). Micro
credit windows will be provided from
Agricultural Development Bank of Pakistan,
Khushali Bank, and other institutions. In this
respect priority will be given to women so that
they can equally benefit from distribution of state
land and supportive packages.
Total No. of Land available for
beneficiaries allotment
As of 31.03.2002
(Acres)
958 55609
972 740598
N/a 526930
157 1416761
2087 2739898
Source: Federal Land Commission
Chapter 4. Income Distribution and Poverty
During 2001-02, 43,405 acres of land
were distributed among 2,087 beneficiaries. This
process will be further extended to ensure proper
cultivation of such land and the ADBP will be co-
opted to design special package for providing
credit to these farmers. Work has also been
initiated on proposed amendments of the land
reforms law in light of the Supreme Appellate
Bench judgment announced in 1989, to make it
compatible with Islamic injunctions.
Access to credit is the surest way of
empowering the poor and improving their
income generating opportunities. However, due
to the lack of collateral and weak asset base it is
very difficult for the poor to get credit from public
and private financial institutions, in spite of the
fact that small borrowers exhibit a lower credit
risk than larger borrowers. The already
mentioned asset creating interventions would
improve the economic profile of the poor and
make them more credit worthy on account of
increased collateral availability. However,
international experience has shown that micro-
credit can be an important instrument in
improving the income generating capabilities of
the poor. The Pakistan Poverty Alleviation Fund
(PPAF), Agricultural Development Bank of
Pakistan (ADBP), First Women Bank (FWB), the
National Rural Support Program (NRSP), and the
government are involved in credit allocation to
small enterprises.
PPAF was set-up with an endowment of
$100 million, as a wholesale lender to NGOs
engaged in providing micro financing. Between
July 2001 and March 2002, it had disbursed micro-
credit financing amounting to Rs. 365 million, in
35 districts of the country, to NGOs in all parts of
the country for onward lending to the poor. Based
on its experience it is expected that the total credit
component of the fund (US$ 45 million) would be
fully utilized by the end of 2003. Additionally,
PPAF has made disbursements towards
community physical infrastructure (CPI) projects,
mostly for clean drinking water supply and
irrigation purposes, which are community
identified, locally managed and locally run. PPAF
has maintained its focus on severely affected
drought areas, while maintaining equity in
provincial distribution of funds.
To supplement their work the
Government has now established the ‘Khushali
Bank’ or ‘Micro Finance Bank’ for the provision of
micro credit to poor communities. In this regard
Khushali Bank is already supporting the activities
of NGOs and Rural Support Programs (RSPs),
which are already dealing with micro-credit. The
Bank commenced its business from a remote
village of D.G. Khan, where the community had
taken the lead in identifying credit need, and is
now present in all the four provinces. Capital of
the bank has been contributed by a number of
banks, both public and private including foreign
banks. By end-March 2002, the bank had
established branches in 26 districts of the country
and had disbursed 28,495 loans amounting to
more than Rs. 277 million.
D. Improving social sector outcomes
The affects of sluggish economic growth
are clearly reflected in Pakistan’s performance in
the social sectors. A weakened social profile is
detrimental for growth as human development is
essential for attracting investment and generating
the capacity for future sustainable growth.
However, Pakistan’s progress on almost every
social indicator e.g. education, health, and
nutrition compares poorly with that of other
developing countries. Illustrative of the state of
social sectors in Pakistan is a weak adult literacy
profile, a low life expectancy, and a high maternal
Chapter 4. Income Distribution and Poverty
mortality rate. Moreover, access to clean drinking
water and sanitation is limited.
In order to address this situation the
government has prepared comprehensive human
development strategies aimed at the effective
utilization of available resources through
improved institutional mechanisms. In devising
these strategies the government has given
particular attention to three factors. First, these
policies have been developed through a
comprehensive bottom up consultative dialogue,
which ensures that they are demand driven and
locally owned. Second, instead of going for
additionalities the government’s human
development priorities are focused on building on
what is already on the ground. Third, all of these
strategies put special emphasis on cultivating
public private partnerships for improving human
development outcomes. These factors were
missing in the context of Social Action Program
(SAP), which was based on piecemeal supply
driven approaches that suffered, both, from over
design and lack of local ownership.
E. Reducing vulnerability to shocks
The government’s key social safety net for
reducing vulnerability to exogenous shocks is the
revamped system of Zakat and Ushr. The Zakat
and Ushr Ordinance (1980) mandates that 2.5 per
cent of the value of all declared, fixed financial
assets (i.e. savings accounts/certificates and
financial assets for fixed term) for those
possessing nisaab (the specified limit) are to be
automatically deducted at source at the beginning
of the month of Ramadan. The system of
collection and disbursement of Zakat, overseen by
respective Zakat Committees, has been recently
reorganized to improve their efficacy. While the
institutional framework for implementation,
monitoring, and evaluation of this social
intervention is being strengthened, relief to
beneficiaries in the form of subsistence grants
were raised to Rs. 500.
Zakat has thus emerged as the
government’s central program or social safety
instrument. However, its potential and scope in
fighting poverty is yet to be fully realized. At
present, annual Zakat collection is around Rs.4
billion. About 2 million beneficiaries received
assistance from the Zakat fund. The Zakat Fund,
which is made up of a portion of savings achieved
each year has risen to over Rs.24 billion. It is
envisaged that an additional 1.5 million
beneficiaries will be added to the list of Zakat
recipients.
Contrary to previous dedicated emphasis
on grants and stipends, the revitalized Zakat
system will provide funds to Mustahiqeen
(beneficiaries) not only to fulfill basic needs but
also to permanently rehabilitate them, by assisting
them in the establishment of small-scale
commercial projects or other means of living
suitable to their qualifications, skills profile, and
local conditions, thereby allowing them to achieve
self-reliance. Rehabilitation schemes have been
prepared which are aimed at about 1.5 million
new beneficiaries, who will be provided Rs.
10,000 to Rs. 50,000 each for starting up small
businesses/trades.
The Food Support Program is another
social safety instrument of the government for the
poorest sections of the population has also been
revitalized and funds for the program have been
set aside. The program is designed to mitigate the
impact of increase in wheat prices. Its coverage
extends to 1.2 million poorest households with
monthly income of up to Rs. 2000. Cash support
of Rs. 2000 is provided to them through biannual
installments. Rs.2.9 billion were spent on this
program from the federal budget during 2001-02.
The program was implemented at the district
Chapter 4. Income Distribution and Poverty
level through the help of district officials. A
system of means testing at the local level has been
adopted for identification of beneficiaries by
linking the program with the Zakat system where
records of Mustahiqeen are developed through
extensive participation.
Khushal Pakistan Program is the
government’s a principal social intervention
aimed at generating temporary employment and
economic activity through public works in the
country. A sum of Rs.15 billion has been released
under the Khushal Pakistan Program (Poverty
Alleviation Program), during 2001-02, by the
federal government to the districts through
provincial governments; while the schemes under
the program have been identified and selected at
the district level through active community
participation. This program has created more than
3 million temporary jobs, since inception, and is
providing essential infrastructure in rural and
low-income urban areas. The program has
generated considerable economic activity
including employment opportunities. With the
functioning of district governments under the
devolution program, the Khushal Pakistan
Program has gained considerable importance and
local ownership.
The cost of the schemes selected under
Khushal Pakistan Program has been kept between
Rs 0.05 million to Rs 5.00 million per scheme, in
rural areas and Rs 0.05 million and Rs 8.00 million
in urban areas. The following criteria have been
followed while identifying and analyzing projects
for the program:
• The project should be capable of
integration with earlier infrastructure, for
instance trunk sewers, roads etc.
• The management and implementation of
the projects will be in partnership with
the communities. In case of rural roads
local councils will take over the projects
on completion.
• In each district the local Deputy
Commissioner (DC) will select 25 per cent
of the projects in marginalized areas. He
will identify areas, in consultation with
local NGOs and civil society, where there
is a lack of sufficient basic infrastructure
and majority of inhabitants belong to low-
income groups.
• In cases where existing schemes require
major expenditures for rehabilitation,
work may be undertaken under the
program, provided that the total cost of
such rehabilitation work will not be more
than 25 per cent of the allocation for a
district.
• The projects will not be of a cost of less
than Rs 1 million to prevent a thin spread
of funds except in the case of
rehabilitation of drinking water supply.
• Khushal Pakistan program will be
utilized for productive purposes and will
not be provided for administrative
expenditures.
VI. Institutional Mechanisms for Poverty
Monitoring
In order to oversee the implementation of
the I-PRSP, the government has constituted a
high-level National PRSP Implementation
Committee headed by the Secretary General of
Finance and comprising secretaries of federal and
provincial PRSP partner government agencies2.
The PRSP Implementation Committee is
2
Planning Commission, Controller General of Accounts,
Federal Bureau of Statistics - FBS, Ministry of Education,
Ministry of Health, Ministry of Population Welfare, Ministry of
Local Government and Rural Development, Pakistan Bait-ul-
Maal, Pakistan Poverty Alleviation Fund - PPAF, Khushali
Bank, National Commission on Human Development, and
Ministry of Zakat, Ushr, and Religious Affairs.
Chapter 4. Income Distribution and Poverty
responsible for the implementation of the PRSP
policy reforms, evaluation of their impact, and
appropriate adjustments (if required) in the policy
regime.
The PRSP Implementation Committee
will also develop and build consensus on the
comprehensive national anti-poverty strategy (full
PRSP). For this purpose the government has
established a PRSP Secretariat, in Finance
Division, which has been mandated with the
overall lead in coordinating, monitoring,
evaluating, and tracking the implementation of
the PRSP; and reporting progress on anti-poverty
public expenditures, intermediate social
indicators, and final outcomes.
A critical input in achieving the targets set
out in the I-PRSP is the effective utilization of the
anti-poverty public expenditures. For this
purpose the PRSP Secretariat has institutionalized
a mechanism with the Controller General of
Accounts (CGA) for the quarterly tracking of anti-
poverty expenditures. A list of anti-poverty
expenditures along with their functional
classifications has also been developed with
provincial consultations and reports for the first
half of FY 2002 have already been published on
Finance Division's website.
The government has extended the
practice of tracking budgetary expenditures to
include all anti-poverty public outlays, budgetary
expenditures as well as non-budgetary social
safety transfers. By regularly tracking the flow of
all anti-poverty public outlays the government
seeks to improve the allocative efficiency of scarce
resources and redirect public resources to the
poor. For this purpose the government has
developed a mechanism for tracking social safety
transfers. However, due to the spread of this
information over federal, provincial, and district
governments across several ministries and
departments, the reporting frequency at this stage
has been set on a biannual basis. As district level
reporting systems are streamlined social safety
transfers could also be published on a quarterly
basis along with the PRSP quarterly expenditure
reports.
The policies outlined in the I-PRSP have
been linked with the achievement of key social
and human development goals. However, there
are many statistical issues involved with social
indicators which result in a considerable gap in
the information/ data available from different
sources especially in the education and health
sectors, e.g. National Education Management
Information System-- NEMIS-- and Federal
Bureau of Statistics-FBS-data on Gross Primary
Enrolment Rate; FBS and NIPS data on
Immunization coverage etc. In order to finalize
the definitions, measurement methodologies, and
sources for the selected indicators the PRSP
Secretariat organized a workshop on education
and health sector PRSP intermediate indicators in
Islamabad during March 2002. Consensus was
reached on a number of issues and a final report
on the recommendations emanating from the
workshop is being prepared. On the basis this
report the PRSP Secretariat will develop baseline
information/ data on education and health sector
PRSP intermediate indicators in consultation with
the federal and provincial line departments.
Preparation of Full PRSP
The preparation of the I-PRSP is only the
first step in the direction of preparing a
comprehensive national anti-poverty strategy,
which would encompass the economic, structural,
and social initiatives undertaken by the federal,
provincial, and district governments for targeting
the multidimensional nature of poverty and
human deprivation in Pakistan. Pakistan's full
PRSP is to be completed by December 2002.
Chapter 4. Income Distribution and Poverty
In order to make the full PRSP a truly
participatory anti-poverty strategy, that is
reflective of the diversity of all the federating
units, it will be based on the provincial PRSPs
prepared by the provincial governments
themselves, in consultations with the newly
elected district governments. The provincial
PRSPs would include detailed costing of the
programs and projects that these governments
_____________________
intend to undertake over the medium-term. The
provincial PRSPs would be based on the medium-
term framework of each province that would
develop a holistic picture of provincial
requirements and resource availability. This will
identify the additional resources required to
support the PRSP program and meet its
objectives/ targets. The provincial governments
have been assured of the federal government's
assistance in preparing the provincial PRSPs.
Chapter 5. Fiscal Development
5. Fiscal Development
INTRODUCTION
A predictable and sound fiscal policy is
essential for preventing macroeconomic
imbalances and realizing the full growth
potential. A general deterioration in public
finances in many developing countries during the
1980s and 1990s has caused serious
macroeconomic imbalances and subsequent rise
in public debt. Faced with widening fiscal
imbalances, a number of countries launched
medium-term fiscal adjustment plans the results
of which were not so successful. A critical
ingredient to successful adjustment is prolonged
commitment to fiscal discipline.
There is a general consensus that
prolonged commitment to fiscal discipline can
only come from a rule-based fiscal policy. The
rising fiscal deficits, the so-called deficit bias,
prompted many developing countries to
formulate fiscal policy rules, enshrined in a fiscal
responsibility law, as a means of exercising fiscal
restraint. A rule- based fiscal policy is essential for
achieving long-run fiscal sustainability,
maintaining fiscal discipline, and preventing
potential future increases in public indebtedness.
It is an instrument that can be used for
consolidating gains from discretionary adjustment
and ensuring the credibility of government policy
over time. This is especially true for countries
with a track record characterized by wide swing;
periods of poor fiscal performance with serious
fiscal adjustment followed by unsustainable
deficit spending. In short, a rule-based fiscal
policy can help reduce or remove the influence of
short-run political expediency that leads to deficit
bias. Essentially the rule represents the constraints
and prevents government taking fiscally
irresponsible route. International experience
suggests that countries that have adopted well
designed fiscal rules and implemented effective
operational mechanism for enforcing them have
made important credibility gains, reflected by
cheaper access to financial markets and greater
electoral support.
Fiscal policy rules are of several types,
however, they are broadly defined as rules that
impose a permanent constraint on fiscal deficits or
borrowing or debt or a combination of all three
indicators of fiscal performance. The rational for
fiscal policy rules mainly rests on the need for
achieving objectives of macroeconomic stability,
longer-term sustainability, support for other
policies, and overall policy transparency and
credibility. In theory, most of these objectives can
be met with discretionary fiscal measures within
the ambit of a medium-term budgetary
framework. However, many fiscal consolidation
plans undertaken to correct persistent budget
deficits, over the past two decades, have not been
successful; suggesting that well designed fiscal
policy rules may offer a useful second best
solution to counter pressures on fiscal policy
making.
Though, discretionary fiscal policy can
achieve the same outcomes as fiscal rules and
should in theory be superior because it allows
greater flexibility. However, that is not always the
case in practice as discretionary fiscal policy has
Chapter 5. Fiscal Development
an inherent deficit bias. This is because benefits of
a profligate fiscal stance accrue, entirely, today
and that too only to the targeted group; while its
costs show up after a lag and are borne by
everyone in terms of higher taxes and lower
spending.
Additionally, excessive borrowing of the
past curtails the government's ability in the future
to invest in important development programs
relating to health, education, population planning,
nutrition, and employment creation. However, it
has been observed that fiscal adjustment only
comes when the cost of accruing more debt
becomes inordinately high and there is no option
but to make an adjustment. A fiscal policy rule
can therefore be used as an instrument to get
round this bias and encourage fiscal sustainability
and macroeconomic stability, while leaving room
for maneuverability in times of exigencies
through the provision of safeguards or escape
clauses.
In the case of Pakistan the persistence of
large fiscal deficits, among other reasons, is one of
the primary causes for the rise in public debt and
the major source of macroeconomic imbalances
over the last two decades. Failures in enhancing
tax revenues consistent with the growing
expenditure requirements, on the one hand, and
the inability to balance productive and non-
productive expenditures on the other, exacerbated
fiscal imbalances over this period. As a result,
while the government's current expenditures
continued to rise, there wasn't a commensurate
rise in the government's ability to meet these
expenditures from its revenues.
In fact, the government had to resort to
borrowing to meet even its current expenditure
requirements and thus faced high government
dis-saving (borrowing for consumption) that
prevailed throughout the 1990s. Therefore, during
this period, as the fiscal deficit averaged around 7
percent of GDP, the public debt burden continued
to increase and rose from 66 percent of GDP in
1980 to almost 100 percent by mid-2000.
Considerable progress has been made
over the last two years to bring the fiscal deficit to
a sustainable path. However, a rule-based fiscal
policy would encourage responsible and
accountable fiscal management by the
government and ensures more informed public
debate about fiscal policy. It will require the
government to be transparent about its short and
long term fiscal intensions and impose high
standards of fiscal disclosure. Given the difficult
past that Pakistan's macroeconomic environment
had reached by the end of the last decade, a rule-
based fiscal policy would be highly desirable for
restoring macroeconomic stability and promoting
growth on a sustainable basis.
FISCAL PERFORMANCE IN THE 1990’s
The decade of the 1990s has witnessed
serious macroeconomic imbalances in Pakistan
caused primarily by the persistence of large fiscal
deficit. During the 1990s, fiscal deficit averaged
almost 7.0 percent of GDP despite cuts in
development spending by almost 3.5 percentage
points of GDP, causing public debt to reach
unsustainable level by the end of the 1990s. The
growing burden of debt servicing over the years
not only made fiscal adjustment more difficult but
crowded out private investment on the one hand
and forced public sector investment to decline.
Consequently, the overall investment declined by
3.0 percentage points of GDP in the 1990s.
Declining investment caused growth to decelerate
–almost one-third growth was lost in the 1990s.
The growth slowdown may also be reflecting the
effects of infrastructural bottlenecks and poor
social indicators.
Chapter 5. Fiscal Development

The burgeoning revenue deficit [total
revenue minus current expenditure] or public dis-
saving is another indication of fiscal imbalances.
Revenue deficit continued to deteriorate in the
1990s. It increased from less than one percent of
the GDP in the 1980s to 1.4 percent in the first half
and to 3.0 percent in the second half of the 1990s.
Large revenue deficit reduces national savings via
reduction in public savings. The dis-saving of
public sector to the extent of 3.0 percent of GDP
reduced national savings which forced Pakistan to
run large current account deficits to maintain a
given level of investment. Excessive reliance on
foreign savings unduly exposes the economy to
volatile international capital flows.

Table 5.1
Fiscal Indicators as Percent of GDP (MP)
Expenditure Revenue
Overall
GDP
Year Fiscal Total Total Direct Indirect Non **
Real Total Current PSDP*
Deficit Rev. Tax Tax Tax Tax
Growth
1990-91 5.4 8.8 25.7 19.3 6.4 16.9 12.7 2.0 10.7 4.2
1991-92 7.6 7.5 26.7 19.1 7.6 19.2 13.7 2.5 11.2 5.5
1992-93 2.1 8.1 26.2 20.5 5.7 18.1 13.4 2.8 10.6 4.7
1993-94 4.4 5.9 23.4 18.8 4.6 17.5 13.4 2.9 10.5 4.1
1994-95 5.1 5.6 22.9 18.5 4.4 17.3 13.8 3.4 10.4 3.5
1995-96 6.6 6.5 24.4 20.0 4.4 17.9 14.4 3.8 10.6 3.5
1996-97 1.7 6.4 22.3 18.8 3.5 15.8 13.4 3.6 9.8 2.5
1997-98 3.5 7.7 23.7 19.8 3.9 16.0 13.2 3.9 9.3 2.8
1998-99 4.2 6.1 22.0 18.6 3.4 15.9 13.3 3.6 9.7 2.7
1999-00 3.9 6.5 23.6 20.4 3.0 17.1 12.9 3.6 9.3 4.2
2000-01 2.4 5.3 21.3 19.0 2.7 16.0 13.0 3.9 10.9 3.0
2001-02 3.6 5.7 22.5 18.9 3.4 16.8 13.0 4.3 11.3 3.7
(M.B.E)
* PSDP: Public Sector Development Program. Source: Finance Division, (Budget Wing)
** Figures up to 95-96 include surplus of autonomous bodies.
M.B.E: Modified Budget Estimates.

Fig-1: Revenue-Expenditure Gap (As % of GDP)

30

25

20

15

10

0
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

Revenue Expenditure
Chapter 5. Fiscal Development
Primary balance [Total revenue minus non-
interest total expenditure] is yet another indicator
of the fiscal health of the country. It was in deficit
in 17 years out of two decades despite numerous
budgetary and post-budgetary measures taken
every year. Primary deficit which averaged 3.3
percent of GDP in the 1980s, declined to 1.8
percent in the first half of the 1990s and turned
surplus to the extent of 0.6 percent of the GDP in
the second half of the 1990s. It suggests that
Pakistan’s fiscal deficits were interest payment
driven during the second half of the 1990s. It also
suggests that total revenue was more than
sufficient to finance non-interest
expenditure. For fiscal consolidation and reducing
the debt burden, it is essential that Pakistan
continue to maintain a primary surplus of 2.5 to
3.0 percent of GDP in the medium-to-long-run.
STRUCTURE OF TAXES
Tax administration plays a vital role in
the success or failure of any attempt to reform
taxation. Many attempts to reform taxation have
failed because tax administration have been
influenced by the structure of tax system in
developing countries. In fact, tax structure and tax
administration are interdependent and should be
considered as such. The additional resource
mobilization through improvements in
structure and administration fell short
expectations in Pakistan because its tax structure
has inherent weaknesses which include; i) narrow
and punctured tax base because of wide ranging
exemptions and concessions and, rampant tax
evasion, ii) as a result of this, tax rates have been
pitched at high levels which created a vicious
circle of tax base erosion and higher tax rates, iii)
over dependence on indirect taxes, which until
the end of the 1990s, accounted for around 68
percent of tax revenues, and as such increased
regressivity of the tax system and imposed a
higher burden of taxes, iv) within indirect tax,
there has been over reliance on taxes on
international trade which has promoted
inefficiencies, distorted the allocation of resources
and encouraged smuggling, v) tax system has
been complex and tedious which along with high
rates of taxes, has breaded corruption and
encouraged tax evasion.
total
The combined result of such
characteristics has been the low and stagnant tax-
to-GDP ratio at the one hand and low tax
elasticity on the other. The tax-to-GDP ratio which
represents country’s fiscal effort, has remained
stagnant in the neighbourhood of 12 to 14 percent
over the last two decades. Such tax structure has
severely hampered resource mobilization effort,
despite a series of discretionary measures taken in
every budget to reduce the widening gap between
revenue and expenditure. Consequently, fiscal
deficit has averaged 7 percent of GDP over the
last two decades and emerged as one of the most
serious problem of macroeconomic management
in Pakistan.
tax
of Although successive governments in the
past have made attempts to narrow the revenue-
expenditure gap by taking new budgetary and
post-budgetary measures, tax revenue in relation to
GDP has remained stagnant at 12-14 percent of
GDP over the last two decades. Pakistan’s fiscal
problem is structural in nature and limited efforts
Chapter 5. Fiscal Development

were made in the past to undertake wide-ranging share of indirect taxes has correspondingly
structural reforms in tax and expenditure sides. declined from 82 percent to 65 percent. Within
indirect taxes the share of custom duty has
Successive governments since the declined from 55 percent in 1990 to 19 percent in
beginning of the 1990s have been implementing 2002; that of sales tax (which is tax on
tax and tariff reforms. The composition of tax consumption) increased from 18 percent to 63.5
revenue has changed drastically in last few years. percent, and that of central excise decreased from
The share of direct taxes has doubled from 18 28 percent to 18 percent during the same period
percent in 1990 to 35 percent in 2002, and the [See Table 5.2 and Fig-2].
Table 5.2
Structure of Federal Tax Revenue
(Rs. Billion)
Tax Revenue Break-up of Indirect Taxes
Year Total As % of Direct Indirect Central
Custom Sales
(CBR) GDP Taxes Taxes Excise
1990-91 111.0 11.0 20.0 91.0 50.0 16.0 25.0
[18.0] [82.0] (54.9) (17.6) (27.5)
1991-92 142.0 12.0 29.0 113.0 62.0 21.0 30.0
[20.4] [79.6] (54.9) (18.6) (26.5)
1992-93 153.2 11.0 36.7 116.5 61.5 23.5 31.5
[24.0] [76.0] (52.7) (20.2) (27.1)
1993-94 172.5 11.0 43.4 129.1 64.2 30.4 34.5
[25.1] [74.9] (49.7) (23.5) (26.9)
1994-95 226.0 12.0 62.0 164.0 77.0 43.0 44.0
[27.4] [72.6] (47.0) (26.2) (26.8)
1995-96 268.0 13.0 78.0 190.0 89.0 50.0 51.0
[29.1] [70.9] (46.8) (26.3) (26.9)
1996-97 282.0 12.0 85.0 197.0 86.0 56.0 55.0
[30.1] [69.9] (43.7) (28.4) (27.9)
1997-98 293.7 11.0 103.3 190.4 74.5 53.9 62.0
[35.0] [65.0] (39.1) (28.3) (32.6)
1998-99 308.5 10.0 110.4 198.1 65.3 72.0 60.8
[35.8] [64.2] (33.0) (36.3) (30.7)
1999-2000 346.6 11.0 112.6 234.0 61.6 116.7 55.6
[32.5] [67.5] (26.4) (49.9) (23.7)
2000-01 393.9 11.3 127.4 266.5 64.5 152.8 49.2
[32.3] [67.7] (24.2) (57.3) (18.5)
2001-02 (M.B.E) 414.3 10.9 146.5 267.8 50.5 170.1 47.1
[35.4 ] [64.6] (18.9) (63.5) (17.6)

Note:Figures in square brackets [ ] are shares in total taxes while the figures in Source: Central Board of Revenue
parentheses ( ) are shares of the individual taxes in indirect taxes.
Chapter 5. Fiscal Development
Fig-2: Federal Tax Collection (1990-91 & 2001-02)
(% Share)
1990-91
D ir e c t
Tax
17.7%
Custom
45.1% S a le s
Tax
. 15.1%
C . E x c is e
22.0%
Notwithstanding the changes in the
composition of taxes, the tax revenue in relation
to GDP remained remarkably stagnant at 12-14
percent in the 1990s. What is required is a second-
generation reform in tax system with focus on
better tax enforcement, bringing more taxpayers
into the tax net, reducing the number of taxes and
contributions in provinces, strengthening of tax
administration, and streamlining of tax laws to
make it taxpayer friendly.
FISCAL REFORMS OF THE
GOVERNMENT
Fiscal reforms lies at the heart of
structural reform program launched some two
and a half years ago. Although the immediate aim
of such reform is to reduce fiscal imbalances to
achieve macroeconomic stability, the medium-to-
long -term goal is to secure more durable
improvements in fiscal performance. To make
revenue mobilization more efficient, requires
reforming the tax and tariff systems and their
administration while, on the expenditure side,
fiscal consolidation calls for reorienting public
spending towards growth promoting investment
in physical infrastructure and in social and human
capital.
2001-02
Custom
12.2%
C . E x c is e D ir e c t T a x
11.4% 35.4%
.
S a le s T a x
41.1%
Tax reforms have been initiated over the
last two and a half years with a view to
broadening the tax bases, improving tax
compliance, minimizing the level of corruption,
streamlining the tax laws, and strengthening the
tax administration. The launching of a tax survey
and documentation of the economy drive has
been the most important elements of the tax
reform. The impact of tax survey on direct tax
collection is quite visible. The collection of income
and corporate taxes through voluntary payments
PRESENT has registered an increase of 44 percent during the
first nine months (July-March) of the current fiscal
year as compared with the some period of last
year. Similarly, both individual income tax payers
and corporate taxpayers have increased by 15.9
percent and 10.5 percent, respectively during this
period. Collection on demand category of income
tax has gone up by almost 20 percent during July-
March 2001-02 as compared with the same period
last year.
Tax administration plays a vital role in
the success or failure of any attempt to reform
taxation. It is in this view that a serious attempt
has now been made to redesign tax
administration on modern lines. Experts from the
private sector have been inducted in the Central
Board of Revenue (CBR) at the top management
Chapter 5. Fiscal Development
level. A time-bound reform agenda of the CBR is
likely to be announced in August 2002.
A new income tax Ordinance has placed
income tax on a universal self assessment basis
with system selected audits, minimal exemptions,
and more equitable rates, and established uniform
tax rates for all companies. The self-assessment
scheme will be effective from July 1, 2002. Large
taxpayers units are being established in major
cities of Pakistan to facilitate payments of taxes for
the large taxpayer.
Pakistan has made substantial progress in
fiscal transparency and accountability. Fiscal
Monitoring Committees (FMCs) have been
established at federal and provincial levels to
monitor fiscal reporting and improve the
reconciliation of accounts and quality of fiscal
data.
The separation of audit and accounts, the
transfer of the Controller General of Accounts
(CGA) office to the executive branch of
government, re-establishment of Public Accounts
Committees (PCAs), publication of quarterly
fiscal reports on the website of the Ministry of
Finance and publication of report on contingent
liabilities and tax expenditures for the first time in
Economic Survey are some of the measures that
have brought tangible improvements in the
quality and timeliness of fiscal data, and greater
public access to Pakistan’s fiscal developments.
To further consolidate these reforms and meet
new challenges arising particularly from
devolution of power at the gross-root level, the
government is in the process of adopting an
Accountable Fiscal Management Framework
(AFMF) that specifies assurances of accountability
and transparency of fiscal management.
A rule-based fiscal policy is considered
essential for achieving long-run fiscal
sustainability, maintaining fiscal discipline, and
preventing potential future increases in public
indebtedness. To this end, a Fiscal Responsibility
Law is at the fairly advance stage of finalization.
This Law will be enacted soon.
On the expenditure side, reorientation of
public spending is taking place. The share of
current expenditure is declining while that of
development spending is increasing. More
importantly, the shares of spending on physical
infrastructure and social and human capital are
increasing. Thus, a shift is taking place away from
expenditure on consumption to growth
promoting expenditure.
CONSOLIDATED BUDGETS (FEDERAL &
PROVINCIAL) IN 2001-02
Large fiscal deficit has been the major
source macroeconomic imbalance in Pakistan. It is
in this background that the reduction of fiscal
deficit from 6.5 percent in 1999-2000 to 5.3 percent
of GDP in 2000-01 is seen as a major achievement.
Further fiscal consolidation was envisaged in
fiscal year 2001-02 with a fiscal deficit target of 4.9
percent of GDP. Prudent fiscal management,
better tax enforcement and wide-ranging tax
reforms including Tax Survey, initiated by the
government, had set the stage for further deficit
reduction. The events of September 11 and
December 13 and aftermath, seriously
undermined government’s effort to further reduce
fiscal deficit. The events of September 11
adversely affected the performance of key
economic aggregates, prominent among those are
imports and industrial production. At the same
time, exchange rate instead of depreciating has in
fact appreciated to the extent of 7.0 percent and
inflation remained far below the target. Since,
almost 40 percent of the CBR revenue originates
from imports, sharp reduction in the volume of
imports along with the appreciation of exchange
rate severely contracted the tax base. While the
events of September 11 were mainly responsible
for the revenue slippages, the events of December
13 leading to the military stand-off caused
slippages on the expenditure side. Accordingly,
Chapter 5. Fiscal Development

the fiscal deficit for the outgoing fiscal year is the fiscal year 2001-02 because these slippages are
estimated at 5.7 percent of the GDP [See Table- treated as one-off element. For fixing fiscal deficit
5.3]. It may, however, be pointed out that the target for 2002-03, 4.9 percent instead of 5.7
underlying fiscal deficit is 4.9 percent of GDP for percent of GDP, would be treated as base.

Table 5.3
Consolidated Budget (Federal and Provincial)
(Rs. Billion)
1999-2000 2000-01 (P.A) 2001-02 % Change/
(M.B.E) 2000-01
A. Total Revenue 536.8 546.4 625.4 14.5
a) Tax Revenue 405.8 444.8 486.0 9.3
Federal 387.1 425.4 464.6 9.2
CBR 346.6 393.9 414.3 5.2
Surcharges 38.9 30.5 49.0 60.7
Other 1.5 1.0 1.3 30.0
Provincial 18.8 19.4 21.4 10.3
b) Non-Tax Revenue 131.0 101.6 139.4 37.2
B. Total Expenditure 743.6 726.9 837.6 15.2
a) Current Expenditure 655.0 650.7 705.5 8.4
i) Federal 492.7 500.8 535.4 6.9
Interest 252.0 234.7 257.0 9.5
Defence 152.8 131.2 149.6 14.0
Civil Govt. 28.6 45.9 52.0 13.3
All Others 59.3 89.1 72.0 -19.2
ii) Provincial 157.4 149.9 170.1 13.5
b) Development Expenditure 100.7 76.2 132.1 73.4
PSDP** 95.6 92.5 127.0 37.3
C. Overall Fiscal Deficit 206.8 180.5 212.2 17.6
Financing
i) External 66.9 118.8 148.0 24.6
ii) Domestic 139.9 61.6 64.2 113.5
Bank 39.9 -32.3 -7.0 -78.3
Non-Bank 100.0 93.9 64.7 -31.1
As % of GDP (mp)
Total Revenue 17.1 16.0 16.8 -
Tax Revenue 12.9 13.0 13.0 -
Non-Tax Revenue 4.2 3.0 3.8 -
Total Expenditure 23.6 21.3 22.5 -
Current Expenditure 20.3 19.0 18.9 -
Interest Payment 8.2 7.3 7.3 -
Defence 4.9 3.8 4.0 -
PSDP 3.0 2.7 3.4 -
C. Overall Fiscal Deficit -6.5 -5.3 -5.7 -
Financing
External 2.1 1.8 4.0 -
Domestic 4.4 3.5 1.7 -
GDP at Market Price (Rs Bln) 3147.2 3416.3 3726.6 9.1
P.A: Provisional Actual Source: Finance Division, (Budget Wing)
M.B.E: Modified Budget Estimates
* Include general admn, law & order and socioeconomic/community services etc.
** The difference between development expenditure and Public Sector Development
Program (PSDP) is the net lending to PSEs.
Chapter 5. Fiscal Development

Total revenue is estimated at Rs.625.4 collection jumped from 14.4 percent to 18.5
billion or 16.8 percent of GDP in 2001-02 as percent—an increase of 4 percentage points. As
against Rs.546.4 billion or 16.0 percent of GDP last against a refund/rebate of Rs 51.7 billion, the CBR
year, thereby, registering an increase of 14.5 disbursed Rs 69.4 billion—Rs 17.7 billion or 0.5
percent. This increase mainly emanates from percent of GDP more than last year. The
substantial increase in surcharges on petrol and government accelerated payments of outstanding
gas which made federal tax revenue to grow by sales tax and customs refunds at a faster pace, so
9.3 percent. The consolidated (federal and as to help exporters cope with the negative impact
provincial) tax revenue constitutes 77.7 percent of of September 11.
the total revenues and non-tax revenues account
for 22.3 percent. The tax revenue receipts of Table 5.4
federal and provincial governments, showing an Net Vs Gross Tax Collection
increase of 9.3 percent over 2000-01, is more or (Rs. Billion)
less equal to the increase in nominal GDP by 9.1
July- July- %
percent. The federal tax receipts consist of
April April Cha-ng e
revenue collected by the Central Board of
2000-01 2001-02
Revenue (CBR), surcharges (gas and petroleum),
A. Direct Tax
and some other minor collections.
Gross 106.842 118.477 10.9

CBR Revenue Refund/Rebate 8.885 9.993 12.5

Net 97.957 108.484 10.7
As stated earlier, CBR tax revenue has B. Indirect Tax
been the major victim of the events of September Gross 252.582 257.051 1.8
11. It was originally targeted at Rs 457 billion for Refund/Rebate 42.829 59.405 38.7
the fiscal year 2001-02 under the assumption that Net 209.753 197.646 -5.8
revenue collection for the fiscal year 2000-01 B.1 Sales Tax
would by Rs 406 billion. However, revenue Gross 146.303 162.025 10.7
collection stood at Rs.393.9 billion for FY 2000-01 Refund/Rebate 26.551 33.515 26.2
and accordingly the revenue target for the Net 119.752 128.510 7.3
outgoing fiscal year was revised downward to Rs B.2 Central Excise
443.7 billion. As a result of September 11 events
Gross 39.315 35.907 -8.7
and their aftermath, the target was lowered to
Refund/Rebate 0.109 0.018 -83.5
Rs.429.9 billion and further to Rs 414 billion which
Net 39.206 35.889 -8.5
is still 5.1 percent higher than last year.
B.3 Customs
Gross 66.964 59.119 -11.7
As shown in Table-5.4, the net collection
Refund/Rebate 16.169 25.872 60.0
stood at Rs 306.1 billion during the first ten
Net 50.795 33.247 -34.5
months (July-April) of the current fiscal year
Total Tax
which is marginally lower than the corresponding
Collection
period of last year (Rs 307.7 billion). The decline
Gross 359.424 375.528 4.5
in net collection is mainly on account of 34.2
Refund/Rebate 51.714 69.398 34.2
percent more refund/rebate given in this period.
Net 307.710 306.130 -0.5
In fact, refund/rebate as percentage of gross
Source: Central Board of Revenue
Chapter 5. Fiscal Development
Further breakdown of tax collection
provides interesting information. Despite serious
difficulties as stated above, the direct tax
increased by 10.7 percent during the first ten
months of the current fiscal year.– rising from Rs
97.9 billion to Rs 108.5 billion in net term, during
the first ten months of the current fiscal year while
gross collection improved by 11.0 percent.
Refund/rebate was 12.5 percent higher than last
year.
The performance of indirect tax has been
far from satisfactory. Gross collection was higher
by only 1.8 percent but net collection registered a
decline of 5.8 percent on account of 38.7 percent
more refund/rebate. Within indirect tax, the
performance of sales tax has been satisfactory on
gross term but because of the substantial increase
in refund/rebate, its performance on net basis
weakened considerably. Sales tax on gross basis
stood at Rs 162.0 billion as against Rs 146.3 billion
– thus showing an increase of 10.7 percent. On net
basis, sales tax registered an increase of 7.3
percent – rising from Rs 119.8 billion to Rs 128.5
billion. Refund/rebate on sales tax increased from
Rs 26.6 billion to Rs 33.5 billion – an increase of
26.2 percent. Interestingly, refund/rebate as
percentage of gross collection jumped from 18.2
percent to 20.7 percent.
Custom collection has been the main
victim of the events of September 11. Custom
revenue declined substantially both in gross and
net basis for a variety of reasons including the
decline in volume of imports, appreciation of
exchange rate, and decline in unit values. These
factors eroded the tax base and along with the
general reduction in tariffs, the overall collection
from customs declined substantially. During the
first ten months, custom collection stood at Rs
59.1 billion gross term as against Rs 67.0 billion in
the same period last year, thereby registering a
decline of 11.7 percent. On net basis, custom
collection stood at Rs 33.2 billion as against Rs
50.8 billion, registering a hefty decline of 34.5
percent. The significant decline in custom
collection is the result of an extra-ordinary
generous refund/rebate policy pursued by the
government to ensure that exporters do not face
liquidity problem. As against a refund of Rs 16.2
billion, the CBR has given Rs 25.9 billion in the ten
months—60.0 percent higher than the
corresponding period of last year. Refund/rebate
as percentage of gross collection jumped from 24.1
percent to 43.8 percent —almost 20 percentage
points or Rs 9.7 billion more in this period [See
Table 5.4].
Central excise registered a decline of 8.7
percent and 8.5 percent, respectively in gross and
net basis mainly on account of shifting of its tax
base in favour of sales tax. As a result of the on
going tax reform the share of central excise in total
tax revenue will continue to shrink [See Table 5.2].
The performance of monthly tax
collection reveals that the impact of September 11
was more pronounced during the period of
October-February. The indirect taxes were the
main victim of the September 11 events. Indirect
taxes were declining during the first quarter of the
current fiscal year, however, this decline sharply
accelerated during the months of October-
February. Indirect taxes declined by 5.1 percent in
July-September and further to 11.6 percent during
October-February. With the impact of September
11 subsiding, the collection of indirect taxes
improved considerably during the months of
March-April when it grew by 9.9 percent [See
Tables 5.5 and 5.6].
Chapter 5. Fiscal Development

Table 5.5
Month-Wise Tax Collection, 2001-02
(Rs. Billion)
%
Months Direct Indirect Taxes Total Tax Change
Tax Collection Over
Central Last
Sales Excise Custom Total 2000-01 2001-02 Year
July 4.3 10.1 2.5 2.8 15.4 21.1 19.7 -6.7
Aug 7.1 12.4 3.5 3.8 19.4 26.4 26.8 1.6
Sep. 10.7 12.0 3.9 4.3 20.3 33.2 31.0 -6.8
Oct. 12.2 13.4 3.7 4.1 21.1 33.0 33.2 0.6
Nov 7.9 12.0 3.2 1.8 16.9 28.6 24.9 -12.9
Dec. 20.6 13.6 3.3 1.4 18.3 40.4 39.0 -3.6
Jan. 13.4 12.6 3.4 3.4 19.4 31.1 32.8 5.5
Feb. 7.5 13.2 3.7 3.2 20.1 30.8 27.6 -10.4
March 12.5 14.1 3.9 4.4 22.4 32.9 34.9 6.1
April 12.3 15.1 4.7 4.2 24.0 31.0 36.3 17.1
July-April 108.5 128.5 35.9 33.2 197.6 307.7 306.1 -0.5
Note: Target for the year, 2001-01 = 414.4 Source: Central board of Revenue
% Achievement of Annual Target = 73.9

Sales tax accounted for 65.2 percent of
indirect taxes during the first ten months of the
current fiscal year. It grew on gross basis by 19.4
percent and on net basis by 9.9 percent during July-
September. Sales tax collection slowed to 4.0
percent on gross term but turned negative on net
basis during October-February. It has picked-up
and grown by almost 27 percent during March-
April. Customs collection on the other hand
continued its downward slide throughout the year,
of course at a much higher rate (44.4 percent)
during October-February. Overall tax collection also
showed the similar patterns—down by 3.2 percent
on net basis during July-September and around 3.0
percent during October-February. However, overall
tax collection improved substantially during
March-April when it registered an increase of 11.4
percent on net basis. While direct tax collection
continued to exhibit rising trend viz. last year,
indirect taxes, particularly customs and sales tax,
and withholding tax on import stage have
been adversely affected by the events of Sept-
ember 11.
Total Expenditure
Total expenditure is estimated at Rs.837.6
billion which is 15.2 percent higher than last year,
implying inordinate increase but in given geo-
political situation, the increase was inevitable. Out
of the consolidated expenditure of Rs.837.6 billion
for 2001-02, the current expenditure is estimated at
Rs.705.5 billion (84.2 percent of total expenditure)
while development expenditure (PSDP)
amounted to Rs.127.0 billion (15.8 percent of total
outlay). As shown in Table-5.3, the current
expenditure as percentage of GDP has remained
at 19.0 percent during the last two years. There
are three major components of current
expenditure, namely, interest payments, defense,
and expenditure on civil administration.
Chapter 5. Fiscal Development

Table 5.6
Trends in Gross and Net Tax Collection by CBR
(Rs. Billion)
Jul-Sep % Oct-Feb % Mar-April %
00-01 01-02 Change 00-01 01-02 Change 00-01 01-02 Change
Direct Tax
- Gross 24.0 24.7 2.9 57.4 67.1 16.9 24.4 26.7 9.4
- Refund 2.4 2.7 11.7 3.8 5.5 44.1 2.7 1.9 -30.7
- Net 21.6 22.1 2.0 53.6 61.6 15.0 21.7 24.8 14.4
Indirect Tax
- Gross 71.6 73.8 3.1 129.9 127.3 -2.0 50.2 55.9 11.4
- Refund 13.3 18.4 38.9 21.5 31.5 46.3 8.0 9.5 18.9
- Net 58.4 55.4 -5.1 108.4 95.9 -11.6 42.2 46.4 9.9
a. Sales Tax
- Gross 38.9 46.5 19.4 77.8 80.9 4.0 29.3 34.7 18.4
- Refund 7.4 11.8 59.7 12.9 16.2 26.0 6.3 5.4 -12.9
- Net 31.5 34.6 9.9 64.9 64.7 -0.4 23.0 29.2 26.9
b.Customs Duty
- Gross 19.9 17.4 -12.6 33.4 29.0 -13.2 13.3 12.7 -4.7
- Refund 5.8 6.6 12.5 8.6 15.2 77.1 1.7 4.1 135.8
- Net 14.1 10.8 -23.0 24.8 13.8 -44.4 11.6 8.6 -25.6
c. Central Excise
- Gross 12.8 9.9 -22.3 18.7 17.4 -7.0 7.6 8.6 12.4
- Refund 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
- Net 12.8 9.9 -22.3 18.7 17.4 -7.0 7.6 8.6 12.8
Total Tax
Collection 95.6 98.5 3.0 187.3 194.4 3.8 74.6 82.6 10.7
- Gross 15.7 21.1 34.7 25.3 36.9 46.0 10.7 11.4 6.4
- Refund 80.0 77.5 -3.2 162.0 157.5 -2.8 63.9 71.2 11.4
- Net
Source: Central Board of Revenue

Interest payment is the single largest item
of total as well as current expenditures. Its share
in total expenditure declined from 32.3 percent in
2000-01 to 30.7 percent in 2001-02. However, its
share in current expenditure remained stagnant
during the last two years at 36 percent. In absolute
term, interest payment is likely to be Rs.257.0
billion in 2001-02 as against to Rs.234.7 billion in
the previous year, thereby registering an increase
of 9.5 percent as against decline of 6.7 percent last
year. [See Table 5.3]. This increase should be seen
in the context of an average increase of almost 15
percent per annum during the second half of the
1990s.
Defense expenditure in 2001-02 was
budgeted at Rs.131.6 billion with no growth even
in nominal terms. It was budget to decline in
terms of percentage of GDP from 3.8 percent to
3.5 percent. It may be pointed out that defence
spending has been continuously declining over
the last one decade. Defense expenditure was 6.3
percent of GDP in 1990-91 and was targeted to
decline to 3.5 percent in 2001-02. Similarly,
defense expenditure was 25 percent and 32
percent of total and current expenditures,
respectively in the beginning of the 1990s but was
targeted to decline to 15.6 percent and 18.4
percent of total and current expenditures,
respectively by 2001-02. The incident of December
13 leading to the unprecedented massing of
Chapter 5. Fiscal Development
troops by India at the border compelled Pakistan
to mobilize its troops to defend its territory.
Consequently, the spending target was revised
upward to Rs.149.6 billion.
The third major component of current
expenditure is expenditure on civil
administration. Expenditure under this item
stands at Rs.102.7 billion which is 9.1 percent
higher than last year. It has accounted, on
average, 9.4 percent of federal current
expenditure and averaged 1.4 percent of GDP
during 2001-02 as against 8.9 percent of current
expenditure and 1.3 percent of GDP last year.
Provincial current expenditure grew by
13.5 percent in 2001-02—increasing from Rs.149.9
billion to Rs.170.1 billion. Provincial current
expenditure as percentage of total current
expenditure has been rising during the last three
years—rising from 22.4 percent in 1998-99 to 26.0
percent in 2000-01. As percentage of GDP,
provincial current expenditure has increased from
4.2 percent in 1998-99 to 5.1 percent in 1999-2000
but declined to 4.4 percent in 2000-01. It is
projected to remain at last year’s level in 2001-02.
The size of the Public Sector
Development Programme (PSDP) is projected to
increase by 37.3 percent over last year. The size of
the current year’s PSDP is projected at Rs.127.0
billion as against Rs.92.5 billion of last year's. As
percentage of GDP, it has improved substantially
from 2.7 percent last year to 3.4 percent this year.
This is because of better allocations from the
government for social sector and poverty
alleviation programs. As a result, these
expenditures now account for 15.2 percent of total
expenditure as against an average of 11.0 percent
in the previous three years.
The developments in revenue and
expenditure sides, as described above, led to an
overall fiscal deficit of Rs.212.2 billion or 5.7
percent of GDP. This revenue- expenditure gap is
financed through external and domestic sources.
Out of the gap of Rs.212.2 billion, financing from
external sources amounted to Rs.148.0 billion or
69.7 percent. The remaining gap of Rs.57.2 billion
or 30.3 percent is financed from domestic sources.
Within domestic sources, financing from non-
bank sources amounted to Rs.57.7 billion while
Rs.7.0 billion is the retirement to banking system,
and Rs. 6.5 billion would be amassed through
privatisation proceeds.
FEDERAL BUDGET, 2001-02
The budgeted federal gross revenue
receipts of Rs.611.5 billion for 2001-02 are 13.9
percent higher than revised estimates of Rs.536.7
billion in 2000-01. These revenue receipts
comprise tax revenues (Rs.464.6 billion) and non-
tax revenue (Rs.146.9 billion). The tax revenue
increased by 9.2 percent mainly because of 60.7
percent growth in surcharges. The CBR revenue is
estimated to grow by 5.2 percent on net basis.
After paying Rs.173.6 billion as provincial share,
the net federal tax revenue receipts are estimated
at Rs.291.0 billion. The provincial share in tax
revenue increased by 6.4 percent. Total
expenditure of Rs.661.0 billion is estimated to be
higher by 13.8 percent than last year. The net
development expenditure [PSDP-Net Lending] is
estimated to grow by 73.4 percent including 37.3
percent rise in PSDP. After adjusting with net
capital receipts, self-financing of PSDP by
provinces and external financing on the resource
side and provincial deficit/ surplus on the
expenditure side, the overall deficit stood at Rs.
223.2 billion in 2001-02 as against Rs.207.0 billion
last year. A comparison of the Federal Budget,
2000-01 (Revised estimates) and 2001-02 (modified
budget estimates) is given in Table5.7:
Chapter 5. Fiscal Development

Table 5.7
Federal Government Budget 2000-01 and 2001-02

2000-01 (R.E) 2001-02 (M.B.E) % Change

Item 2001-02/
Rs. Billion % Share Rs. Billion % Share
2000-01

A. Tax Revenue 425.4 79.3 464.6 76.0 9.2

- CBR Revenue 393.9 73.4 414.3 67.8 5.2
- Surcharges 30.5 5.7 49.0 8.0 60.7
Transfer to Provinces 163.1 30.4 173.6 28.4 6.4
Tax Revenue (Net) 262.3 48.9 291.0 47.6 10.9
B. Non-Tax Revenue 111.3 20.7 146.9 24.0 32.0
Total Revenue (A+B) 536.7 100.0 611.5 100.0 13.9
C. Net Revenue Receipts 373.6 437.9 17.2
D. Current Expenditure 518.2 89.3 555.9 84.1 7.3
- Interest Payments 234.7 40.4 257.0 38.9 9.5
- Defence 131.2 22.6 149.6 22.6 14.0
- Civil Administration 45.9 7.9 52.1 7.9 13.5
E. Development Expenditure 62.4 10.7 105.1 15.9 68.4
- PSDP 69.6 12.0 97.0 14.7 39.4
- Net Lending -7.2 -1.2 8.1 1.2 105.7
F. Total Expenditure (D+E) 580.6 100.0 661.0 100.0 13.8
Overall Balance (C-F) -207.0 -223.2 7.8
R.E: Revised Estimates Source: Finance Division, (Budget Wing)
M.B.E: Modified Budget Estimates.
accounted for 95.6 percent of overall revenue
PROVINCIAL BUDGETS receipts and amounted to Rs.250.2 billion which is
higher by 15.3 percent and non-tax revenue is
The total outlay of four provincial estimated at Rs.11.6 billion which is 4.5 percent
budgets for 2001-02 stood at Rs. 281.4 billion, higher than last year. Out of total budget outlay of
which is 12.1 percent higher than the outlay of last Rs. 281.4 billion, 89.2 percent went to current
year. The N.W.F.P witnessed highest increase of expenditure and 10.8 percent to development
38 percent in budget outlay over last year, expenditure. Inspite of declining share of
followed by Punjab (10.3 percent) and Sindh (8.4 development expenditure in total expenditure, the
percent). However, budget outlay of Baluchistan allocations for development expenditure are
declined marginally by 1.5 percent. The overall higher by 16.9 percent over last year while current
provincial revenue receipts for 2001-02 are expenditure is to grew by 11.2 percent. The main
estimated at Rs. 261.8 billion, which are 14.8 components of the Provincial budgets, 2000-01
percent higher than last year. Tax revenue and 2001-02 are presented in Table 5.8
Chapter 5. Fiscal Development

Table.5.8
Provincial Budgets At a Glance
(Rs. billion)
Punjab Sindh N.W.F.P Baluchistan Total

Item 2000- 2001- 2000- 2001- 2000- 2001- 2000- 2001- 2000- 2001-
01 02 01 02 01 02 01 02 01 02
(R.E) (B.E) (R.E) (B.E) (R.E) (B.E) (R.E) (B.E) (R.E) (BE)
Provincial Taxes 11.1 11.8 7.2 8.0 1.4 1.6 0.5 0.5 20.4 21.9
Share in Federal Taxes 81.1 91.7 32.6 36.9 19.0 21.5 7.4 8.4 140.0 158.5
All Others 8.6 13.3 22.8 22.0 10.1 18.9 15.0 15.6 56.5 69.8
Total Tax Revenues 101.0 116.8 62.6 66.9 30.5 42.0 22.9 24.5 217.0 250.2
Non-Tax Revenues 6.0 6.2 2.2 2.5 2.2 2.1 0.7 0.8 11.1 11.6
Total Revenues 107.0 123.0 64.8 69.4 32.7 44.1 23.6 25.3 228.1 261.8
a) Current Exp. 98.6 108.1 67.7 71.7 25.6 35.4 18.1 18.4 210.0 233.6
b) Development Exp. 17.0 19.5 8.0 10.4 7.3 10.0 8.6 7.9 40.0 47.8
i) Dev.Rev.Account 8.1 10.4 0.0 1.4 3.0 2.6 0.1 0.1 11.2 14.5
ii) Dev.Cap.Account 8.9 9.1 8.0 9.0 4.3 7.4 8.4 7.8 29.6 33.3
Total Exp. (a+b) 115.6 127.6 75.7 82.1 32.9 45.4 26.7 26.3 250.9 281.4
Source: Finance Division, (PF Wing)

PUBLIC DEBT Public debt payable in rupee increased

Pakistan public debt has grown by an
average rate of 18 percent and 15 percent per
annum in the 1980s and 1990s. As percentage of
the GDP, public debt was 55.9 percent in 1980,
increased to 92 percent in 1990, and crossed 100
percent by mid-2000. By any standard, Pakistan
public debt became unsustainable and the
growing debt servicing liability made fiscal
adjustment more difficult. Public debt consists of
debt payable in rupee and debt payable in foreign
exchange. Over the last two decades, the share of
public debt in rupee increased from 38.5 percent
to almost 49 percent by mid-2000. On the other
hand, public debt payable in foreign exchange
declined from 61.5 percent to 51.4 percent during
the same period. Although, almost one half of
public debt is external in nature, it is nevertheless
a charge on the budget and must be serviced in
rupee from government revenues and/or through
additional borrowing [See Table 5.9].
from Rs 60 billion in 1980 to almost Rs 374 billion
in 1990, and further to almost Rs 1.6 trillion by the
end of the 1990s. As percentage of the GDP,
public debt in rupee was only 22 percent in 1980
but doubled in the 1990, and reached 50 percent
by 2000. Fiscal consolidation taken place over the
last two years has started paying dividends.
Public debt payable in rupee has declined in
absolute term from Rs 1.7 trillion last year to Rs
1.6 trillion during the outgoing fiscal year—a
decline of almost 5 percent. As percentage of the
GDP, it has declined from 50 percent to 44
percent—a decline of 6 percentage point in one
year is unprecedented in the country’s history.
Debt payable in foreign exchange stood at
Rs 96 billion in 1980, increased to Rs 428 billion in
1990 and shoot-up to almost Rs 1.7 trillion 2000.
As percentage of the GDP, debt payable in rupee
stood at 34 percent in 1980, increased to 49
percent in 1990, and further to 53 percent by 2000.
As a result of sharp depreciation of exchange rate
(17%) in 2000-01, debt payable in foreign
Chapter 5. Fiscal Development

exchange in rupee term jumped from Rs 1.7
trillion or 53 percent of the GDP to Rs 2 trillion or
almost 61 percent of GDP. During the outgoing
fiscal year 2001-02, the government has not only
succeeded in arresting the rising trend in external
debt but exchange rate appreciation to the extent
of 7 percent has also helped in reducing debt
payable in foreign exchange by more than Rs 100
billion. It stood at Rs 1.97 trillion or 52.8 percent of
GDP in 2001-02, thus registering a decline of more
than 7 percentage point of the GDP in one year.
Persistence of large fiscal deficit (7
percent of GDP) for over 2 decades and steady
depreciation of exchange rate over the same
period have contributed to the rise in public debt.
Rising real cost of borrowing, ineffective use of
borrowed resources, and stagnation in the debt
carrying capacity represented by the level of
government revenues, are other factors
responsible for such a sharp acceleration in public
debt. Public debt also grew because government
borrowed from outside the budget to either meet
its contingent liabilities or to finance government
investment. Since public debt is to be serviced in
rupee, its relation with government revenues is an
important indicator of debt burden. Public debt
was 317 percent of total revenues in 1980,
increased to 505 percent by 1990, and was 694
percent in 2001. It has now been reduced to 577
percent in 2001-02 [See Table 5.9].
As stated earlier, Pakistan public debt
burden is much higher than many developed and
developing countries, e.g. Pakistan public debt as
percentage of total revenues stood at more than
600 percent in 1999 as compared to 385 percent in
India, 291 percent in Malaysia, 286 percent in
Philippines, 377 percent in Nigeria, 273 percent in
Morocco, 94 percent in Thailand, and 22 percent
in Mexico. The most worrisome aspect of
Pakistan’s growing debt burden is that its debt
servicing consumes almost 60 percent of
government’s total revenues and constrained
government’s ability to devote its resources to
growth enhancing investment, such as
infrastructure and social and human capital.
A beginning has already been made
during the outgoing fiscal year as country’s debt
burden has substantially been reduced. This effort
must continue on a sustainable basis so as to
attain debt sustainability in the medium-to-long
run. The key element of the strategy must include
the continuation of fiscal consolidation and
reduction in real cost of borrowing.

Table 5.9
Public Debt (Rs billion)
End June
1980 1990 1999 2000 2001 2002*
Debt Payable in Rupees@ 59.8 373.6 1389.3 1575.9 1722.9 1638.6
As % of i) Public Debt (38.5) (46.6) (47.5) (48.6) (45.4) (45.4)
ii) GDP [21.5] [42.8] [47.3] [50.1] [50.4] [44.0]
Debt Payable in Foreign 95.6 427.6 1534.7 1669.2 2070.1 1968.5
Exchange As % of i) Public (61.5) (53.4) (52.5) (51.4) (54.6) (54.6)
Debt [34.4] [48.9] [52.2] [53.0] [60.6] [52.8]
ii) GDP
Total Public Debt 155.4 801.2 2924.1 3245.1 3793.0 3607.2
GDP (MP) 278.2 873.8 2938.4 3147.2 3416.3 3726.6
Total Revenue 49.0 158.8 468.6 536.8 546.4 625.4
Public Debt As % of
(i) GDP (MP) 55.9 91.7 99.5 103.1 111.0 96.8
(ii) Total Revenue 317.1 504.6 604.5 604.5 694.2 576.8
* End March Source: Debt Reduction and Management Committee Report and D.M Wing Finance Division.
@ Excluding FEBC, FCBC, US dollar bearer certificates and Special US dollar bonds.
Chapter 5. Fiscal Development

DOMESTIC DEBT not only arresting the rising trend in domestic

Domestic debt in Pakistan is categorized
into permanent debt (medium and long-term),
floating debt (short-term) and unfunded debt
(mostly national saving scheme-related).
Persistence of large fiscal deficit in the 1990s has
caused domestic debt to grow at an astronomical
rate. During the first nine years of the 1990s (1990-
99), domestic debt grew by more than 16 percent
per annum. Considerable improvement on fiscal
side during the last three years has succeeded in
debt but it has actually declined by Rs 147.2
billion in 2001-02 —a decline of 8.2 percent,
unprecedented in the country’s history. As
percentage of GDP, it has declined from 52.7
percent last year to 44.3 percent in 2001-02. Its
beneficial effects would be realized in terms of
lower interest payment in years to come.
The trend in domestic debt over the last
six years is summarized in Table-5.10:

Table 5.10
Domestic Debt
(Rs billion)
1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02
(R.E)

Total Domestic Debt 1056.1 1199.7 1452.9 1641.4 1799.2 1652.1

- Permanent @ 289.3 286.6 317.4 324.6 349.4 380.6
(27.4) (23.9) (21.8) (19.8) (19.4) (23.0)
- Floating 433.8 473.9 561.6 647.4 737.8 507.1
(41.1) (39.5) (38.7) (39.4) (41.0) (30.7)
- Unfunded 332.9 439.2 573.9 669.4 712.0 764.4
(31.5) (36.6) (39.5) (40.7) (39.5) (46.3)
Total Debt as % of GDP 43.5 44.8 49.4 52.2 52.7 44.3
- Figures in parentheses ( ) are percent shares in total debt. Source: Finance Division, (D.M Section)
@ Including FEBC, FCBC, US dollar bearer certificates and Special US dollar bonds.

Total domestic debt rose from Rs.920.3
billion in 1995-96 to Rs.1799.2 billion by end June
2001, depicting an annual average increase of 14.4
percent. Domestic debt is projected to be Rs.1652.1
billion in 2001-02, showing a decline of 8.2 percent
over last year. The decline in the domestic debt in
current fiscal year is primarily attributed to a
decline in floating debt due to the retirement of
Market Related Treasury Bills (MRTBs) worth Rs
193 billion in July 2001. The acceleration in
domestic debt in the second half of the 1990s was
spearheaded by unfunded debt followed by
floating debt and permanent debt. The unfunded
debt (NSS) grew at an average rate of 26.5 percent
during the second half of the 1990s, followed by
17.2 percent increase in floating debt and 2.3
percent in permanent debt.
The composition of the debt has
undergone considerable changes in the last five
years. There is a rapid increase in unfunded debt,
as its share in total domestic debt has increased
from 29.1 percent in 1995-96 to 39.4 percent in
2000-01. During 2001-02 it is budgeted to rise
Chapter 5. Fiscal Development

further to 46.3 percent of the domestic public debt.
The attractiveness of the returns on the NSS was
mainly responsible for the astronomical increase
in unfunded debt.
It can be seen from Table 5.10 that a
substitution has taken place between unfunded
and permanent debt over the last five years.
During this period, the share of permanent debt in
total domestic debt declined by 12 percentage
points and almost the same percentage point
increase was observed in unfunded debt with
share of floating debt remained more or less the
same. The attractive real rates of return on the
various instruments of the National Saving
Schemes (NSS) were responsible for the rapid
increase in unfunded debt as compared with
permanent debt which grew at a much slower
pace (4.7 percent per annum). The linking of rates
of return on NSS instruments with market based
yield curve on Federal Investment Bonds (FIBs) is
a significant development in the right direction.
The unfunded nature of this debt and its on tap
manner of mobilization has severely complicated
the management of Pakistan’s domestic debt.
There is a need to re-examine this issue.
The growing burden of domestic debt is
shown in Table 5.11. Interest payment on
domestic public debt continued to increase during
the 1990s at an average rate of 20.0 percent per
annum. As percentage of GDP, interest payment
on domestic debt has

Table 5.11
Domestic Debt & Interest Payment

Domestic Interest Interest Payment as Percentage of

Year Outstanding Payment
Debt
(Rs.bln) (Rs.bln) Tax Total Current Total GDP
Rev. Rev. Exp. Exp. (mp)
1990-91 448.2 35.7 27.5 20.8 13.7 18.2 3.5
1991-92 531.5 50.3 30.6 21.7 15.6 21.9 4.2
1992-93 615.3 62.7 35.2 26.0 18.0 23.0 4.7
1993-94 711.0 77.5 37.2 28.4 21.3 26.4 5.0
1994-95 807.7 77.9 30.2 24.1 18.2 22.5 4.2
1995-96 920.3 104.5 34.2 27.5 20.2 24.7 4.9
1996-97 1056.1 126.5 39.0 32.9 23.4 27.8 5.2
1997-98 1199.7 167.5 47.2 39.0 26.4 31.6 6.3
1998-99 1452.9 175.3 44.9 37.4 27.1 32.0 6.0
1999-2000 1642.4 210.2 51.8 39.1 28.3 32.7 6.6
2000-01* 1799.2 185.5 43.1 34.2 35.4 31.6 5.4
2001-02** 1652.1 197.9 42.1 32.0 35.1 29.6 5.3
* Provisional Actual Source: Finance Division (Budget Wing)
** Revised
increased from 3.5 percent in 1990-91 to 6.6 and accounted for 32.9 percent of current and
percent in 1999-2000. But interest payments 31.3 percent of total expenditure during the last
subsequently declined to 5.3 percent of GDP 2001- three years (2000-2002).
02. It has consumed 35.1 percent of total revenue
______________________
Chapter 6. Money and Credit
6. Money and Credit
Financial development makes
fundamental contributions to economic growth. It
also tends to reduce aggregate economic
volatility. Sound public finances and a stable
currency are key to the development of financial
institutions. The governments that have
suppressed their financial systems in order to
finance public spending have ended up with
troubled and underdeveloped financial systems.
Monitoring and disciplining ability of market
participants is yet another element of financial
development. An essential element of improving
the quality and effectiveness of market - discipline
for financial institutions is ensuring the accuracy
and availability of information on the operations
of these institutions. Independence from political
decision-making can improve governance in the
banking sector which is yet another key element
of financial development.
How to build a robust financial system
that assist in risk mitigation and at the same time
improve the efficiency of the financial institutions
in an environment of global financial
restructuring are the major challenges for the
country’s monetary authority. The comprehensive
financial sector reform programe introduced in
the 1990s has largely transformed Pakistan's
financial sector from an inward- looking, narrow-
based and government controlled regime to an
outward looking, market-based and dynamic
system. Financial health of the banking system
has gradually improved, though at a relatively
slower pace, as a result of the measures taken to
enhance banks' commercial orientation and
upgrading of the banking supervision system.
Some problems still exist in the field of non-
performing loans (NPLs), profitability of banks,
and the interest rate structure.
Over the last two and a half years the
State Bank of Pakistan (SBP) has accelerated the
pace of reform with a view to strengthening the
financial health of the country’s banking and
financial institutions. One of the recent initiatives
of the SBP is to introduce a supervisory frame
work known as ‘CAMELS’ which involves the
analysis of six indicators that reflect the financial
health of the financial institutions. These are: (1)
capital adequacy, (2) asset quality, (3)
management soundness, (4) earnings and
profitability, (5) liquidity, and (6) sensitivity to
market risk. The performance of both the banking
and non-banking institutions is now being
evaluated on the basis of CAMELS.
During the beginning of 2001-02 the SBP
moved towards a proactive monetary
management system to defend the rupee without
resorting to a change in its monetary stance. The
SBP achieved a degree of market calm and
prospects for the future, following a 1 percent cut
in the discount rate in July and August, 2001. The
events of September 11 created an uncertain
external environment in which the monetary
management had to be conducted. The SBP opted
for an easy monetary policy keeping in view the
developments that were taking place on global
economic scene. In October it slashed the discount
rate by another 2 percentage points followed by a
further cut of one percentage point in January
2002, bringing the rate down to 9 percent from 13
Chapter 6. Money and Credit
percent. This was followed by subsequent cuts in
T-bill rates. It was understandable that the easing
of monetary policy would see a pass-through in
the capital market after a lag of several months.
Lending rates therefore, started coming down
after December 2001. The weighted average
lending rate stood at 11.97 percent in March 2002,
showing a reduction of 2.0 percentage points over
June 2001. The decline in lending rate is expected
to stimulate investment in coming months.
Credit Plan, 2001-02
Monetary expansion was contained at 9.0
percent as against the target of 10.3 percent in
fiscal year 2000-01. Government sector’s net
retirement amounted to Rs 46.2 billion as against
a retirement target of Rs 14.5 billion and an
expansion of Rs 78.0 billion in 1999-2000. This
huge retirement by the Government sector was
shared by a net retirement of Rs 32.3 billion in lieu
of budgetary borrowings and a retirement of Rs
12.5 billion against a zero target for commodity
operations. Thus, overall government sector
recorded excellent performance in 2000-01. Net
credit flow to the private sector and PSCEs was at
Rs 57.1 billion as compared to a contraction of Rs
1.1 billion in the previous year. The net foreign
assets of the SBP increased by Rs 72.7 billion in
2000-01. In view of this encouraging development,
both in domestic credit and net foreign assets in
2000-01, a realistic credit plan was envisaged for
the year 2001-02. The original Credit Plan 2001-02
projected monetary expansion (M2) of Rs 146.0
billion or 9.5 percent higher than last year. Of
which, net domestic credit (NDA) was targeted to
expand by Rs 91.0 billion and net foreign assets by
Rs 55.0 billion. A net retirement of Rs 26.0 billion
was projected for government’s budgetary
support while a sum of Rs 5.0 billion was kept for
commodity operation. A large sum of Rs 99.0
billion was kept for the private sector and PSCEs
while a provision of Rs 12.0 billion was made for
the autonomous bodies.
In the light of new developments within
and outside the country the original Credit Plan
was modified putting emphasis on retiring more
credit by the government sectors and at the same
time ensuring enhanced credit to the private
sector and autonomous bodies. Although the
overall monetary expansion remained more or
less at the original targeted level of Rs 146 billion
in the revised Credit Plan, 2001-02, the retirement
figure for budgetary support was reduced from
Rs 26.0 billion to Rs 19.0 billion and the retirement
against commodity operations was fixed at Rs 36
billion instead of keeping a credit line of Rs 5
billion, mainly due to huge stockpiling of unsold
wheat of the previous year with the government.
Flow of credit to autonomous bodies was
increased from Rs 12.0 billion in the original plan
to Rs 18.0 billion in the revised plan mainly to
accommodate higher demand for liquidity by
some big corporations, including the KESC. A big
demand for credit was envisaged by the private
sector due to strong economic fundamentals being
reflected in the stock market. Hence, the credit to
the private sector and PSCEs was enhanced from
the original target of Rs 99.0 billion to Rs 106.1
billion in the revised plan. In view of a favourable
economic environment and the rise in
international flows the target for net foreign assets
were increased to Rs 75.4 billion from Rs 55.0
billion in the original plan.
Monetary and Credit Development
Money supply (M2) increased by Rs 142.5
billion (9.3%) in the first nine months of the
current fiscal year as compared with an expansion
of Rs 66.1 billion (4.7%) in the same period last
year. Upto March 2002, about 98 percent of the
credit plan target was achieved leaving only 2
percent for the final quarter of the year. However,
about 78 percent of the aggregate change in the
monetary expansion was shared by NFA - a
feature never witnessed in the past. By the end of
March 2002, the NFA stood at Rs 110.7 billion,
Chapter 6. Money and Credit
surpassing the revised Credit Plan target of Rs
75.4 billion by 46.8 percent and last years
expansion (Rs 21.6 billion) for the same period by
413 percent. There was a net retirement of Rs 28.8
billion in the net government borrowing
including Rs 5.9 billion on budgetary supports
and Rs 22.6 billion on commodity operations.
There was an increase of Rs 0.23 billion in the case
of zakat funds.
Credit to the non-government sector
including PSCEs and autonomous bodies,
increased by Rs 39.8 billion compared with Rs
76.8 billion in the same period last year. Credit to
autonomous bodies increased by Rs 6.2 billion
during the first nine months of the current fiscal
year as against the plan target of Rs 18.0 billion
and last year’s contraction of Rs 13.9 billion for
the same period. The significant development this
year with respect to autonomous bodies has been
the inclusion of Pakistan Steel (PS) and Pakistan
International Airlines (PIA) in the list of
autonomous bodies.
Credit to private sector amounted to Rs
34.8 billion during the first three quarters of the
current fiscal year as against Rs 82.9 billion in the
same period last year. On the face of it, private
sector credit expansion presents a dismal picture.
However, the pace of private sector credit
expansion has not necessarily been slower for the
following reasons. Firstly, as it is well-known, the
figures of monetary expansion or for that matter
credit to private sector are on net basis (gross
disbursement minus retirement). Therefore,
higher credit expansion last year means more
retirement in the current fiscal year. Credit to
private sector amounted to Rs 82.9 billion last
year in three quarters, therefore, retirement has
also been higher given the effectiveness of loan
recovery drive and prudent lending by the banks.
Secondly, excluding export refinance,
credit to private sector during the first nine
months amounted to almost Rs 50 billion as
against Rs 78 billion in the same period last year.
In other words, there were accelerated retirement
of export finance (Rs 15 billion) as against net
expansion of Rs 4.8 billion during the same period
last year (see Table 6.1). Retirement of export
finance at accelerated pace was the result of the
declining rates of the fund as exporters thought
this as an opportunity to get new funds at lower
rates.
Thirdly, credit to private sector was low
because of the relative lower requirement for
cotton-related activities in view of lower prices of
raw and lint cotton. Almost Rs. 20 billion less
credit was disbursed on this account.
Furthermore, the credit requirement for private
sector was also low because of the very low (2.6%)
inflation rate as well as the appreciation of the
exchange rate, which translates into a lower credit
requirement for importers. Fourthly, higher tax
refund by the CBR to the extent of Rs 18 billion
during this period led to greater internal
financing by businesses and therefore, reduced
the credit needs of the private sector to that
extent. Fifthly, credit to private sector normally
picks up in late August to peak in December-
January. The events of September 11 and
December 13 and their aftermath happened
exactly during the peak demand period. To the
extent these events created uncertain
environment, the private sector credit pick up was
slow.
Sixthly, unlike in the past, the private
sector is now reducing their reliance on
commercial banks for their credit requirement
and turning towards non-bank financing for the
same. For example, the private sector has issued
Term Finance Certificates (TFCs) worth Rs 8.6
billion during July-May 2001-02, compared to
around Rs 4.5 billion in the corresponding period
of last year. Furthermore, after a number of years,
corporates have raised significant amounts of
financing directly from the capital markets.
According to data from the Karachi Stock
Exchange, till the first week of May 2002, Rs 5.7
Chapter 6. Money and Credit

billion was raised through initial public offerings
(IPOs) or right issues, compared to Rs 3.5 billion
for the whole of fiscal year 2000-01. And finally,
the overall depressed international economic
environment created by the events of September
11, also affected domestic economic activity
including industrial sector, which may have
impacted the credit demand of the private sector.
Thus, on balance, the state of credit utilization by
the private sector has not been as dismal as the
number suggests.
Factors causing changes in monetary
assets are given in Table 6.1.

Table 6.1
Factors Causing Changes in Monetary Assets (Rs billion)
Sector/Factor Credit Plan Target 2001-
02 Actual
2001-02 2000-01
Original Revised (July-March) (July-March)
A. Domestic Credit 91.0 70.2 31.8 44.6
(Growth Rate %) (6.1) (4.7) (2.1) (3.1)
i) Government Sector Borrowing(Net) -20.0 -54.0 -28.8 -26.2
- Net Budgetary Support -26.0 -19.0 -5.9 13.0
- Commodity Operations 5.0 -36.0 -22.6 -37.1
- Effect of Zakat Fund 1.0 1.0 0.2 -2.4
ii) Non-Government Sector 111.0 124.2 39.8 76.8
- Autonomous Bodies 12.0 18.0 6.2 -13.9
- Net credit to Private Sector &
PSCEs 99.0 106.1 33.6 90.7
a) Private Sector 0.0 0.0 34.8 82.9
Of which Export Refinance 0.0 0.0 -15.0 4.8
b) PSCEs 0.0 0.0 0.3 11.0
c) PSCEs SP A/C debt repayment 0.0 0.0 -1.5 -3.1
with SBP
iii) Other Items (net) 0.0 0.0 20.8 -6.1
B. Foreign Assets (net) 55.0 75.4 110.7 21.6
Total Monetary Expansion (M2) (A+B) 146.0 145.6 142.5 66.1
(Growth Rate %) (9.5) (9.5) (9.3) (4.7)
Source: State Bank of Pakistan.

Components of Monetary Assets (M2) fiscal year, currency in circulation increased by

Components of monetary assets (M2)
include: (i) currency in circulation, (ii) demand
deposits, (iii) time deposits, (iv) other deposits
(excluding IMF A/C, counterpart), and (v)
residents’ foreign currency deposits. The
developments in these components during the
first nine months of the current fiscal year are
presented in Table 6.2 .
Currency in Circulation: Currency in circulation,
is the most liquid form of money supply. During
2000-01, currency in circulation increased by 5.5
percent. In the first nine months of the current
15.6 percent (Rs 58.6 billion), as against 8.5 percent
(Rs 30.2 billion) in the same period last year. As
on 31st March 2002, currency in circulation
constituted 26.0 percent of money supply (M2),
compared to its share of 26.3 percent in the
comparable period of last year (Table 6.2).
Currency in circulation follows a seasonal pattern
determined jointly with the interaction of
calendar and Islamic Hijra months. It starts to
grow with the seasonal disbursement of credit to
private sector (from September) and peaks
usually in November or during the month in
which Eid falls.
Chapter 6. Money and Credit

Table 6.2
Stock of Components of Monetary Assets (M2)
(Rs billion)
End June End March
Items Average Average 2001 2001 2002
80s 90s
Currency in Circulation 66.5 225.1 375.4 385.9 434.0
(15.5) (12.1) (5.5) (8.5) (15.6)

Demand Deposits with banks(a) 71.8 212.5 375.1 347.4 402.3

(13.7) (13.5) (-0.1) (-7.5) (7.3)

Other Deposits(b) with SBP 1.2 5.6 11.3 8.3 11.3

(19.8) (15.2) (41.9) (4.1) (-0.2)

Time Deposits with banks(a) 63.9 328.6 610.1 587.8 670.9

(10.9) (18.6) (11.2) (7.1) (9.9)

Residents Foreign Currency - 119.2 154.2 137.3 150.7

Deposit (57.0) (37.1) (22.1) (-2.2)

Money Supply (M2) 203.4 890.9 1526.7 1466.8 1669.2

(3.7) (15.3) (9.0) (4.7) (9.3)

As Percent of M2

Currency in Circulation 32.7 26.3 24.6 26.3 26.0

Demand Deposits 35.3 24.7 24.6 23.7 24.1

Other Deposits 0.6 0.7 0.7 0.6 0.7

Time Deposits 31.4 36.9 40.0 40.1 40.2

Residents Foreign Currency

Accounts (RFCD) - 12.4 10.1 9.4 9.0

M2/GNP 36.5 43.9 45.4 43.6 44.5

Note: Figures in parentheses represent growth. Source: State Bank of Pakistan.
a) Excluding inter-bank deposits, deposits of government and foreign constituents.
b) Excluding IMF A/C No. 1 & 2 and SAF Loan Account, Counterpart Funds and Deposit of foreign
governments, central banks, international organizations and deposits of money bank.

Demand Deposits with Scheduled Banks:
Scheduled banks’ demand deposits declined
marginally by 0.1 percent during 2000-01. During
the first nine months of the current fiscal year,
demand deposits picked up by 7.3 percent as
compared to a sharp decline of 7.5 percent in the
same period last year. Main factor responsible for
the sharp increase in demand deposits as well as
currency in circulation is the rise in the reserve
money during the first nine months of the current
fiscal year. As against a decline of Rs 10 billion,
reserve money increased by Rs 33.6 billion during
this period. This increase in reserve money is due
to the extra-ordinary increase in the net foreign
assets. The outstanding stock of demand deposits
was Rs 402.3 billion as on end March 2002,
representing 24.1 percent of the M2 stock. On the
corresponding date of last year, demand deposits
constituted 23.7 percent of M2. During the second
quarter of the current fiscal year deposits of
Chapter 6. Money and Credit

banking sector grew by Rs 80.0 billion against Rs compared to 40.1 percent on the corresponding
8.5 billion only in the same period last year. date of last year.

Time Deposits: Time deposits of scheduled Residents’ Foreign Currency Deposits

banks increased by 11.2 percent in 2000-01 as (RFCD): Since the opening of RFCD in 1991-92,
against 6.3 percent in 1999-2000. In the first nine deposits under the scheme continued to rise and
months of 2001-02, time deposits increased by 9.9 reached at all time high of Rs 316.8 billion on May
percent as against 7.1 percent in the comparable 16, 1998. After the freezing of RFCD on 28th May
period of last year. As on end March 2002, time 1998, deposits under the scheme started declining
deposits constituted 40.2 percent of M2 as and at the end March 2002 they stood at Rs 151
billion.
Table 6.3
Key Indicators of Pakistan’s Financial Development
(Percent)
Years M2/GDP M1/M2 DD+TD/M2 TD/M2
1980-81 37.6 70.3 66.2 29.7
1981-82 35.9 69.5 67.2 30.5
1982-83 40.1 66.1 68.3 33.9
1983-84 38.9 63.4 67.7 36.6
1984-85 39.0 64.7 68.9 35.3
1985-86 41.0 63.9 69.6 36.1
1986-87 41.9 66.5 68.4 33.5
1987-88 33.7 68.7 67.0 31.3
1988-89 37.7 72.6 65.3 29.0
1989-90 39.9 70.0 65.6 29.6
1990-91 39.2 70.4 65.1 31.5
1991-92 41.7 66.2 69.3 31.6
1992-93 44.4 59.9 71.2 34.6
1993-94 44.7 55.1 73.0 35.9
1994-95 43.8 51.0 73.3 36.0
1995-96 43.3 51.3 74.3 36.7
1996-97 43.8 42.1 76.8 36.7
1997-98 45.1 39.8 77.4 37.1
1998-99 43.6 50.2 77.5 40.3
1999-00 44.1 52.8 74.6 39.2
2000-01 44.9 49.9 75.4 40.0
July-March
2000-01 42.9 50.6 73.7 40.1
2001-02 44.8 50.8 74.0 40.2
Source: State Bank of Pakistan.
While there is no standard method to banking sector is more important today than one
measure financial deepening, the most widely decade ago. Other indicators of financial
used indicator is the ratio of M2 to GDP. This ratio deepening such as the ratio of total deposits to
indicates how monetized an economy is and how M2, and time deposits to M2, have all improved
important its banks have become. The M2/GDP as a result of the financial sector reforms.
has increased significantly in the last 20 years –
rising from 37.6 percent in 1980-81 to 39.2 percent Measures of Money Supply and their
in 1990-91. With the introduction of financial Behaviour
sector reform since early 1990s, the ratio has
increased to nearly 45 percent as against 39 The annual trends of M1, M2 and M3
percent in 1990-91 – an almost 6 percentage points since June 1991 to June 2001 and up to March 2002
increase in the ratio. This clearly indicates that are given in Table 6.4.
Pakistan’s economy is more monetized and the
Chapter 6. Money and Credit

Table 6.4
Stocks of Monetary Aggregates
(Rs billion)
End Period
Stock Money Supply & Monetary Assets (Percentage Change)
(M1) (M2) (M3) (M1) (M2) (M3)
June 1991 265.1 400.6 569.40 10.4 17.4 12.9
June 1992 302.9 505.6 679.2 14.2 26.2 19.3
June 1993 327.8 595.4 777.3 8.2 17.8 14.4
June 1994 358.8 703.4 923.4 9.4 18.1 18.8
June 1995 423.1 824.7 1083.6 17.9 17.2 17.3
June 1996 448.0 938.7 1246.3 5.9 13.8 15.0
June 1997 443.6 1053.2 1430.1 -1.0 12.2 14.8
June 1998 480.3 1206.3 1696.8 8.3 14.5 18.6
June 1999 643.0 1280.5 1913.4 33.9 6.2 12.8
June 2000 739.0 1400.6 2137.2 14.9 9.4 11.7
Average of the 1990s 12.2 15.3 15.6
2000-01 761.8 1526.7 2314.5 3.1 9.0 8.3
End March
2001 741.6 1466.8 2233.5 0.3 4.7 4.5
2002 847.6 1669.2 2507.5 11.3 9.3 8.3
Source: State Bank of Pakistan & E.A. Wing, Finance Division.

Monetary aggregate of M1 definition
consists of the outstanding stock of currency in
circulation, demand deposits of scheduled banks
and other deposits with the State Bank of
Pakistan. Money supply of M2 definition consists
of M1 plus outstanding stock of time deposits of
scheduled banks and outstanding stock of RFCDs.
The main components of M3 include: outstanding
stock of M2, outstanding deposits of national
saving schemes (NSS), and outstanding deposits
of Federal Banks for Cooperatives. The deposits of
NDFC are no more included in M3 as NDFC has
been merged with the NBP.
During the first nine months of the
current fiscal year, while M1 has increased by 11.3
percent (Rs 85.8 billion), as against an increase of
0.3 percent (Rs 2.5 billion) in the comparable
period last year, M2 has recorded a growth of 9.3
percent during the period under review,
compared to 4.7 percent in the same period last
year. The broadest monetary aggregate, M3, has
increased by 8.3 percent during the first 3 quarters
of 2001-02 as compared to 4.5 percent in the
comparable period last year. Higher growth in M3
is attributable both to higher growth of M2 and
net accrual of National Saving Schemes. M3 is
dominated primarily by M2 and NSS deposits.
Since 1994-95, the share of NSS has been rising,
fuelling M3 growth. In June 1995, the shares of
M2, NSS, and two organizations (NDFC and Co-
operative Bank) in M3 were 76.1 percent, 23.6
percent, and 0.3 percent respectively. In June 2001,
M2/M3 declined sharply to 66.0 percent while
NSS/M2 increased to 33.9 percent. In March 2002,
M2/M3 slightly increased to 66.6 percent while
NSS/M3 came down to 33.3 percent mainly due
to higher M2 growth in the first nine months of
the current fiscal year.
Chapter 6. Money and Credit

BOX-1
Monetary Policy

A number of important steps were taken during the fiscal year 2001-02 with a view to
improving the working of money and banking sector and promoting trade and investment
environment. Various monetary and credit control measures taken during the current fiscal year are
given below.

Credit Control and other Measures, 2001-02

I. The SBP refinance rate was gradually reduced from 13 percent in July 2001 to 6 percent
in March 2002. The banks would ensure that where they obtain refinance facilities the maximum
margin/spread should not exceed 1.5 percent per annum.

II. The minimum rate on SBP 3-Day Repo facility against MTBs/Pakistan Investment
Bonds was reduced from 14.0 percent in July 2001 to 9.0 percent in January 2002.

III. Effective from September 15, 2001 the margin requirement for facilities against shares
of listed companies was reduced from 30 percent to 25 percent. Banks/NBFIs were however, free to set
a higher margin requirement keeping in view other factors.

IV. Effective from 1st October 2001, the State Bank of Pakistan introduced new instructions
under part-1 of Export Finance Scheme. Modifications in the old scheme were aimed at simplification
of procedures to eliminate excessive documentation’s, cut in the rate of mark up, extended coverage
and setting up of a Pre-shipment Export Finance Guarantee (PEFG) agency. The State Bank of Pakistan
has also introduced a Foreign Currency Export Finance (FCEF) facility negotiated by the Government
of Pakistan with the Asian Development Bank. The said scheme will run parallel to the Export Finance
Scheme and the facility under this scheme is available on pre-shipment and post-shipment basis for a
period of 180 days. Banks are free to provide financing facilities to the specific industries under EFS,
with the exception of those included in the Negative List.

V. It was decided on 10th October 2001 to create a database of NPLs at the State Bank of
Pakistan so as to have a consolidated as well as individual borrower wise figures of NPLs on a uniform
basis for the purposes of SBP monitoring and for sharing with others banks. Banks were advised to
submit to the Credit Information Bureau, data of their non-performing loans of Rs 10 million and
above within 15 days of the end of each month

VI. Under the existing Export Finance Scheme finance is available to exporters for 180
days. Since carpet and rugs, specially hand knotted and ‘man made’ required more time for their
manufacturing, it was decided on 24th October, 2001 to relax the provision up to 270 days (both pre-
shipment and post shipment). However, banks will have to adjust the finance within a maximum
period of 180 days, and allow refinance for an additional period of 90 days.

VII. In the wake of 11th September, 2001 incident and thereby cancellation of export orders
of the producers of leather garments and leather product, SBP relaxed instructions on 21st December
2001 for such exporters availing loans under export finance Part-I and II
Chapter 6. Money and Credit

VIII. After allowing commercial banks to raise funds from capital market by issuing
TFCs/Bonds, SBP issued guidelines on 1st January, 2002 for regulating such activities of commercial
banks by defining and fixing the limit of the “sub-ordinated debt” in the supplementary capital of banks.

IX. To accommodate untoward developments in the forex market SBP relaxed instructions
regarding Foreign Currency Deposits under F.E.25 on 1st January 2002 and amended the relevant
prudential regulation. All banks would report the equivalent Pak rupee amount of FE-25 deposits
utilized for trade related activities in their Weekly Statement of position.

X. On 1st January, 2002 the SBP instructed all banks/DFIs not to nominate as director
including nominee director on the board of a banks/DFIs persons related with the business of money
changers, members of the stock exchanges, brokerage houses or companies owned or controlled by them
or persons directly or indirectly associated with the business of stock market/money changer.

XI. In order to improve storage facility for wheat, banks were allowed on 16th January, 2002,
to provide adequate funds/financing as agricultural loans for a period up to 5-7 years to eligible flour
mills and farmers for the construction of silos and other structures that can serve as storage area for
procurement of wheat at the debt equity ratio of 60:40 and 12 percent mark-up. The lending rates would
be subsequently made market based on their linkage with T.Bill rates.

XII. On 31st January 2002 the Investment Banks and Development Finance Institutions (DFIs)
were allowed access to the SBP 3-Day Repo facility on the same terms and conditions as of the
commercial banks.

XIII. Effective from 16th March 2002, the maximum profit to be earned by a financial
institution on financial assistance to be extended under part-A (local sales) of the scheme for financing
LMM shall not exceed 11 percent p.a. where refinance is obtained from the SBP it will be remunerated at
9 percent per annum.

XIV. It was decided on 20th March 2002 to withdraw the existing maximum limit of 15 percent
for development loans for main agriculture against the total mandatory credit targets. This relaxation
was made initially for a period of one year ending 30th June 2003. Banks are now free to extend
development and production loans to other than small farmers up to 50 percent of their targets subject to
the condition that they shall ensure to make financing of the remaining 50 percent of their mandatory
credit targets to small farmers for production/crop loans.

Auction of T-Bills early 1990s. Other constraints were direct control

on the deposits and lending rates, directed and
In Pakistan the role of rate of return in subsidized credit, and use of credit deposit ratio
regulating liquidity was fairly constrained before as a quantitative technique of credit allocations.
the monetary reforms were introduced in the These devices were the main impediments in the
Chapter 6. Money and Credit

way of a smooth market-oriented monetary monetary policy, which led to the sharp increase
management. The instruments of direct monetary in the T.Bills rates of 6 and 12 months maturity.
control have now gradually being phased out and The T.Bills rates increased to 11.6 percent and 12.0
replaced by market- oriented monetary percent respectively on July 26, 2001. To improve
instruments, like the open market operations the investment environment and attract foreign
(OMOs). Since the early 1990s the SBP has been investors the government decided to gradually
pursuing the OMOs in the management of reduce the T.Bill rates during 2001-02 alongwith
government debts and reserve money. Now rationalization of the rate of returns on the
auctioning of the government debts through open national savings schemes. Accordingly the T.Bills
market operations has become a regular feature in rates of 6 months and 12 months maturity come
the system. The corollary of the OMOs has been down rather sharply and stood at the lowest ever
that the market rates of return on debt of 5.6 percent and at 6.4 percent, respectively in
instruments are gradually being squeezed as SBP February 6, 2002. Latest auction results indicate
is handling more and more of the government that T.Bill rates have slightly increased to 6.4
debts. The OMOs is being used by the SBP in percent and 7.0 percent, respectively on May 16.
making sales and purchases of Treasury Bills with 2002 (Table 6.5).
the primary dealers (banks) since its introduction
in 1990-91. The SBP mops up excess liquidity in Table 6.5
the market when there is an inflationary pressure Auction of Market Treasury Bills (W.A.
Yield) 1998-02
in the economy by selling T.Bills, and inject (Percent)
liquidity by purchasing the same when the Date 6 Months 12 Months
economy requires more liquidity to beef-up 15-07-1998 15.41 16.00
17-11-1998 11.96 12.99
investment activities. The sales and purchase of
15-02-1999 13.30 13.81
government securities have been increasing with 21-04-1999 10.60 11.50
the passage of time. 30-06-1999 13.17 13.08
01-12-1999 10.16 10.89
19-04-2000 7.13 7.59
In June 1998 the SBP introduced 3
27-07-2000 7.23 7.78
months, 6 months and 12 months Market 05-10-2000 10.47 10.91
Treasury Bills replacing the Short-Term Federal 12-12-2000 10.96 11.49
Bonds (STFBs). Since 1998-99 these short-term 22-03-2001 11.55 11.95
30-05-2001 11.60 11.99
debt instruments have become the main 28-06-2001 12.88 12.93
instruments of the OMOs. The weighted average 26-07-2001 11.58 11.98
lending rates of returns on 6 months and 12 22-08-2001 10.47 10.82
31-10-2001 8.50 9.00
months T.Bills are given in Table 6.5. These rates
28-11-2001 8.26 8.74
were as high as 15.4 percent (6 months) and 16.0 27-12-2001 7.93 8.40
percent (12 months) on July 15, 1998. The SBP 23-01-2002 6.35 6.82
gradually reduced these rates in reducing the 06-02-2002 5.64 6.38
21-03-2002 6.44 6.95
interest rate of T-Bills by 8.2 percentage points (6- 18-04-2002 6.45 6.98
12 months maturity) until July 27, 2000 as part of a 16-05-2002 6.39 6.95
liberal monetary policy. Beginning August 2000, Source: State Bank of Pakistan
the SBP had been pursuing a relatively tight
Chapter 6. Money and Credit

Fig 1: Rate of Returns on T.Bills (1998-02)

17

15

13

11

5
98

99

00

01
8

2
/9

/9

/9

/9

/9

/9

/9

/0

/0

/0

/0

/0

/0

/0

/0

/0

/0

/0

/0

/0
5/

5/

5/

5/
15

15

15

15

15

15

15

15

15

15

15

15

15

15

15

15

15

15

15

15
/1

/1

/1

/1
7/

9/

1/

3/

5/

7/

9/

1/

3/

5/

7/

9/

1/

3/

5/

7/

9/

1/

3/

5/
11

11

11

11
6 Months 12 Months

During the first nine months of the out going under MTBs and Rs 71.6 billion under PIBs. Both
fiscal year a total amount of Rs 634.4 billion was offered and accepted amounts were higher by 77.5
offered including Rs 446.6 billion under Market percent and 17.0 percent in the first nine months of the
Treasury Bills (MTBs) of 3 months, 6 months and 12 current fiscal year as compared to the amount offered
months maturity and Rs 187.8 billion under Pakistan and accepted in 2000-01. It indicates that MTBs and
Investment Bonds (PIBs). Out of this an amount of Rs PIBs have become the most effective tools of OMOs.
283.4 billion was accepted including Rs 211.8 billion

Table 6.6
Purchase and Sale of T.Bills
(Rs billion)
2000-01 2001-02 (July-March)
Offered Accepted Offered Accepted
1. Market Treasury Bills (MTBs)
a) 3 Months 107.7 72.7 104.6 61.5
b) 6 Months 115.8 69.5 197.6 98.2
c) 12 Months 75.1 54.0 144.4 52.1
Total MTBs 298.6 196.2 446.6 211.8
2. Pakistan Investment Bonds(PIBs) 58.8 46.1 187.8 71.6
Grand Total 357.4 242.3 634.4 283.4
(Growth) (77.5%) (17.0%)
Source: State Bank of Pakistan

Interest Rate Structure and encouraging private sector credit expansion,

the SBP pursued a relatively easy monetary policy
To achieve the twin objectives of reducing from July 1995 to July 2000. Beginning August
government cost of borrowing on domestic debt 2000, the SBP however, introduced a relatively
Chapter 6. Money and Credit

tight monetary policy with a view to providing schemes and the State Bank gradually reduced the
exchange rate stability, which led to the sharp discount rate from 14 percent in June 2001 to 9
increase in T-Bills rates of 6 and 12 months percent in January 2002. This duel approach had
maturity during 2000-01. As a result the weighted some effect on the weighted average lending rate
average lending rate of all commercial banks which ultimately came down to 11.97 percent in
increased to 14.0 percent in June 2001 from 12.9 March 2002 showing a reduction of 2.0 percentage
percent in June 2000. The sharp rise in the lending points over June 2001. With this reduction in the
rates rendered the money market environment lending rates the spread between the lending and
unattractive for the promotion of investment and the deposit rates narrowed from 7.85 percent in
economic activities. To improve the investment June 2001 to 6.73 percent in March 2002. The
environment the Government started lowering gradual reduction in spread is expected to
down the T-Bills rates since the beginning of the continue as there is still room for lending rates to
current fiscal year. At the behest of declining T- come down if banks improve their efficiency,
Bills rates the business community also increase their recovery, reduce operative cost,
demanded reduction in the lending rates develop new techniques of risk management and
particularly of the NCBs. Government further offer different maturities term financing.
rationalized the rates on the national saving

Table 6.7
Lending and Deposit Rates
(Percentage)
Weighted average Weighted average Difference between lending
lending rate deposit rate & deposit rates
Nominal Real Nominal Real Nominal Real
June 1995 13.7 0.7 8.2 -4.8 5.5 5.5
June 1996 14.4 3.6 8.2 -2.6 6.2 6.2
June 1997 14.6 2.8 8.5 -3.3 6.1 6.1
June 1998 15.6 7.8 8.4 0.6 7.2 7.2
June 1999 14.6 8.9 8.0 2.3 6.6 6.6
June 2000 12.9 9.3 7.4 3.8 5.5 5.5
June 2001 14.0 9.6 6.2 1.8 7.8 7.8
March 2002 12.0 9.4 5.3 2.7 6.7 6.8

One of the best measures of efficiency of

Fig-2: Real Lending and deposit Rates
the banking sector is the spread (in weighted
12
average term) between the lending rates and the
10
8 deposit rates. This spread has, in fact, increased in
6 Pakistan from 5.5 percent in 1994-95 to 7.8 percent
Percent

4
in 2000-01. The nominal deposit rates after
2
increasing marginally from 8.2 percent in June
0
-2 1995 to 8.5 percent in June 1997, gradually
-4 declined to 6.2 percent in June 2001. The weighted
-6 average lending rates on the other hand increased
Jun_95

Jun_96

Jun_97

Jun_98

Jun_99

Jun_00

Jun_01

Mar_02

from 13.7 percent in 1994-95 to 14.00 percent in

2000-01. It was only during the first nine months
Real lending rate Real deposit rate
of 2001-02 that the weighted average lending rate
Chapter 6. Money and Credit
has declined more than that of the weighted
average deposit rates. Real deposit rates were
negative for quite some time during this period
while real lending rates did not move with the
movement in inflation rate. The main factors
responsible for stagnancy in deposit rates were
increased administrative cost of financial
institutions, overstaffing and increasing volume
of non-performing loans and defaults. The
increased cost of inefficiencies was passed on
partly to the borrowers in the form of higher
lending rates and partly to depositors as the rate
of return on deposits was reduced. High lending
rates increase the cost of borrowing thus,
discouraging investment, while low deposit rates
encourage consumption rather than saving. Low
saving rates have their own macroeconomic
consequences for the economy. Thus, the banking
sector has to take measures to improve its
efficiency and reduce further the spread between
the lending and the deposit rates.
Performance of Banks
As a result of extensive reforms in the
banking sector the number of loss making
domestic bank branches have been closed over the
last few years while, on the other hand, number of
foreign banks branches have increased at the
same time. The number of domestic banks
branches were 7871 in June 2000, reduced to 7272
in June 2001, and further to 6926 in March 2002.
On the other hand, number of foreign bank
branches were 78 in June 2000, increased to 80 in
June 2001, and further to 83 in March 2002.
However, both the decreasing number of
domestic bank branches and the increasing
number of foreign bank branches are giving a
positive signal of growing confidence of the
foreign bankers and investors in Pakistan’s
economic potential as well as indicating that the
banking and financial sector reform is taking its
firm roots.
During the first nine months of the
outgoing fiscal year total assets of all the
scheduled banks have increased by Rs 113.1
billion ---- from Rs 1643.9 billion in June 2001 to
Rs 1757.0 billion in March 2002. Their deposits
have increased by Rs 88.5 billion in the same
period, i.e., from Rs 1247.0 to Rs 1335.5 billion.
Higher deposits of the scheduled banks in the
current fiscal year resulted partly due to
extraordinary foreign exchange inflows in the 2nd
and 3rd quarters of the outgoing fiscal year. Low
premium between the kerb and the inter bank
exchange market has induced the overseas
Pakistanis to use the official means for remitting
foreign exchange. In addition, money coming
under Hajj Sponsorship Scheme also helped banks
(especially Nationalized banks) in replenishing
their deposit base. Total investment of all the
scheduled banks have increased from Rs 314.9
billion in June 2001 to Rs 434.7 billion in March
2002. Overall advances of the scheduled banks
have however, declined in the outgoing fiscal year
from Rs 829.9 billion in June 2001 to Rs 814.7
billion in March 2002. However, advances of the
private banks have increased from Rs 140.7 billion
in June 2001 to Rs 162.5 billion in March 2002.
In the wake of the SBP policy to
encourage merger of the weak financial institution
with the large and sound financial institutions, the
following Merger/Acquisitions were affected:
acquisition of ANZ Grindlays by Standard
Chartered Bank Ltd; acquisition of Gulf
Commercial Bank Limited by PICIC; acquisition
of Bank of America by Union Bank Limited;
acquisition of Prudential Commercial Bank by
Saudi Pak; merger/amalgamation of NDFC with
National Bank of Pakistan; merger of AI Taufeeq
with First Crescent Modaraba; merger of Altal
Leasing with Altas Investment Bank Limited and;
Societe Generale Bank has been merged with
Meezan Bank Ltd.
Chapter 6. Money and Credit

Further, Indus Bank Limited is under December 2002. A new bank namely “Meezan
liquidation and Doha Bank Ltd. is under closure, Bank Ltd” has been established/granted license to
which would take place with effect from 31st operate under the tenet of Islam during 2001-02.

Table 6.8
Branches of Domestic & Foreign Banks
(Numbers)
June 97 June 98 June 99 June 2000 June 2001 March 2002

i) Domestic Banks 8597 8049 7973 7871 7272 6926

ii) Foreign Banks 76 81 85 78 80 83

iii) Total 8,673 8,130 8,058 7,949 7352 7009

Source: State Bank of Pakistan.

to Rs 171.08 billion in March 2002 indicating a rise

Fig-3:Branches of domestic & foreign banks
of 7.3 percent. During the first 3 quarters of 2001-
9000 86 02, NPLs of NCBs, private banks, and specialized
84 banks have increased by 10.2 percent, 63.3
8500
82 percent, and 14.6 percent respectively. While
8000
80 NPLs of the privatized banks, foreign banks, and
7500 DFIs have declined by 2.6 percent, 43.8 percent
78
7000 76 and 35.9 percent, respectively in the same period.
6500 74 The NPLs of all commercial banks stood at 19.7
percent on end March 2002 as against 18.9 percent
2
97

98

99

00

01

_0
n_

n_

n_

n_

n_

on end June 2001 – marginal increase in NPLs.

ar
Ju

Ju

Ju

Ju

Ju

Similarly, the NPLs of specialized banks and DFIs

Domestic Banks Foreign Banks
Recovery of Defaults and Non-Performing
Loans
Loan defaults continuous to be one of the
major problems of our banking industry in
general and nationalized banks and DFIs in
particular, adversely affecting their growth and
profitability. Total non-performing loans (NPLs)
of all commercial banks, specialized banks, and
DFIs have declined marginally and stood at Rs
278.62 billion in March 2002 as against Rs 279.07
billion in June 2001. NPLs of all commercial banks
have increased from Rs 159.47 billion in June 2001
also registered marginal increase during the same
period – from 58.1 percent to 59.7 percent.
Increase in the gross NPLs in respect of domestic
commercial banks, and specialized banks during
the outgoing fiscal year mainly reflects
adjustment of loans repayment schedule and
enforcement of classification guidelines and
prudential monitoring by the SBP.
In order to expedite recovery of stuck
up/defaulted loans, the Government has
promulgated new recovery law, namely, “the
Financial Institutions (Recovery of Finances)
Ordinance, 2001” vide Ordinance No.XLVI of
2001 dated August 30, 2001. The new recovery
Chapter 6. Money and Credit
law contains additional provisions for expeditious
recovery of stuck up loans including right of
foreclosure and sale of mortgaged property with
or without intervention of court, automatic
transfer of case to execution, permissibility of cost
of funds and overriding effect of the law are
healthy features which may save lending
institutions from losses besides, early recovery of
finances. Moreover, pecuniary jurisdiction of
Banking Courts (34 in number) has been
enhanced to below Rs 50 million as against Rs 30
million in the repealed recovery law of 1997.
Cases of Rs 50 million and above shall be decided
by respective High Courts. It is expected that the
new law would considerably improve recovery
process which otherwise remained sluggish due
to weak provision.
Micro Finance (MF)
During 2000-01 the government
established the Khushali Bank (KB) or Micro
finance Bank, with the objective to provide
sustainable micro finance service to poor persons,
particularly poor women, to enable them to stand
on their own feet and promote social welfare and
economic justice through community building.
The government of Pakistan also entered into a
loan agreement for US $ 150 million with the
Asian Development Bank to support the
operations of Khushali Bank and to promote the
micro finance sector in Pakistan. Part of this loan
will be utilized by KB for micro loans to the poor,
particularly to women in rural areas. Some
component will be allocated for capacity building
and the reminder will be utilized for supporting
policy reforms of the micro finance sector. The
main thrust of the KB is to ensure on the spot
speedy and appropriate interaction with the
would be beneficiaries. The KB after carrying out
an initial survey of the targeted area forms
community organizations, who are then trained.
Training teaches them how to prioritize their
needs. These community organizations identify
the financial and infrastructure needs of its
members and localities, identify the borrowers
from among themselves, provide the Bank with
social collateral and monitor the utilization of the
borrowed funds. The average loan size is Rs
10,000 with successively larger loans up to Rs
30,000 as the borrower builds up its track record.
Recovery rate of the KB is very high. Whether
Khushali Bank will be able to make a dent in
reducing poverty through micro financing with
community participation will depend on its
ability to reach a larger segment of the poor,
targeting efficiency, ease of access to community
etc.
By March 31, 2002, the KB has expanded
its operation in 27 Districts and more than Rs 280
million disbursed to about 28000 poor borrowers
through its branch network. During the next four
years it would reach to another 600,000
borrowers. To further expand the sector, the
private sector has been allowed entry into this
field and the first micro finance bank in the
private sector has been established. The bank has
started operating with plans to open 8 branches in
different parts of the country during the current
year. The establishment of First Micro Finance
Bank Limited is expected to attract other private
investors and reputed NGOs to invest in MF
sector and or transform from NGOs to formal
micro finance banks.
SME Bank
In order to promote small and medium
enterprises, which are regarded as engine of
growth in developing countries, the Government
has set-up the Small and Medium Enterprises
Bank (SME Bank) by amalgamating Small
business Finance Corporation (SBFC) and
Regional Development Finance Corporation
(RDFC). The bank became operational from
January 1, 2002 with an initial capital of Rs 1
billion to promote primarily the export oriented
Chapter 6. Money and Credit
small and medium enterprises. The bank was
launched with 10 branches in six regions across
the country comprising four provinces, northern
areas and Azad Kashmir. It would be
development oriented and commercial financial
institution that would extend loans ranging from
Rs 50 thousands to Rs 30 million.
The financial sector is being geared
towards SMEs. Financial institutions need to
devise and structure financial products in a
manner that would mitigate any risk owing to
lack of collateral. SMEs in the past have been
____________________
denied access to financing because of their
inability to provide collateral. With the setting of
an SME bank, a long outstanding need of the
small entrepreneurs has been addressed. Not only
will they have access to formal credit, but will also
receive professional business advice and services.
The bank will develop a distinct financing
mechanism and a distinct porfolio of financial
products. The SME bank will also act as a catalyst
to develop techniques of credit appraisal, new
product lines, which other financial institutions
could replicate and perfect.
Chapter 7. Capital Market
7. Capital Market
A modern and efficient capital market is
the backbone of an economy. It plays a crucial role
in mobilizing domestic and foreign resources, and
channeling them to promote investment activities
both for the short and the long-term periods. No
country can prosper without developing its equity
market. There are three stock exchanges in
Pakistan, which form an equity market. Capital
market in Pakistan has experienced many ups &
down in the past, due to frequent changes in the
government and their policies relating to capital
market. The equity market of the country had to
survive in an atmosphere of uncertainty, which
had mainly impacted the performance of the stock
market in the 1990s. Most of the companies
belonging to different sectors of the economy
could not achieve the desired results, as they did
not declare dividends on their scrips.
Unpredictable fluctuations in the stock prices
inflicted losses particularly to the small investors.
The comprehensive socioeconomic package
announced by the present government in
December 1999 and other corrective measures
however, improved the performance of the stock
market during 1999-2000 and the first half of 2000-
01. The average monthly KSE share index
increased to 1512 points in 1999-2000 from 1005
points in 1998-99. The Securities & Exchange
Commission of Pakistan (SECP) is now playing an
active role in safeguarding the interest of small
investors.
Pakistan’s stock market remained under
pressure during the second half of 2000-01which
witnessed some bearish tendencies due to
continuous selling pressure by foreign funds and
confusion among market players regarding the
implementation of T+3(1) settlement system. The
outgoing fiscal year, 2001-02 also began with
some added turbulence, which kept the market
under pressure. The Karachi Stock Exchange
(KSE) share index sheded 138 point in the month
of July 2001 alone which depicted a fall of 10.1
percent. Two factors were mainly responsible for
this downward slide, namely (i) crackdown by
National Accountability Bureau (NAB) on certain
market players, and (ii) continuous selling
pressure by some blue chip companies. The
gloomy market sentiments were however arrested
in the second week of August 2001 by the
government support fund for the equity market.
Heavy buying was witnessed in PTCL and Hubco
which pushed the KSE share index up at 1290.8
points on August 16, 2001.
However, the September 11, 2001 terrorist
attacks in New York and Washington created a
very tense business environment throughout the
globe which also put the stock market in Pakistan
in a new precipice, as the KSE share index lost 116
points or over 9 percent in just three trading days,
between 12th and 14th September 2001. This
unexpected fallout also led to various settlement
problems in the ‘Badla Market’. To offset further
negative impact and ensure smooth clearing and
settlement, the stock market had to be shut down
for a week (from September 17 to 21) by the
Securities Exchange Commission of Pakistan
(SECP). The timely decision of the SECP put the
stock market on track again. Besides, the bailing
out of Crescent Investment Bank by five major
commercial banks and a number of other positive
factors, including decline in interest rates,
removal of economic sanctions, trade concessions,
economic assistance extended by a number of
countries, restoration of Pakistan’s relations with
the International Financial Institutions, successful
completion of the Stand by Arrangement and a
new three years Poverty Reduction and Growth
Facility (PRGF) programme with the IMF, Paris
Chapter 7. Capital Market

Club debt rescheduling, and Pakistan’s enhanced
stature in the comity of nations after September 11
created a positive environment which led to the
resurgence in the market, gradually picking up
the bullish fervour.
The stock market considerably improved
during the month of October 2001. As on October
31, KSE share index stood at 1406.1 points and
market capitalization aggregate at Rs 341.0 billion,
depicting growth of 28.2 percent and 24.0 percent
respectively over October 1, 2001. From October 1,
to December 26, 2001, the stock market
maintained its stable-trading environment.
However, the heavy military build up by India
and threat of war created serious nervousness
among investors. Resultantly, the market went
into a tailspin again with the KSE share index
plummeting at 1273.1 points on December 31,
2001. This predicament was, however, short-lived
and the market began to bounce back again with a
visible sign of recovery from the very start of the
new calendar year. Two factors were instrumental
in this recovery; firstly, the war phobia was
receding quickly in the horizon and; secondly,
economic fundamentals remained strong during
this period. Largest ever foreign exchange
reserves, building up, a strong rupee vis-à-vis US
dollar, low inflation, declining interest rates and
the SECPs timely action to improve the business
environment also added renewed vigour among
the investors. The bullish business trend
beginning in the month of January 2002 continued
to become stronger day by day and remained
uninterrupted till April 30, 2002. The monthly
average of daily share index which was 1449.0
points in January 2002, increased to 1715.3 points
in February, to 1855.1 points in March, and
further to 1865.3 points in April 2002. It reached
the peak of 1930.5 points on March 14, 2002---- the
highest since April 27, 2000.
Pakistan’s stock market has been the best
performing market world-wide in terms of
profitability during January-March 2002. With
profitability rate of 43.3 percent, Karachi Stock
Exchange attracted considerable amount of
foreign funds in the third quarter of the current
fiscal year. Karachi Stock Exchange (KSE) index
was 1366.4 on June 29, 2001, it stood at 1868.1 at
the end of March 2002, showing an increase of 502
points, or 36.7 percent during the period. The
performance of stock market is documented in
Table 7.1 and Figure- 1.

Table 7.1
KSE Share Index
(The Leading Market Indicator)

July-April
End Year/Month 1999-2000 2000-01 2001-02 % Change
July 1251.8 1554.9 1228.9 -21.0
August 1206.5 1488.9 1258.4 -15.5
September 1199.3 1564.8 1133.4 -27.6
October 1189.3 1489.3 1406.1 -5.6
November 1247.4 1307.2 1358.2 3.9
December 1389.2 1507.6 1273.1 -15.5
January 1772.8 1461.6 1620.2 10.9
February 1930.6 1423.2 1766.0 24.1
March 1999.7 1324.4 1868.1 41.1
April 1901.1 1367.1 1899.0 38.9
May 1536.7 1377.6 - -
June 1520.7 1366.4 - -
Average 1512.1 1438.1 1481.1 -
Source: Karachi Stock Exchange
Chapter 7. Capital Market

Fig 1. Monthly Trend of KSE Share Index

2000

1800

1600

1400

1200

1000
ug

ug

ug
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b

ay

ay

b
pr

pr

pr
pt

ec

pt

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ov

ov

ov
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02
Ja

Ja

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O

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M

M
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D
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KSE Share Index

During the last one year in general and May 14, 2002 over December 31, 2001, followed by
after September 11, 2001 in particular equities Indonesia (40.5%), Thailand (25.0%), South Korea
markets throughout the world witnessed big (19.0%), Philippines (16.1%), Malaysia (15.2%) and
erosion in values. These erosions Japan (10.4%) among the double digit growing
notwithstanding, Pakistan’s premier stock market markets. Other seven leading Asian stock markets
(i.e. the Karachi Stock Exchange) was regarded recorded single digit growth in the same period
the best performing stock market during ranging from 1.6 percent (New Zealand) to 7.4
December 31, 2001 – May 14, 2002, among the 14 percent (Singapore). The Bombay Stock Exchange
leading markets in Asia. As given in the Table 7.2, in India registered an increase of 3.7 percent.
the KSE share index increased by 40.9 percent on

Table 7.2
Trend in various local stock markets in Asia
Country Index Name Dec. 31, 2001 May 14, 2002 Change
Pakistan KSE 100 1273 1794 40.9%
Indonesia Jakarta Composite 383 539 40.5%
Thailand SET 305 381 25.0%
South Korea Seoul Composite 725 863 19.0%
Philippines PSE Composite 1170 1358 16.1%
Malaysia KLSE Composite 683 786 15.2%
Japan Nikkei 225 10543 11643 10.4%
Singapore Straits Times 1626 1745 7.4%
Sri Lanka All Share 611 646 5.7%
Taiwan Taiwan Weighted 5600 5911 5.6%
Hong Kong Hang Seng 11351 11832 4.2%
India BSE 30 3269 3391 3.7%
China Shanghai Composite 1646 1679 2.0%
New Zealand NZSE 40 2053 2085 1.6%
Source: Indosuez W I CARR Securities, Pakistan Office
Chapter 7. Capital Market

Fig2:- Growth of Various Stock Market During Dec. 31-May 14, 2001-02

45
40
35
30
25
20
15
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N
In the current fiscal year, the Securities & impact is being felt within and outside the
Exchange Commission of Pakistan (SECP) has country. The key indicator is a visible revival of
undertaken some major initiatives. The thrust of the SECP to effectively deal with issues of stock
these reforms has been towards safeguarding market in discovery and effective settlement of
investors’ interests, increasing market efficiency transactions, stock broker, exchange governance
and transparency and improving risk etc. In addition to enhancing its surveillance,
management practices at the country’s stock monitoring and enforcement, it is now
exchanges. These reforms will have the effect of concentrating on improving corporate
bringing Pakistani markets in line with best governance. (Details measures taken by the SECP
international practices. The successful completion are given in the box).
of the first phase of reforms has improved the
performance in the capital market and its healthy

BOX

Policy Measures Announced and Their Progress

During the current fiscal year, the Securities and Exchange Commission of Pakistan (SECP) has
implemented far-reaching reforms over a broad front, besides taking several steps to develop its
regulatory capacity. As a cumulative result of all these measures, the Commission has advanced closer
towards the goal of achieving a fair, transparent and efficient capital market. These measures will
increase the demand for and supply of capital that would provide the necessary fillip to promote
further investment, expand industrial output, and generate employment opportunities in the country.
The various policy measures so far announced are given below:
Chapter 7. Capital Market

a) Governance

♦ Forty percent independent directors are to be nominated by the SEC on the Board of each
stock exchange. In 2001, seven non-broker directors were nominated on the Boards of the
KSE and LSE and five directors on the Board of the ISE.

♦ Independent, professional management has been ensured on the stock Exchanges by

requiring the Managing Director/Chief Executive Officer (CEO) of each stock exchange to be
appointed and removed with the approval of the Commission. Independent CEOs have
already been appointed at the KSE and LSE, with the prior approval of SEC.

♦ The Chairman of the Central Depository Company ( CDC) is to be a non-broker.

♦ The Board of Directors of the CDC shall not delegate their operational authority to anyone
except the CEOs.

b) Risk Management

♦ In line with international standard practice, the requirement for the net capital balance has
been enhanced by 10 times to Rs 2.5 million for the KSE, Rs. 1.5 million for the LSE and Rs.
0.75 million for the ISE.

♦ Margin requirements have been strengthened; notably the brokers’ ability to trade up to Rs
50 million without margin was abolished and all exposure of the brokers is now subject to
margin.

♦ The undisclosed market system in accordance with international practice has been
introduced. This has helped check manipulation and front running to a certain extent.

♦ The internationally accepted T+31 settlement system has been introduced and successfully
implemented at the three stock exchanges. This has greatly minimized the market risk
prevailing due to T+52 settlement cycle.

♦ Blank selling of any sort has been prohibited and the three stock exchanges have been
asked to frame regulations for short selling with facilities for lending and borrowing of
securities.

c) Formulation of New Regulations

♦ In order to strengthen the regulatory framework of the capital market and to facilitate the
implementation of the SEC’s reform agenda, a number of rules and regulations were issued
namely; members’ agents and traders rules 2001; stock exchange members rules 2001;
public companies rules 2001, insider trading guidelines 2001; amendments in securities and
exchange rules 1971; share transfer agents, underwriters, balloters and consultants to the
issue rules 2001; the companies share capital rules 2000; brokers agents registration rules
etc.

1In the T+3 settlement system Monday trade is settled on Thursday in bourses. It reduces the risks.
2In the T+5 settlement system trade conducted between Monday – Friday would have to be settled on next
Wednesday.
Chapter 7. Capital Market

d) Developments in the Market

♦ A market in futures contracts has been introduced. A beginning was made by granting
approval to the KSE to commence trading in standard futures contract in certain shares.
Future trading at KSE commenced from July 05, 2001. It will provide investors with basic
hedging instruments and investment alternatives.

♦ The National Clearing Company of Pakistan Limited was incorporated on July 3, 2001. It has
commenced its operation with the implementation of the first phase of the National Clearing
and Settlement System w.e.f. 24th December 2001.

♦ The Commission has established a Market Monitoring & Surveillance Wing (MMS), which has
filled an important regulatory gap in the Securities Market Division. The core objectives of
this wing is to closely track and monitor the market with a view to identifying possible
instances of market manipulations and abuse for further investigation and action. MMS will
be supplemented by an analysis of real time trading data through a software program linked
to the automated trading systems of the stock exchanges (via a server).

♦ For quick redressal of investor complaints an Investor Complaints Section has been set up in
the Securities Market Division. The complaint cell has drafted a comprehensive “Investors
Complaints Guide” which will soon be published. During July-December 2001, 444
complaints were received out of which 415 complaints were resolved.

♦ A fundamental improvement in disclosure requirements has been made by the introduction

of Quarterly Accounts. In line with international practices the SECP has directed all the listed
companies to report quarterly accounts within one month of the close of a quarter, starting
from the quarter ending December 31, 2001. Now listed companies shall be reporting first
quarter accounts, half yearly accounts, third quarter accounts, annual accounts, and fourth
quarter accounts if annual accounts are not circulated within three months.

♦ The prospectus of any public offer of securities is required to be got approved from the
Commission prior to its issue, circulation and publication. During July-December 2001, 11
companies have offered Term Finance Certificates (TFCs), a debt instrument to the public in
aggregate amounting to Rs 7.10 billion whereas 02 companies have offered shares to the
public amounting to Rs 4.26 billion. The increasing number of TFCs issues shows the
interest of the investors in debt instruments as compared to equity issues.

♦ The SECP as part of its investor’s education programme has developed an “Investors
Guide”. It includes all the basic information, which is necessary to know for a common
investor before making an investment in the stock market. The investors Guide is at final
stage and will be published soon.

♦ The Commission also intends to pursue other measures. These include; the strengthening of
audit practices and enforcement of international accounting standards; facilitating the
development of a vibrant primary market; and ensuring proper implementation of the
national clearing and settlement system etc.
Chapter 7. Capital Market
Sectoral Performance
During the first ten months of the current
fiscal year, the KSE price index and aggregate
market capitalization have increased by 39.0
percent and 27.8 percent respectively, as against
their decline of 10.1 percent and 13.1 percent in
the same period last year. Total turnover of shares
on KSE was 21.5 billion in the first nine months of
2001-2002 as compared to 24.1 billion in the same
period last year. Funds mobilized by the KSE
during the first nine months of the current fiscal
year amounted to Rs 13.3 billion as compared to
Rs 4.5 billion in the same period last year. All the
12 major trading groups on the KSE (cotton and
other textiles, pharmaceuticals & chemicals,
engineering, auto & allied, cables and electric
goods, sugar and allied, paper and board, cement,
fuel and energy, transport and communication,
banks and other financial institutions and
miscellaneous) recorded positive growth in the
first nine months of the current fiscal year in their
share indices, ranging from 2.7 percent (cotton &
other textiles) to 34.0 percent (engineering).
Performance of some leading trading groups for
the first nine months of the outgoing fiscal year is
discussed below:
• Cotton and Other Textiles: In this group,
there are three sub-groups: (a) textile
spinning, (b) textile weaving & composite,
and (c) other textiles. There were 251
companies listed with KSE under this group.
The share index of cotton and other textile
recorded a growth of 2.7 percent during the
first nine months of the current year as
compared to a decline of 8.7 percent in the
same period last year. Its market
capitalization increased by 8.1 percent or by
Rs 3.1 billion during July-March 2001-02 as
compared to a fall of 16.6 percent (Rs 7.3
billion) in the same period last year. Its
market capitalization constituted 9.7 percent
of the aggregate market capitalization (AMC)
of Rs 427.9 billion on 29th March 2002, as
compared to 11.3 percent in June 2001 and
11.1 percent in March 2001.
• Chemicals & Pharmaceuticals: A total of 39
companies were listed on KSE under this
group at end December 2001. During the first
nine months of the current fiscal year, its
share index increased by 21.1 percent as
compared to a decline of 9.1 percent in the
comparable period of last year. Its market
capitalization stood at Rs 57.4 billion on 29th
March 2002, showing an increase of 19.7
percent over June 2001 and 22.4 percent over
March 2001.
• Sugar and Allied: Under this group, a total of
38 companies were listed on KSE with a
market capitalization of Rs 4.4 billion. Sugar
and allied group is a minor player in the stock
market although it has a weight of 8.6 percent
in the production index of major industries.
During the first three quarters of the current
fiscal year, the share index of sugar and allied
posted a growth of 3.1 percent as compared to
a rise of 12.7 percent in the same period last
year. It was the only group, which witnessed
a contraction of 2.2 percent in market
capitalization in the current fiscal year, as
compared to an increase of 6.5 percent in the
same period last year.
• Cement: At the end of 2001, there were 21
cement companies listed with KSE. Its market
capitalization stood at Rs 15.7 billion on
March 29, 2002. The performance of this
group has been excellent in the current fiscal
year. Its share index has posted a growth of
25.9 percent as compared to a decline of 27.9
percent in the same period last year. Its
market capitalization has increased by 53.9
percent, which was the highest among the 12
trading groups. Expected construction boom
in neighbouring Afghanistan have spurred
the activity of the cement sector in the current
year. As of end March 2002, its market
capitalization was only 3.7 percent of AMC,
 Chapter 7. Capital Market
which indicates that it is not a major player in •
the stock market.
• Banks & Other Financial Institutions:
• Fuel & Energy: A total of 26 companies were
listed with KSE with a market capitalization
of Rs 114.8 billion as of 29th March 2002.
During the first nine months of the current
fiscal year, its share index increased by 20.5
percent and market capitalization increased
by 44.0 percent, as compared to the decline of
15.0 percent and 10.8 percent respectively in
the same period last year.
• Transport & Communication: At the end of
2001, there were 8 companies under this
group listed with KSE. Its market
capitalization stood at Rs 79.8 billion on
March 29, 2002. During July-March 2001-02,
its share index increased by 21.5 percent as
compared to a decline of 22.4 percent in the
same period last year. Its market
capitalization increased by 12.7 percent in the
first nine months of the current fiscal year as
against a decline of 33.4 percent in the same
period last year. The combined market
capitalization of fuel and energy, and
transport & communication was Rs 194.6
billion on March 29, 2002 which constituted
45.5 percent of AMC as compared to 45.3
Table 7.3
Profile of Karachi Stock Exchange
1998-99
a) New Companies Listed Nil
b) Fund Mobilized 1.6
(Rs Billion)
c) Listed Capital 215.0
(Rs Billion)
d) Turnover of Share 25.5
( Billion Nos)
e) KSE Share Index 1055
f) Aggregate Market 289
Capitalisation(Rs Billion)
* December 2001
percent on the corresponding date last year.
This is the second largest group in respect of
companies listed with KSE. In December 2001,
a total of 195 companies were listed with KSE.
Its market capitalization stood at Rs 54.3
billion in end March 2002. There are 4 sub
groups in this group: banks & investment
companies, modarabas, leasing companies,
and insurance. During the current fiscal year,
the share index and market capitalization of
this group have increased by 11.7 percent and
41.5 percent respectively, as compared to their
decline of 10.7 percent and 1.7 percent
respectively in the same period last year.
• Miscellaneous: The miscellaneous group
includes five sub-groups: jute, food & allied,
glass & ceramics, vanaspati & allied, and
others. In December 2001, a total of 102
companies were listed with KSE. Its share
index and market capitalization posted
growth of 8.1 percent and 21.9 percent
respectively in the first nine months of the
current fiscal year, as compared to their
growth of 4.2 percent and 1.6 percent
respectively in the same period last year.
1999-00 2000-01 2001-02
(July-March)
1 4 3
8.9 3.6 13.3
223.5 235.7* 260.2
48.1 29.2 21.5
1521 1366 1868
392 339 428
Source: Karachi Stock Exchange.
Chapter 7. Capital Market

In December 2001, 749 companies were
listed on Karachi Stock Exchange, including 251
companies in cotton and other textile, 195 in
banks and financial institutions, 102 in
miscellaneous group etc. During 2001, number of
dividend paying companies were 87 as compared
to 370 in 2000. Only 98 companies were making
profit, listed with the KSE in 2001 as compared to
493 companies in 2000. However during 2001
only 11 companies were shown as loss-making as
compared to 174 companies in 2000. Group-wise
number of companies and their performance in
2000-01 is given in Table 7.4.

Table 7.4
Performance of Companies Listed on KSE

Dividend Profit
S. Name of Sector No. of AMC Paying Making Loss making
No Companies (Rs billion)* Companies Companies Companies
2000 2001 2001 2002 2000 2001 2000 2001 2000 2001
1. Cotton & other 257 251 36.5 41.5 126 12 168 14 47 3
Textile
2. Chemical & 39 39 46.9 57.4 23 10 26 10 12 1
Pharmaceutical
3. Engineering 16 16 1.6 2.0 4 1 6 1 5 0
4. Auto & Allied 25 25 7.5 9.8 9 5 15 7 7 2
5. Cables & Electric 15 14 2.2 2.2 5 1 6 1 3 0
Goods
6. Sugar & Allied 38 38 4.1 4.4 20 1 24 1 13 0
7. Paper & Board 15 14 4.5 5.7 7 5 10 6 3 0
8. Cement 20 21 7.5 15.7 6 1 11 1 7 0
9. Fuel & Energy 27 26 78.0 114.8 20 10 22 10 4 0
10. Transport & 8 8 70.8 79.8 3 1 4 1 2 1
Communication
11. Bank & Financial 197 195 35.5 54.3 104 30 144 36 40 2
Institutions
12. Miscellaneous 105 102 33.2 40.5 43 10 57 10 31 2
Total 762 749 328.2 427.9 370 87 493 98 174 11
* End March 2001 and 2002. Source: KSE Annual Report

Encouraging business trends were also
witnessed at other two stock exchanges namely,
the Lahore and Islamabad Stock Exchanges. The
turnover of shares on Lahore Stock Exchange
(LSE) during July-March 2001-02 was 11.7 billion
compared to 6.2 billion shares in the same period
last year. Total paid up capital with LSE increased
from Rs 226.2 billion in June 2001 to Rs 228.2
billion in March 2002. The LSE index, which was
273.5 points in June 2001, increased to 321.5 points
in March 2002. Market capitalization has
increased from Rs 325.7 billion in June 2001 to Rs
399.8 billion in March 2002. Four new companies
were listed during July-March 2001-02, as
compared to only one in the same period last
year. A profile of LSE is given in Table 7.5.
Chapter 7. Capital Market

Table 7.5
Profile of Lahore Stock Exchange
` 1998-99 1999-2000 2000-01 2001-02
(July-March)
a) New Companies Listed 1 2 3 4
b) Fund Mobilized Nil 0.4 2.5 4.4
(Rs Billion)
c) Listed Capital - 207.7 226.2 228.2
(Rs Billion)
d) Turnover of Share 9.8 16.4 7.8 11.7
(Billion Nos)
e) LSE Index 288.9 372.0 273.5 321.6

Source: Lahore Stock Exchange

The turnover of shares on the Islamabad compared to Rs 0.7 billion in the same period last
Stock Exchange (ISE) registered a growth of 20.0 year. The ISE price index has increased from
percent, from 1.1 billion shares in July-March 4374.2 points in June 2001 to 4583.9 points in
2000-01 to only 1.32 billion during the first nine March 2002. The two new companies were listed
months of the current fiscal year. The amount of with ISE during the first nine months of the
fund mobilized at ISE was Rs 8.8 billion during current fiscal year, as compared to 3 companies in
the first nine months of the current fiscal year, as the same period last year. (Table 7.6)
Table 7.6
Profile of Islamabad Stock Exchange
1998-99 1999-2000 2000-01 2001-02
(July-March)
a) New Companies Listed 1 0 5 2
b) Fund Mobilized 5.0 0 0.8 8.8
(Rs billion)
c) Listed Capital 150.2 - 183.3 183.4
(Rs billion)
d) Turnover of Share 3.3 3.1 1.4 1.32
(In Billion Nos)
ISE Index 4498.7 5327.2 4374.2 4583.9
Source: Islamabad Stock Exchange

Total funds mobilized during July-March
2001-02 in the three stock exchanges (KSE, ISE &
LSE) amounted to Rs 26.5 billion, as compared to
Rs 6.8 billion in the same period last year. Total
turnover of shares in the three stock exchanges
during the first three-quarters of the current fiscal
year was 34.5 billion, compared to 31.4 billion in
the same period last year, recording an increased
of 9.9 percent.
Development Finance Institutions (DFIs)
During 2000-01, the DFIs sanctioned total
loans of Rs 4.4 billion against which they
disbursed Rs 3.7 billion. In the first nine months of
the current fiscal year (2001-02), sanctions and
disbursements of loans by the DFIs for fixed
investment finance to the private industrial sector
were Rs 4.9 billion and Rs 3.6 billion respectively.
The loans sanctioned and disbursed by the special
banks (excluding ADBP) during 2000-01
amounted to Rs 13.2 billion and Rs 11.1 billion
while during the first nine months of 2001-02,
their sanctions and disbursements amounted to
Rs 13.3 billion and Rs 5.8 billion respectively. In
2000-01, investment banks’ total sanctions and
disbursements were Rs 8.8 billion and Rs 8.6
billion. In the first nine months of the current
Chapter 7. Capital Market

fiscal year, their sanctions and disbursements
were recorded at Rs 4.6 billion and Rs 4.3 billion.
Total sanction and disbursement of housing
finance companies (HFCs) amounted to Rs 2.8
billion and Rs 2.7 billion in 2000-01 and during the
first nine months of 2001-02, these were Rs 1.94
billion and Rs 1.96 billion respectively. The
khushali bank, which was launched in 2000-01,
sanctioned and disbursed Rs 0.193 billion in the
first nine months of 2001-02 as against a meager
amount of Rs 0.072 billion sanctioned and
disbursement in 2000-01. During the first nine
months of the current fiscal year leasing
companies sanctioned an amount of Rs 13.2
billion out of which they disbursed Rs 12.8 billion
while modarabas sanctioned Rs 4.18 billion and
disbursed Rs 4.16 billion respectively.
National Savings Organization (NSO)
The Central Directorate of National
Savings (CDNS) is an attached department of the
Finance Division and performs deposit bank
functions by selling government securities
through a network of 366 savings centers, spread
all over the country. As of March 31, 2002 there
were about 4.2 million investors with National
Saving Schemes (NSS). The seven savings
schemes currently in operation include: Defence
Savings Certificates, Special Savings
Certificates/Accounts, National Deposit
Certificates, Savings Account, Regular Income
Certificates, “Mahana Amdani” Account, and
Prize Bonds.
During the fiscal year 2000-01, net
deposits with National Saving Schemes fell to Rs
51.1 billion, from Rs 142.2 billion in 1998-99 and
Rs 95.5 billion in 1999-2000. Defence Saving
Certificates at Rs 16.6 billion maintained the top
position. Their share in the net accruals was 32.5
percent in 2000-01 followed by the national prize
bonds (20.3%) and Special Savings Certificates
(18.4%). (Table 7.7).

Table 7.7
Net Accruals by National Saving Schemes
(Rs Billion)
July-March
1998-99 1999-2000 2000-01 2000-01 2001-02
1. Defence Saving 38.3 41.2 16.6 11.0 13.2
Certificates (26.9) (43.1) (32.5) (36.3) (26.0)

2. Special Saving 25.0 19.4 9.4 5.1 21.5

Certificates ® (17.6) (20.3) (18.4) (16.8) (42.4)

3. Regular Income 59.1 26.1 8.6 5.9 7.8

Certificates (41.6) (27.3) (16.8) (19.5) (15.4)

4. Special Saving 5.9 5.5 3.6 -0.01 -0.2

Accounts (4.1) (5.8) (7.0) (0.0) (-0.4)

5. National Prize Bonds 10.1 -0.03 10.4 8.2 6.9

(7.1) (-0.03) (20.3) (27.1) (13.6)

6. Others 3.8 3.4 2.5 0.1 1.5

(2.7) (3.6) (4.9) (0.0) (3.0)

Grand Total 142.2 95.5 51.1 30.3 50.7

(100) (100) (100) (100) (100)
Source: Directorate of National Savings.
Note: Figures within brackets represent share to total.
R= Regular
Chapter 7. Capital Market

Fig-3: Net Accruals by Major Schemes

41.2
45
40
35
26.1
30 19.4
(Rs Billion)

25 21.5

20 16.6
13.2
9.4 8.6 10.4
15
7.8 6.9
10
5 -0.03
0
-5
1999-00 2000-01 2001-02(Jul-Mar)

Def.Sav.Cert. Spl.Saving Certificates

Regular Income Certificates National Prize Bonds

During the first nine months of the
current fiscal year, total net savings amounted to
Rs 50.7 billion, as against the net receipts of Rs
30.3 billion in the same period last year. All the
major scheme showed marked improvement in
their mobilization activities with the exception of
Prize Bonds. So far the special saving certificates
with a net accrual of Rs 21.5 billion put the best
performance during the current fiscal year. This
was a big jump if compared to Rs 5.1 billion only
in the first nine months and Rs 9.4 billion in the
entire fiscal year of 2000-01. Defence Savings
Certificates mobilized Rs 13.2 billion during July-
March 2001-02 as compared to its mobilization of
Rs 11.0 billion in the same period last year,
showing an increase of 20.1 percent. Regular
Income Certificates with Rs 7.8 billion ranked
third in the current fiscal year up to March 31,
2002 as compared to Rs 5.9 billion mobilized in
the same period last year. The National Prize
Bonds which mobilized Rs 6.9 billion as against
Rs 8.2 billion in the same period last year ranked
4th in the period under review.
The Government of Pakistan has
reviewed the rate of return on National Savings
Schemes in January 2002. The return on Defence
Savings Certificates has been fixed at 14.13
percent per annum (on maturity) for the
certificates issued during the period from 01-01-
2002 to 30-06-2002. The Defence Savings
Certificates purchased prior to the above said
notification shall earn profit at the rate prevailing
on the date of purchase. However, no change has
been made in the rates of other National Savings
Schemes. The year-wise payable amount on the
initial investment of Rs 100 is given as under:

Return on investment of Rs 100

After After After After After After After After After After
one two three four five six seven eight nine ten
year years years years years years years years years years

109 121 138 157 184 210 238 275 322 375
(9%)* (21%) (38%) (57%) (84%) (110%) (138% ) (175%) (222%) (275%)
• Figures in bracket show return in percentage over the original amount.
Chapter 7. Capital Market

Moreover a withholding tax, on profits
from investment on National Savings Schemes
made on or after, July 1, 2001 shall be deducted at
source at the rate of ten percent of such profit if
such deposit exceeds Rs 0.3 million. The details
about the new and old rates on National Savings
Schemes are given in Table 7.8.
During the current fiscal year the nominal
deposit rates with NSS ranged between 6.0
percent (Prize Bond) to 14.13 percent (Defence
Savings Certificates) with a weighted average rate
of 11.5 percent, or 0.3 percentage point higher
than the last fiscal year but 4.3 percentage point
lower than the average of 1995-2000. With an
inflation rate of only 2.6 percent the real deposit
rates during July-April 2001-02 have increased
over last year ranging between 3.4 percent (Prize
Bond) to 11.5 percent (Defence Savings
Certificate) with a weighted average real rate of
8.9 percent.

Table 7.8
Nominal and Real Deposit Rates on Savings Schemes During 1995-2002

Scheme 1995-2000 2000-01 2001-02

Nominal Real Nominal Real Nominal Real
Rate (p.a) Rate Rate (p.a.) Rate Rate(p.a.) Rate
1. Defence Saving
Certificates 17.0 9.1 15.0 10.6 14.1 11.5

2. National Deposit
Scheme 13.1 5.2 13.0 8.6 13.0 10.4

3. Special Savings
Certificate ® 15.8 7.9 12.7 8.3 12.7 10.1

4. Special Savings
Certificate (B) 12.8 4.9 12.4 8.0 12.4 9.8

5. Regular Income
Certificates 16.4 8.5 12.5 8.1 12.5 9.9
6. Khas Deposit
Scheme 13.4 5.5 13.4 9.0 13.4 10.8

7. Mahana Amdani
Accounts 14.9 7.0 12.3 7.9 12.3 9.7

8. Saving Accounts 11.8 3.9 7.8 3.4 7.8 5.2

9. Prize Bonds 10.2 2.3 6.0 1.6 6.0 3.4

Weighted Average 15.8 7.9 11.2 6.8 11.5 8.9

Source: Directorate of National Savings, Finance Division.

Note: R= Registered
B= Bearer
Average inflation was 7.9% during 1995-2000; 4.4% during 2000-2001; and 2.6% during July-April
2001-02.
Chapter 7. Capital Market
In the previous years, although the
nominal deposit rates were apparently very high
but the real deposit rates remained low due to
high rates of inflation. For example, during 1995-
2000, average nominal rates ranged between 10.2
percent (prize bonds) to 17.0 percent (Defence
Savings Certificate). With an average inflation rate
of 7.9 percent during this period, the real rates
ranged between 2.3 percent (prize bonds) to 9.1
percent (Defence Savings Certificates), compared
to a weighted average real rate of 7.9 percent.
During 2000-01, both weighted average nominal
and real rates came down to 11.2 percent and 6.8
percent respectively mainly due to cut in the
nominal rates in January 2001. But with a decline
in the inflation rate (2.6%) in the current year, the
real rates of return have become even more
attractive than before. Since the weighted average
real deposit rates of the schedule banks remained
low (around 3%), the NSS still offers the most
attractive rate of returns to the depositors. This is
the main reason why net accruals have increased
by 67.3 percent in the first nine months of 2001-02,
over the same period of last year.
Reforms of the NSS
During the outgoing fiscal year the
Directorate of National Savings have undertaken
some structural changes as given below:
_______________________
i. Rate of return on NSS has been linked
with the yield of the PIBs of
corresponding maturities.
ii. The return on NSS is being reviewed bi-
annually i.e. on 1st July and 1st January in
accordance with yield on PIBs.
iii. The profit earned on the deposits
exceeding Rs 0.3 million have been
subjected to deduction of withholding
tax.
iv. Institutions have been debarred from
investment in NSS.
The above measures (i-iv) have been
taken to remove the distortions in the financial
market and provide a level playing field for the
other banks and DFIs for deposit mobilization.
In order to improve the working
condition at the national saving centers (NSCs) a
detailed plan for restructuring of National
Savings Organization is under process and shall
be implemented soon. It includes, among others,
computerization of its accounts. As a first step
towards the objective, the accounting procedure
has been reviewed in line with the requirements
for shifting from manual to automated accounting
system.
 Chapter 8. Inflation

8. Inflation
A high and sustained economic growth in
conjunction with low inflation is the central
objective of macroeconomic policy. It is well-
known that a stable macroeconomic environment
is conducive to investment, and therefore, to
growth. What constitute a conducive
macroeconomic environment? Low and stable
inflation along with sustainable budget deficit,
realistic exchange rate, and appropriate real
interest rates are among the indicators of a stable
macroeconomic environment. Thus, as an
indicator of stable macroeconomic environment,
the inflation rate assumes critical importance. It is
therefore important that inflation rate be kept
stable even when it is low.
Inflation is also important for other
reasons. It is a regressive and arbitrary tax, the
burden of which is typically borne
disproportionately by those in fixed income group
and poor. Maintaining low inflation is therefore
seen as a necessary part of the poverty alleviation
strategy. Inflation is also harmful to growth
because it distorts relative prices and provides
wrong signal to investors; it causes real exchange
rate to appreciate thereby eroding external
competitiveness and hurting exports; and most
importantly it creates instability which is inimical
to growth. Thus, low and stable inflation is
essential for sustaining higher economic growth –
so critical for poverty alleviation.
Price Indices
Four different price indices are published
in Pakistan: the consumer price index (CPI);
calculated for four different income groups; the
whole sale price index (WPI); the sensitive price
index (SPI); and the GDP deflator. In most
countries, the main focus for assessing
inflationary trends is placed on the CPI because it
most closely represents the cost of living. In
Pakistan, the main focus is also placed on CPI
because it is used for indexation for many wages
and is more relevant in measuring inflation as its
impacts on households.
Major developments have taken place
during the outgoing fiscal year as far as
measurement of inflation is concerned. Not only
the base year for CPI and SPI has changed from
1990-91 to 2000-01 but their coverage in terms of
cities, markets, and items; weights for different
commodities; income and occupational groups
have also changed. They are not only more
representative but include items which are widely
consumed by different income groups. A comp-
arison of two base years is reported in Table 8.1.

Table 8.1
A Comparison of Old and New CPI and SPI

Features Base Year 2000-01=100.0 Base Year 1990-91= 100.0

CPI SPI CPI SPI
Cities covered 35 17 25 12
Markets covered 71 51 61 48
Items covered 375 51 460 51
Number of Commodity Groups 10 - 9 -
Number of Quotations 106,500 10,404 112,240 9,024
Income Groups Four Rs.3000/Month Five Rs.1500/Month
Occupational Groups All 3(urban) 3(urban) 3(urban)
Categories
combined
Reporting Frequency Monthly Weekly Monthly Weekly
Source: Federal Bureau of Statistics.
Chapter 8. Inflation

Inflation During the 1990s
Pakistan has experienced sustained
inflation hovering between 10.0 to 13.0 percent
range during the first eight years of the 1990s. Not
surprisingly, one of the thorniest issues in
Pakistan’s policy arena during those periods has
been how to put inflation under effective control.
The persistence of a double-digit inflation along
with large fiscal deficit (7.0% of GDP) have been
the major source of macroeconomic imbalances in
the 1990s. There has been a general agreement
that the excessive growth in money supply, the
supply side bottlenecks, the adjustment in
government – administered prices, the imported
inflation (pass through of exchange rate
adjustment), escalations in indirect taxes, and
inflationary expectations have the major factors
responsible for the persistence of a double-digit
inflation during most period of the 1990s.
Both food and non-food inflation
contributed to the persistence of the double-digit
inflation. Food and non-food inflation averaged
11.6 percent and 10.3 percent, respectively during
the eight years of the 1990s (Table 8.2). Inflation
slowed to an average of 4.7 percent in the
remaining two years of the 1990s, mainly on
account of 4.1 percent food inflation and 5.3
percent non-food inflation. Non-food inflation
was mainly driven by the prices of POL products
and rise in transport charges.
Inflationary pressures have continued to
diminish over the last three years mainly on
account of tight monetary policy, prudent fiscal
management, and improved supply of food items
in the country. Although the exchange rate
adjustments and the rise in international price of
POL products have put upward pressures on
inflation but these pressures were countered by
the tight monetary policy fully supported by fiscal
stance and improvement in the supply situation
in the country. During the last three years
(1999/2000 – 2001-02) overall inflation averaged
3.5 percent as against double-digit inflation
during most period of the 1990s. As stated earlier,
the decline in overall inflation owe heavily to a
low (2.4%) food inflation, as non-food inflation
averaged 5.1 percent during the last three years.
There is no room for complacency, however there
seems to be grounds for optimism with respect to
the chances of safeguarding the progress that has
been achieved on the inflation front over the last
three years.

Table 8.2
Inflationary Trends*
(% Change)

Year Overall Food Non-Food WPI SPI

Inflation Inflation Inflation
1990-91 12.7 12.9 12.4 11.7 12.6
1991-92 10.6 10.6 10.5 9.8 10.5
1992-93 9.8 11.7 7.8 7.4 10.7
1993-94 11.3 11.3 11.2 16.4 11.8
1994-95 13.0 16.7 9.3 16.0 15.0
1995-96 10.8 10.1 11.5 11.1 10.7
1996-97 11.8 11.9 11.7 13.0 12.5
1997-98 7.8 7.7 8.0 6.6 7.4
1998-99 5.7 5.9 5.6 6.4 6.4
1999-00 3.6 2.2 5.0 1.8 1.8
2000-01 4.4 3.6 5.3 6.2 4.8
2001-02(July-April) 2.6 1.4 5.0 2.1 2.9
Average of 1990s 9.7 10.1 9.3 10.0 9.9
Average of 1990/91-1997/98 11.0 11.6 10.3 11.5 11.4
Average of 1998/99 – 1999/2000 4.7 4.1 5.3 4.1 4.1
Average of 1999/2000 – 2001/02
3.5 2.4 5.1 3.3 3.2
* Inflation based on CPI and SPI are at 2000-01 base. Source : Federal Bureau of Statistics.
Chapter 8. Inflation

Fig - 1: 1nflationary Trend

18
16
14
12
10
8
6
4
2
0
1

A)
-9

-9

-9

-9

-9

-9

-9

-9

-9

-0

-0

J-
90

91

92

93

94

95

96

97

98

99

00

2(
19

-0
01
CPI FOOD NON-FOOD

Inflation During 2001-02 contribution to current low inflation came from

One of the major achievements of the
outgoing fiscal year has been the sharp
deceleration in inflation. Inflation, as measured by
the changes in the CPI, is estimated at 2.6 percent
during the first ten months (July-April) of the
outgoing fiscal year as against 4.7 percent in the
comparable period of last year (Table 8.3). Thus,
inflation at 2.6 percent is the lowest inflation
experienced by Pakistan during the last three
decades. The overall low inflation is mainly
attributable to a very low food inflation which is
estimated at 1.4 percent as against 4.1 percent in
the comparable period of last year. Non-food
inflation, mainly driven by fuel and lighting and
transport, remained more or less at last year’s
level of 5.0 percent. Fuel and lighting component
of inflation was up at 9.2 percent as against 12.1
percent of last year. Similarly, transport charges
were up by 7.4 percent during the first 10 months
of the fiscal year as against 12.8 percent last year
in the same period. Almost 77 percent
non-food while food-inflation contributed only 23
percent. Last year, non-food and food inflation
had contributed 62 percent and 38 percent,
respectively to the overall inflation. Further
breakdown reveals that 44 percent contribution to
current inflation came from fuel & lighting and
transport charges. Last-year, these two
components contributed roughly 35 percent to
inflation.
By the standards of many developing
countries, Pakistan has succeeded in bringing
inflation down to an acceptable level. The hard-
earned progress on inflation front must be
sustained. Since inflation is a regressive and
arbitrary tax and hurts the poor most, keeping
inflation, and most importantly food inflation,
low would in effect be akin to saving the poor
from the regressive tax. Thus, maintaining low
inflation, in particular, low food inflation is seen
as a necessary part of an effective antipoverty
strategy.
Chapter 8. Inflation

Table 8.3
Changes in CPI According to Commodity Group
(%Change)
Commodity Groups July-April %age Point
Weight Contribution (Jul-Apr)
2000-01 2001-02 2000-01 2001-02
CPI 100.00 4.7 2.6 4.7 2.6
Food 44.13 4.1 1.4 1.8 0.6
Non-Food 55.87 5.3 5.0 2.9 2.0
Apparel, Textile 6.34 2.9 2.4 0.2 0.2
House Rent 21.69 3.0 2.0 0.7 0.4
Fuel, Lighting 8.01 12.1 9.2 1.0 0.7
Household Furniture 2.57 2.7 3.0 0.1 0.1
Transport & Comm. 5.56 12.8 7.4 0.7 0.4
Recreation & Entertainment 0.69 3.6 4.3 0.0 0.0
Education 2.79 - - - -
Cleaning, Laundry 6.01 2.3 1.9 0.1 0.1
Medicare 2.21 7.4 1.4 0.2 0.0
- Not available Source: Federal Bureau of Statistics

Month-wise inflation analysis reveals
interesting developments that have taken place
during the first ten months of the outgoing fiscal
year. Monthly inflationary trend is well-
documented in Table 8.4. A cursory look at the
table is sufficient to see that on year-on-year basis,
the overall inflation continued to decline since
August 2001 and reached as low as 1.8 percent by
December 2001. The steady decline in inflation
followed closely the developments on non-food
inflation which also started declining until
December 2001. Food inflation continued at a very
low level. The overall inflation gradually and
slowly started picking up since January 2002 with
the firming of oil prices in international market.
Since Pakistan’s domestic prices of POL products
are linked with international prices, they
gradually started contributing to the overall
inflation. Of late, during March and April 2002,
food inflation also picked up as a result of
shortfall in the production of some of the food
items. Thus, in April 2002, on year-on-year basis,
overall inflation stood at 3.3 percent while food
and non-inflation are estimated at 3.6 percent and
6.3 percent respectively.

Table 8.4
Monthly Inflation Rate
(% Change)
1998-99 1999-2000 2000-01 2001-02
Period CPI Food Non CPI Food Non CPI Food Non CPI Food Non
Food Food Food Food
Jul 6.7 6.0 7.5 3.5 3.8 3.1 5.0 4.2 2.5 2.5 -0.3 5.4
Aug 7.0 6.5 7.5 3.1 3.2 3.0 4.4 3.0 6.0 3.3 1.7 5.1
Sep 6.4 5.5 7.4 3.4 3.4 3.3 5.1 3.9 6.3 2.5 0.7 4.5
Oct 6.5 5.6 7.5 3.8 3.2 4.4 4.6 4.2 5.0 2.5 1.4 4.2
Nov 6.2 7.2 5.2 3.4 0.7 6.4 5.4 5.8 5.0 1.9 0.7 3.5
Dec 6.4 7.2 5.5 3.0 0.2 6.2 5.1 4.9 5.2 1.8 0.6 3.1
Jan 6.2 6.8 5.7 3.4 1.0 6.0 4.7 4.2 5.2 2.0 0.4 3.3
Feb 6.2 6.6 5.9 3.0 0.5 5.8 4.6 4.2 5.1 2.4 1.8 7.1
Mar 4.8 5.7 3.7 3.6 1.6 5.7 4.2 3.8 4.6 3.3 3.1 7.9
Apr 4.6 5.3 3.8 3.9 2.2 5.7 4.0 3.3 4.6 3.3 3.6 6.3
May 4.3 4.8 3.8 3.8 2.2 5.5 3.6 2.1 5.1 - - -
Jun 3.7 3.7 3.6 5.1 5.0 5.3 2.5 -0.6 5.8 - - -
Source: Federal Bureau of Statistics.
 Chapter 8. Inflation

9.2
Fig-2: Monthwise Inflation Rate (CPI)

8.2

7.2

6.2

5.2

4.2 . .
3.2

2.2

1.2

0.2

r
r.

r.

r.

n
n.

n.

n.

Ju n

c
1
c.

Ju n.

c.

Ju n.

c.
8.

9.

0.

g
p

b
g.
p.

b.

g.
p.

b.

g.
p.

b.

t
t.

t.

t.

r
y
r.

r.

r.
y.

y.

v
v.

v.

v.
-0.8

Ap
Oc

Ma
De
Ma

No

Ja
Ju
l-0
Au
Se

Fe
Ap

Ap

Ap
Oc

Oc

Oc
Ma

Ma

Ma
De

De

De
Ma

Ma
No

No

No
Ja

Ja

Ja
l-9
Au

Ju

Ju
l-9
Au

l-0
Au
Se

Se

Se
Fe

Fe

Fe
Ju

Food Non-Food Inflation(CPI)

Inflation by Income Groups income groups) the rate of inflation is estimated at

The consumer price index is also
prepared for four separate income groups with
lowest (Rs.3000) and highest monthly income
(Rs.12000 and above). Inflation according to
income groups are reported in Table 8.5. It can be
seen from the table that the incidence of inflation
is lowest for lower income group (2.8%) but it is
highest (5.1%) for lower middle income group
(Rs.3001-5000). For income groups belonging to
Rs.5001 and above (i.e; upper middle and higher
3.5 percent. The different rates of inflation reflect
different baskets of commodities consumed by
these income groups. Since most of the income of
the lowest income group people are spent on food
items, therefore, low food inflation saved people
in this group from regressive tax. People
belonging to Rs.3001-5000 income group faced
relatively higher inflation (5.1%). But for upper
middle and higher income groups, inflation was
about 3.5 percent, lowest in the last many years.

Table 8.5
Inflation Rate by Income Groups
(% Change)
Period Overall Upto Upto Upto Above
CPI Rs.3000 Rs.3001-5000 Rs.5001-12000 12000
1995-96 10.8 10.6 10.7 10.8 11.3
1996-97 11.8 11.7 11.9 11.8 11.6
1997-98 7.8 7.9 7.8 7.9 8.0
1998-99 5.7 5.6 5.6 5.9 6.2
1999-00 3.6 3.2 3.4 3.8 4.5
2000-01 4.4 4.5 4.3 4.5 4.7
2001-02 2.6 2.8 5.1 3.5 3.6
(Jul-Apr)
Source: Federal Bureau of Statistics
Chapter 8. Inflation

Fig-3: Inflation by Income Groups

14

12
.
10

0
95-96 96-97 97-98 98-99 99-00 00-01 01-02(J-A)

3000 3001-5000 5001-12000 above 12000

Wholesale Price Index (WPI)
Wholesale Price Index during July-April
2001-02 increased by 2.1 percent which is less than
half of the increase of 6.6 percent in the
comparable period of last year. The group wise
break-up of the index indicates that the highest
increase (3.5.%) has been observed in the case of
fuel & lubricant followed by manufacturing
(2.2%), and food group (1.8%). The raw material
and building material group each has recorded a
marginal increase of 0.5%. The main reasons for
the increase in food prices have been the rise in
the prices of onion, tomato, gram pulse, fresh
fruit and vegetable ghee. The increase in fuel
group was due to the rise in the prices of POL
products as a result of the increase in their
international prices. The higher increase in the
manufacturing group prices was the result of
increase in prices of cotton yarn, blended yarn
and soap. The increase in raw material group
prices stemmed mainly from rise in prices of
cotton owing to –1.1 percent decline in its
production, during the year 2001-02, and increase
in its support price from Rs.725 per 40 kg in 2000-
01to Rs.780 per 40 kg in 2001-02 or by 7.6 percent.
The overall increase in WPI during July-April
2001-02 on an average basis, has been
decomposed into its five components and
reported in Table 8.6.

Table 8.6
Components of WPI
(%Change)
Commodity July-April %age Point Contribution
Groups Weight (Jul-April)
2000-01 2001-02 2000-01 2001-02
WPI 100.00 6.6 2.1 6.6 2.1
Food 45.79 3.5 1.8 1.6 0.8
Non-Food 54.21 9.4 2.3 5.1 1.3
Raw Materials 8.76 8.5 0.5 0.7 0.1
Fuel, Lighting & 15.28 21.4 3.5 3.3 0.5
Lubricants
Manufacturers 25.53 1.1 2.2 0.3 0.6
Building Materials 4.64 3.1 0.5 0.1 0.0
Source: Federal Bureau of Statistics
Chapter 8. Inflation

Sensitive Price Indicator (SPI)
Sensitive Price Indicator (SPI) is used to
monitor on weekly basis the behaviour of retail
prices of 51 essential consumer items with greater
weight in household budget of the low-income
group. The increase of 2.9 percent in SPI during
July-April, 2001-02 against 5.3 percent last year
was mainly due to the rise in the prices of onion
(157.4%), %), red chilies (24.0%), vegetable ghee
(18.5%), cooking oil (16.4%), wheat (4.5%),
washing soap (7.3%), gram pulse (6.7%) and rice
(7.3%). Prices of these items have been partly
affected by seasonality changes and partly by the
shortfall in production of some basic food items,
such as, rice (-19.2%), and chilies (-46.6%)
resulting from dry weather. The analysis of prices
of 51 essential consumer items covered by SPI (33
food and 18 non-food items) indicates that 16 food
items has recorded decline in the range of 0.3
percent in prices of beef to 26.1 percent in prices
of potatoes. While all the prices of 18 non-food
items with exception of only 3 i.e. course latha,
soap and electric charges have either declined or
remained static with largest decline of 11.8
percent in the price of kerosene to 4.8 percent in
price of petrol (super). The price trend of some of
the essential commodities during the first 10
months of the fiscal year are reported in Table 8.7.

Table 8.7
Prices of Essential Commodities

Items Unit 5th July 2001 30th April 2002 Difference % Change
(Rs.) (Rs.) (Rs.)
Wheat Kg 7.52 7.86 0.34 4.52
Wheat Flour Kg 8.97 9.55 0.58 6.47
Masur Pulse Kg 39.31 37.58 -1.73 -4.40
Moong Pulse Kg 37.84 32.42 -5.42 -14.32
Mash Pulse Kg 48.52 41.57 -6.95 -14.32
Gram Pulse Kg 32.74 34.92 2.18 6.66
Sugar Kg 26.75 21.80 -4.95 -18.50
Milk Fresh Ltr 18.49 18.05 -0.44 -2.38
Veg. Ghee 2.5Kg 148.08 175.41 27.33 18.46
Veg. Ghee (Loose) Kg 43.92 48.36 4.44 10.11
Cooking Oil 2.5Ltr 152.67 177.71 25.04 16.40
Tea 250Gm 57.00 57.00 0.00 0.00
Chicken (Farm) Kg 52.38 46.63 -5.75 -10.98
Source : Federal Bureau of Statistics.

As shown in Table 7, out of 13 widely despite an increase in its production by 2.3

consumed daily items the prices of 6 items have
declined in the range of 4.4 percent (Masur pulse)
to 18.5 percent (sugar). At the same time, the
prices of 6 items have increased in the range of 4.5
percent (wheat) to 18.5 percent (vegetable ghee). It
may be noted that out of four pulses, the prices of
three pulses (Masur, Moong, and Mash) have
declined because their production have increased
while the price of gram pulse has increased
percent.
Price Stabilization Measures
Price stabilization measures are important
when there are unusual variations in the prices.
Presently, the government in commensurate with
its policy of decontrol, deregulation and
liberalization, believes in tackling the inflationary
Chapter 8. Inflation

pressures through economic measures rather than supply augmentation, reduction in import duty to
formal price control. However, close vigilance is facilitate larger imports, improved marketing
kept on unusual rise in prices through weekly practices, timely distribution, coordination with
meetings of the Kitchen Items Committee, now private sector and persuading traders/
called the Sensitive Items Price Committee (SIPC) manufacturers to refrain from unfair practices are
and through the weekly meetings of the ECC of undertaken to ensure price stability in the
the Cabinet. Other measures in the realm of country.

________________________
Chapter 9. Trade and Payments
9. Trade and Payments
Introduction
The outgoing fiscal year 2001-02 has been
the most difficult and challenging year for the
world economy in general and Pakistan in
particular. Many epoch-making events unfolded
on the international scene which have impacted
economies around the world, including Pakistan.
The world economy was witnessing synchronized
slow down along with deceleration in trade
growth and falling commodity prices since late
2000. The tragic events of September 11 and their
aftermath further aggravated the already
emerging difficult situation on the global
economic scene. By the end of the year 2001 the
major growth poles of the world economy slipped
into recession, causing serious damage to the
economies of the developing countries.
International trade played a major role in
transmitting the slow down in the advanced
industrial economies to developing countries.
After growing by 11.5 percent in 2000, world
exports grew by 0.8 percent in 2001; developed
countries’ exports grew by 0.4 percent in 2001 as
against 10.3 percent in 2000; and most
importantly, developing countries’ exports grew
by only 0.5 percent in 2001 as against almost 14
percent growth a year earlier.
With world trade decelerating in 2001,
many developing countries experienced sharp
declines in their export growth. For example,
Singapore saw its exports decline by 11 percent in
2001, compared to 7 percent growth in 2000.
Exports of Taiwan, Korea, Malaysia and Thailand
declined in the range of 5 to 15 percent in 2001.
Even export growth of China decelerated to 7
percent in 2001 from 28 percent a year earlier.
Recent data and information however show
distinct signs of improvement in the global
economy. The US economy seems to have
bottomed out and appears to be recovering faster
than earlier anticipated. A faster-than-expected
but milder rebound is also evident in Europe. As a
result, the growth outlook for the next year
appears brighter. Exports are showing signs of
picking up because of a steady improvement in
world economy.
Notwithstanding the recent “soft take off”
the economic fallout from September 11 has
caused one of the most severe deceleration in
trade growth in modern times. What has been the
performance of Pakistan’s external sector,
including merchandise trade, in the midst of
sharp deceleration in world trade growth during
the outgoing fiscal year? This is the subject matter
of the present chapter.
Trends in Exports
Pakistan’s exports grew at an annual
average rate of 6 percent in the 1990s. Exports,
however, stagnated at around $ 8 billion or at 13.6
percent of GDP during the second half of the
1990s for a variety of reasons, prominent among
those are: concentration of exports in few
commodities and in few markets, concentration of
exports in low value added items, depressed
international price of Pakistan’s major export
items, misaligned exchange rate, and economic
sanctions. After stagnating at around $ 8 billion,
Pakistan’s exports crossed $ 9 billion mark in
2000-01 and stood at $ 9202 million or 15.7 percent
of GDP, thereby registering an increase of 7.4
percent over last year [See table 9.1]. The net
increase of $ 633 million in exports during 2000-01
was mainly attributed to higher exports of leather
(33.0%), petroleum products (124.7%), leather
manufactures (25.6%), and chemicals &
Chapter 9. Trade and Payments

pharmaceutical (56.9%). During this period
Pakistan was also able to export raw cotton worth
$ 139.3 million as against $ 72.5 million of the
previous year.
Table 9.1
Trend in Exports
range of 1.0 percent (bedwear) to 26.9 percent
(raw cotton) during July-April, 2001-02. All these
factors have impacted Pakistan’s export
performance in the first ten months of the current
fiscal year.
Exports were targeted at $ 10 billion in the

* Provisional Source: Federal Bureau of Statistics

$ % As %
Year Mill- Cha- of
Export Performance during 2001-02 ion. nge GDP
1990-91 6,131 23.8 13.5
Pakistan’s exports have been doubly 1991-92 6,904 12.6 14.2
affected by the events of September 11 during the 1992-93 6,813 -1.3 13.3
outgoing fiscal year. The tragic events of 1993-94 6,803 -0.2 13.1
September 11 accentuated the global economic 1994-95 8,137 19.6 13.5
slow down. The United States, the European 1995-96 8,707 7.0 13.8
1996-97 8,320 -4.4 13.4
Union and Japan are the three major markets for
1997-98 8,628 3.7 13.9
Pakistan’s exports. The pace of economic activity
1998-99 7,779 -9.8 13.3
slowed considerably in these three markets in
99-2000 8,569 10.1 14.0
particular which reduced demand for Pakistani 2000-01 9,202 7.4 15.7
products in these markets. Slower demand in Jul-Apr
major markets also weakened prices of Pakistan’s 2000-01 7,456 7.6 -
major export items. 2000-02* 7,324 -1.8 -
outgoing fiscal year – 8.7 percent higher than last
Secondly, being the frontline state in war year. Exports during July-April 2001-02 stood at $
against terrorism, Pakistan witnessed its trading 7323.9 million which were 1.8 percent lower than
activities disrupted as a result of the events of $ 7456.5 million recorded last year in the same
September 11. Pakistan saw its export orders period. All the major categories of exports with
cancel, shipment of exports postpone, export the exception of textile manufactures registered
orders ‘halt’, particularly from the US and decline. The major decline was observed in the
Europe, and clearing of export consignments at exports of primary commodities (-19.5%) with
various ports delay, particularly in the US. major contribution in decline coming from rice
Obtaining new orders became even more difficult. (-18.0%) and raw cotton (-87.9%). The exports of
In addition to these factors, all cargo going into other manufactures were down by 0.9 percent,
and coming out from Pakistan were subject to mainly due to decline in carpets (-15.5%), leather
additional insurance cover. The London based manufactures (-9.6%) and chemicals &
Joint War Committee of Underwriters imposed pharmaceutical products (-16.4%). Textile
war risk surcharge, freight charges were also manufactures have however maintained more or
raised and quite a few airlines stopped their less their last year’s exports levels. The major
services to Pakistan, resulting in an increase of export items that witnessed impressive increase
freight charges and a sharp reduction in air cargo were: cotton cloth (10.1%), bedwear (24.5%),
capacity. Furthermore, the depressed towels (10.8%), petroleum products (35.5%),
international commodity prices caused the unit footwear (23.1%), surgical goods (16.3%), electric
prices of Pakistan’s major exports to decline in the fans (50.0%), and molasses (86.0%) [See table 9.2].
Chapter 9. Trade and Payments

Table 9.2
Structure of Exports
($ Million)

Particulars JULY-APRIL %
2001-02* 2000-01 Change
A. Primary Commodities 653.0 811.1 -19.5
Rice 363.6 443.2 -18.0
Raw Cotton 16.1 132.8 -87.9
Fish & Fish Preparation 108.7 119.9 -9.3
Fruits 70.4 65.4 7.6
B. Textile Manufactures 4675.7 4649.1 0.6
Cotton Yarn 771.4 876.9 -12.0
Cotton Cloth 913.1 829.7 10.1
Knitwear 676.6 738.0 -8.3
Bedwear 740.7 594.8 24.5
Towels 213.2 192.4 10.8
Readymade Garments 710.3 667.5 6.4
C. Other Manufactures 1483.9 1496.8 -0.9
Carpets Rugs & Mats 191.0 226.1 -15.5
Petroleum Crude 61.1 76.6 -20.2
Petroleum Products 93.2 68.8 35.5
Sports Goods 222.1 208.0 6.8
Leather Manufactures 315.5 349.0 -9.6
Footwear 41.5 33.7 23.1
Surgical & Medical Instruments 113.7 97.8 16.3
Chemicals & Pharmaceutical Products 113.8 136.1 -16.4
Electric Fans 3.9 2.6 50.0
Molasses 58.6 31.5 86.0
D. Others 511.3 499.5 2.4
Total 7323.9 7456.5 -1.8
* Provisional Source: Federal Bureau of Statistics

Pakistan’s exports have expanded
substantially in volume term despite overall
marginal decline in the value of exports during
July-April, 2001-02. Exports of Basmati rice in
quantity term were up by 7 percent, fruits were
up by 11 percent, and oil seeds nuts were up by
120 percent. Most importantly, in textile sector,
exports of cotton cloth, bedwear, towels, and
readymade garments were up by 12 percent, 26
percent, 17 percent and 23 percent, respectively in
quantity terms. The quantity of these four items,
on average, increased by over 19 percent and
these items in value terms, cover more than 55
percent of total export earnings of textile
manufactures. Similarly in leather manufactures,
exports of leather gloves and footwear were up by
39 percent and 12 percent in quantity terms.
Exports of petroleum products in quantity terms
were up by 70 percent. Pakistan’s exports in
quantity terms have shown significant increase in
a difficult external environment. With firming of
prices in international market as a result of
recovery in global economy, Pakistan’s exports
are likely to increase substantially next year.
Chapter 9. Trade and Payments

Apr * 785.8 735.6 6.8

Month-Wise Exports Jul-Oct 3024.6 2969.6 1.9
Nov-Feb 2787.9 3018.8 -7.6
The month-wise export analysis reveals Mar-Apr 1511.6 1468.1 3.0
interesting developments during the outgoing * Provisional Source: Federal Bureau of Statistics
fiscal year. During the first four months (July-
October) of the fiscal year exports grew by 1.9
percent over the corresponding months of last
year, despite synchronized slowdown in the Concentration of Exports
major trading partners of Pakistan. The economic
fallout of September 11 was observed during the Pakistan's exports are highly concentrated
next four months (November-February) of the in few items/groups namely, cotton, leather, rice,
fiscal year when exports registered a decline of 7.6
synthetic textiles and sports goods. These five
percent as against the comparable months of last
fiscal year. Exports during these months also categories of exports, on average, accounted for
declined by 7.8 percent as against the first four about 83 percent of total exports in the 1990s.
months (July-October) of the fiscal year. With Among these categories, cotton group alone
global economy showing signs of improvement,
contributed, on average, 60.3 percent, followed by
Pakistan’s exports also started picking up during
March-April, 2002. Exports during these two leather (7.9%), synthetic textiles (6.5%), and rice
months have grown by 3.0 percent as against the (5.7%). These four items together accounted for
corresponding months of last fiscal year [See table 80.4 percent of total export earnings. The degree
9.3 and fig-1]. Pakistan’s exports seem to have of concentration of these items/groups during
bottomed out and appear to be picking up faster
2000-01 remained close to the last year’s level
than expected.
Table 9.3 except that of leather whose share increased by 1.2
Month-Wise Exports percentage point due to larger exports of its
($ Million) quantity. Furthermore, almost all the export
% earnings of cotton group have originated from
Month 2001-02 2000-01
Change
textile and clothing. Such a high degree of
Jul 683.9 668.8 2.3
Aug 780.5 789.2 -1.1 concentration of exports in few items is a major
Sep 800.2 766.7 4.4 source of instability in export earnings. A poor
Oct 760.0 744.9 2.0 cotton crop can seriously affect total export
Nov 711.1 753.9 -5.7
proceeds, as it has been observed several times
Dec 722.3 750.3 -3.7
Jan 699.6 759.9 -7.9 during the 1990s. The annual percentage shares of
Feb 654.9 754.7 -13.2 major export commodities are given in table 9.4.
Mar 725.8 732.5 -0.9

Fig-1: Export Growth (%) Jul-Apr,01-02

4
Table 9.4
2 Pakistan's Major Exports
0 (Percentage Share)
-2
-4
-6
-8
Jul-Oct Nov-Feb Mar-Apr
% Change
Chapter 9. Trade and Payments

Aver-
Commo-
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 age of 00-01
dity
1990s
Cotton 61.0 61.3 59.8 57.9 58.7 64.1 61.3 58.7 59.1 61.0 60.3 58.9

Leather 9.1 8.6 9.3 9.2 8.0 7.2 7.7 6.7 6.9 6.3 7.9 7.5

Rice 5.6 6.0 4.7 3.6 5.6 5.8 5.6 6.5 6.9 6.3 5.7 5.7
Synthetic
Textiles 5.7 6.1 7.4 9.5 7.1 5.2 6.1 7.2 5.1 5.3 6.5 5.9
Sports
Goods 2.2 2.0 1.9 2.9 3.2 2.8 3.7 4.4 3.3 3.3 3.0 2.9
Sub-Total 83.6 84.0 83.1 83.1 82.6 85.1 84.4 83.5 81.3 82.2 83.4 80.9

Others 16.4 16.0 16.9 16.9 17.4 14.9 15.6 16.5 18.7 17.8 16.6 19.1

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Pakistan's Foreign Trade Key Indicators, Ministry of Co

Composition of Exports percent in 1990-91 to 73 percent in 1999-2000. The

share of primary commodities, semi-
The composition of Pakistan’s exports has manufactures and manufactured goods in the
changed significantly over the decade of the year 2000-01 remained close to the last year’s level
1990s. The principal changes have been the steep at 13 percent, 15 percent and 72 percent,
fall in the shares of primary & semi-manufactured respectively. However, during July-March of the
exports and equally sharp increase in the share of current fiscal year, the share of primary
manufactured exports. During the 1990s, the commodities was down from 13 percent to 11
share of primary & semi-manufactured exports percent, semi-manufactures slipped by one
declined from 19 to 12 percent and from 24 to 15 percentage point and settled at 14 percent and the
percent, respectively. On the other hand, the share share of manufactured goods moved upward
of manufactured exports has increased from 57 from 72 percent to 75 percent [See table 9.5].

Table 9.5
Composition of Exports
( Rs. Million)
* Provisional Source: Federal Bureau of Statistics

If semi-manufactures and manufactured goods are taken together, 89 percent of export

Total Primary Commodities Semi-Manufactures Manufactured Goods

Year
Exports Value % Share Value % Share Value % Share
1990-91 138,282 25,820 19 33,799 24 78,663 57
1991-92 171,728 32,645 19 36,731 21 102,352 60
1992-93 177,028 26,133 15 36,507 21 114,388 64
1993-94 205,499 21,321 10 48,748 24 135,430 66
1994-95 251,173 28,113 11 62,624 25 160,436 64
1995-96 294,741 47,852 16 63,802 22 183,087 62
1996-97 325,313 36,452 11 66,889 21 221,972 68
1997-98 373,160 47,357 13 64,683 17 261,120 70
1998-99 390,342 45,143 12 70,288 18 274,911 70
99-2000 443,678 53,833 12 68,208 15 321,637 73
2000-01 539,070 67,783 13 81,288 15 389,999 72
July-March
2000-01 384,755 51,548 13 56,684 15 276,523 72
2001-02 * 404,836 44,279 11 58,702 14 301,855 75
Chapter 9. Trade and Payments

earnings during July-March, 2001-02 originated
from manufactured exports and only 11 percent
from primary commodities. The changing
composition of exports suggests that Pakistan is
no longer a country that relies heavily on the
primary commodities exports for foreign
exchange earnings. However, Pakistan still relies
heavily on the labour intensive and low value
added exports.
Direction of Exports
Pakistan is trading with large number of
countries but its exports are highly concentrated
in few countries. Slightly above one-half of
Pakistan's exports during the 1990s went to seven
countries namely, USA, Germany, Japan, UK,
Hong Kong, Dubai and Saudi Arabia. Among
these countries, the share of Pakistan's exports to
USA has been rising persistently while that of
Japan exhibited a continuous decline, mainly on
account of a protracted recession in the Japanese
economy. The share of exports to Germany, UK,
Hong Kong, Dubai and Saudi Arabia remained
almost stagnant with some fluctuations over the
last 10 years. By and large, the same trend even
continued during 2000-01 [See table 9.6].

Table 9.6
Major Export Markets of Pakistan
(% Share)
Country 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01
USA 10.8 12.8 13.9 14.4 16.2 15.5 17.7 20.5 21.8 24.8 24.4
Germany 8.9 7.1 7.8 8.0 7.0 6.8 7.5 6.3 6.6 6.0 5.3
Japan 8.3 8.3 6.8 8.0 6.7 6.6 5.7 4.2 3.5 3.1 2.1
UK 7.3 6.6 7.1 7.8 7.1 6.4 7.2 6.9 6.6 6.8 6.3
Hong Kong 6.0 7.3 6.6 7.3 6.6 9.1 9.4 7.1 7.1 6.1 5.5
Dubai 2.8 4.4 5.9 6.3 4.0 4.7 4.6 5.0 5.4 5.7 5.3
Saudi Arabia 3.6 4.3 4.7 3.5 2.7 2.4 2.6 2.5 2.4 2.5 2.9
Sub-Total 47.7 50.8 52.8 55.3 50.3 51.5 54.7 52.5 53.4 55.0 51.8
Other Countries 52.3 49.2 47.2 44.7 49.7 48.5 45.3 47.5 46.6 45.0 48.2
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Pakistan's Foreign Trade Key Indicators, Ministry of Co

Trends in Imports 10,309 million to $ 10,729 million mainly on

Imports during the 1990s, on average,
witnessed a moderate growth of 4.8 percent per
annum. This was the outcome of demand
management policies which were pursued to
protect the country’s foreign exchange reserves,
especially in the later half of the decade. Imports
during 2000-01 grew by 4.1 percent, rising from $
account of additional increase in import bill of
crude and petroleum products worth $ 556
million. If petroleum group is excluded, imports
were down by 1.8 percent. Furthermore, non-oil
and non-food imports remained almost flat in
2000-01. The trends in imports are shown in table
9.7.
Chapter 9. Trade and Payments

Table 9.7 Imports of soyabean oil declined because Pakistan

Trend in Imports received soyabean oil through PL-480
programme. Imports of petroleum group declined
Year $ Million % Change by 20.0 percent. This decline was mainly caused
1990-91 7,619 9.9 by 16.8 percent decline in the prices of its
1991-92 9,252 21.4 products and 15.1 percent fall in crude petroleum.
1992-93 9,941 7.4 Consequently, the share of POL in total imports
1993-94 8,564 -13.8 has declined from 31.4 percent to 27.0 percent in
1994-95 10,394 21.4 the same period last year. Although the imports of
1995-96 11,805 13.6 machinery have registered a decline of 2.7
1996-97 11,894 0.7 percent, imports of textile machinery and
1997-98 10,118 -14.9 construction & mining machinery have increased
1998-99 9,432 -6.8 by 11.8 percent and 61.6 percent, respectively.
10,309 9.3 Imports of textile and metal groups have
99-2000
increased by 13.3 percent and 26.3 percent,
2000-01 10,729 4.1
respectively. Although the overall imports have
July-April
declined by 6.9 percent, the non-food and non-oil
2000-01 8,859 6.2
imports have registered an increase of 2.5 percent
2001-02 * 8,245 -6.9
during the first ten months of the current fiscal
* Provisional Source: Federal Bureau of Statistics.
year

Import Performance during 2001-02 Month-Wise Imports

Imports were targeted at $ 11.0 billion in
the current fiscal year – 2.5 percent higher than
last year. The events of September 11 have also
disrupted the shipping and cargo services, raised
marine freight rates, and witnessed imposition of
war risk surcharges. These factors along with the
decline in the price of petroleum and petroleum
products in international market on the one hand
and almost no imports of sugar and soyabean oil
have led to a decline in imports during July-April,
2001-02 by 6.9 percent to $ 8245.2 million as
against $ 8859.3 million of the comparable period
last year. [See Table-9.8]. Major decline in imports
during July-April, 2001-02 have been observed in
food and petroleum groups. Imports of food
group declined by 21.8 percent with major
contribution in decline coming from sugar and
soyabean oil, whose import bills are lower by 89.8
percent and 73.9 percent, respectively. Imports of
sugar declined because domestic production was
more than sufficient to meet domestic demand.
Like exports, the month-wise analysis of
imports also reveals interesting development
during the outgoing fiscal year. During the first
four months (July-October) of the fiscal year,
imports declined by 9.9 percent as against the
corresponding months of last year, mainly on
account of a decline in POL imports by 20 percent
and food imports by 22 percent. The decline in
POL imports was due to an almost 16 percent
decline in its price in international market as well
as some import substitution taking place in
petroleum products. The decline in the imports of
food group was mainly on account of substantial
decline (90%) in the import of sugar as the
country’s sugar production was more than
sufficient to meet domestic demand. During the
next four months (November-February) of the
fiscal year imports continued to observe a
declining trend and registered a negative growth
of 10.2 percent as against the corresponding
Chapter 9. Trade and Payments

months of last year. Beside decline in imports of
POL products and sugar, the events of September
11 also caused disruption in trading activities,
resulting in higher declines in imports. During the
next two months (March-April) of the fiscal year
imports have picked up. Imports grew by 6.5
percent as against the same period of last year
[See table 9.9 and fig-2]. The pickup in imports
was on account of higher imports of textile and
metal groups as well as increase in petroleum
group as a result of higher international price of
crude and petroleum products.

Table 9.8
Structure of Imports
($ Million)

Particulars JULY-APRIL %
2001-2002* 2000-2001 Change
A. Food Group 668.2 855.0 -21.8
Wheat Unmilled 43.7 14.8 195.3
Soyabean Oil 9.9 37.9 -73.9
Palm Oil 293.7 238.8 23.0
Sugar 23.0 225.7 -89.8
Pulses 107.9 93.3 15.6
B. Machinery Group 1645.3 1690.4 -2.7
Power Generating Machinery 148.2 169.8 -12.7
Textile Machinery 335.1 299.7 11.8
Const. & Mining Machinery 90.8 56.2 61.6
Electric Mach. & App. 100.5 109.0 -7.8
Agricultural Machinery 12.1 18.4 -34.2
C. Petroleum Group 2222.6 2779.7 -20.0
Petroleum Products 1219.0 1635.6 -25.5
Petroleum Crude 1003.7 1144.1 -12.3
D. Textile Group 154.7 136.6 13.3
Synthetic Fiber 60.5 66.5 -9.0
E. Agri/Other Chemicals Group 1491.6 1563.3 -4.6
Fertilizer 156.7 169.9 -7.8
F. Metal Group 363.5 287.7 26.3
Iron & Steel 282.4 224.8 25.6
G. Miscellaneous Group 230.7 213.1 8.3
H. Others 1468.6 1333.5 10.1

Total 8245.2 8859.3 -6.9

Excluding Petroleum Group 6022.6 6079.6 -0.9

Excluding Petroleum & Food Groups 5354.4 5224.6 2.5

* Provisional Source: Federal Bureau of Statistics

Table 9.9
Month-Wise Imports
Chapter 9. Trade and Payments

($ Million)
Month 2001-02 2000-01 % Change
July 791.6 801.3 -1.2
August 938.0 979.5 -4.2
September 774.5 949.6 -18.4
October 838.3 980.0 -14.5
November 825.3 930.3 -11.3
December 707.7 754.7 -6.2
January 854.8 972.8 -12.1
February 738.1 823.5 -10.4
March 886.6 848.7 4.5
April * 890.3 818.9 8.7
July-October 3342.4 3710.4 -9.9
November-February 3125.9 3481.3 -10.2
March-April 1776.9 1667.6 6.5
* Provisional Source: Federal Bureau of Statistics

categories, machinery, petroleum & petroleum

Fig-2: Import Growth (%) Jul-Apr, 01-02 products and chemicals accounted for almost 54
9
percent of total imports. Considerable structural
4 changes have taken place in some categories of

-1 imports over the years. The share of machinery

has declined on account of sliding investment, but
-6
during 2000-01 its share has increased due to
-11
higher imports of power generating machinery,
Jul-Oct Nov-Feb Mar-Apr
office and textile machinery. The share of
% Change
chemicals depicted a gradual rising trend – rising
from 12.8 percent to 20 percent, while that of
petroleum and petroleum products picked up
Concentration of Imports
from 22.2 percent (1990-91) to 31.3 percent in

Pakistan's imports are highly 2000-01 – mainly on account of rising domestic

concentrated in few items namely, machinery, demand and higher international prices of POL

petroleum & petroleum products, chemicals, products. However, as a result of substantial fall

transport equipments, edible oil, iron & steel, in the prices of POL during July-April, 2001-02, its

fertilizer and tea. These eight categories of share is likely to decline to around 27 percent [See

imports, on average, accounted for about 75 table 9.10].

percent of total imports in the 1990s. Among these

Chapter 9. Trade and Payments

Table 9.10
Pakistan's Major Imports
(Percentage Share)

Ave- 00-01
Commodities 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00
rage

Machinery * 20.5 27.0 24.3 22.0 22.8 21.6 23.1 18.9 17.9 13.9 21.2 19.3

Petroleum &
Products 22.2 15.0 15.5 16.1 15.3 16.8 19.0 15.5 15.5 27.2 17.8 31.3

Chemicals @ 12.8 13.1 12.5 14.4 14.0 15.6 13.4 15.7 16.6 17.5 14.6 20.0

Transport
Equipments
6.7 9.0 12.5 9.7 5.9 4.7 4.7 4.8 5.7 5.5 6.9 4.0
Edible Oil 5.3 4.4 5.9 5.7 9.6 7.3 5.1 7.6 8.7 4.0 6.4 3.1

Iron & Steel 3.3 3.5 3.2 3.8 3.6 4.1 3.9 3.2 3.1 3.0 3.5 2.6

Fertilizer 3.5 2.8 2.5 3.1 1.2 2.9 3.2 2.1 2.8 1.9 2.6 1.6

Tea 2.2 1.9 2.1 2.2 1.8 1.4 1.1 2.2 2.4 2.0 1.9 1.9

Sub-Total 76.5 76.7 78.5 77.0 74.2 74.4 73.5 70.0 72.7 75.0 74.9 83.8

Others 23.5 23.3 21.5 23.0 25.8 25.6 26.5 30.0 27.3 25.0 25.1 16.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

* excluding transport equipments Source: Pakistan's Foreign Trade Key Indicators,

@ Excluding fertilizer Ministry of Commerce

Composition of Imports slow down of investment in the country. The

The composition of Pakistan’s imports
has not witnessed any appreciable change over
the years. The share of raw material for consumer
goods in the total imports continued to be higher
throughout the 1990s — rising from 38 percent
(1991-92) to 55 percent in 2000-01. On the other
hand, the share of raw material for capital goods
was minimum and stagnated at around 6 percent.
The share of capital goods exhibited a declining
trend and came down to 25 percent in 2000-01
from 42 percent in 1991-92 — mainly because of
share of consumer goods averaged at 15 percent
and fluctuated between 13 – 18 percent.
During the current fiscal year (July-
March, 2001-02), the share of raw material for
consumer goods remained flat at 55 percent, while
the share of consumer goods declined from 15
percent to 12 percent. The share of capital goods
together with raw material for capital goods
increased by 2 and 1 percentage points
respectively during this period. The details are
given in table 9.11.
Chapter 9. Trade and Payments

Table 9.11
Composition of Imports
(Rs. Million)
Raw Material For Consumer
Total Capital Goods
Year Capital Goods Consumer Goods Goods
Imports
Value %Share Value %Share Value %Share Value %Share
1990-91 171,114 56,303 33 11,621 7 76,290 44 26,900 16
1991-92 229,889 96,453 42 15,167 7 88,791 38 29,478 13
1992-93 258,643 108,993 42 14,304 6 99,290 38 36,056 14
1993-94 258,250 97,301 38 15,692 6 110,291 43 34,966 13
1994-95 320,892 112,305 35 16,754 5 148,419 46 43,414 14
1995-96 397,575 140,405 35 22,541 6 180,539 45 54,090 14
1996-97 465,001 169,774 37 22,259 5 202,379 43 70,589 15
1997-98 436,338 139,618 32 23,344 5 195,528 45 77,848 18
1998-99 465,964 146,450 31 25,646 6 220,563 47 73,305 16
99-2000 533,792 140,045 26 30,712 6 287,801 54 75,234 14
2000-01 627,000 157,091 25 34,371 6 345,770 55 89,768 14
Jul-Mar
2000-01 459,942 114,237 25 24,106 5 254,103 55 67,496 15
2001-02 * 455,177 123,424 27 28,779 6 249,376 55 53,598 12
* Provisional Source: Federal Bureau of Statistics

Direction of Imports shares of USA, Japan and Germany exhibited

Pakistan is trading with large number of
countries but its imports are coming from few
countries. Almost one-half of Pakistan’s imports
during the 1990s originated from seven countries
namely, USA, Japan, Kuwait, Saudi Arabia,
Germany, UK and Malaysia. By and large, the
relative shares of imports originating from these
countries have remained almost the same. The
declining trends because of the declining share of
capital goods in total imports. On the other hand,
the shares of Pakistan’s imports from Kuwait and
Saudi Arabia depicted a rising trend because of
the growing share of POL products in total import
bills. Import share of Malaysia exhibited rising as
well as falling trends in the 1990s, mainly on
account of fluctuation in palm oil prices [See table
9.12].

Table 9.12
Major Sources of Imports
(% Share)
Country 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01
U.S.A. 11.8 10.5 9.4 10.6 9.4 8.9 12.0 11.2 7.7 6.3 5.3
Japan 13.0 14.3 15.9 11.8 9.6 10.7 8.6 7.8 8.3 6.3 5.3
Kuwait 0.7 0.9 3.3 5.3 5.8 6.4 6.9 5.6 5.9 12.0 8.9
Saudi Arabia 6.2 5.2 5.4 5.4 4.9 5.9 6.0 6.1 6.8 9.0 11.7
Germany 7.3 8.0 7.4 7.7 6.8 5.8 5.6 5.2 4.1 4.1 3.5
U.K. 4.9 5.5 5.2 4.9 5.1 4.4 5.0 4.1 4.3 3.4 3.2
Malaysia 4.0 4.2 5.1 5.5 8.8 7.2 4.7 7.1 6.7 4.3 3.9
Sub-Total 47.9 48.6 51.7 51.2 50.4 49.3 48.8 47.1 43.8 45.4 41.8
Other
Countries 52.1 51.4 48.3 48.8 49.6 50.7 51.2 52.9 56.2 54.6 58.2
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Source: Pakistan's Foreign Trade Key Indicators, Ministry of Co
Chapter 9. Trade and Payments

Trade Deficit million or 2.4 percent of GDP during 1997-98 on

account of sharp decline in imports. Trade deficit
The trade balance on custom basis has stood at $ 1527 million or 2.6 percent of GDP in
fluctuated widely in the 1990s and remained in 2000-01 on account of higher POL imports. Trade
deficit throughout the decade. The trade deficit deficit during the current fiscal year (July-April,
increased from $ 1488 million or 3.3 percent of 2001-02) has improved by 34.3 percent to $ 921
GDP in 1990-91 to $ 3574 million or 5.7 percent of million as against $ 1403 million of the
GDP in 1996-97 — the highest in the 1990s, comparable period last year due to a relatively
mainly due to sharp decline in exports. However, larger decline in imports (-6.9%) than exports
it narrowed by more than one-half to $ 1490 (-1.8%). The trend is documented in fig-3.

Fig-3: Trends in Trade Deficit

3574
8
3128

3500
3098

7
3000
6.1 6
2348

2257

2500 5.7

As % of GDP
US $ Million

4.8 4.9 5
1761

1740
1653
2000
1488

1527
1490

1403
3.7
1500 3.3 3.4
3

921
2.8 2.8 2.6
1000 2.4
2

500 1

0 0
00-01 (Jul-

01-02 (Jul-
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

Apr)

Apr)
Trade Deficit As % of GDP

Terms of Trade 9.13]. The trend depicted by the terms of trade

since 1991-92 is also shown in fig-4.
The terms of trade with base year 1990-91
(equal to 100) has indicated a divergent trend in
the 1990s. It was as low as 90.9 in 1991-92 but Fig-4: Terms of Trade (base year 90-
91=100)
improved substantially by 35.9 percent in 1997-98
when it stood at 123.5. Thereafter, it continued to 130

decline and dipped below the base level at 91.0 in 120

the fiscal year 2000-01, mainly because of the

110
sharp increase in unit prices of petroleum
products & crude in the international market. The 100

terms of trade during July-March, 2001-02 has 90

improved by 1.5 percent and stood at 91.8 over 80

the level of 90.4 recorded in the comparable

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

99-2000

2000-01

2000-01 (Jul-Mar)

2001-02 (Jul-Mar)

period of last year. The export and import unit

value indices during this period reflected a rise of
1.9 percent and 0.4 percent respectively [See table
Chapter 9. Trade and Payments

Table 9.13
Unit Value Indices and Terms of Trade
(Base year 1990-91 = 100)

Unit Value Indices

Year Terms of Trade
Exports Imports
1991-92 119.9 131.9 90.9
1992-93 123.5 133.5 92.5
1993-94 142.9 141.2 101.2
1994-95 168.6 164.2 102.7
1995-96 185.4 185.5 99.9
1996-97 204.8 201.7 101.6
1997-98 245.6 198.9 123.5
1998-99 258.4 223.3 115.7
99-2000 253.8 259.0 98.0
2000-01 271.5 298.4 91.0
July-March
2000-01 267.6 295.9 90.4
2001-02 * 272.7 297.0 91.8
* Provisional. Source: Federal Bureau of Statistics

Trade Policy

The trade policy announced for the fiscal year 2001-02 endeavours to continue previous
year’s objective of greater value addition for sustainable and consistent growth in export earnings.
The focus has been placed on attaining higher degree of product and market diversification by
strengthening institutional support mechanism – thereby reducing anti-export bias and improve
export culture in the country. The policy is guided by the demand led strategy to get higher world
market share for traditional and non-traditional export items. The policy ultimately strives to
upgrade productive capacity of the country and facilitates the new/emerging small and medium
size exporters. The salient features of the trade policy are summarized below:

• Export of wheat and its milling products have been totally deregulated.

• Export of all commodities produced or manufactured in Pakistan, excluding those

manufactured in manufacturing bonds, shall be allowed via land route to Afghanistan
against payment in Pak-rupee. Likewise export of all items and commodities, produced or
manufactured in Pakistan shall be allowed to Afghanistan and through Afghanistan to the
Central Asian Republics against irrevocable letters of credit or advance payment in
convertible foreign currency.
Chapter 9. Trade and Payments

• To encourage export of leather and leather manufactures, the 15 percent duty on finished
leather was withdrawn.

• Value addition norms on export of gold jewellery have been reduced to 5 percent on gold
bangles and chains, 10 percent on other plain jewellery and 15 percent on studded or
embedded jewellery. Furthermore, the display or sale of gold jewellery has also been
allowed in international fairs and exhibitions.

• Export of packeted rice up to 50 Kg has been allowed to avail the facility of export
refinance.

• Export of petroleum & petroleum products have been fully de-regulated except for export
of high speed diesel oil and furnace oil, which can be exported by public sector agencies
only while all other petroleum & petroleum products can be exported freely.

• Government has allowed remittance of tobacco export proceeds within 180 days instead of
standard requirement of 120 days.

• Government has earmarked terminal-II at Karachi airport for one window operation to
encourage exports of perishable items such as fruits and vegetables.

• The scope of re-export to other countries against bank guarantee has been enlarged by
including Heing, Mulathi and Medicinal Herbs imports from Afghanistan.

• Import of second-hand or used surgical equipments like dialysis machines, reverse osmosis
equipment and other electro-medical equipment not more than five years old were
allowed.

• Condition of continuous stay abroad of last six months for importing vehicle by overseas
Pakistanis under transfer of residence scheme has been relaxed by allowing 30 days break
in Pakistan.

• Import of ‘netting cloth’ as foundation garments was allowed.

• To promote photographic activities and to generate more employment in this sector,

import of second hand mini laboratory equipment for automatically developing film and
paper not manufactured locally, has been allowed.

• For import of goods from Kenya, a fee at the rate of one percent of the invoice value of
goods was reduced to 0.5 percent.

• Any goods imported and bonded for re-export as ship stores to a country outside Pakistan
have been exempted from the requirement of furnishing an indemnity bond or a bank
guarantee.

• Import of wheat has also been allowed to the private sector.

• Mobile phones have been made importable by recognized manufacturers and their
Chapter 9. Trade and Payments

authorized agents, apart from the companies having agreement with the government.

• The condition of registration in the name of the importer to import vehicles under transfer
of residence scheme has been reduced from two years to one year. A motor cycle or
scooter has been allowed to be imported upon transfer of residence provided that there
shall be no entitlement to import a vehicle.

Balance of Payments the international community, debt relief through

Over the years, the balance of payments
position remained under pressure. In the 1990s,
Pakistan maintained a relatively large current
account deficit which averaged at 4.5 percent of
GDP or $ 2557 million per annum – mainly
because of persistent deficits prevailing in the
trade and services account. Nevertheless, during
the last two fiscal years (1999-2000 and 2000-01),
the current account deficit (excluding official
transfers) has been reduced to an average of 1.4
percent of GDP or $ 826 million – due to
significant improvement in trade account. The
trade deficit (f.o.b) narrowed by 11.8 percent
which was attributed to better performance of
exports. Buoyancy was observed to the extent of $
804 million or 26.2 percent in the inflow under
private unrequited transfers which was largely
attributed to 10.5 percent increase in workers
remittances. Consequently, the current account
deficit reduced sharply (55.5%) to $ 509 million or
0.9 percent of GDP from the level of $ 1143 million
or 1.9 percent of GDP in 1999-2000. The deficit in
services account, however, widened by 12.0
percent on account of higher payments of $ 292
million. The year ended with a sound built up of $
1014 million in foreign exchange reserves.
The overall balance of payments position
during the outgoing fiscal year (2001-02)
witnessed a significant improvement despite the
adverse external environment caused by the
events of September 11. The favourable
turnaround was attributed to a number of factors
which include; lifting of economic sanctions by
debt rescheduling, increased inflow of
institutional assistance and quota concessions
extended by the European Union. Under the
combined impact of these developments, the
major components of balance of payments posted
significant improvement. The current account
balance (excluding official transfers) during July-
March, 2001-02 emerged with a sizable surplus of
$ 913 million or 1.5 percent of projected GDP, as
against a deficit of $ 746 million recorded in the
same period last year. However, including official
transfers, the current account balance recorded a
surplus of $ 2095 million or 3.4 percent of
*
projected GDP . The positive upturn in current
account balance stemmed from a combination of
factors, including significant improvement in
trade balance, sharp increase in the inflow of
workers remittances, and substantial increase in
official transfers.
The trade deficit (f.o.b) during this period
fell steeply by 75.7 percent to $ 286 million over
the level of $ 1177 million of last year – primarily
on account of 10.9 percent fall in imports, caused
by the sharp decline in international prices of POL
as well as $ 231 million savings from sugar and
soyabean oil imports. The deficit in services
account narrowed by 26.7 percent and aggregated
at $ 1810 million as against $ 2469 million in the
same period last year. The inflow under private
transfers rose by 3.8 percent to $ 3009 million,
largely resulting from sharp increase in workers
remittance. The long term capital net improved
markedly and turned surplus at $ 526 million
from the deficit of $ 246 million of last year. After
Chapter 9. Trade and Payments

making all the adjustments, the outgoing fiscal $ 1780 million in foreign exchange reserves [See
year (July-March) ended with a strong built up of table 9.14].
_________________________________________________________________________
*: The current account balance (both including and excluding official transfers) numbers are not comparable with the
one presented by the IMF because of different treatment accorded to outright purchases from the Kerb market.
Table 9.14
Balance of Payments
($ Million)
July-March
Components 1999-2000 2000-01
2000-01 2001-02 (P)
Trade balance -1412 -1246 -1177 -286
Exports (fob) 8190 8925 6582 6628
Imports(fob) -9602 -10171 -7759 -6914
Services (net) -2794 -3130 -2469 -1810
Private transfers (net) 3063 3867 2900 3009
Workers remittances 983 1087 855 1629
Current account balance
Excluding official transfers -1143 -509 -746 913
Including official transfers -217 331 -82 2095
Long term capital (net) 525 55 -246 526
Changes in reserves (- = Increase) -71 -1014 -82 -1780
P: Provisional Source: State Bank of Pakistan.
Workers Remittances labour demand – from unskilled/semi skilled to
skilled and while collar workforce, decline in
Workers remittances in the 1990s depicted wages of unskilled/semi skilled labour, and
a declining trend with the exception of few years. higher rate of premium that prevailed in the open
The inflow has gradually been reduced to almost market exchange rate. In recent years, particularly
one half in the decade – declining from $ 1848 after the freezing of foreign currency accounts in
million in 1990-91 to $ 983 million in 1999-2000 May 1998, the large gap between the inter-bank
[See fig-5]. The main factors responsible for the and open market exchange rate discouraged ex-
decline in the inflows of remittances appear to be patriate Pakistanis to send their remittances
the declining pace of construction activity in the through the official banking channels.
oil rich countries, the changing composition of
Chapter 9. Trade and Payments

Workers remittances were targeted at $ September), remittances on average were up by

1.3 billion in the current fiscal year 2001-02 – 19.6 14.7 percent per month. Thereafter, inflows
percent higher than last year. During the first ten jumped sharply and during the next six months
months (July-April) of the current fiscal year, (October-March), remittances averaged at $ 213
remittances amounted to $ 1865.4 million as million per month, as against $ 76 million in the
against $ 922.0 million in the same period last year same period last year. Further acceleration was
– thus registering an increase of 102.3 percent. The witnessed in the month of April, 2002 when
target for current fiscal year has already been remittances climbed to $ 238.8 million, against $
achieved. If this trend continues, there is 67.4 million of the same month last year and
possibility that remittances may cross $ 2.2 billion registered all time record increase of 254.3 percent
by the end of the current fiscal year. Further [See table 9.15].
analysis reveals that during the first quarter (July-

Table 9.15
Workers Remittances
($ Million)
July-April

Months 2001-02 2000-01 % Increase

July 84.7 76.3 11.0
August 88.2 78.2 12.8
September 91.2 75.9 20.2
October 185.5 80.9 129.3
November 259.9 73.4 254.1

Fig-5: Workers Remittances ($ Million)

1865
1866
1848

2000
1562

1490
1467

1461
1446

1409

1500
1060

1087
983

922

1000

500

0
00-01 (Jul-

01-02 (Jul-
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

Apr)

Apr)

December 189.6 73.7 157.3

January 180.6 80.5 124.3
Chapter 9. Trade and Payments

February 236.3 78.2 202.2

March 227.2 66.5 241.7
April 238.8 67.4 254.3
July-April 1781.9 750.9 137.3

Total remittances including

Hajj and War compensation
(July-April) 1865.4 922.0 102.3
Source: State Bank of Pakistan

In the month of August 2001, cash USA has emerged as the largest source of cash
remittances from USA stood at $ 16.1 million, remittances. In April, 2002, remittances from USA
while from Saudi Arabia and U.A.E. cash mounted to $ 90.8 million followed by Saudi
remittances were $ 24.2 million and $ 23.4 million Arabia ($ 42.6 million) and U.A.E. ($ 27.2 million)
respectively. However, after September 11 events, [See table 9.16].
Table 9.16
Workers Cash Remittances
($ Million)
Month Kuwait Saudi Arabia U.A.E Dubai U.K U.S.A
January, 2001 25.0 * 21.5 11.6 5.9 7.6 11.4
February 3.7 22.7 10.5 6.2 7.6 11.9
March 3.1 18.9 9.5 6.5 6.6 9.3
April 3.2 24.2 9.0 5.7 4.3 10.2
May 3.2 24.8 10.7 6.3 6.8 12.8
June 3.4 24.5 13.0 9.7 7.1 16.6
July 3.2 23.8 11.4 7.2 6.4 16.7
August 4.4 24.2 23.4 10.7 6.9 16.1
Total 49.2 184.6 99.1 58.2 53.3 105.0
Average 6.1 23.1 12.4 7.3 6.7 13.1
September 4.9 37.3 62.4 30.2 9.4 17.4
October 5.2 29.4 38.7 30.4 12.8 57.4
November 8.7 29.2 57.8 37.8 13.6 97.2
December 8.2 26.1 28.2 20.0 12.1 69.2
January, 2002 7.4 28.6 30.1 22.2 14.1 58.5
February 9.0 27.4 40.1 32.3 13.2 81.9
March 9.4 33.0 56.0 47.9 15.1 69.5
April 9.9 42.6 27.2 17.1 18.1 90.8
Total 62.7 253.6 340.5 237.9 108.4 541.9

Average 7.8 31.7 42.6 29.7 13.5 67.7

Chapter 9. Trade and Payments
* Includes Iraq – Kuwait war affectees $ 20.2 million
Many factors contributed to the sharp
acceleration in the inflow of remittances which
include: improvements in economic
fundamentals, confidence of expatriate Pakistanis
on the economic management of the country,
crackdown on hundi/hawala system in the
Middle East and other parts of the world, virtual
elimination of premium between the inter-bank
and open market exchange rates. Pakistani banks
in foreign countries also pursued aggressive
policy and motivated people to send their
remittances through banking channel.
Foreign Exchange Reserves
The foreign exchange reserves held by the
State Bank of Pakistan have widely fluctuated in
the 1990s. The reserves picked from low level of $
529 million on end June, 1990 to a maximum of $
2737 million by end June, 1995 – mainly on
account of one time sale of Pakistan
Telecommunication Vouchers amounting to $ 862
million. Thereafter it gradually declined and
stood at $ 930 million by end June, 1998. But as a
result of macro-economic stability attained
through effective management, the dwindling
reserves position improved and by end June,
2001, reserves totaled at $ 2076 million. The
foreign exchange reserves held by the State Bank
of Pakistan continued to rise during the current
fiscal year as well. By end May, 2002, reserves
touched all time high at $ 4125 million, showing
tremendous increase of 98.7 percent over the level
of end June, 2001.
In order to further liberalize the foreign
exchange regime in the country, the mandatory
requirement imposed upon the commercial banks
on June 2, 1999 for placement of their foreign
currency deposits with the State Bank of Pakistan
was withdrawn with effect from 2nd April, 2001.
Source: State Bank of Pakistan.
Accordingly the foreign currency deposits
mobilized by commercial banks from resident and
non resident Pakistanis under FE 25 were no
longer required to be rendered to the State Bank
of Pakistan and the banks were asked to freely use
these deposits either in Pakistan or abroad. This
decision was taken to ensure that neither the
present nor the future governments will be able to
utilize these deposits for financing current
account deficits. The State Bank of Pakistan
however, continues to exercise its oversight to
ensure that the banks use these deposits in a
prudent way as the banks have been prohibited
from placing these deposits in junk bonds or other
high risk instruments. The banks also enjoy
freedom to remunerate the deposits in line with
the international market rates.
In view of these developments and to
present the country’s foreign reserves position in
a transparent, and comprehensible manner in
accordance with the current practices of other
Central Banks in the region, the State Bank of
Pakistan since 7th April, 2001 is preparing and
disclosing the foreign reserves position in the
following manner:
i) Foreign reserves held by the State
Bank of Pakistan.
ii) Foreign reserves held by banks
(other than SBP)
iii) Total liquid foreign reserves
According to this method of presenting
foreign exchange reserves, Pakistan’s total liquid
foreign reserves amounted to $ 5566 million on
June 1, 2002. Of which, foreign exchange reserves
held by the State Bank of Pakistan amounted to $
3663 million and foreign reserves held by banks
Chapter 9. Trade and Payments

(other than SBP) stood at $ 1903 million. At the
beginning of the current fiscal year (July 03, 2001)
the total liquid foreign reserves stood at $ 3160
million, of which, $ 1643 million were held by the
State Bank of Pakistan and $ 1517 million were
with banks (other than SBP). Thus, during this
period total liquid foreign reserves increased by $
2406 million or 76.1 percent.
The build-up in foreign exchange reserves
is the direct outcome of the government’s
macroeconomic policies that have been pursued
over the last two and-a-half years. Improvements
in the trade and current account balances,
substantial increase in private flows, availability
of grant assistance, and inflow of assistance from
donor agencies are responsible for the reserves’
build-up. The contribution of purchases in
building reserves is, at best, minimal.
Exchange Rate
Pak-rupee against US dollar in the fiscal
year 2000-01 depreciated by almost 17 percent
both in the inter-bank and open market, while
premium averaged at around Rs 3/$ or 5 percent.
The exchange rate during the current fiscal year
remained stable both in inter-bank and open
market. The stability of Pak-rupee was attributed
to proactive management of foreign exchange
market by the State Bank of Pakistan. However,
after the events of September 11, Pak rupee
against US dollar continued to appreciate with the
surge in private inflows as it improved the supply
of foreign exchange in the inter-bank. To prevent
further appreciation in exchange rate the State
Bank of Pakistan continued to intervene in the
market by mopping up excess supply of foreign
exchange. In the meantime, the difference
between the open market and inter-bank
exchange rates was almost eliminated which
encouraged ex-patriate Pakistanis to send their
remittances through the official banking channel.
The inter-bank and open market rates at the end
of April, 2002 averaged at Rs. 60.1 and Rs 60.3 per
US dollar respectively. Thus, the rupee has
appreciated by around 7 percent in inter-bank and
11 percent in open market since the beginning of
the current fiscal year and until April, 2002. The
sharp build up in foreign exchange reserves
strengthened Pakistani rupee viz. US dollar [See
table 9.17].

Table 9.17
Exchange Rates and Premium
(Rs/US$)
Month(2001-02) Inter-Bank Rate Open Market Rate Premium (Rs.) Premium (%)
July 64.1 67.2 3.1 4.8
August 64.1 67.0 2.9 4.5
September 64.1 67.0 2.9 4.5
October 62.2 62.7 0.5 0.8
November 61.1 61.5 0.4 0.7
December 60.6 60.9 0.3 0.5
January 60.2 60.9 0.7 1.2
February 60.2 59.8 -0.4 -0.7
March 60.1 60.3 0.2 0.3
April 60.1 60.3 0.2 0.3
Source: State Bank of Pakistan & E.A.Wing, Finance Division.
Chapter 9. Trade and Payments
Euro Currency
A single euro currency was introduced on
1st January, 2002 in 12 European Union countries
of Austria, Belgium, France, Finland, Germany,
Greece, Holland, Italy, Ireland, Luxembourg,
Portugal and Spain. The currencies of these
individual countries are to be withdrawn from
circulation both from the international market and
from the local foreign exchange market. However,
_________________________
UK, Denmark and Sweden have not yet joined
the European Monetary Union.
Pak-rupee exchange rate in terms of one
unit of euro during January, 2002 averaged at Rs
53.2444. The exchange rate of euro against rupee
remained weak since its introduction. In the
month of April, 2002, the parity averaged at Rs
53.2157, showing marginal appreciation of Pak
rupee by 0.1 percent, over January, 2002..
Chapter 10. Foreign Economic Assistance

10. Foreign Economic Assistance

The decade of the 1990s has seen
substantial increase in external debt and foreign
exchange liabilities primarily owing to
developments in the fiscal and external accounts
of the balance of payments. The causes of rapid
growth in external debt and foreign exchange
liabilities are multifaceted. They include
persistence of large fiscal and current account
deficits; imprudent use of borrowed resources,
such as wasteful government spending,
borrowing for financing current expenditure,
undertaking of low priority development projects,
and poor implementation of foreign aided
projects; weakening of debt carrying capacity in
terms of stagnant or declining real government
revenues & exports; and rising real cost of
government borrowing, both domestic and
foreign. Another source of rising debt has been
the changing nature of composition of debt – that
is, from grant and soft term assistance to hard
term loans. The growing external debt and foreign
exchange liabilities have had serious implications
for debt service obligations which squeezed the
net inflow of resources available for
developmental activities in the country. The
various aspects of foreign economic assistance
and country’s external debt burden have been
reviewed in the subsequent pages.
Commitments
The commitments of foreign aid exhibited
a declining trend in the 1990s, especially in the
second half, - declining from $ 3025 million in
1994-95 to $ 1759 million in 1996-97 because of the
decline in global saving and subsequent poor
international aid environment. The economic
sanctions further clouded the aid commitments
and it declined to as low as $ 665 million in 1999-
2000. Nevertheless, the restoration of relationship
with the International Financial Institutions (IFIs)
improved the environment of aid commitments
and during the current fiscal year (2001-02), these
are expected to improve substantially to $ 3935
million. The commitments by use and type of aid
since 1994-95 are given in Table 10.1.

Table 10.1
Commitments of Aid by Use
($ Million)
1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001-
95 96 97 98 99 00 01 02 (E)
I. Project Aid 2714 2219 1351 776 1382 260 193 1815
II. Non-Project Aid 311 462 408 1330 837 405 916 2120
a) Non-Food 3 57 1 751 650 0 914 2060
b) Food Aid 279 395 405 578 185 403 0 40
c) Relief Assistance
for Afghan Refugees 29 10 2 1 2 2 2 20
Total (I + II) 3025 2681 1759 2106 2219 665 1109 3935
E: Estimated Source: Economic Affairs Division
Chapter 10. Foreign Economic Assistance

Disbursements Financial Institutions, the aid environment has

The disbursements of foreign aid with
some fluctuations have continued to decline in the
1990s as a result of the poor international aid
environment. The disbursements declined by 33.8
percent over the last decade —declining from $
2156 million to $ 1428 million. However, with the
restoration of relationships with the International
improved. As a result, a sum of $ 2384 million is
expected to be disbursed during 2001-02, which
would be higher by 49.1 percent over the last
year’s level, of $ 1599 million, mainly due to
higher disbursements of non-food aid and relief
assistance for Afghan refugees. The position of
disbursements by type and use of aid since 1995-
96 is summarized in Table 10.2.

Table 10.2
Disbursements of Aid by Use
($ million)
1995-96 1996-97 1997-98 1998-99 99-2000 2000-01 2001-02
(E)
I. Project Aid 2151 1821 1552 1620 1110 919 798
II. Non-Project Aid 414 412 1249 822 318 680 1586
a) Non-Food 21 1 626 550 125 678 1535
b) Food Aid 383 409 622 270 191 0 31
c) Relief Assistance for
Afghan Refugees 10 2 1 2 2 2 20
Total (I+II) 2565 2233 2801 2442 1428 1599 2384
E: Estimated Source: Economic Affairs Division

Debt Service Payments and Net Transfers
The aid flows, instead of being utilized to
build up the productive capacity of the economy,
are increasingly being utilized for debt service
payments. The increased liability of debt service
payments has squeezed the net inflow of foreign
resources. The net transfers of aid in the 1990s
averaged at $ 534 million per annum. It was as
high as $ 853 million in 1991-92 but turned
negative by $ 34 million in 1996-97 due to decline
in disbursements and relatively more growth in
debt service payments. However, it improved to $
910 million during 1998-99 due to lower debt
servicing, resulting from debt rescheduling. Net
transfers, however, turned negative again to the
extent of $ 364 million in 2000-01 due to lower
disbursements but are estimated to improve
substantially to $ 1383 million in 2001-02 due to
improved aid environment. The annual details are
given in Table 10.3.
The net transfer of foreign aid as percent
of gross disbursements in the 1990s has
continuously been declining until 1996-97 due to
steep rise in debt service payments. The net
transfer of foreign aid was 36 percent of the gross
disbursements in 1990-91 but turned negative by
one percent in 1996-97. It improved to 16 percent
during 1997-98 because of the greater inflow of
loans & food aid and further to 37 percent in 1998-
99 due to lower debt service payments as a result
of debt rescheduling. However, it again turned
into negative by 6 percent and 23 percent in 1999-
2000 and 2000-01, respectively due to lower
disbursements but projected to revive
significantly to 58 percent in 2001-02 due to higher
disbursement of non-project aid. The ratios of net
Chapter 10. Foreign Economic Assistance

annual transfers as percent of gross disbursements are shown in Fig-1.

Table 10.3
Debt Servicing and Net Transfers
($ million)
Gross Net Transfers NT as % of Gross
Year Debt Servicing **
Disbursements* (N.T) Disbursements
1990-91 2045 1316 729 36
1991-92 2366 1513 853 36
1992-93 2436 1648 788 32
1993-94 2530 1746 784 31
1994-95 2571 2042 529 21
1995-96 2555 2136 419 16
1996-97 2231 2265 (-) 34 (-) 1
1997-98 2800 2353 447 16
1998-99 2440 1530 910 37
99-2000 1426 1512 (-) 86 (-) 6
2000-01 1597 1961 (-)364 (-)23
2001-02 (E) 2364 981 1383 58
* Excluding relief assistance for Afghan refugees Source: Economic Affairs Division.
** Excluding interest on short-term borrowings and IMF charges. Data since 1999-2000 onward is
inclusive of IMF & bonds.
E. Estimated.

these, the Aid-to-Pakistan Consortium formulated

Fig-1 : Net Transfers as percent of in 1960, now renamed as 'Pakistan Development
Gross Disbursements
Forum' (including assistance from Consortium
70
60
sources under outside Consortium arrangements)
50 is still the largest source of economic assistance to
40
30
Pakistan by providing 84 percent of the total
20 commitments. Of this, 46 percent was on bilateral
10
0
and 38 percent on multilateral basis. The members
-10 of non-Consortium provided 8 percent while
-20
-30
Islamic countries contributed 5 percent to total
99-2000

2000-01

2001-02
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

foreign economic assistance. The share of relief

NT as % of Gross Disbursements assistance for Afghan Refugees was 3 percent. The
share of Consortium sources (excluding aid under
outside Consortium arrangements and relief
Sources of Aid assistance) in total commitments is likely to be
around 55.7 percent during 2001-02. Source-wise
The major sources of foreign economic commitments and disbursements are summarized
assistance to Pakistan have been the Consortium, in Table 10.4.
non-Consortium and Islamic countries. Among
Chapter 10. Foreign Economic Assistance

Table 10.4
Sources of Foreign Aid *
($ million)
Commitments Disbursements
% 2001-02 % % 2001-02 %
2000-01 2000-01
Share (E) Share Share (E) Share
Consortium 1053 94.9 2190 55.7 1512 94.6 1614 67.7
Non-Consortium 10 0.9 1346 34.2 61 3.8 689 28.9
Islamic Countries 44 4.0 379 9.6 24 1.5 61 2.6
Sub Total 1107 99.8 3915 99.5 1597 99.9 2364 99.2
Relief Assistance
For Afghan Refugees
2 0.2 20 0.5 2 0.1 20 0.8
Total 1109 100.0 3935 100.0 1599 100.0 2384 100.0
* Excluding short-term credits of one and less than one year maturity. Source: Economic Affairs Division
E: Estimated

Project Vs Non-Project Aid
The share of project aid in the 1990s
averaged 73 percent per annum with annual
fluctuation in the range of 55-84 percent. The
share of non-project aid during the same period
fluctuated even more widely (16-45 percent) and
averaged at 27 percent per annum. The share of
project aid during 2000-01 was 57.5 percent,
which is expected to decline to 33.5 percent in
2001-02 due to difficulties in counterpart
financing. The share of non-project aid on the
other hand is likely to increase from 42.5 percent
in 2000-01 to 66.5 percent during 2001-02 due
mainly to higher disbursement of the programme
loans [See table 10.5 and fig-2].

Table 10.5
Disbursement of Project and Non-Project Aid
($ Million)
Project % Non-Project %
Year Total
Aid Share Aid Share
1990-91 1,408 65.3 748 34.7 2,156
1991-92 1,766 71.5 705 28.5 2,471
1992-93 1,895 76.0 598 24.0 2,493
1993-94 1,961 76.9 588 23.1 2,549
1994-95 2,079 80.0 521 20.0 2,600
1995-96 2,151 83.9 414 16.1 2,565
1996-97 1,821 81.5 412 18.5 2,233
1997-98 1,552 55.4 1249 44.6 2,801
1998-99 1,620 66.3 822 33.7 2,442
99-2000 1,110 77.7 318 22.3 1,428
2000-01 919 57.5 680 42.5 1,599
2001-02 * 798 33.5 1586 66.5 2,384
* Estimated Source: Economic Affairs Division
Chapter 10. Foreign Economic Assistance
Fig-2: Disbursements of Project & Non-Project Aid
3000
2500
2000
($ Million)
1500
1000
500
90-91
91-92
92-93
93-94
94-95
Total
Composition of Aid
The composition of aid over the years has
considerably changed from grants and grant like
assistance to hard term loans. The share of grant
and grant like foreign assistance in total
commitments was 80 percent during the First Five
Year Plan (1955-60) but dropped to 46 percent
during the Second Plan (1960-65) and continued
to decline thereafter, averaging 32 percent during
the Third Plan (1965-70) and 10 percent during the
Fourth Plan (1970-75). However, due to the relief
assistance for Afghan refugees, its share increased
to about 22 percent during the Fifth Plan (1978-83)
and remained almost the same during the Sixth
Plan (1983-88). The share of grants and grant like
assistance continued to exhibit a declining trend
thereafter and averaged at 16 percent during the
Seventh Plan (1988-93) and only 9 percent during
Eighth Plan (1993-98). It however, increased to 13
percent in 1998-99 and further to 18 percent
during 1999-2000, but likely to reach to 34 percent
during 2001-02 due to higher inflow of assistance
from donor agencies.
Terms of Loans and Credits
The terms of foreign loans and credits
have significantly become harder over the years.
99-2000
2000-01
2001-02
95-96
96-97
97-98
98-99
Project Aid Non-Project Aid
The terms and conditions of the loans and credits
were soft during the 1960s and the 1970s, as
compared to the terms of the 1950s. During the
1980s and the 1990s these terms have been made
somewhat more harder. The rate of interest,
which averaged at about 4.6 percent during the
1950s, declined to 3.3 percent during the 1960s
and 3.6 percent during the 1970s, but increased to
4.8 percent and 4.4 percent during the 1980s and
1990s, respectively. The payment period of the
loans/credits during the 1950s was 21 years with
a grace period of 2 years, which improved to 30
years with a grace period of 7 years during the
1960s, but reduced to around 25 years with a
grace period of 6 years during the 1970s.
Repayment period, however, improved to 28
years including a grace period of 7 years in the
1980s but declined to 21 years including a grace
period of 6 years during the 1990s. During 2000-
01, the repayment period was 24 years including a
grace period of 6 years. The terms of loans and
credits became harder as not only the grant
element has become quite insignificant but the aid
also became donors driven i.e. on the pre-
specified terms and conditions of the donors.
Furthermore, the commercial loans were available
only on higher interest rates. By and large, the
hardening of terms reflected by higher average
interest rates and lower average maturity periods
Chapter 10. Foreign Economic Assistance

of the loans have adversely affected Pakistan's reliance on short-term borrowing in the later half
external debt servicing. of the decade. As shown in Fig-3 and Table 10.6,
medium and long term external debt remained
Stock of External Debt flat and did not show any increase during 1999-
(Medium & Long-Term) 2000 to 2001-02.

Pakistan’s accumulated disbursed and The external debt to GDP ratio has
outstanding external debt (medium & long-term exhibited a fluctuating trend during the 1990s. It
and publicly guaranteed) by end March, 2002 was was 34 percent in 1990-91 but increased to 41
around $ 26.3 billion. The stock of external debt percent in 1999-2000 due to addition of capitalized
during 1990-91 was $ 15.5 billion and reached to $ interest in debt stock as a result of debt
25.4 billion by the end of 1999-2000, reflecting a rescheduling agreements with the donors. The
net increase of $ 9.9 billion or 63.9 percent at the ratio further moved upward to 43.7 percent
end of 1990s. In other words, almost one billion during 2000-01 on account of second Paris Club
US dollar of external debt was accumulated every rescheduling. As percentage of export earnings,
year in the 1990s. External debt has grown at an external debt has remained in the range of 252 to
average rate of 5.4 percent per annum during the 327 percent during the 1990s, which is
1990s with 8.0 percent per annum during the first significantly higher than the sustainable limit of
half and almost 2.9 percent per annum in the 225-250 percent. The ratio during 2000-01
second half of the 1990s, mainly due to heavy remained around 278 percent.

Fig-3: Debt Outstanding

30000 (Medium & Long-Term ) 60.0

26264
25555
25423

25359

55.0
22844

25000
22509
22292
22117

50.0

(As % of GDP)
20322
($ Million)

45.0
19044

20000
17361

43
43

.7

40.0
41
.3

.4
15471

39
37

36
.3

35.0
36
36
.1

.8
35

15000
35

.1
.6
.8

.3
34
.0

30.0

10000 25.0
2001-02 (Jul-
99-2000

2000-01
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

Mar)

Debt Outstanding As % of GDP

Pakistan's debt servicing liability has also period of loans are mainly responsible for steady
shown a rising trend in the 1990s – increasing increase in debt servicing liability. However, due
from $ 1316 million in 1990-91 to $ 2353 million in to the debt relief from the "Paris Club" and "Non-
1997-98, thereby registering an average increase of Paris Club" donors/ countries, debt servicing
8.5 percent per annum. Annual accumulation of during 1998-99 and 1999-2000 has dropped to $
external debt, higher cost, and lower maturity 1530 million and $ 1512 million respectively.
Chapter 10. Foreign Economic Assistance

During July-March 2001-02, it amounted to $ 981 Debt servicing as percent of GDP has
million. The trend in debt service payments is increased from 2.9 percent in 1990-91 to 3.8
portrayed in Fig-4. percent in 1997-98 and remained almost at the
same level (3.3%) during 2000-01. As percentage
Fig-4: Debt Service Payments
of export earnings, the debt servicing has also
($ Million)
3000
increased from 21.5 percent in 1990-91 to 27.3

2353
2265
2136

2500 percent in 1997-98, which is higher than the

2042

1961
1746

2000 sustainable limits of 20-25 percent. It, however,

1648

1530

1512
1513
1316

1500
declined to 19.7 percent in 1998-99 and further to

981
17.6 percent during 1999-2000 due to debt relief as
1000

a result of rescheduling. It was up at 21.3 percent

500
during 2000-01. The annual details of stock of debt
0
(medium & long-term) since 1990-91 are given in
99-2000

2000-01

2001-02 (Jul-Mar)
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

Table 10.6.
Debt Service Payments

Table-10.6
External Debt (Medium and Long-Term)
($ Million)
90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00-01
Items
91 92 93 94 95 96 97 98 99 00
Disbursed & out-
standing debt* 15,471 17,361 19,044 20,322 22,117 22,292 22,509 22,844 25,423 25,359 25,555
Debt Servicing** 1,316 1,513 1,648 1,746 2,042 2,136 2,265 2,353 1,530 1,512 1,961
- Principal 782 921 999 1,078 1,294 1,346 1,520 1,623 1,065 893 1,273
- Interest 534 592 649 668 748 790 745 730 465 619 688
Debt Servicing as
% of FEE *** 13.7 13.2 15.3 16.2 16.5 16.7 17.6 17.6 13.6 11.9 13.8
As % of GDP
Outstanding 34.0 35.8 37.1 39.3 36.6 35.3 36.1 36.8 43.3 41.4 43.7
Debt
Debt Servicing 2.9 3.1 3.2 3.4 3.4 3.4 3.6 3.8 2.6 2.5 3.3
As % of Export Earnings
Outstanding 252.3 251.5 279.5 298.7 271.8 256.0 270.5 264.8 326.8 295.9 277.7
Debt
Debt Servicing 21.5 21.9 24.2 25.7 25.1 24.5 27.2 27.3 19.7 17.6 21.3
* Regular debt (medium & long term) payable in foreign exchange only. Source: Economic Affairs Division
** Excluding interest on short-term borrowings and IMF charges. Data since
1999-2000 onward is inclusive of IMF & bonds.
*** Foreign Exchange Earnings.
Chapter 10. Foreign Economic Assistance

Total Stock of External Debt
Pakistan's total stock of external debt and
foreign exchange liabilities as on March 31, 2002
stood at $ 36.0 billion – almost $ 2 billion lower
than end June, 2000. Of which, medium and long-
term debt is $ 28.2 billion; short-term debt is $ 0.2
billion; private non-guaranteed & IMF debt is $
2.0 billion & $ 1.8 billion respectively; and other
foreign exchange liabilities are $ 3.8 billion [See
table 10.7]. Medium and long-term debt is 78.3
percent of total debt. While short-term debt
accounts for only 0.6 percent, private non-
guaranteed & IMF debt is 5.6 percent and 5.0
percent, respectively of total debt. Other foreign
exchange liabilities are 10.5 percent of total debt.
In other words more than three-fourth of
Pakistan’s external debt is of medium-to-longer
term maturities. Within medium and long-term
debt of $ 28.2 billion, multilateral debt of World
Bank, the Asian Development Bank etc., stood at $
13.3 billion and bilateral external debt amounts to
$13.0 billion. In other words, almost 37 percent of
our total debt is from multilateral sources. Almost
36 percent of our total debt is of bilateral nature.
Within bilateral debt of $ 13.0 billion, Paris Club
countries' debt amounts to $ 12.5 billion while
non-Paris Club debt amounts to only $ 0.5 billion.

Table 10.7
External Debt and Foreign Exchange Liabilities
($ Billion)
End June End
Items 1980 1990 1996 1997 1998 1999 2000 2001 Mar
2002
1.Public & Publicly Guaranteed Debt 8.7 18.2 25.9 25.5 25.8 28.3 27.9 28.1 28.4
A. Medium & long term (Paris Club,
Multilateral & Bilateral) 8.7 14.7 22.3 22.5 22.8 25.4 25.4 25.6 26.3
B. Other medium & long term (Bonds,
Military & Commercial) 0 2.7 2.1 1.9 1.6 1.6 2.4 2.3 1.9
C. Short term (IDB) 0 0.8 1.5 1.1 1.4 1.3 0.1 0.2 0.2
2. Private non-guaranteed debt 0.1 0.3 2.4 2.7 3.1 3.4 2.8 2.5 2.0
3. IMF 0.7 0.7 1.5 1.3 1.4 1.8 1.5 1.5 1.8
Total External Debt (1 through 3) 9.5 19.2 29.8 29.5 30.3 33.5 32.2 32.1 32.2
4. Foreign Exchange Liabilities * 0.4 2.7 9.1 11.0 12.4 4.1 5.7 5.0 3.8
- Foreign Currency Accounts (0.1) (2.1) (8.3) (9.8) (10.9) (1.4) (1.7) (1.1) (0.7)
Total Debt and Liabilities (1 through 4) 9.9 21.9 38.9 40.5 42.7 37.6 37.9 37.1 36.0
* Foreign Exchange Liabilities from 2000 onward are inclusive Source: Debt Management Committee Report
of National Debt Retirement Programme and SWAP (From 1980 to 1999) & State Bank
of Pakistan (from 2000 onward)

Rescheduling of Debt 1999 to December, 2000. The second debt

Pakistan has successfully negotiated a
rescheduling of its external debt with the Paris
Club in December, 2001. This has been the third
rescheduling since January, 1999. The first
rescheduling agreement was reached in January,
1999 for its debt amounted to $ 3.0 billion, payable
during the consolidation period from January 1,
rescheduling agreement was signed in January,
2001 for debt service payments falling due during
the period from January 1, 2001 to September 30,
2001. The approximate amount of debt relief
under this agreement was $ 1.8 billion. These two
reschedulings were ‘flow’ rescheduling which
limit rescheduling to the debt servicing (principal
plus interest) falling due within a specified period
Chapter 10. Foreign Economic Assistance
(consolidation period) which usually coincides
with a country’s programme with the IMF. The
flow rescheduling provides temporary relief as
after the consolidation period, the magnitude of
debt servicing reverts to the former high level.
The issue of debt overhang is only deferred but
not resolved.
Unlike the previous two rescheduling the
third one received ‘stock’ treatment, which takes
into account the entire outstanding stock
(principal plus accumulated arrears) and
reprofiles it to over an extended period of time.
Stock treatment is rare as it is restricted by the
Paris Club to only Highly Indebted Poor
Countries (HIPC). Pakistan has been the fourth
non-HIPC country to get stock treatment of its
debt beside Egypt, Poland and Yugoslavia. It is
important to note that Pakistan did not seek
standard Paris Club terms such as Houston,
Naples or Cologne, rather it negotiated special
terms which were Pakistan specific. It is also
important to note that multilateral debts are not
reschedulable. It is the bilateral Paris Club debt
which received stock treatment during the third
rescheduling.
The total stock of bilateral debt, eligible
for debt rescheduling, as on September 30, 2001
has been $ 12.5 billion, of which, $ 8.8 billion was
ODA (Official Development Assistance) and the
remaining $ 3.7 billion was non-ODA. Under the
Paris Club agreement, the rescheduled ODA debt
will be repayable in 38 years including a grace
_______________
period of 15 years, while the non-ODA debt will
be repayable over a period of 23 years including 5
years grace period. The Paris Club has also
allowed Pakistan to negotiate reduction in interest
rates with bilateral creditors.
The Paris Club debt rescheduling has
provided substantial debt relief to Pakistan. On
the basis of ODA interest rate of 2.3 percent and
non-ODA interest rate of 4.0 percent, Pakistan will
be saving $ 1.047 billion during the current fiscal
year (2001-02); $ 2.7 billion during three years
(2001-02 to 2003-04); and $ 8.5 billion during the
grace period of ODA debt (2001-02 to 2016-17).
Any further reduction in bilaterally negotiated
interest rates would increase the savings in debt
servicing.
As a result of the debt rescheduling, the
implied Net Present Value (NPV) reduction of
external debt is estimated at 27 percent. Prior to
debt rescheduling the NPV of the stock of external
debt was 334 percent of exports of goods and
services. Although the final calculation is in
progress, the preliminary estimates suggest that
in NPV terms, Pakistan’s external debt during the
fiscal year 2001-02 would stood at 244 percent of
exports of goods and services.
The Paris Club debt rescheduling has
opened avenue for Pakistan to achieve debt
sustainability. However, the sustainability of debt
will depend upon the performance of Pakistan’s
exports of goods and services in years to come.
Chapter 11. Education
11. Education
Introduction
Education is the cornerstone of broad-
based economic growth and poverty reduction.
No nation can take advantage of trade and
development opportunities in a technology-
driven and rapidly integrating economy without
making major advances in education. At the same
time, without rapid and substantial improvement
in access to and quality of education broader
poverty reduction efforts will be blunted.
Education offers an escape from poverty by
empowering people and enhancing opportunities
for greater participation in the labour market.
Globally, almost all the countries attach
highest priority to education owing to its
complementarities with important sectors of the
economy. The Government of Pakistan accepts
education as one of the fundamental rights of a
citizen as well as commitment to provide access to
education to every citizen. The challenge is to
implement the Education Policy through creative
and efficient use of all available resources. These
resources may come from the government,
private sector, civil society groups and
development partners.
Education is a key to change and
progress. The emergent consensus is that
Pakistan's sustained economic growth can be
achieved with higher emphasis on the quality of
its human capital. A deliberate strategy is being
designed to address social exclusion and
deprivation focusing on providing quality
education to disadvantaged groups served by
Public Sector options and through community
based initiatives. Sustainable development
through education must be an enterprise of
partnership for integrated human development.
Pakistan has been confronting with
gigantic problems of human resource
development. The low literacy and participation
rates have added to the gravity of the problems.
These problems have been so challenging that
they not only attracted the attention of the
national government but also of the development
partners and international financial institutions.
Education is the most important factor which
distinguishes the poor from the non-poor. There is
close linkage between poverty and illiteracy.
South Asia and South East Asia were at the same
level of development in 1960 but the only
difference was literacy rate. In South Asia, literacy
rate ranged between 9-15% while it was around
70% in South East Asia. East Asian developing
countries achieved the formidable task of
educating most of their people. Now the East
Asian countries are well-beyond the comparable
range of South Asia. The onslaught of East Asian
nation's rapid economic progress in the 1980's
was based on educated human capital
endowment. Education remains inequitably
distributed among income groups and regions in
the country. The target of minimum essential
requirement for quality education has not yet
been achieved. There is shortage of trained and
qualified teachers, especially females. Educational
institutions lack proper physical facilities.
Teachers lack dedication, motivation and interest
in their profession. Curricula are mostly non-
relevant to the present day requirements.
Chapter 11. Education

The Government has given much
importance to education, that is, it has
emphasized not only to increasing the literacy rate
but also to improving the quality of education
levels. The efforts are being made to revise and
update the curricula as well as provide necessary
training to teachers to meet the challenge of the
time to achieve the objective of universal primary
education. In this regards, ordinance of
compulsory primary education has been
promulgated.
Educational Institutions, Enrolment and
Literacy
In the outgoing fiscal year 2001-02, the
number of schools at primary stage were 169,087,
at middle stage were 19,180, and at high stage
were 13,108. Enrolment at primary, middle, and at
higher levels were 19.92 million, 4.28 million, and
1.79 million respectively. The number of arts and
science colleges were 789 (480 male and 309 for
female). There were 68 Universities in Pakistan,
including forty in public sector. There were 18
degree awarding institutes at the technical &
vocational educational level. The number of
colleges of technology/polytechnics were 54 for
male and 12 for female. The number of
commercial training institutes were 216,
vocational institutes for male and female were 29
and 165 respectively, while secondary vocational
institutes stood at 498. The number of technical
education centers were 2,474 (see Table-11.1).

Table 11.1
Educational Statistics 2001-2002

Level Institutions Enrollment Teachers

Primary 169,087 19,921.232 345,457
Middle 19,180 4,278,392 99,098
Secondary 13,108 1,795,444 66,522
Higher Secondary 682 86,674 16,731
Sec. Vocational 498 88,000 6,582
Colleges 789 956,468 35,325
Universities 68 1,100,000 6,000
Information Technology BCS/MCS 27 22,058 337
Source: Ministry of Education.

Overall results in the education sector
remain disappointing. Pakistan's net primary
enrolment rate is well below its neighbourers in
South Asia; net primary enrolment rate is 65% in
Pakistan, 75% in Bangladesh, 77% in India and
close to 100% in Sri-Lanka. Pakistan's lower
school enrolment rates and poor quality education
means that it will lag behind its neighbourers in
improving literacy in the future. The main reasons
for the decline in the enrolment at government
schools include rising poverty and decline in the
quality of education. Significant gaps in
enrolment rates between urban and rural areas
still exist. These gaps are the product of inequality
in the distribution of resources, higher teacher
absenteeism, lack of access and higher
opportunity cost for the parents in rural areas.
The total population of 10 years and
above in Pakistan in 2001-02 is 104 million (54
million male and 50 million female). Of this 68.2
million live in rural areas of the country. Literacy
rate (10+ age group) is estimated to be 50.5%
(male 63%; female 38%). Rural and urban areas
literacy rate is 30% and 70% respectively. Under
the Education Sector Reforms, National Literacy
Campaign (Integrated approach to
comprehensive Literacy and Poverty Reduction)
Chapter 11. Education

has been launched through out the country. The The table and figure showing literacy
campaign envisages making 13.5 million people rate, change by percentage point, population
literate to enhance the literacy rate to 60%. growth and GDP growth from 1991 to 2002 are
Around 270,000 adult literacy centers would be given below (Table-11.2 and figure-1).
open for the purpose.
Table 11.2
Literacy Rate - Population and GDP Growth
(Percent)
Year Literacy Rate Change by Population Growth GDP growth
Percentage Point
1991 34.9 - 2.63 5.4
1992 36.0 1.1 2.60 7.6
1993 37.2 1.2 2.56 2.1
1994 38.4 1.2 2.51 4.4
1995 39.6 1.2 2.47 5.1
1996 40.9 1.3 2.43 6.6
1997 42.2 1.3 2.38 1.7
1998 43.6 1.4 2.34 3.5
1999 45.0 1.4 2.29 4.2
2000 47.1 2.1 2.24 3.9
2001 49.0 1.9 2.22 2.4
2002 50.5 1.5 2.16 3.6
Source: Federal Bureau of Statistics
Ministry of Education.

Fig.1 Literacy Rates 1991-2002

60
50.50
47.10 49.00
50 43.60 45.00
39.60 40.90 42.20
38.40
37.20
40 34.90
36.00

30

20

10

0
1991 1992 1993 1994 1995 196 1997 1998 1999 2000 2001 2002

Private Education Sector institutions in Pakistan. Out of the total, 66.4

percent lies in Punjab, 12.3 percent in NWFP, 17.9
The Federal Bureau of Statistics survey percent in Sindh, 1.5 percent Balochistan, 0.9
(1999-2000) indicates that there are 36,096 private percent in FATA & 1 percent in Islamabad.
Chapter 11. Education

Overall 39 percent of the institutions are in rural
areas and 61 percent in urban areas. The survey
further highlights the distribution by category,
illustrating that 14,758 (43.5%) are in the primary
sector, 12,250 (37%) in the middle, 5,940 (17.5%) in
secondary and only 695 (2%) in higher secondary
and above. A small number of technical and
vocational institutions lie in the private sector
compared to the general education. The
government wants to facilitate this trend but
ensuring equity and quality. Table 11.3 shows the
region-wise details of private institutions.

Table 11.3
Private Institutions by Type Regions
(Nos)
Region General Professional/ Professional/ Vocational Total
Technical Technical
(Under (Graduate and
Graduate) Post Graduate)
1 2 3 4 5 6
Pakistan 33,893 433 265 1,505 36,096
Islamabad 309 10 12 31 362
Punjab 22,855 263 157 688 23,963
Sindh 5,943 86 42 286 6,457
N.W.F.P. 3,995 73 48 335 4,451
Balochistan 465 1 6 53 525
FATA 326 - - 12 338
Source: Federal Bureau of Statistics.

Problems Faced by Private Sector
It has been observed that majority of
private educational institutions select their own
curriculum/textbooks, which is not in conformity
with public schools. Usually, each school selects
its own syllabus and there is no agency to check
irrelevant textbooks being taught in these schools.
Irrespective of quality of education, most schools
are "English Medium" as this medium of
instruction attracts the parents for sending their
children to these institutions. Most of the
institutions either do not have rules and
regulations or they do not follow the rules
particularly in selection of teaching and
supporting staff. The schools did not have good
facilities, particularly the space in buildings is not
enough to accommodate all the students,
therefore, schools are overcrowded. Majority of
the schools are charging high fee from the
students whereas very few schools are providing
free education to poor students and some of the
schools relaxed fifty percent fee to the poor
deserving students. There is no regulatory body
for registration of private education Institutions.
Most of the institutions are unregistered; therefore
they are not observing any criteria for selection of
textbooks, teachers and provision of facilities. In
most cases certificates issued by private schools
were not recognized by the public schools;
therefore most of the students who graduate from
the private institutions are unable to get
admission in the public institutions. Most of the
private institutions are functioning in rented
buildings. Due to non-existence of any law to
protect the rights of tenants, the landlord can get
buildings vacate any time.
The National Education Policy 1998-2010
proposed the following policy
provisions/implementation strategy in respect of
involvement of private sector in education:
Chapter 11. Education
- There shall be regulatory bodies at the
national and provincial levels to regulate
activities and smooth functioning of
privately managed schools and
institutions of higher education through
proper rules and regulations. A
reasonable tax rebate shall be granted on
the expenditure incurred on the setting-
up of educational facilities by the private
sector. Grants-in-Aid for specific
purposes shall be provided to private
institutions. Setting up of private
technical institutions shall be encouraged.
Matching grants shall be provided for
establishing educational institutions by
the private sector in the rural areas or
poor urban areas through Education
Foundation. Existing institutions of
higher learning shall be allowed to
negotiate for financial assistance with
donor agencies in collaboration with the
Ministry of Education. Educational
institutions to be set up in the private
sector shall be provided (a) plots in
residential schemes on reserve prices, and
(b) rebate on income tax, like industry. In
rural areas, schools shall be established
through public-private partnership
schemes. The government shall not only
provide free land to build the school but
shall also bear a reasonable proportion of
the cost of construction and management.
Liberal loan facilities shall be extended to
private educational institutions by
financial institutions. The private sector
institutions at all levels shall be allowed
to collaborate with international
institutions of repute for achieving
common academic objectives, subject to
laws to be framed in this context. The law
pertaining to the setting-up of degree-
awarding higher educational institutions
and specialized institutes shall be
liberalized. The institutions so established
shall be placed under the University
Grants Commission for monitoring the
academic programs and the award of
degrees.
Non-formal Education
There are millions of people who have no
access to the formal school system. It is not
possible for the formal system to respond to the
challenges of rapidly increasing population. Non-
formal education is therefore becoming a matter
of increasing national and international concern. It
is increasingly recognized that low educational
levels among the adult population causes most
serious obstacles to the success of national
development programme. A country cannot wait
for the schools to turn out the next generation of
better educated children. The need for educational
services for adults are recognized and non-formal
education is seen as an integral part of the overall
educational system. Need and significance of non-
formal education cannot be over-emphasised for a
developing country like Pakistan facing huge
financial constraints and committed to develop in
the shortest possible time. Keeping in view the
growing need and significance of non-formal
education approach for Pakistan, several agencies,
institutions and organizations have undertaken
numerous non-formal education programmes in
the country. Non-formal Education (NFE) intends
to reach those who are out of the formal education
system and as such their needs are quite varied
and diverse. People with such backgrounds, if
motivated, can be provided with the requisite
infrastructure for non-formal education.
Primary Education
Education, in general, and primary
education, in particular, can rightly be called the
Chapter 11. Education
foundation stone upon which may be erected the
entire edifice of our future social, cultural and
economic development. Primary education plays
pivotal role in the social development. It helps the
individual to preserve and reconstruct the values
and norms of society. Primary education becomes
even more essential for girls, because they have an
obligatory assignment to train the coming
generations. In order to improve primary
education, a number of projects have been
initiated including rehabilitation of existing
primary schools through out the country. Teacher
Resource Centers are also being established in the
schools at a total cost of Rs.500 million. An
ordinance for compulsory primary education in
Islamabad Capital Territory (ICT) has been
promulgated. Similarly, ordinances have also
been promulgated in the Provinces of Punjab,
Sindh and NWFP. Ordinance for the Province of
Balochistan is under process.
Science Education
Realizing the importance of science
education the Planning Division has included
strengthening of Science Education facilities in the
10 years perspective plan under the title
"Revamping of Science Education". The cost
estimates are Rs.7153 million. The task can be
accomplished in three phases of three years each.
During the fiscal year 2001-02, Rs.100 million
were allocated in this scheme. So far a sum of
Rs.50 million have been released. Efforts for
improvement in quality of science education in
schools are being frustrated by shortage of
competent and qualified teachers and quality
teaching material. Video textbooks are being
looked upon as a possible solution for
improvement in quality of science education at
Secondary School level. A pilot project in
collaboration with Allama Iqbal Open University
(AIOU) for classes IX-X has been launched at a
cost of Rs.10 million. Total cost for a bigger follow
up project covering whole curricula and
production of multiple copies of the Video
Textbook for distribution to schools is estimated
at Rs.1410 million. The Second Science Education
Project under the umbrella of the Ministry of
Education has been launched with the financial
assistance of the Asian Development Bank covers
Punjab, Balochistan, NWFP, FATA and Federal
Capital Territory Islamabad. The total cost of the
project is Rs.2420.220 million with ADB share of
Rs.1759.384 million. The Project aims at
qualitative and quantitative improvement of
science, mathematics and computer education at
elementary and secondary levels.
Technical Education
Technical Education Project is an ongoing
(1996-2003) project of the Ministry of Education
launched with the assistance of the Asian
Development Bank. The main object is to improve
the quality and relevance of technical education.
The total cost of the project is Rs.2395.146 million.
The major components of the project include
construction of new polytechnics institutes for
women at Quetta and Technical Teacher Training
Centers at Sukkar and Peshawar, provision of
equipments, and introduction of emerging
technologies in selected institutes. A new
Polytechnic Institute for Women at Quetta, new
building of Women Polytechnic Institute Karachi,
Technical Teachers Training Institute at Sukkar
and Technical Teacher Training Center at
Peshawar have been completed. Besides civil
work on 32 sites that includes addition of new
buildings, renovation and repair of existing
Polytechnic Institutes has also been completed.
About 120 Teaching and Learning Resource
material has been developed in the existing and
new emerging technologies. Necessary equipment
including computers and furniture for all new
and selected existing technologies in 43
Polytechnic Institutes and 4 technical teacher-
Chapter 11. Education

training centers as per their need is also being
provided.
Public Sector Expenditure on Education
During the fiscal year 2001-02, the total
education budget is estimated to be 73.745 billion,
including development budget of Rs.8.770 billion
and recurring budget of Rs64.975 billion. The total
budget for education for 2001-02 is 2.0% of the
GDP. The education budget as percentage of GDP
is given below in Table-11.4.

Table 11.4
National Education Budget during (1995-96-2001-02)
(Rs. In billion)
Year Recurring Budget Development Total Education % of GDP
Budget |Budget
1995-96 39.610 2.585 42.195 2.00
1996-97 40.536 1.968 42.504 2.62
1997-98 46.100 2.984 49.084 2.34
1998-99 46.979 2.427 49.406 2.40
1999-00 51.572 2.430 54.002 1.7
2000-01 54.396 1.966 56.362 1.6
2001-02 64.975 8.770 73.745 2.0
Source: Ministry of Education

The declining trend in allocations to
education is a cause of major concern. However, it
is important to note that for the second time,
contributions by the private sector have also been
ascertained through a recently conducted survey
by the Federal Bureau of Statistics. The survey
indicates that the share of private education is
0.60 percent of GDP, which is higher than the
1999-2000 (0.49 percent of GDP). Additionally, the
private sector adds substantively to education
provision as a response to rising demand for
particular types of options.
Strategy Paper. Education Sector Reforms (ESR)
Action Plan (2001-04) has been fully integrated
into the Interim Poverty Reduction Strategy Paper
(IPRSP) and almost 80% of the ESR package
covers adult literacy, Education for All and
Technical Education. Devolution Plan is the main
framework for implementation of ESR. Federal
resources for ESR related schemes have been
transferred to provinces as grant in aid and
distributed in accordance with National Economic
Council (NEC) formula for development
assistance.

Education Sector Reforms (ESR) Education Sector Reforms (ESR)

The Education Sector Reforms Action
Plan built on the 1998-2010 Education Policy, is
based on a long-term framework with a three
years action plan for 2001-04. Government of
Pakistan has outlined its policy objectives for
promoting economic growth and reducing
Poverty in the Interim - Poverty Reduction
recommend macro level reforms in planning,
procedures, resource mobilization and output
based utilization of funds. Education for All (EFA)
is integrated with ESR Action Plan and 77%
allocation relates to all areas of Education for All.
This is to be achieved by rewarding expertise,
honesty in planning and implementation,
improved teacher training programmes,
Chapter 11. Education
curriculum reforms, multiple textbooks and other
innovative projects. Maximizing equal
opportunities and reducing the gender gap at all
levels of education is one of the features of the
ESR. Under this programme, efforts will be made
for bringing suitable equilibrium in private and
public sector education and private sector will be
promoted in providing education at all levels
specially for higher and professional education.
The guiding principles of the ESR are derived
from the linkages between poverty and literacy,
and creating gender balance in education at all
levels. Implementation strategies stress good
governance and management, recognition of the
contribution of the private sector in education and
partnerships between private institutions, NGOs
and government.
Major Achievements.
An amount of Rs.1.57 billion has been
allocated in the budget 2001-02 for execution of
various components of ESR, including Rs.280
million for rehabilitation of existing school
facilities. An additional grant of Rs.Rs.2 billion
has been provided under the President
Programme for Rehabilitation of Existing
Primary/elementary Schools including capacity
building. The Ministry of Education has launched
project to give incentives in the form of free
textbooks to the primary students initially in ICT
as 'Pilot Project'. Through this incentive,
participation rate will be increased and literacy
rate will be improved considerably. Girls Primary
Education Development Project (GPEDP) Phase-I
was completed in 1996 at a cost of Rs.1763.95
million. The Project was launched in all the four
provinces of Pakistan. Under the first Phase, 880-
Community Model Schools (CMS) for girls were
established and made functional in rural areas of
Pakistan by providing all needed inputs. On
successful completion of Phase-I, 2nd Phase of the
Project has also been launched in all the four
provinces of Pakistan with effect from January 23,
1998 at a cost of Rs.2736.3 million. Under this
project, out of 937 Girls Primary Community
Model Schools, 585 schools have been established.
The project will be completed by May 2003.
Middle School Project is being implemented since
1996. The Project is launched by Federal Ministry
of Education in the provinces of Sindh, NWFP
and Balochistan. The Project envisages expansion
and improvement of elementary/ middle level
education facilities (class VI-VIII) with emphasis
on promotion of girls education. About 586
Primary Schools have been up-graded to Middle
level, 50,100 stipends have been awarded under
Girls Rural Stipend Programme. Curricula and
Textbooks of selected subjects including
Mathematics, English and Social Studies for
classes (VI-VIII) have been revised. Non
Formal Basic Education School Scheme is very
cost-effective scheme. Under this scheme primary
education course is taught in forty months. Non-
Formal Basic Education (NFBE) schools are
opened in the areas where formal school is not
available, Teacher's salary and free teaching
learning materials are provided by the
government where as school building/room is
provided by the community. At present, 6371
NFBE Schools are functioning in the four
Provinces, ICT, FATA, FANA, and AJ&K. Around
100 new NFBE Schools are being opened in ICT
during current financial year 2001-2002. Similarly
provinces have also been allocated funds under
ESR for opening of more NFBE schools. The ESR
Programme stipulates establishment of 30,000
Non-Formal Basic Education Schools in four
provinces including ICT, FATA, FANA, & AJ & K
during 2001-2004.
Eighteen (18) primary schools were
upgraded to middle level, 12 middle schools were
upgraded to secondary level and 5 secondary
schools have been upgraded to higher secondary
level. Furthermore, Science equipment, books
Chapter 11. Education
and other material amounting to Rs.12.000 million
is being provided to schools. Free Text Books have
been provided to all the students of class-1 of
Federal Government Schools in Islamabad Capital
territory . Science apparatus amounting to
Rs.4.000 million has also been provided to 53
secondary schools in ICT. Repair/Maintenance of
32 Secondary Schools and 6 colleges have been
carried out. Drinking water facility in 70 schools
and toilet facility to 30 school has been provided.
Seventy eight (78) additional classrooms were
added to 11 schools/colleges. Fifty-four (54) posts
of Teacher have been created in upgraded
primary schools and 7 primary schools buildings
are under construction.
ESR Targets (2001-2004)
Under the plan (2001-2004), literacy rate
will be increased to 60 percent, gross primary
enrolment will increase from 89 percent to 100
percent, net primary enrolment will increase from
_____________
65 percent to 75 percent, middle school enrolment
will increase from 47.5 percent to 55 percent,
secondary school enrolment would increase from
23 percent to 29.5 percent and high education
enrolment will increase from 2.6 percent to 5
percent.
Targets for Higher Education under ESR
Access to higher education opportunities
will be increased by 10 percent annually.
Enrolment in the Universities will be increased
from 100,000 to 200,000 students by 2004. Private
sector will raise its share of enrolment to 40
percent of the total. Allocation for research
through an Endowment Fund will also be
increased. There will be shift from Humanities to
Science & Technology from current 70:30 ratio to
50:50. Social services programmes and staff
development programmes will be reviewed
accordingly.
Chapter 12. Health and Nutrition

12. Health & Nutrition

Health of a community depends not only
on the availability of health services but also on
the better hygienic atmosphere. The provision of
better health services together with clean drinking
water and adequate dietary intakes is the surest
safeguard against communicable diseases. The
improvement in health status directly addresses
the worse aspects of poverty and translates into
higher income, higher economic growth and
reduced population growth. Thus the high
correlation between investment in health and
increased productivity is enough to emphasize
the importance of health services as an aid to
growth. The public health sector in Pakistan is still
weak and is suffering from a considerable
deficiencies such as insufficient fund to meet the
recurring expenditures and mismanagement. The
main causes of avoidable deaths in the country is
malaria, tuberculoses, childhood infection
diseases, micro-nutrient deficiencies, unhygienic
living conditions and poor nutritional practices.
Such worsening health condition is reflected in
the very high rate of mortality (110.3), child death
(83.3), and low life expectancy (63.0) in
comparison to the regional developing and
neighbouring countries are documented in Table
12.1.

Table 12.1
Social Indicators, 2000

Country Life Expectancy Infant Mortality Mortality Rate Population

Rate per 1000 under 5 per 1000 Growth Annual
(%)
Pakistan 63.0 83.3 110.3 2.4*
India 62.8 69.2 87.7 1.8
Sri Lanka 73.1 15.0 17.9 1.6
Bangladesh 61.2 60.0 82.6 1.7
Nepal 58.9 73.6 104.7 2.4
China 70.3 32.0 39.5 0.9
Bhutan 62.2 57.6 - 2.9
Thailand 68.8 27.9 33.2 0.8
Philippines 69.3 30.7 39.2 1.8
Malaysia 72.5 7.9 10.8 2.4
Indonesia 66.0 40.9 51.4 1.6
* The latest population growth for 2002 is 2.16 percent Source: World Development Indicators, 2002

It can be seen from the table that mortality rate put Pakistan among the bottom of
Pakistan’s achievement in terms of social progress the regional countries. The poor show of health
is somewhat less striking. The high rate of indicator of Pakistan in relation to other regional
population growth, low life expectancy and high countries suggest an urgent need to invest in the
Chapter 12. Health and Nutrition
welfare of the people so as to improve the
country’s health indicators. Attempts have been
made over the years to improve the functioning of
the health system through availability of trained
manpower, adequate supply and distribution of
drugs, and establishment of health infrastructure.
However, the health care system as a whole needs
to be strengthened at all levels.
To take care of this backlog, a national
health policy with motto of “Health for All” was
announced in June 2001 which aimed at
protecting the countrymen from hazardous
diseases, promoting public health and upgrading
curative care facilities. The policy identified ten
specific areas of reforms; including reducing
widespread prevalence of communicable diseases,
addressing inadequacies in primary/secondary
health care services, removing professional
deficiencies in the health system, promoting
greater gender equity, bridging basic nutritional
gaps in targeted population, correcting urban bias
in health sector, introducing regulations in private
medical sector, creating mass awareness in public
health matters, effecting improvements in drug
sector and capacity building for health policy
monitoring. The overall aim of these reforms is to
reduce mortality and morbidity, eliminate
malnutrition, particularly in infants and mothers,
and to increase health services.
The new policy has targeted the
immunization coverage to be increased to 85
percent by 2003-04, reducing polio cases to less
than 30, and full dots coverage of TB will be
achieved in all the districts by 2005. In regard to
primary/secondary health care service, 100,000
Table 12.2
Health Facilities
Health Menpower Upto 1999-00
Registered doctors 87,105
Registered dentists 3,867
Registered nurses 35,979
Population per Doctor 1,578
Population per Dentist 35,557
Population per Nurse 3,822
family planning workers would be trained and
195 hospitals (58 districts and 137 tehsils) will be
upgraded. Besides, fair pricing policies would be
pursued to encourage investment in the
pharmaceutical sector. The private practice
specialists would be replaced by the system of
institutional practice in mega hospitals and mega
hospitals under autonomy arrangements would
be institutionalized and a system of monitoring
and performance of autonomy based hospitals
would be established.
Health facilities
In Pakistan, health care is being providing
to the public through a vast infrastructure of
health facilities consisting of hospitals,
dispensaries, basic health units and maternity
child health centres with adequate number of
doctors, dentists, nurses, lady health visitors and
mid-wives. At present there are about 97,945
hospital beds in the country which give a
population bed ratio at 1490 persons per bed. The
number of registered doctors is at 96,248 while the
number of available dentists is 4622 and that of
nurses is 40114 and 5845 qualified health visitors.
There is one doctor for 1516 persons, one dentist
for 31579 persons and one nurse for 3639 persons.
There is about 907 hospitals and 4625 dispensaries
in the country. The number of Basic Health Units
(BHUs) is 5230 while the number of Rural Health
Centres (RHCs) is 541. Since the majority of
doctors and hospitals are located in cities and
towns, the rural population has much lower
standard of health facilities. Some statistics
pertaining to health facilities are reported in Table
12.2.
Upto 2000-01 Upto 2001-02
91,823 96,248
4,175 4,622
37,623 40,114
1,529 1516
33,629 31579
3,732 3639
Source: Ministry of Health
Chapter 12. Health and Nutrition

These statistics suggest that the number of
registered doctors, dentists, and nurses have
increased in 2001-02 as against the last fiscal year.
Similarly, health facilities as measured by the
population per doctor, per dentist, and per nurse
have also improved in the outgoing fiscal year.
Physical Targets and Achievements During
2001-02
A total of 40 Basic Health Units (BHUs),
10 Rural Health Centres (RHCs) and one Urban
Centre were built, against the target of 60 BHUs,
12 RHCs and one Urban Centre for the year 2001-
02. Thirty (30) BHUs and 20 RHCs of the existing
stock were upgraded. Moreover, 1300 new
hospital beds were added. A total of 3300 doctors,
250 dentists, 2300 nurses, 5000 paramedics, 470
TBAs and 13000 LHWs have been trained during
the year, against a planned target of 3700 doctors,
300 dentists, 2500 nurses, 5564 paramedics, 520
TBAs and 13000 LHWs. Under the preventive
programme, 8.5 million children were immunized
and 18.0 million packets of Oral Rehyderation Salt
(ORS) were distributed during 2001-02. The
targets and achievements for the year, 2001-02 are
given in Table 12.3.

Table 12.3
Physical Targets and Achievements During 2001-02

Targets Estimated Achievements

Sub-Sector (Nos) Achievements (%)
(Nos)
A. Rural Health Programme
i. New Basic Health Units (BHUs) 60 40 66
ii. New Rural Health Centres (RHCs) 12 10 83
iii. Upgradation of existing RHCs 30 20 67
iv. Upgradation of existing BHUs 45 30 66
v. Urban Health Centres 1 1 100
B. Beds in Hospitals/RHCs/BHUs 1400 1300 92
C. Health Manpower Development
i. Doctors 3700 3300 89
ii. Dentists 300 250 83
iii. Nurses 2500 2300 92
iv. Paramedics 5564 5000 89
v. Training of TBAs 520 470 88
vi. Training of LHWs
13000 13000 100
D. Preventive Programme
i. Immunization (Million Nos)
9.13 8.5 93
ii. Oral Rehyderation Salt (ORS)
19.00 18.00 94
(Million Packets)
Source: Planning & Development Division

Health Expenditure was Rs.25.406 billion (Rs.6.688 billion for

The budgetary allocations for the health
sector have been gradually increased to improve
the quality of life. The total outlay set aside for
health improvement programme during 2001-02
development and Rs.18.717 billion for recurring
expenditures). This is 4.6 percent more as
compared to the previous year and works out as
0.7 percent of the GNP as indicated in Table 12.4.
Chapter 12. Health and Nutrition

Table 12.4
Health and Nutrition Expenditure
(Million Rs.)
Public Sector Expenditure
Fiscal (Federal Plus Provincial) Change As % of
Year Development Current Total (%) GNP
Expenditure Expenditure Expenditure
1995-96 5741 10614 16355 35.3 0.8
1996-97 6485 11857 18342 12.2 0.8
1997-98 6077 13587 19664 7.2 0.7
1998-99 5492 15316 20808 5.8 0.7
1999-00 5887 16190 22077 6.1 0.7
2000-01 5944 18337 24281 10.0 0.7
2001-02 6688 18717 25405 4.6 0.7
Source : Planning & Development Division

Health Programme the programmes, while additional

The health programmes giving special
focus to major public health problems of the
country are discussed as follows:
1. National Programme for Family
Planning & Primary Health Care:
The main thrust of the programme is to
extend the primary health care and family
planning services to the communities
through trained lady health workers
(LHWs) all over the country. At present,
the Programme is covering 50 percent
population, mainly in the rural and urban
slum areas. The programme envisages
that by the year 2003, 100,000 LHWs in
the field of family planning and health
care services will be trained and with
such a strength of LHWs, 70 percent of
the population will be covered. There is
9100 trained health facility staff and 1300
Lady Health Worker Supervisors who are
involved in the training and supervision
of the LHWs. Selection of another batch of
1000 supervisors is completed and their
training is underway. During the
outgoing fiscal year, Rs.1200 million has
been allocated for the implementation of
allocation of Rs.983 million have also been
allocated during the current year.
2. Expanded Programme of
Immunization: The total cost of the
programme is Rs.5367 million for the
period of 1999-2004. The allocation for
current financial year has been at Rs.500
million. Besides, a sum of Rs.196 million
has been allocated as additional allocation
for the current year. The programme is
providing vaccination against six vaccine
preventable diseases to 4.5 million
children annually with immunization
coverage at 77 percent for children and 50
percent for expected mothers. Almost all
Lady Health Workers in 57 Districts (the
high risk Districts for Tetanus) have been
trained as vaccinators, with on the job
training.
3. National AIDS Control Programme:
The programme aims to control
AIDS/HIV cases by creating awareness
and promote blood safety by
strengthening safe blood transfusion
services. The total number of cases
reported till 31st December 2001 stand at
Chapter 12. Health and Nutrition
1886 with HIV positive and 222 full blown
AIDS cases. However, the
WHO/UNAIDS estimate that currently,
there are 70,000 – 80,000 HIV positive
cases in the country. Significant
achievements of the programme during
the year 2001-02 include: an extensive
Information, Education & financial year.
Communication comparing for creating
awareness; continued support to the
forty-six HIV surveillance centers
throughout the country, which provide
HIV testing facilities to the general public
free of cost, screening of 600,000 – 650,000
blood bags for HIV and HBV;
development and distribution of national
guidelines on clinical management,
Laboratory Diagnosis and Counseling for
HIV/AIDS and training of relevant
professionals. The allocation for the
current fiscal year is Rs.90 million. An
additional allocation of Rs.94 million has
been set aside for the current year.
4. Malaria Control Programme: The
incidence of malaria has been successfully
contained. The disease has been brought
down in the last 28 years from annual
incidence of 13.18 cases per 1000
population in 1973 to 0.62 cases per 1000
population in 2001. The annual parasite
incidence (API) during the year 2001 has
decreased to 0.62 cases per 1000
population, as compared to 0.81
cases/1000 population last year. The
faslciparum percentage has also
decreased in Sindh province to 49.9
percent as compared to last year
percentage of 57.2. The overall reduction
is now 31.9 percent as compared to last
year percentage of 33.2. Province wise
percentage of annual parasite incidence is
highest in Balochistan (API=3.16),
followed by NWFP (API=0.83), Sindh
(API=0.62), and Punjab (API=0.170). The
programme has been approved at a cost
of Rs.253.0 million. During the current
year, Rs.40 million have been allocated
and additional allocation of Rs.106 million
has been set aside during the current
5. T.B. Control Programme:
Tuberculoses is still a health problem in
the country. The annual diagnosis and
treatment report of the diseases indicates
that the danger of TB is not yet over.
During the current fiscal year, Rs.10.0
million has been allocated. An additional
allocation of Rs.121 million has been
allocated for the current year. The
programme aims to control T.B. through
DOTS strategy with the objective of
achieving 85 percent cure rate and 70
percent detection rate; and reducing T.B.
cases by providing technical assistance,
training, monitoring and evaluation/
surveillance, development of health
education material and applied research
in T.B. and Multi Drug Resistance (MDR).
34 Districts have been covered under
DOTS strategy by December 2001, with
the coverage of 25 percent population of
the country.
6. Women Health Project: The project has
been launched throughout the country
with total outlay of Rs.3750 million in
July, 2000 with the Asian Development
Bank assistance. The project aims at
improving the health nutrition and social
status of women and girls by developing
Women – Friendly Health Systems in 20
Districts of Pakistan. Its specific objectives
are to:
Chapter 12. Health and Nutrition
a) expand basic women’s health
interventions to undeserved
population.
b) develop women-friendly district
health system for providing quality
women’s health care from the
community to first referral level.
c) strengthen the capacity of
institutional and human resources
to improve women’s health in the
long-term.
7. National Hepatitis-B Immunization
Programme: Vaccine for Hepatitis B is
being introduced in the EPI regime w.e.f.
July 2001 with the help of grant assistance
from Global Alliance for Vaccines and
Immunization. Pakistan is the first
country in the EMRO selected for such
assistance.
8. Nutrition Programme: The programme
aims at reduction of infant mortality and
low birth weight babies, better child and
maternal health care, promotion of breast
feeding, and prevention of night
blindness, iron deficiency anemia, as well
as iodine deficiency disease. The
prevalence of low birth weight (25%),
malnutrition in children (35%) and
anemia in pregnant women (50%) is
extremely high. In view of the situation, a
Nutrition Programme at the cost of
Rs.302.720 million has been approved
besides an additional amount of Rs.50
million has been allocated in the revised
PSDP allocation (2001-02).
Cancer Treatment Programme
In Pakistan, at present, there are 12
nuclear medical centres in the public sector
operated by Pakistan Atomic Energy
Commission. These centres in various parts of the
country are well equipped with latest machines
and other modern facilities. These centres have
been effectively performing and contributing to
diagnosis and treatment of cancer patients.
During the year 2000-01, about 110,000 patients
were provided cancer treatment as well as follow-
up. The Pakistan Atomic Energy Commission’s
hospitals are catering to about 80 percent
population of cancer patients coming from all
parts of the country. During the year 2000-01,
180,000 patients benefited from the nuclear
medicines facilities. The contribution of Pakistan
Atomic Energy Commission (PAEC) through its
integrated programme in diagnosis of different
kinds of cancer and allied diseases and their
treatment has received considerable acclaim in the
public.
Drug Abuse
Drug addiction is a social problem in
Pakistan. Through a recent survey conducted by
UNDCP in partnership with Government of
Pakistan, a downward trend has been noticed in
heroin addiction. However, it still remains
worryingly high and is the most difficult
addiction to deal with. It has also been observed
that injecting drug abuse is on the rise. This is
extremely grave as it spreads various blood-borne
diseases like HIV/AIDS and hepatitis B&C. On
the prevention of drug trafficking and drug abuse,
effective and meaningful steps have been
initiated. Some of these are discussed in the
preceding paragraph.
A Five Years Master Plan (1998-03) is
under implementation. Under the plan, the
farmers in the poppy growing areas have to be
provided with alternative source of income. The
development project currently under
implementation in the poppy growing areas aims
at to bring a decrease in the poppy
growing/cultivating area. Four area development
projects as Dir, Bajawar, Mohmand and Khyber
Area Development Projects at a total cost of
Rs.1607.110 million are implemented. Beside the
treatment and rehabilitation project with the main
Chapter 12. Health and Nutrition

component of mass awareness against drug abuse Food and Nutrition

in Pakistan, community participation in drug
reduction, NGOs support programme in the
treatment and rehabilitation and drug prevention
and upgradation of treatment and rehabilitation
centres for drug dependents of population at a
total estimated cost of Rs.69.385 million has been
undertaken. A three years drug law enforcement
programme with a grant of US$ 5.25 million by
the UNDCP for strengthening the law
enforcement agencies to combat illicit drug
trafficking and money laundering has been in
operation since 1999. The statistics regarding
seizure of narcotics by all the law enforcing
agencies during the period July-March 2001-02 is
as follows:
Table 12.5
Cases of Narcotics
i. No. of cases 32671
ii. No of defendants 32182
iii. Drug seizure (kgs)
Opium 1782.572 kg
Heroin 8111.357 kg
Hashish 53468.591 kg
Source: Narcotics Control Division
Protein energy and micro-nutrient
malnutrition has a very sever impact on the
potential development and productivity of the
people. They contribute to a great deal of
morbidity and ill health growth, retardation and
reduced level of physical and developmental
activities. The basic cause of these deficiencies is
lack of adequate intake through diets. Poverty in
many cases is the major basic cause of
malnutrition. In Pakistan, per capita per day
calories intake is estimated at 2306 for 2001-02 and
protein intake per capita per day is 67.0 grams.
The national food consumption/intake balance
sheet of major six selected food items including
pulses, sugar, milk, meat, eggs and edible oil is
given in Table 12.6. The overall per capita food
availability of the basic food items has declined
over the previous year.

Table 12.6
Food Availability Per Capita

Items Units 49-50 79-80 89-90 95-96 97-98 98-99 99-2000 2000-01 2001-02
(E) (T)
Cereals Kg 139.3 147.1 164.7 156.9 159.7 171.0 163.5 164.9 149.3
Pulses Kg 13.9 6.3 5.4 6.2 5.9 6.8 7.2 7.0 6.1
Sugar Kg 17.1 28.7 27.0 26.4 32.8 31.2 26.4 30.8 26.1
Milk Ltr 107.0 94.8 107.6 121.1 147.3 148.0 148.8 149.6 150.8
Meat Kg 9.8 13.7 17.3 21.4 17.9 18.2 18.7 18.8 18.9
Eggs Dozen 0.2 1.2 2.1 2.2 2.2 5.1 25.1 5.2 5.2
Edible Ltr 2.3 6.3 10.3 11.4 11.6 12.3 11.1 11.2 11.3
Oil

Caloric & Protein Availability (Per Capita)

Calories per day 2078 2301 2534 2522 2655 2728 2625 2706 2306
(Number)
Protein per day 62.8 61.5 65.47 67.38 68.37 71.85 70.00 71.74 67.00
(Gms)
E. Estimated Source: Planning & Development Division
T - Targets
Chapter 12. Health and Nutrition
The government is taking a number of
steps to improve the nutrition well being of the
population. To overcome this problem, following
programmes remained in progress:
i. Iodine Deficiency Disorders Control
Programme: Private salt processors
are being motivated to produce and
market iodized salt throughout the
country. Promotional campaign through
multimedia including Radio and TV
network and mass media continued. The
quality control system for Iodized salt has
been strengthened to improve the quality
of iodized salt. The IDD programme
activities were shifted to the provinces for
which IDD committees had been
established in each province. A nation
wide study for IDD Performance
evaluation was completed.
ii. Anemia Control Programme: Situation
analysis for informal milling sector was
completed. A feasibility study has been
prepared to develop a programme for
iron fortification of wheat flour and a
programme for anemia control through
food fortification on pilot scale. In
Pakistan approximately 20-21 million
tonnes of wheat per year is consumed
which is milled by two different milling
sectors i.e. (a) modern milling industry
(Roller Flour Mills) which are grinding
almost 45-50% wheat and all these mills
are organized as a strong Pakistan Flour
Mills Association (PFMA) and (b) Small
scale grinders (chakkies) which grind
about 50-55% wheat are scattered through
out the country almost in every village.
For both these milling sectors, separate
studies have been finalized and are under
process to develop future strategies.
_____________________
iii. Vitamin A Deficiency Control
Programme: The fortification of edible
oil/ghee with vitamin A is legislated
since 1965 as part of Pure Food Rules, but
standards of fortification are not adhered
to by the manufacturers. Therefore, to
strengthen the ongoing process for
vitaminization of edible oil, necessary
technical support to oil manufacturers
and the quality control agencies have
been provided to maintain the required
level of fortification of Vitamin A. A
programme for supplementation of
Vitamin A to the children 6 months to 5
years remained in progress with National
Immunization Days and sub NIDs and
house to house visits.
Promotion and Protection of Breast-feeding
The programme on promotion of breast-
feeding throughout the country is in progress. The
Baby-Friendly Hospital Initiative (BFHI) has now
been extended to the community and the private
sector and the NGOs have been actively involved.
The promotional activities remained in progress
through multi-media campaign. The Breast
Feeding Act is being finalized to rationalize
production and marketing of infant formulas in
the private sector. Lactation curriculum has been
revised/updated in view of the changes
requirements and recent advances in this field.
Primary Health Care Programme (PHC)
Technical support is being provided to
LHWs in PHC to deliver inputs and nutrition
services for the benefits of women and young
children. The programme covers the majority of
rural population which remains unserved
through the static basic health service.
Chapter 13. Population, Labour Force, and Employment
13.Population, Labour
Force, and Employment
INTRODUCTION
In 1947, 32.5 million people lived in
Pakistan. According to the first census in 1951,
Pakistani population stood at 33.7 million. By
2001-02, the population is estimated to have
reached 145.96 million. Thus in roughly two
generations, Pakistan's population has increased
by 113.46 million or has grown at an average rate
of 2.8 percent per annum. Pakistan has more
mouth to feed, more families to house, more
children to educate, and more people looking for
gainful employment. Millions more are migrating
from the countryside to major cities in search of
jobs, raising pressure on urban infrastructure and
giving rise to Katchi Abadis. Population increases
of this magnitude in Pakistan may create alarm
for many but these trends in population growth
hide more promising developments.
East Asia has seen a dramatic and rapid
demographic transition over the last three and a
half decades. Prior to moving on a rapid and
sustained economic growth path, the share of
young population (age 0-14 years) has been, on
average, 40 percent while those of working age
population (Prime age: 25-59 years) averaged 35
percent and old age (65 plus) averaged 3.5
percent. With declining fertility and mortality
rates, the young population bulge started working
its way through the age distribution. The share of
working age started rising, approaching 50
percent in East Asia and those of young
population declined to an average of 25 percent,
and old age rose to an average of almost 10
percent. Empirical evidence has suggested that a
large part of East Asia's spectacular economic
growth derives from the demographic transition,
i.e. from working age population bulge. This
transition from a young to prime age population
represented a demographic gift because East Asia
has had relatively more working age (Savers)
population and relatively fewer young population
(non savers) compared with earlier periods. In
countries where an increasing share of the
population is of working age, economic growth
per person tends to be highest and national saving
rates tend to rise. East Asia is still passing through
the demographic transition, but of a different
nature. As a result of sustained high economic
growth, the people of East Asia are now more
richer, more healthier and more educated than 25
years ago. Consequently population growth has
slowed and the share of working age population
is declining and those of old age is rising. The
demographic gift is turning into a burden.
Economic growth in the next 15 years in East Asia
is likely to decelerate from what it achieved over
the last 35 years. In order to sustain higher growth
of yester years, East Asia will have to rely on
technical innovation and will have to move to
higher value chain of production.
The same demographic transition that
benefited East Asia over the last 35 years will
benefit South Asia during the next two decades.
Chapter 13. Population, Labour Force, and Employment

Pakistan being located in South Asia, will benefit If government's macro-economic policies are such
from the same demographic transition. When that lead to job creation, the country will more
seen over the last four decades, Pakistan has not likely to realize the potential benefits of
experienced demographic transition. However, demographic transition in terms of higher
over the last two decades Pakistan has seen a economic growth. However, if government
marginal decline in the share of young age mismanages its economy the large workforce can
population and only 2 percentage points increase become the army of unemployed.
in prime age (working-age) population (see Table-
13.1 for details). The share of old age population Demographic transition is taking place,
has declined by 1.5 percentage points. This change though currently at a slower pace. It poses
in demographic structure owe heavily to a steady enormous challenge for the government to
decline in population growth since 1981 [see Table manage the economy in such a way that the
13.2]. With further slow down in population transition benefits Pakistan. Investment in people,
growth, Pakistan may see its shares of working- maintaining macro-economic stability, and
age population rise while that of young age achieving higher economic growth on a sustained
population decline. basis should form the basic principle of realizing
potential benefits of demographic transition in
Table-13.1 Pakistan.
Demographic Transition in Pakistan
Census Young Prime Old Having discussed the challenges and
(0-9 age) (age25-59) (age 60 +) opportunities of demographic transition we now
turn to analyse Pakistan's population, labour force
1961 51.4 41.7 6.9 and employment issues. Since independence in
1972 52.4 40.6 7.0 1947 Pakistan's population has increased 4.5
1981 54.0 39.0 7.0 times. It now ranks 7th largest country in the
1998 53.5 41.0 5.5 world in terms of the size of population. Having
Source: Economic Survey 2000-01 and 50 years of grown at an average rate of slightly above 3.0
Pakistan's Statistics, Federal Bureau of Statistics percent since 1951 and until 1983, population
growth in Pakistan is declining steadly thereafter
Can Pakistan benefits from the changes in and has declined to 2.16 percent by 2001-02 (see
demographic structure? While demographic Table 13.2). The current population growth
transition provides an opportunity for raising (2.16%) is still high and the government is making
economic growth and increasing prosperity, it is every effort to reduce it to 1.8 percent by 2003-04
not automatic. It will depend whether Pakistan as stated in the country's Interim Poverty
succeeds in mobilizing sufficient capital Reduction Strategy Paper (IPRSP). As will be
(investment) and use it efficiently with the rising discussed later, the various population planning
working-age population. This, in turn, will programmes launched by the Government have
depend largely on government's socio-economic contributed in slowing the country's population
policies. If the workforce is better educated, it will growth rate.
be better placed to contribute to economic growth.
Chapter 13. Population, Labour Force, and Employment

Table 13.2
Population and Growth Rates and Literacy Rates(1981 to 2000)

Mid Year Total Population Growth Rate (%) Literacy Rate (%)
(Million) Rate % Change
1981 85.09 3.06 26.2 -
1982 87.67 3.63 26.2 0
1983 90.30 2.99 27.1 3.4
1984 92.96 2.95 27.9 3.0
1985 95.67 2.90 28.8 3.2
1986 98.41 2.86 29.8 3.5
1987 101.18 2.82 30.7 3.0
1988 103.99 2.77 31.7 3.3
1989 106.84 2.73 32.7 3.2
1990 109.71 2.69 33.8 3.4
1991 112.61 2.63 34.9 3.3
1992 115.54 2.60 36.0 3.2
1993 118.50 2.56 37.2 3.3
1994 121.48 2.51 38.4 3.2
1995 124.49 2.47 39.6 3.1
1996 127.51 2.43 40.9 3.3
1997 130.56 2.38 42.2 3.2
1998 133.61 2.34 43.6 3.3
1999 136.64 2.29 45.0 3.2
2000 139.76 2.24 47.1 4.7
2001 142.86 2.22 49.0 4.0
2002 145.96 2.16 50.5 3.1
Source: Population Census Organization & Ministry of Planning & Dev. Division

Population Growth

3.5
(Percent)

2.5

2
1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Growth Rate (%)

Chapter 13. Population, Labour Force, and Employment
The growing population and relatively lesser
investment in education in the past have
contributed in adding the number of illiterates in
the country, which have more than doubled from
22 million in 1961 to 54 million in 2001. The adult
literacy rate increased from 49 percent to 50.5
percent in 2001-02 - an increase of 1.5 percentage
points. Both male and female literacy rates have
also increased over the last year. While male
literacy rate increased from 61.3 percent to 63
percent, female literacy rate improved from 36.8
percent to 38 percent. Realizing the importance of
improving the country's social indicators in
general and education in particular the
government has prepared a medium-to-long run
program with a view to educating its citizen
under the Education for All Program.
Few policies have promoted development
as powerfully as effective investment in human
resources. The most important asset of any nation
is its people. A weak social profile is an indicator
of a waste of human potential. For effective
participation in the process of globalization, a
strong human capital base and investment in
human capital, particularly in education, are
essential. The present government is fully
committed to improve human capital because
Pakistan cannot afford another decade of missed
opportunities A comprehensive human
development strategy aimed at the effective
utilization of available resources through
improved institutional mechanism has been
prepared, the details of which are well
documented in the IPRSP.
Mortality and Fertility
Mortality and fertility rates have direct
bearing on country's population growth rates.
Higher population growth rate is the result of the
decline in mortality owing to elimination of
epidemic diseases, through the adoption of
modern medical services and expansion of public
health measures. Progress has also been made in
the environment, with better water supply,
drainage and other social services. While
mortality has been decreasing, fertility has also
shown a modest decline over the recent years
from 4.9 percent in 1999-2000 to 4.8 percent in
2000-01. The government is making effort to
reduce it further to 4.1 percent by 2003-04. The
crude death rate (CDR) in Pakistan is estimated at
8.2 (per thousand) in 2002, which is still high, but
it was lower than 10 (per thousand) only a decade
ago.
The maternal mortality rate ranges
between 350-500 per hundred thousand live
births, consequently every year about seventeen
thousand newly born babies become motherless.
The life expectancy in Pakistan is 63.6 years, 63.7
for males and 63.4 for females. The decline in
mortality rate has been slowed when compared
with those of many other developing countries.
One of the major reasons for the slow decline of
mortality rate in Pakistan is perhaps the
phenomenon of repeated pregnancies and births,
which is closely associated with the health and
mortality rate of infants, children and mothers.
The Infant Mortality Rate:
Despite considerable decline in total
mortality in Pakistan, infant mortality has been
quite high. It is estimated at 85 per thousand live
births in 2002. The major reasons for high rate of
infant and child mortality are diarrhea and
pneumonia.
The demographic indicators i.e. total
fertility rate (TFR), Crude Birth Rate (CBR), Crude
Death Rate(CDR), Infant Mortality Rate (IMR)
and Life expectancy in the country are given in
Table-13.3.
Chapter 13. Population, Labour Force, and Employment

Table 13.3 accompanied by fairly slow decline in fertility

Selected Demographic Indicators rates. It may be noted that fertility decline follows
drop in mortality with some lags. This trend has
Indicators Year Year also been observed in East Asia. Pakistan
(1995) (2002) continues to maintain a relatively high rate of
Total Fertility Rate (IFR) 5.7 4.1 population growth mainly due to its broad-based
Crude Birth Rate (CBR) 41 28.7 age pyramid, declining mortality, recent
Crude Death Rate (CDR) 11 8.2 downward trend in infant deaths and an increase
Growth Rate 2.63 2.05 in life expectancy at birth.
Infant Mortality Rate 97 85
(IMR) POPULATION DISTRIBUTION:
Life Expectancy 59 63.6
Male - 63.7 i) Provincial distribution:
Female - 63.4
Source: Ministry of Planning & Development The population of Pakistan is unevenly
Division. distributed over its four provinces (Punjab, Sindh,
NWFP and Baluchistan) and Federally
The higher population growth Administered Areas (FATA) and Federal Capital
experienced over the past several years has been Islamabad. Table-13.4 reflects province and area
mainly due to the reduction in mortality rate wise population.

Table 13.4
Province Wise Population, Land Area and Percent Distribution
1951, 1981, 1998 AND 2002
(Thousand)
PROVINCE Area Sq.kms Year 1951 Year 1981 Year 1998 Year 2002
PAKISTAN 796095 33816 84254 130,600 145,445
(100) (100) (100) (100) (100)
NWFP 74521 45879 11061 17,555 19,593
(9.1) (13.6) (13.1) (13.3) (13.54)
FATA 27220 1337 2199 3,138 3,432
(3.4) (3.9) (2.6) (2.4) (2.3)
PUNJAB 205344 20557 47292 72,585 80,645
(25.8) (60.8) (56.1) (55.59) (55.5)
SINDH 140914 6054 19229 29,991 33,558
(17.7) (17.9) (22.6) (22.97) (23.0)
BALUCHISTAN 347190 1187 4332 6,510 7,264
(43.6) (3.5) (5.1) (4.99) (5.0)
ISLAMABAD 906 94 340 799 951
(0.1) (0.3) (0.4) (0.61) (0.70)
Source: Population Census Reports & Planning Commission.

The above Table reflects that the province of population; and Baluchistan 43.6% of area and
NWFP is having 9.1% of the total area and 13.54% only 5.0% of population. The federal capital,
of the population; Punjab 25.8% of area and 55.5% Islamabad has 0.1% of area and 0.70% of
of population; Sindh 17.7% of area and 23% of population.
Chapter 13. Population, Labour Force, and Employment

ii) Population density: density across different provinces over the last 50
Table-13.5 reflects the increase in population years.

Table 13.5
Province Wise Population Density
(1951-2002)
(Population in Million)
PROVINCE 1951 1981 1998 2002 Percent Change During
(Area Kms) Population Population Population Population ______________________
(density) (density) (density) (density) (1951-81) (1981-98) (1998-02)
Pakistan 33816 84254 130,600 145.445 147 55 12
(796095) (43) (106) (164) (183)
NWFP 4587 11061 17,555 19.93 138 59 12
(74521) (62) (148) (235) (262)
FATA 1336 2198 3,138 3.432 65 42 7
(27220) (49) (81) (235) (123)
PUNJAB 20556 47292 72.585 80.645 130 54 9
(205344) (100) (230) (353) (393)
SINDH 6054 19028 29,991 33.558 232 58 11
(140914) (43) (135) (213) (237)
BALUCHIST 1187 4332 6,510 7.264 300 58 11
AN (3) (12) (19) (21)
(347190)
ISLAMABAD 94 340 0.799 951 262 134 17
(906) (104) (376) (881) (1026)
Source: Ministry of Planning & Development Division.

As shown in Table, population density
has increased from 43 (1951) to 183 (2002) persons
per sq.km. During the year 2002, population
density ranges between 1026 persons per sq.
kilometer in Islamabad (capital) and 21 persons in
Baluchistan province. The most populous
province is Punjab, having population density of
393 persons, followed by NWFP 262, Sindh 237
and FATA 123 persons per sq.km. During 1981-98
population density of Pakistan increased by 55
percent. The highest increase has been observed
in the case of Islamabad. All the four provinces
have witnessed increase in the range of 54 to 59
percent.
iii) Urban-rural distribution
The urban population at the time of
independence was 5 million (15.4%), in 1981, 23.84
million (28%) and in 1998 it was 42.445 million
(32.5%). During the period 1981 to 1998 the total
population increased by 55 percent whereas the
urban and rural population have increased by 60
percent and 40 percent, respectively.
Population Welfare Programme
Pakistan is now the seventh most
populous country in the world. Its population
growth rate has slowed in recent years from an
average of slightly above 3 percent to 2.16 percent
in 2002. Various population welfare programs
have been launched to reduce the size of the
population growth rate.
Population Welfare Programme is an on-
going national endeavour providing information
and services to the target population to encourage
Chapter 13. Population, Labour Force, and Employment
voluntary adoption of birth spacing. It is pursued
within the reproductive health framework in
order to broaden the scope of activities and
provide appropriate context and options for
family planning. In the next three years, the
population growth rate (PGR) is to be reduced to
1.8%. The thrust of the Programme is, therefore, to
reinforce the activities and speed-up
implementation of reproductive health package,
address unmet need for family planning and
improve the quality of services.
Major activities pursued during the year:-
a) Service Delivery Infrastructure:
The service delivery comprises
programme outlets and service units of Provincial
Line Departments (PLDs), target group
institutions, and private sector undertaking civil
society initiative. The entire network consists of
1,688 family welfare centers (FWCs), 106
Reproductive Health Services (RHS) Centres, 131
Mobile Service Units (MSUs), 500 outlets of Target
Group Institutions (TGIs), 7191 outlets of
Provincial Line Department (PLDs) including
those of Provincial Health Departments.
Population welfare program offers wide range of
family planning services including motivation,
counseling, IEC material, full choice of
contraceptives and contraceptive surgery. To
augment the family planning component of
Primary Heath Care & FP Project bare 11000
Village Based Family Planning Workers (Female)
have been transferred to Ministry of Health to
form a unified cadre of Family Health Workers.
The responsibility to undertake services at the
grass root level are being envisaged to be handled
by male workers especially with regard to male
involvement in the Population Welfare
Programme. With the existing work of about 1052
male workers, need is now felt to expand the male
village based family planning workers to 7000.
b) Social Marketing of Contraceptives:
Social Marketing activities are
complementing the efforts of population welfare
programme in providing conventional and
hormonal contraceptives at subsidized rates to the
low and middle groups of population in the urban
and peri-urban areas of the country through about
62,000 outlets. The interim results are encouraging
and continued donor support for the Programme
is expected. Ministry of Population Welfare has
also endorsed Social Marketing of Contraceptives
(SMC) expansion of program to meet the target of
2.3 million Couple Year Protection (CYP) by 2004.
Donor grant assistance is being sought.
c) Advocacy and Information Education
and Communication(IEC):
The Advocacy & IEC has attained an
almost universal level of awareness i.e. about 97%
but the contraceptives use rate is only 29%. There
is still a wide gap between knowledge and
practise in spite of the fact that there is an unmet
need of 33%. The challenge is to address the
unmet need and convert this into service users.
Advocacy and IEC can make major contribution
in this regard. A comprehensive IEC campaign is
being maintained within the prevailing cultural
values and by using multiple media channel with
special attention to advocacy. Focus is being given
to regional and local programs to present
messages in local context. Messages and media
are being developed for specific groups and
potential new users.
d) Capacity Building:
Capacity building activities cover clinical
and non-clinical training at various levels. These
include 18 month basic training of 340 Family
Welfare Workers/Counselors, 3-month training of
70 Field Officers, Short-term training of 350
Chapter 13. Population, Labour Force, and Employment

Medical Personnel of Provincial Line Departments e) Monitoring and Evaluation:

and Target Group Institutions and others,
advance-on the job training of 1100 Paramedics of
the programme, and 70 Paramedics of NGOs. In
addition, 120 faculty members of Training
Institutes will also be imparted training by June,
2002. Similarly, non-clinical training-orientation
activities cover 912 programme personnel, 2100
employees of other Nation Building Departments,
1600 personnel of organized sector and 8900
community-based Groups during the year. The
emphasis of non-clinical training has been shifted
from development of programme personnel to
Community Based Groups like the newly elected
public representatives.
Table13.6
Contraceptive Performance During 2000-01 and 2001-02
Monitoring of the programme activities
being a regular process is undertaken under
management information system (MIS) through
field monitoring and by holding review sessions.
This has further been intensified through surprise
visits by officers from the Ministry and by team of
provincial monitoring and evaluation cells to
various categories of service delivery outlets.
Contraceptive performance for the year
2000-2001 and 2001-2002 is given below in Table
13.6.

Method July2000 - June, 2001 July, 2001 - January, 2002

Schedule Achievement Percentage Schedule Achievement Percentage
of Cont. Achievement of Cont. Achievement
Mix Mix
Condom 214.750 119.869 55.86 135.872 73.181 53.86
(Units)
Oral Pill 9.523 4.239 44.51 7.005 2.526 36.06
(Cycles)
IUD 1.037 0.877 84.57 0.709 0.565 79.69
(Insertions)
Injectable 3.108 1.730 55.66 2.543 1.059 41.64
(Vials)
Cont. 0.242 0.122 50.41 0.178 0.072 40.45
Surgery
(Cases)
Source: Ministry of Population Welfare.

The emphasis of the programme is to standard for improving quality of services.

reach the desirous couples for meeting their
service needs. In this context, a mapping exercise
has been completed to systematically extend
coverage, improve access in order to avoid
duplication and fill the gaps. National standards
for family planning have been formulated and
disseminated to service providers to improve
quality of care. Training/orientations have been
accelerated to ensure application of the prescribed
LABOUR FORCE AND EMPLOYMENT
On the basis of estimated population of
145.96 million for mid-year 2002, the total labour
force comes to 41.54 million. Of this 28.12 million
or 67.69 percent is in the rural areas and 13.42
million or 32.31 percent in the urban areas.
Distribution of labour force from 1995 to 2002 by
rural-urban areas is given in Table-13.7.
Chapter 13. Population, Labour Force, and Employment

Table 13.7
Labour Force Since 1995 to 2002

Year Population Labour Force Rural Urban

(Mid year) Million Annual Million % Share Million % Share
(Million) Growth
1995 124.49 33.60 - 23.37 69.55 10.23 30.45
1996 127.51 34.43 2.4 23.83 69.21 10.60 30.79
1997 130.56 36.84 70 25.56 69.38 11.28 30.62
1998 133.61 38.64 4.8 27.09 70.11 11.55 29.89
1999 136.69 39.52 2.3 27.56 69.74 11.96 30.26
2000 139.76 39.84 0.8 27.31 68.55 12.53 31.45
2001 142.86 40.69 2.1 27.73 68.15 12.96 31.85
2002 145.96 41.54 2.1 28.12 67.69 13.42 32.31
Source: Labour Force Survey 1999-2000.

Labour Force Participation Rate
In Pakistan, labour force participation is
estimated on the basis of Crude Activity Rate
(CAR) and Refined Activity Rate (RAR). The CAR
is the percentage of labour force in total
population and the RAR is the percentage of
labour force in population of persons having 10
years of age and above. According to the Labour
Force Survey, 1999-2000 the overall labour force
participation rate (CAR) is 29 percent (29.8
percent in rural areas and 27.1 percent in urban
areas). The CAR was 27.5 percent in 1994-95. It
increased to 28.7 percent in 1996-97 and 29.4
percent in 1997-98 but has slightly decreased to 29
percent in 1999-2000. Similarly RAR was 41.2
percent in 1994-95, increased to 43.0 in 1996-97,
and further to 43.3 percent in 1997-98 but has
declined to 42.8 percent in 1999-2000.
Inter-comparison of rural and urban
participation rates reveals that labour force
participation rates are higher in rural areas as
compared to urban areas because Pakistan's
economy is mainly agrarian in nature and
agriculture is treated as a family occupation in
rural areas. The female labour force participation
rate is far less as compared to male participation
rate and as such their participation in economic
activities is low. The crude and refined labour
force participation rates by area and sex for 1994-
95, 1996-97, 1997-98 and 1999-2002 are given in
Table 13.8.
Employment Situation
Employed labour force is defined as all
persons of ten years of age and more who worked
at least one hour during the reference period and
were either "paid employees" or "self employed".
Based on this definition, the total number of
employed labuor force in 2002 is estimated at
38.29 million compared to 37.51 million in 2001 —
an increase of 2.1 percent. The total number of
employed persons in urban areas has increased
from 11.70 million in 2001 to 12.12 million in 2002.
Similarly rural employment increased from 25.81
million in 2001 to 26.17 million in 2002.
Distribution of employed labour force by
urban/rural areas from 1995 to 2002 is given in
Table 13.9
Chapter 13. Population, Labour Force, and Employment

Table 13.8
Labour Force Participation Rates by Area and Sex
(Percent)
Year Crude Activity Rate (CAR) Refined Activity Rate (RAR)
Pakistan Rural Urban Pakistan Rural Urban
1999-2000
Both Sexes 29.0 29.8 27.1 42.8 45.1 38.1
Male 47.6 48.2 46.5 70.4 73.1 65.0
Female 9.3 10.7 6.3 13.7 16.1 8.8

1997-98
Both Sexes 29.4 30.6 27.0 43.3 46.4 37.7
Male 48.0 48.4 47.1 70.5 73.4 65.2
Female 9.4 11.5 5.3 13.9 17.4 7.4

1996-97
Both Sexes 28.7 29.4 27.1 43.0 45.1 38.9
Male 47.0 47.2 46.5 70.0 71.8 66.5
Female 9.0 10.5 5.9 13.6 16.3 8.4

1994-95
Both Sexes 27.5 28.0 26.1 41.2 43.1 37.0
Male 45.9 46.0 45.7 69.1 71.3 64.3
Female 7.6 8.7 4.9 11.4 13.2 7.0

Source: Labour Force Survey.

Table 13.9
Employed Labour Force by Area

year Employed Annual Rural Urban

labour Force Growth (%) No. (Million) % Share No. (Million) % Share
(Million)
1995 31.80 0.3 22.25 70.00 9.55 30.00
1996 32.58 2.5 22.69 69.64 9.89 30.36
1997 34.59 6.2 24.12 69.73 10.47 30.27
1998 36.36 5.1 25.74 70.79 10.62 29.21
1999 37.19 2.3 26.19 70.42 11.00 29.58
2000 36.72 -1.3 25.42 69.23 11.30 30.77
2001 37.51 2.2 25.81 68.81 11.70 31.19
2002 38.29 2.1 26.17 68.35 12.12 31.65
Source: Labour Force Survey 1999-2000.

Employed Labour Force By Sectors. employing 48.42 percent of total employed in 2002
compared with 47.25 percent in 1998. The relative
The agriculture sector is the largest share of employed labour force in the services
employer of labour force in the country, sector which was 16.23 percent in 1998, has
Chapter 13. Population, Labour Force, and Employment

declined to 15.02 percent in 2002. The share of
trade sector has also decreased from 13.87 percent
in 1998 to 13.50 percent in 2002. However the
share of manufacturing sector has increased from
10.15 percent in 1998 to 11.25 percent in 2002. The
construction and transport sectors have absorbed
5.78 percent and 5.03 percent of labour force,
respectively in 2002 compared to 6.26 percent and
5.48 percent in 1998.
Employed labour force by sectors for 1998
and 2002 alongwith its sectoral share is presented
in Table 13.10

Table 13.10
Employed Labour Force by Sectors

Sector 1998 2002

No.(Million) % Share No.(Million) % Share
Agriculture 17.18 47.25 18.54 48.42
Manufacturing & Mining 3.69 10.15 4.42 11.25
Construction 2.28 6.26 2.21 5.78
Wholesale & Retail Trade 5.04 13.87 5.17 13.50
Transport 1.99 5.48 1.93 5.03

Fin., Insurance, Community & Services 5.90 16.23 5.75 15.02

Others 0.28 0.76 0.27 0.70
Total 36.36 100.00 38.29 100.00
Source: Labour Force Survey 1999-2000.

Employment by Occupation agricultural and fisheries workers followed by

Information pertaining to employment by
major occupational group is documented in Table
13.11. A cursory look at the table reveals that
almost 40 percent of labor force is skilled
unskilled group. Craft and related trades workers
accounted for 15 percent of employed labour force
and the white color workers accounted for 11
percent.

Table 13.11
Employed Persons by Major Occupational Groups
Major Occupational Group 1998 2002
No.(Million) % Share No.(Million) % Share
Legislators, Senior Officers & managers. 3.55 9.67 4.21 11.00
Professional. 1.10 3.00 0.85 2.21
Technicians & associate professionals 1.06 2.95 1.60 4.17
Clerks. 0.67 1.84 0.59 1.55
Service workers and shop & market sales
workers. 2.19 6.02 1.75 4.58
Skilled agricultural and fishery workers. 14.51 39.91 15.33 40.03
Craft and related trades workers. 4.62 12.71 5.76 15.05
Plant & machine operators & assemblers. 1.34 3.68 1.26 3.28
Elementary (unskilled occupations). 7.32 20.13 6.94 18.13
Total 36.36 100.00 38.29 100.00
Source: Labour Force Survey 1999-2000
Chapter 13. Population, Labour Force, and Employment

Unemployment seeking work i.e. had taken specific steps in a

Unemployment is defined as all persons
ten years of age and above who during the period
under reference, were (a) without work i.e. were
not in paid employment or self-employed, (b)
currently available for work i.e. were available for
paid employment or self-employment and (c)
specified period to seek paid employment or self-
employment. According to this definition, about
3.25 million persons in the labour force were
estimated as unemployed in 2002 compared to
3.18 million in 2001. Unemployed labour force by
urban/rural areas from 1995 to 2002 is given in
Table-13.12

Table 13.12
Un-employment Rate Since 1995 to 2002

Year Population Unemployed Labour Force % Unemployment Rate (%)

(Mid year) Total Rural Urban Total Rural Urban
1995 124.49 1.80 1.12 0.68 5.37 4.80 6.90
1996 127.51 1.85 1.14 0.71 5.37 4.80 6.90
1997 130.56 2.25 1.44 0.81 6.12 5.65 7.17
1998 133.61 2.28 1.35 0.93 5.89 4.98 7.95
1999 136.69 2.33 1.37 0.96 5.89 4.98 7.95
2000 139.76 3.12 1.90 1.22 7.82 6.94 9.92
2001 142.86 3.18 1.92 1.26 7.82 6.94 9.92
2002 145.96 3.25 1.95 1.30 7.82 6.94 9.92
Source: Labour Force Survey 1994-95, 1996-97, 1997-98 and 1999-2000.

Employment Promotion Policies sustainable growth path is a daunting task. Given

There is a clear and perceptible evidence
that the growth performance of Pakistan's
economy has deteriorated in the 1990s. Against an
average growth rate of more than 6 percent per
annum in the 1980s, the real GDP growth slowed
to an average of 4 percent in the 1990s. More so,
the real GDP growth slowed to an average of 2.7
percent during 1996-99. The slower economic
growth restrained the economy's capacity to
generate employment and as such unemployment
also rose in the 1990s from 3.1 percent to 7.8
percent.
The best way to create employment is to
promote economic growth. Higher economic
growth is likely to create demand for labour
which will, in turn, reduce unemployment. It is
well-known that taking the economy from a low
and declining growth path to a higher and
the state of unemployment in the country, the
Government has identified four major drivers of
growth, namely, agriculture, oil and gas, small
and medium enterprises (SMEs), and information
technology. With relatively lesser investment
more employment opportunities can be created.
Agriculture and SMEs have the greatest potential
of not only generating growth but also creating
employment opportunities. Informational
technology has the potential to create jobs for
educated unemployed youth and oil and gas
sectors to attract foreign investment which can
contribute in accelerating economic growth. Over
the medium-term the country's economic growth
is projected to accelerate to 5.2 - 5.5 percent and
pro-poor nature of growth would likely to create
more employment.
The government has also launched small
public works programme, namely the Khushhal
Chapter 13. Population, Labour Force, and Employment
Pakistan Programme. An allocation of Rs.15
billion was made in 2001-02 and so far Rs.24
billion has been spent on this programme which
has created about 1.0 million temporary jobs in
the rural areas and adjacent small towns. To
promote SME sector the government has also set
up SME Bank on January 1, 2002. The Bank is
providing small loans in the SME sector. The Bank
has disbursed so far Rs.95 million for 330 projects
which have created about one thousand jobs. The
government has also established Khushhali Bank
with a view to improving poor peoples access to
credit and making them self-employed. In five
years time the Bank aims to provide loans to
600,000 people with loan portfolio of Rs.7.6
billion.
Technical/vocational training enhances
employability of the work force. Based on the
changing trends of the economy and the demand
for industry-wise and sector-wise skilled labour,
the existing technical training curricula is being
revised. Under the new training policy, women
shall be encouraged to fully participate in the
training programmes of the country so that they
are brought in the mainstream through the
formal, informal ad apprenticeship training. In
order to develop a skilled labour force, the
Ministry of Labour, Manpower & Overseas
Pakistanis has established Skill Development
Councils (SDCs). The SDCs assess the training
needs of their geographical areas, prioritize them
on the basis of market demand and facilitate
______________
training of workers through training providers in
the public and private sectors. Further initiatives
are being undertaken to involve the private sector
more actively in expanding technical vocational
training in line with labor market needs.
During the year 2001 about 130,041
persons have been sent abroad as compared to
110,136 persons sent during the year 2000 which is
18 percent higher as compared to last year. Efforts
are being made to explore more overseas
employment opportunities for Pakistani
workforce. In order to facilitate Pakistanis seeking
employment abroad in professional/highly
skilled areas the Overseas Employment
Corporation has established a data bank for the
interested emigrants and has launched the "CV-
on-line Scheme for Overseas Employment
Promotion".
Women are about half of the nation's
population, but in the past this segment of society
remained neglected. Economic empowerment of
women is a primary objective of the growth.
Special efforts are being made to enhance their
employability through education and vocational
training responsive to the job market. Steps have
been taken to provide Greater access to women
for micro credit through Programmes such as the
First Women Bank and the Agriculture
Development Bank of Pakistan. The new
Khushhali Bank also focuses particularly on
women for credit.
Chapter 14. Transport and Communications
14. Transport and Communications
Transport sector comprises several modes
(road, rail, maritime, inland waterway, aviation,
and urban transport). Each mode involves
infrastructure (roadways, rail tracks, ports,
airports, terminals, sidewalks, footpaths and
footbridges and so on) and services (such as
trucking, shipping, bus passenger transport and
bicycle-taxi). Each mode also provides several
types of services, which can be identified by both
geographic coverage, (international, domestic,
rural, urban, and community) and by users
(passenger and freight). Users are also a diverse
group with transport needs that differ widely __
for example, across rural and urban areas,
between gender and for persons of different ages
or with disabilities, and for motorized and non-
motorized (NMT) transport services.
A country’s ability to unleash its
economic potential is closely linked to the
efficiency of its transport system. Transport is also
an integral part of almost all daily subsistence and
social activities. Poor households transport their
water, fuel, and food. They need transport to get
to markets, jobs, and health clinics. The likelihood
that the children of poor families will go to
secondary schools, especially girl child, is much
higher if there are reliable and affordable
transport services. Better transport facilitates poor
people’s participation in social and political
processes. Without well-defined and effective
transport policies and strategies poor people will
not be able to accumulate enough human,
physical, financial, and social assets to move
ahead. Transport, therefore has to be an integral
part of a country’s poverty reduction strategy.
Poverty is associated with very low income and
consumption and is manifested in many
dimensions—malnutrition, illiteracy, vulnera-
bility, physical isolation, and political and social
exclusion. Each of these dimensions tends to
reinforce the others and they share important
transport linkages. Good transport policy also
contributes to reduce poverty in all its dimensions
and stimulates economic and social development
and inclusion. Better access to markets creates
economic opportunities for poor people to sell
their labour and products. Better transport
infrastructure and services facilitate access to
schools and health clinics. Good transport policy
contributes to economic growth by lowering
transaction costs, promoting economies of scale
and specialization, and hence lowering domestic
production costs, widening opportunities and
extending connection to rural hinterlands,
expanding trade, integrating markets, and
strengthening effective competition.
A. ROAD NETWORK
Road transport in industrialized,
developing and transition economies continues to
grow at 1.5 to 2.0 times the growth of GDP. This is
significantly higher than the rate of growth of the
government’s tax revenues making it increasingly
difficult for governments to fully-finance the
needs of the road sector maintenance, upgrading,
modernization of outdated networks, and
expansion through the consolidated fund. At the
same time, countries all over the world are
realizing that roads are big business.
Governments are responding to this state of
Chapter 14. Transport and Communications

affairs in three main ways: (i) by tolling their 91, increased to 249,959 in 2000-01 and further to
express way network, (ii) by restructuring their 251,661 KM in 2001-02 or 47.3 percent higher than
road agencies to put them on a more commercial 1990-91. During the out going fiscal year the
basis, and (iii) by financing the balance of the un- length of high typed roads have increased by 7.3
tolled network (often 98 percent or more of the percent over the last year but the length of low
road network). Countries are increasingly type roads has declined by almost the same
bringing road into the market place and putting percentage point. In other words, the low type
them on a fee for service basis. In other words, roads were converted in to high type roads. This
they are commercializing the provision of road has been made possible through the Khushal
services. Pakistan Program, which has undertaken many
projects for improving rural infrastructure. The
Pakistan’s achievement in building high annual growth of the roads in Pakistan since 1990-
and low types of roads has been quite credible. 91 to 2001-02 is given in Table 14.1 and Fig-1
The total roads which were 170,823 KM in 1990-

Table 14.1
Length of Roads
(Kilometers)
Fiscal Year High Type %Change Low Type %Change Total % Change
1990-91 86,839 - 83,984 - 170,823 -
1991-92 95,374 9.8 87,335 4.0 182,709 7.0
1992-93 99,083 3.9 90,238 3.3 189,321 3.6
1993-94 104,001 5.0 92,816 2.9 196,817 4.0
1994-95 111,307 7.0 96,338 3.8 207,645 5.5
1995-96 118,428 6.4 99,917 3.7 218,345 5.2
1996-97 126,117 6.5 103,478 3.6 229,595 5.2
1997-98 133,462 5.8 107,423 3.8 240,885 4.9
1998-99 137,352 2.9 110,132 2.5 247,484 2.7
1999-2000 138,200 0.6 110,140 0 248,340 0.3
2000-01 138,726 0.4 111,233 1.0 249,959 0.7
2001-02* 148,877 7.3 102,784 -7.6 251,661 0.7
* Estimated Source: Ministry of Communications

Fig-1: Length of Roads National Highway Authority (NHA)

5
00 00 00 +0 +0 +0 +0

The government of Pakistan has taken

50 70 90 1E 1E 2E 2E
5
Kilometers

various steps to improve the transport and

5

communication network. The functions assigned

5

to NHA are “Plan, promote, organize and

0 0

implement programs for construction,

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

2001-02(Jul-Mar)
0

development, operation, repairs and maintenance

of National Highways/Motorways and Strategic
Roads.
Hight Type Road Low Type Road
Chapter 14. Transport and Communications

The NHA being Pakistan’s premier road
management and regulatory agency is the
custodian of 17 National Highways, Motorways
and Strategic Roads. Road transport dominates
the transport sector and presently carries over 85
percent of inland passengers and freight traffic,
over a 251,661 kms of road network. The National
Highway network consisting of 8,845 Km is 3.6
percent of the total road length in Pakistan but
accounts for 65 percent of the entire country’s
passengers and freight traffic.
The NHA is currently engaged in
completing the 11 road projects of National
Highway. As regards Motorway Projects, the
Lahore-Islamabad section (M-2) has already been
completed and in operation since 1997. The work
on Peshawar-Islamabad (M-1) and Pindi Bhattian-
Faisalabad (M-3) are in progress. Details of
existing road network with its present
implementation status are given in the Box-1

Box-1
Road Projects
a) National Highway Projects

i) N-5 Karachi-Lahore Peshawar-Torkham Highway-

The whole N-5 has been dualized with about Rs. 28 billion except Hala Moro (114 Km) and
Rahim Yar Khan-TMP (80 Km) sections, on which work is full swing and will be completed by
March 2003.

ii) N-10 Makran Costal Road (653 Km):

- The work on Liari- Ormara section (248 Km) of Makran Coastal Road is in progress. 91-Km
road has been constructed while work from 91 to 127 Km is in progress.
- Gwadar-Pasni Section (123 Km) about 2 percent work is completed.

iii) N-15 Kaghan Valley Road (175 Km):

- The project is 72 percent complete. Completion date is December 2002.

iv) N-25 Karachi-Khuzdar-Quetta-Chaman Highway(816 Km):

The highway is being widened and improved to international standards. Wad-Khuzdar-Sorab
(160 Km), Uthal-Bela (69 Km), Sorab-Kalat (74 Km) sections of N-25 has been completed.

iv) N-35 Hassanabadal-Gilgit-Khungrab (803 Km):

- Chillas-Khunjrab (Section-II) is almost complete while work on Thakot Chillas (Section-I) is in
progress and about 85 percent work has been completed.

v) N-40 Lakpass-Dalbandin-Nokundi-Taftan (610 Km):

Nokundi-Taftan section 124 Km has been widened and improved.

vi) N-50 Quetta (Kuchlac)-Muslim Bagh-Zhob-D.I.Khan Highway (528 Km):

About 46 percent roadwork of D.I.Khan—Mughal Kot section completed. Expected completion
date is March 2004.

vii) N-55 Indus Highway (1265 Km):

Work on upgradation of Phase-I & II from Kotri- Manjhad (58 Km), Manjhad.- Sehwan
(70Km), Karappa Chowk-Badabher (51 Km), Ratodero- Ghauspur (98 Km), Ghauspur-
Shorinullah (76 Km), Shorinullah- Rajanpur (96 Km), D.G.Khan- Retra Jn. (113 Km), Retra Jn.-
Malana Jn. (85 Km), Serai Gambila-Karak (60 Km) and Karak-Karapa Chowk (36 Km) has been
completed.
Chapter 14. Transport and Communications

- Phase-III Sehwan-Ratodero (205 Km), Rananpur-D.G.Khan (110 Km), and Malana

Junction-Serai Gambila (112 Km) has been designed.
- Construction work on 30 Km Kohat Tunnel Project (1.88 Km tunnel and 28 Km access
roads) is in progress. Todate progress is 57 percent. The project is expected to be
completed by July 2003.

viii) N-65 Sukkur-Sibi-Quetta Highway (385 Km):

Work on 60 Km Dera Allah Yar- Nutal section of N-65 is in progress, about 8 percent
construction work completed.

- Work on Nutal—Sibi section (81 Km) also being started.

- The construction/replacement of existing steel bridges on (N-65) have been almost

completed.

x) N-70 Multan-D.G.Khan-Qila Saifullah Highway (439):

The entire N-70 has been designed. Work on Qila Saifullah-Loralai Bewata Section (257 Km) is
going to start.

xi) N-75 Islamabad-Muzaffarabad Road (90 Km)

- Additional Carriageway from Barakahu to Satra Mile (5 Km) completed.

- Work on Satra Mile to Lower Topa dual carriageway (41 Km) is in progress, 22
percent work completed.

b) Miscellaneous Projects

i) Karachi Northern Bypass (56.8 Km)

- Construction work has been started in April 2002. Project will be completed in 36
months.

ii) Lyari Expressway (16.5 Km)

- Construction work has been started in the April 2002. The project will be completed in
36 months.

iii) Bund Road Lahore

Rehabilitation work on 10.1 Km long Bund Road from Chowk Yateem Khana to Niazi Chowk,
78 percent work completed.

iv) Ghazi Ghat Bridge

Rehabilitation work on Ghazi Ghat Bridge has been completed.

v) Sukkar Bypass including 1.6 Km long bridge on River Indus (11.5 Km)
Projected completed.

vi) Chiniot Bridge Project

Projected completed.
Chapter 14. Transport and Communications

vii) Tall-Parachinar (75 Km)

Road project completed.

viii) Ratodero-Shahdadkot-Quba Saeed Khan

64 Km section is in progress. 75 percent work completed.

ix) Abbottabad-Nathiagali-Barian-Murree Road.

Project completed.

x) Rawalpindi Urban Area Project

- Qasim Market to Golra More has been completed.
- Golra More to M-2 interchange is nearly completion.
- Pir Wadhai round about is almost complete.
-
xi) Installation of Toll Plaza
A fee-for –use culture in Pakistan has been introduced. Toll Plaza’s at 47 locations all over the
Pakistan have been established and are operational since October 1999.

B. PAKISTAN RAILWAYS railway as main system of transportation in the

Pakistan Railways is still a major mode of
transport in the public sector spreading over the
entire country from East to West and South to
North; and playing an important role in the
country’s economy by catering to the needs of
large-scale movement of freight as well as
passenger traffic. Pakistan Railways is not only
contributing to the country’s economic
development but also promoting national
integration. With shifting of priorities to road
sector as a mode of transport, the performance of
Pakistan Railways started deteriorating since the
1980s. Neglect of successive governments, lack of
investment in this sector, management
inefficiencies, unhealthy trade unionism, and
corruption have been responsible for the decay of
Pakistan Railways over the last many years.
Presently about 55 percent of infrastructure and
rolling stock is overage, it has, however,
improved from the last year’s level of 60 percent.
The present Government took note of the
situation and introduced structural and
management changes in the system--declaring
country. In this connection, emergency repair plan
amounting to Rs. 3.897 billion approved by the
Government for the Railway sector in December
1999 is being implemented. Under this plan
replacement of 85 Kms of overage rails and 187
Kms of overage sleepers, rehabilitation of 240
passenger coaches and rehabilitation of 1000
freight wagons will be completed by June 2002. In
addition, the Government has approved a
rehabilitation plan amounting to Rs. 40 billion for
5 years (2001-06). The rehabilitation plan has been
made part of 10-years perspective plan (2001-10)
announced by the Government of Pakistan. An
allocation of Rs. 105 billion has been made for the
Railways in the 10 years perspective plan to
rehabilitate and modernize the infrastructure,
rolling stock, signaling and telecommunication
facilities over the Railways network. The major
projects include procurement/manufacture of 169
diesel engines, locomotives, procurement/
manufacture of 575 passenger coaches,
procurement/manufacture of 1600 high capacity
wagons, rehabilitation of 136 locomotives,
rehabilitation of 450 passenger coaches,
Chapter 14. Transport and Communications

procurement/manufacture of 45 electric programme for the year 2001-02. The major

locomotives, doubling of track from Lodhran to
Peshawar and Lahore to Faisalabad, extension of
existing electric traction from Khanewal--Rohri
and replacement of out dated telecommunication
and signaling system. An amount of Rs. 6,369
million has been provided for development
activities include rail renewal of 79 Kms and
sleeper renewal of 194 Kms, rehabilitation of 16
diesel electric locomotives, and rehabilitation of
102 passenger coaches. The performance of
Pakistan Railways can be seen from Table 14.2

Table 14.2
Performance of Pakistan Railways

Year Route Number of Freight Freight Tones Locomotives Freight

Kilometers passengers carried Km (No.) wagons
carried (Million (Million) (No)
(Million) tones)
1990-91 8,775 84.9 7.7 5,709 753 34,851
1991-92 8,775 73.3 7.6 5,962 752 30,369
1992-93 8,775 59.0 7.8 6,180 703 29,451
1993-94 8,775 61.7 8.0 5,938 676 29,228
1994-95 8,775 67.7 8.1 5,661 678 30,117
1995-96 8,775 73.6 6.8 5,077 622 26,755
1996-97 8,775 68.8 6.4 4,607 633 25,213
1997-98 8,775 64.9 6.0 4,447 611 24,275
1998-99 7,791 64.9 5.4 3,967 596 24,456
1999-00 7,791 68.0 4.8 3,612 597 23,906
2000-01 7,791 68.8 5.9 4,520 613 23,563
July-March
2000-01 7,791 52.4 4.3 3,205 599 23,459
2001-02* 7,791 49.2 4.0 3,341 610 22,192
*Provisional Source: Ministry of Railways

The share of Railways in respect of
passenger traffic has declined from 13.5 percent in
1990-91 to 8.6 percent in 2000-01. The share of
freight traffic has declined from 14 percent to 4
percent in the same period. However, as far as
freight traffic is concerned, it has improved from
3.4 percent in 1999-2000 to 4 percent in 2000-01.
Pakistan Railways registered an impressive
recovery in 2000-01 when freight traffic increased
by 25 percent as against an average decline of 4.8
percent per annum in the 1990s. The same
positive growth has been maintained in the first
nine months of the current fiscal year.
Furthermore, as against an average decline in
passenger traffic by 0.7 percent per annum during
the 1990s, passenger traffic of Pakistan Railways
has increased by 5.9 percent in 2000-01 and
further by 2.4 percent in the first nine months of
the current fiscal year. Maintaining a positive
growth for two successive years can be attributed
to the various improvement made by Pakistan
Railways in its services, timeliness and cleaniless.
This trend is reported in Table 14.3 and Fig-2 &
Fig-3.
Chapter 14. Transport and Communications

Table 14.3
Trend of Passengers Traffic and Freight Traffic
(Road vs Rail)
Year Passenger Traffic(Million passenger Km) Freight(Million Ton KM)

Road %Change Rail %Change Road % Change Rail %Change

1990-91 128,000 - 19,964 - 35,211 - 5,709 -
1991-92 131,352 2.6 18,158 -9.0 41,536 18.0 5,962 4.4
1992-93 135,000 2.8 17,082 -5.9 53,719 29.3 6,180 3.7
1993-94 137,037 1.5 16,385 -4.1 71,596 33.3 5,938 -3.9
1994-95 146,132 6.6 17,545 7.1 75,770 5.8 5,661 -4.7
1995-96 154,566 5.8 18,905 7.8 79,900 5.5 5,077 -10.3
1996-97 163,751 5.9 19,114 1.1 84,345 5.6 4,607 -9.3
1997-98 173,857 6.2 18,774 -1.8 89,527 6.1 4,447 -3.5
1998-99 185,236 6.5 18,980 1.1 95,246 6.4 3,967 -10.8
1999-00 196,692* 6.2 18,495 -2.6 101,261 6.3 3,612 -8.9
2000-01 208,370* 5.9 19,590 5.9 107,085* 5.7 4,520 25.0
(Jul-Mar)
2000-01 156,277* - 14,517 - 80,314* - 3,205 -
2001-02 167,816** 7.4 14,867* 2.4 89,535** 11.5 3,341* 4.2

*Provisional Source: Ministry of Railways & Ministry of Communications

**Estimated

Fig-2: Trend of Passenger Traffic

250 40

35
200
30
(Billion Passenger Km)

25
150
Road
20
Rail
100
15

10
50
5

0 0
)

)
1

ar

ar
-9

-9

-9

-9

-9

-9

-9

-9

-9

-0

-0

-M

l-M
90

91

92

93

94

95

96

97

98

99

00

ul

Ju
(J

2(
1

-0
-0

01
00
Chapter 14. Transport and Communications

Fig-3: Trend of Freight

120 10

9
100
8

7
(Billion Ton Km)

80
6
Road
60 5
Rail
4
40
3

2
20
1

0 0

)
1

ar

ar
-9

-9

-9

-9

-9

-9

-9

-9

-9

-0

-0

-M

l-M
90

91

92

93

94

95

96

97

98

99

00

ul

Ju
(J

2(
1

-0
-0

01
00

C. CIVIL AVIATION AUTHORITY facilitate exports, cargo sheds have been

The Government has opened aviation
sector for the private sector. Presently two private
carriers are operating successfully on local and
international routes namely, M/S Shaheen Air
Lines and M/S Aero Asia Private Airline Limited.
The government plans
modernization and upgrading its civil aviation
facilities. This includes the construction of new
terminal complex at Lahore Airport at the cost of
Rs.10.3 billion. Almost 80
construction work is complete and the remaining
work is expected to be completed by end June
2002. The construction of secondary runway at
Karachi airport has been
commissioned since August
construction of a new airport in Islamabad is also
under consideration on BOOT (Build, Own,
Operate and Transfer) basis. The construction of
Concourse Hall at Quetta Airport has been
completed in August 2000 at a cost of Rs. 14.7
million. Arrival lounges at Islamabad airport have
been expanded at a cost of Rs. 68 million. To
completed at Multan and Karachi Airports during
the year 2001-02.
Pakistan International Airline (PIA)
PIA’s network covers 33 International
to continue Stations and 21 Domestic Stations covering all
parts of the country. During the period July-
March 2001- 02, passenger capacity fell short by
15.6 percent as compared to the same period of
percent of the last year. The airline achieved 8,633 million RPKs
during the current financial year as against 9,739
million RPKs generated in same period last year.
During the period under review, seat factor
completed and improved to 69.6 percent as against 66.3 percent
2000. The last year. A total 3.385 million passengers were
carried as compared to 4.178 million passengers in
the preceding year. The decline in passenger
traffic is attributable to unscheduled grounding of
Airbus A-300 aircraft, the events of September 11
and their aftermath, closure of Indian airspace
and reduced/non-issuance of visas to Pakistanis
by US/UK/UAE, Singapore, Thailand, Kuwait,
Chapter 14. Transport and Communications
etc. During the period July-March 2001- 02,
despite a decline in capacity by 3.8 percent, freight
traffic improved by 6.6 percent over the same
period of last year. Freight load factor was up at
55.6 percent as compared to 50.2 percent in the
previous year. The improvement in freight traffic
was mainly due to suspension of foreign carriers
freighter operations. PIA operated total 238 flights
to ferry 90,750 Haj pilgrims from Karachi, Lahore,
Islamabad, Peshawar and Quetta. Haj operations
were completed totally with PIA’s own aircraft
and a record regularity of about 95 percent was
achieved. PIA’s aircraft fleet as on 31st March 2002
consisted of 5 Boeing 747-200s, 5 Boeing 747-300, 8
Airbus A300B4s, 6 Airbus A310s, 7 Boeing 737s,
11 Fokker F-27s and 2 Twin Others.
The PIA management has taken various
cost-cutting and revenue enhancement measures
during the period under review. The cost –cutting
measures included: closing down of non-
productive domestic and international station,
elimination of non-productive positioning flights,
new slip patterns were evolved with lower
layover costs for cabin crew, slip allowance rates
were reduced, hotels for crew layover were
changed from expensive downtown hotels to
more economical ones at foreign stations, a
number of foreign-based PIA staff were recalled,
locally hired personals at foreign stations were
also curtailed and feeder network was
rationalized. As regards the revenue enhancement
measures, the PIA has taken a number of
measures including: increasing of domestic fares
by 15 percent, increasing of international fares to
improve yield, capacity was re-deployed from
low yield to high yield markets, productive agents
were given incentives, charges applied on voided
tickets, and penalties on agents not following
reservation system rules. There was net loss of Rs.
5,146 million during 2000 and Rs. 2,285 in the first
half of the year 2001 (January-June). As a result of
the various strategies adopted in the second half
of 2001 (July-December), PIA was able to generate
an estimated profit of Rs. 303 million. Again, in
the first quarter of the year 2002 (January-March),
PIA earned an estimated profit of Rs. 1,238
million. Thus, during the nine months from July
2001 to March 2002, PIA has earned an estimated
profit of Rs. 1,541 million as against a loss of Rs.
4,575 million during the same period last year.
The financial performance of PIA in aggregate
manner is reported in Table 14.4
Table 14.4
Financial Performance of PIA
(Million Rs)
Jul-Mar* July-Mar*
2000-01 2001-02
Revenue 33,595 35,030
Expenditure 38,170 33,489
Profit/Loss (4,575) 1,541
Before Tax
*Estimated Source: PIA
D. PORTS & SHIPPING
a) Karachi Port Trust
The country has two major seaports;
namely, Karachi Sea Port and Port Qasim.
Besides, two Fish Harbour-cum-Mini Ports are
being developed at Gawadar and Keti Bunder.
Karachi port is a deep-water natural seaport with
long approach channel and can receive tankers,
containers, bulk and general cargo ships. It is the
main port, handling the majority of all dry and
liquid cargo. Table 14.5 and Fig-4 gives the total
cargo handled at Karachi Port since 1990-91 to
2001-02.
Chapter 14. Transport and Communications

Table 14.5
Cargo Handled at Karachi Port
(000 Tonnes)
Year Imports %Change Exports %Change Total %
Change
1990-91 14,714 - 3,995 - 18,709 -
1991-92 15,266 3.8 5,186 29.8 20,453 9.3
1992-93 17,256 13.0 4,914 -5.2 22,170 8.4
1993-94 17,610 2.1 4,959 0.9 22,569 1.8
1994-95 17,526 -0.5 5,572 12.4 23,098 2.3
1995-96 18,719 6.8 4,862 -12.7 23,581 2.1
1996-97 18,362 -1.9 5,113 5.2 23,475 -0.4
1997-98 17,114 -6.8 5,570 8.9 22,684 -3.4
1998-99 18,318 7.0 5,735 3.0 24,053 6.0
1999-00 18,149 -0.9 5,613 -2.1 23,762 -1.2
2000-01 20,064 10.5 5,918 5.4 25,982 9.3
July-March
2000-01 15,315 - 4,342 - 19,657 -
2001-02 15,265 -0.3 4,792 10.4 20,057 2.0
Source: Karachi Port Trust

activity for at least three months (October-

December). Cargo handling increased by 2.0
Fig-4: Cargo Handled at Karachi Port
percent in the first nine months of the current
0
00 fiscal year. Karachi Port has established an annual
25

0
cargo handling record of about 26.0 million with
00
20 nearly zero waiting time of vessels in 2000-01.
000 Tonnes

00
0 Karachi Port has planned a number of
15
development schemes financed through its own
0
00 resources. These include deepening of channel,
10

00
study for deep draught berth at Kemari Grovne
50
and strengthening of Menora breakwater,
0
procurement of new floating crafts, and expansion
2000-01
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01(Jul-Mar)

2001-02(Jul-Mar)

of Kemari Grovne complex. As regards the

Import Export
deepening of channel is concerned, the KPT
intends to deepen the channel to cater for 12
meter draught ships which are the most widely
The above table shows that the total
used container vessels. The deepening would not
volume of cargo handling by the KPT has
only respond to the demand of port users but
increased from 18.7 million tones in 1990-91 to
would also be a stepping stone towards enabling
almost 26 million tones in 2000-01 (almost 39
Karachi Port to reposition itself in the regional
percent). As against an average increase of Cargo
scenario to capture new markets. Presently the
handling at Karachi Port by 2.7 percent per
port is not adequately deep to handle such
annum, Cargo handling increased by almost 10
vessels: As regards the Study for Deep Draught
percent in 2000-01. Despite the impact of
Berths at Keamari Grovne and Strengthening of
September 11 which disrupted normal trading
Chapter 14. Transport and Communications
Monora Breakwater, the KPT would like to
further facilitate shipping by providing deep
draught berths at Keamari Grovne. The berths
would be located at the mouth of the harbour
hence ensuring expeditious cargo
loading/unloading and swift turnaround time for
transshipment vessels having deep draughts. As
regards the procurement of new floating crafts,
the flotilla of harbour crafts is regularly upgraded
to cater for the shipping requirements. Presently,
KPT has a large flotilla of tugs, pilot boats, hopper
barges and dredgers. The old crafts are being
replaced with modern and efficient equipment
ensuring agile operations. Regarding expansion of
Kemari Grovne Complex, it has been planned to
provide additional area to meet with the future
requirement of container & existing traffic and the
potential container.
b) Port Qasim
Cargo volume, inclusive of containerized
cargo, during July-March, 2001-02 stood at 9.94
million tones, comprising 8.01 million tones of
import cargo and 1.93 million tones of export
cargo as against 10.27 million tones during July-
March 2000-01, thus registering a decline of 3.2
percent. This shortfall is mainly attributed to
lower furnace oil and chemicals imports of Fauji
Oil Terminal and Engro Vopak Terminal.
Port Qasim has embarked on an
ambitious plan to upgrade and expand its
facilities to optimize its potential. Major projects
being planned and implemented include: Night
Navigation facility which has been introduced at
Port Qasim since April 15, 2002 to serve multifold
objectives to facilitate the trade and meet the ever-
growing shipping requirements. To meet the
growing shipping facilities, PQA plans to
construct two tugs and two pilot boats with
Karachi Shipyard. The 2nd Oil jetty is planned to
be constructed for handling of White Oil and
further transportation through Papco Pipeline
being laid from Port Qasim to Mahmood Kot near
Multan.To facilitate efficient handling of edible oil
and export of molasses, a dedicated Liquid Cargo
Terminal, on Build Operate and Transfer (BOT)
basis, suitable for berthing ships up to 35,000 dwt
is proposed to be constructed. It will generate
additional revenue for PQA and foreign exchange
for the country by promoting export of molasses.
c) Gwadar Port
The port is geographically located at
Gwadar East Bay about 460 KM West of Karachi.
It will be developed in two phases. In Phase-1,
three multi purpose berths and a service berth
will be constructed. The port would be capable to
handle ships of 30,000 DWT Bulk Carriers and
25,000 DWT Container Vessels. The project is
being built with Chinese assistance and will be
completed within three years. The Phase-II of the
port project will be implemented under BOO
(Build Own and Operate) or BOT (Build Own and
Transfer) basis. Phase-II of the project will
comprise of 10 additional berths including 3
dedicated container terminals, one bulk/grain
terminal with capacity of handling vessels up to
100,000 DWT and two oil berths for vessels up to
200,000 DWT. Phase-II of the project will include
construction of rail link to hinterland as well. The
port also offers within its vicinity an Export
Processing Zone as well as an Industrial Zone so
as to facilitate setting of industry, commerce and
trade enterprises.
d) Pakistan National Shipping Corporation
Pakistan National Shipping Corporation
(PNSC) is a national flag carrier and its main
objective is to serve as an operating link between
major trading partners of the country, maintain
and stabilize the freight rates charged by the
conferences and other liner services operating to
Chapter 14. Transport and Communications

Pakistan and provide strategic link in the case of
emergencies.
The fleet strength of Pakistan National
Shipping Corporation during July-March 2001-02
was 14 vessels with a dead-weight capacity of
243,749 tons. Estimated revenue during the nine
months under review was approximately Rs.
3,741 million. PNSC handles all kind of cargo
including rice, fertilizer, iron ore, coal and wheat.
PNSC is also a major carrier of crude oil for the
country. During the first nine months of current
financial year, PNSC has transported a total of
4.99 million tons of cargo including 3.9 million
tons of crude oil.
E. INFORMATION TECHNOLOGY (IT)
The present Government is according
high priority to this sector. In fact, information
technology has been identified as one of the four
major drivers of growth. The windows of
opportunity opened through Internet commerce
has been taken as a challenge. IT is one of the key
determinants of competitiveness and growth of
organized and unorganized sectors of the
economy. In response to the government’s policy,
the per capita Internet prevalence is growing in
geometrical progression. The Internet usage is
growing at more than 50 percent per annum and
has progressed from 0.011 million users in 1998 to
1.7 million in the year 2001-02. The new
developments in IT are given in Box-2

BOX-2
Ø Human Resource (HR) Development is imperative for the local IT industry to position the
country as an important player in the international IT Market. Under the HR Action Plan, a
large pool of academically as well as technically skilled IT manpower is being developed to
meet the local and export needs. In this regard, different program under implementation are
as under: -
• Establishment of new IT Departments at university level.
• Strengthening of existing IT Departments of the universities.
• Establishment of new IT Universities.
• Establishment of Virtual University.
• Scholarship Projects.
Ø The President of Pakistan had inaugurated the Virtual University on 23rd March and formal
classes started from 26th March 2002. Initially 1000 students are enrolled in a 4-year.
Ø In future, Virtual University (VU) will also conduct Non-IT educational programs. An access
platform for interconnection of universities/educational institutions with the Virtual
University.
Ø The projects for establishing 3 IT universities have been approved. Two IT universities have
started functioning, one each in Abbotabad and Lahore. The preparatory work to establish 3rd
IT University, Petroman University has started.
Ø An Educational TV Channel is being setup to promote distance-learning education.
Ø To promote research and higher education in IT & Telecom Sector, University Endowment
fund amounting Rs. 1025 million has been created for 8 public engineering universities and
institutions.
Ø Educational Internet facility is being setup to link various educational institutions (public as
well as private) across the country.
Ø Under e-government programe, the automation of District Government functions has been
launched with City District Government Karachi project as a pilot project. Upon successful
implementation of this project, its replica may be used for other districts.
Ø To develop Web-based Geo-data centers, two projects are being implemented, one each in
NWFP and Sindh.
Chapter 14. Transport and Communications
Country has made lot of progress in the
field of information technology during the last
two years. The main emphasis has been on human
resource development and infrastructure build-
up. Following areas are aggressively targeted for
development.
(i) Human Resource Development
Projects
In the field of Human Resource
Development, the following training
projects have been completed: (i) 10,000
Youths have been trained as Data Entry
Operator, (ii) 5,000 Federal Government
employees have been given training in
basic computer education, (iii) 400
participants have completed training for
CISCO Certification, (iv) 1,050
participants have completed Java
Training, (v) 1,600 participants have been
trained in Medical Transcription, and (vi)
98 Students from Balochistan has been
provided one-year training of PGD.
(ii) Infrastructure Development
Projects.
The Government has provided
generous funding for infrastructure
projects in both IT and Telecom sectors.
The infrastructure projects being carried
out, will provide a solid base in bringing
revolution in IT and Telecom sector. The
infrastructure projects which are in
progress, include the following: (i) Multi
Service Data Network, (ii) Educational
Intranet (For Interlinking of Universities
all over Pakistan), (iii) Establishment of
Optical Fiber base communication link on
Coastal highway between Ketibander and
Jiwani, (iv) Communication Network for
rural Telephone in Pakistan through
VSAT, (v) Educational TV channel for
Education, (vi) Reduction in bandwidth
charges and (vii) Internet access has been
increased from 26 cities to 558 cities.
(iii) Software Development and
Export
To enhance the local software and
software exports, number of initiatives
have been launched which include
establishment of Technology Parks,
helping IT companies for participating in
International IT Exhibitions, providing
business development advisory services
to private sector companies etc.
(iv) E-Government
Government is actively pursuing
the policy of transparency, efficiency in
Government offices, for providing better
service to citizen.
(v) Software Industry Development
Software development is a high
growth industry and forms a major
segment of the vast IT market and will
continue to do so in the future. Integrated
efforts to develop software industry with
focus on exports (in addition to the local
market) are being undertaken. This
includes encouragement of local software
houses to participate in Government
projects, local content development, Urdu
and regional language software
development, promotion of software
exports through establishment of
International Marketing Network, special
bandwidth rates for software exports,
encouraging joint ventures, hiring of
international consultants for global
business development and fiscal and
regulatory incentives for software
exporters through State Bank of Pakistan.
(vi) Universal Internet Access
To spread Internet to remote
locations, the PTCL has made the UIN
(Universal Internet Number) into a local
call (from the remote locations) to the
nearest Point of Presence (PoP) of one or
more Internet Service Providers (ISPs).
Chapter 14. Transport and Communications

This has enabled equitable access. In

parallel, a drastic reduction in leased line c) Pakistan Telecommunication
charges will enable ISPs to go to smaller Company Limited (PTCL)
locations.
PTCL network consists of 92 percent digital
(vii) Provincial Allocations
switching system exchanges, optic fiber cable
The provinces are being backbone and subsidiaries routes long distance
encouraged to introduce IT & Telecom at media. These are supported by digital radio
their level. Government is sponsoring systems, satellite communications and alternate
various IT related projects from the arrangements. It has international gateway
provinces on equity of 75 percent (Federal exchanges at Karachi and Islamabad. PTCL tariffs
Govt.) and 25 percent share of respective
have been reduced by 12 percent for local, long
province.
distance and International outgoing & incoming
a) Pakistan Software Export Board (PSEB) calls and by 50 percent for international lease
lines, local lease lines, collection arrangements,
The Government has set a target of $ 1 digital cross connect and other interconnection
billion to be earned through the software exports facilities. At present, there are about 1.7 million
during the next fiscal year 2002-2003. In order to Internet users. The mobile phone service (Ufone)
achieve the target, the bandwidth rates have been has been launched in 13 big cities and Highways.
lowered from $ 60,000 per mega bit to $ 3,000 per Its customer base is 80,000 and expected to
mega bit and various software technology parks increase up to 350,000. The detail is given Table
have been established in major cities of Pakistan. 14.6.
Table 14.6
Bandwidth Capacity
b) Pakistan Computer Bureau Name of Bandwidth Total number of
station capacity ISPs
Pakistan Computer Bureau has been MB
assigned the responsibilities of training of Federal Karachi 87 53
and Provincial Governments Employees, as a part Lahore 34 44
of Government HRD programme for preparing Rawalpindi 34 39
Government officials to launch e-Government Total 155 136
project. This HRD programme is being Source: PTCL

implemented successfully at Islamabad/ For promotion of Information Technology,

Rawalpindi and the provincial capitals. The
targets of training 10,000 federal government
employees are almost complete while the training
of 15,000 provincial government employees is
running successfully and expected to be
completed in the stipulated period. The bureau
has recently introduced scanning of the
photographs of intending Hajj pilgrims to
facilitate the printing of scanned photos on their
passports.
570 cities have been provided internet facility,
while by June 2002, this number will exceed 800
cities and by Dec. 2002, 1136 cities will be
provided this facilities.
d) Pakistan Telecommunication
Authority (PTA)
Pakistan Telecommunication Authority
regulates the establishment, operation and
Chapter 14. Transport and Communications
maintenance of telecommunication system and
provision of telecommunication service in the
country. Moreover, it promotes and protects the
interest of users of telecommunication services.
PTA is in the process of transition, moving away
from regulated state owned monopoly to de-
regulated competitive structure. PTCL’s
monopoly would be over by the end of year 2002.
There are enormous challenges for Pakistan
Telecommunication Authority. It has taken long-
term view of emerging era of highly competition
environment and is gearing its resources to meet
the requirements of post monopoly era.
PTA has issued value added licenses for
various telecommunication services totaling 2,744
till December 2001. PTA has issued 827 licenses
for cable television services, 79 for card payphone,
28 for data communication networks, 116 for
electronic information services, 11 for trunk radio,
9 for store and forward fax, 3 for non voice
communication network service and one for
global mobile personal communication.
e)National Telecommunication
Corporation (NTC)
National Telecommunication Corporation
has an installed capacity of 68,400 lines with
52,200 working connections provided to its
designated customers in Federal, Provincial
capitals and other major cities. The Corporation
plans to expand the network to 78,000 installed
lines during 2002-03, which provides a total
number of 60,000 working connections. During
the year 2002-2003, the Corporation will provide
first-ever optic fiber backbone on Makran coast to
bring the people of the area to the national
mainstream of development. The Corporation will
set up its own gateway exchanges to provide
International connectivity to its designated
customers during 2001-02 and will introduce per-
paid calling cards for exclusive use by its
customers.
F. ELECTRONIC MEDIA
(i) Pakistan Television Corporation Limited
PTV is operating with three Channels in
the country, namely, PTV-I, PTV-2 (PTV-World)
and PTV-3. The Rebroadcast Centres, extending
TV signal to remote areas, are 43 for PTV-I, 29 for
PTV-2 and 13 for PTV-3. The Government has
desired to extend the TV signal by setting up
Rebroadcast Centres, two in rural Sindh at
Umerkot & Mithi, two in Baluchistan at Wadh &
Chaghi and four in NWFP. Apart from this,
setting up of a TV Centre and eleven Rebroadcast
Centres in AJ&K, have also been approved by the
Government through which AJ&K will not only
be on PTV’s Network, but also be having the
facilities of Production and Telecast of
programmes in local languages according to be
need of the time.
(ii) Pakistan Broadcasting
Corporation (PBC)
Radio is playing a significant role in
promoting Islamic ideology & national unity,
based on the principles of freedom, equality,
tolerance, social justice & democracy. Pakistan
Broadcasting Corporation is most important and
powerful medium for promoting national
integration, projecting government policies at
home & abroad, providing information, education
and entertainment to the people through its
programmes. FM- 101 Channel launched in 1998
exclusively for entertainment, transmits
programmes for 73 hours daily. Presently the
channel is operating from Islamabad, Lahore,
Karachi and Faisalabad. Four more FM- 101
stations are due to be launched shortly from
Quetta, Hyderabad, Sialkot and Peshawar. News
& Current Affairs Channel launched in 2001
radiates 7 hours daily transmission based on
discussions, talks, analysis & panel discussion on
Chapter 14. Transport and Communications
issues of current national and international
interests.
G. PAKISTAN POST OFFICE
It provides postal services through a
network of 12,234 (2,302 urban and 9,932 rural)
post offices across the country. Beside postal
________________________
facilities, the computerization of counters
operation and financial management reporting
system of Islamabad GPO have been completed
with the help of donors. Similarly Saving Bank
Counters have been computerized at Lahore GPO.
The International Post System IPS-96 has also
been computerized at Express Post Center,
Karachi.
Chapter 15. Energy
15. Energy
The energy sector plays a key role in the
development and growth of the economy, as the
availability of adequate supplies of energy is a
pre-requisite to generate economic activities. The
main objectives of the energy sector are ensuring
adequate, secure, and cost-effective supplies,
utilizing the resources efficiently and minimizing
its losses. Because of its central importance to
economic growth and development the
Government has identified energy as one of the
four major drivers of growth (the other three
drivers are agriculture, small and medium
enterprises, and information technology). The
Government is making concerted efforts to ensure
that the development of energy resources
continue to contribute to the nation’s economic
growth and well-being. The Government is
following a multi-pronged strategy for energy
sector. First, to increase the supply of energy to
meet the growing demand. Secondly, to expand
and upgrade the transmission and distribution
infrastructure to conserve energy.
Efforts in improving the energy sector
operation is an on-going exercise with a view to
promoting higher productivity and efficiency. In
order to contribute towards sustaining and
improving the competitive edge of the nation the
energy supply support system and services will
continually be upgraded in terms of quality,
reliability and efficiency.
In Pakistan, the energy sector has been
handled with an unprecedented sense of urgency
to mitigate current shortages and speed up
development of the sector for long-term needs.
An attractive policy package for petroleum and
power was announced by the Government for the
elimination of load-shedding, mobilization of the
existing resources, promoting private sector
investment (domestic and foreign) and enhancing
indigenous oil and gas production. The prices of
petroleum products have also been deregulated.
Efforts have also been made to exploit the
existing energy resources to build a strong
indigenous exploration and production base.
These efforts are directed at achieving cost
effectiveness, reduction in import dependence,
promotion of self-reliance through accelerated
exploitation of energy resources and minimum
environmental degradation. In addition, a number
of far-reaching measures have been taken which
include; attracting private foreign investment,
creating a qualitatively improved infrastructure in
oil and gas industry, development of an efficient
and transparent management system
deregulation of downstream petroleum marketing
sector and rationalization of LPG allocations and
prices.
During the outgoing fiscal year 2001-02,
various measures have been taken. The
achievements made in respect of different sources
of energy i.e. oil, gas, petroleum products, coal
and electricity are being discussed in ensuing
pages.
Chapter 15. Energy

Energy Consumption 2.7 percent per annum. Similarly, the

The energy sector consists of petroleum
products, gas, electricity, and coal. During the
decade of 1990s average consumption of the
petroleum products showed upward trends. On
average, it has increased by 6 percent per annum.
As regards the consumption of gas, it increased by
consumption of electricity increased by 4.8
percent. However the consumption of coal, which
showed wide fluctuation in its annual
consumption trend recorded an annual growth of
0.9 percent only. The annual trend of energy
consumption since 1990-91 to 2001-02 is given in
Table 15.1.

Table 15.1
Annual Energy Consumption
Fiscal Year Petroleum % Gas % Electricity % Coal %
Products Change (mmcft) Change (Gwh) Change (000 M.T) Change
(000
tones)
1990-91 9,961 -0.1 465,338 -17.6 31,534 9.6 3,054
1991-92 10,983 10.3 486,631 4.6 33,878 7.4 3,099 1.5
1992-93 12,012 9.4 511,526 5.1 36,493 7.7 3,267 5.4
1993-94 13,225 10.1 550,769 7.7 37,381 2.4 3,534 8.2
1994-95 13,960 5.6 546,788 -0.7 39,619 6.0 3,043 -13.9
1995-96 15,601 11.8 582,868 6.6 41,924 5.8 3,638 19.6
1996-97 15,606 0.0 597,799 2.6 42,914 2.4 3,553 -2.3
1997-98 16,624 6.5 607,890 1.7 44,572 3.9 3,159 -11.1
1998-99 16,647 0.1 635,832 4.6 43,296 -2.9 3,461 9.6
1999-00 17,768 6.7 714,744 12.4 45,586 5.3 3,168 -8.5
Avg. of 1990s 6.0 2.7 4.8 0.9
2000-01 17,648 -0.7 774,410 8.3 48,584 6.6 3,095 -2.3
Jul-Mar
2000-01 12,947 -0.4 542,806 -0.5 35,647 5.0 2,151 -10.6
2001-02-E 12,711 -1.8 624,058 15.0 40,010 12.2 2,328 8.2
E –Estimated Source: Hydrocarbon Development Institute of Pakistan.

A. Petroleum Products increasing trend mainly due to higher

During the first three quarters of the
current fiscal year, the household, industry,
agriculture and transport sectors showed declines
of 25.1 percent, 16.7 percent, 6.7 percent and 4
percent, respectively due to decline in the use of
kerosene, furnace oil, light diesel oil (LDO); and
conversion of vehicles to CNG. However, the
other government sectors have recorded
demand/use of JP-4 by defence. September, 11
2001 events have also caused lower consumption
of petroleum products, as a number of foreign
airlines suspended/curtailed their operations in
Pakistan. The annual growth of energy
consumption of the petroleum products by major
sectors and their relative shares since 1999-91 to
2001-02 are given in Table 15.2 and Table 15.3,
respectively.
Chapter 15. Energy

Table 15.2
Consumption of Petroleum Products
(000 tones)
Year Hous % Industry % Agri. % Trans. % Power % Other %
e Chang Chang Chang Chang Chang Govt. Chang
holds e e e e e e
90-91 944 -15.5 1,148 -11.5 265 -7.6 4,841 3.4 2,434 11.2 328 -17.7
91-92 614 -35.0 1,369 19.3 281 6.0 5,619 16.1 2,775 14.0 323 -1.5
92-93 622 1.3 1,480 8.1 287 2.1 6,107 8.7 3,158 13.8 357 10.5
93-94 590 -5.1 1,653 11.7 308 7.3 6,414 5.0 3,902 23.6 357 0
94-95 585 -0.8 1,889 14.3 269 -12.7 6,646 3.6 4,215 8.0 355 -0.6
95-96 596 1.9 2,416 27.9 250 -7.0 7,136 7.4 4,786 13.5 417 17.5
96-97 510 -14.4 2,141 -11.4 269 7.6 7,172 0.5 5,110 6.8 404 -3.2
97-98 499 -2.2 2,081 -2.8 245 -8.9 7,364 2.7 6,054 18.5 381 -5.7
98-99 493 -1.2 2,140 2.8 249 1.6 7,864 6.8 5,526 -8.7 376 -1.3
99-00 477 -3.2 2,116 -1.1 293 17.8 8,308 5.6 6,228 12.7 346 -8.0
00-01 451 -5.5 1,924 -9.1 255 -13.0 8,158 -1.8 6,488 4.2 372 7.5
Jul-Mar
2000-01 366 0.5 1,492 -9.8 195 -5.3 5,966 -1.8 4,657 5.2 271 2.5
2001- 274 -25.1 1,243 -16.7 182 -6.7 5,736 -3.9 4,804 3.2 472 74.2
02E

E-Estimated Source: Hydrocarbon Development Institute of Pakistan.

Table 15.3
Consumption of Petroleum Products
(Percentage Share )

Year House Industry Agriculture Transport Power Other

holds Govt.
1990-91 9.5 11.5 2.7 48.6 24.4 3.3
1991-92 5.6 12.5 2.6 51.2 25.3 2.9
1992-93 5.2 12.3 2.4 50.8 26.3 2.9
1993-94 4.5 12.5 2.3 48.5 29.5 2.7
1994-95 4.2 13.5 1.9 47.6 30.2 2.5
1995-96 3.8 15.5 1.6 45.7 30.7 2.7
1996-97 3.3 13.7 1.7 45.9 32.7 2.6
1997-98 3.0 12.5 1.5 44.3 36.4 2.3
1998-99 2.9 12.9 1.5 47.2 33.2 2.3
1999-00 2.7 11.9 1.6 46.6 35.0 1.9
2000-01 2.6 10.9 1.4 46.2 36.8 2.1
Average
(10 Years) 4.3 12.7 1.9 47.5 31.0 2.6
Jul-Mar
2000-01 2.8 11.5 1.5 46.1 36.0 2.1
2001-02-E 2.2 9.8 1.4 45.1 37.8 3.7

E –Estimated Source: Hydrocarbon Development Institute of Pakistan.

Chapter 15. Energy

Table 15.3 shows that during the decade
of the 1990s, the sectoral consumption of
petroleum products has been fluctuating every
year. Which can be attributed to changes in
demand behaviour which is influenced by a
number of other factors such as, option of
alternative sources of fuel (gas, firewood, coal
etc), relative prices of substitutes, convenience in
their availability etc. As regards the sectoral
shares, transport sector was the largest consumer
of the petroleum products and accounted for 47.5
percent, followed by power sector (31 percent),
industry (12.7 percent), household (4.3 percent),
agriculture (1.9 percent) and others Govt. (2.6
percent).
During the year 2000-01, the
consumption of petroleum products have
declined in household (5.5 percent), industry (9.1
percent) agriculture (13 percent) and transport
sectors (1.8 percent). However, the consumption
in power and other government sectors have
increased by 4.2 percent and 7.5 percent
respectively. This trend more or less also
remained the same during the first three quarters
of the current fiscal year (Table 15.2).
B. Consumption of Gas
Table 15.4 gives the annual changes in the
consumption of gas by various users during 1990-
91 to 2001-02. The sectoral consumption of gas in
2000-01 exhibits a mix trend. The relative shares of
gas consumption by various users during the
decade of the 1990s are documented in Table 15.5.
Power sector has emerged as the largest consumer
of gas (34.1 percent), followed by fertilizer (24.4
percent), industry (19.0 percent), household (17.7
percent), commercial (2.9 percent) and cement (1.7
percent). The consumption of gas during the first
nine months of 2001-02 also shows a rising trend.
The power sector comes with higher consumption
(29 percent), followed by households (7.2
percent), fertilizer (6.5 percent) and industry (12
percent), mainly due to conversion of power
plants into gas. The excess supplies from two
main gas fields; namely, Zamzama and Miano
fields facilitated this higher gas consumption
(Table 15.4).

Table 15.4
Consumption of Gas
(Billion cft)
Year House % Comm % Cement % Fertili % Power % Indus %
Hold Change ercial Change Change zer Change Change trial Change

90-91 67 11.1 12 10.4 13 62.9 108 -0.6 176 4.3 89 2.9

91-92 71 6.0 13 8.3 12 --7.7 101 -6.5 194 10.2 96 7.9
92-93 76 7.0 14 7.7 12 0.0 119 17.8 187 -3.6 103 7.3
93-94 82 7.9 15 7.1 10 -16.7 144 21.0 198 5.9 101 -1.9
94-95 97 18.3 16 6.7 7 -30.0 142 -1.4 181 -8.6 104 3.0
95-96 110 13.4 17 6.3 8 14.3 150 5.6 186 2.8 111 6.7
96-97 115 4.5 18 5.9 9 12.5 150 0.0 194 4.3 110 -0.9
97-98 134 16.5 19 5.6 12 33.3 148 -1.3 179 -7.7 115 4.5
98-99 131 -2.2 21 10.5 8 -33.3 167 12.8 184 2.8 121 5.2
99-00 139 6.1 22 4.6 9 12.5 177 6.0 230 25.0 135 11.6
2000-01 141 1.4 21 -4.5 7 -22.2 175 -1.1 288 25.0 139 3.0
Jul-Mar
2000-01 111 -2.6 17 6.3 4 123 -8.2 179 5.3 109 -0.9
2001-02 119 7.2 17 0.0 * 131 6.5 231 29.1 122 12.0

*included in Industry Sector Source: Hydrocarbon Development Institute of Pakistan

Chapter 15. Energy

Table 15.5
Consumption of Gas
(Percentage Share)
Year Households Commercial Cement Fertilizer Power Industrial
1990-91 14.3 2.6 2.8 23.2 37.9 19.1
1991-92 14.5 2.7 2.4 20.8 39.8 19.7
1992-93 14.8 2.8 2.3 23.4 36.5 20.1
1993-94 14.9 2.8 1.8 26.2 35.9 18.3
1994-95 17.8 2.9 1.2 25.9 33.1 19.0
1995-96 18.9 2.9 1.3 25.8 32.0 19.1
1996-97 19.3 3.1 1.5 25.2 32.4 18.4
1997-98 22.1 3.1 2.0 24.3 29.4 18.9
1998-99 20.7 3.4 1.3 26.3 28.9 19.1
1999-00 19.6 3.0 1.2 24.8 32.2 18.9
2000-01 18.2 2.7 0.9 22.7 37.2 17.9
Average
(11 Years) 17.7 2.9 1.7 24.4 34.1 19.0
July-March
2000-01 20.8 3.1 0.7 22.7 32.9 20.1
2001-02 19.1 2.7 * 21.0 37.1 19.5
* Included in Industry Sector. Source: Hydrocarbon Development Institute of Pakistan.

C. Electricity Consumption (14.8 percent), commercial (5.4 percent), and

Table 15.6 shows the position of electricity
consumption since 1990-91 to 2001-02, while Table
15.7 discusses overall consumption on average
basis. On average, the household sector has been
the largest consumer of electricity, accounting for
40.3 percent of the total electricity consumption,
followed by industry (31.5 percent), agriculture
other government sector (7.6 percent). During the
first 9 months of 2001-02, electricity consumption
by household, industrial, and commercial
increased as compared with the same period of
last year due to installation of new connections
while consumption by other government which
also include agriculture has increased sharply
(Table-15.6).

Table 15.6
Consumption of Electricity
(000 GWH)
Year House % Comme % Indust % Agri. % Street % Other %
hold Change rcial Change rial Change Change Light Change Govt. Change
(Total)
1990-91 10.4 11.2 2.1 5.5 11.2 8.8 5.6 11.8 2.1 19.2
1991-92 11.4 9.6 2.1 0 12.3 9.8 5.8 3.6 2.1 00
1992-93 13.2 15.8 1.7 -19.0 13.0 5.7 5.6 -3.4 297 2.6 23.8
1993-94 14.0 6.1 1.8 5.9 12.6 -3.1 5.8 3.6 298 0.3 2.8 7.7
1994-95 15.6 11.4 1.9 5.6 12.5 -0.8 6.2 6.9 324 8.7 3.0 7.1
1995-96 17.1 9.6 2.2 15.8 12.1 -3.2 6.7 8.1 378 16.7 3.3 10.0
1996-97 17.8 4.1 2.2 0 11.9 -1.7 7.0 4.5 390 3.2 3.4 3.0
1997-98 18.8 5.6 2.3 4.5 12.3 3.4 6.9 -1.4 387 -0.8 3.9 14.7
1998-99 19.4 3.2 2.4 4.3 12.0 -2.4 5.6 -18.8 224 -42.1 3.6 -7.7
1999-00 21.4 10.3 2.5 4.2 13.2 10.0 4.5 -19.9 239 6.7 3.6 0
2000-01 22.8 6.5 2.8 12.0 14.3 8.3 4.9 8.9 213 -10.9 3.5 -2.8
July-Mar
2000-01 16.7 4.4 2.0 5.3 10.6 7.1 3.6 9.0 53** -71.5 2.7 3. 8
2001-02-E 18.3 9.5 2.3 15.0 11.4 7.5 * * 7.9 192.6
E-Estimated Source: Hydrocarbon Development Institute of Pakistan.
*Included in other Govt.
** only reported by KESC.
Chapter 15. Energy

Table 15.7
Consumption of Electricity
(Percentage Share)
Year Households Commercial Industrial Agriculture Street Light Other Govt.
1990-91 33.0 6.6 35.6 17.8 - 6.9
1991-92 33.8 6.3 36.3 17.3 - 6.2
1992-93 36.1 4.7 35.7 15.4 0.8 7.1
1993-94 37.7 4.8 33.8 15.4 0.8 7.4
1994-95 39.3 4.9 31.6 15.8 0.8 7.5
1995-96 40.9 5.2 29.1 15.9 0.9 7.9
1996-97 41.4 5.2 27.9 16.5 0.9 8.0
1997-98 42.1 5.2 27.6 15.5 0.9 8.6
1998-99 44.8 5.5 27.9 12.9 0.5 8.2
1999-2000 47.1 5.6 28.9 9.9 0.5 7.9
2000-01 46.9 5.7 29.5 10.1 0.4 7.3
Average
(11 Years) 40.3 5.4 31.3 14.8 0.7 7.6
July-March
2000-01 46.8 5.6 29.9 10.0 0.15 7.5
2001-02 42.0 5.3 26.2 18.3*
E-Estimated Source: Hydrocarbon Development Institute of Pakistan.
*Including Agriculture.

Energy Supply measured in tones of oil equivalent (TOE) since

1990-91 to 2001-02 is given in Table 15.8 and Fig-
The annual trends of primary energy 1& Fig-2
supplies and their per capita availability,

Table 15.8
Primary Energy Supply and Per Capita Availability
Year Energy Supply Per Capita
Million TOE %Change Availability (TOE) % Change
1990-91 28.469 0.253
1991-92 30.475 7.0 0.264 4.4
1992-93 32.953 8.1 0.278 5.4
1993-94 34.778 5.5 0.286 2.9
1994-95 36.062 3.7 0.290 1.2
1995-96 38.746 7.4 0.304 4.9
1996-97 38.515 -0.6 0.295 -3.0
1997-98 40.403 4.9 0.302 2.5
1998-99 41.721 3.3 0.305 1.0
1999-00 43.223 3.6 0.309 1.2
2000-01 44.456 2.9 0.311 0.6
July-March
2000-01 33.468 - 0.234 -
2001-02-E 34.025 1.7 0.233 -0.4
TOE= Tones of oil equivalent Source: Hydrocarbon Development Institute of Pakistan.
E: Estimated
Chapter 15. Energy

Fig-1: Energy Supply Fig-2: Per Capita Availability (TOE)

(Million TOE) 0.32
50
0.31
45
0.3

40 0.29

35 0.28

0.27
30
0.26

25
0.25
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01
The supply of primary energy increased growing annual demand for energy. The energy
from 28.469 million TOE in 1990-91 to 44.456 supplies have also increased from 33.468 million
million TOE in 2000-01 or by an average annual TOE in 2000-01 (July –March) to 34.025 million
rate of 4.5 percent; and per capita availability TOE in 2001-02 (July-March) or by 1.7 percent but
from 0.253 TOE to 0.311 TOE or by 1.9 percent per the per capita availability declined from 0.234
annum. Because of the increase of primary energy TOE to 0.233 TOE or by 0.4 percent. The supply of
supplies, its per capita availability recorded a primary energy by various sources of energy as
rising trend over the decade of the 1990s, which well as their rates of increase are given in Table
greatly helped consumers meet their ever- 15.9.

Table 15.9
Composition of Energy Supplies

Year Crude % Gas % Petroleum % Coal % Electricity %

Oil(m Chang (bcf)* Chang Products Chang (Mln.T) Change (000 Change
Barrels) e e (Mln. T.) e Gwh)(a)
90-91 51.7 13.3 518.5 4.1 10.3 6.3 3.9 8.9 41.0 9.1
91-92 52.4 1.4 550.7 6.2 11.2 8.7 4.6 17.9 45.4 10.7
92-93 51.3 -2.1 583.5 6.0 12.3 9.8 4.3 -6.5 48.7 7.3
93-94 51.4 0.2 624.2 7.0 13.7 11.4 4.6 7.0 50.6 3.9
94-95 48.2 -6.2 628.2 0.6 14.2 3.6 4.1 -10.9 53.5 5.7
95-96 52.1 8.1 666.6 6.1 16.0 12.7 4.7 14.6 56.9 6.4
96-97 49.8 -4.4 697.8 4.7 15.9 -0.6 4.4 -6.4 59.1 3.9
97-98 50.4 1.2 700.0 0.3 16.9 6.3 4.1 -6.8 62.1 5.1
98-99 52.6 4.4 744.9 6.4 16.8 -0.6 4.4 7.3 65.4 5.3
99-00 53.3 1.3 818.3 9.9 17.9 6.5 4.0 -9.1 65.7 0.5
2000-01 73.6 38.0 875.4 7.0 18.7 4.5 4.1 2.5 68.1 3.7
Jul-Mar
2000-01 54.8 36.0 650.7 8.7 13.3 0.0 2.9 -6.5 49.7 4.4
2001-02 58.1 6.0 690.1 6.1 17.0 27.8 3.0 ** 3.4 54.2 ** 9.1
*: Billion cubic feet ` Source: Hydrocarbon Development Institute of Pakistan.
a: Gega Walt hour
** Estimated

a) Crude Oil
Chapter 15. Energy

The remaining recoverable reserves of
crude oil as on 1st April 2002 were estimated at
310 million barrels in the country. The average
crude oil production during July March, 2001-02
was 64,361 barrels per day as against 57,048
barrels per day during same period last year,
showing an increase of 12.8 percent. During the
period under review, 21,136 barrels per day or 33
percent was produced in northern region and
43,225 barrels per day or 67 percent in southern
region as against 20,370 barrels and 36,678 barrels
per day respectively, during the same period of
last year. Production of crude oil during July-
March 2001-02 and corresponding period of the
last year is given in Table 15.10.

Table 15.10
Production of Crude Oil (Barrels Per Day)

2000-2001 July-March July-March % Change

Region
2000-2001 2001-2002

Northern Region 20226 20370 21136 3.8

- OGDCL 9044 8927 8823 -1.2
- OPI 648 669 1113 66.0
-POL 8079 8221 8788 6.9
-PPL 2455 2576 2412 -6.4
Southern Region 37881 36678 43225 17.8
-OGDCL 12092 12210 11311 -7.4
-UTP 25271 24407 31172 27.7
-PPL 60 60 115 92.0
-BHP 458 458 626 36.7

Total 58107 57048 64361 12.8

b) Natural Gas
As of April 1st 2002, the recoverable
reserves of natural gas have been estimated at 26.4
trillion cubic feet. The average production of
natural gas during July-March 2001-02 was 2521
million cubic feet per day as against 2375 mcfd
during the same period last year, showing an
increase of 6 percent. Main companies currently
Source: Director General of Petroleum Concession
engaged in oil and gas production activities are
OGDCL, PPL, POL, OPI, LASMO, BHP, MGCL,
BP (PAKISTAN) AND TULLOW. Recently, OMV
has also started gas production at the rate of 10-20
million cubic feet per day from Miano gas field.
Table 15.11 shows the natural gas production
during 2000-01, and 2001-02.

Table 15.11
Production of Natural Gas
(Million Cubic Feet Per Day)
Company 2000-2001 July-March July-March
2000-01 2001-02 % Change
LASMO 59 61 64 5.0
MGCL 405 408 411 0.7
OGDCL 708 693 744 7.4
OPI 5 5 5 0.0
POL 43 43 46 7.0
PPL 922 925 915 -1.1
BPC (Pakistan) 207 208 209 0.5
BHP 70 - 94 -
TULLOW 33 33 27 -18.0
OMV - - 11 -

TOTAL 2452 2375 2521 6.1

Source: Director General of Petroleum Concession
Chapter 15. Energy

During July- March 2001-02, 32 wells have wells drilled during July-March, 2001-02 with the
been drilled, including 6 wells of OGDCL in the corresponding period for the last year.
public sector. Table 15.12 compares number of

Table 15.12
Drilling Activities
(Achievements)
(No. of Wells)
Sector 2000-2001 July-March July-March % Change
2000-2001 2001-2002
1)Public Sector (OGDCL) 6 4 6 50
(i) Exploratory 4 2 3 50
(ii) Appraisal/Development 2 2 3 50
2 )Private Sector 43 32 26 -19
(i) Exploratory 14 12 5 -58
(ii) Appraisal/Development 29 20 21 5

Total 49 36 32 -11
Source: Director General of Petroleum Concession

The decline in the number of wells drilled availability of domestic and imported LPG at
this year, so far, by the private sector is attributed competitive and viable prices, the government has
to the events of September 11, as many expatriates deregulated the allocation and price of LPG with
working for Foreign Exploration and Production effect from 15th September, 2000 with a view to
Companies left Pakistan. keeping the prices at a reasonable level, through
demand supply mechanism.
(i) Liquefied Petroleum Gas (LPG)
(ii) Compressed Natural Gas (CNG)
Being economical, clear and
environmental friendly fuel, LPG is the most The use of CNG in automotive vehicles is
popular domestic fuel in areas where supply of being encouraged to reduce pressure on
natural gas is technically or operationally not petroleum imports and improve environment.
feasible. Presently about 900 tons/day LPG is The Government has issued directives to promote
being produced locally. There are 22 LPG CNG in the transport sector as an alternate fuel. It
companies marketing the indigenous and is a new industry in Pakistan. More than 850
imported LPG. The government has taken a bold licenses for installation of CNG stations have been
and far reaching initiative to liberalize integrated issued. So far 242 stations have been established
infrastructure projects of LPG free from in different parts of the country. These include 239
government guarantees and permission and also in private sector and 3 in public sector. More than
allowed import of machinery, equipment, 3000 stations are under construction in the private
specialized vehicles, consumables etc. on sector. Up to March 2002, around 240,000 vehicles
concessionary rate of duties. In order to ensure have been converted on CNG. It is planned to
Chapter 15. Energy

convert 300,000 vehicles by 2003. This will

provide jobs to the skilled and un-skilled workers.
The use of this indigenous fuel will slash the
import bill of petroleum products and make
positive effects on environment by reducing
pollution level. Incentives for investment in CNG
business are being offered to private sector.
During the period July-March 2001-02, over 130
provisional permissions/licenses for setting up of
CNG stations have been issued.
c) Electricity Generation
i) Installed Capacity
The Water and Power Development
Authority (WAPDA), Karachi Electric Supply
Corporation (KESC), Karachi Nuclear Power Plant
(KANUPP) and Chashma Nuclear Power Plant
are the four main public sector organizations,
involved in power generation, transmission and
distribution of electricity in the country. The
Independent power projects (IPPs)__ the private
sector entities are also involved in power
generation.
The bulk of the installed capacity of
WAPDA’s power system comprising of Northern,
Upper, Lower Sindh and Quetta power markets
stood at 9,930 MW, hydel 5,009 MW (50.4 percent)
and thermal 4,921 MW (49.6 percent)} during July-
March, 2001-02 followed by the IPPs (5,652 MW)
or 31.3 percent and KESC’s own installed capacity
(1756 MW) and other sources such as M/s Tapal
Energy and M/s Gul Ahmad (262 MW),
supplying to KESC, totaling 2018 MW, and
Karachi and Chashma Nuclear Power Plants (462
MW). The total installed capacity stood at 18062
MW during July-March 2001-02, there by
registering an increase of 1.6 percent. In the total
installed capacity, the share of WAPDA system
has been 55.0 percent followed by the IPPs at 31.3
percent, KESC plus others at 11.2 percent, and
nuclear at 2.6 percent during the fiscal year 2001-
02. Within the WAPDA system, the shares of
thermal and hydel were 49.6 percent and 50.4
percent respectively. The details are given in
Table 15.13.

Table 15.13
Total Installed Generation Capacity
(MW)
Name of Installed % Share Installed Capacity % Share % Change
Power Capacity 2000-01 2001-02
Company
WAPDA 9,884 55.6 9930 55.0 -0.5
Hydel 4,963 50.2* 5009 50.4* 0.9
Thermal 4,921 49.8* 4921 49.6* 0
IPPs 5,417 30.5 5652 31.3 14.3
Nuclear 462 2.6 462 2.6 0
KESC + Others 2,009 11.3 2018 11.2 0.4

Total 17,772 18062 1.6

* Share in WAPDA system Source: Water and Power Development Authority.
Chapter 15. Energy

ii) Electricity Generation percent in the current fiscal year. It may be noted
that in 1960 the share of hydel was 70 percent
The trend in the composition of while that of thermal was only 30 percent. The
electricity generation between hydel and thermal ratio changed to 58 percent (hydel) and 42 percent
since 1992-93 is given in Table-15.14. It can be seen (thermal) in 1980. By 2002 the ratio changed to 30
that the share of hydel is continuously declining percent and 70 percent. Since electricity generated
while that of thermal is rising steadily. The share through thermal is much more expensive than
of hydel was almost 52 percent in 1992-93 but hydel, therefore, the massive shift in reliance to
declined to almost 30 percent in 2000-01. It has thermal has made electricity expensive in
slightly increased to 32 percent in the current Pakistan. For reducing the cost of electricity it is
fiscal year. On the other hand, the share of essential that we make effort to reverse the
thermal increased from 48 percent to 70 percent contribution of hydel and thermal in medium-to-
during the same period but declined slightly to 68 long-run.

Table 15.14
Electricity Generation
(Million kWh)
Year Hydel Percentage to Thermal Percentage to Total
Total Total
1992-93 21,111 51.8 19,680 48.2 40,791
1993-94 19,436 45.8 22,960 54.2 42,396
1994-95 22,858 49.6 23,268 50.4 46,126
1995-96 23,206 47.5 25,653 52.8 48,859
1996-97 20,858 41.1 29,924 58.9 50,782
1997-98 22,060 41.4 31,199 58.6 53,259
1998-99 22,448 41.8 31,235 58.2 53,683
1999-2000 19,287 34.3 36,972 65.7 56,259
2000-01 17,259 29.5 41.196 70.5 58.455
(July-March)
2001-02 13,993 31.9 29,848 68.1 43,841
Includes purchase from IPPs. Source: Water and Power Development Authority

Fig-3: Electricity Generation by WAPDA

iii) Growth in Electricity Consumers
60

50
The number of consumers has increased
40 31.2 31.2 37 41
23.3 25.7 29.9 due to rapid urbanization, extension of electricity
Billion KWH

30 19.7 23
grid supply to un-electrified areas and
20

22.9 23.2 20.9 22.1 22.5 19.3

rural/village electrification. The number of
10 21.1 19.4 17.25
consumers has increased to 12.5 million by
0
February 2002. Table-15.15 indicates the trend
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

since 1992-93, and Fig-4.

Hydel Thermal
Chapter 15. Energy

Table 15.15
Consumers by Economic Groups
(Nos. Million)
Year General Industrial Agriculture Total
1992-93 7.9 0.2 0.1 8.2
1993-94 8.3 0.2 0.1 8.6
1994-95 8.7 0.2 0.2 9.1
1995-96 9.1 0.2 0.2 9.5
1996-67 9.5 0.2 0.2 9.9
1997-98 9.9 0.2 0.2 10.2
1998-99 10.4 0.2 0.2 10.8
1999-00 11.2 0.2 0.2 11.6
2000-01 11.8 0.2 0.2 12.2
(July-Feb)
2001-02 12.1 0.2 0.2 12.5
Source: Water and Power Development Authority

Fig-4: Total Electricity Consumers

(Nos. Million)
13 iv) Village Electrification
12

11 The rural/villages electrification

10 programme is an integral part of the total power
9
sector development in order to increase the
8
productive capacity and socio-economic standard
7
of 70 percent of population living in the rural
6

5
areas. The number of villages electrified has
increased to 70,819 by February 2002 as given in
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

Table 15.16 and Fig-5.

Table 15.16
Village Electrification
(Number)
Year Target Realization * Progressive Total
1992-93 2,070 4,824 45,644
1993-94 4,500 5,283 50,927
1994-95 2,000 6,243 57,170
1995-96 5,000 4,957 62,127
1996-97 4,000 2,441 64,568
1997-98 4,000 1,383 65,951
1998-99 4,000 1,232 67,183
1999-00 1,852 1,109 68,292
2000-01 - 1,595 69,887
(Jul-Feb).
2001-02 - 932 70,819
*Including FATA Source: Water and Power Development Authority
Chapter 15. Energy

Fig.5 Village Electrification (000 Nos). v) Electricity consumption by Economic

80
68.3 69.9 Groups
64.6 66 67.2
70 62.1
57.2
60
45.6
50.9 Household/Domestic group is the largest
50
consumer of electricity accounting for 45.8 percent
40

30
of total consumption; followed by industry (28.1
20 percent), agriculture (12.2 percent), bulk supply &
10 lighting (8.7 percent), commercial (5.1 percent)
0 and traction (0.02 percent). Table 15.17 shows
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01
electricity consumption by economic group since
1992-93 and Fig-6.

Table 15.17
Electricity Consumption by Economic Groups
(% Share)
Year Domestic Commercial Industrial Agriculture Bulk Supply & Traction
Public Lighting
1992-93 35.9 4.2 34.9 17.9 7.1 0.1
1993-94 37.2 4.1 32.8 17.9 7.9 0.1
1994-95 38.4 4.3 30.3 17.8 9.3 0.1
1995-96 40.8 4.6 28.7 18.4 7.4 0.1
1996-97 40.5 4.6 26.3 18.2 10.4 0.1
1997-98 41.5 4.5 26.0 17.5 10.5 0.04
1998-99 43.6 4.7 25.6 14.3 11.8 0.04
1999-2000 46.4 4.9 26.3 11.0 11.3 0.04
2000-01 46.1 4.9 27.1 11.3 11.3 0.04
(Jul- Feb).
2001-02 45.8 5.1 28.1 12.2 8.7 0.02
Source: Water and Power Development Authority

Fig-6. Electricity Consumption by Economic Group (% Share)

1992-93
Bulk Supply 2000-01
& Public Bulk-Sup.&
Lighting Pub. Lighting
7.1% 11.3%
Domestic
Agriculture
Agriculture 46.1%
Domestic 11.3%
17.9%
35.9%

Industrial
Commercial 27.1%
4.2%
Commercial
Industrial 4.9%
34.9%
Chapter 15. Energy

vi) Power Losses rehabilitation, installing capacitors and

The WAPDA has invoked vigorous
technical and administrative measures to improve
operational and management efficiency to reduce
power loss and theft. These measures have
resulted in increase in revenues and also reduced
energy theft. The programme of renovation,
strengthening consumer-end distribution supply
network will further reduce power losses. The
total loss was 27.5 percent in 1998-99 but
gradually reduced to 24.3 percent in the first eight
months of the current fiscal year. Table 15.18
shows the trend of power losses since 1992-93.

Table 15.18
WAPDA Power Losses
(Percent)
Year Auxiliary T&D Losses* Total
Consumption
1992-93 2.3 21.1 23.4
1993-94 2.6 21.6 24.2
1994-95 2.6 21.4 24.0
1995-96 2.9 21.5 24.4
1996-97 2.4 21.7 24.1
1997-98 2.0 23.9 25.9
1998-99 1.7 25.8 27.5
1999-00 2.1 25.1 27.2
2000-01 2.0 23.8 25.8
(July- Feb.)
2001-02 2.1 22.2 24.3

* T&D = Transmission and Distribution Source: Water and Power Development Authority

vii) Power Development Programme
The optimal utilization of hydroelectric
potential is accorded priority in the overall power
development programme. The projects which will
be constructed under the vision-2025 programme
are Golan Gol 106MW, Khan Khwar 72 MW, Allai
Khwar 121 MW, Duber Khwar 130 MW and
Jinnah 96 MW. These projects are planned to be
completed by 2006.
The feasibility study of multipurpose
Basha Dam project of 3360 MW capacity was
carried out by M/s Montreal Engineering
Company Canada in 1984 and will be updated for
which the PC.II was approved. Feasibility study
of Bunji hydropower project will also be carried
out. The feasibility study of multipurpose Munda
dam 740 MW has been carried out and for hydro
project at Doyian 425 MW will also be
undertaken.
Besides, feasibility studies have also been
carried out for gas-fired combined cycle power
plants to provide low cost thermal power. The
Sindh Coal Development Authority has initiated a
feasibility study for a 1000 MW mine-mouth coal
fired power plant based on Thar coal with
technical and financial assistance of China.
viii) Restructuring and Privatization of
WAPDA
In order to bring improvement on long
term and sustainable basis in operation,
Chapter 15. Energy
management and finance, the Area Electricity
Boards have been restructured into independent
power companies, i.e. eight DISCOs, three power
generation companies (GENCOs) and a national
transmission and dispatch company (NTDC).
Presently, these entities are corporatized under
the management of Pakistan Electronic Power
Company (PEPCO). Ultimately, the DISCOs and
GENCOs will be privatized.
Karachi Electric Supply Corporation Ltd.
(KESC)
The installed capacity of the KESC’s
various generating stations remained at 1,756 MW
during the period July-March 2001-02. However,
the energy generated by the KESC from own
sources was 6448 million kWh, during the current
fiscal year, which was about 14 percent higher
than the same period of last year. The KESC has
improved its generation and thus the imports of
electricity from various agencies have been
reduced significantly. The imports from Pakistan
steel, Karachi Nuclear Power Plant (KANUPP),
Independent power producers (IPPs) and
WAPDA totaled 2,217 million kWh during the
period under review, as against 2,741 million kWh
during the corresponding period last year,
showing a sizeable reduction in power imports by
19 percent.
The total energy made available to KESC
system, after accounting for auxiliary
consumption, stood at 8,246 million kWh during
July-March, 2001-02 as against 8,000 million kWh
in the same period last year, thus registering a
growth of 3 percent.
Private Sector Plants (IPPs) on KESC
System:
Tapal Energy limited and Gul Ahmed
Energy Limited are the two independent power
producers (IPPs), which are hooked to the KESC
system, with an aggregate capacity of 262.17 MW.
The energy contributed by these two IPPs, during
the period under review, was 1,089 million kWh,
representing more than 13 percent of the total
energy supplied to KESC system. The share of
IPPs in the overall imports from other sources
stood at 49 percent.
Nuclear Power Energy
Nuclear power generation technology is a
sophisticated, advanced and multi-disciplinary
system. Most of the developing countries have
very little or no technological capability even for
conventional electricity generation technologies of
steam or combustion turbine plants. Increased
local contribution in the design, engineering,
construction and commissioning of nuclear
technology requires the development of qualified
manpower, research and design institutes and
advanced manufacturing facilities. So far only a
few developing countries like China, India, Korea
and Pakistan have achieved self-reliance in
nuclear power technology.
Pakistan Atomic Energy Commission
(PAEC) is responsible for nuclear power
development in Pakistan. It made a beginning in
the field of nuclear power generation by
commissioning the 137 MW Karachi Nuclear
Power Plant (KANUPP) in 1971. The KANUPP
has operated safely for more than 30 years.
During July-March 2001-02, the plant has
generated 359 million kWh raising the life time
generation to 10.36 billion kWh. Because of the
various restrictions and embargos on KANUPP,
its capacity factor has been reduced but it is a
good example of self-reliance in a developing
country. It is now planned to extend the life of
KANUPP for another 15 years, and work is
continuing in this regard. The Chashma Nuclear
Power Plant (CHASNUPP), Pakistan’s second
nuclear power plant, has been constructed with
Chapter 15. Energy
the help of China National Nuclear Corporation
(CNNC). It has a gross capacity of 325 MW. The
CHASNUPP has generated 1415 million kWh
during the period July-March 2001-02. Both the
power plants are working according to the safety
standards set by Pakistan Nuclear Regulatory
Authority.
D. COAL
The share of coal in the overall
commercial energy requirements of the country at
the time of Pakistan’s independence was about 60
percent but with the advent of natural gas in 1952,
the utilization of coal was gradually replaced with
gas. Currently the share of coal in the over all
energy mix is less than 5 percent. Production of
coal in the country during the first nine months of
the fiscal year 2001-02 was 2,248,412 tonnes. The
major consumption of coal is in the brick Kiln
industry (71.4 percent) followed by Coke (23.5
percent) and power generation (5.1 percent).
Estimated coal reserves in the country is about
185 billion tonnes, which include 175 billion tonne
of Thar coal.
Private Power And Infrastructure Board
(PPIB)
The PPIB is an agency of the GOP set up
with the objective of implementing the GOP’s
Power/Energy Policies. It is currently playing a
lead role in facilitating implementation of four
hydel projects of 844 MW to which Letter of
Interest/Letter of Support were issues by
provinces and AJK under the Hydel Policy, 1995.
During the fiscal year 2000-2001, 10 MW Alter
Energy Limited and 235 MW Liberty Power
Limited achieved Commercial Operations
respectively on June 6, 2001 and September 10,
2001. The PPIB facilitated these projects in
resolving their outstanding issues with different
organizations to enable them in achieving their
operations.
The Government has taken a major step
for establishment of a 450 MW coal-fired power
plant based on Lakhra Coal, in accordance with
the 1998 Power Policy. The Sponsors has agreed
to conduct a feasibility study for the project at
their own risk and cost, without any obligations
on the part of the GOP. This is a major practical
effort for exploring the local indigenous coal.
The demand/supply projection prepared
by the NTDC, WAPDA (June 1999) portray a
supply deficit of the order of over 400 MW stating
from the year 2005-6, increasing to around 7200
MW by the year 2009-10. This is likely to further
increase up to 17, 300 MW by the year 2015-16, In
order to propose suitable strategy for meeting
further power demands shortages; WAPDA has
prepared a ‘Hydropower Development Plan’
(Vision 2025), which was approved by the
Government.
National Electric Power Regulatory
Authority (NEPRA)
The Authority has been set up under an
Act of Parliament, called the Regulation of
Generation, Transmission and Distribution of
Electric Power Act, No. XL of 1997. The object in
passing the Act was to create an independent
body to regulate electric power services in the
country. During the period July-March 2001-02,
after finalization of the draft distribution licence
for distribution companies, two licences were
issued to distribution company’s namely (IESCO)
& (PESCO) and 14 generation licences were issued
to SPP’s. The process of issuance of licenses to
other distribution companies & SPP’s is in
progress.
During the period under review the
Authority made three determinations. First
determination was made on October 19, 2001 with
increase of 10.62 Paisas/kwh. Second
Chapter 15. Energy

determination was made on December 29, 2001
with decrease of 8.83 Paisas/kwh. Third
determination was made in March 2002 with an
increase of 4.54 Paisas (yet to be notified) by the
WAPDA. NEPRA has been actively perusing the
eventual goal of Privatization of the KESC. Tariff
& Licensing details are being worked out. NEPRA
is committed to provide a fair return to the
investor while ensuring safe & reliable service at
competitive rates to the consumers.

_______________
Chapter 16. Environment and Housing

16. Environment and Housing

Environment the rickshaws have only doubled in numbers, but
motorcycles and scooters have gone up about six
During the last decade, Pakistan has fold in the last two decades. Details are in Table
made diligent progress in institutional 16.1.
strengthening and capacity building of policy and
Table-16.1
planning institutions, environmental awareness,
promulgation of environmental legislations, Index of Motor Vehicles on the Road
National Environment Quality Standards (NEQS) (1980=100)
and establishment of environmental tribunals. Vehicle type
Energy sector has its due share by introducing Motor
low lead petrol and promoting clean fuels Year Cycles/ Rickshaw Total
including CNG. However, rehabilitation and Scooters s
1981 113 105 111
improvement of biophysical environment and
1982 131 108 124
enforcement of environmental legislation
1983 147 113 138
remained slow-moving. Government has 1984 180 116 167
reiterated its pledge to environmental 1985 202 118 189
amelioration through Pakistan Environmental 1986 228 120 211
Protection Council. In collaboration with the 1987 243 121 227
UNDP, the National Environment Action Plan 1988 261 123 245
(NEAP) was approved by Pakistan 1989 284 126 270
Environmental Protection Council (PEPC) in 1990 311 129 292
February, 2001. The major objectives of NEAP are 1991 335 132 310
1992 397 145 361
to achieve healthy environment, sustainable
1993 434 158 389
livelihood by improving quality of air, water and
1994 467 167 414
land with civil society cooperation. In this regard, 1995 506 176 445
Initial Environmental Examination (IEE) and 1996 549 185 477
Environment Impact Assessment (EIA) have also 1997 598 195 513
been made mandatory for public sector Source: Sustainable Development Policy Institute
development projects. To be consistent with (SDPI).
Government’s National Environmental Action Note: Base year numbers of motor cycles/scooters,
Plan (2001), this sub-chapter discusses pollution rickshaws and total vehicles on the road in
in air, water and land in the ensuing pages. thousands were 287.6, 32.0 and 682.2
respectively.
Auto and industrial emissions are the
main source of dirty air. Over the last two Coal is another main contributor to dirty
decades, the total number of motor vehicles on air. The three main uses of coal are, for power,
the road has increased about five fold. brick-kilns and domestic. As indicated in Table
Motorcycles and rickshaws, due to their two- 16.2, the coal consumption in the power sector
stroke engines, are the most inefficient in burning was steady from 1991-92 to 1994-95 but it
fuel and contribute most emissions. Fortunately, increased by almost ten fold in 1995-96 due to the
Chapter 16. Environment and Housing
ten fold increase in the use of coal for thermal Impact of Pollution
electricity generation. Likewise, for domestic
consumption, it increased by 211 percent in 1996- a. Air
97 over 1995-96. Moreover, run-offs from According to WHO guidelines, the
chemical insecticides, fertilizers and solid wastes amount of sulphur dioxide (SO2), carbon
generated in urban and rural areas are other
monoxide (CO) and Ozone (O3) in the
important source of environmental pollution. A
atmosphere are well below danger levels.
study of the Ministry of Environment estimated
However, the particulate matter in the
that 47,920 tonnes of waste are generated daily
and only 53.6 percent are collected while the rest atmosphere is well above safety levels across all
lies around. Even the waste collection system and the major industrial cities in the Punjab. Table
dumping sites are inadequate. 16.3 shows the rapid pace of increase in air
Table-16.2 emissions over two decades between 1977-78 and
Index of Consumption of indigenous coal 1997-98 across the major commodity producing
by sector (1990-91=100) sectors. The average increase in sulphur dioxide
Sector
Year (SO2) across all the sectors was twenty-three fold
Power Brick kilns Domestic
over these two decades. Similarly, nitrogen
1991-92 160.1 101 180
1992-93 189.8 106 85 oxides (NOX) increased twenty-five fold in the
1993-94 177.2 115 87 power sector and carbon dioxide (CO2) increased
1994-95 165.5 99 85 an average of four fold across all the sectors.
1995-96 1,621.4 107 82
1996-97 1,430.4 105 255
Source: Sustainable Development Policy Institute.
Note: Base year consumption value were 24,603,
3,025,520 and 3,785 tonnes for power, brick-
kilns and domestic, respectively.
Table 16.3
Estimated air pollutants from various economic sectors
(Thousand Tonnes)
1977-78 1997-98
Sector CO2 SO2 NOX CO2 SO2 NOX
Industry 12308 19 N.A 53429 982 N.A
Transport 7068 52 N.A 18987 105 N.A
Power 3640 4 3 53062 996 76
Domestic 16601 5 N.A 39098 40 N.A
Agriculture 845 5 N.A 6368 40 N.A
Commercia 1726 11 N.A 4261 25 N.A
l
Note: N.A. = Not applicable Source: Sustainable Development Policy
Institute.
CO2 = Carbon dioxide
SO2 = Sulphur dioxide
NOX = Nitrogen oxides

A study by the Pakistan Medical
Association, indicates that the growth in traffic
and dirty fuels have already had an adverse
impact. In Pakistan, sulphur in diesel and furnace
oil is 1 percent and 3 percent as compared to 0.05
– 0.5 and 0.5 – 1.0 percent for other countries of
the region, respectively. The lead in gasoline in
Pakistan is 0.35 grams per liter while the average
for other countries in the region is 0.15 grams per
liter. Thus the blood-lead levels for children in
Karachi, Islamabad and Peshawar are 36.9, 22.3
and 19.0 microgram per deciliter respectively,
which are considerably higher than acceptable
levels of 15 micrograms per deciliter. The blood-
Chapter 16. Environment and Housing
lead levels of traffic constables in Karachi are
over three times and even those of adults twice
than that of acceptable levels.
b. Water
Various estimates have been made over
the years in connection with water quality. The
National Environmental Quality Standards
(NEQS) are used as a reference point to compare
how the average quality of water fairs on various
parameters. On most counts (including
temperature, pH content, total dissolved solids
and biological Oxygen demand), the water is
safe. However, in terms of total suspended solids
(TSS) the counts are way above the NEQS across
the board and for chemical oxygen demand
(COD), they are above the NEQS for Ravi and the
Hadyara Drain. In terms of fecal coliform, for
which traces should be zero in drinking water,
the actual presence is millions of times greater
than acceptable levels.
A study conducted by the Sindh
Environmental Protection Agency (EPA)
indicates that the industrial pollution levels are
higher for major industries in Pakistan, including
chemical, tanneries, textile, sugar, fertilizer and
oil and ghee. The effluents are way above than
NEQS on all account including Biological Oxygen
Demand (BOD), Chemical Oxygen Demand
(COD), Total Suspended Solids (TSS) and Total
Dissolved Solids (TDS). Industrial pollution
levels and National Environmental Quality
Standards are detailed in Table 16.4.

Table-16.4
Industrial pollution levels
BOD COD TSS TDS
(mg/L) (mg/L) (mg/L) (mg/L)
Chemical 1400-9800 2300-18640 950 38000
Tanneries 800-1680 1020-2367 298 9104
Textile 800-8500 1610-16500 1900 9680
Sugar 100-1100 200-1896 2850 17300
Fertilizer 400-610 860-1650 9720 -
Oil and ghee 460-1470 1260-3280 576 15462

NEQS 80 150 150 3500

Note: BOD =Biological Oxygen Demand Source:Sustainable Development Policy Institute.
BOD =Chemical Oxygen Demand
COD = Total Suspended Solids
TSS =Total Dissolved Solids

c: Land cover, yet 11.25 percent of the total land area is

Forests have an important role in land
conservation, regulated flow of water for
irrigation and power generation, reduction of
sedimentation in water channels and reservoirs
and maintenance of ecological balance. Table 16.5
indicates that the area under forests has increased
steadily since 1990-91 with little fluctuations,
however the overall increase in the forests area in
2000-01 is higher by 9.5 percent over 1990-91.
Although Pakistan has limited area under forest
protected as national parks, wild life sanctuaries
or game reserves while a rough percentage
recommended by experts is 12 percent. It has
been pointed out in the report of Sustainable
Development Policy Institute that Baluchistan
and NWFP which require more protection, have
only 6 percent of their land protected while
Punjab has 16 percent protection. This study also
points out that the percentage cited above “—
includes sites established with no basis in
legislation. If one only considers national parks
Chapter 16. Environment and Housing
and wildlife sanctuaries as areas that afford Pakistan is also responding to UN
protection to bio-diversity because they also Framework Convention on Climate Change by
protect habitat – the percentage of protected land preparing national Green Houses Gases (GHG)
then drops from 11.25 percent to 6.5 percent. In inventories. Several projects aiming at mitigation
that case, Pakistan lags behind other Asian states of climate change and adaptation to changing
including Nepal, Sri Lanka and Bhutan”. For climate are in pipeline, which will be
Pakistan, currently the real issue is not the implemented with the technical and financial
amount of land demarcated as a protected area assistance of developed country parties to the
but the poor management of the areas already Convention. Some initiatives have been under the
protected. UN Convention on Biological Diversity and UN
Convention on Desertification such as
Table 16.5 preparation of Biodiversity Action Plan (BAP)
and Desertification Combat Action Plan.
Year Forest Area % Increase However, the pace of implementing international
(Mln. Hectares) /Decrease obligations is not up to the mark, which is largely
1990-91 3.46 -
due to lack of in-country capacity and partial
1991-92 3.47 0.3
1992-93 3.48 0.3 fulfillment of commitments by the developed
1993-94 3.45 -0.9 countries.
1994-95 3.60 4.3
1995-96 3.61 0.3 Environment Sector Programs/Projects
1996-97 3.58 -0.8
1997-98 3.60 0.6
1998-99 3.60 - During the fiscal year 2001-02, major
1999-00 3.70 2.8 projects are under implementation in the following
2000-01 3.79 2.4 programs areas;

% Increase in 9.5 -
2000-01 over
1990-91
Source: Ministry of Food, Agriculture and Livestock.
Status of Pakistan in global and regional
partnership on environment
Pakistan as signatory to many
international protocols and conventions, is
meeting various obligations with the technical
and financial assistance of developed countries.
Under the Montreal Protocol, the ODS-based
industry (using ozone depleting substance (ODS)
such as Chloro Floro Carbons (CFC)) under
renovation and consumption of ODS will be
eventually phased out by the year 2005.
Government has imposed ban on import of used
ODS-based equipment, and maximum duties are
levied on import of new CFC-based equipment.
i. Institutional Strengthening, Capacity
Building, Mass Awareness
Institutional strengthening is an on-going
process and has been made an important
component of all development projects in
environment sector. Capacity building of the project
implementing agencies and other functionaries
involved in policymaking, planning, law
enforcement, and monitoring of environmental
activities has been an important area of investment
by different donors. Specific PSDP project include
“Strengthening of Forestry Wing at Federal Level for
sustained monitoring of the implementation of
Forestry Sector Master Plan”, for which an amount
of Rs.12.0 million was allocated during 2001-02. The
NGOs and other environmental pressure groups
have largely undertaken mass awareness
campaigns.
Chapter 16. Environment and Housing
ii. Forestry and Watershed Management
A mega project in forestry sector, named
“Rachna Doab Afforestation Project” started in July
1995 at a cost of Rs.485.4 million. During 2001-02,
Rs.52.0 million were allocated to conclude the on-
going activities towards achievements of
afforestation targets. Tarbella Watershed
Management Project sponsored by Ministry of
Environment is an on-going project at a total cost of
Rs.689.0 million, to which Rs.108.7 million were
allocated. The main objectives of the project
include; soil and water conservation, extension of
forests, appropriate land use, improvement of
environment and uplift of socio-economic
conditions of people i.e., poverty alleviation. During
the fiscal year 2001-02, 41 acres of nurseries have
been raised, 2000 acres planted, 14,500 acres
afforestation maintained and 180 training/ exchange
visits have been conducted, 21
management/utilization Plans have been prepared
with the total expenditure of Rs.20.1 million till
March, 2002. Another watershed project named
“Mangla Watershed Management Project” is being
implemented by Ministry of Water & Power at a
total cost of Rs.97.7 million. During the current fiscal
year, Rs.13.7 million were allocated to this project
and about 1200 acres/avenue miles of
planting/afforestation have been completed with
the total expenditure of Rs.36.4 million until March,
2002.
iii. Bio-diversity and Protected Areas
Global Environment Facility (GEF) is
financing Protected Area Management Project at a
total cost of Rs.648.5 million. This is an umbrella
project being implemented simultaneously in
Hingol (Balochistan), Machiara (AJK) and Chitral
Gol (NWFP) national parks. Another protected
areas management project named “Mountain Areas
Conservancy Project” was approved during the
2000-01 which covers four conservancies falling in
Northern Area and NWFP. The project’s total cost is
US $ 7.0 million, which is not reflected in the PSDP.
iv. Fuel Efficiency in Road Transport
The Ministry of Environment/ENERCON
is implementing “Fuel Efficiency in Road Transport
Sector (FERTS) Project at a total cost Rs.230.4
million. The UNDP is providing grant assistance
worth Rs.220.5 million to this project. The project
aims at improving fuel efficiency and curtailing
noxious emissions from Transport Sector through
digital tuning of gasoline and diesel vehicles. A total
of 15 digital tune-up stations have been established
in four provinces. During 2001-02, Rs.66.00 million
were allocated to the Fuel Efficiency in Road
Transport. The Revolving Loan Fund worth US$ 3.0
million has been established for financing purchase
of tune-up equipment. Until March 2002, Rs.3.5
million have been utilized against PSDP local
component allocation of Rs.5.0 million.
v. Industrial Efficiency and Environmental
Management Sector Development Program
Total cost of the project is Rs.52.0 million,
proposed to be totally funded by the Asian
Development Bank (ADB). The Project envisages
collection of data from private/public industrial
sector and on the basis of the data the project
authorities, i.e., Pakistan Environmental protection
Agency (Pak-EPA) will make recommendations for
improving efficiency, reducing pollution and
increasing profitability in seven highly polluting
industrial sectors. The ADB has to provide Project
Preparatory Technical Assistant (PPTA) grant of
Rs.52.0 millions (1 million US$) to the Government
of Pakistan to cover the cost of Consultants and
other related expenses.
Renewable resources including solar and
renewable have vast potential in Pakistan, which
could not be fully exploited due to lack of
technology. The Global Environment Facility (GEF)
is sponsoring a feasibility study to explore potential
of wind energy for power generation along coastline
of Pakistan. The Ministry of Environment has
established a fund to support grass-root non-
Chapter 16. Environment and Housing
government organizations investing in community-
based interventions which are successfully playing
their contribution.
Housing Sector
The housing and construction sector
remained neglected in the past which resulted in
housing backlog of over 4.3 million units. In
order to make up the backlog and meet the
shortfall in the next 20 years, the overall housing
production has to be raised to 500,000 housing
units per annum. The present government
appreciating the gravity of situation and realizing
the linkages of this important sector with the
construction industry and its potential to
generate employment, decided to revitalize it as a
vehicle for economic revival. Accordingly, the
National Housing policy, 2001, was formulated
by the Government. The major emphasis of the
policy is on resource mobilization, land
availability, incentives for home ownership,
incentives to developers and constructors, and
promotion of research and development activities
to make construction cost effective. The objective
is to create affordability, especially, for the
middle and low income groups. One of the
cornerstones of the Policy is to ensure
development of housing for the poor and needy
and housing for the majority of rural population.
The National Housing Policy was formally
approved by the Cabinet in December 2001 and
has the concurrence of all the provinces. The
policy has already been referred to
Table 16.6
Housing Units by Tenure
Tenure All Areas
all concerned organizations and the provincial
governments for implementation. Committees
have been set up by the provinces under their
respective Chief Secretaries to monitor progress
on implementation of the policy.
According to 1998 Population and
Housing Census of Pakistan, there were over 19.3
million housing units in the country as compared
to 12.6 million enumerated in 1980, showing an
increase of 53.2 percent. Of the total (19.3 million)
housing units, 67.7percent were in rural and 32.3
percent in urban areas accommodating total
population of 131.5 million, nearly 15.6 million or
80.8 percent were owned, 1.7 million or 9.0
percent rented, and 2.0 million or 10.2 percent
rent free. The percentage of owned housing units
were higher in the rural areas compared to urban
areas. Similarly, percentage of rent free houses
was higher in rural areas as compared to that in
the urban areas. However, the percentage of
rented houses was significantly higher at 23.2 in
urban as compared to only 2.3 percent in the
rural areas, as reflected in Table 16.6.
(In million)
Census 1998
Rural Urban
Chapter 16. Environment and Housing

i) All types 19.3 13.1 6.2

(100) (100) (100)
ii) Owned 15.6 11.4 4.2
(80.8) (87.1) (67.6)
iii) Rented 1.7 0.3 1.4
(9.0) (2.3) (23.2)
iv) Rent Free 2.0 1.4 0.6
(10.2) (10.6) (9.2)
Note: The figures in parenthesis are percent shares Source: Population & Housing Census 1998

On the basis of World Bank’s
recommended occupancy rates of 6 persons per
house, the total number of required housing units in
the country would be roughly 24.3 million up to the
end of June, 2002, based on the population of 146
million at present. Every year, 0.3 million new
houses are added to the existing stock by the public
and private sectors. On the other hand, 10 percent
houses of the total supply are depleted/destroyed/
demolished every year, resulting in to decrease in
available housing units to 20.0 million housing units
leaving a backlog of 4.3 million housing units.
Realizing the slump in the housing market and
feeling the need to revive this important sector of
economy and narrow the present backlog, in
addition to regular Public Sector Development
Programs at Federal as well as provincial level, the
government has launched a housing program on
self-financing basis which ensures market viability
and implementation, keeping in view the market
forces. This model has been adopted to encourage
private developers. Varied initiatives and incentives
have been provided, including developing housing
and construction as a priority industry, which is
entitled to various reliefs and financial facilities from
the financial sector. The present program involves
construction of approximately 4500 housing
units/apartments in 4 major urban centers of
Karachi, Lahore, Islamabad and Peshawar at an
estimated cost of Rs.5.0 billion.
The execution of this program has been entrusted to
the National Housing Authority.
The work has been awarded to leading
construction companies of Pakistan and the design
responsibility rests with leading designers. Leading
construction managers are carrying out construction
management. This combination ensures proper
designing, provision of proper facilities and, above
all, quality construction and timely completion. This
project is expected to be completed and handed
over by July, 2002.
Due to this initiative of the Government,
substantial employment has been created. It is
estimated that approximately 8,000--10,000
labourers and skilled workers are working on
various projects including more than 500
Professional Engineers and Architects. In addition,
this has also provided an incentive to the 40
downstream industries including cement, steel,
electrical industries, piping etc.

________________________
 ANNEX-1
CONTINGENT LIABILITIES

Contingent liabilities are costs that the Table 1

budget may have to incur if specific uncertain Impact of Explicit Contingent Liabilities on
the Budget
events occur in some future point of time. Such
(Rs. In billion)
liabilities may be created through explicit
contractual guarantees or implicit non-contractual Enterprise 2001-02 2002-03 (BE)
commitments. These liabilities support specific
policy objectives by creating financial incentives GCP, RECP, TCP, &
CEC 4.7 4.4
without an immediate financial outlay. However,
Saindak Metal Ltd. 2.0 2.8
when these contractual guarantees or non- Pakistan Steel 0.9 0.9
contractual commitments are realized, the Pakistan International
government faces significant fiscal costs at the Airlines1 N.A 2.9
expense of other outlays. Oil Refineries 9.0 10.5
FFC Jordan 1.0 1.0
Explicit contingent liabilities TOTAL 17.6 22.5
Note: Ghee Corporation of Pakistan (GCP), Rice Export
Corporation of Pakistan (RECP), Trading Corporation of
Explicit contingent liabilities represent a
Pakistan (TCP), Cotton Export Corporation (CEC), and
government’s legal obligation to make a payment Pakistan International Airlines (PIA).
only if a particular event occurs. The budgetary
cost of past legal obligations amounted to Rs. 17.6 In addition, losses of PIA may represent
billion during 2001-02 [Table-1]. These include an additional source of risk to the federal budget.
PIA had been faced with huge losses over the past
payments made on account of contractual
several years due to mismanagement, obsolete
guarantees issued on GCP, RECP, TCP, CEC, and
business practices, un-economical operational
Saindak bonds; payments for Pakistan Steel Mill’s
activities and over staffing. With the result, that
liabilities contractually assumed by the
by early 2001-02, it was faced with an immediate
government; payments to oil refineries on account debt burden of Rs. 18.42 billion, comprising Rs.
of guaranteed rates of return; and payments to 9.73 billion of overdraft and Rs. 8.69 billion of
FFC Jordan on account of the 1989 investment overdue bills, and a cash deficit of Rs. 500 million
policy pertaining to the fertilizer industry. On a per month. Consequently, a comprehensive plan
definitional note these payments are now part of was approved, which in addition to operational
the budget and as such are a direct government reforms, included financial restructuring of its
liability and, therefore from a technical viewpoint, short-term debt of Rs. 6.5 billion into medium
not a contingent liability any more. However, here term (5 years) and provision of additional debt of
Rs. 14 billion on a long term basis (10 years)
they are treated as explicit contingent liabilities
through:
due to the underlying guarantees that catalyzed
these payments.
1
Payments to be made on account of PIA during 2002-03
have been considered as explicit contingent liabilities as they
are contractually bound.
 a) Restructuring of existing short-term debt not impact measures of deficit or stock of debt.
of Rs. 6.5 billion for five years with a 2 However, once the guarantee is called it becomes
year grace period. The pricing of the a charge on the budget.
restructured facility will be 200 bps above
SBP discount rate. Mark up on the In line with the government’s policy of
restructured facility will be serviced by containing its risk exposure, the government has
the government through bi-annual equity instituted a policy of limiting guarantees, while
contributions to PIA. regularly measuring and identifying the range of
risks and the time period over which contingent
b) Bridge financing of Rs. 6.5 billion with liabilities may materialize. During 2001-02 the
government guarantee for six months. government issued guarantees equivalent to 0.4%
The pricing of the facility will be 200 bps of GDP for rupee lending [Table 2]. which is less
above SBP discount rate. than the average for the last decade. Additionally,
the government’s Fiscal Responsibility Law also
c) Term financing certificates (TFCs) of Rs. proposes specific limits on contractually binding
14 billion: The TFCs will have maturity guarantees (i.e. explicit contingent liabilities)
period of 10 years and grace period of 5 including those on rupee lending, bonds, rates of
years. TFCs will carry a coupon rate of 10 return, output purchase agreements and other
year PIB + 200 bps, payable semi annually claims, that may pose significant risks for future
through equity contributions by the fiscal balances.
government. Principal redemption will be Table 2
in 10 equal semi annual installments Guarantees issued2
commencing from the 66th month. TFC
Fiscal Year As % of GDP
proceeds will be used first to repay the 1991-1992 1.2
bridge finance facility of up to Rs. 4.73 1992-1993 0.8
billion, then to settle the remaining 1993-1994 0.7
overdue payments to creditors at Rs. 8.27 1994-1995 0.7
billion, and last to cover working capital 1995-1996 0.6
requirements of Rs. 2 billion for fiscal year 1996-1997 0.2
1997-1998 1.0
2001.
1998-1999 0.9
1999-2000 0.3
Though, PIA’s financial position has 2000-2001 0.8
improved significantly in recent months, however 2001-2002 0.4
the government’s contractual obligations Note:Roll over of a guarantee is considered
underlying PIA’s financial restructuring plan as issuing a new guarantee.
represent a significant risk to the budget.
Future pension payments by the
government are a direct government liability,
Government guarantees issued on
even though they are contingent upon specific
account of lending operations are another underlying factors such as future demographics
important source of the government’s explicit and economic developments, and are not explicit
contingent liabilities. It is generally believed that contingent liabilities. Pensions payments
since no cash is spent from the budget when the
government issues a guarantee, therefore it does
2
Excluding commodity financing.
amounted to Rs. 33.6 billion during 2001-02 and
are expected to rise significantly over the coming
years. In order to manage the rising cost of
pension obligations and limit their potential of
crowding out other programs, the government is
institutionalizing advanced actuarial techniques
for estimating pension benefits through the
establishment of an actuarial office in the Ministry
of Finance.
Implicit contingent liabilities or quasi-fiscal
interventions
Liabilities assumed by the government,
which it is not legally obligated to do so, are
called implicit contingent liabilities [Table 3]. Such
liabilities usually accrue on account of the
government’s quasi-fiscal activities e.g. bailouts of
strategically important corporations, banks etc.
Being contractually non-binding, implicit
contingent liabilities do not represent a legal
commitment on the part of the government to
take on a liability if a particular event occurs.
However, their measurement and identification is
essential for comprehensive analysis of fiscal risks
faced by government.
In this respect, non-performing loans of
the banking sector are an important source of
implicit contingent liability for the government.
Owing to the effective implementation of
prudential regulations by the State Bank, total
non-performing loans of the banking sector
decreased from Rs. 279.1 billion in end June 2001
to Rs. 278.6 billion in end March 2002.

Table 3
Impact of quasi-fiscal interventions on the federal budget
(Rs. In billion)

Enterprise 2001-02 2002-03

WAPDA equity 2.0 N.A
WAPDA shortfall in debt servicing 21.0 N.A
KESC equity 83.2 6.1
KESC shortfall in debt servicing 4.0 N.A
Peoples Steel Mill 0.9 0.4
Utility Stores Corporation 0.2 0.2
Karachi Shipyard 0.3 N.A
PECO 0.0 0.4
Pakistan Railways 6.0 6.0
TOTAL 117.6 13.1
N.A = Not Available.

However, Water and Power Development
Authority (WAPDA) and Karachi Electric Supply
Corporation (KESC) remained the largest source
of implicit contingent liabilities for the
government (Table 3). During 2001-02, these
power-generating companies necessitated
additional cash equity injections of Rs. 85.2 billion
and non-tax revenue losses (due to lower
receivables on account of debt servicing
payments) of Rs. 25 billion.
With the repayment of the bulk of KESC’s
______________
debt by the government, prospects of KESC’s sale
have improved considerably. The Privatization
Commission has invited expression of interests by
potential investors and expects to bring KESC to
the point of sale by end July 2002. With KESC’s
eventual privatization, one of the main sources of
fiscal leakages will be closed. WAPDA has also
prepared a Financial Improvement Plan, which is
likely to bring it financial viability and higher
efficiency, thus reducing the likelihood of quasi-
fiscal interventions in the future.
 ANNEX –II
TAX EXPENDITURES

Tax expenditures can be defined as the I. Exemption relating to pensions, provident

cost of tax allowances and relief in the pursuit of funds and superannuation funds;
government policy objectives. These costs related
II. Exemption of interest on borrowings from
to tax exemptions and other forms of relief reduce external sources and on domestic savings;
government revenues. However on the other
hand it can be argued that government can III. Exemption to non-profit educational
institutions;
achieve its policy objectives through enhancement
in its public expenditure programs rather than tax IV. Exemption to charitable activities;
concessions. Theoretically tax allowances are a
V. Exemption relating to electric power
kind of subsidies and may be seen as a form of generation; and
public expenditure. The estimates of total tax
expenditure for the financial year 2001-02 suggest VI. Unexpired period to tax holidays for
that it could be as high as Rs. 26.0 billion. This industrial undertakings.
comes out to be 0.7 percent of GDP (Rs. 3,727
The income tax expenditure involved in
billion) and is about 6.3 percent of the CBR
respect of exemptions listed in the aforesaid
revenue estimates of Rs. 414.4 billion. The tax-
schedule is of Rs. 10.2 billion which is 0.27 percent
wise expenditure for the financial year 2001-02
of GDP and 39.2 percent of total tax expenditure.
ranges from Rs. 0.5 billion (Central Excise) to Rs.
It may be noted that much of the exemption
10.2 billion (Income tax) with Sales Tax and
relates to National Saving Schemes (NSS) interest
Customs amounting to Rs. 8.6 billion and Rs. 6.8
income, agricultural income, meager pensions,
billion, respectively.
provident funds and superannuation fund.
Legal Position Furthermore, exemption related to charitable
Income Tax activities and non-profit educational institutions
are common in both developed and developing
Section 14 of the Income Tax Ordinance countries. Exemption of interest on domestic
1979 empowers the Federal Government to savings is likely to be withdrawn during fiscal
exempt from tax any income or classes of income, year 2002-03.
or persons or classes of persons. However, these
powers were sparingly exercised by the Following are the estimated main
government. Categories of exemption, listed in exemptions in Income Tax allowable in fiscal year
Part-I of the Second Schedule to the Income 2001-02 compared to fiscal year 2000-01[Table 1].
TaxOrdinance, 1979 are broadly as under:
Table 1
Income Tax Expenditure
(Rs in billion)
No Major Income Tax Expenditure Items Estimated Revenue Loss
2000-01 2001-02
1 Pensions 0.70 0.70
2 Allowances 1.00 1.10
3 Income from funds (e.g. NIT units) 0.60 0.60
4 NSS interest income 3.20 2.90
5 Other interest income 0.10 0.10
6 Capital gains 0.90 0.90
7 Sector and enterprise specific exemptions 0.70 0.70
8 Agricultural income 4.00 3.20
TOTAL 11.20 10.20
Sales Tax for example food grains etc. The cost of Sales Tax
exemptions is estimated to be Rs. 8.6 billion for
Key exemptions of Sales Tax are food the fiscal year 2001-02, which is 0.23 percent of
items (wheat, grain, pulses, and edible oils GDP and 33 percent of total tax expenditures.
excluding palm oil and soybean oil). In addition
to food items, exemptions also include phosphatic Following are the main exemptions in
fertilizer, information technology equipment, and Sales Tax allowable in fiscal year 2001-02
pharmaceutical products. As per international compared to fiscal year 2000-01[Table 2].
practices, the bulk of such items cannot be taxed,
Table 2
Sales Tax Expenditure (Rs in billion)
No Major Sales Tax Expenditure Items Estimated Revenue Loss
2000-01 2001-02
1 Retailers 1.00 0.00
2 Domestically produced edible oils 2.00 2.10
3 Pharmaceuticals (excluding life saving drugs) 4.00 4.30
4 Tractors and other agri machinery 1.30 1.50
5 Fertilizers 4.00 0.60
6 Pesticides 0.80 0.00
7 Others (e.g. agri seeds, cattle feed) 0.10 0.10
TOTAL 13.20 8.60

Central Excise raw materials and components; plant, machinery

and equipment imported by high-tech, priority
Tax expenditure involved on account of and value added industries; imports for energy
Central Excise is minimal when compared with sector projects; exemption to exploration and
other taxes being administered by the CBR. The production companies including OGDC;
cost of Central Excise Exemptions for the fiscal exemption to equipment for WAPDA; and
year 2001-02 is estimated around Rs. 500 million imports by CNG companies. Some of these
which is at par with the exemptions granted exemptions are due to international contractual
during FY 2000-01. This is 0.01 percent of GDP obligations.
and 1.9 percent of total tax expenditures for FY
2001-02. Following is the break-up of main
Customs Duties exemptions in customs duties allowable in fiscal
year 2001-02 compared to fiscal year 2000-
Customs exemptions are mainly given on 01[Table 3].
Table 3
Exemptions in Custom Duties (Rs in billion)
No SRO No & Date Description Estimate Revenue Loss
2000-01 2001-02
1 369(1)/2000, June 17, 2000 Plant & Machinery for Investment 2.60 2.80
oriented industries
2 400 (I)/97, May 31, 1997 & Exploration and Production companies in 1.20 1.40
367(I)/94, May 9, 1994 oil and gas sectors
3 555(I)/94, April 9, 1998. Raw material for certain industries 1.70 1.80
4 504(I)/94, June 9,1994. Raw materials for specified consumer 0.20 0.20
durable goods
5 24(I)/96, January 8, 1996. Raw materials, sub-components and 0.20 0.20
components for automobile vendors.
6 557(I)/97, July 28, 1996. WAPDA 0.10 0.20
7 38(I)/98, January 21, 1998 CNG Companies 0.20 0.20
TOTAL 6.20 6.80
Following is the consolidated summary of tax decrease for the fiscal year 2001-02 compared to
expenditures showing percentage increase/ FY 2000-01[Table 4].

Table 4
Summary Of Tax Expenditures
(Rs in billion)
No Type of Tax Cost of Exemptions Percent change
2000-01 2001-02
1 Income Tax 11.20 10.20 -8.9
2 Sales Tax 13.20 8.60 -34.8
3 Customs Duties 6.20 6.80 9.7
4 Central Excise 0.50 0.50 0
TOTAL 31.10 26.10 -16.1

A summary of the projected major tax expenditure items for the fiscal year 2002-03 is as
under[Tabfle 5].
Table 5
Summary of Major Tax Expenditure For 2002-03
(Rs in billion)
No Major Tax Expenditure Items Estimated Revenue Loss
1 Agricultural Income 3.20
2 NSS Interest Income 2.90
3 Plant and Machinery for Investment 2.50
4 Tractors and other Agri Machinery 1.70
5 Raw Material for Certain Industries 1.60
6 Allowances 1.00
7 Capital Gains 0.90
8 Sector & Enterprise Specific Exemptions 0.80
9 Pensions 0.70
TOTAL 15.30