Economic survey 2005-06 released
Economic growth solid despite odds
By Uzma Zafar & Asad Cheema

ISLAMABAD—National economy achieved solid growth of 6.6 percent during the outgoing fiscal year 2005-06 despite surging oil prices and devastating earthquake of October 8 2005, with services sector and industry as the key drivers of this growth.
The services sector registered a strong growth of 8.8% in the fiscal year 2005-06, followed by the Large Scale Manufacturing (9.0%), construction (9.2%) and agriculture (2.5%). Pakistan’s economy growing at an average rate of almost 7.0 percent per annum during the last four years and over 7.5 percent per annum in the last three years has positioned itself as one of the fastest growing economies in the Asian region, said Advisor to the Prime Minister on Finance and Economic Affairs, Dr. Salman Shah while launching the Economic Survey 2005-06, a pre-budget document, here at a crowded press conference on Sunday.
He was flanked by State Minister for Finance, Omar Ayub Khan, Advisor to the Ministry of Finance, Dr. Ashfaque Hassan Khan and Principal Information Officer (PIO), Ashfaq Gondal. Dr. Salman Shah said, the growth momentum that Pakistan has sustained for the last four years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle with investment rate reaching new height at 20.0 percent of GDP.
Giving the major achievements of economic performance during the outgoing fiscal year 2005-06, Dr. Salman said the country realized a solid pace of economic expansion in an extra-ordinary environment, underpinned by weaker-than-targeted performance of large-scale manufacturing and robust performance of services. He said, the real per capita GDP grew by 4.7 percent and per capita income in current dollar term was up by 14.2 percent, reaching $ 847.
A sharp pick up in overall investment reaching at a new height of 20 percent of GDP and most notably, private sector investment remained buoyant owing to a rare confluence of various positive developments in the economy. Dr. Salman said, a robust consumer spending was ably supporting the on- going growth momentum, adding, the credit to private sector continued to rise at the back of improving investment climate, the private sector has borrowed over Rs. 1100 billion in less than three years (2003/04 and until April 22, 2006) while their cumulative borrowing in the previous eighteen years (1984 - 2003) have been Rs. 921 billion.
He said, with a significant abatement of price pressure indicating a steady deceleration in overall inflation, especially food inflation, the overall inflation decelerated from 9.0 percent in July 2005 to 6.2 percent in July 2006 and the food inflation decelerated from 9.7 percent to 3.6 percent in the same period. The Advisor to PM said, energy consumption, particularly electricity and gas continued to rise at double-digit level, reflecting strong buoyancy in the economy. Despite pressure emanating from the earthquake-related expenditures the underlying fiscal deficit performed better than the target, he added.
The Central Board of Revenue (CBR) collected taxes more than the target, he said and underlined a sharp reduction in public and external debt burden. He said, the record public sector development program (PSDP) remained on track despite massive spending on earthquake-related activities. Dr. Salman Shah said, the exports and imports continued to grow at high double-digit level and the workers’ remittances at around $ 4.5 billion continued to remain one of the largest sources of external finance for Pakistan.
With a continued accumulation of foreign exchange reserves, the exchange rate continued to remain stable despite extra-ordinary increase in imports and deterioration in trade balance. He said, the privatization program achieved unprecedented success with the strategic sale of some difficult and complicated public sector units, adding, the country realized highest ever foreign direct investment flows, exceeding $ 3.0 billion.
Dr. Salman also mentioned as remarkable achievement the successful launch of new 10 year and 30 year 144A sovereign bond in international debt capital markets, totaling $ 800 million and reflecting a vote of confidence by the international investor community on Pakistan’s economic policies, reform agenda and future outlook. The ultimate objectives of the government’s socio-economic policy are to create jobs, raise incomes of the people and reduce poverty. This year has seen major successes on all these fronts, he maintained.
He said, the pace of job creation has been brisk on the back of a sustained high economic growth, real per capita income has grown at an average rate of 5.7 percent per annum during the last three years, and accordingly, the overall poverty as well as rural and urban poverty has registered sharp declines. The Advisor to PM said, although the number of people living below the poverty line has declined substantially, the consumption inequality has increased marginally during the period 2001-05. More attention will be required in skill development in both the urban and rural areas, he added.
While socio-economic and macroeconomic policies pursued during the year have had a strong influence on across-the-board improvement, an increasingly broad and dynamic global recovery has aided Pakistan in this endeavor, he maintained. Dr. Salman Shah said the strong economic growth has helped reduce the unemployment rate to 6.5% during July-December 2005, from 8.3% in 2001-02 and 7.7% in 2003-04.
According to Labour Force Survey 2005 (First two quarters), since 2003-04 and until the first half of 2005-06, 5.82 million new jobs have been created as against an average job creation of 1.0-1.2 million per annum, he added. He said the rising pace of job creation is bound to increase the income levels of the people, as the IT sector alone has created 114,737 new jobs in 2005-06.
Over the last five years, he said the government has spent Rs. 1332 billion on poverty-related and social sector programme to cater to the needs of poor and vulnerable sections of the society. The percentage of population living below the poverty line has fallen from 34.46 percent in 2000-01 to 23.9 percent in 2004-05, a decline of 10.6 percentage points.
The percentage of population living below the poverty line in rural areas has declined from 39.26 percent to 28.10 percent while those in urban areas, has declined from 22.69 percent 14.9 percent in this period, he added. Giving the sector-wise performance, Dr. Salman Shah said, the agriculture, particularly its crop sector could not perform up to the expectation especially, major crops registered a negative growth of 3.6 percent.
Livestock with 8.0 percent growth, a major component of agriculture, exhibited strong showing and pulled the overall growth in agriculture to 2.5 percent as against the target of 4.2 percent. Dr. Salman said, overall manufacturing, accounting for 18.2 percent of GDP, registered a robust growth of 8.6 percent against the target of 11.0 percent and last year’s achievement of 12.6 percent.
Large-scale manufacturing grew weaker-than-the expected at 9.0 percent as against 15.6 percent of last year and 14.5 percent target for the year, exhibiting signs of moderation on account of higher capacity utilization on the one hand and strong base effect along with several other factors on the other hand, he added. He said the construction continued its strong showing, partly helped by activity in private housing market, spending on physical infrastructure, and reconstruction activities in earthquake affected areas.
Meanwhile: Prime Minister Shaukat Aziz Sunday said the Economic Survey of Pakistan for the 2005-06 shows that the country’s economy is moving forward satisfactorily despite the 8th October earthquake and higher international oil prices. He was talking to newsmen here at Prime Minister House after the Advisor to the Finance Ministry, Dr. Ashfaq Hassan Khan presented him a copy of the Economic Survey of Pakistan for the year 2005-06.
Advisor to Prime Minister on Finance Dr. Salman Shah and Minister of State for Finance Umar Ayub Khan were also present on the occasion. Prime Minister Shaukat Aziz said the country faced the shocks of the earthquake and higher oil prices because its economic policies were based on a philosophy and this helped in continued economic progress during the year.
Shaukat Aziz said that continued and consistent economic policies of the government provided a base to achieve percent GDP growth and it may go up with the availability of more data of the remaining months of the year. The Prime Minister said the foreign exchange reserves are increasing and the country is steadily moving forward on the path of development and progress. For the first time in the history, the public sector development programme of the outgoing year was all time high and in the next financial year, it would be further increased, the Prime Minister said. He said the people will be provided relief in the budget and measures would be announced for improvement in taxation system.
The Prime Minister said special care will be taken in the budget to provide the relief to the people in low income group and adequate resources will be provided for health, education, law and order, defence and other needs of the country and people. Shaukat Aziz said every Pakistani will get benefit of the improved economy when the budget for the next year will be announced in the National Assembly on Monday.
The Prime Minister said the budget will be for every Pakistani because if economy improves, it benefits every citizen.