PAKISTAN’S RECENT MACROECONOMIC PERFORMANCE
Pakistan’s macroeconomic picture has improved considerably over the past five years and the economy is expected to maintain its growth momentum. The outgoing fiscal year (2005-06) has been an extra-ordinary year for the economy of Pakistan. At the very onset of the year the economy faced headwinds from rising oil prices, hovering around $ 70 – 75 per barrel and putting severe strains on the country’s trade balance and the budget. The massive earthquake of October 8, 2005 also caused extensive damage to property, infrastructure, school, hospital etc. and a heavy loss of human lives. The rescue and relief operations and reconstruction of earthquake affected areas also put Pakistan’s budget under severe stress. Despite these constraints, Pakistan’s economy has proved itself as remarkably resilient in the face of shocks of extraordinary proportions. Growth has remained buoyant with real GDP growing at 6.6%2 in 2005-06 as against the revised estimates of 8.6% last year and the 7.0% target for the year. This economic growth compares favorably with Asian regional trends. The graph shows Pakistan’s GDP growth exceeded the regional average last year and is expected to outstrip regional growth in FY 2006 despite the adverse impact of the earthquake. The government’s economic agenda includes measures to widen the tax net, privatize public sector assets, and improve its balance of trade. Pakistan has made governance reforms, privatization, and deregulation the cornerstones of its economic revival. .
PAKISTAN'S CREDIT RATING
Pakistan’s economic revival program received independent validation when international credit rating agencies positively reviewed Pakistan’s position in 2004. On January 24, 2004, Moody’s Investor Services improved Pakistan’s outlook on internal and external currency from ‘stable’ to ‘positive’. This was followed by an upgrade in Pakistan’s credit rating from B3 to B2 on February 7, 2004. Standard & Poor’s (S&P) long-term sovereign rating for Pakistan was upgraded to B+ for foreign currency and BB for local currency on November 22, 2004. This improvement in S&P’s rating reflected Pakistan’s declining debt and debt servicing burden, sustained economic progress, and moderate external liquidity position. On December 28, 2005 S&P further improved its outlook on Pakistan’s foreign currency rating from ‘stable’ to ‘positive’ while reaffirming its B+ foreign currency and BB local currency long term and its B short term sovereign ratings.
POSITIVE ECONOMIC TRENDS
- Pakistan’s total foreign exchange reserves reached USD 13.0 billion in comparison to USD 12.6 billion at the end of FY 05.
- In FY 06, Pakistan received workers’ remittances of USD 4.5 billion in comparison to USD 4.2 billion received in FY 05.
- Pakistan received highest ever FDI of USD 3.0 billion in FY 2006 in comparison to USD 1.7 billion in the previous year.
- Pakistan’s USD 500 million five-year Eurobond issued on February 12, 2004 was oversubscribed four times. The issue was priced at 370 basis points above the equivalent US Treasury bond. Since flotation, its credit spread had tightened to 175 basis points on February 10, 2006.
SUMMARY OF MAJOR ECONOMIC INDICATORS
CONCLUDING REMARKS
Pakistan is in the midst of an economic upturn. To sustain the momentum is indeed a major challenge for policy-makers. Various challenges have to be met to support this 7- 8% growth in the medium term such as job creation, poverty alleviation, and a strengthening of the country’s physical infrastructure. Against the backdrop of this improved economic outlook, the focus of policy efforts should be on medium-term measures to allow for the sustainability of the recovery, while rebuilding to allow room for responding to possible future shocks.
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