national income

Definition
The income earned by a country's people, including labor and capital investment.

n.
The total net value of all goods and services produced within a nation over a specified period of
time, representing the sum of wages, profits, rents, interest, and pension payments to residents of
the nation.

Economic Survey 2008-09 has been released by Finance Ministry of Pakistan and it seems our
economy didn’t perform as expected. Below is the small summary while the complete Pakistan
Economic Survey 2008-2009 can be downloaded by clicking here. Its in a pdf Format.

Despite inhospitable domestic and international environment, Pakistan’s economy grew by 2

percent in the financial year 2008-09.

According to Economic Survey 2008-09, launched jointly by Advisor to Prime Minister on

Finance, Shaukat Tarin and Minister of State for Finance, Hina Rabbani Khar, here on Thursday,
the economic growth of 2.0 percent seems reasonable although it implies definite slippage against
4.1 percent growth of last year and this year’s target of 4.5 percent.

Addressing the press conference, Shaukat Tarin said that the economic growth of Pakistan should
be looked in the backdrop of global recession where positive growth is a rare exception.

He said that microeconomic crisis, trade shock, global recession and domestic security challenges
were the main hurdles in the way of economic growth of the country during the current financial
year.

He described the year 2008-09 as ‘Year of consolidation’ for the revival of economy, saying that
the current government inherited economic setbacks from the previous government.

Advisor to Prime Minister on Finance, Shaukat Tarin said that the agriculture sector depicted a
stellar growth of 4.7 percent, as compared to 1.1 percent witnessed last year and the target of 3.5
percent for the year.

However, the overall FBR tax collection remained less than satisfactory and witnessed deceleration
in real terms. Resultantly, the FBR tax collection to GDP ratio is likely to deteriorate to around 9
percent of GDP as against the target of bringing it in the vicinity of 10 percent of GDP.

Tarin said that FBR would broaden its tax base by bringing those services and other sectors into the
tax net who are still avoiding tax payment but contributing to the GDP.

Output in the manufacturing sector contracted by 3.3 percent in 2008-09 as compared to expansion
of 4.8 percent last year and target of 6.1 percent. Small and medium manufacturing sector
maintained its healthy growth of last year at 7.5 percent.
Large-scale manufacturing depicted contraction of 7.7 percent as against expansion of 4.0 percent
in the last year and 5.5 percent target for the year.
He added that the massive contraction has been because of acute energy outrages, security
environment and political disruption in March 2009.
The services sector grew by 3.6 percent as against the target of 6.1 percent and last year’s actual
growth of 6.6 percent.

Value-added in the wholesale and retail trade sector grew at 3.1 percent as compared to 5.3 percent
in last year and target for the year of 5.4 percent.

Finance and insurance sector witnessed registered negative growth of 1.2 percent in 2008-09 he
said adding that the performance of the sector shows that Pakistan’s financial sector was integrated
in the world economy and is feeling the heat of the crisis plaguing international financial markets.
He said that the transport sector and communication sub-sector depicted a sharp deceleration in
growth to 2.9 percent in 2008-09 as compared to 5.7 percent of last year.
Pakistan’s per capita real income has risen by 2.5 percent in 2008-09 as against 3.4 percent last
year. Per capita income in dollar terms rose from $1042 last year to $1046 in 2008-09, thereby
showing marginal increase of 0.3 percent.
Advisor to Prime Minister on Finance, Shaukat Tarin said that total investment declined from 22.5
percent of GDP in 2006-07 to 19.7 percent of GDP in 2008-09.

He said that fixed investment decreased to 18.1 percent of GDP from 20.4 percent last year adding
that private sector investment was decelerating persistently since 2004-05 and its ratio to GDP
declined from 15.7 percent in 2004-05 to 13.2 percent in 2008-09.
Public sector investment to GDP ratio has risen persistently from 4.0 percent in 2002-03 to 5.6
percent in 2006-07. However, it declined to 4.9 percent in 2008-09.
National savings rate has declined to 14.4 percent of GDP in 2008-09 as against 13.5 percent of
GDP last year. Domestic savings also declined substantially from 16.3 percent of GDP in 2005-06
to 11.2 percent of GDP in 2008-09.
The overall foreign investment during the first ten months has declined by 42.7 percent and stood
at $2.2 billion as against $3.9 billion in the comparable period of last year.
Foreign direct investment private showed some resilience and stood at $3205.4 million during July-
April (2008-09) as against $3719.1 million in the corresponding period of last year, thereby
showing a decline of 13.8 percent.

Private portfolio investment on the other hand showed a net outflow of $451.5 million as against
net flow of $98.9 million during the same period of last year.
During 2007-08, the SBP continue with tight monetary policy stance thrice rising the discount rate
and increased the cash reserves requirements and statutory liquidity requirements. During July-
May 2008-09 money supply (M2) declined 4.59 percent against 8.96 percent last year.
Net domestic assets (NDA) was limited to just Rs 442.1 billion as compared to Rs.655.4 billion in
the FY 08. During FY 09, the slow expansion in private sector credit has led to slow growth NDA
of the banking system. This is shared both by NDA of SBP and Scheduled Banks.

Net foreign assets of the banking system recorded a decline of over Rs.227.1 billion during the first
ten months of the current fiscal year to May 9, he added.
He said that the government’s budgetary borrowing from the banking system decreased by
Rs.339.9 billion during July-May 2008-09 against an increase of Rs.360.4 billion in the same
period of last financial year.
The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 22.3 percent
during July-April 2008-09, as against 10.3 percent in the comparable period of last year.
The food inflation is estimated at 26.6 percent and non-food 19.0 percent against 15.0 percent and
6.8 percent in the corresponding period of last year, he added.
The Sensitive Price Indicator has recorded increase of 26.3 percent during July-April 2008-09
against 14.1 percent of last year.
He attributed the increase in inflation rate to the increase in food price inflation.
It is expected that the average inflation for the year (2008-09) as measured by CPI will be close to
21.0 percent, he added.

Advisor to Prime Minister on Finance, Shaukat Tarin said that overall exports recorded a negative
growth of 3.0 percent during July-April 2088-09 against the positive growth of 10.2 percent in the
corresponding period of last year.
Imports registered a negative growth of 9.8 percent in July-April 2009 as compared to the same
period of last year, he added.
Workers’ Remittances totalled $6355.6 million in July-April 2008-09 as against $5319.1 million in
the comparable period of last year, depicting an increase of 19.5 percent.
Tarnin said that Foreign Exchange Reserves amounted $11.6 by the end of May 2009, reserves held
by State Bank of Pakistan stood at $8.28 billion and reserves by banks stood at $3.32 billion.

Tarin said that the government has initiated survey on poverty which would be completed in next
three months.
He said that the government, under its safety net programme, has already initiated Benazir Income
Support Programme and Punjab Food Support Programme to help the vulnerable section of the
society.
To a question, he said that the government would allocate considerable allocations for the internally
displaced persons and will not only rely on foreign assistance and donors.
He said that the government expects Rs.180 billion from Friends of Democratic Pakistan in the
forthcoming budget adding that IMF would also provide next tranche of grant by June end.
He said that Federal Bureau of Statistics will be given autonomy and linked with reputed
international organization to make its data reliable, transparent and acceptable to all stakeholders.
 What is the real per capita income?

By Aftab Ahmad

As stated in the Pakis-tan Economic Survey, one of the redeeming features in fiscal year 2007-08
when the economy was faced with multiple challenges, was that the per capita income moved up
from $926 to $1,085.

A study of the national income accounts, however, shows that the higher inflation rate of 10.3 per
cent (as measured by the CPI) had played a significant role in pushing up both the GDP and the
per capita income for 2007-08. To work out the per capita income for a particular year, the gross
domestic product (GDP) is calculated at current market prices, which includes the element of
annual inflation.

As a result high inflation in 2007-08, the GDP calculated at market prices showed an increase of
20 per cent over the previous year, while at constant prices (of 1999-2000), the GDP growth
moved up only by 5.8 per cent. Similarly, the per capita income at current prices had gone up by
17.1 per cent to reach $1,085, whereas on the basis of constant prices of 1999-2000, the per capita
income increased by only 4.4 per cent.

The per capita income appears impressive largely because of the higher inflation rate during the
year 2007-08. Had the inflation rate been moderate, the increase in the per capita income would,
also, have been modest, at best.

Second, the net factor income from abroad showed a robust growth in last fiscal. If the net factor
income from abroad is positive, it adds to the gross national product (GNP) and vice-versa. The
per capita income is arrived at by dividing the GNP over the country’s population. If the net factor
income from abroad is positive , the per capita income works out to be higher. It helped in taking
the per capita income from $926 in 2006-07 to 1,085 in 2007-08.

The marked increase in the net factor income is attributed to a surge in the income in home
remittances which moved up to an all time record of nearly $6.5 billion in last fiscal.

Third, the per capita income had been arrived at by converting the figures in the rupee into the
dollar, on the basis of an exchange rate of Rs61.30 to a dollar. The slide in the value of rupee vis-
à-vis dollar started only about a couple of months ago and the exchange rate had remained stable
during the major part of the year. The average exchange rate for 2007-08 worked out to be
considerably better than the present exchange rate of Rs70-71 to a dollar. If the per capita income
was calculated on the basis of the current exchange rate of the rupee vis-à-vis dollar, it would be
considerably less.

The per capita income of $1,085 thus loses much of its charm, particularly when we know that the
increase is largely inflation-related. The government should aim at bringing down the inflation
rate by boosting the production/availability of both the agricultural and industrial products. Only a
rapid and sustained growth of the commodities sector, whose performance was lacklustre last
year, can help lower inflation.

In addition, while the increase in the income from home remittances is most welcome, we should
not depend on a source not fully in our control. The government should, therefore, make all
possible efforts to boost all other sources of national income.