Economic

Survey of
Pakistan
2002-03

An online publication by
Chapter 1. Growth and Investment
1. Growth and Investment
The outgoing fiscal year 2002-03 has
witnessed a sharp recovery in economic growth
accompanied by equally impressive performance
of agriculture and large-scale manufacturing.
Other significant achievements have been the
impressive growth in per capita income, both in
rupee and dollar terms, and national savings
reaching new heights — exceeding total
investment and suggesting a large surplus in the
current account balance. When viewed at the
backdrop of inhospitable external environment
and uncertain geo-political situation Pakistan's
growth performance has been impressive in 2002-
03. This year has witnessed major corporate
scandals and bankruptcies in the United States,
resulting in bursting of the equity market bubble;
rising uncertainties in the run up to war in Iraq,
causing oil prices to rise sharply, and recent
outbreak of Severe Acute Respiratory Syndrome
(SARS) virus badly affecting business
environment in Asia. There developments on
international economic scene created
uncertainties. The world economic outlook
remained subdued and global trade remained
sluggish during the outgoing fiscal year.
Table 1.1 documents the growth
performance of selected regional economies in
2000-03. The performance of the major growth
poles of the world economy (US, Japan and Euro
Area) are likely to remain subdued with Japan
and Euro Area economies growing by less than
1.0 percent in 2002-03. The United States is
expected to perform better as compared with last
year. Developing countries as a whole is expected
to grow by 4.6 percent. China and Korea in Asian
region are expected to be the star performers with
growth exceeding 6.0 percent. With the exception
of Thailand, the other ASEAN countries are
projected to grow by less than 5.0 percent. Barring
Iran, the other countries in the Middle East are
almost stagnating. In Africa, no country could
achieve 5.0 percent growth in 2002-03. In South
Asia, Pakistan is the only country which achieved
more than 5.0 percent growth in 2002-03. 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 impressive. Secondly, in a subdued global
economic environment, an impressive recovery in
growth simply displays Pakistan's greater
resilience to external shocks.
The real GDP at factor cost was originally
targeted to grow by 4.5 percent in 2002-03, with
agriculture and manufacturing growing by 2.5
percent and 5.8 percent, respectively. The growth
target was largely dependent on recovery in
agriculture, manufacturing, rapid growth in
exports and higher level of investment. All three
major sectors of the economy namely, agriculture,
manufacturing and services responded positively
to the incentives embodied in economic revival
program and comfortably surpassed the growth
targets. The real GDP at factor cost grew by 5.1
percent and was supported by a 4.2 percent, 7.7
percent and 5.3 percent growth in agriculture,
manufacturing and services, respectively. The real
GDP at market prices recorded an impressive
growth of 5.8 percent as against a growth of 2.9
percent last year.
Chapter 1. Growth and Investment

Table 1.1
Regional Growth Performance
Real GDP Growth (%)

Region/Country 2000-01 2001-02 2002-03

World GDP 4.7 2.3 3.0
Euro Area 3.5 1.4 0.8
United States 3.8 0.3 2.4
Japan 2.8 0.4 0.3
Germany 2.9 0.6 0.2
Canada 4.5 1.5 3.4
Developing Countries 5.7 3.9 4.6
China 8.0 7.3 8.0
Hong Kong SAR 10.2 0.6 2.3
Korea 9.3 3.0 6.1
Singapore 9.4 -2.4 2.2

ASEAN
Indonesia 4.9 3.4 3.7
Malaysia 8.3 0.4 4.2
Thailand 4.6 1.9 5.2
Philippines 4.4 3.2 4.6

South Asia
India 5.4 4.2 4.4
Bangladesh 5.9 5.3 4.4
Sri Lanka 6.0 -1.4 3.7
Pakistan 2.2 3.4 5.1

Middle East
Saudi Arabia 4.9 1.2 2.1
Kuwait 1.4 -1.1 -0.9
Iran 5.2 5.7 6.0
Egypt 5.1 3.5 2.0

Africa
Algeria 2.4 2.1 3.1
Morocco 1.0 6.5 4.5
Tunisia 4.7 5.2 1.9
Nigeria 3.9 2.8 0.5
Kenya -0.1 1.2 1.2
South Africa 3.5 2.8 3.0
Source: World Economic Outlook (IMF), April 2003.
Chapter 1. Growth and Investment
Fig-1: Real GDP/GNP Growth
10
9
8
7 6.1
5.7
% Growth
6 4.9
5 4.2
4 2.8
3
2
1
0
1980's 1990-I
GDP Growth
The growth in real GNP continued to
decelerate during the 1990s— declining from an
average of 5.7 percent in the 1980s to an average
of 4.2 percent in the first half, and 3.5 percent in
the second half of the 1990s. During the first three
years (2000-03) of the new decade, the real GNP
grew at an average of 5.4 percent. Most
importantly, the real GNP registered a handsome
growth of 8.4 percent in 2002-03 as against 5.3
percent last year, mainly on account of 472.2
percent increase in net factor income from abroad,
which, in turn, is the result of a sharp increase in
the inflow of workers remittances and foreign
direct investment in the country [See Fig-1.1].
With population growing by 2.1 percent, the real
per capita GNP at market price increased by 6.6
percent in 2002-03 as against an increase of 2.1
percent last year.
Notwithstanding the strong recovery in
growth to 5.1 percent in 2002-03 from 3.4 percent
last year, the fact remains that Pakistan’s
economic growth decelerated in the 1990s for a
variety of reasons, including worsening of
macroeconomic environment, serious lapses in
implementation of stabilization policies and
8.4
5.1
4.0 3.8
3.5
1990-II 2000-02 2002-03
GNP Growth
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, 4.0 percent in the second half of the 1990s.
Economic growth remained depressed for first
two years (2000-02) of the new decade averaging
2.8 percent. Unprecedented drought and the
events of 9/11 have been responsible for keeping
the growth depressed during 2000-02. Fiscal year
2002-03 exhibits a turnaround in growth [See Fig-
1]. The real challenge would now be to sustain
this growth momentum.
The manufacturing sector 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. However, it performed well during last
three years by growing at annual average rate of
7.0 percent per annum. 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 of 6.6
percent in the 1980s to 5.1 percent in the first half
Chapter 1. Growth and Investment

and further to 4.0 percent in the second half of the momentum during last three years by growing at
1990s, losing one-third of its growth momentum an average rate of 4.7 percent. [See Table 1.1].
during the 1990s. It started regaining its growth

Table 1.1
Growth Performance of Real Sector
Item Unit 1980’s 1990-95 1995-00 2000-03 2002-03
A. GDP GROWTH RATE % 6.1 4.9 4.0 3.6 4.9
a. Agriculture % 4.1 4.2 4.9 0.5 4.2
b. Manufacturing % 8.2 4.8 3.2 7.0 7.7
c. Large-scale Manufacturing % 8.2 4.7 2.4 7.7 8.7
d. Services % 6.6 5.1 4.0 4.7 5.3
As %
B. TOTAL INVESTMENT 18.7 19.5 17.1 15.2 15.5
of GDP
a. Fixed Investment 17.0 18.0 15.3 13.4 13.1
b. Public Investment 9.2 8.6 6.4 4.9 4.5
c. Private Investment 7.8 9.4 8.9 8.5 8.6
As %
C. NATIONAL SAVING 14.8 14.9 12.7 17.0 19.2
of GDP
a. Domestic Saving 7.7 13.9 13.8 15.7 14.7
Source: Federal Bureau of Statistics

Persistence of large fiscal and current
account deficits during the 1980s have been the
underlying cause of macroeconomic instability,
which in turn affected investment and impeded
growth during the 1990s. Resultant accumulation
of huge public debt put strain on development
expenditure because of downward rigidity of
current expenditure and structural weaknesses of
tax administration that handicapped extra
resource mobilization. The public sector
investment has significant importance as a growth
stimulus in developing countries like Pakistan.
Under pressure from the resource crunch, the
decline in public investment was inevitable.
Total and fixed investment as percentage
of GDP declined in the 1990s. 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 was mainly originated from public sector
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. It is well-known that a
stable macroeconomic environment is pre-
requisite to higher investment and growth. 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
consistency in economic policy. These were
exactly the things which were ignored in macro-
economic policy making during the 1990s.
National saving rate also witnessed a
decline from an average of 14.7 percent in the
1980s to 12.7 percent in the second half of the
1990s. Even with low investment rates, the current
account showed large deficits during the 1990s.
There was a shift by the end of the 1990s to
finance investment from domestic sources instead
of foreign resources. [See Table-1.1]. National
savings as percent of GDP witnessed considerable
improvement during the last three years (2000-03)
Chapter 1. Growth and Investment

and averaged 17.1 percent of GDP. The rise in
national savings owes mainly to the significant
turnaround in the current account balance.
Having discussed the overall growth and
investment scenarios in the backdrop of structural
problems being faced by the economy in the
recent past, it is essential to have an insight of the
growth performance of various components of
gross national product for the outgoing fiscal year
2002-03. The performance of the various
components of national income over the last two
decades along with most recent three years, are
summarized in Table 1.2.
A. Commodity Producing Sector
The commodity-producing sector grew by
4.8 percent in 2002-03 as against 2.7 percent last
year. Although, the improvement has mainly
come from manufacturing sector but agriculture
also contributed positively to this recovery [See
Table 1.2].

Table 1.2
Growth Performance of Components of Gross National Product
(% Growth At Constant Factor Cost)
1980’s 1990’s 2000-01 2001-02 2002-03
Commodity Producing Sector 6.5 4.3 0.2 2.7 4.4
1. Agriculture 5.4 4.5 -2.7 -0.1 4.2
- Major Crops 3.4 4.1 -10.3 -1.8 5.8
- Minor Crops 4.1 3.9 -0.1 -1.8 0.4
- Livestock 5.3 6.3 5.3 3.7 2.9
- Fishing 7.3 3.5 -3.7 -12.0 16.6
- Forestry 6.4 6.5 9.6 -1.3 8.9
2. Mining & Quarrying 9.5 2.9 4.8 3.7 9.5
3. Manufacturing 8.2 4.0 8.2 5.0 7.8
- Large Scale 8.2 3.5 9.5 4.9 8.7
- Small Scale 8.4 5.3 5.3 5.3 5.3
4. Construction 4.7 2.6 -0.4 4.3 3.4
5. Electricity & Gas Distribution 10.1 7.7 -17.4 8.5 -3.9
Services Sector 6.6 4.6 4.8 4.1 5.3
6. Transport, Storage and
Communications 6.2 5.2 2.6 1.1 3.1
7. Wholesale & Retail Trade 7.2 3.4 5.4 2.3 7.3
8. Finance & Insurance 6.0 4.9 11.1 8.1 -1.4
9. Ownership of Dwellings 7.9 5.3 5.3 5.3 5.3
10.Public Administration & Defence 5.4 3.2 1.1 6.5 5.2
11.Services 6.5 6.5 6.5 6.5 6.5
12.GDP (Constant Factor Cost) 6.1 4.4 2.2 3.4 5.1
13.GNP (Constant Factor Cost) 5.5 3.9 2.3 5.3 8.4
Source: Federal Bureau of Statistics and Economic Adviser’s Wing.

i) Agriculture country for three consecutive years. The travails of

water shortages persisted even during 2002-03;
The performance of agriculture in the however the extent of shortage was relatively less
recent past has remained subdued owing to the detrimental. Consequently, agriculture grew by 4.2
catastrophic drought which engulfed the entire percent in 2002-03 as against almost flat growth of
Chapter 1. Growth and Investment
last year and target of 2.5 percent. The improved
growth performance of agriculture is attributable to
impressive recovery in the performance of major
crops.
Major crops accounting for 41 percent of
agriculture value added grew by 5.8 percent as
against a decline in value addition for the last two
consecutive years and a target of fractional
growth of 0.3 percent for 2002-03. Major crops
including wheat, sugarcane, and rice witnessed
increase in production by 5.5 percent, 8.3 percent,
and 15.4 percent, respectively. However, the
production of cotton witnessed a decline of 3.8
percent during 2002-03. This is the third year in a
row when the value addition in cotton crops has
declined. [See Chapter-2 for details]
The growth in value addition of Minor
crops which contribute 16 percent of value
addition in agriculture grew marginally by 0.4
percent in 2002-03 as against the growth target of
3.5 percent growth and decline of 1.8 percent last
year. The minor crops include cereals, vegetables,
fruits, condiments, oil seeds, fodder and others.
Within minor crops, the production of all three
major pulses witnessed tremendous growth due
to introduction of new varieties of seeds.
However, increase in production of important
minor crops like chilies, pulses, oil seeds and
onion could not boost the overall growth of minor
crops.
Livestock sub-sector which account for 39
percent of overall value addition in agriculture
has witnessed a modest growth of 2.9 percent in
2002-03 as compared with the target of 4.0 percent
for the year and actual achievement of 3.7 percent
last year. The lower growth owes to decreasing
use of draught power and adjustments for inputs
in the sub-sector. The production of milk, egg and
mutton are estimated to have gone up by 2.9, 2.3
and 2.9 percent, respectively. The fisheries sector
witnessed a growth of 16.6 percent as against a
decline of 12.0 percent last year and yearly target
of 4.0 percent growth. Components of fisheries
such as marine fishing and inland fishing,
contributed to overall increase in value added in
the fisheries sub-sector. The value addition in
forestry sub-sector has increased by 8.8 percent as
compared to a decline of 1.3 percent last year. The
production of timber and firewood also went up
by 8.8 percent each.
ii) Mining & Quarrying
The output in the mining and quarrying
sector has surpassed the target of 2.5 percent and
grew by 9.5 percent in 2002-03 as against 3.7 percent
last year. The value added in crude oil increased by
2.8 percent and in natural gas it has risen by 6.5
percent. However, the value addition in coal
decreased by 2.5 percent, inspite of the fact that
cement industry has started using coal as a major
source of energy which has fuelled the domestic
demand of coal. The principal mineral which has
shown enormous growth include barite (33.3
percent), lime stone (20.3 percent), gypsum (33.9
percent), and chromites (50 percent). The minerals
with negative growth include sulphur (7.0 percent),
dolomite (3.0 percent), and magnisite (7.4 percent).
iii) Manufacturing
The overall manufacturing sector grew by
7.7 percent as against the target of 5.8 percent and
last year’s achievement of 5.0 percent. Large scale
manufacturing sector accounting for 71.2 percent of
overall manufacturing, recorded an impressive and
broad based growth of 8.7 percent, as against the
target of 6.0 percent and last year’s growth of 4.9
percent. This is the second highest growth rate
recorded during the last 13 years (the first one is 9.5
percent in 2000-01). Improvements in
macroeconomic environment, sharp recovery in
exports, and the availability of consumer financing
Chapter 1. Growth and Investment
at reasonable interest rates have been responsible
for strong performance of large-scale
manufacturing. Over the last three years (2000-03),
the large-scale manufacturing has registered an
average growth of 7.7 percent per annum.
Major industries that registered positive
growth include sugar (13.6 percent), cement (20.5
percent), petroleum products (2.2 percent),
cooking oil (6.8 percent), jeeps & cars (51.6
percent), LCV’s (57.6 percent), cotton yarn (8.1
percent), paper & board (15.7 percent), soda ash
(12.9 percent), motorcycles (33.5 percent),
nitrogenous fertilizer (4.2 percent) and motor
tyres (16.0 percent). Ten out of eleven major
industrial groups posted positive growth while
only leather products group registered negative
growth. The individual industries that depicted
negative growth include: sulphuric acid (5.4
percent), phosphatic fertilizer (27.8 percent),
paints & varnishes (63.7 percent), beverages (18.3
percent), cigarettes (7.1 percent), vegetable ghee
(7.0 percent), foot wear (6.2 percent), and cotton
ginned (4.7 percent). Small-scale manufacturing
maintained its historical growth of 5.3 percent in
2002-03.
Construction sector grew by 3.4 percent
as against 4.3 percent last year and yearly target of
4.0 percent. The government has identified
housing and construction sectors as one of the
major drivers of growth and likely to announce
various measures in the Federal Budget 2003-04 to
encourage activities in this sector. Electricity and
gas distribution sector registered a decline of 3.9
percent as against an impressive growth of 8.5
percent last year and yearly target of 4.3 percent.
This is the only sub-sector in commodity
producing sector which registered a negative
growth.
B. Services Sector
The Services Sector has been growing at a
faster pace than commodity producing sector of
the economy for quite sometime. The trend
remained unchanged even during 2002-03 as the
services sector grew by 5.3 percent as against 4.1
percent of last year. Within this sector, the
wholesale & retail trade and transport, storage
and communication sub-sectors grew by 7.3
percent and 3.1 percent, respectively as against 2.3
percent and 1.1 percent of last year.
Finance and insurance sub-sector
remained depressed as far as value addition is
concerned. The sub-sector registered a decline of
1.4 percent in value addition during 2002-03 as
against the target of 5.0 percent positive growth
and last year’s actual achievement of 8.1 percent
growth. Public administration and defence has
depicted a growth of 5.2 percent as against 6.5
percent last year. Two minor sectors that is,
ownership of dwellings and social services, have
maintained their estimated growth of 5.3 percent
and 6.5 percent, respectively.
Sectoral Contribution to Real GDP Growth
The greater contribution to real GDP
growth of 5.1 percent came from services sector
(2.7 percentage points). Industrial sector
contributed 1.4 percentage points with major
share coming from manufacturing sector (almost
entire). As evident from Table 1.3, almost 53
percent contribution to growth (2.7 percentage
point out of 5.1 percent of real GDP growth) has
come from services sector followed by industrial
sector (27 percent) and agriculture (20 percent).
Last year, services sector contributed 59 percent
and 41 percent contribution came from industrial
sector. Agricultural contributed negatively to the
last year’s growth. This suggests a balanced
contribution from all the three sectors to this
year’s growth. The contribution of each sector to
growth is summarized in Table-1.3:
Chapter 1. Growth and Investment

Table 1.3 producing sector, the share of agriculture has

Sectoral Contribution to the GDP growth declined substantially from 38.9 percent in 1969-
(Percentage Points) 70 to 23.6 percent—a decline of almost 15.3
Sector 2000-01 2001-02 2002-03 percentage points in three decades but on the
Agricultue -0.7 -0.02 1.0
other hand the share of manufacturing has
Industry 0.6 1.4 1.4
remained more or less stagnant in the vicinity of
Services 2.3 2.0 2.7
17 to 18 percent over the last three decades. The
Real GDP (Fc) 2.2 3.4 5.1
share of manufacturing sector increased from 16.7
Source: Federal Bureau of Statistics.
percent in 1998-99 to 18.4 percent in 2002-03,
Sectoral Shares in GDP
suggesting an increase of 1.7 percentage points in
three years. This implies that the services sector
The composition of the Gross Domestic
has gained at the expense of the ground lost by
Product has remained more or less unchanged
the agricultural sector. [See Table 1.4] Within
during the decade of the 1990s. However, it has
Services sector the pattern has remained more or
undergone considerable changes over the last
less the same for the last three decades with the
three decades. The share of commodity-producing
exception of changes in the share of transport,
sectors declined from 61.6 percent in 1969-70 to
storage and communication which expanded
49.3 percent in 2002-03 while the share of services
from 6.3 percent in 1969-70 to 9.9 percent in 2002-
sector increased from 38.4 percent to 50.7 percent
03. The details are given in Table 1.4:
during the same period. Within commodity-

Table 1.4
Sectoral Share of Various Sectors in Gross Domestic Product
(At Constant Factor Cost)
(Percent)
1969-70 1998-99 2000-01 2001-02 2002-03(P)
Commodity Producing Sector 61.6 51.1 49.7 49.4 49.3
1. Agriculture 38.9 25.4 24.7 23.9 23.6
- Major Crops 23.4 10.3 10.0 9.5 9.6
- Minor Crops 4.2 4.9 4.1 3.9 3.8
- Livestock 10.6 9.2 9.3 9.4 9.2
- Fishing 0.5 0.9 0.9 0.7 0.8
- Forestry 0.1 0.1 0.3 0.3 0.3
2. Mining & Quarrying 0.5 0.5 0.5 0.5 0.5
3. Manufacturing 16.0 17.1 17.7 17.9 18.4
- Large Scale 12.5 12.1 12.5 12.7 13.1
- Small Scale 3.5 5.0 5.2 5.3 5.3
4. Construction 4.2 3.4 3.4 3.4 3.3
5. Electricity & Gas Distribution 2.0 4.7 3.6 3.7 3.4
Services Sector 38.4 49.1 50.3 50.6 50.7
6. Transport, Storage and 6.3 10.2 10.3 10.0 9.9
Communication
7. Wholesale and Retail Trade 13.8 15.2 15.3 15.2 15.5
8. Finance and Insurance 1.8 2.5 2.5 2.6 2.4
9. Ownership of Dwellings 3.4 5.9 6.1 6.2 6.2
10.Public Administration and Defence 6.4 6.1 6.4 6.6 6.6
11.Other Services 6.7 9.0 9.7 10.0 10.1
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 years (2000-03) while it grew by 6.6 percent

The real per capita income grew at an
average rate of 1.4 percent per annum in the 1990s
because of relatively slower growth in real GDP.
Sharp acceleration in real per capita income was
witnessed during the last three years. As against
an annual average rate of 1.4 percent in the 1990s,
the real per capita income grew at an average rate
of 3.1 percent per annum during the last three
during 2002-03. At current prices, per capita
income grew by 12.3 percent in 2002-03 as against
6.3 percent last year. Appreciation of exchange
rate further enhanced the growth of per capita
income in dollar terms. The per capita income in
dollar terms increased from $ 419 in 2001-02 to
$492 in 2002-03 — an increase of 17.4 percent. The
developments in per capita income are given in
Table 1.5.

Fig-2: PER CAPITA INCOME

20 17.4
19
18
17
16
15
14
13
12
11
% Growth

10 6.6
9
8 5.6
7 4.2
6 3.1
5
4 1.5 0.5
3
2
1
0
-1 -2.7
-2
-3
-4
1990-I 1990-II 2002-03 2002-03

Rupee (1980-81 Price) US $

Table 1.5
Growth in Per capita Income
Per Capita Per Capita Per Capita
Income at Income at Income at %
% %
1980-81 current current US $ Growth
Growth Growth
Prices Prices
(Rs) (Rs)
1990-91 4639 0.7 9546 14.4 426 9.2
1991-92 4826 4.0 10853 13.7 439 3.1
1992-93 4778 -1.0 11674 7.6 453 3.2
1993-94 4813 0.7 13271 13.7 443 -2.2
1994-95 4951 2.9 15552 17.2 508 14.7
1990-I (Avg.) 1.5 13.3 5.6
1995-96 5016 1.3 17059 9.7 513 1.0
1996-97 4927 -1.8 18983 11.3 493 -3.9
1997-98 4924 -0.0 20415 7.5 473 -4.1
1998-99 4992 1.4 21899 7.3 438 -7.4
1999-2000 5073 1.6 22811 4.2 441 0.7
1990-II (Avg.) 0.5 8.0 -2.7
2000-01 5089 0.3 24248 6.3 415 -5.9
2001-02 5214 2.5 25767 6.3 419 1.0
2002-03 5558 6.6 28933 12.3 492 17.4
2000-03 (Avg.) 3.1 8.3 4.2
Note: The per capita income is based on GNP market prices. Source: 1) Federal Bureau of Statistics
2) Economic Adviser Wing
Chapter 1. Growth and Investment

Resources and Uses
The total availability of resources in the
economy are estimated at Rs.4041.6 billion at
current market prices as against Rs.3578.5 billion
last year, thereby registering an increase of 12.9
percent. The resource availability is comprised of
Rs.4018.1 billion worth of Gross Domestic Product
at market prices and Rs.180.8 billion from net
factor income from abroad, adjusted with Rs.157.1
billion current account surplus. On the uses side
enormous increase of 63.1 percent is witnessed in
changes in stocks component mainly because of
the carry-over stocks of sugar and wheat. Both
fixed and total investment is likely to increase by
10.5 percent and 16.3 percent in the year under
review. The consumption is also likely to go up by
12.4 percent. Resources and uses with break-down
of components are given in Table.1.6:

Table 1.6
Resources and Uses
(Rs. Billion)

Resources and Uses 2001-02 2002-03 % Change

Resources 3578.5 4041.6 12.9

GDP (Current Factor Cost) 3377.1 3709.7 9.8

Net Indirect Taxes 251.6 308.5 22.6
GDP (Market Price) 3628.7 4018.1 10.7
Net Factor Income from Abroad 32.0 180.6 464.4
GNP (Market Price) 3660.7 4198.7 14.7
Net External Resource Inflow -82.2 -157.1 91.1

Uses 3578.5 4041.6 12.1

Total Investment 534.1 620.9 16.3

Fixed Investment 476.1 526.3 10.5
Changes in Stocks 58.0 94.6 63.1
Total Consumption 3044.4 3420.7 12.4
Source: Planning & Development Division.

Savings and Investment environment of unutilized capacity available with

different industry, investment by private sector
Total investment rose substantially to 15.5 will rise only gradually. In this year, the capacity
percent of GDP in 2002-03 as against 14.7 percent utilization of leading industries has gone up and
last year while fixed investment remained there are expectations that investment may start
stagnant at 13.1 percent of GDP. In an rising from the next fiscal year.
Chapter 1. Growth and Investment

Figure-3: Savings-Investment Gap (As % of GDP)

22

21

20

19

18

17

16

15

14

13

12

11

10
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03
Total Investment National Savings

Public sector investment marginally privatizations has reduced the level and scope of
declined to 4.5 percent in 2002-03 from last year’s public sector investment through state
level of 4.8 percent. This was in line with enterprises, and many sectors once thought to be
government's conscious policy decision to create natural monopolies are now been exposed to
greater space for the private sector. As such, the competition. Public resources formerly used to
private sector investment rose from 8.3 percent in subsidize loss-making SOEs can potentially be
2001-02 to 8.6 percent in 2002-03. The level and used where the private sector is unlikely to invest
composition of public sector investment has enough. Table-1.7 reflects changing patterns of
changed over the past two decades. The wave of saving and investment during the last five years.

Table 1.7
Structure of Savings and Investment
(As Percent of GDP)
Description 1998-99 1999-2000 2000-01 2001-02 2002-03 (P)
Total Investment 15.6 16.0 15.5 14.7 15.5
Changes in Stock 1.6 1.6 1.6 1.6 2.4
Gross Fixed Investment 13.9 14.4 13.9 13.1 13.1
- Public Investment 6.0 6.0 5.5 4.8 4.5
- Private Investment 7.9 8.4 8.4 8.3 8.6
Foreign Savings 3.9 1.9 0.9 -2.3 -3.7
National Savings 11.7 14.1 14.6 17.0 19.2
Domestic Savings 12.9 15.6 16.1 16.1 14.7
Note: (P) stands for provisional Source: Economic Adviser’s Wing
Chapter 1. Growth and Investment

The contribution of national savings to the percentage points since 1998-99. National savings,
domestic investment efforts is indirectly the when adjusted for net income from abroad, gives
mirror image of the extent of foreign savings us domestic savings which stood at 15.0 percent of
required to meet investment demand. National GDP in 2002-03 as against 16.1 percent of GDP last
savings as percent of GDP rose from 17.0 percent year. This is because of massive increase in net
in 2001-02 to 19.2 percent in 2002-03 mainly on factor income from abroad during current fiscal
account of a significant improvement in the year. During the last three years (2000-03)
current account balance which eliminated the domestic savings as percent of GDP averaged 15.7
need for recourse to foreign savings to finance percent as against an average of 13.9 percent in
domestic investment. It is note-worthy that the 1990s.
national saving rate has increased by 7.8
____________________
Chapter 2. Agriculture

2. Agriculture
Agriculture sector being the lynchpin of the
country’s economy continues to be the single
largest sector and a dominant driving force for
growth and development of the national economy.
It accounts for 24 percent of the GDP and employs
48.4 percent of the total work force. Agriculture
contributes to growth as a supplier of raw materials
to industry as well as a market for industrial
products and also contributes substantially to
Pakistan’s exports earnings. Almost 67.5 percent of
country’s population are living in rural areas and
are directly or indirectly linked with agriculture for
their livelihood. Any improvement in agriculture
will not only help country’s economic growth to
rise at a faster rate but will also benefit a large
segment of the country’s population.
Agriculture sector has grown at an
average rate of 4.5 percent per annum during the
decade of the 1990s (Table-2.1) . The growth,
however, has fluctuated widely – rising by as high
as 11.7 percent and declining by 5.3 percent. Over
the last three years in general but the first two years
(2000-01 and 2001-02) of the new millennium in
particular, Pakistan has witnessed crippling
drought which badly affected its agriculture.
Overall agricultural growth turned negative for
these two years (See Table 2.1). The travails of water
shortage persisted even during 2002-03, however
the extent of shortage was relatively less.
Notwithstanding shortage of water, Agriculture
grew by 4.2 percent in 2002-03 (See Table 2.1).

Table 2.1
Agriculture Growth
(Percent)

Year Agriculture Major Crops Minor Crops

1990-91 4.96 5.69 3.51
1991-92 9.50 15.48 2.37
1992-93 -5.29 -15.60 3.95
1993-94 5.23 1.24 12.62
1994-95 6.57 8.69 6.91
1995-96 11.72 5.96 4.89
1996-97 0.12 -4.33 0.94
1997-98 4.52 8.27 8.13
1998-99 1.95 -0.02 4.23
1999-00 6.09 15.42 -9.10
Average of 1990s 4.54 4.08 3.84
2000-01 -2.64 -9.79 0.11
2001-02 -0.07 -1.83 -1.82
2002-03 (P) 4.15 5.80 0.41
P= Provisional.
Chapter 2. Agriculture
Fig-1: AGRICULTURE GROWTH
20
15
10
0
91-92 92-93 93-94 94-95 95-96 96-97
-5
-10
-15
-20
Agri Major Crops
As stated earlier, water shortages
continued, though with lesser intensity, during
2002-03. The canal head withdrawal in Kharif 2002
and Rabi 2002-03 seasons significantly increased by
14.9 percent and 35.7 percent, respectively over
Kharif 2001 and Rabi 2001-02. Winter rainfall
(January-March, 2003) which was also higher by 4.2
percent against the normal rainfall of same period,
ended the shortage of water for the Rabi Crop 2002-
03. Moreover, heavy snowfall on the mountains
during winter, 2003 would help fill the country’s
water reservoirs and alleviate water shortages to a
greater extent for the Kharif Crops 2003. On the
whole, the water situation in the current fiscal year
appears better than last year but remains in short
supply compared with the normal supplies. [More
on this issue can be found under sub-section
‘irrigation’].
The relatively better availability of
irrigation water has had positive impact on overall
agricultural production this year and the
agriculture growth is estimated at 4.2 percent as
compared with negative 0.1 percent during 2001-02.
Major crops, accounting for 41 percent of
agriculture value added, registered a sharp
recovery and grew by 5.8 percent against the
decline of 1.8 percent last year. Minor crops,
contributing 16 percent to agricultural value added,
97-98 98-99 99-00 00-01 '01-02 '02-03(P)
Minor Crops
depicted positive growth of 0.4 percent against a
negative growth of 1.8 percent last year. Livestock
the second largest contributor to overall agriculture
value added (contributing 39 percent), grew by 2.9
percent in 2002-03 as against 3.7 percent in 2001-02.
Fisheries has shown a remarkable growth of 16.6
percent against the negative growth of 12 percent
last year. On the other hand, forestry also registered
a significant growth of 8.8 percent as against a
negative growth of 1.3 percent last year. The
situation of major crops for the last five years is
presented inTable-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 37
Chapter 2. Agriculture
percent to value added in overall agriculture. The "Kharif" and "Rabi" crops is discussed in the
minor crops account for 16 percent of value added ensuing pages.
in overall agriculture. The performance of the
Table 2.2
Production of Major Crops
(000 Tonnes)
Cotton
Year Sugarcane Rice Maize Wheat
(000 bales)

1998-99 8790 55191 4674 1665 17856

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

1999-00 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 10613 48042 3882 1664 18227

(-1.1) (10.2) (-19.2) (1.3) (-4.2)

2002-03 (P) 10211 52049 4478 1758 19235

(-3.8) (8.3) (15.4) (5.6) (5.5)
P: Provisional.(July-March) Source: Ministry of Food, Agriculture and Livestock.
*: Figures in parentheses are growth rates Federal Bureau of Statistics.

a) Major Crops: exported. Production of cotton is provisionally

i) Cotton:
Cotton is the main cash crop which
contributes substantially to the national income. It
accounts for 11.7 percent of value added in
agriculture and about 2.9 percent of GDP. In
addition to providing raw material to the local
textile industry, the surplus lint cotton is also
estimated at 10211 thousand bales for 2002-03,
which is 3.8 percent lower than last year. The pest
attack and shortage of irrigation water in the early
Kharif season are mainly responsible for lower
production. Cotton was cultivated on the area of
2796 thousand hectares, which was 10.3 percent
lower than last year (3116 thousand hectares). 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 Change (000 Bales) (Kgs/Hec) %Change
Hectare) Change
1998-99 2923 -1.2 8790 -4.3 511 -3.0
1999-00 2983 2.0 11240 27.9 641 25.4
2000-01 2927 -1.9 10732 -4.5 623 -2.8
2001-02 3116 6.5 10613 -1.1 579 -7.1
2002-03 (P) 2796 -10.3 10211 -3.8 621 7.2

P=Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock

Federal Bureau of Statistics.
Chapter 2. Agriculture

ii) Rice:
Fig-2: Cotton production (000 bales)
Rice is an important food cash crop. It is
14000
also one of the main export items of the country. It
13000
accounts for 6.8 percent in value added in
12000 agriculture and 1.7 percent in GDP. Production of
11000 rice during 2002-03 is provisionally estimated at
10000 4478 thousand tonnes, which is 15.4 percent higher
than last year. Rice was cultivated on an area of
9000
2226 thousand hectares, showing an increase of 5.3
8000
percent over the last year. The yield per hectare is
7000 also higher by 9.6 percent. The higher production is
6000 due to improved water availability during the
5000 months of May, June and July 2002 which placed a
good impact on the growth of rice crop. Area,
90-91
91-92
92-93
93-94
94-95
95-96
96-97
97-98
98-99
99-00
00-01
01-02
02-03(P)
production and yield of rice for the last five years
are given in Table 2.4.

Table 2.4
Area, Production and Yield of Rice

Year Area Production Yield

(000 % (000 %
(Kgs/Hec) % Changes
Hectare) Change Tonnes) Change
1998-99 2424 4.6 4674 7.9 1928 3.1
1999-00 2515 3.8 5156 10.3 2050 6.3
2000-01 2377 -5.5 4803 -6.8 2021 -1.4
2001-02 2114 -11.1 3882 -19.2 1836 -9.1
2002-03 (P) 2226 5.3 4478 15.3 2012 9.6
P: Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

iii) Sugarcane:
Fig-3: Rice production (000 Tonnes)
Sugarcane crop is a highly water –
5500
intensive and yet an important cash crop. Sugar
5000
production in the country mostly depends on this
4500 crop, though a small quantity of sugar is also
4000
produced from sugarbeet. Its shares in value added
in agriculture and GDP are 6.2 percent and 1.5
3500
percent, respectively. Sugarcane was cultivated on
3000 an area of 1086 thousand hectares during the
2500 current fiscal year, showing an increase of 8.6
2000
percent over the last year. The size of the sugarcane
crop is provisionally estimated at 52049 thousand
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02

'02-03(P)

tonnes which is higher by 8.3 percent, as compared

with last year. The higher production is the result of
increase in area, judicious application of fertilizer
Chapter 2. Agriculture
and water, improvement in cultural practices and farmers to grow more sugarcane. The area,
better management. Timely payment received by production and yield per hectare for the last five
the growers during last year also induced the 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
1998-99 1155 9.4 55191 3.9 47784 -5.0
1999-00 1010 -12.6 46333 -16.0 45874 -3.9
2000-01 961 -4.9 43606 -5.9 45376 -1.1
2001-02 1000 4.1 48042 10.2 48042 5.9
2002-03 (P) 1086 8.6 52049 8.3 47927 -0.2
P: Provisional. (July-March) Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

was cultivated on an area of 8069 thousand

Fig-4: Sugarcane production
hectares, showing 0.1 percent increase over last
(000 Tonnes)
60000 year. The size of the wheat crop is provisionally
55000 estimated at 19235 thousand tonnes which is 5.5
50000
percent higher than last year. The yield per hectare
also increased by 5.4 percent. Wheat production
45000
target was originally fixed at 19.75 million tonnes.
40000 However, as a result of the mid-February 2003
35000 country-wide heavy rain which brought 0.35 MAF
30000 additional water to Tarbella and 1.1 MAF to Mangla
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

01-02

'02-03(P)

reservoirs, the wheat production target was revised

upward to 20.63 million tonnes. The recent
estimates of wheat production is much lower than
iv) Wheat: the revised target because the crop was affected by
aphid and rust attacks in the wheat growing areas
Wheat is the main staple food of the as well as high temperature stress at grain
country’s population and largest grain crop of the formation affected the productivity of the wheat
country. It contributes 12.5 percent to the value crop. The area, production and yield for the last five
added in agriculture and 3.1 percent to GDP. Wheat 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
1998-99 8230 -1.5 17858 -4.5 2170 -3.0
1999-00 8463 2.8 21079 18.0 2491 14.8
2000-01 8181 -3.3 19024 -9.7 2325 -6.7
2001-02 8058 -1.5 18227 -4.2 2262 -2.7
2002-03 (P) 8069 0.1 19235 5.5 2384 5.4
P= Provisional.(July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics
Chapter 2. Agriculture
v) Other Major Crops

220000
Except bajra, jowar and barley all other
major crops have registered increases over the last

11860000
year’s production. The production of bajra, jowar
and barley is provisionally estimated to decrease by
12.5 percent, 9.9 percent and 8.0 percent

11420000
respectively. The production of gram, rapeseed &
mustard, maize and tobacco grew by 61 percent, 7.2

100
percent, 5.6 percent and 0.4 percent, respectively.
The details are given in Table 2.7.

Table 2.7
Area and Production of Other Major Kharif and Rabi Crops

2001-02 2002-03(P)
%Change in
Crops Area Production Area Production
production
(000 hectares) (000 tonnes) (000 hectares) (000 tonnes)
KHARIF:
Maize 942 1664 970 1758 5.6
Bajra 417 216 313 189 -12.5
Jowar 358 222 325 200 -9.9

RABI:
Gram 934 362 960 582 61
Barley 111 100 103 92 -8.0
Rapeseed & 269 221 284 237 7.2
Mustard
Tobacco 49.3 94.5 49.5 94.9 0.4
P= Provisional (July-March). Source: Ministry of Food, Agriculture and Livestock.
Federal Bureau of Statistics.

b) Minor Crops 03, local production of edible oil is provisionally

i) Oilseed:
The major oilseed crops include cottonseed,
rapeseed/mustard, sunflower and canola etc. Total
availability of edible oils in 2001-02 was 2.089
million tonnes. Local production stood at 0.606
million tonnes which accounted for 29 percent of
the total availability while the remaining 71 percent
was made available through imports. During 2002-
estimated at 0.634 million tonnes which is higher by
4.6 percent than last year. During this period, 0.971
million tonnes of edible oil was imported and 0.155
million tonnes of edible oil was recovered from
imported oilseeds. Total availability of edible oil
from all sources amounted to 1.76 million tones
during July-March (2002-03). Production of oilseed
crops during 2001-02 and 2002-03 is given in Table
2.8.
Chapter 2. Agriculture
Table 2.8
Area and Production of Major Oilseed Crops

2001-02 2002-03 (P)

Area Production Area Production
Seed Oil Seed Oil
(000 (000 (000 (000
(000 Acres) (000 Acres)
Tonnes) Tonnes) Tonnes) Tonnes)
Cottonseed 7772 3612 433 6669 3451 414
Rapeseed/ 572 188 60 649 217 69
Mustard
Sunflower 281 197 79 371 260 99
Canola 122 73 29 223 136 52
Others - - 05 - -
Total Oil 606 634
P= Provisional Source: Pakistan Oilseed Development Board.

ii) Other Minor Crops: Production of potato decreased by 1.1 percent

The production of all the three major pulses
have increased this year. Production of Mash has
increased by 22.3 percent, followed by Mung (16.5
percent) and Masoor (8.0 percent) during 2002-03.
while that of onion estimated to increase by 17.1
percent. The production of chillies is estimated to
have increased by 12 percent in 2002-03 over the
last year . Details are given in Table 2.9.

Table 2.9
Area and Production of Other Minor Crops

2001-02 2002-03(P) %Change

Crops Area Production Area Production in
(000 hectares) (000 tonnes) (000 hectares) (000 tonnes) production
Masoor 46.1 26.2 45.8 28.3 8.0
Mung 219.2 115.4 261.4 134.4 16.5
Mash 45.7 27.8 58.3 34.0 22.3
Potato 101.5 1721.7 99.7 1701.9 -1.1
Onion 105.6 1385.0 106.4 1622.0 17.1
Chillies 84.5 93.3 47.4 104.5 12.0
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
agricultural production. Domestic production of
fertilizer during the first nine months (July-March
2002-03) of the current fiscal year has depicted a
decrease of 1.3 percent. On the other hand, the
import of fertilizer increased by 45.8 percent,
therefore, the total availability of fertilizer is higher
by 9.3 percent in the current year. The off take of
fertilizer was also higher by 4.3 percent. The details
are given in Table 2.10.
Chapter 2. Agriculture

Table 2.10
Production and Off-take of Fertilizer
('000' N/tonnes)
Domestic % % % %
Year Import Total Offtake
Production Change Change Change Change
1998-99 1886.0 9.1 860.0 20.5 2746.0 12.5 2583.8 -1.2
1999-00 2263.0 20.0 662.8 -22.9 2925.8 6.5 2833.4 9.7
2000-01 2298.0 1.5 579.0 -7.0 2877.0 -1.7 2966.0 4.7
2001-02 2285.6 -0.5 626.0 8.1 2911.6 1.2 2929.0 -1.2
2001-02 (P) 1716.1 - 500.0 - 2216.1 - 2196.4 -
2002-03 (P) 1694.0 -1.3 729.0 45.8 2423.0 9.3 2291.0 4.3
P= Provisional (July-March). Source: National Fertilizer Development Centre.

ii) Improved Seed: iii) Mechanization:

Quality seed of improved varieties is the
key to enhance agricultural productivity. Seed has
the unique position among the various agricultural
inputs because the effectiveness of all other inputs
mainly depend on the production potential of
seeds. Federal Seed Certification & Registration
Department regulates the quality during flow of
seed from breeder to growers. The Department
performs its functions through seventeen Seed
Testing Laboratories and Field Offices, established
in various ecological zones of the country.
To provide certified crop seeds to the
growers in public sector, Seed Corporation in
Punjab and Sindh, Departments of Agriculture in
Baluchistan and NWFP have been entrusted the
task of seed production, processing and marketing.
In private sector 394 seed companies including five
multinationals have been allowed for certified seed
production, processing and marketing.
With the induction of private sector into
seed business, improved seed availability has
increased by 16.5 percent over the seed
requirement in 2001-02. During (July-March) 2002-
03, 197.5 thousand tones of improved seed was
procured while 147.6 thousand tones of improved
seed was distributed, which was 11.9 percent
higher than the same period of 2001-02.
Pakistan food security and agriculture
surpluses for export at competitive prices require
efficient development and utilization of agricultural
resources. Cost of production of various crops are
not competitive due to low productivity mainly due
to inefficient farming practices. Farm operations
being time specific, demand precision to optimize
the efficiencies of agriculture inputs for higher
productivity. The future challenges of free market
economy and faster globalisation have further
necessitated modernization of agricultural
machinery through transfer of latest, efficient and
cost effective technology to farming system.
Efficient use of scarce agriculture resources and
accelerated agriculture mechanization is, therefore,
vital and demands for a comprehensive strategic
planning for the future.
In consideration of role of precision in farm
operations, the use of machinery has been
encouraged through provision of credit availability.
No significant increase in prices of locally
manufactured tractors compared with last year has
been noticed as there has been only an increase of
1.8 to 6.4 percent in the sale prices of some tractors.
However, prices of universal tractors Model U-640
and U-530 decreased marginally by 0.5 and 0.9
percent, respectively. Prices of various tractors are
given in Table 2.11.
Chapter 2. Agriculture
Table 2.11
Price of Locally Manufactured Tractors
(In Rupees)
Tractor Model 2001-02 2002-03 % Change

MF-240 (50-H.P) 313,000 320,000 2.2

MF-260 (60 H.P) 375,000 399,000 6.4
MF-375E(75 H.P) 490,000 499,000 1.8
MF-385(85 H.P) 585,000 599,000 2.4
FIAT-480 (55-H.P) 320,000 320,000 -
FIAT-640 (75-H.P) 459,000 459,000 -
KOREAN LT-400D 435,000 435,000 -
UNIVERSAL U-640(65 HP) 439,000 436,800 -0.5
UNIVERSAL U-530 (53-H.P) 320,000 317,000 -0.9
Source: Ministry of Food, Agriculture and Livestock.

iv) Plant Protection: Pakistan still suffers from wastage of a large

The plant protection measures help in
increasing the per hectare yield by protecting crops
from damages because, without effective protection
against the attack of pests and diseases, the
beneficial outcome of other inputs may not be
realized either. In this connection, Department of
Plant Protection provides facilities, such as, Locust
Survey and Control, Aerial pest Control, Pesticide
Registration and Testing etc. while private sector
carries plant protection measures including ground
sprays. During July-March 2002-03, 18.6 and 30.4
thousand tonnes of agricultural pesticides were
imported and locally formulated.
v) Irrigation:
Efficient irrigation system is pre-requisite
for higher agricultural production. It helps increase
the cropping intensity. Despite the existence of
good irrigation canal net work in the world,
amount of water in the irrigation process. Besides,
during the last three year the country had
experienced severe shortage of water.
The total inflow of irrigated water
averaged at 130.92 million acre feet (M.A.F.) during
the last 25 years (1977-78 to 2002-03). Against this
level of average inflow, the flows in major rivers
have declined to 111.66 MAF in 2002-03 or by 14.7
percent. The canal head withdrawals averaged at
98.69 MAF during 1977-78 to 2002-03, but it
declined to 87.84 MAF in 2002-03, thus registering a
decline of 11 percent. During the monsoon season
(July-September), the average rainfall has been
126.4 mm historically but during the monsoon
season of 2002, the rainfall averaged 59.6 mm,
suggesting a decline of 52.8 percent. However,
during winter (January to March 2003), the actual
rainfall received was 69.3 mm while the average
rainfall during this period has been 66.5 mm
indicating an increase of 4.2 percent over average
rainfall. The details are in Table 2.12 (a&b).

Table 2.12 (a)

Irrigation Water Situation
Million Acre Feet
Average 2002-03 Shortage % Shortage
1977-78 to 2002-03
Inflow 130.92 111.66 19.26 -14.7%
Canal withdrawals 98.69 87.84 10.85 -11.0%

Source: Indus River System Authority.

Chapter 2. Agriculture

Table 2.12 (b)

Rainfall Recorded During 2002-03
(In Millimeter)
Monsoon Rainfall Winter Rainfall
(Jul-September) (January-March)
Average 126.4 66.5
Actual 59.6 69.3
Shortage (-)/excess (+) - 66.8 + 2.8
% Shortage (-)/excess (+) - 52.8 + 4.2
Source: Pakistan Meteorological Department

Due to the above normal winter rainfalls of 2003,
the water availability situation both for Rabi 2002-
03 and Kharif 2003 crops have improved. The canal
head withdrawals in kharif 2002 (April-September)
has increased by 14.9 percent and stood at 62.83
million acre feet (MAF), as compared to 54.66 MAF
during the same period last year. During the Rabi
season 2002-03 (Oct-March), the canal head
withdrawals increased significantly by 35.7 percent,
as it went up to 25.01 MAF compared to 18.43 MAF
during the same period last year. Province-wise
details are 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 2002 (Oct-Mar) (Oct -Mar) Rabi 2002-03
2001 2002 over 2001 2001-02 2002-03 over 2001-02
Punjab 27.24 32.12 17.9 9.81 13.87 41.4
Sindh 24.47 27.63 12.9 7.10 9.72 36.9
Baluchistan 2.11 2.20 4.3 0.91 0.93 2.2
NWFP (CRBC) 0.84 0.88 4.8 0.61 0.49 -19.7
Total 54.66 62.83 14.9 18.43 25.01 35.7
Source: Indus River System Authority.

vi) Agricultural Credit: agricultural loans extended to the farming

Credit requirements of the farming sector
have been increasing over the years with the rise in
the use of fertilizer, pesticides and mechanization
and hike in their prices. In order to cope with the
increasing demand for agricultural credit,
Institutional Credit to the farmers is being provided
through Zarai Taraqiate Bank Limited (ZTBL),
formerly known as Agricultural Development Bank
of Pakistan (ADBP); Commercial Banks,
Cooperatives and Domestic Private Banks. Of these,
the ZTBL provides the lion share of the total credit
disbursement followed by Commercial Banks. The
community during (July-March), 2002-03, are
discussed below:
a) Production and Development Loans
Agricultural loans amounting to Rs.37.6
billion were disbursed during July-March, 2002-03,
as against Rs.35.0 billion during the corresponding
period last year, thereby registering an increase of
7.5 percent. Supply of agricultural credit by various
institutions since 1997-98 to 2002–03 (July-March) is
given in Table 2.14
Chapter 2. Agriculture
b) Loan to Small Farmers
The Zarai Taraqiate Bank Limited (ZTBL),
disbursed Rs.16.2 billion to small farmers having
upto 25 acres of land during the first nine months of
FY 2002-03. Availability of credit to this category
now constitutes 83.8 percent of total agricultural
credit provided by the bank.
c) Loans for Newly Identified Priority Items
For the financial year 2002-03, Rs.4075.0
million have been allocated for priority items
mainly for enhancement and improvement of
irrigation facilities, various varieties of orchards, on
farm godowns/storages, production loans for
improved seeds, horticulture and Micro Credit etc.
During 2002-03 (July-March), loans of Rs.1480.0
million have been disbursed for these priority items
to play an effective role in the development of
agriculture.
d) Loan Under One Window Operations
Since 1997, ZTBL has launched One
Window Operation to provide credit facilities,
particularly to small farmers, to cater for input
requirements at their door step. Thus, during peak
sowing season of both Rabi and Kharif Crops, One
Window Operation is launched with the
collaboration of Provincial Governments, Revenue
Officials and Postal Authorities. Agriculture Pass
Books are issued at spot to the intending borrowers,
their land record is entered and loans are
sanctioned at focal points whereas payments are
released on the very next day from the concerned
branch. During 2002-03 (July-March), loans of
Rs.2565.6 million have been disbursed through One
Window Operation.
e) Revolving Finance Scheme
Under this scheme, an annual loan limit is
sanctioned to a borrower, based on his input credit
requirements for both Rabi and Kharif Crops. This
limit remains operative for a period of 3 years (six
cropping season) without any afresh procedural
requirement and documentation. Under this
scheme Rs.7386.6 million was disbursed during
(July-March) 2002-03. Thus 48% of total production
loan i.e Rs.15374.6 million has been disbursed
through this scheme.

Table 2.14
Supply of Agricultural Credit by Institutions
(Rs. in million)
Domestic Total
Commer- Coopera-
Year ZTBL* Private
cial Banks tives Rs. Million %Change
Bank
1997-98 22353.6 6109.7 4928.9 - 33392.2 -
1998-99 30176.0 7236.0 5440.0 - 42852.0 28.3
1999-00 24423.9 9312.5 5951.2 - 39687.6 -7.4
2000-01 27610.0 12055.0 5124.2 - 44789.2 12.8
2001-02 29108.0 17486.1 5273.7 578.5 52446.3 17.1
2001-02 (July- 20161.8 11298.5 3107.3 434.6 35002.2 -
March)
2002-03 (July- 19346.5 14375.9 3217.8 679.3 37619.5 7.5
March)
* ZTBL formerly ADBP. Source: Ministry of Food, Agriculture and Livestock.
State Bank of Pakistan.
Chapter 2. Agriculture
III. Forestry
Forests are the lungs of any country.
Forests play 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. Forest cover in Pakistan consists
of about 4.8 percent of its total land mass. Eighty
five percent of this is public forests which includes
40 percent coniferous and scrub forests on the
northern hills and mountains. The balance is made
up of irrigated plantations and Riverain forests
along major rivers on the Indus plains, mangrove
forests on the Indus delta and trees planted on
farmlands. 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 and
providing 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 Pakistan’s annual export earnings.
During the year 2002-03, forests have contributed
298.79 thousand cubic meters of timber and 490.50
thousand cubic meters of firewood as compared to
274.53 thousand cubic meters timber and 450.95
thousand cubic meters firewood in 2001-02.
Forestry Sector Master Plan had been
prepared in 1992-93 for a period of 25 years which
is being updated through Asian Development Bank
assisted project. Forestry data is being updated
through field oriented studies which will be useful
in future strategic planning for the Development of
forestry in the country. Tree planting campaigns are
launched every year in the spring and monsoon
season. During spring and monsoon season year
2002, 106.46 million saplings (Spring 66.75 and
Monsoon 39.71 million) were planted.
In order to promote efficient utilization and
assessment to recover the full utilization of goods
and services provided by the forests, Government
of Pakistan has prepared National Forest Policy
2002 which covers all renewable natural resources
i.e. forests, watersheds, rangelands, biodiversity
and their habitats. The policy envisages to eliminate
the fundamental causes of forests depletion through
active participation of all the stakeholders. The goal
of this national forest policy is to foster sustainable
development of natural resources, rehabilitation of
its environment and enhancement of sustainable
livelihoods of communities.
A mega project in forestry sector named
“Rachna Doab Afforestation Project” was started in
July 1995 at a cost of Rs.485.4 million. The main
objective of this project is afforestation for the
purpose of camouflage and concealment which is
very important for strategic point of view. During
2002-03, Rs.60.0 million were allocated to conclude
the on-going activities towards achievements of
afforestation targets.
Tarbela Watershed Management Project
sponsored by the Ministry of Environment is an on-
going project at a total cost of Rs.689.0 million, to
which Rs.34.188 million were allocated during FY
2002-03.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.
During the fiscal year 2002-03, 14.5 acres of
nurseries have been raised, 2576 acres planted,
7,086 acres afforestation maintained and 27
management/utilization plans have been prepared
with the total expenditure of Rs.23.932 million till
March, 2003.
IV. Livestock and Poultry
a) Livestock
Livestock is an important sector of
agriculture in Pakistan, which accounts for 39
percent of agricultural value added and about 9.4
percent of the GDP. Its net foreign exchange
earnings were to the tune of Rs.51.5 billion in 2001-
02, which is almost 11.4 percent of the overall
Chapter 2. Agriculture
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.

Table 2.15
Livestock Population (Million No’s.)
Species 1998-99 1999-00 2000-01 2001-02 2002-03(E)
Cattle 21.6 22.0 22.4 22.8 23.3
Buffalo 22.0 22.7 23.3 24.0 24.8
Sheep 23.9 24.1 24.2 24.4 24.6
Goat 45.8 47.4 49.2 50.9 52.8
Camels 0.8 0.8 0.8 0.8 0.8
Horses 0.3 0.3 0.3 0.3 0.3
Asses 3.8 3.8 3.9 3.9 4.1
E: Estimated. Source: Ministry of Food, Agriculture and Livestock (Livestock Wing)

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

Table 2.16
Livestock Products

Products Units 1998-99 1999-00 2000-01 2001-02 2002-03 (E)

Milk (000 Tonnes) 24877.0 25566.0 26284.0 27031.0 27811.0
Beef " 963.0 986.0 1010.0 1034.0 1060.0
Mutton " 633.0 649.0 666.0 683.0 702.0
Poultry Meat " 310.0 327.1 339.0 355.0 370.0
Wool " 38.7 38.9 39.2 39.4 39.7
Hair " 17.3 17.9 18.6 19.3 19.9
Bones " 316.3 324.0 331.4 339.4 347.6
Fats " 117.8 120.6 123.5 126.5 129.7
Blood " 34.4.0 40.9 41.8 42.9 44.0
Eggs Million No’s. 8261.0 7321.0 7505.0 7679.0 7860.0
Hides " 7.5 7.6 7.8 7.9 8.2
Skins " 36.3 37.2 38.2 39.2 40.3
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 way or the other. Government is providing all
substitute of beef and mutton. Its importance can be possible incentives to develop it at an accelerated
judged from the fact that almost every family in pace. The production of commercial and rural
rural areas and every fifth family in urban areas are poultry is given in Table 2.17.
Chapter 2. Agriculture

Table 2.17
Production of Commercial Poultry and Poultry Products
Production Units 2001-02 2002-03 (E)
Day Old Chick Million No's 334.3 350.5
Layers " 18.4 19.3
Broilers " 264.4 227.2
Breeding Stock " 6.2 6.5
Poultry Meat (000 Tonnes) 266.8 279.5
Eggs Million No's 4423.0 4632.0
E: Estimated Source: Ministry of Food, Agriculture & Livestock (Livestock Wing).

The production of rural poultry for 2001-02 and allowed to import food items and other
2002-03 are given in Table 2.18. consumable without any duty/taxes,
subject to maximum limit of $2,000 per
Table 2.18 person per year.
Rural Poultry
(Million Nos.) - Import of breeding stock will be allowed
Production 2001-02 2002-03 (E) subject to the import duty of 10 percent.
Day Old Chick 32.0 33.5
- Locally manufactured machinery will be
Cocks & Cockribs 9.0 9.4
provided credit.
Layers 32.0 33.6
E: Estimated Source: Ministry of Food, Agricul - Parts and Components upto 5 percent of
-ture & Livestock ( Livestock Wing). initial C&F value of imported plant and
equipment shall be imported at 10 percent
For promotion of livestock and poultry, the duty, if imported together with the plant.
government has provided the following incentives The export of livestock & livestock
in the agricultural package: products has been allowed.

- Imported plant and equipment not - The imported plant and equipment not
manufactured locally shall be subject to manufactured locally, shall be subject to
custom duty of 10 percent, with complete custom duty of 10 percent with complete
exemption from sales tax. exemption from sales tax.

- Capital structure of projects in agro-food Following measures have also been taken
industry will be entitled to debt-equity to meet Sanitary and Phytosanitary (SPS)
ratio of 70:30. requirements under WTO for quality assurance and
to improve exports of livestock and livestock
- Projects will be entitled for financing by all products:
banks and development finance
institutions. - Establishment of abattoirs are encouraged
in the private sector;
- Expatriate personnel of the Units will be
Chapter 2. Agriculture
- The National Veterinary Laboratory is
under construction for drug residue testing
in the livestock products. This will ensure
quality in exported products;
- Steps have been taken to improve sanitary
and hygiene conditions of animal casing
processing units in the country;
- A project titled ‘Strengthening of
Veterinary Services in Pakistan –
Rinderpest Eradication Program” has been
launched during the fiscal year 2002-03.
V. Fisheries
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
contributes substantially to the national income
through export earnings. During the period July-
March 2002-03, 58356 m. tonnes valued at Rs.5.2
billion fish and fishery products were estimated to
be exported to Japan, USA, UK, Germany, Middle
East, Sri Lanka, China etc. During the same period,
_____________________________
the total fish production is estimated at 665,850 m.
tonnes. Of which, share of marine sector is 480,000
m. tonnes and inland contribution is 185,850 m.
tonnes.
The Government is taking a number of
steps to improve fisheries sector. A number of
initiatives are also being taken by the Federal and
Provincial Fisheries Departments which, inter-alia,
include strengthening of extension services,
diversification of fishing efforts, 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 2002-03 is estimated at
365,000. Out of which, 138,000 persons (37.8
percent) were engaged in marine sector and 227,000
persons (62.2 percent) in inland fisheries, whereas
the persons engaged in fisheries sector in 2001-02
were 363,000 persons−137,000 (37.7 percent) in
marine and 226,000 (62.3 percent) in inland
fisheries.
Chapter 3. Manufacturing Mining and Investment Policies
3.Manufacturing,
Mining and Investment Policies
Manufacturing sector is the second largest
individual sector of the economy accounting for
18 percent of the Gross Domestic Product (GDP).
The activity in the manufacturing sector is
comprised of large-scale and small & medium
manufacturing sector. The performance of this
very important sector in general and large-scale
manufacturing in particular, has been lackluster at
best in 1990s owing to host of problems like tariff
reforms and escalating utility prices. In the
backdrop of higher growth of 8.2 percent in the
1980s, the growth rate of 4.0 percent in 1990s was
disappointing. Fiscal year 2002-03 besides 2000-01
has become the best performing year for
manufacturing sector since 1987-88. This year has
seen manufacturing registering a stellar growth of
7.7 percent with major contribution coming from
large-scale manufacturing which recorded 8.7
percent growth. The industry seems to have
adjusted itself with the challenges emanated from
trade and tariff rationalization of the 1990s and
increased input cost due to escalating utility tariff.
The large-scale manufacturing was
originally targeted to grow by 6.5 percent in 2002-
03 but the target was surpassed by a wide margin.
Pakistan’s overall manufacturing sector registered
a growth of 7.7 percent and large-scale
manufacturing grew by 8.7 percent during the
current fiscal year. The improvement in the
domestic demand and better macroeconomic
environment have caused in significant
turnaround in the manufacturing sector.
The turnaround in the large-scale
manufacturing which started in 2000-01 continued
to exhibit a rising trend barring brief interval in
the last fiscal years (October ,November and
February 2001-02). The events of September 11
and their aftermath adversely affected the
performance of this sector during this period.
With the exception of these three months the
growth performance depicted smart recovery
during the last three years. One of the significant
development in the current fiscal year has been
that the growth is broad-based and touched
almost all industrial groups.
The main contributors to this impressive
growth of 8.7 percent in July- March, 2002-2003
over the corresponding period of last year are
automobile group (49.8 percent), food, beverage &
tobacco group( 8.5 percent) textiles & apparel
group (5.2 percent), paper & board (15.7 percent),
metal product, machinery & equipment (18.4
percent), and tyres & tubes (16.2 percent). Ten out
of eleven groups registered positive growth while
leather product is the only group that registered
negative growth [See Table 3.1]. Individual items
that registered positive growth are cotton cloth
(1.5 percent), cotton yarn (8.1 percent) in textiles
group; cooking oil (6.8 percent) and sugar (13.6
percent) in food, beverages and tobacco groups;
nitrogenous fertilizer (4.2 percent) and soda ash
(12.9 percent) in chemical & pharmaceutical
group, cement (20.5 percent) in non-metallic
mineral products group and Jeeps & Cars (51.6
percent) and LCV’s (57.6 percent) in automobile
group. The individual industries which show
negative growth include vegetable ghee (7.0
percent), cigarettes (7.1 percent), cotton ginned
(4.7 percent), phosphatic fertilizer (27.8 percent)
and footwear (6.2 percent). The production
performance of selected items is given in Table
3.2.
Chapter 3. Manufacturing Mining and Investment Policies

Table 3.1
Group-Wise Growth Performance
(July-March)
(Percent)
Group 2001-02 2002-03
Food, Beverages & Tobacco 6.1 8.5
(Sugar) (9.2) (13.6)
Textile and Apparel 4.4 5.2
Leather Products -3.5 -6.6
Paper & Board 2.8 15.7
Chemicals, Rubber & Plastics 0.1 3.9
Petroleum Group 18.7 2.2
Tyres & Tubes 5.9 16.2
Non-Metallic Mineral Products 1.2 20.0*
Basic Metal Industries -4.7 9.1
Metal Products, Machinery & Equipment 3.3 18.4
Automobile 2.8 49.8
Overall Growth 4.0 8.7
* Includes cement Source: Economic Adviser Wing, Finance Division

Table 3.2
Production of Selected Industrial Items of Large-scale

(July-March)
Item Units %
2000-01 2001-02 2001-02 2002-03 Change
Cotton Yarn 000 tones 1721.0 1794.0 1344.1 1452.3 8.1
Cotton Cloth Mln.Sq. Mtr 490.2 555.6 416.1 422.4 1.5
Sugar 000 tones 2955.9 3246.6 2905.2 3263.9 13.6
Nitrogenous Fertilizer 000 N. tones 2004.7 2095.9 1561.7 1627.0 4.2
Phosphatic Fertilizer 000 N tones 292.2 140.5 112.8 81.5 -27.8
Vegetable Ghee 000 tones 834.8 774.4 601.0 559.2 -7.0
Cooking Oil 000 tones 106.5 135.3 95.0 101.5 6.8
Cement 000 tones 9674 9935 7071 8518 20.5
Cigarettes Bln. Nos. 58.2 55.3 39.0 36.2 -7.1
Jeep& Cars Nos. 40032 41171 28166 42691 51.6
Tractors Nos. 32553 24331 15339 17870 16.5
L.C.V Nos. 6965 8491 5537 8727 57.6
Motorcycles/Scooters Nos. 117858 133334 94108 125625 33.5
Bicycles 000 Nos. 569.6 546.4 393.6 460.2 16.9
Paper & Paper Board 000 tones. 531.1 547.8 240.4 278.2 15.7
T.V Sets 000 Nos. 97.4 77.7 340.0 541.0 59.1
Motor Tyres 000 Nos. 884 911 670 777 16.0
Billets 000 tones 414.7 412.0 275.6 314.2 14.0
Refrigerators 000 Nos. 272.3 313.8 195.0 240.0 23.1
2
Chapter 3. Manufacturing Mining and Investment Policies
Soda Ash 000 tones
EVALUATION OF SELECTED INDUSTRIES OF
LARGE SCALE MANUFACTURING (LSM).
Textile Industry
Textile products are a basic human
requirement next only to food. Inspite of the
government’s efforts to diversify export as well as
industrial base, the textile remains the backbone
of industrial activity in the country. Its share in
the economy, in terms of GDP, exports,
employment, foreign exchange earnings,
investment and contribution to the value added in
industry; make it the single largest determinant of
the growth in manufacturing sector with 46
percent share in overall manufacturing activity.
The demand for textiles in the world is around
$18 trillion. Pakistan has emerged as one of the
major cotton textile product supplier in the world
market and its share in world yarn trade is about
30 percent while its share in cotton cloth trade is
about 8 percent. However, overall share of textile
exports from Pakistan is around one percent. The
share of textile in Pakistan’s exports earnings is 68
percent at its present worth of exports is around $
7 billion. The value addition in the sector account
for 9 percent of GDP and it employ 38 percent of
industrial workers. During the last three years,
Pakistan’s textile sector is preparing itself to face
the challenges of the post-quota regime in 2005.
Investment Trend in Textile Sector
The year under review witnessed
tremendous inflow of investment in value added
217.9 215.2 187.6 211.8 12.9
Source: Federal Bureau of Statistics
expansion and BMR. The textile vision 2005
besides providing a road map to enhance exports
of textile products, also set benchmark investment
requirements for the creation of new capacity and
up-gradation of the existing production base. The
textile vision 2005 maintained that at the initial
phase heavy investment will be needed to create
additional capacity in the apparel industry;
however, the apparel sector only received 36
percent of the targeted investment during last
three years. Bulk of the investment to the extent of
56 percent went to the traditional spinning sector
which is three times higher than envisaged in the
textile vision 2005. The textile sector received $ 1.5
billion worth of investment during the last three
years.
The brighter side of the investment in this
sector is the heavy investment in the air jet
weaving segment where actual disbursement has
already surpassed the target with a fair margin of
55 percent. Such investment would not only
modernize this sector but would likely to fuel
value addition in the coming years. However,
grey area of the whole investment composition
has been below target inflows in the water jet
weaving sector. The tremendous inflow of
investment in the sector is likely to enable
Pakistan textile industry to face formidable
challenge of lifting the remaining vestiges of
quota restrictions as stipulated in the Agreement
on Textiles and Clothing (ATC) after 2005.
Foreign direct investment (FDI) in the textile
sector doubled to US $23.1 million in Jul-March
2002-03 as against US $ 10.5 million in the
3
Chapter 3. Manufacturing Mining and Investment Policies

corresponding period of last year. textile exports started improving, especially the
value added product performed well in export
During the current fiscal year the textile markets. The profiles of various components of
sector showed greater resilience to lower cotton textile industry are given in the Table 3.3 below:-
crop and performed well as far as production is
concerned. After suffering stagnation for 5 year,
Table 3.3
Installed Capacity of Textile Industry

July-March
% Change
2001-02 2002-03
Number of Mills 348.0 361.0 3.7
Installed Capacity (000 Number)
- Spindles 8726.0 9173.0 5.1
- Rotors 145.0 144.0 -0.7
- Looms 10.1 10.2 1.0
Working Capacity (000 Numbers)
- Spindles 7113.0 7578.0 6.4
- Rotors 63.0 66.7 5.9
- Looms 4.4 3.4 -22.7
Source: Textile Commissioner Organization
Performance of Ancillary Textile Industry
The production of cotton yarn increased
Textile production is comprised of cotton to 1452.3 thousand tones in July-March 2002-03 as
ginning, cotton yarn, cotton fabric, fabric against 1344.1 thousand tones in the comparable
processing (grey-dyed-printed), home textiles, period of last year, thereby, registering a growth
towels, hosiery & knitwear and readymade of 8.1 percent. The export of cotton yarn
garments. The textile industry consists of large- witnessed modest improvement both in quantity
scale organized sector and unorganized cottage / and value term during July-March 2002-03. The
small & medium units. The performance of quantity and value of yarn export increased by 3.2
various ancillary textile industries is evaluated as percent and 2.8 percent, respectively. The
under:- international price of yarn continued to remain
A. Cotton Spinning Sector. depressed for third consecutive year. This is not a
mean achievement, especially when a shift is
The spinning sector has emerged torch- taking place from lower to higher value added
bearer of revitalization of textile sector. At export products.
present, it is comprised of 453 textile mills (50
composite units and 403 spinning units) with 7.6 B. Weaving & Made-up Sector.
Million spindles and 67 thousand rotors in
operation with capacity utilization at 83 percent in The patterns in weaving and made-up
spindles and 47 percent in rotors, during July- sector comprised of hosiery, garments, towels,
March, 2002-03. canvas, and bedwear are different from spinning
4
Chapter 3. Manufacturing Mining and Investment Policies
sector. The weaving and made-up sector has 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 3.4.
Table 3.4
Installed and Capacity Worked in Weaving
Sector (Nos.)
Effective/
Installed
Category Capacity
Capacity
Worked
a) Integrated
Textile Units 10249 4947
b) Independent
Weaving Units 23652 22000
c) Power Loom Sector 225258 190000
Total 259159 216947
Source: Textile Commissioner Organization.
The problems of power looms centered on
the poor technology, scarcity of quality yarn and
lack of institutional financing for its development
from the unorganized to an organized sector. The
government has realized that textile and clothing
sector is one sector that offer good prospects for
diversification away from traditional commodity
exports, for entry into the area of manufactures,
for absorption of large pools of manpower, for
crossing the big divide between the rural and
urban sectors, for poverty alleviation and for
gender empowerment. The government under
Textile Vision 2005 has focused more on
providing credit and other facilitative support to
diversify the products, especially to cater the
needs of the high value added sector like garment a)
industry. The textile industry invested
substantially in BMR for improving production
quality and moving towards more value addition
during the last two years. However, the textile
industry still need around $ 1.5 billion worth of
investment for BMR and expansion over the next
two years to meet the challenges which are likely
to emerge in the post-quota regime beginning
from January 2005.
C. Cotton Cloth
The production of cotton cloth in the mill
sector has increased marginally by 1.5 percent
during July-March 2002-03 while non-mill sector
registered a phenomenal growth of 14.6 percent in
the same period. The export of cotton cloth
witnessed tremendous increase of 18.0 percent
during July-March 2002-03 in value terms
however, in quantitative terms, the increase was
7.4 percent, which is because of almost 10 percent
increase in unit value of cotton fabrics in the
international market. The sector served as the
main strength for the down stream industry like
bedwear, made-ups and garments.
D. Textile Down-Stream Industry
The down-stream industry is the most
dynamic segment of the textile industry and a
major contributor to export earnings. The major
products are hosiery, towel, bedwear, canvas and
tents, cotton bags and readymade garments. IMF
has acknowledged the importance of the sector in
a report and concludes that Pakistan should seek
to shift emphasis on textile and clothing to higher
value added items. The government has already
incorporated this suggestion in Textile Vision
2005. The performance of the down stream sectors
is evaluated below:
Hosiery Industry. There are about 15,000
knitting machines working in the country to
manufacture 5.5 million pieces of knitwear
with approximately 60 percent capacity
utilization. The sector is not only catering
for domestic demand, but also has export
potential. There is greater reliance on the
development of this industry because of
5
 Chapter 3. Manufacturing Mining and Investment Policies
high value addition content in the form of
knitwear. The locally manufactured
machinery is supplemented with liberal
imports under different modes and export
oriented capacity is being developed to earn
much needed foreign exchange. Exports
from this sector have witnessed tremendous
increase of 32 percent in value terms and 44
percent in quantity terms and added $ 793
million to the foreign exchange earnings
during July-March 2002-03 as compared to $
682 million during the same period of last
year. The impressive growth in exports of
knitwear is achieved despite 8.3 percent
decline in the unit value in the international
market.
b) Readymade Garments. The garment
industry provides highest value addition in
the textile sector. This sector is distributed
in small, medium and large-scale units,
most of them, having 50 machines and
below. The sector is comprised of 600 large
and 4500 small units. This sector is
attracting considerable investment and
many new units are coming up in the
organized sector every year. This sub-sector
is facing multi-dimensional problems like
high value addition in competing countries
and inelasticity of the sector in shifting the
burden of increased prices of yarn, cotton
cloth or other inputs to the end user.
Against all these odds, the sub-sector has
witnessed substantial growth of 25.8
percent in terms of value of exports but in
quantity terms, the exports from the sector
witnessed a decline of 10.2 percent. The
sector received windfall gains due to 40.0
percent increase in the unit value during
July-March 2002-03 over the comparable
period of last year. The sector contributed $
800.5 million in this period as against $
636.2 million in the comparable period of
last year.
c) Towel industry. This industry is
comprised of about 400 units supported by
6500 towel looms in the country in both
organized and unorganized sector. The
industry is capable of producing 55 million
Kgs towels per annum. It is mainly an
export-based industry with lower demand
from domestic market. Its growth primarily
depends on exploration of export outlets.
The year under review is the best
performing year for this industry like other
segments of textile sector and its exports
increased by 18.8 percent in quantity terms
and by 26.5 percent in value terms, during
July-March 2002-03.
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.
E. 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
6
Chapter 3. Manufacturing Mining and Investment Policies
thousand tones, against which it produced
approximately 78 thousand tones per annum. In
Pakistan, generally blending ratio of cotton yarn
and blended yarn is on lower side as compared to
the international standards. However, there is a
shift is taking place from 100 percent cotton yarn
to blended yarn in the spinning sector. 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.
F. Art Silk and Synthetic Weaving 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 increased by 14.9 percent in terms of
quantity and 26.6 percent in terms of value during
July-March 2002-03 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.
G. 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.
With revival of agricultural growth, the
production of fertilizer has also witnessed an
increase of 2.5 percent and stood at 3.9 million
tones during July-March 2002-03 as against 3.8
million tones in the corresponding period of last
year. The production of fertilizer like urea and
ammonium nitrate increased by 3.5 percent and
4.2 percent respectively while the production of
nitro phosphate and super phosphate declined by
1.0 percent and 10.5 percent, respectively, during
July March 2002-03 over the corresponding period
of last year.
H. Vegetable Ghee
The production activity in ghee and
cooking oil production is now entirely
concentrated in the private sector after
privatization. The industry is comprised of 155
units both in organized and unorganized sectors,
and employing 37,700 persons. The overall
installed capacity of the ghee and cooking oil
industry is estimated at 2.7 million tones. The
ghee production is substituted with cooking oil
production for quite sometime. Therefore, the
ghee production has decline by 7.0 percent while
that of cooking oil went up by 6.8 percent in Jul-
March 2002-03. The ghee production is estimated
at 0.56 million tones during July- March 2002-03
as against 0.60 million tones produced in the
comparable period of last year while the
production of cooking oil stood at 0.1 million
tones as against 0.095 million tones in the same
period.
I. Sugar Industry
7
Chapter 3. Manufacturing Mining and Investment Policies
The sugar industry is comprised of 77
mills with ability to produce 5.5 million tones of
refined sugar. Out of these 77 mills, 38 are located
in Punjab, 32 in Sindh 6 in NWFP, and one in AJK.
The production capacity has almost doubled
against the annual sugar requirement for
consumption as a result of addition of 25 new
mills to the capacity during one decade. 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 3.7 million tones as against
3.2 million tones in the last year, thereby showing
an increase of 15.6 percent. The sugar industry is
confronted with low recovery rate and inefficient
cost structure. There is dire need to improve sugar
recovery rate by adopting most modern
techniques for cultivation of sugarcane. There was
a slight improvement in recovery rate during the
year under review but it was because of late
beginning of the crushing season.
J. Cement Industry
There are 24 cement units in the country
with total installed capacity of 17.7 million tones.
Out of these 24 units, 4 units are in the public sector
and 20 units are in the private sector. The
production capacity has doubled from 8.9 million
tones to 17.7 million tones during the last 6 to 7
years. During this period, demand only increased
by 27 percent from 7.7 million tons to 9.8 million
tons. High prices owing to inefficiencies in
production and cartel formation by the
manufacturers, substantial decline in PSDP during
Table 3.5
Installed and Operational Capacity of Automobile Industry
Item
the 1990s and slowdown of economic activity were
the major factors which impeded growth in
demand for cement. The total production of cement
is recorded at 8.5 million tones during July-March
2002-03 as compared to 7.1 million tones in the
same period of last year, showing an increase of
20.5 percent. The boost in cement production is
because of the rising construction activity in the
country, reconstruction activity in Afghanistan and
increasing development expenditure by the
government.
K. Automobile Industry
There are 18 automobiles manufacturing
units in assembling business which is supported by
850 units manufacturing auto parts. The auto
industry and down stream vendor industry
employs more than one lac people. The
performance of automobile industry has been the
best during the year under review. The impressive
recovery touched almost every segment of the auto
industry. The auto industry is the fore-runner of the
tremendous growth in large-scale industry. During
the current fiscal year the automobile industry has
registered enormous growth owing to declining
interest rates, persistent inflow of home remittances,
cheaper and easy availability of car financing and
changes in model. The car industry registered a
growth of 51.4 percent during July-April 2002-03,
followed by trucks (103 percent), buses (32.7
percent), LCV’s (57.9 percent), tractors (10.5
percent) and motorcycles (48.6 percent). The
installed capacity of the major components of
automobile sector and production is given in Table
3.5.
(Numbers)
July-April % Change
8
Chapter 3. Manufacturing Mining and Investment Policies
Inst. Capacity 2001-02
Cars 122000 41071
Trucks 12500 1141
Buses 1900 1099
LCV’s 28000 8491
Tractors 33000 24331
Motorcycles 340000 133334
REVIVAL OF SICK UNITS
The sick units are inimical to development
of financial institutions. The sick units were
responsible for increase in non-performing loans
during the 1990s and resultantly, the financial
sector has reached on the verge of collapse. The
government has formed Corporate Industrial
Restructuring Corporation (CIRC) with a mandate
to revive or dispose off 868 sick units through open
public. These units in the private sector were
identified by the CIRC in consultation with the
concerned banks as these units were closed for
many years and owed over Rs. 107 billion to the
nationalized commercial banks (NCB’s) and
development financial institutions (DFI’s). The
CIRC has disposed of 33 cases worth Rs.4.7 billion
in two years of its inception against an outstanding
debt of Rs.60 billion in 339 sick units. After return/
withdrawal of around 139 cases worth 32.8 billion, a
total of 161 accounts worth Rs.21.3 billion were
finally acquired by the CIRC. On the province basis,
161 accounts acquired by the CIRC included 59 in
Punjab, 90 in Sindh, 10 in NWFP and two in
Balochistan. Of the total 65 cases disposed-off by
the CIRC, 31 belonged to NWFP, 32 in Sindh and
two in NWFP. Furthermore, out of the 65 cases
disposed off by the CIRC, 33 cases were auctioned
(23 were sold in Punjab and 10 in Sindh).
Table 3.6
Performance of Public Sector Industries
(Excluding Pak Steel)
2001-02 2002-03
32552 49280 51.4
792 1608 103.0
894 1186 32.7
6315 9969 57.9
18708 20680 10.5
94108 139851 48.6
Source: Federal Bureau of Statistics.
The strategy to auction the irretrievable sick
industrial units, is the last ditch attempt by the
government to solve the twin problems of sick
industries and non- performing loans of the
NCBs/ DFIs. The CIRC has so far acquired 161
units, of which forty-one cases worth Rs.5.2 billion
had no assets at all and120 units involving Rs.16.1
billion are being prepared for disposal. CIRC is in
the process of acquiring 39 cases worth Rs.5.3
billion.
PUBLIC SECTOR INDUSTRIES.
The size of Public sector industries shrank
from twelve holding corporations with 116
manufacturing units before the start of
Privatization in 1990-91, to seven corporations
with 27 units including two joint ventures under
the administrative control of Ministry of
Industries in 2003. During the period under
review, these public sector industries 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, 2002-03
(8 months actual & 4 months projected) in
comparison to the same period last year.
9
Chapter 3. Manufacturing Mining and Investment Policies
Item 2001-02
Production Value* 6398
Net Sales 11358
Pre-Tax Profit 110
Taxes and Duties 2762
No. of Employees 8793
* At constant prices of 1992-93.
** Actual for 8 months (July- Feb) and expected for 4 months (Mar- June)
Production Value
Production value (at constant prices of
1992-93) of all operational units (excluding
Pakistan Steel) is expected to decline by 7.1
percent over the last year. Production value of
National Fertilizer Corporation (NFC) projected to
decline by 3.8 percent, followed by the State
Cement Corporation (SCCP) (58 percent). Decline
in production was mainly due to continual
stoppage/ interruption of natural gas supply. The
remaining two corporations namely, the State
Engineering Corporation (SEC) and the Pakistan
Automobile Corporation (PACO) have projected
an increase in their production value by 8.4
percent and 40 percent, respectively. Production
activity at Sindh Engineering depicted an increase
of 40 percent while Heavy Mechanical Complex
(HMC) witnessed slight improvement of 0.5
percent.
Net Sales
Net sales (excluding Pakistan Steel) of all
operational units are estimated at Rs. 10.8 billion
for 2002-2003 as against Rs. 11.4 billion in last
year, showing a decline of 5.0 percent. NFC and
SCCP have reported a decline in its sales value
from Rs.7.5 billion and Rs.1.2 billion to Rs.6.9
billion and Rs.0.7 billion, respectively thereby
showing decline of 7.8 percent and 45.0 percent.
The net sale value of PACO registered an
(Rs. In Million)
2002-03 ** % Change
6128 -7.1
10817 -5.0
141 28.2
2519 -8.7
7580 -13.8
Source: EAC, Ministry of Industry & Production
improvement of 16.0 percent - from Rs. 686.0
million to Rs. 800 million and in the case of SEC,
the net sales value increase by 24.7 percent (from
Rs.2.0 billion to Rs 2.4 billion) during 2002-03.
Pre- Tax Profit/ (Loss)
During 2002-03, an aggregate profit of
Rs.141 million (excluding Pakistan Steel) is
expected as against an aggregate profit of Rs.110
million reported last year. Only two corporations
namely, NFC & PACO have projected profit
during the current year, whereas SEC & SCCP are
estimated to have suffered losses in this year.
Though NFC has shown profit but its profit has
declined from Rs.586 million last year to Rs.325
million this year. The decline in profit is attributed
to increase in input costs. The SCCP and SEP
have shown losses in their pre-tax profits.
Employment
Total number of employees enrolled with
all units (excluding Pak Steel), by end June, 2003
is estimated at 7,580 as compared to 8,793 on end
June 2002. The number of employees has dropped
in SEC, SCCP, NFC and PACO.
Overall Performance of Public Sector
Industries (Including Pakistan Steel)
10
Chapter 3. Manufacturing Mining and Investment Policies

Overall performance of public sector some improvement as summarized in Table 3.7.

industries (including Pakistan Steel) has shown

Table 3.7
Performance of Public Sector Industries
(Overall)
Rs. In Million)
Description 2001-02 2002-03** % Change
Production Value* 15693 16111 2.7
Net Sales 25841 31237 20.9
Pre-Tax Profit 212 791 274.0
Taxes and Duties 5412 7059 31.0
No. of Employees 24756 21010 -15.0
* At constant prices of 1992-93. Source: Expert Advisory Cell,
** Actual for 8 months (July- Feb.) and estimated for 4 months (Mar-June)
Performance of Pakistan Steel

Pakistan Steel is the first integrated iron &
steel works project in Pakistan. It was established
with the objective of enhancing domestic
availability of basic raw material for engineering
and construction industries. It facilitated
establishment of downstream steel industries in
the country. The production capacity of Pakistan
Steel is 1.1 million tons of raw steel per annum
with built-in potential to expand its capacity to
over 3 million tones per annum. The Steel Mill is
producing coke, pig iron, billets, hot rolled
coils/sheets, cold rolled coils/sheets, formed
sections like channels, angles, galvanized sheets
etc.
The year under review is the best
performing year in the chequered history of Pak
steel. In this year Pak Steel touched several mile-
stones like registering highest ever record of net
sales at Rs.20 billion, productivity growth
improved to 66 per ton per employee as against
historical record of 36 per ton per employee and
received ISO-9001 certification for quality
products. Pakistan Steel’s performance had
witnessed many ups and downs during its fifteen
years of history. It was characterized with low
production, low capacity utilization, low sales and
high losses, surplus manpower, increased
liabilities, poor work discipline, lack of culture of
accountability and bad public image. Inspite of
precarious conditions, nothing was done to
improve the situation. Pakistan steel has
undergone a serious over-hauling to deviate from
the past and its current strategy is more focused
on increase in profitability with lesser investment.
The performance of 2002-03 is an indication of
revival of Pakistan Steel. The performance of
Pakistan Steel (based on major performance
indictors) during the period 2002-03 is
summarized in the Table 3.8:

Table 3.8
Performance of Pakistan Steel

11
 Chapter 3. Manufacturing Mining and Investment Policies

(Rs. in Million)
Item 2001-02 2002-03 (Proj.) % Change

Production Value * 9094 9982 10.0

Net Sales 14483 20419 41.0
Pre-tax profit 102 650 538.0
Taxes & duties 2650 4541 71.0
No. of employees 15963 13430 -16.0
*At constant prices of 1992-93. Source: Expert Advisory Cell, M/o Ind. & Prod.

Pakistan steel is also catering for the last two decades. It provides employment at
needs of 22 downstream units in Karachi along lesser cost and its capital requirement is also low.
with 21 located in different parts of the country.
The downstream industries are basically There is growing recognition of the
producing value added engineering goods such importance of SMEs in economic development,
as steel pipes (small, medium and large diameter), but the policy framework has remained biased
seamless pipes, wire rod and baling hoops, small against the sector. However, for the last three
sections, reinforcement bars, slag cement, slag years the government has brought SMEs on the
wool, automotive parts etc. forefront of the policy making and declared it one
of the four drivers of the economy. The growth of
SMALL AND MEDIUM ENTERPRISES (SMEs) small-scale industry is mainly hampered by the
non-availability of credit facility in the past.
Small and Medium Enterprises (SMEs)
Realizing this constraint, the government has
constitute 90 percent of businesses in Pakistan.
opened two specialized micro-credit banks
SMEs comprise of heterogeneous activities but its
namely, khushhali bank and SME bank. Small and
active presence in services and manufacturing is
Medium Enterprises Development Authority
felt prominently because of large-scale
(SMEDA) has been reinvigorated and re-
manufacturing and corporate sectors’ limitations
organized to provide technical assistance to
in catering all national demand for goods and
potential small investors. SMEs still face
services. SMEs represent a significant component
difficulties in coping with skilled workers
of Pakistan’s economy in terms of value addition
requirement, regulation and business
and employment generation. SMEs play critical
role in manufacturing sector by providing 80 environment issues, infrastructural problems like
percent of industrial employment, contributing 30 poor electricity supply, poor technology, access to
percent to GDP and generating one-fourth of the raw material (especially imported) and
sector’s export earnings. Its contribution to value inadequate marketing. Following organizations
added in manufacturing sector has risen from 27 are involved in promotion of small and medium
percent in 1980-81 to 35 percent in 1997-98 but its industries in the provinces:
share in employment in the manufacturing sector
declined from 85 percent in 1980-81 to 83 percent. i) Punjab Small Industries Corporation
This implies productivity improvements in the ii) Sindh Small Industries Corporation

12
Chapter 3. Manufacturing Mining and Investment Policies

iii) NWFP Small Industries Development Board private capital flows has contributed to
iv) The Directorate of Small Industries Balochistan investment and growth in developing countries,
leading to technological improvements, the
These organizations have infrastructure reduction in poverty and improvement in the
like industrial estates, vocational training living standards. The distribution of these flows
institutes and funds. But, unfortunately, these has, however, remained uneven. The countries
provincial organizations have not made any dent that have received the lion share of the surge in
in promotion of small industries. The precarious FDI flows during 1990s are the ones that followed
conditions in industrial estates and vocational open trade and investment regime, maintained
institutions are never facilitative in promotion of macroeconomic stability, had large markets, a
small industries. The government has added a predictable institutional environment without
professional body like SMEDA to revitalize the excessive red-tapism has remained firm in place,
small and medium industrial sector. SMEDA is and possessed reasonably improved physical and
not only working for the uplift of small and human infrastructure. The countries that lagged
medium enterprises in the country but also behind in attracting FDI are the ones that faced
completed studies on various crucial sectors for macroeconomic instability, pursued inconsistent
Pakistan economy like textile, leather, agriculture economic policies, had relatively poor physical
& livestock, fisheries, light engineering and and human infrastructure, and bureaucracy not
transport. SMEDA is also working on issues, responding to the initiatives with conviction.
which confront SMEs and preparation of Pakistan has introduced wide-ranging reforms to
regulatory and fiscal policy options to facilitate attract the inflow of foreign investment.
the sector. Although, the role of SMEDA has in
development of the sector has not yet provided Where does Pakistan stand today? The
evidence of considerable improvement but it has improvement in the country’s macroeconomic
prepared pre-feasibility studies of 8 projects and environment and upward revision of the
is working on 38 more projects. SMEDA is also economy’s international credit ratings are the
engaged with international donors to obtain their distinct advantages which can help in attracting
cooperation and expertise in development of inflow of foreign investment. Pakistan is
SMEs. expecting dividends from factors like political
stability, conducive macroeconomic environment,
FOREIGN INVESTMENT growing market, greater security of the
investment and profits and continuity of
Policies in the 1990s in developing economic policies.
countries have emphasized upon greater
encouragement and mobilization of non-debt The inflow of foreign investment in
creating private capital flows for reducing reliance Pakistan has been declining since 1995-96 for a
on debt flows as the vehicle for generating
external resources. Foreign direct investment
(FDI) being the single largest component of

13
Chapter 3. Manufacturing Mining and Investment Policies

variety of reasons including : the saturation of external payments obligations; and disarrayed
investment in power sector; the East Asian relations with the International Financial
financial crises of 1997; economic sanctions and Institutions(IFIs). Over the last three years the
freezing of foreign currency accounts of May government has succeeded in removing various
1998; the IPP and the HUBCO issues, particularly irritants which affect business and investment
the way it was handled in the past; low levels of climate.
foreign exchange reserves and threat of default on

Table 3.9
Inflow of Net Foreign Private Investment (FPI)
(Million US $)
July–March
Country 2001-02
2001-02 2002-03
Port
Direct Total Direct Portfolio Total Direct Portfolio Total
folio
USA 326.4 -1.7 324.7 164.1 -10.0 154.1 163.5 0.6 164.1
UK 30.3 -32.4 -2.1 22.6 -18.3 4.3 202.7 -11.3 191.4
UAE 21.5 -4.2 17.3 15.9 1.9 17.8 112.7 1.6 114.3
Germany 11.2 - 11.2 8.6 - 8.6 2.8 - 2.8
France -6.9 0.3 -6.6 1.5 0.1 1.6 2.2 - 2.2
Hong Kong 2.8 20.6 23.4 2.2 14.1 16.3 4.6 -5.2 -0.6
Italy 0.1 - 0.1 - - 0.2 - 0.2
Japan 6.5 0.2 6.7 4.1 0.2 4.3 11.5 0.3 11.8
Saudi Arabia 1.3 0.1 1.4 2.1 0.1 2.2 32.6 -0.4 32.2
Canada 3.5 2.7 6.2 3.0 2.7 5.7 0.4 0.3 0.7
Netherland -5.1 -0.8 -5.9 -6.5 -0.8 -7.3 2.7 0.9 3.6
Others 92.6 5.2 97.8 69.8 7.1 76.9 122.3 19.7 142.0
Total 484.7 -10.0 474.7 287.4 -2.9 284.5 658.2 6.5 664.7
Source: State Bank of Pakistan

The emerging trend in the inflow of Foreign direct investment has more than doubled
foreign investment is encouraging as it has in the first nine months (July-March, 2002-03), the
already started picking-up this year. It is likely net foreign investment stood at US $ 664.7 million
that foreign investment will reach one billion as against US $ 284.5 million, thereby, showing an
dollars mark by the end of the current fiscal year. increase of 133.6 percent. (see Table 3.10 )
Table 3.10
Inflow of (FDI) Foreign Direct Investment
(In Main Economic Group)
(Million US $)
July–March
14
Chapter 3. Manufacturing Mining and Investment Policies

Economic Group 1999-2000 2000-01 2001-02 2001-02 2002-03

1. Power 67.4 40.3 36.4 32.6 28.1
2.Chemical, Pharmaceutical & 119.9 26.3 17.8 11.5 85.6
Fertilizer
3. Construction 21.1 12.5 12.8 9.9 11.1
4. Mining & Quarrying, Oil and Gas 79.7 84.7 274.8 121.7 137.2
5.Food, Beverages & Tobacco 49.9 45.1 -5.1 -8.0 5.6
6. Textile 4.4 4.6 18.4 10.5 23.1
7. Trade, Transport, Storage & Comm. 38.6 94.7 68.3 36.6 119.0
8. Machinery other than electrical 4.6 2.5 10.5 - 0.4
9. Electronics 2.3 2.8 15.9 14.8 4.5
10. Financial Business 29.6 -34.9 3.6 13.3 201.8
11.Petro-Chemical & Refining 12.0 8.7 5.0 2.4 2.8
12. Cement 0.1 15.2 0.4 0.4 0.5
13. Others 40.3 20.0 25.9 41.7 42.1
Total 469.9 322.4 484.7 287.4 658.2
Source: State Bank of Pakistan

Foreign Direct Investment (FDI) increased by 129
percent and stood at US $ 658.2 million during
July-March, 2002-03 as against US $ 287.4 million
for the same period in the previous year. The
United Kingdom accounts for 30.8 percent of FDI
inflows, followed by U.S (24.8 percent), U.A.E
(17.1 percent) and Saudi Arabia (5.0 percent). FDI
inflow from UK and UAE is extra-ordinarily high
because of purchasing of 15 percent stakes of
United Bank by UK based Bestway group and
UAE based Abu Dhabi group for $ 208 million.
The remaining amount of inflow is unevenly
distributed among various countries. The group-
wise break-up shows that financial business has
accounted for largest slice of the FDI at 30.6
percent while with 20.8 percent of stake was
attracted by Mining & Oil and gas exploration.
The power sector which has remained apple of
the eye of the investors for some year only
accounted for 4.3 percent stake in FDI. Trade,
transport, storage and communication group get
18.1 percent of the slice while chemical,
pharmaceutical & fertilizer group account for 13.0
percent stake. Textile industry received 3.5
percent of FDI inflow. Group-wise break of FDI
inflow is given in Table 3.10.
THE PRIVATIZATION PROGRAMME
Subsequent governments have attached
high priority to the privatisation process in the
1990s but the present government recognized it as
part of its economic policy for restructuring and
revitalization of the economy. Privatization in
Pakistan is both attractive and rewarding for
potential investors. The program for transfer of
the ownership of public assets is unambiguously
predicated on the principle of reducing its direct
participation in commercial activities. The
minimization of government’s role in economic
activity reinforces the need for regulation in
strategic areas and the design of appropriate
policies in order to ensure that the functioning of
the economy is not distorted and those benefits
are distributed in an equitable manner.
In its early phase, privatization was very
abrupt and rapid but the momentum was lost.
The reason for slow progress on privatization

15
Chapter 3. Manufacturing Mining and Investment Policies

during the second half of the 1990s lay in an and 10 percent towards poverty alleviation
inhospitable enabling environment, legal programs. Pursuant to said Ordinance, various
challenges to privatisation, public opposition to sets of Rules & Regulations have been notified.
privatization, and lack of adequate regulatory Pakistan Telecommunication Authority (PTA),
frameworks for the privatisation of utilities. National Electric Power Regulatory Authority
Recognizing this, government for the last three (NEPRA), Natural Gas Regulatory Authority
years focused and made strong progress on:- (NGRA) and Oil & Gas Regulatory Authority
(OGRA) has started functioning to build credible
¾ Restoring and enhancing investor expertise within these sectors on urgent basis.
confidence by improving the
The existing Privatisation Programme is
macroeconomic climate and resolving
progressing satisfactorily. Till March, 2003, 128
investor disputes.
privatisation transactions had been completed
and proceeds of Rs.97 billion were realized. This
¾ promulgating a Privatisation Commission
Ordinance to provide legal cover to tackle includes 22 transactions for Rs.35 billion from
issues like investors confidence, October 1999 to March, 2002. In addition, 15
transparency and distribution of proceeds industrial units were excluded from the
Privatization Programme either for liquidation or
¾ restructuring and strengthening the being non-privatisable. The Cabinet Committee
Privatisation Commission to make it a
on Privatization (CCOP) and Board of the
leaner, more transparent and more
Privatisation Commission were re-constituted
effective institution
during the last two months. During November,
¾ appointing the Chairman as Minister for 2002 to March, 2003, government's remaining
Privatisation to enhance the stature of shares in POL, Attock Refinary Ltd. and DG Khan
privatisation and facilitate the Cement have been divested through Stock
privatisation process Exchange which fetched Rs. 2.9 billion.

¾ establishing or strengthening regulatory

frameworks.
¾ hiring top class financial advisors.
¾ improving the public's understanding of
privatisation rationale and process via
seminars, interviews, publications, and a
revamped website.
A comprehensive privatisation program
for the short and medium terms was prepared
while keeping with the economic environment
and investment conditions. Privatization
Commission Ordinance, 2000 increases the
accountability of the PC, and allocates 90 percent
of privatisation proceeds towards debt retirement
Privatization is a complex and
demanding reform and every stage requires
utmost transparency and high level of managerial,
financial and technical expertise. A number of
major privatization transactions including PSO,
OGCL, PTCL, Habib Bank, KESC, and Pak-Arab
Fertilizer have been brought to a very advance
stage. This implies on changing of focus from the
privatization of the more straightforward
industrial transactions to those involving the
transfer of management control in services such as
banking, transport and utilities. This requires
sensitive decisions on pricing, restructuring and
rightsizing. During the last three years the
privatisation efforts with the laying of ground

16
 Chapter 3. Manufacturing Mining and Investment Policies

work for the successful marketing of these major
transactions faced formidable challenges due to
some event which delayed few privatisation
transactions. The recent performance of the stock
market and the improvement of the fiscal and
monetary position of the government auger well
for the success of the privatization process. With
several major privatisation transactions on the
cards, the outlook for 2003-2004 appears bright
and positive.
MINING & QUARRYING.
The mining and quarrying sector grew by
9.5 percent during 2002-03 as against 3.7 percent last
year. This is because of concerted effort by the
government to boost this very important sector
which play pivotal role in economic development
by providing basic raw material to key industries of
the country. Various regional geological surveys,
conducted in the recent past, have confirmed the
great potential of Pakistan in the metallic minerals
like 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 quality for
export purpose. But due to resource constraint and
non availability of high-tech the mineral
development could not grew up to the potential. Its
meager share of just 0.5 percent in the GDP does not
fully reflect the actual potential of the sector.
Presently about 50 minerals are under exploitation.
Major mineral products are coal, rock salt, other
industrial and construction mineral.
The contribution in the growth of mining
& quarrying sector came from coal and natural gas
which grew by 4.0 percent and 3.1 percent
respectively. The extraction of some important
minerals is given in table-3.11:

Table 3.11
Extraction of Principal Minerals
July-March
Units of the
Minerals 2000-01 2001-02 2001-02 2002-03 % Change
quantity
Coal Million tones 3.3 3.5 2.5 2.6 4.0
Natural Gas 000 MMCFT 24.8 26.2 19.5 20.1 3.1
Crude Oil Mln. Barrels 21.1 23.2 17.2 18.2 5.8
Chromites 000 tones 16 16 10 15 50.0
Dolomite 000 tones 352.7 312.9 251.4 243.8 -3.0
Gypsum 000 tones 364 328 230 308 33.9
Limestone 000 tones 10.9 9.8 6.4 7.7 20.3
Magnetite 000 tones 4.6 4.6 2.7 2.5 -7.4
Rock Salt 000 tones 1394 1359 988 994 0.6
Sulphur 000 tones 17.4 22.6 15.8 14.7 -7.0
Baryte 000 tones 28 21 15 20 33.3
Source: Federal Bureau of Statistics.
At present, the value addition is gone up by 34 percent, while the extraction of
concentrated in four principal minerals like sulpher declined by 7 percent. From the table 3.11,
gypsum, sulpher, crude oil, and natural gas. it is evident that during the year under review,
These minerals account for most of the overall the overall growth of the mineral sectors depicts
value addition of the mineral sector. The value positive trend.
addition in the sectors of gypsum has notably
17
Chapter 3. Manufacturing Mining and Investment Policies

In order to accelerate the development 2000-01 84.7 26.3

of mineral resources in the country, a National 2001-02 274.8 54.7
2002-03* 137.2 20.8
Mineral Policy is being implemented in letter and
* (July - March,) Source: Economic Advisor Wing
spirit during last three years. The fiscal incentives
The Foreign Direct Investment (FDI) in
and regulatory framework is reinvigorated to
attract foreign investment. The government has the Mining and Quarrying sectors was 17.0 percent
accorded high priority for implementation of in 1999-2000, but since then it has started increasing.
National Mineral Policy to attract foreign Its share in total FID inflow however peaked at 54.7
investment. In difficult environment FDI remains percent in 2001-02, as against 26.3 percent in 2000-
apple of the eye of foreign investors for the last 01. Nevertheless, it has become the first largest
three years. The FDI inflow in Mining and recipient of FDI inflow in 2001-02. During July-
Quarrying Sector is given in the above table 3.12. March 2002-03, its share declined substantially but it
is still one of the major recipients of FDI inflow.
Table 3.12 Many foreign companies are involved in
FDI Inflow in Mining and Quarrying preparation of feasibilities, oil exploration and
development work in the field of mining and
Year US $ % Share FDI
million quarrying.
1997-98 99.1 16.5
1998-99 112.8 23.9
1999-00 79.7 17.0
__________________

18
Chapter 4. Income Distribution and Poverty
4. Income Distribution and Poverty
I. Poverty – Global Perspective
Poverty is hunger, lack of shelter being
sick and not being able to see a doctor, not being
able to go to school and not knowing how to read.
Poverty is not having a job. Poverty is losing a
child to illness brought about by unclean water.
Poverty is powerlessness, lack of representation
and freedom. Poverty has many faces, changing
from place to place and across time, and has been
described in many ways. The proportion of the
developing world's population living in extreme
economic poverty -- defined as living on less than
$1 per day (in 1993 dollars, adjusted to account for
differences in purchasing power across countries)
-- fell from 32 to 25 per cent between 1990 and
1999, according to the latest estimates [World
Bank, 2002]. The simple extrapolation of this trend
to the year 2015 results in a headcount index of
about 16 per cent—indicating that the world is on
track for reaching the global goal of halving
poverty between 1990 and 2015. Substantial
improvements in social indicators have
accompanied growth in average incomes. Infant
mortality rates have fallen from 107 per 1,000 live
births in 1970 to 59 in 1999. On average, life
expectancy has risen by four months each year
since 1970. Growth in food production has
substantially outpaced that of population.
Governments report rapid progress in primary
school enrollment. Adult literacy has also risen,
from 53 percent in 1970 to 74 percent in 1998. And
gender disparities have narrowed, with the
female-male difference in net enrollment rates
decreasing from 11 percent in 1980 to 5 percent in
1997. The developing world today is healthier,
wealthier, better fed, and better educated. Living
standards have risen dramatically over the last
decades. Per capita private consumption growth
in developing countries has averaged about 1.4
percent a year between 1980 and 1990 and 2.4
percent between 1990 and 1999. So millions have
left behind the yoke of poverty and despair.
Unfortunately, the reality is more
complex, and progress is less satisfactory.
Population in the developing world has grown
rapidly—from 2.9 billion people in 1970 to 5.1
billion in 1999 -- and many have been born into
poverty. The number of people below the
international poverty line declined by a mere 1
per cent per year between 1990-99; decreasing
from 1.3 billion people to 1.1 billion. Furthermore,
poverty trends for most regions showed little or
no progress. The incidence of income-poverty
remained largely unchanged in sub-Saharan
Africa (SSA), Latin America and the Caribbean
(LAC) and in the Middle East and North Africa
(MENA). Actually, the number of income-poor in
these three regions combined increased by about 7
million people each year between 1990 and 1999.
Regional trends show that the decline in global
poverty was driven by East Asia (EA) between
1993-96 and by South Asia (SA) in 1996-99.
At the United Nations Millennium
Summit in September 2000, world leaders placed
development agenda by adopting the Millennium
1
Chapter 4. Income Distribution and Poverty

Development Goals, commonly known as MDGs, Pakistan’s Poverty Reduction Strategy

which set clear targets for reducing hunger, Paper (PRSP) has noted that while the extent and
disease, illiteracy, environmental degradation and depth of poverty measured through different
discrimination against women by 2015. The approaches varies depending upon the indices
international development community has used and definition adopted, there was
adopted halving extreme poverty by 2015 as a considerable agreement over the trends in poverty
central goal. To accelerate progress toward this over recent years. There was broad consensus that
goal, both developed and developing countries the momentum gained in the fight against
will have to join hands together to generate poverty during the 1980’s was lost during the
stronger economic growth complemented by 1990s when poverty continue to rise in the
actions to enhance the capability of poor people to 1990s.Yet there was considerable debate on the
participate effectively in growth process. For consistency, measurement and methodology of
developing countries, they need to improve poverty indicators. The I-PRSP noted that
investment climate in their countries and Pakistan did not have an official and well-
maintain macroeconomic stability, improve accepted poverty line at the time which
governance, and invest more on their poor contributed to the debate.
people. These efforts of developing countries
must be complemented by stronger support from In preparation for the PRSP, the
developed countries; in particular through Government of Pakistan has deliberated on the
increased market access for developing country poverty related data and concurs with the IPRSP
exports, debt relief, and increase in the volume, regarding the broad trends in the incidence of
predictability and effectiveness of aid. Both poverty. The Planning Division, during this
developed and developing countries have period has adopted an official poverty line based
committed to undertake their respective on a caloric norm of 2350 calories per adult
responsibilities in Monterrey and Johannesburg to equivalent per day1. The poverty line based on
achieve the MDGs. minimum caloric requirement of 2350 calories per
capita per day approximates per capita
II. Poverty and Inequality in Pakistan expenditure of Rs. 670 per month in 1998-99 and
rising to Rs. 748 per month in 2000-01. To facilitate
Poverty has many dimensions in comparisons with existing measures, the Planning
Pakistan. The poor in Pakistan have not only low Division has estimated a series of poverty
incomes but they also lack access to basic needs estimates from 1986-87 to 2000-01 based on the
such as education, health, clean drinking water respective HIES data bases. These estimates are
and proper sanitation. The latter undermines their reported in Table 4.1.
capabilities, limits their opportunities to secure
employment, results in their social exclusion and
exposes them to exogenous shocks. The vicious 1
The caloric norm in urban areas is 2150 calories
cycle of poverty is accentuated when the and 2450 calories in the rural areas.
* The Head count ratio is based on the new
governance structures exclude the most
estimated National Poverty Line of Rs. 748.56 per
vulnerable from the decision making process. capita per month at the prices of 2000-01 PIHS
Survey
2
Chapter 4. Income Distribution and Poverty

Table 4.1
Trends in Poverty: Head Counts Ratio
(Percent)
1986-87 1987-88 1990-91 1992-93 1993-94 1996-97 1998-99 a 2000-01 b 2003 c

Pakistan 29.1 29.2 26.1 26.8 28.7 29.8 30.6 32.1 31.8

Urban 29.8 30.3 26.6 28.3 26.9 22.6 20.91 22.67 22.39

Rural 28.2 29.3 25.2 24.6 25.4 33.1 34.67 38.99 38.65

Source: Planning Commission.

a: The Head count ratio is based upon the officially notified national poverty line of Rs. 673.54 per capita
per month at the prices of 1998-99 PIHS Survey.
b: The Head count ratio is based upon the officially notified national poverty line of Rs. 748.56 per capita
per month at the prices of 2000-01 PIHS Survey.
c: Head Count ratio based on the post enumeration survey of PIHS 2000-01, with 5% representative
sample covering 726 households out of the original sample size of 14536 households, was conducted in
February 2003.

According to the new official poverty line,
it is inferred that the incidence of poverty has
declined between 1986-87 to 1990-91, falling from
29 percent to 26 percent. Subsequently the trend
in poverty was reversed. Between 1992-93 and
2000-01, poverty increased by about 5 percentage
points to 32 percent with the biggest jump in
poverty taking place in 1993-94. One of the key
reasons for the rise in poverty in 2000-01 has been
the crippling drought which severely damaged

Head Counts Ratio Trend

35 32.1 31.8
29.1 29.8 30.6
30 28.7
26.1 26.6
25
20
15
10
5
0
1986-87 1987-88 1990-91 1993-94 1996-97 1998-99 2000-01 2003
Years

Pakistan’s agriculture. Overall agriculture instead rural area and overwhelming majority of them
of growing, in fact shrank by 2.6 percent in 2000- depend directly or indirectly on agriculture for
01. Almost 68 percent people of Pakistan live in their livelihood. Recent estimates, based on 5
3
Chapter 4. Income Distribution and Poverty

percent sample (726 households out of the total
sample size of 14536) of the PIHS, conducted in
February 2003, show a marginal decline in
poverty. It appears that the rising trend in poverty
has been arrested and the process of decline in
poverty has just begun. What is required now is to
sustain the growth momentum and enhance
spending on social sector to make a credible dent
in poverty. Economic growth accompanied by
macroeconomic stability remains critical for
Pakistan to reduce poverty. At the household
level, growth serves to reduce poverty and better
enables households to send their children to
school and obtain proper nutrition and health
care. At the macro level, growth generates greater
resources which can finance improved coverage
and quality of education, health, water and other
services. Growth itself will depend on many
factors including investment climate and
increased opportunities for trade access to
developed markets but also, a healthy, better
educated and more productive labour force.
Income Distribution
Over the years, the pattern of income
distribution, measured in terms of Gini
Coefficient and household income share of the
lowest and the highest 20 percent for rural and
urban areas respectively in Pakistan, has been
mixed and moderate. The Gini Coefficient of
household income had been around 0.35 or below
since the 1960s, reaching 0.407 in 1990-91 and
0.410 in 1998-99. The ratio of highest 20 percent to
lowest 20 percent of household income gives the
income gap. Table presents the trend summary.

Table 4.2
Trends in Income Inequality

Year Household Percentage Share of Income Ratio of highest GDP Growth

Gini Lowest Middle Highest 20% to lowest 20% Rate
coefficient 20% 60% 20%
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
Source: Federal Bureau of Statistics, Ministry of Finance
Note: Data beyond 1998-99 are not available.

It can be inferred that during the 1980s,
the period of relatively higher growth rate, the
percentage share of income of lowest 20 percent
increased from 7.3 percent to 8 percent, while the
percentage share of middle 60 percent and highest
20 percent decreased from 47.7 percent to 45.3
percent and from 45 percent to 43.7 percent
respectively. On the other hand, during the latter
half of the 1990s, a period of sluggish economic
growth, the percentage share of lowest 20 percent
declined from 7.0 percent to 6.2 percent, middle
60 percent from 43.6 percent to 44.1 percent. It is
pertinent to note the increase for the highest 20
percent during the same era, from 47.2 percent to
49.7 percent. Consequently the income gap that
declined during the 1980s, showed an increasing
4
Chapter 4. Income Distribution and Poverty

trend during 1996-97 to 1998-99. The Gini investment, human development and social
coefficient also projects the same trend-line. This outcomes.
economic disparity during late 1990s had its
foundations upon weak macroeconomic Further breakdown into urban and rural
management, persistence of huge fiscal and categories implies that poverty has an accelerating
current account deficits and consequent partiality in rural areas while income distribution
unsustainable debt burden, deteriorating in the urban areas improved slightly. The Gini
governance and declining savings and coefficient corroborates this trend.

Table 4.3
Household Income Distribution (Rural-Urban)

Year Rural Share Gini Urban Share Gini

Lowest Highest Coefficient Lowest 20% Highest 20% Coefficient
20% 20%
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 0.40 6.0 50.0 0.33
Note: Data beyond 1998-99 are not available. Source: FBS HIES Data, Ministry of Finance

III. Determinants of Poverty of health problems, rise in population, lack of

The formulation of the poverty reduction
strategy has benefited from the participatory
process and effective consultations with diverse
range of stakeholders including federal,
provincial and district governments, NGOs, and
civil society. The participatory process has been
further enriched by social mobilization at the
grassroots level through the rural support
programs spread over 49 districts, in setting
priorities and improving implementation. To
supplement, the Participatory Poverty
Assessment has been conducted at 54 field sites in
very poor areas across all four provinces, FATA,
NA and AJK. Key reasons for poverty identified
were lack of education and skills, high incidence
access to justice and empowerment, inaccessibility
of capital, increase in unemployment, and weak
service delivery. Poverty reduction strategic
framework factors in the following issues:
• For growth to reduce poverty, it must
emanate from sectors that have greater
potential to generate employment. In this
context the strategy called for rapid growth in
agriculture, small and medium industries,
housing and construction, and the
Information Technology sectors.
• Since various forms of poverty in Pakistan
were acute, these required targeted policy
interventions to provide quick relief through

5
Chapter 4. Income Distribution and Poverty

short-term employment opportunities, social the Government of Pakistan adopted a

safety nets and financial assistance.
• Additional income alone would not eliminate
poverty unless the causes of poverty were
addressed. Hence the need to improve access
to basic needs such as primary education,
preventive health care, population welfare
services, in order to win the fight against
poverty.
• Improvement in public service delivery
required resources and improvement in
governance.
• Involvement of the poor in the formulation of
these policies and management of their affairs
was critical in attaining the objectives of the
strategy, and there was need to forge a broad-
based alliance with civil society and the
private sector in this regard.
• The participatory process must broaden in the
formulation of the full PRSP, resulting in
consultations at district, provincial and
national levels to elicit views, share
experiences and understand expectations of
the stakeholders.
• There was need for a strong program of
monitoring and capacity development, as well
as impact assessment.
comprehensive strategy in November 2001 to
reduce poverty, articulated in the Interim Poverty
Reduction Strategy Paper (I-PRSP). Poverty
reduction has taken center stage of Pakistan’s
development policy framework recognizing that
poverty alleviation is not merely a by-product of
the growth process. The strategy aims to provide
an integrated focus on a diverse set of factors that
impact poverty, and to meet the twin challenges
of reviving broad based equitable growth and
reducing poverty. Building upon the poverty
reduction strategy in I-PRSP and benefiting from
the participatory process, the democratically
elected Government of Pakistan has strengthened
its efforts to attack poverty. Pakistan’s poverty
reduction strategy now articulates a more
comprehensive framework including policies for
rural development, gender issues, employment
and the environment. The rural development
program is embedded in the targeted
interventions pillar of the strategy. The approach
also incorporates a more focused human
development strategy that recognizes the central
role of the provinces and local governments in
achieving human development goals. The Poverty
Reduction Strategy of the Government of Pakistan
is now based on the following five pillars.
(Detailed strategic action plans relating to each
sector have been described in relevant chapters of
the PRSP document).

• Availability of adequate resources for poverty a) Accelerating economic growth and

reduction programs was important in maintaining macroeconomic stability
determining the effectiveness of the strategy.
Detailed costing of proposed initiatives would Reform efforts geared at maintaining fiscal
be completed in the preparation of the discipline, rule based fiscal policy, tax and
provincial PRSPs. tax administration reforms, financial sector
reforms, trade liberalization, investment
IV. Poverty Reduction Strategy climate and privatization, augmenting
Amid growing recognition that the regulatory framework, and building
incidence of poverty was increasing in Pakistan, supportive infrastructure.
6
Chapter 4. Income Distribution and Poverty

b) Investing in human capital e) Improving governance

Major thrust sectors include comprehensive Important reforms are Political and
reforms in education including special Administrative devolution, Fiscal
education, health and population welfare, Decentralization, Access to Justice, Civil
capacity building for service delivery through Service Reforms, Freedom of Information Act,
and Anti Corruption Strategy.
National Commission on Human
Development, and involvement of private
V. Trends in PRSP Expenditures
sector through public-private partnerships
and NGOs. The following table gives the expenditure
c) Augmenting targeted interventions details on pro-poverty expenditures. Although
the government has institutionalized the Medium
These include Small & Medium Enterprises, Term Budgetary Framework (MTBF) in its fiscal
Micro Finance, Public Works Program and budgetary regime, adhering to the
(Tameer-e Pakistan Program, Khushal macroeconomic targets as envisaged in the MTBF,
however with regards to poverty outlays, the
Pakistan program, Drought Emergency Relief
government is committed to raising its budgetary
Fund), Rural Development including
expenditures atleast by over 0.2 percent of GDP
agriculture, irrigation, livestock and fisheries
per annum starting FY 2001-02. This reflects a
and rural electrification, and Housing significant shift from past budgetary performance
Finance. when anti-poverty public expenditures declined
by an average of 0.25 percent of GDP per annum,
d) Expanding social safety nets during 1995–2000. Ensuring that these
expenditures rise over the medium term while
Primary programs are Zakat Program, Food fiscal adjustment also takes place is a significant
Support Program, Employees Old Age challenge. The government will be spending Rs.
Benefits Institution, Private Sector Pension 161 billion on pro-poor expenditures during the
current fiscal year.
Fund, and Indigenous Philanthropy.
Table 4.4
Pro-Poor budgetary Expenditures (Rs in million)

Sectors FY 2000-01 FY 2001-02 July-Mar 2002-03

Roads, highways & bridges 8,332 6,340 5,043
Water Supply & Sanitation 4,497 4,644 1,988
Education 56,536 66,290 51,280
Health 17,508 19,211 13,457
Population planning 1,588 1,331 1,798
Social Security & other Welfare 1,576 3,664 797
Natural Calamities & Disasters 912 189 293
Irrigation 8,154 10,133 8,179
Land Reclamation 1,380 1,838 1,097
Rural Development 11,415 12,325 9,982
Food Subsidies 9,390 5,513 3,200
Food Support Program 1,061 2,017 1,256
TOTAL 122,349 133,495 98,370
Source: Monthly Civil Accounts

7
Chapter 4. Income Distribution and Poverty

In addition to the government's anti-poverty
expenditures a significant amount of public
resources are aimed at providing social protection
to the poorest segments of society. Through recent
government initiatives such as Food Support
Program (FSP), Khushal Pakistan Program (KPP),
and land transfers the government has
significantly increased assistance to those most in
need. Social safety transfers by the government
Table 4.5
Pro-Poor Non budgetary Expenditures (Rs in million)
are divided into three broad categories, which
include: cash transfers, in-kind transfers, and
public-works programs. Government Programs
in this regard are Zakat, Food Support Program
(FSP), Employees' Old Age Benefits Institutions
(EOBI), and micro-credit disbursements by
Khushali Bank (KB), Pakistan Poverty Alleviation
Fund (PPAF) and the Agricultural Development
Bank of Pakistan (ADBP).
.

Sectors FY 2000-01 FY 2001-02 July-Dec 2002-03

Zakat disbursements 1,829 5,169 2,731
EOBI disbursements 1,261 1,366 777
Micro-credit disbursements 577 1,215 1,986
TOTAL 3,667 7,750 5,494
Land distributed (Acres) 153,197 53,803 2,538
SOCIAL SAFETY NETS (Number of beneficiaries)
Food support program 1,136,546 2,200,916 1,009,330
Zakat 930,223 1,700,189 617,000
EOBI 100,384 103,231 132,000
Micro-credit 48,252 148,728 225,000
Temporary employment (KPP) 400,916 270,333 318,089
State land recipients 14,419 3,144 310
Total No. of beneficiaries 2,606,445 4,365,657 1,010,932

Table 4.6
Pro-Poor budgetary Expenditures (Past Trends)

Sectors FY 1996-97 FY 1997-98 FY 1998-99 FY 1999-00

Roads, highways & bridges 4,644 5,174 6,043 5,134
Water Supply & Sanitation 4,953 6,100 5,294 5,553
Education 42,604 49,084 49,406 54,002
Health 13,434 14,731 15,547 17,342
Population planning 1,858 1,974 2,593 3,439
Social Security & other Welfare 2,434 1,947 2,022 2,069
Natural Calamities & Disasters 222 214 1,074 1,243
Irrigation 9,847 9,722 9,147 8,274
Land Reclamation 419 541 815 939
Rural Development 3,091 3,552 4,852 6,513
Food Subsidies 10,101 7,339 7,097 9,850
Food Support Program 0 0 0 0
TOTAL 93,607 100,378 103,890 114,358

8
Chapter 4. Income Distribution and Poverty

Table 4.7
PRSP Non-Budgetary Expenditures (2002-2006)
PRSP BASELINE PROJECTIONS
EXPENDI- (Actuals) (Based upon FY 2001-02 actual expenditures)
TURES FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06
Rs. % Rs. Mill % Rs. Mill % Rs. Mill % Rs. Mill %
Mill GDP GDP GDP GDP GDP
Zakat System 5,169 0.13 9,545 0.23 9,650 0.21 9,258 0.19 5,401 0.10
Social
Security 1,366 0.03 1,489 0.03 1,608 0.03 1,753 0.03 1,894 0.03
(EOBI)
Micro credit 1,588 0.04 3,354 0.08 5,823 0.13 9,288 0.19 13,858 0.26
TOTAL 8123 0.21 14,389 0.22 17,081 0.42 20,299 0.48 21,153 0.40
SOURCE: Zakat: Ministry of Religious Affairs; Social Security: Employees Old Age Benefit Institution;
Housing Finance: State Bank of Pakistan; Micro credit: Khushali Bank, PPAF, ZTBL

The following table presents the recommended budgetary expenditures at the rate of 0.2 percent
allocations for 2006-07 with the base year of GDP per annum.
allocations being for 2000-01, increasing pro-poor
Table 4.8
Future projections for Pro-Poor Budgetary Expenditures
PRSP BASELINE PROJECTIONS
EXPENDITURES (Actuals) (Based upon FY 2001-02 actual expenditures)

FY 2001-02 FY 2002-03 FY 2003-04 FY 2004-05 FY 2005-06

Rs. in % GDP Rs. in % Rs. in % GDP Rs. in % GDP Rs. in % GDP

Millions Millions GDP Millions Millions Millions

Development 36,836 0.99 44,573 1.10 53,366 1.20 60,621 1.25 68,965 1.29

Current 96,659 2.59 116,95 2.88 134,267 3.02 154,407 3.18 177,568 3.33
7

TOTAL 133,495 3.58 161,52 3.98 187,633 4.23 215,028 4.42 246,533 4.62
9

MARKET ACCESS AND COMMUNITY SERVICES

Roads, Highways 6,340 0.17 7,671 0.19 8,807 0.20 10,128 0.21 11,647 0.22
& Bridges

Water Supply and 4,644 0.12 5,619 0.14 6,451 0.15 7,419 0.15 8,531 0.16
Sanitation

HUMAN DEVELOPMENT INPUTS

Education 66,290 1.78 80,211 1.97 92,082 2.07 105,894 2.18 121,779 2.28

Health 19,211 0.52 23,245 0.57 26,686 0.60 30,688 0.63 35,292 0.66

Population 1,331 0.04 1,611 0.04 1,849 0.04 2,126 0.04 2,445 0.05
Planning

9
Chapter 4. Income Distribution and Poverty

Social Security 3,664 0.10 4,433 0.11 5,090 0.11 5,853 0.12 6,731 0.13
and Welfare

Natural 189 0.01 229 0.01 263 0.01 302 0.01 347 0.01
Calamities &
other Disasters

RURAL DEVELOPMENT EXPENDITURES

Irrigation 10,133 0.27 12,261 0.30 14,076 0.32 16,187 0.33 18,615 0.35

Land Reclamation 1,838 0.05 2,224 0.05 2,553 0.06 2,936 0.06 3,377 0.06

Rural 12,325 0.33 14,913 0.37 17,120 0.39 19,688 0.40 22,642 0.42
Development

Food Subsidies 5,513 0.15 6,671 0.16 7,658 0.17 8,807 0.18 10,128 0.19

Food Support 2,017 0.05 2,441 0.06 5,000 0.11 5,000 0.10 5,000 0.09
Program

TOTAL 133,495 3.58 161,52 3.98 187,633 4.23 215,028 4.42 246,533 4.62
9
Source: Ministry of Finance
VII. Monitoring and Evaluation been developed with participation of provincial
Mechanisms governments. These expenditures are in line with
the government’s macroeconomic framework and
Well targeted anti-poverty outlays and have been protected and tracked over the medium
social transfers are essential ingredients of a term. Key measures taken to strengthen the
comprehensive poverty reduction strategy. The monitoring and evaluation system include
real test of public expenditures lies in their institutional monitoring through Education
impact. One of the central components of the Management Information System & Health
PRSP is creation of a system to monitor the Management Information System, annual Core
implementation and outcome of poverty Welfare Indicators Questionnaire survey for third
reduction policies. The PRSP monitoring party validation of 13 intermediate indicators in
framework includes a set of indicators that track social sectors & to monitor improvement in
policy inputs, their outputs and progress towards service delivery, Pakistan Integrated Household
intended policy outcomes. PRSP input process Survey every 3rd Year to monitor outcomes,
(pro-poor expenditures) have been clearly establishment of PRSP secretariats in Provinces,
articulated and a system to monitor these and formation of National Steering Committee for
expenditures on a quarterly basis is in place. To review and policy adjustment.
monitor outcome and impact in human Regular information on intermediate
development, the government has established in indicators is a valuable guide for evaluating the
conjunction with the provinces and line efficiency of public policies and the use of public
Ministries, a comprehensive set of intermediate funds. Nevertheless, information/ data sources
and impact indicators that can be tracked on a for intermediate indicators in Pakistan are not
short/medium term and long term basis, linking readily available and reporting systems are not
public expenditures with results on the ground tuned for quick reporting in some cases.
10
Chapter 4. Income Distribution and Poverty

However, as part of the government’s anti- process is a multi year undertaking. Secondly,
poverty efforts, information systems are being since the PRSP approach is an innovative
developed/strengthened to track intermediate initiative in the provincial governments, and the
indicators, their measurement methodologies, provincial monitoring units are at a nascent stage
definitions, and sources for timely and accurate having capacity constraints, therefore capacity
review of policy interventions through a building will need to be addressed quickly.
comprehensive consultative process as detailed Thirdly, the implementation of programs under
above. This process is being pushed further as the the decentralized and autonomous system of
baseline information/ data on education and
health sector intermediate indicators has been
finalized. Core Welfare Indicators questionnaire
(CWIQ) survey will be conducted for the first time
to capture data at the district level for
intermediate indicators in social sectors to
determine baselines and it will then be updated
on annual basis.

While the monitoring framework can help

identify efficiency of the policies, additional work
will be needed to understand why policies could
not yield the desired output. Making these
judgements will typically necessitate more in-
depth studies, focused on specific questions and
using a different approach (such as detailed
analysis at district level particularly when
primary health care is now the responsibility of
the district governments).

VIII. Risks and Challenges in

implementation

It needs to be appreciated that effective

implementation of Pakistan’s Poverty Reduction
Strategy comes with some risks and challenges.
Firstly, the efficacy of reform agenda will require
pro-active collaboration among many ministries
and agencies in the context of avowed
continuation of reform program and policies by
the elected governments. Monitoring the
performance will be a major undertaking since
there are gaps in information available.
Developing a reliable and comprehensive
database for monitoring and evaluation of PRSP

11
Chapter 4. Income Distribution and Poverty

district governments may be made consistent significant progress made over the last three and a
with the agreed set of preferences of the district half years. The success of poverty reduction
government vis-à-vis the provincial and federal strategy will critically depend on its effective
priorities. A mechanism should be in place to implementation, constant evaluation of its impact
address any such divergence. Fourth concern is and regular feedback to policy makers for
the continued support of Pakistan’s international appropriate adjustment in the policy and
development partners in development process in institutional regime.
Pakistan as waning interest could jeopardize the

__________________

12
Chapter 5. Fiscal Development
5. Fiscal Development
Introduction
Sound fiscal policy fosters
macroeconomic stability, which in turn, is the
cornerstone of any successful efforts to increase
private sector development and economic growth.
Economic growth on the other hand, is the single
most important factor influencing poverty. Sound
fiscal policy should therefore be regarded as a key
component of any poverty reduction strategy.
Like many other developing countries,
fiscal profligacy has been the main underlying
cause of macroeconomic instability in Pakistan
during the 1990s, which, in turn, has impeded the
medium-to-long run economic growth prospects.
Persistence of large fiscal deficit (on average, 7%
of GDP) resulted in sharp accumulation of public
debt—rising form Rs 928 billion in 1990-91 to Rs
3231 billion in 1999-2000. As percentage of GDP,
public debt increased from 91.3 percent to 103.0
percent during the same period. As percentage of
total revenue, public debt rose from 541 percent to
630.4 percent. The debt servicing liability
continued to rise as a result of unsustainable rise
in public debt. In 1990-91, almost 38 percent of
total revenues were consumed to finance debt
servicing and by 1999-2000 it reached almost 64
percent, leaving only 36 percent revenues to be
spent on development program in general and
social sector in particular; defense, civil
administration, etc. It was a difficult task to
finance developmental activities of the
Government with such a meager resources.
No wonder, the development budget
continued to shrink from 6.5 percent of GDP to 3.0
percent during the same period. Both physical
and human capital deteriorated sharply over the
years, due mainly on account of declining public
sector investment. Private sector investment also
declined for two reasons. Firstly, as a result of
persistently large fiscal deficits and the associated
rising stock of public debt, interest rates remained
high during the 1990s and crowded out private
sector investment. Being complementary in nature,
a decline in public sector investment caused private
sector investment to decline as well. Consequently,
the overall investment rate decelerated during the
1990s and ultimately reduced economic growth
relative to potential. When a country sustains such a
large fiscal deficit for such a long period of time, it
is bound to face serious debt problem and
associated decline in investment and growth, and
consequent rise in poverty. This underlines the
importance of a credible fiscal policy for achieving
higher investment and growth.
Various attempts were made in the past to
achieve fiscal consolidation. Despite imposition of
new taxes, additional tax measures, and curtailment
of non-essential expenditures, these efforts did not
achieve fiscal consolidation, as Pakistan continued
to sustain large fiscal deficit (on average, 7.0 % of
GDP). Although fiscal consolidation could not be
Chapter 5. Fiscal Development

achieved, structure of taxes did improve over the
years (More on this issue later). Why past attempts
could not achieve desired results? The answer lies
with Pakistan's tax structure.
serious economic distortions.
Inequitable: treat individuals and business in
similar circumstances differently.

Unfair: Tax administration and enforcement

Like in most developing countries are selective and skewed in favour of
Pakistan's tax structure has suffered from several those with the ability to defeat the
weaknesses. These are: system.

The combined effects of these weaknesses

Complex: difficult to administer and comply
resulted in low and stagnant tax-to-GDP ratio on
with.
the one hand and low tax elasticity and buoyancy
on the other. The low and stagnant tax- to-GDP
Inelastic: unresponsive to growth and
ratio compelled successive governments to generate
discretionary policy measures. In
resources through surcharges and non-tax revenues
other words, elasticity of taxes was in
[see table 5.1].
general, less than unity.

Inefficient: raises little revenue but introduce

Table 5.1
Fiscal Indicators as Percent of GDP (MP)

Expenditure Revenue
Overall
GDP
Year Fiscal Develop- Total Non-
Real Total Current Tax
Deficit ment* Rev. Tax
Growth
1990-91 5.4 8.8 25.7 19.3 6.4 16.9 12.7 4.2
1991-92 7.6 7.5 26.7 19.1 7.6 19.2 13.7 5.5
1992-93 2.1 8.1 26.2 20.5 5.7 18.1 13.4 4.7
1993-94 4.4 5.9 23.4 18.8 4.6 17.5 13.4 4.1
1994-95 5.1 5.6 22.9 18.5 4.4 17.3 13.8 3.5
1995-96 6.6 6.5 24.4 20.0 4.4 17.9 14.4 3.5
1996-97 1.7 6.4 22.3 18.8 3.5 15.8 13.4 2.4
1997-98 3.5 7.7 23.7 19.8 3.9 16.0 13.2 2.8
1998-99 4.2 6.1 22.0 18.6 3.4 15.9 13.2 2.7
1999-00** 3.9 6.6 22.5 20.3 3.2 16.3 12.9 3.4
2000-01** 2.2 5.2 21.0 18.9 2.1 16.2 12.9 3.3
2001-02** 3.4 5.2 22.8 19.3 3.5 17.2 13.2 4.0
2002-03 (BE) 5.1 4.6 22.2 18.1 4.1 17.6 13.8 3.8
* Public Sector Development Program plus surplus/ Source: Finance Division, (Budget Wing)
deficit of autonomous bodies.
B.E: Budget Estimates.
** Fiscal deficit figure for these years is after adjustment of statistical discrepancy.
Chapter 5. Fiscal Development

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

30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03
Revenue Expenditure

On the expenditure side, it is a fact that
over the years the structure of current expenditure
has become inflexible. Large resources were pre-
empted by expenditure of essential and obligatory
character, such as debt servicing. Almost 64 percent
of total revenues were devoted to debt servicing
alone, leaving little room for economizing
expenditure. Although, the total expenditure-to-
GDP ratio exhibited a declining trend in the 1990s,
this decline has occurred primarily at the cost of
development expenditure. Decline in development
spending has not only caused deterioration in
human and physical infrastructure but has also
constrained the future growth potential of the
country.
Persistently large fiscal imbalances
therefore raised two major concerns. First, the rising
trend in the interest burden on public debt
threatened the sustainability of the macroeconomic
stance. Second, servicing the country's public debt
puts large claims on government resources, which
reduced the Government's capacity to spend on key
development activities. In addition, it also created a
need for higher taxation which undermined
efficiency.
FISCAL REFORM
Realizing the weaknesses of Pakistan’s tax
structure a concerted effort was launched some
three and a half years ago. The government began
to launch a wide-ranging tax and tariff reform on
the one hand and fiscal transparency on the other,
with a view to reducing tax rates, broadening the
tax bases to hitherto untaxed or under taxed
sectors, and shifting the incidence of taxes from
imports and investment to consumption and
incomes. The reduction in tax rates was intended
to stimulate investment and production on the one
hand and promote voluntary tax compliance on
the other. Broadening of tax bases was intended to
ensure fair distribution of tax burden among
various sectors of the economy. Without going
into the details as well as to conserve space, all
these reforms are documented in Box-I.
Chapter 5. Fiscal Development

Box-I
FISCAL REFORMS INTRODUCED DURING LAST THREE YEARS
TAX REFORMS
¾ All tax whitener schemes eliminated.
¾ Tax survey and documentation exercise undertaken.
¾ This exercise added 234,189 new income tax payers and 34000 sales tax payers to the tax base.
¾ Wealth tax abolished.
¾ To give an end to multiplicity of taxes, number of taxes at the federal and provincial level has reduced.
¾ Grass roots reforms in tax administration started.
¾ A two-tier agricultural income tax introduced.
¾ GST broadened and streamlined.
¾ In order to ensure expeditious Sales Tax refund payments, while ensuring no inadmissible payments, the
Sales Tax Automated Refund Repository (STARR) has been set up. This will help in development of
paper less (Electronic) receipt, processing and sanction of refund claims.
¾ To create taxpayer friendly environment a new income tax ordinance on universal self assessment basis
with system selected audits, minimal exemptions, and more equitable rates have been introduced.
¾ For effective dispute resolution mechanism, tax ombudsman’s office established.
¾ Developing an automated assessment and valuation system
¾ Large taxpayer unit has been established in Karachi
¾ Medium taxpayer unit established in Lahore
¾ A model medium taxpayer unit has started working in Lahore to test the re-engineered income tax
system

TARIFF REFORMS
¾ Public announcement of tariff rationalization, spread over 2001-03:
¾ Maximum tariff brought down to 25 percent in 2002-03 from 92 percent a decade ago.
¾ Number of tariff slabs reduced from 13 to 4 in the same period.
¾ Minimizing the use of excise duties in tariffs.
¾ Promulgation of anti-dumping law consistent with WTO.
¾ Import liberalization measures adopted for agricultural and petroleum products.
¾ Restrictions on agriculture exports removed.
¾ A Pilot Customs Administration Reform Project would be established by November 2003.

FISCAL TRANSPARENCY
¾ The government is already on road to Accountable Fiscal Management Framework (AFMF) that
specifies assurances of accountability and transparency of fiscal management.
¾ Fiscal responsibility law is expected to be put before the parliament by end-June 2003.
¾ Separation of audit and accounts: legislative measures adopted.
¾ Formation of ad-hoc public accounts committees at federal and provincial level.
¾ Establishment of “new system of financial controls and budgeting.”
¾ Publication of fiscal reports verified by the AGPR.
¾ Fiscal reform unit established. Greater public access to fiscal data has been ensured through publication
of quarterly fiscal reports.
Chapter 5. Fiscal Development
TAX ADMINISTRATION REFORM
Tax administration plays a vital role in
the success or failure of any attempt to reform
taxation. Corruption and tax evasion are
widespread, especially in developing countries.
Tax collection system designed to eradicate
corruption and evasion has mostly failed,
indicating that these problems are structural in
nature. The main reason for this failure is that
most tax administrations systems have been
influenced by the structure of tax systems in
developing countries. In fact, tax structure and tax
administration are interdependent and should be
considered as such.
Tax administration plays a crucial role in
determining the real (or effective) tax system, as
opposed to the statutory tax system. Indeed, there
is a growing conviction among tax policy
specialists in developing countries that policy
change without administrative change is nothing,
and that, it is critical to ensure that changes in tax
policy are compatible with administrative
capacity. It is therefore, generally argued that tax
administration is tax policy in developing
countries.
There are many lessons that can be learnt
from other countries’ experiences where they
have tried to improve tax administration. First, an
essential pre-condition for the reform of the tax
administration is the simplification of the tax
system to ensure that it can be applied effectively
in the generally low compliance contexts of
developing countries. Second, there is a need for a
strategy for the successful reforms of the tax
administration. Strategy in this context simply
means a comprehensive plan that assigns clear
priorities to the tasks that must be performed,
tailored to the available resources. Third
ingredient for successful reform of tax
administration is a strong commitment to reform
at both policy-making and managerial levels, as
well as a certain degree of technical competence.
The best reform strategy applied to the most
simplified system will fail if there is a lack of
political will to implement it. While some crucial
initial technical support can sometimes be
obtained from foreign experts, a critical core of
local expertise is needed to take full advantage of
such assistance. Even more important is the
presence of a managerial team fully committed to
taking the steps necessary to improve the quality
of tax administration, with full political support of
the highest authorities.
Successful tax administration reforms
must have these three main ingredients, that is,
simplification, strategy, and commitment. There
is, however, no single set of prescriptions—no
secret recipe—that once introduced, will ensure
improved tax administration in any country.
Developing countries exhibit a wide variety of tax
compliance levels, reflecting not only the
effectiveness of their tax administrations but also
taxpayers attitude towards taxation and towards
government in general. It should be emphasized
that gimmicks or quick fixes are not of much use
in resolving tax administration problems. It is
time consuming and requires patience.
The goal of tax administration is to foster
voluntary tax compliance. Tax compliance will
increase if there is an effective tax administration.
Taxpayers will comply better if they believe that
failure to pay due taxes entails substantial risk of
being penalized in a relatively severe fashion. In a
country where the degree of compliance is low,
the ability of the tax administration to impose
effective penalties is perhaps the best way to
shape the behaviour of taxpayers. The crucial test
of an effective tax administration is that how
effectively it deals with unregistered, stop filing,
tax evaders, and delinquent taxpayers. If tax
compliance is to improve, the tax administration
must have effective action to deal with these
shortfalls.
Fully cognizant of the fact that the success
of tax reform would depend on the
effectiveness/efficiency of tax administration, the
Chapter 5. Fiscal Development
Government of Pakistan approved a medium-term
program for reforming tax administration in
November 2001. Since then, major efforts have been
made to improve tax administration. Some of the
milestones already achieved under tax
administration reform are summarized below:
i) Re-organization of CBR Headquarters
on functional lines
CBR was administrated on cylindrical basis
in the past where policy and operational
functions were performed by the same
Member. Five new Members from private
sector have been recruited to look after the
specialized skills like taxpayer education,
audit, information technology, fiscal policy,
and human resource management.
ii) Establishment of Large Taxpayer Unit
Large Taxpayer Unit (LTU) has been
established from July 1, 2002 at Karachi,
encompassing all the three domestic taxes
i.e. sales tax, central excise duty, and
income tax. The unit has 300 Karachi based
large taxpayers and covers 50% of the
revenue of the country's largest city. Its
performance has so far been impressive
and has encouraged the government to set
up another LTU in Lahore in February
2004.
iii) Medium Taxpayer Unit
A model Medium Taxpayers Unit (MTU)
has started working in Lahore w.e.f.
October, 1, 2002 to facilitate taxpayers. Five
such MTU will be set up in Karachi,
Rawalpindi Peshawar, Quetta and
Islamabad by July 2004.
iv) Universal Self Assessment System
Universal Self-Assessment System (USAS)
is the corner stone of the reform strategy of
CBR. While sales tax is already on self
assessment basis, income tax has also been
brought under the USAS through the
Income Tax Ordinance 2001. The
government is currently examining the
process to bring custom collection also
under self assessment coupled with audit
based on risk assessment for various
classes of taxpayers.
v) Customs Administration Reform
(CARE)
The existing cumbersome manual system is
highly personalized, involving 34
verifications and 62 steps. There is a face to
face contact between taxpayer and tax
collector and the taxpayer have to bear
extra cost on account of inefficiency of the
system. CBR has developed a Custom
Administration Reform Plan (CARE) and
has decided to start a pilot project to test
the new approach for imports and exports.
The Karachi International Container
Terminal (KICT) which clears 25% of
imports through Karachi sea port has been
selected as the pilot site.
vi) Sales Tax Automated Refund
Repository (STARR) Project
The reengineering and automation of sales
tax refund system has been identified as
essential component of the reform of sales
tax. The software has been developed and
central data base office has been
established. The implementation of the first
phase has been completed and the system
is being evaluated and reviewed for the
development and implementation of the
second phase of the project. The second
phase will be implemented by July, 2003
and on its completion the sales tax refund
system will be transformed into a simpler,
fully automated, risk based system,
enabling quick refund and identifying high
risk cases for scrutiny and audit.
vii) Taxpayers Facilitation Centers
With a view to promote voluntary
compliance in a self assessment system of
tax administration, taxpayer education and
Chapter 5. Fiscal Development
facilitation has been given a priority. All
the laws, rules, circulars have been placed
on website. Taxpayer facilitation centers
are being established. By July 2004, 5 to 7
taxpayers’ facilitation centers at the various
stations of the country will be established.
viii) Income Tax Organization Structure
The existing structure of income tax, which
is circle based where all administrative,
judicial, legal and enforcement powers are
exercised by one person is being replaced
by a functional system. A new income tax
organizational structure containing
functions of taxpayer service, information
processing, audit, enforcement, collection,
legal, information technology, HRM and
internal control has been developed and is
being presently tested at MTU in Lahore. A
home grown automated reengineered Tax
Management System has also been
developed which will drastically reduce
the locations as well the personnel in the
income tax organization.
The strategy revolves around information
technology based processes. The
implementation of IT software and
hardware, and efficient use of technology is
aimed at achieving the objective of
minimum taxpayer interface and to allow
the tax administration to be taxpayer
friendly while reducing compliance costs.
The reform of tax administration is not only
focusing on a change in skills but major
efforts are underway to transform the
organizational culture. Significant
improvements in human resource
management function are in hand. These
include (i) HR audit, (ii) Implementing new
and effective decision making processes,
(iii) Competency /Skill enhancing training
programs, (iv) Improved compensation
package, and (v) Redundancy planning
and sequencing.
OUTCOMES OF REFORMS
The wide-ranging tax and tariff reform as
well as reform in tax administration have started
paying dividends. Tax collection by the Central
Board of Revenue (CBR) has picked up, overall
budget deficit as percentage of GDP has declined,
revenue deficit has been narrowed, and primary
surplus has increased. Consequently, public debt,
both in absolute term as well as in percentage of
GDP has declined. Pakistan is now moving towards
fiscal consolidation but much more efforts will be
needed to achieve consolidation on a sustained
basis
During the last four years, the CBR has
collected Rs. 152 billion more revenue or tax
collection has increased by 49.3 percent. The overall
fiscal deficit which averaged almost 7.0 percent of
GDP during the 1990s, has been reduced to 4.6
percent in 2002-03. Revenue deficit (the difference
between total revenue and total current
expenditure), a measure of government dis-saving,
has been narrowed from 3.0 percent of GDP to 1.0
percent. Improvement in revenue deficit would
increase national savings which, in turn, would
reduce the country's dependence on foreign savings
to finance domestic investment. Primary balance
(total revenue minus non-interest total expenditure)
remained in surplus to the extent of 1.5 percent of
GDP.
Revenue efforts should be assessed in
terms of the objective of improving the underlying
structure of the tax system, to place the public
finances on a permanently sound basis. An
improved tax structure would reduce the dead
weight loss associated with raising a given amount
of revenue. Reduction in relative share of trade
taxes and increases in the relative shares of taxes on
income and consumption could be taken as
evidence of an improvement in the tax system.
Notwithstanding improvements in
various fiscal indicators, Pakistan has also
witnessed significant changes in its tax structure.
Chapter 5. Fiscal Development

As a result of reforms, the structure of taxes has
undergone considerable changes since the
beginning of the 1990s. Firstly, the share of direct
taxes in total taxes (collected by the CBR)
increased from 18 percent to 32 percent—almost
doubled in 13 years (See table 5.2). Accordingly,
the share of indirect taxes declined from 82
percent to 68 percent during the same period.
Even within the indirect taxes, dramatic changes
have taken place. Collection from custom duty
used to account 45 percent of total tax collection
and 55 percent of indirect taxes in 1990-91. Its
share has now been reduced to 13 percent and 19
percent, respectively. This is the result of the tariff
reform implemented by the successive
governments since 1990-91. The share of sales tax
on the other hand increased dramatically from
14.4 percent to 45 percent in total taxes and from
17.6 percent to 66 percent in indirect taxes during
the same period. Central excise as a tax is loosing
its importance and gradually being faded out. Its
shares in total taxes and indirect taxes were 22.5
percent and 27.5 percent, respectively in 1990-91.
These have now been reduced to 10.3 percent and
15.2 percent, respectively during the same period
(See Table 5.2).

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)
2000-01 392.3 11.3 124.6 267.7 65.0 153.6 49.1
[31.8] [68.2] (24.3) (57.4) (18.3)
2001-02 403.9 11.1 142.5 261.6 47.8 166.6 47.2
[35.3 ] [64.7] (18.3) (63.7) (18.0)
2002-03(B.E) 460.6 11.5 148.5 312.2 59.0 205.7 47.5
[32.2] [67.8] (18.9) (65.9) (15.2)
.Source: Central Board of Revenue
Note: Figures in square brackets [ ] are shares in total taxes while the figures in parentheses ( ) are shares
of the individual taxes in indirect taxes.
Chapter 5. Fiscal Development

Fig-2: Federal Tax Collection (1990-91 & 2002-03)

(% Share)

1990-91 Direct 2002-03

Tax
18.0% Custom
15.0% Direct Tax
31.1%

Custom
C.Excise
45.0% Sales Tax
10.1%
15.0%

C.Excise
22.0% Sales Tax
43.8%

The pace of changes in tax structure, long period of time, a rule-based fiscal policy is
particularly in indirect taxes, gained considerable absolutely necessary for achieving long-run fiscal
momentum over the last four years. The share of sustainability. Pakistan has already drafted a rule-
custom collection declined from 33 percent to 19 based fiscal policy, enshrined in a Fiscal
percent while the share of central excise declined Responsibility Law, and will be presented to the
from 31 percent to 15 percent since 1998-99. On the Parliament before the end of the current fiscal year
other hand, the share of sales tax increased from 36 for legislation.
percent to 66 percent. The basic philosophy of tax
and tariff reform has been to move away from CONSOLIDATED BUDGETS (FEDERAL &
investment and production based taxes to income PROVINCIAL) IN 2002-03
(direct taxes) and consumption (sales tax) based
taxes. Pakistan has succeeded to a considerable As stated earlier, persistence of large fiscal
extent in changing the composition of its taxes but deficit has been the major source of
much more effort will be needed to enhance the macroeconomic instability in Pakistan during the
share of direct taxes in total taxes. 1990s. On average, Pakistan sustained a budget
deficit of 7.0 percent of GDP. As a result of
Although tax reform and reforms in tax sustained efforts, fiscal deficit has been on declining
administration have started paying dividends in trend since 1999-2000. Fiscal deficit declined to 5.2
terms of higher tax collection, fiscal consolidation percent in 2000-01 and remained stable at this point
requires prolonged commitment to fiscal in 2001-02. Further fiscal consolidation was
discipline. Prolonged commitment to fiscal envisaged for 2002-03 with a fiscal deficit target of
discipline can only come from a rule-based fiscal 4.6 percent of GDP. As a result of prudent fiscal
policy. The rule basically represents the constraints management and better tax enforcement, Pakistan
and prevents government taking fiscally succeeded in achieving the fiscal deficit target of 4.6
irresponsible route. For a country like Pakistan percent of GDP in 2002-03 [See Table 5.3 for details].
which remained fiscally irresponsible for a very
Chapter 5. Fiscal Development

Table 5.3
Consolidated Budget (Federal and Provincial)
(Rs. Billion)
2000-01 2001-02 2002-03 % Change
(P.A.) (R.E) (M.B.E)
A. Total Revenue 553.0 624.1 706.1 13.1
a) Tax Revenue 441.5 478.1 553.3 15.7
i) Federal 422.5 459.3 530.2 15.4
- CBR 392.3 403.9 458.9 13.6
- Surcharges 30.2 54.3 66.8 23.0
- Other 0.0 1.1 4.5
ii) Provincial 19.0 18.8 23.1 22.9
b) Non-Tax Revenue 111.4 146.0 152.8 4.7
B. Total Expenditure 717.9 826.2* 892.5 8.0
a) Current Expenditure 645.7 700.2 728.8 4.1
i) Federal 479.0 524.6 543.7 3.6
- Interest 234.5 245.3 212.3 -13.5
- Defense 131.2 149.0 158.0 6.0
- Civil Govt. 70.7 56.3 57.9 2.8
- All Others 42.6 74.0 115.5 56.1
ii) Provincial 166.7 175.6 185.1 5.4
b) Development Expenditure 72.2 125.9 163.7 30.0
PSDP** 89.8 126.2 134.0 6.3
c. Statistical Discrepancy 14.8 -13.0 - -
C. Overall Fiscal Deficit -179.7 -189.1* -186.4 -
Financing 179.7 189.1 186.4 -
i) External 120.7 82.8 102.5 -
ii) Domestic 59.0 97.9 71.9 -
- Bank -33.0 12.9 -29.2 -
- Non-Bank 92.0 85.0 101.1 -
- Privatization Proceeds 0.0 8.4 12.0 -

As % of GDP (mp)
Total Revenue 16.2 17.2 17.6 -
- Tax Revenue 12.9 13.2 13.8 -
- Non-Tax Revenue 3.3 4.0 3.8 -
Total Expenditure 21.0 22.8 22.2 -
Current Expenditure 18.9 19.3 18.1 -
- Interest Payment 6.9 6.8 5.3 -
- Defense 3.8 4.1 3.9 -
PSDP 2.6 3.5 3.3 -
C. Overall Fiscal Deficit 5.2 5.2 4.6 -
GDP at Market Price (Rs Bln) 3423 3629 4018 10.7
P.A: Provisional Actual Source: Finance Division, (Budget Wing)
M.B.E: Modified Budget Estimates
* One off expenditure of Rs.52 billion (Rs.32 billion for KESC recapitalization and Rs.20 billion for CBR
bonds) is not being included. A statistical discrepancy of Rs. 13 billion is adjusted for OFD calculation.
** 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.706.1
billion in 2002-03 as against Rs.624.1 billion last
year, thereby, registering an increase of 13.1
percent. This increase mainly emanates from
substantial increase in federal and provincial tax
revenues which grew by 15.4 percent and 22.9
percent, respectively. The consolidated tax
receipts grew by 15.7 percent while non-tax
revenue grew by modest 4.7 percent. The slower
growth of non-tax revenue is because of decline in
the profits of State Bank of Pakistan. The profits of
SBP declined because it actively pursued the
sterilization policy to neutralize the monetary
impact of massive inflow of foreign exchange. The
consolidated (federal and provincial) tax revenue
constitutes 78.9 percent of the total revenues and
21.1 per cent of non-tax revenues. The federal tax
receipts consist of revenue collected by the
Central Board of Revenue (CBR), surcharges (gas
and petroleum), and some other minor
collections.
CBR Revenue
The CBR sustained the momentum of tax
collection generated in the last quarter (April-June)
of 2001-02 and the first quarter (July-September) of
the current fiscal year (2002-03) when it grew by
16.1 percent and 16.6 percent, respectively. Net tax
collection during the first ten months (July-April) of
the current fiscal year (2002-03) stood at Rs 352.1
billion against the target of Rs 351.0 billion, thus
surpassing the target by a small margin (See Table
5.4). As against the target growth of 14.0 percent,
tax revenue grew by 15.0 percent in the first ten
months of the current fiscal year. The overall refund
stood at Rs. 68.3 billion which is 1.6 percent lower
than unusually higher refund of last year (Rs.69.4
billion) in the same period.
The analysis of individual taxes reveals
interesting developments. While overall tax
collection increased by 15.0 percent, this increase
has largely come from sales tax and custom duty.
Direct taxes on net basis stood at Rs. 109.5 billion
which is only 1.0 percent higher than last year. The
overall sales tax on net basis stood at Rs.154.1
billion which is 19.9 percent higher than last year in
the same period. More importantly, sales tax
collected from domestic economic activity grew by
29 percent, showing an increased level of economic
activity in the country. The higher level of economic
activity is also reflected by increased demand for
imported goods, including raw materials for
consumer and capital goods. Sales tax collection at
import stage shows an increase of 18.0 percent. The
total refund/rebate on sales tax was 16.3 percent
higher than last year. It may be pointed out that last
year's refund /rebate was extra-ordinary high as
government had decided to clear backlog. The 16.3
percent higher refund/rebate on sales tax over the
last year’s extra-ordinary refund/rebate is a matter
of serious concern. This is also true for direct taxes
where the refund is higher by 35.8 percent over the
last year’s extra-ordinary high refund. There is a
need to examine the higher refund/rebate during
the current fiscal year.
The net collection of central excise stood at
Rs.35.5 billion—almost same as of last year.
Stagnation in growth in central excise is mainly due
to the transfer of several major revenue spinners
(e.g. POL product) to custom duty. Six major
revenue spinners (cigarettes, cement, natural gas,
POL products, beverages and beverages
concentrates) have contributed around 88 percent to
the total central excise collection during July-April,
2002-03. The collection on account of custom duty
stood at Rs 53.0 billion on net basis, registering an
increase of 59.4 percent. This impressive growth in
Chapter 5. Fiscal Development

custom collection is realized even when the
maximum duty rate was slashed from 30 percent to
25 percent, duty rates on over 2500 tariff lines were
reduced, and Pakistani rupee was appreciated by
3.8 percent during the first ten months of the
current fiscal year. It is important to point out that
as a result of tariff reforms, the average custom
duty rates on total imports as well as dutiable
imports have fallen to as low as 9.1 percent and 15.6
percent, respectively.

Table 5.4
Federal Tax Revenue Collection
During July-April, 2002-03
(Rs. Billion)
July-April July-April
2001-02 2002-03 % Change
A. Direct Tax
Gross 118.47 123.09 3.89
Refund/Rebate 9.99 13.57 35.76
Net 108.48 109.52 0.95

B. Indirect Tax

Gross 257.05 297.34 15.67

Refund/Rebate 59.40 54.75 -7.83
Net 197.65 242.59 22.74
B.1 Sales Tax

Gross 162.02 193.11 19.18

Refund/Rebate 33.51 38.98 16.32
Net 128.51 154.12 19.93
B.2 Central Excise

Gross 35.91 35.63 -0.76

Refund/Rebate 0.01 0.18 888.89
Net 35.89 35.46 -1.21
B.3 Customs

Gross 59.12 68.60 16.03

Refund/Rebate 25.87 15.59 -39.75
Net 33.25 53.01 59.44
Total Tax Collection

Gross 375.53 420.42 11.95

Refund/Rebate 69.40 68.32 -1.56
Net 306.13 352.10 15.02
Source: Central Board of Revenue
Chapter 5. Fiscal Development

Table 5.5
Month-Wise Tax Collection, 2002-03
(Rs. Billion)
% Change
Months Direct Indirect Taxes Total Tax Over Last
Tax Collection Year
Central
Sales Excise Custom Total 2001-02 2002-03
July 4.8 12.3 2.6 3.9 18.8 19.7 23.6 19.8
Aug 7.0 14.5 3.5 4.6 22.6 26.8 29.6 10.7
Sep. 11.8 16.9 3.6 4.9 25.4 31.0 37.2 19.6
Oct. 11.5 15.0 3.4 4.7 23.1 33.2 34.6 4.2
Nov 7.9 16.2 3.4 4.3 23.9 24.9 31.8 12.9
Dec. 18.7 17.3 3.4 5.3 26.0 39.0 44.7 27.7
Jan. 10.8 16.6 3.8 6.0 26.4 32.8 37.2 14.6
Feb. 10.6 13.6 3.6 5.3 22.5 27.6 33.1 13.4
March 11.5 16.6 4.1 6.3 27.1 34.9 38.6 19.6
April 14.9 15.0 4.1 7.8 27.0 36.3 41.8 14.9
July-April 109.5 154.1 35.5 53.0 242.6 306.1 352.1 15.0
Source: Central Board of Revenue

The overall performance of tax collection
during the first ten months of the current fiscal year
has been quite encouraging. This is the first time in
many years that the CBR has over performed and
this performance was not achieved by holding
refunds or over reporting the revenue figures (the
revenue collection numbers are now reconciled
regularly with the offices of AGPR and SBP before
their publication). The improved revenue collection,
especially in the areas of domestic sales tax and
custom duties, is a clear indication of the pick up in
domestic economic activity. The on-going reform in
tax administration is also responsible for better
performance of revenue collection. If the
performance of the first ten months is of any
indication it is highly probable that the CBR is
going to achieve the target of Rs 460 billion in the
current fiscal year.
Total Expenditure
Expenditure on the other hand was
prudently managed. Total expenditure is estimated
at Rs.892.5 billion which is 8.0 percent higher than
last year. Out of the consolidated expenditure of
Rs.892.5 billion for 2002-03, the current expenditure
is estimated at Rs.728.8 billion (81.7 percent of total
expenditure) while development expenditure
(PSDP) amounted to Rs.134.0 billion (15 percent of
total outlay). As shown in Table-5.3, the current
expenditure which was 19.3 percent of GDP last
year has declined to 18.1percent in the current year.
There are three major components of current
expenditure, namely, interest payments, defense,
and expenditure on civil administration.
a) Interest Payments
Interest payments is the single largest item
of total as well as current expenditures. Its share in
total expenditure declined from 34.7 percent in
2000-01 to 31.6 percent in 2001-02 and further to
27.1 per cent in 2002-03. Its share in current
expenditure, however, dropped from 38.6 percent
in 2000-01 to 37.3 per cent in 2001-02 and further to
33.2 per cent in 2002-2003. In absolute term, interest
payment which was of Rs.261.0 billion in 2001-02
declined to Rs. 241.8 billion — a reduction of 13.5
percent.[See Table 5.3]. This decrease is attributed to
the proper debt management and sharp decline in
Chapter 5. Fiscal Development
interest rates. This decrease should be seen in the
context of an average increase of almost 15 percent
per annum during the second half of the 1990s.
b) Defense expenditure
Defense expenditure in 2002-03 was
budgeted at Rs.158.0 billion against the last year
figure of Rs. 149.0 billion thus showing an increase
of 6.0 per cent over last year. It was budgeted to
decline marginally in terms of percentage of GDP
from 4.1 percent to 3.9 percent. It may be pointed
out that defense 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 3.9 percent in 2002-03.
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 16.4 percent and 20.0 percent
of total and current expenditures, respectively in
2002-03.
c) General Administration
The third major component of current
expenditure is expenditure on General
Administration. Expenditure under this item
stands at Rs.57.9 billion which is 2.8 percent higher
than last year. It has accounted for 7.9 percent of
current expenditure and 1.4 percent of GDP during
2002-03 as against 8.0 percent of current
expenditure and 1.6 percent of GDP last year.
d) Provincial current expenditure
Provincial current expenditure grew by 5.4
percent in 2002-03—increasing from Rs.175.6 billion
to Rs.185.1 billion. However, provincial current
expenditure as percentage of total expenditure has
been declining during the last three years—
declining from 23.2 percent in 2000-01 to 21.3
percent in 2001-02, and further to 20.7 per cent
during 2002-03. As percentage of GDP, provincial
current expenditure has declined from 4.9 percent
in 2000-01 to 4.8 percent in 2001-02 and further to
4.6 per cent in 2002-03.
Public Sector Development Programme
(PSDP)
The size of the Public Sector Development
Programme (PSDP) during the current fiscal year is
projected to increase by 6.3 percent over the last
year. The approved overall size of the current year’s
PSDP is projected at Rs.134 billion as against Rs.
126.2 billion of last year's. Of this, Rs. 90 billion are
for Federal and Rs. 44 billion for provinces. At least
40 per cent of the resources have been provided for
social sectors. PSDP also supports the government
reforms intended to improve public expenditure
management in the social sectors and movement
from good to effective governance.
The developments in revenue and
expenditure sides, as described above, led to an
overall fiscal deficit of Rs.186.4 billion or 4.6 percent
of GDP. This revenue- expenditure gap is financed
through external and domestic sources. Out of the
gap of Rs.186.4 billion, financing from external
sources amounted to Rs.102.5 billion or 55 percent.
The remaining gap of Rs.83.9 billion or 45 percent is
financed from domestic sources. Within domestic
sources, financing from non-bank sources
amounted to Rs.101.1 billion while Rs.29.2 billion
are allocated for retirement of debt to banking
system, and Rs.12.0 billion would be amassed
through privatization proceeds.
FEDERAL BUDGET, 2002-03
As shown in table 5.6, the budgeted federal
gross revenue receipts of Rs.660.3 billion for 2002-03
are 13.1 percent higher than revised estimates of
Rs.584.0 billion in 2001-02. These revenue receipts
comprise tax revenues (Rs.530.2 billion) and non-tax
Chapter 5. Fiscal Development

revenue (Rs.130.1 billion). The tax revenue is to
increase by 15.4 percent mainly because of better
tax administration and reforms in the CBR (Central
Board of Revenue). The CBR revenue is estimated
to grow by 13.6 percent on net basis. The share of
provinces is Rs. 193.5 billion which is 10.6 per cent
higher than revised estimates for 2001-02. The net
federal tax revenue receipts are estimated at
Rs.452.5 billion. Total expenditure of Rs.707.4 billion
is estimated to be higher by 13.6 percent than last
year. Total development expenditure is estimated at
Rs. 119.7 billion which are 21.9 per cent higher than
that of the previous year. The notable thing about
the federal budget is that revenue is made to grow
at a faster pace than expenditure and interest
payments have come down substantially [See Table
5.6].

Table 5.6
Federal Government Budget 2001-02 and 2002-03

2001-02 (R.E) 2002-03 (M.B.E) % Change

Item Rs. 2002-03/
% Share Rs. Billion % Share
Billion 2001-02
A. Tax Revenue 459.3 78.6 530.2 80.3 15.4
- CBR Revenue 403.9 69.2 458.9 69.5 13.6
- Surcharges 54.3 9.3 66.8 10.1 23.0
B. Non-Tax Revenue 124.7 21.4 130.1 19.7 4.3
Total Revenue (A+B) 584.0 100.0 660.3 100.0 13.1
D. Current Expenditure 524.6 84.2 543.7 76.9 3.6
- Interest Payments 245.3 39.4 212.3 30.0 -13.5
- Defence 149.0 23.9 158.0 22.3 6.0
- Civil Administration 56.3 9.0 57.9 8.2 2.8
E. Development Expenditure 98.2 15.8 119.7 16.9 21.9
- PSDP 98.4 15.8 90.0 12.7 -8.5
- Net Lending -0.2 0.0 29.7 4.2 -
F. Total Expenditure (D+E) 622.8 100.0 707.4 100.0 13.6
R.E: Revised Estimates Source: Finance Division, (Budget Wing)
M.B.E: Modified Budget Estimates.

PROVINCIAL BUDGETS The overall provincial revenue receipts for 2002-03

The total outlay of four provincial budgets
for 2002-03 stood at Rs. 325.1 billion, which is 15.4
percent higher than the outlay of last year (Rs. 281.8
billion). The N.W.F.P witnessed highest increase of
46.7 percent in budget outlay over last year (Rs. 40.7
billion), followed by Sindh (11.9 percent) and
Punjab (10.5 percent). However, budget outlay of
Baluchistan increased marginally by 1.4 percent.
are estimated at Rs. 294.1 billion, which are 21.8
percent higher than last year. Tax revenue
accounted for 88.9 percent of overall revenue
receipts and amounted to Rs.261.6 billion which is
higher by 19.4 percent and non-tax revenue is
estimated at Rs.32.5 billion which is 45 percent
higher than last year. Out of total budget outlay of
Rs. 325.1 billion, 82.4 percent went to current
expenditure and 17.6 percent to development
Chapter 5. Fiscal Development

expenditure. In spite of declining share of expenditure is to grow by 16.0 percent. The main
development expenditure in total expenditure, the components of the Provincial budgets, 2001-02 and
allocations for development expenditure are higher 2002-03 are presented in Table-5.7.
by 12.3 percent over last year while current

Table.5.7
Provincial Budgets At a Glance
(Rs. billion)
Punjab Sindh N.W.F.P Baluchistan Total

Item 2001- 2002- 2001- 2002- 2001- 2002- 2001- 2002- 2001- 2002-
02 03 02 03 02 03 02 03 02 03
(R.E) (B.E) (R.E) (B.E) (R.E) (B.E) (R.E) (B.E) (R.E) (B.E)
Provincial Taxes 11.6 12.0 7.4 8.5 2.0 2.0 0.5 0.5 21.5 23.0
Share in Federal Taxes 87.9 97.4 50.7 56.5 19.8 22.1 16.7 17.5 175.1 193.5
All Others 3.3 19.0.1 7.8 16.0 3.9 3.9 7.5 6.2 22.5 45.1
Total Tax Revenues 102.8 28.4 65.9 81.0 25.7 28.0 24.7 24.2 219.1 261.6
Non-Tax Revenues 9.4 9.2 4.4 4.4 7.9 17.9 0.7 1.0 22.4 32.5
Total Revenues 112.2 137.6 70.3 85.4 33.6 45.9 25.4 25.2 241.5 294.1
a) Current Exp. 101.52 117.1 77.7 84.8 32.0 46.1 19.8 19.8 230.8 267.8
b) Development Exp. 3.2 20.7 11.0 14.5 8.7 13.6 8.1 8.5 51.0 57.3
i) Dev.Rev.Account 17.9 12.9 1.6 1.5 4.5 3.1 0.1 0.1 24.1 17.6
ii) Dev.Cap.Account 5.3 7.8 9.4 13.0 4.2 10.5 8.0 8.4 26.9 39.7
Total Exp. (a+b) 124.7 137.8 88.7 99.3 40.7 59.7 27.9 28.3 281.8 325.1
Source: Finance Division, (PF Wing)

SLIPPAGES ON REVENUE AND EXPENDITURE revenue as a result of tax survey and

DURING LAST THREE YEARS
Slippages on targets are quite normal
through-out the world. The interdependence and
global integration has made the job of forecasting
even more difficult. The achievement of targets is
subject to prevalence of normalcy in many tangible
and intangible variables. There are inherent
problems in the structure of the economy also but
many external and internal developments do affect
projections in both ways. During the last three
years some slippages from the original budgeted
figures have taken place. The course of events did
influence the actual outcome. The first year of the
period under review (1999-2000) witnessed massive
swing in expenditure and relatively lower slippage
on the revenue side. The year’s target was fixed on
the assumption of considerable increase in the tax
documentation drive. On the expenditure side the
government has retired its debt with the financial
institution to strengthen them. The fiscal deficit
target was over-ambitious at 3.6 percent of GDP.
This was a Herculean task to reduce deficit this
magnitude. The reform needed due time to pay
dividend.
In the year 2000-01, catastrophic drought
badly affected agriculture as well as overall
economic growth. The economy grew by 2.2
percent — almost equal to population growth rate.
The revenue stream from external trade badly
affected and shortfall in revenue demanded
prudence to prevail on expenditure side. Policy
makers were extra cautious about the target of fiscal
deficit in the backdrop of last year’s experience and
consequently, expenditure was sliced considerably
Chapter 5. Fiscal Development

to meet the fiscal deficit target. The fiscal deficit just
finished near the target.
The fiscal year 2001-02 was an extra-
ordinary year. Pakistan economy in general and
world economy in particular faced formidable
challenges in post 9/11 developments and war on
terrorism. Pakistan was forced to divert extra
amount on defense spending due to tension on its
eastern borders. Even in the face of extra-ordinary
developments, fiscal prudence prevailed and slight
slippages have taken place on both revenue-
expenditure sides. However, the outcome of fiscal
deficit was close to the target [See Table 5.8]. In
general, over ambitious revenue target and
exogenous shocks (both external and internal) have
been responsible for the slippages in revenue-
expenditure accounts.

Table 5.8
Slippages in Revenue-Expenditure
(Rs. Billion)
1999-2000 2000-01 2001-02
Budget Actual % age Budget Actual % age Budget Actual % age
Estimat Outco Variati Estima Outco Variati Estima Outco Variati
Items es me on tes me on tes me on
A. Total
Revenue
570.9 536.8 -5.97 608.6 553.0 -9.97 657.9 624.1 -5.1
Receipts
(Net)
Total
683.7 743.6 8.76 770.7 717.9 -5.75 844.8 826.2 -2.2
Expenditure
Overall
Deficit Fiscal 112.8 206.8 162.1 179.1 186.9 -189.1
Deficit 3.3 6.4 4.6 5.2 4.9 5.2
As % of GDP

PUBLIC DEBT entered in a debt trap situation. The causes of

The persistence of large fiscal and current
account deficit for extended period of time
covering two consecutive decades (1980s and
1990s) has had its manifestation through the
unprecedented rise in public debt. By the end of
the decade of the 1990s, Pakistan’s domestic as
well as external debt reached alarming
proportions and posed great danger to the
economic future of the country. While the debt
problems were in the making for decades, no
serious efforts were made to slow down the pace
of rapid accumulation of both domestic and
external debt. By late 1990s, Pakistan already
rapid growth in domestic and external debt are
multifaceted. They included: (i) persistence of
large fiscal (7% of GDP) and current account
(almost 5% of GDP) deficits; (ii) imprudent use of
borrowed resources such as wasteful government
spending, undertaking of low priority
development projects, and poor implementation
of foreign aided projects; rising real cost of
government borrowing (both domestic and
foreign); stagnant exports; and declining real
government revenues. 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.
Chapter 5. Fiscal Development

Figure-3: Trends in Public Debt (As % of GDP)

120

115

110

105

100

95

90

85

80

75

70
1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-01

2001-02

Pakistan public debt grew by an average
rate of 18 percent and 15 percent per annum in the
1980s and 1990s. Resultantly in terms of 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 51.2 percent during the same period.
[See Table 5.9].
Public debt payable in rupee has
increased in absolute term from Rs 1.71 trillion
last year to Rs 1.74 trillion during the outgoing
fiscal year, however, as percentage of the GDP, it
has declined from 47.2 percent to 43.5 percent—a
decline of almost 4 percentage points in one year
is simply remarkable.
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 by
mid-200. As percentage of the GDP, debt payable
2002-03
in foreign exchange stood at 34 percent in 1980,
increased to 49 percent in 1990, and further to 52.6
percent by mid-2000. As a result of sharp
depreciation of exchange rate (17%) in 2000-01,
debt payable in foreign exchange in rupee term
jumped from Rs 1.7 trillion or 52.6 percent of the
GDP to Rs. 2 trillion or almost 59.2 percent of
GDP by end June, 2001. During the outgoing
fiscal year 2002-03, the government has not only
succeeded in arresting the rising trend in external
debt but exchange rate appreciation has also
helped in reducing debt payable in foreign
exchange by more than Rs 85 billion. It stood at Rs
1.9 trillion or 47.2 percent of GDP in 2002-03, thus
registering a decline of more than 7 percentage
point of the GDP in one year.
The rising stock of public debt has had
serious implications for debt service obligations.
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 679
percent in 2001. It has now been reduced to 515.9
percent in 2002-03 [See Table 5.9].
It was the realization that some two years
ago, a formal debt reduction strategy was
launched by the government for the first time in
Chapter 5. Fiscal Development

the country’s history. The main features of the
strategy included among others; the reduction in
fiscal and current account deficits, reduction in
cost of borrowing, and strong financing support
on concessional terms from the IFIs. Considerable
progress has been made towards addressing
Pakistan’s debt problem during the last two years.
Fiscal deficit has been reduced to 5.2 percent of
GDP in 2001-02 from an average of almost 7
percent in the 1990s and further to 4.6 percent in
2002-03. Current account balance has turned
surplus in 2001-02 and projected to remain in
surplus in 2002-03, against an average deficit of
almost 5 percent of GDP in the 1990s. As a result
of the overall decline in the term structure of
interest rate, the cost of borrowing from both the
domestic and external sources has declined. The
Paris club debt rescheduling has not only
provided substantial debt relief to Pakistan but
has also opened avenue for it to achieve debt
substantially. The government has also set up a
Debt Office in the Ministry of Finance to
institutionalize its debt management capability.
The progress towards stabilizing the country’s
debt situation during the last two and half years
in general and during the first nine months of the
current fiscal year in particular, is presented
below in Table 5.9.

Table 5.9
Public Debt
(Rs billion)
End June
1980 1990 2000 2001 2002 2003*
Debt Payable in Rupees@ 59.8 373.61575.9 1728.0 1711.3 1744.3
As % of i) Public Debt (38.5) (46.6)(48.8) (46.0) (46.3) (47.9)
ii) GDP [21.5] [42.8][50.0] [50.5] [47.2] [43.5]
Debt Payable in Foreign 95.6 427.61655.1 2025.8 1983.5 1898.2
Exchange As % of
i) Public Debt (61.5) (53.4) (51.2) (54.0) (53.7) (52.1)
ii) GDP [34.4] [48.9] [52.6] [59.2] [54.7] [47.2]
Total Public Debt 155.4 801.2 3231.0 3753.8 3694.8 3642.5
GDP (MP) 278.2 873.8 3147.2 3423.1 3628.7 4018.1
Total Revenue 49.0 158.8 512.5 553.0 624.1 706.1
Public Debt As % of
(i) GDP (MP) 55.9 91.7 102.7 109.7 101.8 90.7
(ii) Total Revenue 317.1 504.6 630.4 678.8 592.0 515.9
Source: Debt Reduction and Management Committee Report and D.M Wing Finance Division.
* End March
@ Excluding FEBC, FCBC, US dollar bearer certificates and Special US dollar bonds.

DOMESTIC DEBT percent per annum. Considerable improvement

The nomenclature of domestic debt in
Pakistan consists of permanent debt (medium and
long-term), floating debt (short-term) and un-
funded 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 decade of the 1990s,
domestic debt grew at a rate of more than 16
on fiscal side during the last three years has
succeeded in not only arresting the rising trend in
domestic debt but it has actually declined in
absolute term. As shown in Table 5.10, domestic
debt stood at Rs 1799 billion in 2001-02, it declined
to Rs 1757.6 billion in 2000-01 (a reduction of Rs
41.7 billion or 2.3%), and at the end of March 2003,
it stood at Rs 1770.6 billion. In other words,
during the first nine months (July-March) of the
Chapter 5. Fiscal Development

current fiscal year, domestic debt in absolute term
rose only by Rs 13.0 billion or by 0.7 percent. As
percentage of GDP, domestic debt has declined
from 52.6 percent in 2000-01 to 48.4 percent in
2001-02 and is projected to decline further to 44.1
percent in 2002-03. It may be seen from the table
that the pace of accumulation of domestic debt
has been brought to a naught. Maintenance of
fiscal discipline on the one hand and declining
cost of financing fiscal deficit on the other, will
help Pakistan achieve a sustainable level of
domestic debt during the next five years.
The trend in domestic debt over the last
six years is summarized in Table-5.10

Table 5.10
Domestic Debt
(Rs billion)
2002-03
1997-98 1998-99 1999-00 2000-01 2001-02 (End
March)
Total Domestic Debt 1199.7 1452.9 1641.4 1799.2 1757.6 1770.6
- Permanent @ 286.6 317.4 324.6 349.4 407.6 417.1
(23.9) (21.8) (19.8) (19.4) (23.2) (23.5)
- Floating 473.9 561.6 647.4 737.8 557.8 504.6
(39.5) (38.7) (39.4) (41.0) (31.7) (28.6)
- Unfunded 439.2 573.9 669.4 712.0 792.1 848.9
(36.6) (39.5) (40.7) (39.5) 45.1) (47.9)
Total Debt as % of GDP 44.8 49.4 52.2 52.6 48.4 44.1
- 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.

The composition of domestic 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
36.6 percent in 1997-98 to 45.1 percent in 2001-02. By
end March 2003, its share has further risen to 47.9
percent of the domestic public debt. The
attractiveness of the returns on the NSS is mainly
responsible for tremendous increase in unfunded
debt.
During the 1990s, the share of permanent
debt in total domestic debt remained stagnant at 23-
24 percent while a shift has taken place between
floating and unfunded debt. A decline by 11
percentage points in the share of floating debt has
been compensated by almost similar increase in
unfunded debt’s share. 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 unfunded nature of
this debt and its untapped manner of mobilization
has severely complicated the management of
Pakistan’s domestic debt. There is a need to re-
examine this issue.
Chapter 5. Fiscal Development

Table 5.11
Domestic Debt & Interest Payment

Domestic Interest
Interest Payment
Year Outstanding Payment
(As % of)
Debt
(Rs.bln) (Rs.bln) Tax Total Total Current GDP (mp)
Rev. Rev. Exp. Exp.
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 27.3 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
1999-00 1642.4 210.2 51.8 41.0 29.6 33.5 6.7
2000-01 1799.2 188.5 42.7 34.1 26.3 29.2 5.5
2001-02* 1757.6 189.5 39.6 30.4 22.9 27.1 5.2
2002-03** 1812.2 172.0 31.1 24.4 19.3 23.6 4.3
* Provisional Actual Source: Finance Division (Budget wing)
** Budget Estimates.

The growing burden of domestic debt is
shown in Table 5.11. Interest payment on domestic
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 increased from 3.5 percent in 1990-91 to 6.7
percent in 1999-2000. But interest payments
subsequently declined to 5.2 percent of GDP in
2001-02 and it is further projected to decline to 4.3
per cent of GDP by the end of 2002-03. It is now
consuming 24.4 percent of total revenue and
accounting for 23.6 percent of current and 19.3
percent of total expenditure during 2002-03.

______________________
Chapter 6. Money and Credit
6. Money and Credit
A judicious use of monetary instruments
such as discount rate, liquidity ratio, open market
operations and credit plan allocations can help
achieve some of the basic macroeconomic
objectives such as price and exchange rate
stability and sustained growth of the real GDP.
Keeping these objectives in view, the monetary
policy pursued by the State Bank of Pakistan in
recent years has undergone a major
transformation. This transformation is reflected in
its expansionary and accommodative stance
brought about by the continuous reduction in the
interest rates and government securities. Over the
last three years, the monetary policy stance has
been flexible as per ground realities. For example,
monetary policy stance remained tight during the
fiscal year 1999-2000 and 2000-01 to keep inflation
under control, and bring stability in exchange
rate. This policy stance has been eased since 2001-
02 to promote investment and growth and has
continued during the current financial year as
well. The monetary policy has been more
receptive with the acceleration of foreign
exchange inflows of Overseas Pakistani Workers.
This has massively improved the net foreign
assets of the entire banking system and foreign
exchange reserves position, which, in turn
initiated the process of rupee appreciation for the
first time in the economic history of Pakistan.
The emphasis of the monetary policy has
been on avoiding any abrupt appreciation of Pak
rupee, market driven exchange rate and interest
rate policies. The underlying rational for this
policy was to stimulate non-inflationary
environment for investment, moderate rupee
appreciation and preserve export competitiveness.
This strategy has worked well and therefore,
rupee-dollar parity, which had appreciated by 6.7
percent during July-March 2001-02, showed a
subdued appreciation of 3.8 percent during July-
March 2002-03. The SBP also took a number of
policy measures to fine tune monetary policy,
boost exports, ensure availability of adequate and
timely credit to growers/farmers, promote
consumer financing, and improve governance of
the financial system. The SBP has also continued
with its policy of sterilization to contain growth of
reserve money.
As a major step of easy monetary policy,
the State Bank has reduced the discount rate five
times since July 2001, leading to a cumulative cut
of 650 basis points. As a result, the weighted
average lending rates of commercial banks have
declined from 13.12 percent in June 2002 to 8.26
percent in March 2003. The State Bank has
recently reduced interest rate under the export
finance scheme by 0.5 percent and now the rate is
3.5 percent per annum. The excess liquidity in the
banking system resulted in all time low (1.65%) T.
Bill rate -- lower than inflation and deposit rates.
This may have a negative impact on the balance
sheets of banks.
Credit Plan, 2002-03
The SBP has continued with its flexible
monetary policy stance during 2002-03. The
Original Credit Plan was targeted the money
Chapter 6. Money and Credit
supply (M2) to grow by 10.8 percent which was
consistent with the projected economic growth
target of 4.5 percent and inflation target of 4.0
percent. Net foreign assets (NFA) for the banking
system (which primarily capture the external
sector developments), were projected to
contribute Rs 91.5 billion or 48.2 percent to overall
monetary expansion by the end of the fiscal year
in anticipation of massive foreign exchange
inflows.
The net domestic assets (NDA) of the
banking system were expected to increase by Rs
98.5 billion, or to contribute 51.8 percent to overall
monetary expansion. Private sector credit was
projected to expand by Rs 94.7 billion, while all
major and minor public sector enterprises (PSEs)
were allocated Rs 20 billion. Government sector
was anticipated to demonstrate improved fiscal
discipline, as it was to retire Rs 14.2 billion on
account of budgetary support and Rs 3.0 billion
in respect of commodity operations.
In view of the massive inflow of foreign
exchange earnings and more than projected
retirement by the government sector, Original
Credit Plan 2002-03 was revised in February 2003.
In the Revised Credit Plan, monetary expansion
target was increased from 10.8 percent to 16.0
percent, mainly to accommodate the ever highest
build up of NFA, which increased from the
original target of Rs 91.5 billion to Rs 271.0 billion.
Domestic credit target on the other hand was
slashed from Rs 98.5 billion to only Rs 10.5 billion,
wherein credit to government sector was targeted
to retire Rs 44.2 billion and non-government was
projected to receive a credit of Rs 70.2 billion.
Monetary and Credit Development
Against the revised Credit Plan for the
fiscal year 2002-03, money supply (M2) grew by
12.5 percent (or Rs 219.9 billion) during the first
nine months of the current fiscal year as against
9.3 percent (or Rs 142.5 billion) in the same period
last year. Monetary expansion during the first
nine months of the fiscal year was 78.1 percent of
the full year revised target. This is mainly due to
massive inflow of foreign exchange in the
country. The NFA of the banking system
amounted to Rs 278.6 billion in the first nine
months of the current fiscal year as against Rs
110.7 billion in the same period last year. The
NFA has already surpassed the full year revised
target of Rs 271.0 billion by 2.8 percent. Massive
foreign exchange inflows in the shape of home
remittances, speedy repatriation of export
proceeds, increased flow of FDI and financial
assistance from the IFIs are responsible for the
phenomenal growth of the NFA during the period
under review.
Unlike previous years trend, the NDA of
the banking system depicted an unusual decline
of Rs 58.7 billion during the first three quarter of
the outgoing fiscal year. This massive decline was
witnessed despite a significant flow of Rs 107.2
billion in the commercial bank’s credit to the
private sector. Decline in NDA was mainly shared
by a massive contraction of credit of Rs 154.0
billion both by government sector (Rs –89.4
billion) and other items (Rs –64.7 billion) as
against a very meager contraction of Rs 7.7 billion
by these two sectors in the same period last year.
Net government borrowing however,
remained on track mainly on account of improved
performance of tax collection and maintenance of
fiscal discipline. Government borrows from the
banking system to finance its budget deficit and
commodity procurement operations (e.g. wheat,
rice etc.). During July-March 2002-03 total
government borrowings showed a retirement of
Rs 89.4 billion, compared to a retirement of Rs
23.4 billion in the same period last year. Of the
total, government retired Rs 52.5 billion on
account of budgetary support as against a
marginal retirement of Rs 1.0 billion during the
comparable period last year. Availability of more
than budgeted external financing, improved tax
Chapter 6. Money and Credit
collection as a result of better tax administration
and dwindling of debt servicing burden due to
debt re-scheduling were some of the factors that
caused improvement in budgetary borrowings.
There was also a marked shift in the composition
of budgetary borrowing from the banking system.
In fact, State Bank’s monetary management
prompted government to take full advantage of
low interest rates. As a result, the government
borrowing for budgetary support shifted from
SBP to scheduled banks. The government retired
Rs 220.1 billion to SBP and borrowed Rs 175.0
billion from scheduled banks during July-March
2002-03. In the corresponding period last year, the
Government had retired only Rs 71.5 billion to
State Bank and borrowed Rs 70.5 billion from
scheduled banks. Government also retired a
larger amount of Rs 40.0 billion to schedule banks
(borrowed to support commodity operations),
compared with a retirement of Rs 22.6 billion in
the corresponding period last year. The larger
retirement was made against wheat (Rs 37.9
billion) followed by rice (Rs 1.1 billion). Advances
for sugar, seeds and edible oils also showed
marginal retirement of Rs 0.2 billion, Rs 0.3 billion
and Rs 0.6 billion respectively.
Bank credit to non-government sector
comprises credit extended by commercial banks
to PSEs (i.e. WAPDA, KESC, OGDC, PTCL, PIA,
Pak Steel etc.) and private sector. Total credit to
PSEs showed a retirement of Rs 4.8 billion during
the first nine months of the current fiscal year
compared with a nominal retirement of Rs 0.05
billion in the same period last year. Break-up of
credit to PSEs shows that autonomous bodies
availed Rs 5.8 billion from the commercial banks
during the period under review as compared with
Rs 3.3 billion during the same period last year.
Within these autonomous bodies, the KESC was
the largest borrower (Rs 6.7 billion) followed by
the PIA (Rs 6.0 billion). Other autonomous bodies
retired in net terms with a heavy retirement of Rs
4.5 billion by WAPDA and Rs 1.2 billion by
Pakistan Steels. Smaller PSEs, on the other hand,
showed a retirement of Rs 8.6 billion during July-
March 2002-03 compared with a retirement of Rs
1.9 billion in the corresponding period last year.
Credit utilization by the private sector
almost doubled during the period under review,
compared to the corresponding period of last
year. The easy monetary policy stance followed
by cuts in discount rate and decline in the average
lending rates along with improvements in the
fundamentals of the economy resulted in the
escalation of credit to private sector. Bank credit
to private sector expanded by Rs 107.2 billion
during July-March 2002-03 compared to an
expansion of Rs 54.0 billion in the corresponding
period last year. Commercial banks extended
credit to the extent of Rs 98.0 billion, which was
more than 100 percent than the amount disbursed
by commercial banks in the corresponding period
last year. Specialized banks, on the other hand,
disbursed less credit i.e. Rs 4.0 billion compared
with Rs 6.2 billion disbursed last year. The SBP
credit to other financial institutions also showed a
retirement of Rs 5.3 billion, as against a larger
retirement of Rs 14.4 billion in the same period
last year. Banks continued to finance important
segments of the private sector. The Cotton
financing excluding Cotton Export Corporation
(CEC) amounted to Rs 36.4 billion up to March 22,
2003, compared with Rs 30.5 billion last year.
Disbursement of agricultural credit for production
and development purposes by Zeri Taraqiati Bank
(former ADBP), Punjab Provincial Cooperative
Bank (PPCB) and commercial banks amounted to
Rs 34.1 billion during July-February 2002-03,
compared with Rs 32.0 billion in the same period
last year. Credit for export finance declined
although the magnitude of retirement was less
than last year. The retirement under Export
Financed Scheme amounted to Rs 8.9 billion
compared with Rs 14.9 billion during the same
period last year. Despite significant reduction in
the export finance rate, retirement of credit under
the scheme could be attributable to self-financing
by the exporters or other cheaper sources.
In view of rising inflows of foreign
exchange, money supply is projected to increase
Chapter 6. Money and Credit

by 16 percent during the current fiscal year target of 4.0 percent because of strong rupee. The
(ending June 2003), compared to 15.4 percent in main factors causing changes in monetary assets
last year. However, the inflation is projected to are given in Table-6.1.
remain stable and not to deviate from the annual

Table 6.1
Factors Causing Changes in Monetary Assets
(Rs billion)
Sector/Factor Credit Plan Target
2002-03 Actual
2002-03 2001-02
Original Revised (July-March) (July-March)
A. Domestic Credit 98.5 10.5 -58.7 31.8

i) Government Sector Borrowing(Net) -16.2 -44.2 -89.4 -23.4

- Net Budgetary Support -14.2 -29.2 -52.5 -1.0
- Commodity Operations -3.0 -16.0 -39.4 -22.6
- Effect of Zakat Fund 1.0 1.0 2.5 0.2

ii) Non-Government Sector 114.7 70.2 95.4 39.5

- Autonomous Bodies 0.0 0.0 5.8 3.3
- Net credit to Private Sector &
PSCEs 114.7 70.2 89.6 36.2

a) Private Sector 94.7 50.2 107.2 54.0

b) PSCEs 20.0 20.0 -9.1 -1.9
c) PSEs SP. A/C debt repayment 0.0 0.0 -3.2 -1.5
with SBP
d) Other financial institutions 0.0 0.0 -5.3 -14.4

iii) Other Items (net) 0.0 -15.5 -64.7 15.7

B. Foreign Assets (net) 91.5 271.0 278.6 110.7

Total Monetary Expansion (M2) - (A+B) 190.0 281.5 219.9 142.5

(Growth Rate %) (10.8) (16.0) (12.5) (9.3)

Source: State Bank of Pakistan.

Impact of Sterilization on Money Supply &
Prices
In the post-September 11 scenario,
Pakistan enjoyed a substantial improvement in
foreign exchange inflows especially sharp rise in
remittances leading to appreciation of Pak rupee.
However, in order to avoid any abrupt
appreciation of Pak rupee, SBP had to intervene to
mop up excess forex supply from the inter-bank
forex market. The SBP made net purchases of $7.9
billion during the period from September 2001 to
March 2003 and as a result, it injected Rs 474
billion into the banking system. The SBP used the
sterilization instrument for neutralizing the
monetary impact of forex purchases on money
supply, price expectations and exchange rate. The
liquidity injections due to forex purchases were
Chapter 6. Money and Credit
however, largely mopped up through Treasury
Bills (TBs) auctions and retirement of SBP
holdings of government papers.
The sterilization has a direct impact on
Reserve Money (RM) and money supply, as it has
caused reduction in NDA of the SBP through
offloading government papers held by it to the
scheduled banks. Therefore, increase in NFA was
offset by corresponding reduction in NDA so that
reserve money remained on target. During the
first nine months of the current fiscal year, the
SBP has injected Rs 257 billion (against net
purchases of $4.4 billion) into the banking system
but 70.4 percent of that injection (Rs 181 billion)
has been sterilized primarily through auctioning
of the government papers. As a result, the stock of
reserve money (RM) with ongoing sterilization
has grown only by 13.0 percent; which otherwise
would have risen by 44.0 percent. Similarly the
money supply (M2) expanded by 12.5 percent
during this period. If the reserve money had not
been curtailed through sterilization, the M2
would have grown by 43.5 percent having sever
implications for the economy in terms of higher
inflation and erosion in Pakistan’s export
competitiveness.
The sterilization has helped in containing
inflation by checking the unusual growth of
money supply. During the first three-quarters of
2002-03, consumer price inflation remained low at
3.4 percent against the annual target of 4.0
percent. However, appreciation of Pak rupee has
also contributed towards lower inflation through
cheaper imports. The SBP intervention to sterilize
has also arrested the abrupt appreciation of Pak
rupee from 6.7 percent in July–March 2001-02 to
3.8 percent in July–March 2002-03. Other wise, it
would have eroded the Pakistan’s export
competitiveness in the international markets and
also have damaged the export – oriented
industries.
The sterilization also involved some cost,
which was to be borne by the SBP. It is the
difference between higher earnings foregone on
offloaded T – bills and lower returns on SBP
investment of foreign exchange. Moreover, SBP
has also to bear the loss due to increase in the
revaluation cost resulting from appreciation of
Pak rupee against US dollar. Resultantly, it had
reduced the profit of SBP, which is also a loss to
the government, as it is transferable to the
government. However, government will gain on
account of lower borrowing cost and lower
domestic debt servicing due to lower interest
rates. The principal benefits of the SBP purchases
from the inter-bank foreign exchange market
coupled with on-going sterilization include the
containment of monetary expansion, low
inflation, maintenance of export competitiveness
and lower cost of bank borrowing by the
government.
Components of Monetary Assets (M2)
The 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 below (Table-6.2)..
Currency in Circulation: Currency in
circulation, is the most liquid form of money
supply. In the first nine months of the current
fiscal year, currency in circulation increased by
13.4 percent (Rs 58.0 billion), as against 15.6
percent (Rs 58.6 billion) in the same period last
year. As on 31st March 2003, currency in
circulation constituted 24.8 percent of money
supply (M2), compared to its share of 26.0 percent
in the comparable period of last year (Table-6.2).
The 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
Chapter 6. Money and Credit

usually in November or during the month in which Eid falls.

Table 6.2
Stock of Components of Monetary Assets (M2)
(Rs billion)
End June End March
Items Average (90s) 2001 2002 2002 2003
Currency in Circulation 225.1 375.5 433.8 434.1 491.8
(12.1) (5.6) (15.5) (15.6) (13.4)

Demand Deposits with banks(a) 212.5 374.7 429.2 401.9 548.4

(13.5) (-0.2) (14.5) (7.3) (27.8)

Other Deposits(b) with SBP 5.6 11.3 13.8 11.3 3.5

(15.2) (41.9) (22.6) (-0.2) (-74.6)

Time Deposits with banks(a) 328.6 610.5 727.1 670.7 813.7

(18.6) (11.2) (19.1) (9.9) (11.9)

Residents Foreign Currency 119.2 154.2 157.4 150.7 123.8

Deposit (57.0) (37.1) (2.1) (-2.2) (-21.4)

Money Supply (M2) 890.9 1526.0 1761.4 1668.6 1981.2

(15.3) (9.0) (15.4) (9.3) (12.5)
As Percent of M2
Currency in Circulation 26.3 24.6 24.6 26.0 24.8

Demand Deposits 24.7 24.6 24.4 24.1 27.7

Other Deposits 0.7 0.7 0.8 0.7 0.2

Time Deposits 36.9 40.0 41.3 40.2 41.1

Residents Foreign Currency

Accounts (RFCD) 12.4 10.1 8.9 9.0 6.2

M2/GNP (MP) 43.9 45.3 48.1 45.6 47.2

Source: State Bank of Pakistan.
Note: Figures in parentheses represent growth in percent.
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 increased by
27.8 percent (Rs 119.2 billion) during July-March
2002-03, as compared to their growth of 7.3
percent (Rs 27.2 billion) only in the comparable
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. Reserve money (RM) increased by 13.0
percent during the first three-quarters of the
outgoing fiscal year. This increase in reserve
money is due to the extra-ordinary increase in the
net foreign assets. Had there been no sterilization
through auctioning of the government papers,
RM would have risen by 44.0 percent, thus further
increasing the level of CC and DD. The
outstanding stock of demand deposits was Rs
548.4 billion as on end March 2003, representing
27.7 percent of the M2 stock. On the
corresponding date of last year, the demand
deposits constituted 24.1 percent of M2.
Chapter 6. Money and Credit

Time Deposits: Time deposits of scheduled
banks increased by 19.1 percent in 2001-02 as
against 11.2 percent in 2000-01. In the first nine
months of 2002-03, time deposits increased by 11.9
percent (Rs 86.6 billion), as against 9.9 percent (Rs
60.2 billion) in the comparable period of last year.
As on end March 2003, time deposits constituted
41.1 percent of M2, as compared to 40.2 percent on
the corresponding date of last year. It may be
noted that despite continuous decline in the
weighted average (W.A.) deposit rate time
deposits have been increasing in the current fiscal
year. This indicates that despite negative real
return the depositors still put their trust in the
commercial banks for safety of their money.
Currency Deposits Ratio (CDR): The currency
deposit ratio (CDR) has been rising steadily after
reaching as low as 29 percent in fiscal year 1997-
98 reflecting the dis-intermediary role of the
freeze on foreign currency deposits. Since June
2001, CDR [CC/(DD+TD+RDFC)] has risen from
32.96 percent in June 2001 to 33.02 percent in June
2002 and further to 33.10 percent in March 2003.
The upward trends in CDR appear to support the
view that the jump in remittances in the country
in the recent months has captured at least part of
the normal (informal or formal) forex flows in to
Pakistan. Another interesting observation stems
from the liquid reserves to money supply (LRM)
ratio. This ratio is a measure of monetary stability
and is used to assess the vulnerability of domestic
interest rates to fluctuations in the country’s
external account. The LRM has been increasing
since June 2000, which may be an indication of
stable financial sector in the country. The LRM,
which was only 5 percent in June 2000, increased
to 16.8 percent in June 2002 and further to an all
time high of 28.2 percent in March 2003 (Table:
6.3).

Table 6.3
Key Indicators of Pakistan’s Financial Development
(Percent)
Years M2/GDP M1/M2 DD+TD/M2 TD/M2 LRM
1980-81 37.6 70.3 66.2 29.7 9.5
1981-82 35.9 69.5 67.2 30.5 7.1
1982-83 40.1 66.1 68.3 33.9 15.1
1983-84 38.9 63.4 67.7 36.6 12.6
1984-85 39.0 64.7 68.9 35.3 4.6
1985-86 41.0 63.9 69.6 36.1 6.6
1986-87 41.9 66.5 68.4 33.5 5.7
1987-88 33.7 68.7 67.0 31.3 3.0
1988-89 37.7 72.6 65.3 29.0 2.6
1989-90 39.9 70.0 65.6 29.6 3.3
1990-91 39.2 70.4 65.1 31.5 3.3
1991-92 41.7 66.2 69.3 31.6 5.0
1992-93 44.4 59.9 71.2 34.6 1.8
1993-94 44.7 55.1 73.0 35.9 9.9
1994-95 43.8 51.0 73.3 36.0 10.2
1995-96 43.3 51.3 74.3 36.7 7.4
1996-97 43.8 42.1 76.8 36.7 4.5
1997-98 45.1 39.8 77.4 37.1 3.3
1998-99 43.6 50.2 77.5 40.3 6.3
1999-00 44.5 52.8 74.6 39.2 5.0
2000-01 44.6 49.9 75.4 40.0 7.9
2001-02 48.5 49.8 75.4 41.3 16.8
July-March
2001-02 46.0 50.8 74.0 40.2 14.6
2002-03 49.3 52.7 75.2 41.1 28.2
Source: State Bank of Pakistan.
Chapter 6. Money and Credit

While there is no standard method to measure
financial deepening, the most widely used
indicator is the ratio of M2 to GDP. This ratio
indicates how monetized an economy is and how
important are its banks. The M2/GDP ratio has
increased significantly over the last 23 years –
rising from 37.6 percent in 1980-81 to 39.2 percent
in 1990-91. With the introduction of financial
sector reform since early 1990s, the ratio has been
increasing every year. During the decade of 1990s,
average M2/GDP was 43.4 percent, which
increased to 44.6 percent in 2000-01, and 48.5
percent in 2001-02. As on 31st March 2003, the
M2/GDP ratio was recorded at 49.3 percent,
which is the highest in the last two decades of the
1980s and the 1990s. This clearly indicates that
Pakistan’s economy is more monetized and the
banking sector is more important today than two
decades ago. Other indicators of financial
deepening, such as, the ratio of total deposits to
M2, and time deposits to M2, have also improved.
Measures of Money Supply and their
Behaviour
The annual trends of M1, M2 and M3 since
June 1991 to June 2002 and up to March 2003 are
given in Table-6.4.

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 1990s - - - 12.2 15.3 15.6
2000-01 761.4 1526.0 2313.9 3.0 9.0 8.3
2001-02 876.8 1761.4 2640.9 15.2 15.4 14.1
End March
2002 847.2 1668.6 2506.9 11.3 9.3 8.3
2003 1043.8 1981.2 2934.7 19.0 12.5 11.1

Source: State Bank of Pakistan & E.A. Wing, Finance Division.

Monetary aggregate of M1 consists of the components of M3 include: outstanding stock of

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
M2, outstanding deposits of national saving
schemes (NSS), and outstanding deposits of
Federal Banks for Cooperatives.
During the first nine months of the
current fiscal year, while M1 has increased by 19.0
Chapter 6. Money and Credit

percent (Rs 166.9 billion), as against an increase of
11.3 percent (Rs 85.8 billion) in the comparable
period last year, M2 has recorded a growth of 12.5
percent during the period under review,
compared to 9.3 percent in the same period last
year. The broadest monetary aggregate, M3, has
increased by 11.1 percent during the first 3
quarters of 2002-03, as compared to 8.3 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
(NSS). The M3 is dominated primarily by M2 and
NSS deposits. Since 1994-95, the share of NSS in
absolute term 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 65.9 percent while NSS/M3
increased to 33.9 percent. In June 2002, M2/M3
increased to 66.7 percent while NSS/M3 declined
to 33.2 percent. In March 2003, M2/M3 again
increased to 67.5 percent while NSS/M3 came
down to 32.4 percent. Higher growth in M2 in the
first nine months of the current fiscal year was
attributed mainly to the huge forex inflows in the
country.

BOX-1
Monetary Policy

Monetary and Credit Control Measures, 2002-03

I. In July 2002, SBP appointed some banks as Primary Dealers for the financial year 2002-03
including; Habib Bank Limited, National Bank of Pakistan, Union Bank Limited, Citi
Bank, ABN-Amro Bank, American Express Bank, and Standard Chartered Bank.

II. On July 9, 2002 the State Bank amended Prudential Regulations XXVIII and made
banks/NBFIs free to decide the rate of return on deposits mobilized under FE 25.

III. To promote consumer financing in Pakistan, banks were allowed in July 2002 to provide
financing facilities to general public for purchase of consumer durable provided their
consolidated borrowings for this purpose from the bank does not exceed Rs 100,000/-.

IV. To promote E-Commerce and to facilitate the consumers by providing them access to
their funds through the existing two ATM Switch Networks operated and managed by
Muslim Commercial Bank (M-Net) and ABN-AMRO Bank (Shared ATM Switch
Network), it was decided in August 2002, that all scheduled banks, which are not
currently connected to either of the two Switches should join or come to an agreement
with any of the two Switch system latest by December 31, 2002.

V. In August 2002, the State Bank advised banks to further enhance the scope of
Agricultural Loan Scheme and ensure availability of adequate & timely credit to
growers/farmers.
Chapter 6. Money and Credit

VI. In order to streamline processing of the cases involving refund of fines recovered under
EFS and make the system more transparent, the State bank prescribed a procedure on 31st
August, 2002 and advised all banks to properly circulate the same amongst their
branches dealing with the Export Finance Scheme/cases.

VII. The State Bank, on 4th September 2002 set up a permanent desk for dollar/rupee swap
to use as a new tool of monterey management. On September 9, 2002, the State Bank sent
the copy of Master Swap Agreement to all banks for signature and advised them to
return the same to the SBP latest by end of September 2002.

VIII. Having received representations regarding imposition of fines from exporters for non-
fulfillment of their export orders as per respective schedules due to adverse global effects
and other abnormal situations with specific reference to Pakistan, the State Bank, in
September 2002, made certain relaxations in Export Finance Scheme.

IX. Effective from 16th September 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 Locally Manufactured Machinery was reduced from 11% to 10%
p.a. and SBP refinance rate from 9% to 8%.

X. In October 2002, the State Bank advised banks that the auction of Government of
Pakistan Market Treasury Bills (MTBs) would continue to be conducted on alternative
Wednesdays. However, 6-months MTBs would be offered in One Auction and remaining
Maturities MTBs in the Other Auction.

XI. Effective 14th October, 2002, the State Bank also allowed certain relaxations to the
exporters of Hosiery/Knitwears, Rice and Hand Knotted Carpets under Part-II of the
Export Finance Scheme.

XII. On 14th October 2002 the State Bank of Pakistan issued Prudential regulations for
Microfinance Institutions/Banks replacing the existing Microfinance Bank Rules, 2000
with the objective to ensure that the MFIs/MFBs operate in a safe and prudent manner.
These Regulations would be applicable on operations of Micro-finance
Banks/Institutions, including Khushhali Bank.

XIII. To facilitate banks to deal with loans in loss category, which were outstanding on the
books of banks since long and for which the probability of recovery was almost
negligible, the State Bank of Pakistan advised banks on October 15, 2002 a new set of
guidelines developed in consultation with the banks and Federation of Pakistan
Chambers of Commerce and Industry (FPCCI).
Chapter 6. Money and Credit

XIV. Effective from 18th November 2002, the minimum rate of return to be paid by recipients
of financing facilities from State Bank for meeting temporary liquidity shortages and SBP
3-day Repo facility against Government of Pakistan Market Treasury Bills and
Federal/Pakistan Investment Bonds was reduced from 9 percent to 7.5 percent on annual
basis.
XV. On December 3, 2002, the State Bank issued an updated Branch Licensing Policy to the
banks for implementation and consolidating all the instructions previously issued
relating to Branching Licensing Policy and Automated Teller Machines (ATM).

XVI. In order to promote Islamic Banking in Pakistan, on 1st January, 2003, State Bank advised
banks which are interested in establishing scheduled Islamic Commercial Banks in the
private sector subsidiaries or stand alone branches for Islamic banking to apply to
Director, Banking Policy Department within the policies prescribed by SBP.

XVII. On 17th January 2003, State Bank of Pakistan issued a consolidated and updated version
of the instructions to be followed by banks with regard to margin restrictions.

XVIII. Effective from 1st February 2003, the State Bank reduced the rate of mark up for
commodity operations of the Government and other agencies from 12% to 9.5% per
annum. As regards the rate of mark up on wheat procurement by the private sector, it
was advised that banks might provide financing facility to the private sector on a market-
based rate of mark up linked with T. bill rate.

XIX. Under the legal framework for micro-finance institutions, the Microfinance
Banks/institutions can undertake mobile banking operations. The guidelines, interalia,
provided for opening of Service Centers within a specified radius of the licensed branch,
with prior permission from SBP.

XX. The State Bank, on February 24, 2003, clarified to banks that export refinance facility may
be allowed against export of ‘Henna Powder’ under the Export Finance Scheme.

XXI. In order to improve efficiency in the credit appraisal process of banks/DFIs, on February
25, 2003, State Bank of Pakistan informed banks of making Credit Information Bureau
(CIB) facilities online in collaboration with Pakistan Banks Association (PBA).

XXII. In the wake of significant changes in the financial sector, the State Bank on February 25,
2003 advised all banks/DFIs for an updated list of financial institutions regulated by the
State Bank.

XXIII. In order to resolve the disputes that may arise between the borrowers and the
banks/DFIs, the State Bank formed a Committee on 10th March 2003 to extend their
fullest support to the said Committee to ensure early resolution of dispute.
Chapter 6. Money and Credit

XXIV. With the consolidation and strengthening of financial sector in the country, the State
bank on March 12, 2003 issued minimum guidelines to be followed by banks/DFIs
uniformly to structure and discipline the process of merger/amalgamation or local
incorporation of banks.

XXV. Effective from 15th March 2003 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 Locally Manufactured Machinery (LMM Scheme) was reduced from 10 percent
to 7 percent and refinance rate from 8 percent to 5 percent.

Auction of Pakistan Investment Bonds (PIB)
Since the introduction of market oriented
monetary policy in the late 1980s, the SBP has
been pursuing open market operations (OMOs) in
order to manage government debts and reserve
money. In June 1998, the SBP introduced Market
Treasury Bills (T. Bills) of 3 months, 6 months and
12 months maturity. The T. Bills are now the main
instruments of OMOs. The fixed schedule of
fortnightly OMOs was dismantled in July 2001 to
give the SBP more flexibility in managing market
liquidity. The move underlined the OMOs
primary role as a liquidity management tool
rather than an indicator of the SBP’s monetary
stance. During the previous two fiscal years, the
SBP often moved to inject liquidity into the
market through OMOs in order to facilitate the
commercial banks in their lending activities to the
private sector. However, this support was not
required during the outgoing fiscal year, as more
than sufficient liquidity was available with the
banking system even after credit to the private
sector, picked-up from mid-November 2002. It
may be noted that while the SBP was transacting
forex swap, in net terms, this transaction did not
mop-up any rupee liquidity from the market
during 2002-03. On the other hand, foreign
exchange purchases by the SBP remained a major
source of rupee injection (about Rs 76 billion after
sterilization).
The weighted average (W.A.) rates of
return on 6 months and 12 months T. Bills were as
high as 15.41 percent and 16.00 percent,
respectively on July 15, 1998 (Table-6.5).
Thereafter, these rates witnessed mixed trends of
movement. They came down as low as 7.23
percent and 7.78 percent on July 27, 2000 but
again went up as high as 12.88 percent and 12.93
percent, respectively on June 28, 2001. To improve
the investment environment in a tangible manner
and attract foreign investors, the government
decided to gradually and effectively reduce the T.
Bills rates during 2001-02 alongwith
rationalization of the rate of returns on the
national savings schemes. Accordingly, the T.
Bills rates of 6 months and 12 months maturity
started coming down sharply since the beginning
of the 2001-02. The rate of 6-months T. Bills
witnessed a reduction of 645 basis points and 12
months, a reduction of 596 basis points
respectively in 2001-02. During the first three-
quarters of the outgoing fiscal year, they
witnessed further cut by 476 basis points and 436
basis points respectively. As a result of sharp
decline in 6 months T. Bill rate, the export
refinance rate has also declined by 950 basis
points to 3.5 percent since July 2001. Sharp
reductions in T. Bills rate and discount rate are
expected to spur investment activities in the
economy.
Chapter 6. Money and Credit

Table 6.5 During 2001-02, the usual pressures on the forex

Auction of Market Treasury Bills (W.A. market were absent which provided sufficient space to
Yield) 1998-03 (Percent) the SBP to improve the conduct of OMOs. As a result,
Date 6 Months 12 Months strong demand for T. Bills was seen in 2001-02. The
15-07-1998 15.41 16.00 strong demand for T. Bills continued unabated during
30-06-1999 13.17 13.08 the current fiscal year also. This enabled the SBP to
01-12-1999 10.16 10.89
mobilize Rs 508.2 billion from the primary market of
19-04-2000 7.13 7.59
27-07-2000 7.23 7.78 T. Bills during the first nine months of the current
05-10-2000 10.47 10.91 fiscal year as compared to Rs 211.8 billion in the same
12-12-2000 10.96 11.49 period last year. During July-March 2002-03, 42.2
22-03-2001 11.55 11.95
percent of the bid amount (Rs 1204.1 billion) was
30-05-2001 11.60 11.99
28-06-2001 12.88 12.93 accepted by the SBP, as compared to 47.6 percent in
26-07-2001 11.58 11.98 the same period last year. A total of Rs 1326.4 billion
22-08-2001 10.47 10.82 was offered including Rs 1204.1 billion under T. Bills
31-10-2001 8.50 9.00
of 3 months, 6 months and 12 months maturity and Rs
28-11-2001 8.26 8.74
27-12-2001 7.93 8.40 122.3 billion under Pakistan Investment Bonds (PIBs).
23-01-2002 6.35 6.82 Out of this, an amount of Rs 551.9 billion was accepted
06-02-2002 5.64 6.38 including Rs 508.2 billion under T. Bills and Rs 43.6
30-05-2002 6.43 6.97
11-07-2002 6.27 6.82 billion under PIBs. Both offered and accepted amounts
August 2002 6.40 6.94 were higher by 109.1 percent and 94.7 percent in the
October 2002 6.34 6.87 first nine months of the current fiscal year as compared
December 2002 4.32 4.36 to the amount offered and accepted in the same period
February 2003 3.19 3.60
March 2003 2.09 2.66 last year. (Table-6.6).
April 2003 1.65 2.61
Source: State Bank of Pakistan

Fig 1: Rate of Return on T.Bills (1998-03)

17

15

13

11

1
3
02
2/ 8

3/ 0

11 /01

12 01

1/ 1

Fe 2
11 /98

4/ 9

6/ 9

12 9

4/ 9

7/ 0

10 0
12 /00

5/ 1

6/ 1

7/ 1

8/ 1
10 /01

4/ 2
30 /02

Au 2

De 2

Ap 3
O 2
7/ 2

M 3

r-0
9

0
0
/9

/9

/9

/9

/0

/0

/0

/0

/0

/0

/0

/0

/0

0
-0

-0
0

0
c-
7/

2/

8/

7/

6/

g-
5/
1
15

15

21

30

/1
19

27

/5

22

30

28

26

22

23

21

18

11

b
ct

ar
/1

/1

/3

/2

/2

2/

/0
7/

3/

6 Months 12 Months
Chapter 6. Money and Credit

Table 6.6
Purchase and Sale of T.Bills

(Rs billion)
2001-02 (July-March) 2002-03 (July-March)
1. Market Treasury Bills (MTBs) Offered Accepted W.A. Offered Accepted W.A.
Rate Rate
a) 3 Months 104.6 61.5 8.8 69.7 28.7 3.9
b) 6 Months 197.6 98.2 9.1 624.3 307.5 4.2
c) 12 Months 144.4 52.1 9.2 510.1 172.1 4.8
Total MTBs 446.6 211.8 1204.1 508.2
2. Pakistan Investment Bonds(PIBs)
a) 3 Years Maturity 36.5 16.2 10.4 20.1 7.7 5.4
b) 5 Years Maturity 37.3 15.7 11.2 37.7 11.2 6.0
c) 10 Years Maturity 114.0 39.7 12.2 64.6 24.7 6.8
Total (PIBs) 187.8 71.6 122.3 43.6
Grand Total 634.4 283.4 1326.4 551.9
(Growth) (109.1%) (94.7%)
Source: State Bank of Pakistan

Interest Rate Environment
After pursuing a tight monetary policy in
the previous years, the State Bank of Pakistan
introduced a liberal monetary policy since the
beginning of 2001-02 with a view to bolster
investment activities in the country. This was
done with the introduction of a two pronged
strategy i.e. gradually lowering down the T. Bills
rates and rationalising the deposits rates of the
National Savings Schemes (NSS). This duel
approach also continued in the current fiscal year.
However, despite reduction in the T. Bills rates
and NSS rates credit flow to the private sector was
not forthcoming till November 2002. The sharp
increase in credit off-take actually started after 150
basis points reduction in the discount rate on
November 18, 2002.
The weighted average lending rates of
commercial banks have declined from 13.7
percent in June 2001 to 8.26 percent in March 2003
as a result of the successive cut in SBP discount
rate of 650 basis points since 2001-02 to 7.5
percent. At the same time, the weighted average
deposit rate has also declined from 5.0 percent to
2.81 percent during the same period (see Tables-
6.7, 6.8 & Fig:2). Thus, 5.48 percentage point cut in
lending rate was made possible by cutting down
deposit rate by 2.19 percentage points by
commercial banks. The discount rate cuts to the
extent of 650 basis points have yet to produce
desirable result in bringing the spread (the
difference between the average lending and
deposit rates) down to an acceptable level of 3.0
percent. The spread between the lending rates and
the deposit rates is one of the best yardsticks to
measure the efficiency of the banking sector. This
spread has, in fact, increased in Pakistan from 5.5
percent in 1994-95 to 8.4 percent in 2001-02. It is,
nevertheless, encouraging to note that banking
spread has considerably declined in the first nine
months of 2002-03, from 8.4 percent in June 2002
to 5.45 percent by March 2003 (Table-6.7 and
Fig.3). The spread is expected to come down
further in the remaining months of the current
fiscal year.
Chapter 6. Money and Credit

Table 6.7
Interest Rate Structure in the Country (Percent)
(July 2000 to March, 2003)
(Weighted Average Rate)
Lending Rate Deposit Rate Spread Libor T. Bills
July 2000 13.30 6.80 6.50 6.887 7.23
August 2000 12.66 6.63 6.03 6.831 7.38
September 2000 13.22 6.58 6.64 6.761 8.14
October 2000 13.97 6.57 7.40 6.721 11.00
November 2000 13.95 6.65 7.30 6.678 10.92
December 2000 13.88 6.52 7.36 6.208 10.96
January 2001 14.23 6.37 7.86 5.361 10.96
June 2001 13.74 5.00 8.74 3.827 12.88
December 2001 13.45 5.62 7.83 1.983 7.93
March 2002 11.97 5.30 6.67 2.332 6.44
June 2002 13.12 4.73 8.39 1.948 6.44
July 2002 12.17 4.02 8.15 1.863 6.40
August 2002 11.56 4.31 7.15 1.815 6.40
September 2002 11.96 3.93 8.03 1.751 6.37
October 2002 11.48 3.97 7.51 1.618 6.34
November 2002 10.66 3.87 6.79 1.471 4.76
December 2002 10.31 3.60 6.71 1.383 3.84
January 2003 9.95 3.21 6.74 1.383 3.19
February 2003 9.36 3.04 6.32 1.270 2.09
March 2003 8.26 2.81 5.45 1.262 1.65*
Source: State Bank of Pakistan
* April 2003.

Figure-2 Weighted Average Monthly Lending and Deposit Rates (July 2000
to March, 2003)

14

12

10
Spread
8

2
July, 2000

Aug-00

Sep-00

Oct-00

Nov-00

Dec-00

Jan-01

Jun-01

Dec-01

Mar-02

Jun-02

Jul-02

Aug-02

Sep-02

Oct-02

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Deposit Rate Lending Rate

Chapter 6. Money and Credit

The reduction in lending rate was more
pronounced in the case of foreign banks, which
reduced their rates by 290 basis points since July
2002 to 7.86 percent by end February 2003.
Pakistani banks reduced their lending rate by 283
basis points to 9.79 percent. Among Pakistani
banks, the NCBs reduced their lending rate from
12.67 percent to 9.97 percent, privatized banks
from 13.01 percent to 9.89 percent and private
banks from 12.41 percent to 9.54 percent.
However, the lending rate of specialized banks
showed only marginal reduction during the
period, which stood at 14.02 percent at end
February 2003, compared with 14.14 percent in
July 2002. In order to boost exports, the State Bank
also reduced rates under Export Finance Scheme
and for export sales under scheme for Locally
Manufacture Machinery (LMM). These rates are
linked with the yield on 6 months TBs and SBP fix
refinance rate on monthly basis. These rates also
showed significant reduction. The SBP refinance
rate, which was 6.5 percent in July 2002, reduced
to 3.5 percent only in March 2003, reflecting a
reduction of 300 basis points since July 2002. The
decline in overall interest rate structure in
Pakistan is consistent with the global decline in
interest rate. The LIBOR was as high as 6.887
percent in July 2000. It has declined sharply to as
low as 1.26 percent in March 2003.

Table 6.8
Lending and Deposit Rates
(Percentage)
Weighted average Weighted average Difference between lending &
lending rate deposit rate deposit rate
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 14.0 10.4 5.9 2.3 8.1 8.1
June 2001 13.7 9.3 5.0 0.6 8.7 8.7
June 2002 13.1 9.6 4.7 1.2 8.4 8.4
March 2003 8.3 4.9 2.8 -0.6 5.5 5.5

The nominal deposit rates after increasing
marginally from 8.2 percent in June 1995 to 8.5
percent in June 1997, gradually declined to 4.7
percent in June 2002 and further to 2.8 percent in
March 2003. The weighted average lending rate
on the other hand increased from 13.7 percent in
1994-95 to 14.0 percent in 1999-00. However, since
July 2001, the W.A. lending rate started coming
down which stood at 13.1 percent in June 2002
and 8.3 percent in March 2003. Real deposit rates
were negative during 1995-97, as 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. After showing
positive trend during 1998-2002, the real deposit
rate was negative in the current fiscal year,
although the spread between lending and deposit
rate has come down from 8.39 percent in June
2002 to 5.45 percent in March 2003. This indicates
Chapter 6. Money and Credit
that depositors are not getting genuine returns on
their savings with banks.
Performance of Banks
As a corollary of reforms in the banking
sector, the number of loss making domestic bank
branches continued to decline in the current fiscal.
The number of domestic banks branches which
were 7280 in June 2002, reduced to 7150 in March
2003. The number of foreign bank branches also
came down from 78 in June 2002, to 75 in March
2003 (Table-6.9 and Fig: 3).
During the first nine months of the
outgoing fiscal year, total assets of all the
scheduled banks have increased by Rs 215.6
billion -- from Rs 1848.8 billion in June 2002 to Rs
2064.5 billion in March 2003 or by 11.7 percent.
During the first nine months of 2002-03, there was
an increase of Rs 29.7 billion in the net advances
of the scheduled banks, which increased from Rs
810.1 billion in June 2002 to Rs 839.8 billion in
March 2003 or by 3.7 percent. In the comparable
period last year, net advances of the scheduled
banks actually declined by Rs 15.2 billion. Net
advances of the scheduled banks showed
increase during the current fiscal year, except in
the case of NCBs and specialized banks. The
strong growth in net credit was a very welcome
development for the banking industry, which had
been forced by the continuing decline in interest
Table 6.9
Branches of Domestic & Foreign Banks
June 98 June 99
i) Domestic Banks 8049 7973
ii) Foreign Banks 81 85
iii) Total 8,130 8,058
rates (particularly on government securities),
amidst increased market liquidity. Scheduled
bank’s deposits have increased by Rs 192.7 billion
in the same period, i.e., from Rs 1412.9 to Rs
1605.6 billion or by 13.6 percent. Higher deposits
of the scheduled banks in the current fiscal year
resulted partly due to extraordinary foreign
exchange inflows in the country. Low premium
between the kerb and inter bank exchange market
has induced the overseas Pakistanis to use the
official means for remitting foreign exchange.
Total investment of all scheduled banks have also
increased from Rs 471.3 billion in June 2002 to Rs
723.5 billion in March 2003, showing an
unprecedented increase of Rs 252.3 billion or by
53.5 percent. Highest increase in net investment
was recorded in the case of denationalized
commercial banks (Rs 127.4 billion) followed by
nationalized commercial banks (Rs 68.1 billion)
and Private banks (Rs 55.1 billion). Gross NPLs of
the scheduled banks have increased from Rs 234.7
billion in June 2002 to Rs 242.2 billion in March
2003. Gross NPLs of NCBs and foriegn banks
have declined during the period under review,
while gross NPLs of DNCBs, private banks and
specialized banks have increased. The
SBP/Government have continued to encourage
privatization of NCBs and merger of the weak
financial institution with the large and sound
financial institutions in the current fiscal year. It is
worth mentioning that UBL was privatized in
December 2002.
(Numbers)
June 2000 June 2001 June 2002 March 2003
7871 7272 7280 7150
78 80 78 75
7,949 7352 7358 7225
Source: State Bank of Pakistan.
Chapter 6. Money and Credit

billion or 24.5 percent. Similarly net NPLs of DFIs

Fig-3: Branches of domestic & foreign banks have also registered an increase of 9.4 percent
81 85 during the same period.
78
00
82

Micro Finance (MF) and Khushali Bank

00
80
00

80
78

78 75
The Government of Pakistan has
Numbers

00
76

8049
launched a Micro Finance Sector Development
00

7973 7871
74
00

Programme (MSDP) to reduce poverty in the

72

7272 7202 7150

00

country. The main objective of the programme is

70
00
68

to provide a stable sectoral environment and

98 99 00 01 02 -03
00

Jun_ Jun_ Jun_ Jun_ Jun- Mar

66

creating institutional capacity to retail micro

Domestic Banks
Recovery of Defaults and Non-Performing
Loans
Loan defaults continuous to be one of the
major problems of our banking system in general
and Nationalized Commercial Banks and DFIs in
particular, adversely affecting their growth and
profitability. Net non-performing loans (NPLs) of
all commercial banks, specialized banks, and DFIs
have however, declined marginally during the
ongoing fiscal year and stood at Rs 106.13 billion
in December 2002, as against Rs 106.86 billion in
June 2002. Net NPLs of all commercial banks have
declined by 9.5 percent, from Rs 76.78 billion in
June 2002 to Rs 69.45 billion in December 2002.
Among the domestic banks, net NPLs of
Nationalized Commercial Banks has markedly
declined by 24 percent, from Rs 44.23 billion in
June 2002 to Rs 33.62 billion in December 2002.
Similarly net NPLs of private banks have come
down from Rs 13.47 billion in June 2002 to Rs
11.73 billion in December 2002. Net NPLs of
privatized banks have however, increased by 29
percent, from Rs 17.48 billion in June 2002 to Rs
22.54 billion in December 2002. Net NPLs of
foreign banks which were very negligible, have
declined by 2.7 percent during July-December
2002-03. During the first half of 2002-03, the NPLs
of specialized banks have increased by Rs 6.1
Foreign Banks
finance services to the poor. The Asian
Development Bank is sponsoring the programme
with soft lending of US $ 150 million. Khushhali
Bank (KB) is the first micro finance bank
established under the MSDP umbrella. It is a joint
venture between public and private sector
financial institutions. The share capital of the bank
is Rs 5 billion. Its paid up capital of Rs 1.7 billion
has been subscribed by 16 commercial banks, 14
private, including 2 foreign, and 2 public sector
banks. The KB is designed to bridge the
significant demand and supply gap in the micro
finance market and increase the presently
negligible outreach (5%) to the potential client
base comprising over 6 million poor households
in Pakistan. Within a period of just over 2 years of
its commercial launch, the KB has established a
network of 31 branches and 57 service centers in
35 districts across the country.
The bank’s service delivery design
combines global industry standards and
indigenous practices. The KB lending is
group/community-based through strengthening
of the social collateral and peer pressure. Services
are delivered at clients' ’doorsteps. The bank has
serviced over 100,000 loans and disbursed Rs 1.2
billion across 75,000 poor households. Women
constitute 35 percent of Bank’s clientele. The 70
percent of portfolio is spread against small sized
farming and 30 percent against micro enterprise
development. The KB has also mobilized nearly
Chapter 6. Money and Credit
Rs 100 million in community savings. Nearly 80
percent on the lending activity remains in the
rural areas and 20 percent in the urban areas with
loans for agricultural inputs and live stocks,
forming the major part. Currently, the KB
generates savings at community level. In terms of
credit and saving operations, the bank projects to
access to over 560,000 households i.e. nearly 10
percent market by 2006. By the year 2006, net
outstanding loans are projected at Rs 7.430 billion
and deposits at Rs 1.74 billion. The bank’s social
sector services package includes women
development, capacity building services for skills
development and provision of basic infrastructure
services as health, education, drinking water,
sanitation, communication etc. In order to fund
social sector interventions, the bank has access to
two endowment funds, namely, Microfinance
Social Development Fund (MSDF) and
Community Investment Fund (CIF), established at
the State Bank of Pakistan. The CIF resources are
used to provide grants up to Rs 150,000 for
community level infrastructure development
schemes.
Under the social sector services package,
the bank has so far mobilized 90,793 households
into 10,707 Community Organizations (COs) of
which 3,889 COs are female. All COs were
provided with basic training in various skills.
Community based infrastructure development
operations were recently launched across
network, projecting completion of over 1000 small
development schemes in 2003. A Risk Mitigation
Fund of $ 5 million has been set up to provide
support to borrowers for replacement of income
generating assets lost due to natural calamities as
floods, droughts etc. As a part of safety net
mechanism, a Deposit Protection Fund of $ 5 has
also been established to provide insurance cover
to small savers of Khushhali Bank.
First Micro Finance Bank Limited
The First Micro Finance Bank (MFB)
Limited was granted license in January 2002 to
operate as a country wide MFB in the private
sector, under the MFIs Ordinance 2001. The bank
has a paid-up capital of Rs 660 million. The bank
has so far established a network of 10 branches, 7
in Northern Area and 1 each in Karachi,
Islamabad and Rawalpindi. It has mobilized
deposits/savings of more than Rs 112.95 million
and extended loans of Rs 75 million to 2387
clients.
SME Bank
SME Bank Ltd was established in January
2002 by the Government of Pakistan to exclusively
cater to the needs of the SME sector. The bank was
created to address the needs of the niche market
with specialized financial products and services
that will help stimulate SME development in the
country. The Government of Pakistan is the major
shareholder. The bank is actively engaged to serve
the SME sector by providing credit facilities and
business support services all over the country.
The bank provides financial assistance in the
shape of working capital, medium long term
financing, leasing, program lending etc. It also
provides technical assistance and support in areas
of management, product innovation and
development, quality control, acquisition of new
technology, product positioning and marketing
and development of bankable business proposals.
The bank has introduced specialized
financial products and programme lending
schemes under the brand name of ‘Hunarmand
Pakistani’ that cater to a variety of credit needs for
the SMEs. A large number of SMEs will now be
financed under programme lending approach
including fan manufacturing cutlery
manufacturing surgical instruments doctors &
dentists clinics women entrepreneurs CNG
stations; auto looms (upgradation of power
looms) and furniture manufacturing. Another
four Hunarmand Pakistani Schemes for
motorcycle rickshaw fruits and vegetables
Chapter 6. Money and Credit
fisheries (boats & processing) OEM (original
equipment manufacturers) will be introduced
shortly.
With the above stated initiatives, the bank
envisages financing of over 4000 SMEs involving
financial assistance of Rs 2.00 billion during the
year 2003. It is expected that the business plan
_____________________________
and lending activities initiated by the bank will go
a long way in promoting the SME sector so as to
enable it to significantly contribute toward
achieving GDP growth target of 4.5 percent and
supplement the recent initiatives of the
Government to reduce unemployment and level
of poverty in the country.
Chapter 7. Capital Market
7. Capital Market
Capital market is the heart and soul of the
financial sector. It is a vehicle whereby capital is
deployed from sources where it is in excess to the
sources where it is in short supply. The capital
market facilitates; (i) mobilization and
intermediation of private savings, and (ii)
allocation of medium and long-term financial
resources for investment through a variety of debt
and equity instruments of both private and public
sectors. It plays a crucial role in mobilizing
domestic resources and in channeling them
efficiently to the most productive investments.
The level of capital market development is thus
an important determinant of a country’s level of
savings, efficiency of investment, and ultimately
of its rate of economic growth. An efficient capital
market can also provide a wide range of attractive
opportunities for both the domestic and foreign
investors.
Pakistan has now a capital market with
high degree of integrity and transparency in terms
of price discovery and trade settlement. The
observance of enhanced accounting standards,
reliable audits, institutional strengthening and
capacity building of the Securities and Exchange
Commission of Pakistan (SEC) have been the
hallmark of the capital market reform program.
Pakistan is today largely compliant with
International Organization of Securities
Commission’s (IOSCO) 30 principles of securities
regulation. The market friendly measures
introduced during the last three and half years
had a significant impact on investor confidence
and the stock market is no longer viewed as
having any resemblance with a casino, attracting
only die-hard speculators. The structural changes
brought about by the government have been quite
successful in restoring investors’ confidence in the
equity market. The market has clearly attracted
genuine investment as is evidenced by the fact
that actual settlement has risen from about 1 to 2
percent of trades in the early part of year 2000 to
around 10 to 15 percent now. Although equity
issues have not picked up, there has been a
significant increase in debt capital issues, the
aggregate amount of new capital listed in the last
two years being as much as Rs 30 billion etc. In
Pakistan, the Karachi Stock Exchange is playing a
central and critical role in shaping the savings and
investment climate as it is the main window to
ensure that the market continues to grow and
generate interest of investors both within the
country and abroad.
Pakistan’s stock markets have remained
buoyant during the outgoing fiscal year 2002-03.
The Karachi Stock Exchange, KSE-100, has
witnessed a phenomenal growth in the first ten
and half months of the current fiscal year, rising
from 1770.1 points in June 2002 to 2902.4 points in
April 2003 and thereafter to an all time magic high
figure of 3003.4 points on May 16, 2003,
registering an increase of 69.7 percent during the
period under review as compared to a rise of 33.0
percent in the same period last year. The
milestone was achieved because of the
government’s macroeconomic policies,
strengthened macroeconomic indicators, and the
confidence of both local and foreign investors’ on
Chapter 7. Capital Market
the country’s economic policy and on the KSE.
The aggregate market capitalization of the KSE
has also surged 62.5 percent, rising from Rs 407.6
billion to Rs 662.5 billion during this period. In
terms of US dollar, the market capitalization has
increased by 73.0 percent, rising from $ 6.63
billion to $ 11.47 billion during the current fiscal
year until May 16, 2003. In terms of GDP (MP),
the aggregate market capitalization has jumped
from 11.2 percent to 16.5 percent during the same
period. Yet another indicator of impressive
performance of the Karachi Stock Exchange has
been an extraordinary surge in monthly turnover
of shares from 2.4 billion in 2001-02 to 4.0 billion
during July-April of 2002-03. It may be noted that
the average daily turnover of shares has increased
from 74.3 million in 2001-02 to 104.7 million in the
first two quarters of 2002-03 and further to 243.1
million shares in the third quarter of 2002-03.
After recording impressive performance
in 2001-02 the KSE-100 index resumed its upward
movement by second week of August 2002 amids
rumors of strong corporate earnings by some
index heavy weights (Lever Brothers, Shell
Pakistan, PSO, Adamjee Insurance, HUBCO and
PTCL). The KSE index increased by 14.0 percent
or 249 points in the first quarter, 33.8 percent or
683 points in the second quarter and by 0.5
percent or 14 points in the third quarter of 2002-
03. During April-May 16, 2003, KSE Index has
further increased by 10.6 percent or 288 points.
The spectacular performance in the stock
market during the outgoing year is attributable to
a number of factors: (i) investment friendly
policies being pursued by the government for
revival of the national economy and restoring the
confidence of the investors, (ii) substantial
improvements in economic fundamentals, (iii)
relatively cheap market valuations and the
declining returns on alternative investments, (iv)
huge forex reserves, rescheduling/write-off of
debts by some big donor countries, especially the
USA, (v) huge build-up of rupee liquidity driven
in large by continuing forex inflows into Pakistan,
that also pulled down interest rates, (vi) strong
presence of energy stocks in the market as energy
sector enjoys about 30 percent weight in the KSE-
100 share index and serves as one of the key
drivers of the market, (vii) expectations of early
privatization of some state enterprises and banks,
(viii) policies on privatization, liberalization and
deregulation have encouraged private
investments having a profound effect on the
activity of the stock market and (ix) the increased
interest of foreign investors in the stock market.
The upward movement has also been accelerated
because of a democratically elected pro-reform
government firmly in place since mid-December
2002. Moreover an emerging stable and improved
bilateral relations between Pakistan and India has
created a renewed bullish fervour in the month of
May 2003.
The Central Depository Company of
Pakistan (CDC) is now an integral part of the
stock market in Pakistan and has completed five
and half years of its operations. Over the years,
the depository has been providing state-of-the-art
settlement system. This has tremendously helped
in promoting efficiency and transparency in the
capital market. The National Clearing and
Settlement System (NCSS) was launched on
December 24, 2001 and the number of securities
trades at NCSS is being gradually increased. The
CDC also has a comprehensive arrangement with
NCSS. The CDC continues to diversify its
operations by adding more features and
functionalities, which are synergetic to its core
activity. During the year 2001, the CDC handled
the first electronic de-merger of ICI Pakistan into
two entities. Currently CDC is the trustee of three
open-end mutual funds. These are: Pakistan Stock
Market Fund, Pakistan Income Fund and United
Money Market Fund. Currently, CDC has about
7,000 investor accounts, having more than 1.2
billion securities. The implementation of T+3
Chapter 7. Capital Market

settlement system has resulted in increased The monthly trends of the leading stock
settlement volume, despite a 20 percent reduction market indicators are given in Table 7.1 and Fig: 1
in transaction fee effective from November 2001. (a) and (b)..

Table 7.1
Leading Stock Market Indicators on KSE
(KSE Share Index: November 1991=1000)
2001-02 2002-03
Months (July-May)
KSE Index Market Turnover KSE Index Market Turn-
(end month) Capitalization of Shares (end Capitalization over of
(Rs billion) (bn) month) (Rs billion) Share
(end month) (end month) (bn)
July 1228.9 311.3 1.2 1787.6 412.5 1.6
August 1258.4 314.9 1.5 1974.6 450.8 3.1
September 1133.4 282.8 0.7 2018.8 458.3 2.7
October 1406.1 340.2 3.6 2278.5 535.4 4.3
November 1358.2 326.2 1.8 2285.9 513.6 3.9
December 1273.1 292.9 0.9 2701.4 588.4 6.8
January 1620.2 345.0 3.7 2545.1 554.8 9.1
February 1766.0 390.0 4.1 2509.4 542.2 2.1
March 1868.1 427.9 3.9 2715.7 603.0 2.7
April 1899.0 424.7 3.0 2902.4 637.0 4.4
May 1663.3 383.3 2.6 3003.4* 662.5* 1.9*
June 1770.1 407.6 2.0 - - -
Average 1520.4 353.9 2.4 - - -
* May 16, 2003 Source: Karachi Stock Exchange

Fig 1. (a) Monthly KSE Share Index

3200
3000
2800
2600
2400
2200
2000
1800
1600
1400
1200
1000
Jul(01-02)

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May 16, 03
Jul(02-03)

KSE Share Index

Chapter 7. Capital Market

Fig 1. (b) Market Capitalization in KSE

700
650
600
550
Rs. Billion

500
450
400
350
300
250
Jul(01-02)

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

Aug

Sept

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May 16, 03
Jul(02-03)
Market Capitalization

It would not be out of place to mention of 13 leading stock markets in the world, the KSE
that as a result of the unprecedented boom in share index increased by 74.6 percent in terms of
Karachi Stock Exchange during the calendar year US dollar during July-May 12, 2002-03. The stock
2002, it was declared as the best performing market of Sri Lanka posted a gorwth of 17.3
market in the world. The surge in Pakistan’s percent. The other 11 leading world stock markets
equity markets during 2002 is undoubtedly the recorded negative growth ranging from 1.9
results of a significant turnaround in the economy percent (Malaysia) to 20.7 percent (Japan). With
in general and external accounts in particular. profitability in US dollar, standing at 74.6 percent,
During July-May 12, 2002-03 the Karachi Stock Pakistan has been the most profitable market in
Exchange has also remained the best performing the region followed by Sri Lanka (17.3%) during
market among the leading stock markets in the the period under review. All other markets of
world. As documented in Table 7.2 and Fig:2, out Asia Pacific Region registered significant losses.

Table 7.2
Regional Markets Index Change in USD during July-May 12, 2002-03
(Index level in USD)
Index Level in Respective Currencies % Change in USD
12 May 2003 30 June 2002
Pakistan 2973.31 1770.12 74.60
Sri Lanka 844.29 711.36 17.32
Malaysia 633.95 646.32 -1.91
Indonesia 473.93 505.01 -2.67
Thailand 383.49 389.10 -3.33
India 2942.78 3244.70 -5.96
Philippine 1061.40 1156.35 -11.06
China 1531.87 1732.76 -11.59
Singapore 1327.42 1552.98 -12.55
Hong Kong 9155.57 10598.55 -13.61
Korea 631.04 742.72 -14.15
Taiwan 4261.02 5153.71 -20.14
Japan 8221.12 10621.84 -20.72
Source: Elixir Securities Pakistan
Chapter 7. Capital Market

Fig-2: Regional Markets Index ( % Change) during Jul-May 12, 2002-03

80
75
70
65
60
55
% Change in US $

50
45
40
35
30
25
20
15
10
5
0
-5
-10
-15
-20
-25
Pakistan

Srilanka

Malaysia

Indonesia

Thailand

Philippine

China

Singapore

Hong Kong

Korea

Taiwan

Japan
India

Over the past three and half years, the to further enhance market efficiency and investors
Securities & Exchange Commission of Pakistan confidence. The SEC carried out some
(SEC) has been taking measures to restore amendments in the Article of Association of the
confidence of the investors – both foreign and stock exchanges to address sensitive issues, such
domestic in the capital market of Pakistan. The as, conflict of interest in the management of
SEC ensures that the market functions in a smooth bourses an “Undisclosed Trading System” where
and transparent manner and is also vigilantly the identity of the buyer and seller are not
observing the market. Its regulatory mechanisms disclosed. This is aimed at discouraging a “herd”
aim to minimize elements of systemic risk and culture where small investors try to mirror the
other possible defaults on the one hand and activities of larger players in the hope of
promotes institutional strengthening/capacity speculative gains rather than investing on the
building of various segments of the capital market basis of stock fundamentals. Some important
on the other. The SEC has been actively pursuing policy initiatives introduced by the SEC during
a reform agenda since 2001 for the capital market. 2002-03 are given in the box below;
In this connection, several initiatives were taken

BOX
Policy Measures and Progress
a) Improvements in Governance

In March 2002, the Security and Exchange Commission of Pakistan (SEC) has introduced the first
Code of Corporate Governance for Pakistan, which was subsequently made part of the listing
regulations of the three stock exchanges (Karachi, Lahore & Islamabad).
Chapter 7. Capital Market

♦ In order to further improve the governance of the stock exchanges, the SEC has directed
the stock exchanges to reconstitute their Boards such that five directors are elected from
amongst the members by the general body of the exchange, four non-member directors to
be appointed by the SEC and the Chairman to be elected by the Board from amongst the
non-member directors.

♦ For the expeditious resolution of investor complaints, the SEC has approved a two-tier
arbitration procedure for the Karachi Stock Exchange (KSE), under which all claims and
disputes exceeding Rs 0.5 million, which are not amicably settled otherwise, should be
referred to the Advisory and Arbitration Committee (AAC).

b) Risk Management Measures

♦ In order to minimize market manipulation and ensuring a healthier and more transparent
capital market, the SEC, in February 2002, approved the Regulations for Short Selling
under Ready Market, 2002.

♦ In order to further strengthen risk management at the exchanges, the Commission

directed the stock exchanges to make some changes in the carry over transactions.

♦ SEC ordered some amendments in the Article of Association of the stock exchanges to
address the sensitive issues, such as, conflict of interest in the management of bourses.

♦ Another important development in the stock market is the implementation of

“Undisclosed Trading System”. On October 7, 2002, the KSE launched this trading system
where the identity of the buyers and sellers is not disclosed.

♦ All Carry Over Transactions (COT) are to be for a period of 10 days in order to mitigate
the potential risk of the sudden withdrawal of massive funds from badla operations.

♦ The SEC introduced an amendment in the Companies Ordinance 1984, under which the
companies are now required to present their quarterly accounts to shareholders within
one month of the respective quarter-end. Moreover, the penalty for the non-compliance of
the provisions relating to auditing was increased from Rs 2,000 to Rs 100,000.

♦ A “take over law” proposed by the SEC was promulgated on November 1, 2002.

♦ Another significant reform was introduced in the Badla market. Badla providers were
required to commit their funds to the market for 10 days. This is aimed at preventing an
artificial liquidity crunch due to an abrupt withdrawal of financing from the market.

♦ The Commission has directed the stock exchanges to ensure that the Investor Protection
Fund and the Clearing House Protection Fund are fully funded by June 30, 2007.
Chapter 7. Capital Market

♦ The Market Monitoring & Surveillance Wing (MSW) has been set up within the
Commission to facilitate initiatives in risk management. The MSW has two specific
functions - monitoring the systematic risk at exchanges, and surveillance to detect general
or specific instances of market abuse.

c) New Products/Developments

♦ In order to regulate futures trading in the provisionally listed securities, in February

2002, the Commission approved the Regulations for Futures Trading in provisionally
Listed Companies, 2002, for the KSE.

♦ In May 2002, the Commission approved, in principle, the concept of an Over-the-

Counter (OTC) market and the stock exchanges are currently in the process of drafting
necessary regulations.

♦ The Commission has approved the establishment of National Commodities Exchange

Limited (NCEL), for trading in future contract in commodities. The NCEL is the first
demutualized exchange and will be sponsored by the three stock exchanges of Pakistan.

♦ The Commission has established a Vigilance Cell, which serves as a forum for protection
of the small investors. The Cell’s priority is to eliminate basic anomalies in the stock
exchanges’ business systems, procedures and relevant laws. During July-March 2002-03,
348 complaints were received out of which 177 have been resolved.

♦ The Commission has published a series of “Investor Guides” to educate existing and
potential investors about investment risks and rewards, importance of financial
planning, and the rights and responsibilities of investors, as well as the recourse
available to them.

Sectoral Performance
During the first nine months of the
outgoing fiscal year, the KSE price index and
aggregate market capitalization have increased by
53.4 percent and 47.9 percent respectively, as
against their increase of 36.7 percent and 26.1
percent in the same period last year. Total
turnover of shares on KSE was 36.2 billion in the
first nine months of 2002-2003 as compared to 21.5
billion in the same period last year. Funds
mobilized by the KSE during this period
amounted to Rs 23.1 billion as compared to Rs
13.3 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 their
share indices, ranging from 1.7 percent (cement)
to 79.8 percent (auto & allied). During the
calendar year 2002, total profit before taxation of
the 12 trading groups amounted to Rs 90.9 billion
as compared to their before taxation profit of Rs
Chapter 7. Capital Market

62.6 billion in 2001. Performance of leading months of the outgoing fiscal year is discussed
trading groups and companies for the first nine below (Tables 7.3 to 7.5).
Table 7.3
Sectoral Performance on Karachi Stock Exchange
(Percent)
Sector General Index Market AMC
Capitalization (Rs billion)*
July-March July-March
(Growth%) (Growth %)
2001-02 2002-03 2001-02 2002-03 2002* 2003*
1. Cotton and other Textiles 2.7 5.0 8.0 15.2 41.5 47.3
2. Chemicals & Pharmaceuticals 21.1 26.6 19.7 73.0 57.4 87.8
3. Engineering 34.0 32.6 30.5 45.9 2.0 3.0
4. Auto & Allied 14.3 79.8 23.7 107.1 9.8 21.1
5. Cables and Electrical Goods 32.1 19.2 2.2 30.8 2.2 3.1
6. Sugar & Allied 3.1 24.3 -3.0 12.5 4.4 5.1
7. Paper & Board 15.7 32.9 25.0 25.7 5.7 8.2
8. Cement 26.0 1.7 53.4 15.9 15.7 18.3
9. Fuel & Energy 20.6 44.0 44.1 54.7 114.8 161.6
10.Transport & Communication 21.5 57.7 12.7 74.1 79.8 122.0
11.Banks other Financial 11.7 28.6 41.5 33.1 54.3 73.2
Institutions
12. Miscellaneous 8.2 22.2 21.9 16.6 40.5 52.2
13. Overall/Total 18.3 32.8 26.1 47.9 427.9 603.0
14. KSE Index 36.7 53.4 0 0 0 0
* End March 2002 and 2003. Source: State Bank of Pakistan

• Cotton and Other Textiles: In this increased by 26.6 percent as compared to

group, there are three sub-groups: (a)
textile spinning, (b) textile weaving &
composite, and (c) other textiles. There
were 231 companies listed with KSE
under this group. The share index of
cotton and other textile recorded a growth
of 5.0 percent during the first nine months
of the current fiscal year as compared to a
growth of 2.7 percent in the same period
last year. Its market capitalization
increased by 15.2 percent or by Rs 6.2
billion during July-March 2002-03 as
compared to a rise of 8.0 percent (Rs 3.1
billion) in the same period last year.
• Chemicals & Pharmaceuticals: A total
of 37 companies were listed with KSE
under this group at end December 2002.
During the first nine months of the
current fiscal year, its share index
an increase of 21.1 percent in the
comparable period of last year. Its market
capitalization stood at Rs 87.8 billion on
31st March 2003, showing a marked
increase of 73.0 percent over June 2002
and 53.0 percent over March 2002.
• Auto and Allied: A total of 25 companies
were listed with the KSE under this group
at the end of December 2002. During the
outgoing fiscal year, auto and allied
group showed the best performance so far
among the 12 leading groups listed with
the KSE. Its share index increased by 79.8
percent, while its market capitalization
increased from Rs 10.2 billion in June 2002
to Rs 21.1 billion in March 2003, recording
a spectacular growth of 107.1 percent. The
group ranked top both in the growth of
share index and market capitalization on
KSE.
Chapter 7. Capital Market
Sugar and Allied: Under this group, a total of
38 companies were listed with the KSE
with a market capitalization of Rs 5.1
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 24.3 percent as compared to a
rise of 3.1 percent in the comparable
period last year. Its market capitalization,
however, increased by 12.5 percent.
• Cement: At the end of 2002, there were
22 cement companies listed with the KSE.
Its market capitalization stood at Rs 18.3
billion on March 31, 2003. Unlike the
previous year performance of this group
remained sluggish in the current fiscal
year. Its share index has posted a growth
of 1.7 percent only as compared to a
growth of 26.0 percent in the same period
last year. Its market capitalization has
increased by 15.9 percent, as against a
growth of 53.4 percent in the same period
last year.
• Fuel & Energy: A total of 25 companies
were listed with the KSE with a market
capitalization of Rs 161.6 billion as of 31st
March 2003 constituting 26.8 percent of
aggregate market capitalization (AMC).
During the first nine months of the
current fiscal year, its share index
increased by 44.0 percent and market
capitalization increased by 54.7 percent,
as compared to their growth of 20.6
percent and 44.1 percent respectively, in
the same period last year. The group is
one of the major players on the KSE.
Energy sector has been identified as the
engine of growth along with 3 other
sectors, (agriculture, small and medium
enterprises, and information technology)
by the government. Hence its
unprecedented growth is expected to
promote more investment activities in the
economy.
• Transport & Communication: At the
end of 2002, there were 9 companies of
this group listed with the KSE. Its market
capitalization increased to Rs 122.0 billion
on March 31, 2003, from Rs 70.1 billion in
June 2002, recording a growth of 74.1
percent during the first three quarters of
2002-03. Its market capitalization
constituted 20.2 percent of the aggregate
market capitalization (AMC) in March
2003 putting it as a major player on the
KSE. Its share index increased by 57.7
percent in the period under review. The
combined market capitalization of fuel
and energy, and transport &
communication was Rs 283.6 billion on
March 31, 2003, which constituted 47.0
percent of AMC as compared to 45.5
percent on the corresponding date of last
year.
• Banks & Other Financial Institutions:
This is the second largest group in respect
of companies listed with the KSE. In
December 2002, a total of 187 companies
were listed with the KSE. 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 has
increased by 28.6 percent and 33.1 percent
respectively. Its market capitalization
increased from Rs 55.0 billion in June 2002
to Rs 73.2 billion in March 2003.
• Miscellaneous: The miscellaneous
group includes five sub-groups: jute, food
& allied, glass & ceramics, vanaspati &
allied, and others. In December 2002, a
total of 98 companies were listed with the
KSE. Its share index and market
Chapter 7. Capital Market

capitalization posted growth of 22.2 compared to its pre-taxation profit of Rs 27.1

percent and 16.6 percent respectively in billion in 2001. Banking and other financial
the first nine months of the current fiscal institutions recorded a pre-taxation profit of Rs
year, as compared to their growth of 8.2 20.1 billion in 2002 as compared to Rs 7.0 billion in
percent and 22.0 percent respectively in 2001 recording a jump of 187 percent. Similarly
the same period last year. pre-taxation profit of chemicals &
pharmaceuticals witnessed an unprecedented
In December 2002, 711 companies were increase of 268 percent, which rose from Rs 2.5
listed on Karachi Stock Exchange, including 231 billion in 2001 to Rs 9.2 billion in 2002. Pre-
companies in cotton and other textile, 187 in taxation profit of cotton and other textiles slashed
banks and financial institutions, 98 in down from Rs 9.0 billion in 2001 to Rs 6.9 billion
miscellaneous group etc. In the calendar year in 2002. Similarly pre-taxation profit of fuel and
2002, number of dividend paying companies was energy also come down from Rs 9.7 billion in 2001
306, as compared to 314 in 2001. 422 companies to Rs 7.4 billion in 2002. In 2001, three groups
were making profit, listed with the KSE in 2002 as incurred pre-taxation losses including
compared to 423 in 2001. However during 2002 engineering, sugar and allied, and cement.
only 187 companies were shown as loss-making However, during 2002 only one group (sugar &
as compared to 226 in 2001. In 2002, the total allied) incurred a pre-taxation losses of Rs 0.5
before taxation profit of 12 trading groups, listed billion. Infact, sugar and allied was the only
with KSE, amounted to Rs 90.9 billion as group, which incurred pre-taxation loss both in
compared to a total pre-taxation profit of Rs 62.6 2001 and 2002. The group-wise number of
billion in 2001, thus showing a growth of 45 companies and their performance is given in
percent. Transport and communication earned a Table-7.4.
pre-taxation profit of Rs 33.9 billion in 2002
Table 7.4
Companies Listed on KSE and their Before Taxation Profits
Dividend Profit
S. Name of Sector No. of Before Tax- Paying Making Loss making
No Companies ation Profit Companies Companies Companies
2001 2002 (Rs billion) 2001 2002 2001 2002 2001 2002
2001 2002
1. Cotton & other 250 231 9.0 6.9 97 82 142 126 67 68
Textile
2. Chemical & 39 37 2.5 9.2 22 23 25 26 10 09
Pharmaceutical
3. Engineering 16 13 -0.05 0.01 04 05 06 08 05 03
4. Auto & Allied 25 25 2.7 4.6 10 13 15 15 08 06
5, Cables & Electric 14 12 0.4 0.6 04 04 06 05 03 03
Goods
6. Sugar & Allied 38 38 -0.7 -0.5 13 14 15 17 22 20
7. Paper & Board 14 14 1.2 1.7 07 07 11 10 02 02
8. Cement 21 22 -1.7 0.4 05 09 07 12 12 08
9. Fuel & Energy 26 25 9.7 7.4 17 16 19 18 05 05
10. Transport & 08 09 27.1 33.9 04 03 04 06 03 01
Communication
11. Bank & Financial 195 187 7.0 20.1 95 93 127 130 54 34
Institutions
12. Miscellaneous 101 98 5.5 6.6 36 37 46 49 35 28
Total 747 711 62.6 90.9 314 306 423 422 226 187
Source: Karachi Stock Exchange
Chapter 7. Capital Market

The business on KSE is primarily
influenced by some selected big companies
including; Hub Power, PTCL, Pakistan State Oil
etc. During the first three quarters of the current
fiscal year, combined turnover of shares of seven
big companies (Hub Power, PTCL, PSO, Sui
Northern, FFC Jordan, and National Bank) was
6.78 billion, which constituted 18.7 percent of the
total turnover of shares on KSE. These seven
companies earned profit after taxation of Rs 34.5
billion in the current fiscal year up to March 2003
as compared to their after taxation profit of Rs
29.6 billion in the same period last year. Out of Rs
34.5 billion after taxation profit, the PTCL’s share
was Rs 19.8 billion representing 57.5 percent of
the seven big companies. In the first nine months
of 2001-02, the PTCL’s after taxation profit (Rs
18.15 billion) represented 61.3 percent of the seven
companies. The average price-earning ratio of the
seven big companies has increased from 6.67
percent in 2001-02 to 7.35 percent in the current
fiscal year. This is indicative of the fact that
business environment in the current fiscal year
has improved over the last year. (Details in Table
7.5 while a profile of the KSE is given in Table
7.6).

Table 7.5
Performance of Some Selected Blue Chips on KSE
Name of Billion of Shares (July- Profit after Tax (July- P/E Ratio (July-March)
Company March) March) Rs billion
2001-02 2002-03 2001-02 2002-03 2001-02 2002-03
Hub Power 1.16 1.16 10.86 7.29 2.66 5.52
PTCL 3.77 3.77 18.15 19.81 4.06 4.61
PSO 0.14 0.17 2.25 3.19 9.98 10.92
Sui Northern 0.50 0.50 1.34 1.89 5.23 6.46
FFC Jordan 0.33 0.81 -3.43 1.13 -0.66 7.99
National Bank 0.37 0.37 0.46 1.15 18.76 8.59
Total/Average 6.27 6.78 29.63 34.46 6.67 7.35
Source: Karachi Stock Exchange

Table 7.6
Profile of Karachi Stock Exchange
1999-2000 2000-01 2001-02 2002-03
(July-March)

a) ew Companies Listed 1 4 4 1

b) Fund Mobilized 8.9 3.6 15.2 23.1

(Rs Billion)

c) Listed Capital 236.4 235.7 291.2 299.3*

(Rs Billion)

d) Turnover of Share 48.1 29.2 29.1 36.2

( Billion Nos)

e) Average daily Turnover of 202.1 122.5 158.6 243.4

Share (in million)

f) Aggregate Market 392 339.2 407.6 637.0*

Capitalisation (Rs Bilion)

* April 2003. Source: Karachi Stock Exchange.

Chapter 7. Capital Market

Bullish business trends have also been
witnessed during the outgoing fiscal year at the
other two stock exchanges namely, the Lahore
and Islamabad Stock Exchanges. The turnover of
shares on Lahore Stock Exchange (LSE) during
July-March 2002-03 was 19.5 billion compared to
11.7 billion shares in the same period last year.
Total paid up capital with the LSE increased from
Rs 246.3 billion in June 2002 to Rs 282.7 billion in
March 2003. The LSE index, which was 297.5
points in June 2002, increased to 496.6 points in
March 2003. Market capitalization in LSE has
increased from Rs 393.3 billion in June 2002 to Rs
595.8 billion in March 2003. Two new companies
were listed during July-March 2002-03, as
compared to four in the same period last year.
The amount of fund mobilized at LSE by way of
subscription was Rs 1.7 million in the first nine
months of the outgoing fiscal year. A profile of
LSE is given in Table-7.7.

Table 7.7
Profile of Lahore Stock Exchange
1999-2000 2000-01 2001-02 2002-03
(July-March)
a) New Companies Listed 2 3 3 2
b) Fund Mobilized 0.4 2.5 14.2 1.7
(Rs Billion)
c) Listed Capital 207.7 226.2 246.3 282.7
(Rs Billion)
d) Turnover of Share 16.4 7.8 18.3 19.5
(Billion Nos)
e) LSE Index 372.0 273.5 297.5 496.6
f) Market capitalization (Rs bln) 365.9 325.7 393.3 595.8
Source: Lahore Stock Exchange

The turnover of shares on the Islamabad
Stock Exchange (ISE) was 1.30 billion during July-
March 2002-03 as compared to 1.32 billion during
the same period last year. The ISE price index has
increased from 4684.0 points in June 2002 to
5924.5 points in March 2003, recording a growth
of 26.5 percent. No new companies were listed
and no fund was mobilized in ISE during the first
nine months of the current fiscal year. The ISE
started functioning in August 1992 and within ten
years, it has developed into a vibrant, efficient
and stable market. Today, the ISE is one of the
premiers Stock Exchanges of the country known
for the highest standard for transparency in its
operations, excellent risk management, dynamic
market technology and lowest overall costs of
listing. A profile of ISE is given in Table 7.8.

Table 7.8
Profile of Islamabad Stock Exchange
1999-2000 2000-01 2001-02 2002-03
(July-March)
a) New Companies Listed 0 5 1 0
b) Fund Mobilized 0 0.8 3.7 0
(Rs billion)
c) Listed Capital - 183.3 183.4 228.2
(Rs billion)
d) Turnover of Share 3.1 1.4 1.70 1.3
(In Billion Nos)
e) ISE Index 5327.2 4374.2 4684.0 5924.5
Source: Islamabad Stock Exchange
Chapter 7. Capital Market
Total funds mobilized during July-March 2002-03
in the two stock exchanges (KSE & LSE)
amounted to Rs 24.8 billion, as compared to Rs
17.7 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 56.9 billion, compared to 34.5 billion in
the same period last year, recording an increase of
64.9 percent.
During the period under review, 17
companies offered Term Finance Certificates
(TFCs) to the public in aggregate amounting to Rs
9.831 billion; whereas one company with paid-up
capital of Rs 1.377 billion and 2 companies with
paid up capital of Rs 0.100 billion were listed on
the Karachi and Lahore Stock Exchanges,
respectively. Furthermore, during the period
under review, GOP disinvested additional shares
of NBP amounting to Rs 0.373 billion. The
increasing number of TFC issues shows the
interest of the investors in debt instruments as
compared to equity issues. TFCs are gaining
popularity among investors due to a number of
factors viz. (i) attractive and guaranteed return
and safety of principal amount invested; (ii)
substantial fall in returns under various National
Saving Schemes; and (iii) restrictions imposed on
institutional investors for investing in NSS.
Development Finance Institutions (DFIs)
During 2001-02, the DFIs sanctioned total
loans of Rs 4.6 billion against which they
disbursed Rs 2.9 billion. In the first nine months of
the current fiscal year (2002-03), sanctions and
disbursements of loans by the DFIs for fixed
investment finance to the private industrial sector
were Rs 3.8 billion and Rs 1.9 billion respectively.
The loans sanctioned and disbursed by the special
banks during 2001-02 amounted to Rs 11.4 billion
and Rs 11.3 billion, while, during the first nine
months of the current fiscal year, their sanctions
and disbursements amounted to Rs 8.2 billion and
Rs 8.1 billion, respectively. In 2001-02, investment
banks’ total sanctions and disbursements were Rs
4.8 billion and Rs 4.4 billion. In the first nine
months of the current financial year, their
sanctions and disbursements were recorded at Rs
4.3 billion and Rs 3.8 billion. Islamic banks
sanctioned and disbursed Rs 4.0 billion and Rs 2.5
billion during 2001-02 while these were Rs 0.94
billion and Rs 2.21 billion during the first nine
months of 2002-03. Total sanctions and
disbursements of housing finance companies
(HFCs) amounted to Rs 0.2 billion and Rs 0.10
billion respectively in 2001-02. During the first
nine months of 2002-03, these were Rs 0.8 billion
and Rs 0.5 billion respectively. The leasing
companies sanctioned an amount of Rs 13.7
billion out of which they disbursed Rs 13.6 billion
while modarabas sanctioned Rs 5.0 billion and
disbursed Rs 4.9 billion, respectively during July-
March 2002-03.
National Savings Schemes (NSS)
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. Till 1971, the activities of
National Savings Department were merely
promotional in nature where, post offices and
commercial banks’ were operative agents for
investment purposes. From 1972 onward NSS is
engaged in the operations of various savings
schemes through its own branches network. As of
March 31, 2003, there were about 4.3 million
investors with National Saving Schemes (NSS).
The on-going savings schemes currently in
operation are Defence Savings Certificates, Special
Savings Certificates/ Accounts, National Deposit
Certificates, Savings Account, Regular Income
Certificates, Mahana Amdani Accounts, and Prize
Bonds. A new saving scheme entitled
Chapter 7. Capital Market

“Pensioners’ Benefit Account” was launched
during the current fiscal year.
During the fiscal year 2001-02, net
deposits with National Saving Schemes increased
to Rs 91.4 billion from Rs 51.1 billion in 2000-01.
Out of Rs 91.4 billion, Rs 36.4 billion, (39.8%)
were mobilized by Special Saving Certificates
(Registered), Rs 22.0 billion, (24.1%) by Defence
Saving Certificates, Rs 11.0 billion, (12.0%) by
Regular Income Certificates, and Rs 11.6 billion,
(12.7%) by Prize Bonds (Table 7.9 & Fig:3).

Table 7.9
Net Accruals by National Savings Schemes
(Rs Billion)
July-March % Change
1999-00 2000-01 2001-02 2001-02 2002-03
1. Defence Saving 41.2 16.6 22.0 13.2 14.7 5.1
Certificates (43.1) (32.5) (24.1) (26.0) (19.9)

2. Special Saving 19.4 9.4 36.4 21.5 41.3 19.8

Certificates Registered (20.3) (18.4) (39.8) (42.4) (55.8)

3. Regular Income 26.1 8.6 11.0 7.8 -11.9 -6.3

Certificates (27.3) (16.8) (12.0) (15.4) (-16.1)

4. Special Saving 5.5 3.6 4.3 -0.2 2.9 6.1

Accounts (5.8) (7.0) (4.7) (-0.4) (3.9)

5. National Prize Bonds -0.03 10.4 11.6 6.9 18.0 17.5

(-0.03) (20.3) (12.7) (13.6) (24.3)

6. Others 3.4 2.5 6.1 1.5 9.0 50.7

(3.6) (4.9) (6.7) (3.0) (12.2)

Grand Total 95.5 51.1 91.4 50.7 74.0 8.4

(100) (100) (100) (100) (100)
Note: Figures within brackets represent share to total. Source: Directorate of National Savings.

Fig-3: Net Accruals of NSS

50
36.4 41.3
40

30
22
(Rs Billion)

14.7 18
16.6 9.4
20 10.4 11 11.6
8.6
10

-10
-11.9
-20
2000-01 2001-02 2002-03 July-March

Def.Sav.Cert. Spl.Saving Certificates

Regular Income Certificates National Prize Bonds
Chapter 7. Capital Market
During the first nine months of the
current fiscal year, total net accruals under NSS
amounted to Rs 74.0 billion, as against the net
receipts of Rs 50.7 billion in the same period last
year. Special Savings Certificates (Registered)
with Rs 41.3 billion and 55.8 percent share in the
total net NSS accruals, gave the best performance
during the first nine months of the current fiscal
year, followed by National Prize Bonds (24.3%)
and Defence Saving Certificates (19.9%).
However, unlike previous year, there was an
actual decline of 6.3 percent (Rs 11.9 billion) in the
case of Regular Income Certificates. The decline in
Regular Income Certificates was due to huge
withdrawal from this scheme. Huge withdrawal
from the Regular Income Certificates may be due
to some comparatively better package available
with other schemes including the newly launched
Pensioners Benefit Account. It may be noted that
deposits with Regular Income Certificates are
taxable while in the case of some other schemes
such as; Defence Saving Certificates, Special
Saving Certificates and Pensioners Benefit
Account (which mobilized bulk of the net
deposits in 2002-03) accruals exceeding Rs 150,000
are taxable only.
The newly launched Pensioners’ Benefit
Account specifically meant for the retired
employees with ten years maturity. Profit on the
scheme is payable on monthly basis reckoned
from the date of deposit. The account can only be
opened by a pensioner. The account can be
opened with a minimum deposit of Rs 10,000/-
and maximum deposit of Rs 1.0 million. Monthly
profit of Rs 920/- is payable on a deposit of Rs
100,000/-, which works to 11.04 percent rate of
return p.a. This rate is applicable on the accounts
opened during the period from 1st January 2003 to
30th June 2003. The investment is exempt from
compulsory collection of Zakat at source. These
accounts can be opened only at the National
Savings Centres.
The Government of Pakistan has
reviewed the rate of return on National Savings
Schemes in July 2002 and in January 2003. The
return on Defence Savings Certificates has been
fixed at 10.03 percent per annum (on maturity).
The nominal deposit rates for saving schemes,
which are presently in operation with NSS ranged
between 5.0 percent (Savings Account) to 13.4
percent (Khas Deposit Schemes) with a weighted
average rate of 8.8 percent. With an inflation rate
of only 3.4 percent, the real deposit rates during
July-March 2002-03 ranged between 1.6 percent
(Saving Accounts) to 7.64 percent (Pensioners
Benefit Account) with a weighted average real
rate of 5.4 percent.
In the current year, the real rates of return
under the NSS were still attractive as compared to
other deposit schemes. Since the weighted
average real deposit rates of the schedule banks
remained low (around 2.8%), the NSS still offers
the most attractive rate of returns to the
depositors. This is the main reason why net
accruals under the NSS have increased by 46.0
percent in the first nine months of 2002-03, over
the same period of last year.
Returns on National Savings schemes,
which are linked with respective maturity yields
on PIBs, have declined significantly since July
2001. For example, yield on Defence Savings
Certificates declined by 497 basis points to 10.03
percent while return on 3 years Special Saving
Certificates has shrunk by 403 basis points to 8.67
percent. More importantly, the weighted average
return on National Savings Schemes has declined
from the average of 15.8 percent in 1995-2000 to
12.3 percent by end June 2002 and further to 8.8
percent by end March 2003---a decline of 700 basis
points in about three years (Table 7.10). The 6-
month Treasury Bills rate has also declined
significantly since June 2001, indicating the easing
of monetary stance by the SBP. The 6 months T.
 Chapter 7. Capital Market

Bills rate was as high as 12.88 percent in June 2001 Bills rate, the export refinance rate has also
but declined to as low as 1.65 percent in April declined by 950 basis points from 13.0 percent in
2003---a decline of 1123 basis points in just 21 July 2001 to 3.5 percent in March 2003.
months. As a result of sharp decline in months T.
Table 7.10
Nominal and Real Deposit Rates on Savings Schemes During 1995-2003

Scheme (Maturity) 1995-2000 2000-01 2001-02 2002-03

Nominal Real Nominal Real Nominal Real Nominal Real
Rate(p.a.) Rate Rate (p.a.) Rate Rate(p.a.) Rate Rate Rate
(p.a.)
1. Defence Saving
Certificates(10 Years) 16.6 8.7 15.0 10.6 14.1 10.6 10.03 6.63

2. National Deposit
Scheme (7 Years) 13.0 5.1 13.0 8.6 13.0 9.5 13.00 9.60

3. Special Savings
Certificate, Registered 16.6 8.7 12.7 8.3 12.7 9.2 8.67 5.27
(3 Years)

4. Special Savings
Certificate, Bearer (3 14.0 6.1 12.4 8.0 12.4 8.9 12.36 8.96
Years)

5. Regular Income
Certificates (5 Years) 16.1 8.2 12.5 8.1 12.5 9.0 9.12 5.72

6. Khas Deposit
Scheme (3 Years) 13.4 5.5 13.4 9.0 13.4 9.9 13.42 10.02

7. Mahana Amdani
Accounts (7 Years) 14.9 7.0 12.3 7.9 12.3 8.8 10.41 7.01

8. Saving Accounts
(Running Accounts) 11.4 3.5 7.8 3.4 7.8 4.3 5.00 1.60

9. Pensioners’ Benefit
Account (10 Years) - - - - - - 11.04 7.64

10. Prize Bonds (Running

Account) 10.8 2.9 6.0 1.6 6.0 2.5 6.00 2.60

Weighted Average 15.8 7.9 12.6 8.2 12.3 8.8 8.8 5.4

Source: Directorate of National Savings, Finance Division.

Average inflation was 7.9% during 1995-2000, 4.4% during 2000-2001; 3.5% during 2001-02 and 3.4%
during July-March 2002-03.

Reforms of the NSS computerization process is underway. Procedure

of maintenance of record at National Savings
In an attempt to restructure the National Centres has been revised threadbare to ensure
Savings Organization on modern lines, proper maintenance of record and to make it
Chapter 7. Capital Market

computer friendly. In this regard, National strengthen the reserves position of the
Savings Hand Book Vol-II has also been reviewed Government of Pakistan. Training Institute of
besides revision of national savings Hand Book National Savings has been reactivated by
Vol-I. About 150 National Savings Centres have establishing therein a computer lab and arranging
been shifted to new buildings in proper localities computer-training courses for the officials of
with commodious accommodation. Pensioners’ National Savings Organization. Due attention and
Benefit Account has been introduced to facilitate importance is being given to the job of automation
the retired officials. The Special Savings of National Savings accounts and the work is
Certificates and Defence Savings Certificates have expected to be completed in line with the
been launched in the United Arab Emirates for the commitment of the Federal Government with the
benefit of the Overseas Pakistanis and to International agencies.
______________________
Chapter 8. Inflation

8. Inflation
Introduction than would otherwise be the case. High inflation
is also a regressive and arbitrary tax, the burden
It has often been suggested that a stable of which is typically borne disproportionately by
macroeconomic environment promotes growth by those in fixed income group and poor.
providing a more conducive environment for Maintaining low and stable inflation should be
private investment. Being the key component of a seen as a necessary part of the poverty alleviation
stable macroeconomic environment low and strategy. The key point is that price stability is not
stable inflation assumes greater importance. It is, an end in itself; it is essential for sustaining higher
therefore, essential that inflation rate be kept economic growth - the single most important
stable even when it is low. factor influencing poverty.

Prices on the average can be rising, Price Indices

falling, or stable. Inflation is a process of rising
prices. Inflation rate is measured as the Four different price indices are published
percentage change in the average level of prices. in Pakistan: the consumer price index (CPI), the
Inflation rate rises and falls over the years but it wholesale price index (WPI), the sensitive price
rarely becomes negative. If the inflation rate is index (SPI) and the GDP deflator. The CPI covers
negative, it means the average price level is falling the retail prices of 375 items in 35 major cities and
which is not good for the economy. A recent reflects roughly the cost of living in the urban
study suggests that some level of inflation is areas. The WPI covers the wholesale price of 97
essential for promoting growth and investment. major items prevailing in the city of origin of
In other words, there exists a threshold beyond commodities. The SPI covers prices of 53 essential
which inflation exerts a negative effect on growth. items accounting for 51.6 percent of the
The threshold is lower for industrial than for expenditure of those households whose monthly
developing countries. Notwithstanding the income ranges from Rs.3000 to Rs.12000 per
existence of a threshold the goal of the month. In most countries, the main focus for
macroeconomic policy should be to bring inflation assessing inflationary trends is placed on the CPI,
down to single digit and keep it there. because as stated above, it most closely represents
the cost of living. In Pakistan, the main focus is
Several costs of high and variable placed on CPI as a measure of inflation because it
inflation have been identified. These costs is more representative with wider coverage of 375
typically arise from distortions in economic items in 71 markets of 35 cities of the country. The
decision-making arising from high or variable details are documented in Table-8.1.
inflation rates and result in lower levels of output
Chapter 8. Inflation

Table 8.1
Price Indices in Pakistan

Base Year 2000-01=100 Base Year 1990-91= 100

Features
CPI SPI WPI
Cities covered 35 17 16
Markets covered 71 51 16
Items covered 375 53 97
Number of Commodity Groups 10 - 5
Number of Quotations 106,500 10,404 1210
Income Groups Four Rs.3000/Month -
Occupational Groups All Categories 3(Urban) -
combined
Reporting Frequency Monthly Weekly Monthly
Source: Federal Bureau of Statistics

Inflation During the 1990s.
Pakistan has sustained a double-digit
inflation between 9.8 to 13.0 percent during the
first seven years of the 1990s. Not surprisingly,
one of the critical macroeconomic issues in
Pakistan’s policy arena during those periods has
been as to how to put inflation under effective
control. The persistence of a double-digit inflation
along with large fiscal deficit (7.0% of GDP) has
been the major source of macroeconomic
imbalances in the 1990s. There has been a general
agreement that lax fiscal management resulting in
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
12.2 percent and 10.7 percent, respectively during
the seven years of the 1990s [Table 8.2]. Inflation
slowed to an average of 5.7 percent in the
remaining three years of the 1990s, mainly on
account of 5.3 percent food inflation and 6.1
percent non-food inflation. Non-food inflation
was mainly driven by the prices of POL products
and the associated 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 (2000-
01 – 2002/03) overall inflation averaged 3.7
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
(3.1%) food inflation, as non-food inflation
averaged 4.3 percent during the last three years.
Chapter 8. Inflation

Table 8.2
Inflationary Trends*
(% Change)
CPI
Overall Food Non-Food
Year 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 3.5 2.5 4.5 2.1 3.4
2002-03 (July-April) 3.3 3.1 3.4 6.1 3.7
Average of 1990s
9.7 10.1 9.3 10.0 9.9
Average of 1990-97
11.4 12.2 10.7 12.2 12.0
Average of 1998-2000
5.7 5.3 6.1 4.9 5.2
Average of 2000-01 –
3.7 3.1 4.3 4.8 4.0
2002/03
* Inflation based on CPI and SPI are at Source: Federal Bureau of Statistics
2000-01 base.

Fig - 1: 1nflationary Trend

18

16

14

12

10

0
1990-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

'01-02

02-03(Jul-
Apr)

CPI FOOD NON-FOOD

Chapter 8. Inflation
Inflation During 2002-03
Inflation averaged at 3.3 percent during
July-April 2002-03. The low level of inflation in
the midst of 12.5 percent increase in money
supply is the result of better supply situation of
essential commodities, appreciation of exchange
rate, prudent fiscal management and continued
sterilization of monetary impact of massive
foreign exchange inflows. Food and non-food
inflation have been estimated at 3.1 percent and
3.4 percent, respectively as against 2.1 percent and
4.4 percent respectively in the corresponding
period of last year [See Table-8.3]. The higher
increase in food inflation over the comparable
period of last year is attributable to increase in
prices of wheat, wheat flour, rice basmati, meat,
tea, vegetable ghee and cooking oil. The increase
in vegetable ghee and cooking oil is the result of
increase in international price of palm oil and
imposition of GST on the local manufacturing of
ghee in the Federal Budget 2002-03. As shown in
Table 8.4, out of 19 widely consumed daily items
the prices of 9 items have declined in the range of
3.8 percent (Chicken Farm) to 51.5 percent
(potato). At the same time, the prices of 10 items
have increased in the range of 2.7 percent (Fresh
Milk) to 15.8 percent (tea). It may be noted that
prices of all the four types of pulses (Masur,
Moong, Mash and Gram) have declined because
of increase in their production. Accordingly, the
contribution of food inflation in overall inflation is
estimated at 38.1 percent in 2002-03 as against 25.1
percent last year.
Slower increase in non-food inflation as
compared with last year resulted mainly on
account of lesser increase in fuel and lighting
group (8.5% as against 9.6% of last year) and
transport & communication group (5.5% as
against 7.1% last year). It is important to note that
during July 1-May 15, 2002-03, 22 adjustments in
prices of petrol have taken place - 13 times the
prices were raised and 8 times reduced while one
time it remain unchanged. On July 1, 2002 the
price of petrol was Rs.33.71/Litre and on May 16,
2003 it stood at Rs.28.88/Litre - a decline of 14.3
percent. The prices of petroleum product and its
various grades including kerosene oil fluctuated
moderately during the fiscal year 2002-03. The
prices of the various components of petroleum
products generally witnessed a rising trend but
reached at all time high on March 16, 2003 as a
result of the continuous escalation of POL prices
in the international market. During the last four
adjustments the prices of POL products declined
sharply across the board. Most importantly, the
price of petrol which stood at Rs.37.11/Litre on
March 16, 2003 declined to Rs.28.88/Litre on May
16, 2003 – a decline of Rs.8.23/Litre or 22.2
percent. Similarly, the price of diesel (HSD)
declined from Rs.25.93/Litre to Rs.19.91/Litre – a
decline of Rs.6.02/Litre or 23.2 percent during the
same period. The price of Kerosene declined from
Rs.24.62 to Rs.18.53 – a decline of Rs.6.09/Litre or
24.7 percent. Contrary to the general perception,
the government has judiciously passed on the
benefit of lower international prices of POL
products to the people by lowering the domestic
price of these products [See Table-8.5 and Fig-2].
The contribution of non-food inflation is
estimated at 61.3 percent which is lower than last
year (77.5%). Within non-food inflation, almost
one-half contribution has come from fuel &
lighting and transport and communication.
Chapter 8. Inflation

Table 8.3
Changes in CPI According to Commodity Group
(% Change)
Commodity Groups July-April %age Point Contribution
Weight (July-April)
2001-02 2002-03 2001-02 2002-03
CPI 100.0 3.4 3.3 3.4 3.3
Food 40.3 2.1 3.1 25.1 38.1
Non-Food 59.7 4.4 3.4 77.5 61.3
Apparel, Textile 6.1 3.2 3.3 5.7 6.0
House Rent 23.4 2.9 0.7 20.2 4.6
Fuel & Lighting 7.3 9.6 8.5 20.6 18.7
Household 3.3 3.7 3.1 3.5 3.1
Transport 7.3 7.1 5.5 15.3 12.1
Recreation 0.8 7.2 0.4 1.8 0.1
Education 3.5 N.A 4.7 0.0 4.9
Cleaning 5.9 2.0 4.9 3.8 8.6
Medicare 2.1 1.8 3.8 1.1 2.4
Source: Federal Bureau of Statistics

Table 8.4
Prices of Essential Commodities
(Rs.)
Items Unit 2000-01 2001-02 July April % Change
2002 2003 Apr 03/Jul 02
Wheat Kg 8.2 8.3 8.2 8.8 7.8
Wheat Flour Kg 9.8 9.7 9.7 10.3 5.8
Rice Basmati Kg 15.1 15.5 16.9 18.4 9.2
Masur Pulse Kg 37.0 38.4 36.2 34.9 -3.9
Moong Pulse Kg 29.9 34.4 32.3 29.9 -7.3
Mash Pulse Kg 46.5 44.3 41.8 35.8 -14.4
Gram Pulse Kg 29.3 34.9 34.4 27.6 -19.7
Beef Kg 54.8 55.2 56.9 64.7 13.7
Mutton Kg 106.6 111.5 116.2 132.2 13.8
Sugar Kg 27.2 22.9 22.3 19.8 -11.0
Milk Fresh Ltr 17.6 17.9 18.1 18.6 2.7
Veg. Ghee 2.5Kg 154.9 169.2 183.3 198.7 8.4
Veg. Ghee (Loose) Kg 44.9 49.2 53.3 55.9 4.9
Cooking Oil 2.5Ltr 156.5 171.0 183.6 202.9 10.5
Tea 250Gm 53.8 57.0 57.0 66.0 15.8
Chicken (Farm) Kg 51.6 52.0 60.2 57.9 -3.8
Red Chilies Kg 66.5 78.3 83.6 71.0 -15.1
Onion Kg 10.5 9.6 11.0 6.6 -40.0
Potatoes Kg 9.5 11.4 12.8 6.2 -51.5
Source: Federal Bureau of Statistics
Chapter 8. Inflation

Table 8 5
Prices of Various POL Products (Rs./Litre)
Effective from MS RON 87 HOBC Kerosene HSD * LDO
Fortnight
1-Jul-02 33.71 38.19 17.08 19.41 16.18
16-Jul-02 33.59 38.07 17.22 19.35 16.25
1-Aug-02 33.84 38.33 17.64 19.08 16.16
16-Aug-02 33.94 38.40 17.60 19.08 15.97
1-Sep-02 34.32 38.79 18.41 19.48 16.65
20-Sep-02 34.66 39.13 18.61 19.76 16.93
2-Oct-02 34.66 39.13 18.61 19.76 16.93
16-Oct-02 35.64 40.11 19.27 20.98 17.83
1-Nov-02 35.21 39.70 19.23 21.98 17.88
16-Nov-02 32.18 36.65 18.95 21.38 16.64
1-Dec-02 30.25 34.35 18.95 20.01 16.16
16-Dec-02 31.02 35.02 19.26 20.22 16.24
1-Jan-03 32.50 36.41 20.70 21.14 17.60
16-Jan-03 32.64 36.55 20.62 21.72 17.53
1-Feb-03 32.96 36.83 21.32 21.72 18.30
16-Feb-03 34.51 38.41 22.90 22.82 19.58
1-Mar-03 35.74 39.65 23.81 25.05 20.47
16-Mar-03 37.11 41.11 24.62 25.93 20.95
1-Apr-03 33.27 37.32 21.06 24.53 18.64
16-Apr-03 30.58 34.60 19.02 21.28 16.69
1-May-03 30.13 34.17 19.25 20.23 16.38
16-May-03 28.88 32.40 18.53 19.91 16.09
Source: Oil Companies Advisory Committee
* Hydrocarbon Development Institute of Pakistan

Fig-2: Prices of Petroleum Products

42
40
38
36
34
32
30
Rs./Litre

28
26
24
22
20
18
16
14
12
10
01

01

01

02

02

02

02

02

02

02

02

02

03

03

03

03

03
/01

/01

/01

/02

/02

/02
7/1/

8/1/

9/1/

1/1/

2/1/

3/1/

4/1/

5/1/

6/1/

7/1/

8/1/

9/1/

1/1/

2/1/

3/1/

4/1/

5/1/
10/1

11/1

12/1

10/1

11/1

12/1

MS Ron 87 HOBC Kerosene HSD LDO

Chapter 8. Inflation

The month-wise analysis of inflationary trend as inflation decelerated from 5.8 percent to 0.5
documented in Table-8.6 suggests that overall percent by March 2003. Non-food inflation on the
inflation continued to exhibit a broadly declining other hand continued to rise because of the rising
trend since July 2002. On year-on-year basis the trend in oil prices. It has started declining since
overall inflation stood at 4.0 percent in July 2002 March 2003.
but declined to 2.2 percent in April 2003. Food

Table 8.6
Monthly Inflation Rate
(% Change)
2000-01 2001-02 2002-03
Perio CPI Food Non CPI Food Non CPI Food Non
d Food Food Food
Jul 5.0 4.2 5.6 3.5 0.5 5.9 4.0 5.8 2.6
Aug 4.4 3.0 5.6 4.2 2.4 5.6 3.7 4.7 2.8
Sep 5.1 3.9 6.0 3.3 1.3 4.9 3.7 4.7 2.8
Oct 4.6 4.2 4.9 3.3 1.9 4.3 3.5 3.6 3.4
Nov 5.4 5.8 5.1 2.6 1.4 3.6 3.1 2.6 3.5
Dec 5.1 4.9 5.2 2.6 1.3 3.7 3.3 2.6 4.0
Jan 4.7 4.2 5.1 2.9 1.8 3.7 3.4 2.6 4.0
Feb 4.6 4.2 4.9 3.3 2.5 3.9 3.5 2.6 4.1
Mar 4.2 3.8 4.5 4.2 3.8 4.5 2.2 0.5 3.5
Apr 4.0 3.3 4.5 4.2 4.2 4.1 2.2 1.2 3.1
May 3.6 2.1 4.8 3.9 3.4 4.3 - - -
Jun 2.5 -0.6 5.0 4.4 4.8 4.2 - - -
Source: Federal Bureau of Statistics

7.2
Fig-3: Monthwise Inflation Rate (CPI)

6.2

5.2

4.2

3.2 .

2.2

1.2

0.2
g.

p.

t.

g
c.

b.

b
n

n
v.

v
r.

r
n.

n
r.

r
y

y
0.

Oc

Oc
Ap

Ap
Ma

Ma
De

De
No

No
Ma

Ma
Au

Au
Se

Se
Fe

Fe
Ju

Ju

l-0
Ja

Ja
l-0
Oc

Ap
Ma
De
No
Au

-0.8
Se

Fe
Ja
l-0

'Ju
Ju
Ju

Inflation Food Non-Food

Inflation by Income Groups groups. To assess the impact of inflation on

It is always interesting to know the consumers belonging to different income groups,
various inflation rates faced by different income the CPI is constructed for four income groups,
Chapter 8. Inflation

namely Rs.3000, Rs.5000, Rs.12000 and above groups spend a major portion of their incomes on
Rs.12000 per month. Data for the first ten months food items. Since food inflation has remained low
(July-April) of the current fiscal year show that as as compared with non-food inflation, therefore,
against overall inflation of 3.3 percent, the lowest the lowest income group faced relatively lower
income group experienced 3.1 percent inflation inflation as compared with those in higher income
while all other groups faced more or less the same groups [See Table-8.7 and Fig 4].
overall inflation (3.3%). The people in low-income
Table 8.7
Inflation Rate by Income Groups
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 3.5 3.0 4.9 3.4 3.6
2002-03 3.3 3.1 3.4 3.3 3.3
(Jul-Apr)
Source: Federal Bureau of Statistics

Fig-4: Inflation by Income Groups

14

12

10

0
95-96 96-97 97-98 98-99 99-00 00-01 '01-02 02-03 (Jul-Apr)

3000 3001-5000 5001-12000 above 12000

Wholesale Price Index (WPI)
The WPI, on average basis, increased by
6.1 percent during July-April, 2002-03. This
increase in WPI is significantly higher than the
increase of 2.1 percent last year. To this increase,
maximum contribution was made by the fuel &
lighting group (15.7 percent), followed by raw
material (9.4 percent), and manufacturing group
(2.6 percent). The larger increase in the index of
fuel & lubricant at 15.7 percent against 3.5 percent
last year is mainly attributable to increase in
prices of POL products. The increase in the prices
of raw material has mainly been due to the fact
that price indices of certain important items like
cotton, cotton yarn, vegetable ghee etc. have
increased at higher rate during the current fiscal
year than last year[See Table-8.8].
Chapter 8. Inflation

Table 8.8
Components of WPI
(% Change)
Commodity Groups July-April %age Point Contribution (July-
Weight April)
2001-02 2002-03 2001-02 2002-03
WPI 100.0 2.1 6.1 2.1 6.1
Food 45.8 1.8 3.0 39.9 22.7
Non-Food 54.2 2.3 8.7 60.9 77.3
Raw Material 8.8 0.5 9.4 2.2 13.5
Fuel & Lubricants 15.3 3.5 15.7 25.8 39.6
Manufacturers 25.5 2.2 2.6 27.6 11.0
Building Materials 4.6 0.5 1.2 1.1 0.9
Source: Federal Bureau of Statistics

Sensitive Price Indicator (SPI)
The SPI is used to capture the movement
in prices of 53 essential items, consumed by the
urban households with income of Rs.3000-
Rs.12000 per month. The increase in SPI during
the first ten months of the current fiscal year (July-
April) 2002-03 is estimated at 3.7 percent against
3.2 percent last year mainly due to the increase in
prices of some basic food items such as wheat
(7.8%), wheat flour (5.8%), rice basmati (9.2%),
mutton (13.8%), beef (13.7%), vegetable ghee
(8.4%), cooking oil (10.5%) and tea (15.8%). Much
of the increase in prices of wheat is attributable to
its lower production (-4.2%) in 2001-02. The
increase in Meat prices is due to increasing
demand and vegetable ghee is due to imposition
of GST on local manufacturing of ghee as well as
substantial increase in the international price of
palm oil. However, prices of some basic food
items like sugar, pulses, red chillies, chicken
(Farms), onion and potatoes have shown
significant decline upto the range of 52% on
account of improved supply position of these
items [See Table-8.4 for details].
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
_____________
pressures through economic measures rather than
formal price control. However, close vigilance is
kept on unusual rise in prices through weekly
meetings of the Kitchen Items Committee, now
called the Sensitive Items Price Committee (SIPC)
and through the weekly meetings of the ECC of
the Cabinet. Other measures in the realm of
supply augmentation, reduction in import duty to
facilitate larger imports, improved marketing
practices, timely distribution, coordination with
private sector and persuading traders/
manufacturers to refrain from unfair practices are
undertaken to ensure price stability in the
country.
The above analysis clearly suggests that
the Government has succeeded in keeping
inflation not only low but it is much lower than
the target (4.0%) for this fiscal year. The increase
in prices of daily consumable items have also
remained low. In many cases the prices of some
essential items have fallen when compared with
last year. In some cases the price have increased
as well. This is the normal practice in any
economy. The whole idea of the country’s
monetary and fiscal policy is not to maintain
negative inflation (decline in general price level)
but to keep inflation at low level. The government
has succeeded in keeping inflation low (3.3%)
during the current fiscal year. Even in future,
inflation rate should remain within the range of 3
to 4 percent. Keeping inflation at low level should
be regarded as protecting the poor from inflation
tax.
Chapter 9. Trade and Payments

9. Trade and Payments

Notwithstanding difficult external year. In other words, the country was able to earn
environment characterized by subdued global $ 1525.6 million more in exports, of which main
economic activity, sluggish world trade, rising share goes to textile manufactures ($ 983.0 million
international price of oil and geopolitical or 64.4%).
uncertainty, Pakistan’s external balance of
payments improved significantly during the Further analysis reveals that during this
outgoing fiscal year 2002-03. Both exports and period (July-April) primary commodities exports
imports picked up, workers remittances touched grew by 26.0 percent. Within primary
new heights, surplus in current account further commodities, export of rice increased by 22.9
increased, rupee gained strength and appreciated percent. Pakistan was also able to export raw
by almost 4 percent, and foreign exchange cotton and wheat worth of $ 46.5 million and $
reserves crossed $ 10 billion and provided much 106.1 million, respectively. Exports of textile
needed stability in the exchange rate. With the manufactures stood at $ 5644.8 million (almost
strengthening of external balance of payments, 64% of total exports), as compared with $ 4661.9
Pakistan’s macroeconomic environment has million in the same period last year, thereby
improved considerably. It has often been registering an increase of 21.1 percent. Within
suggested that a stable macroeconomic textile manufactures, exports of cotton cloth,
environment promotes growth by providing a knitwear, bedwear, towels and readymade
more conducive environment for private sector garments were up in the range of 16.3 percent
investment. There is no reason as to why an (cotton cloth) to 37.2 percent (bedwear). More
improved macroeconomic environment created importantly, the exports of cotton cloth, knitwear,
by external balance of payments should not bedwear and towels also grew in quantity term in
deliver strong growth this year and even more the range of 6.7 percent (cotton cloth) to 41.9
stronger over the medium-term. percent (knitwear) with bedwear and towels
growing by 25.7 percent and 19.9 percent,
Trends in Exports respectively. Exports of other manufactures
registered a growth of 10.4 percent with
Exports were targeted at $ 10.347 billion engineering goods, chemicals & pharmaceutical
for the fiscal year 2002-03 – 13.3 percent higher products, petroleum products and sports goods
than last year ($ 9.135 billion). Exports during showing tremendous potential of exports. Exports
July-April, 2002-03 grew by 20.8 percent and of carpets & rugs and leather & leather
stood at $ 8849.7 million as against $ 7324.1 manufactures continue to show a declining trend
million of the same period last year, thereby [See Table 9.1].
achieving 85.5 percent of export target for the
Chapter 9. Trade and Payments

Table 9.1
Structure of Exports
($ Million)
JULY-APRIL %
Particulars 2002-03* 2001-02 Change
A. Primary Commodities 825.1 654.6 26.0
Rice 450.7 366.7 22.9
Raw Cotton 46.5 16.1 188.8
Fish & Fish Preparation 110.6 106.8 3.6
Fruits 69.0 70.5 -2.1
Wheat 106.1 48.3 119.7
B. Textile Manufactures 5644.8 4661.9 21.1
Cotton Yarn 791.9 767.4 3.2
Cotton Cloth 1057.0 908.9 16.3
Knitwear 875.3 672.1 30.2
Bedwear 1010.9 736.9 37.2
Towels 279.3 214.8 30.0
Readymade Garments 880.2 708.9 24.2
C. Other Manufactures 1667.4 1509.7 10.4
Carpets, Rugs & Mats 183.5 192.1 -4.5
Petroleum Products 153.3 93.5 63.9
Sports Goods 254.5 234.4 8.6
Leather Tanned 189.0 189.4 -0.2
Leather Manufactures 309.7 318.2 -2.7
Surgical Goods & Medical Instruments 116.8 118.9 -1.8
Chemicals & Pharmaceutical Products 208.3 114.7 81.6
Engineering Goods 54.0 38.6 39.9
D. Others 712.4 497.9 43.1
Total 8849.7 7324.1 20.8
* Provisional Source: Federal Bureau of Statistics.

A variety of reasons contributed towards
healthy growth in exports, prominent among
those are substantial expansion in volume terms
resulting from increased textile quota/grater
market access in the European Union, sharp
reduction in the refinance rate under Export
Finance Scheme and value addition in textile
manufactures. Given the trends in exports during
July-April 2002-03, the current year’s export target
($10.347 billion) is likely to be surpassed.
Exports during the first ten months (July-
April) of the current fiscal year have increased by
$ 1525.6 million in absolute term over the
corresponding period of last year. The major
contributors to this additional export earnings
have been textile manufactures ($ 983.0 million or
64.4%), followed by other exports ($ 214.5 million
or 14.1%), primary commodities ($ 170.5 million
or 11.2%) and other manufactures ($ 157.6 million
or 10.3%) [See Table 9.2 and fig.1].
Chapter 9. Trade and Payments

Table 9.2
Major Contributors to Additional
Export Earnings
(July-April, 2002-2003 *)

Net Increase %
Exports
$ Million Contribution
Additional Export Earnings 1525.6 100.0
-Primary Commodities 170.5 11.2
- Textile Manufactures 983.0 64.4
- Other Manufactures 157.6 10.3
- Others 214.5 14.1
* Provisional Source: FBS & E.A.Wing, Finance Division

Fig-1: Major Contributors to Additional Export Earnings

(July-April, 2002-03)

Others Primary
14.1% commodities
11.2%

Other
Manufactures
10.3%
Textile
Manufactures
64.4%

Month-Wise Exports million per month during this period as against $

732.4 million of the comparable period last year.
The month-wise exports during July- In other words, on average, exports have been
April, 2002-03 (first ten months) remained higher by $ 152.6 million per month during this
consistently higher than the corresponding period [See Table 9.3 and fig.2].
months of last year. Exports averaged $ 885.0
Chapter 9. Trade and Payments

Table 9.3
Month-Wise Exports
($ Million)
Month 2001-02 2002-03
Fig-2: Month Wise Exports
July 683.9 816.7
1100
August 780.5 902.8
1000
September 800.2 869.0
October 759.9 891.7 900

($ Million)
November 711.1 854.1
800
December 722.2 863.2
January 699.6 946.5 700

February 654.9 776.4 600

March 725.8 935.6
500
April * 786.0 993.7 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

Monthly 2001-02 2002-03

732.4 885.0
Average
* Provisional
Concentration of Exports
Pakistan's exports are highly concentrated
in few items/groups namely, cotton, leather, rice,
synthetic textiles and sports goods. These five
categories of exports accounted for about 79
percent of total exports during 2001-02. Among
these categories, cotton group alone contributed
59.4 percent, followed by leather (6.8%), rice
(4.9%), and synthetic textiles (4.5%). These four
items together accounted for 75.6 percent of total
export earnings. The degree of concentration of
these items/groups during 2001-02 remained
Source: Federal Bureau of Statistics
close to the last year’s level except that of
synthetic textiles whose share declined by 1.4
percentage points due to decline in its quantity
and unit price. Furthermore, almost all the export
earnings of cotton group have originated from
textile and clothing. Such a high degree of
concentration of exports in few items is a major
source of instability in export earnings. A poor
cotton crop seriously affects total export proceeds,
as it has been observed several times in the past.
The annual percentage shares of major export
commodities are given in Table 9.4.

Table 9.4
Pakistan's Major Exports
(Percentage Share)
Commo-
90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02
dity
Cotton 61.0 61.3 59.8 57.9 58.7 64.1 61.3 58.7 59.1 61.0 58.9 59.4
Leather 9.1 8.6 9.3 9.2 8.0 7.2 7.7 6.7 6.9 6.3 7.5 6.8
Rice 5.6 6.0 4.7 3.6 5.6 5.8 5.6 6.5 6.9 6.3 5.7 4.9
Synthetic
Textiles 5.7 6.1 7.4 9.5 7.1 5.2 6.1 7.2 5.1 5.3 5.9 4.5
Sports
Goods 2.2 2.0 1.9 2.9 3.2 2.8 3.7 4.4 3.3 3.3 2.9 3.3
Sub-
83.6 84.0 83.1 83.1 82.6 85.1 84.4 83.5 81.3 82.2 80.9 78.9
Total
Others 16.4 16.0 16.9 16.9 17.4 14.9 15.6 16.5 18.7 17.8 19.1 21.1
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: Ministry of Commerce.
Chapter 9. Trade and Payments

the same trend and remained at 11 percent, 14

Composition of Exports
The composition of Pakistan’s exports has
changed significantly over the years. The
principal changes have been the steep fall in the
shares of primary & semi-manufactured exports
and equally sharp increase in the share of
manufactured exports. The share of primary
commodities, semi-manufactures and
manufactured goods in the year 2001-02 depicted
percent and 75 percent, respectively. During July-
March of the current fiscal year (2002-03), the
share of primary commodities increased by one
percentage point to 12 percent, semi-
manufactures slipped by three percentage points
and settled at 11 percent and the share of
manufactured goods moved upward from 75
percent to 77 percent over the same period last
year [See Table 9.5].

Table 9.5
Composition of Exports
( Rs. Million)

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
2001-02 560,947 60,346 11 80,438 14 420,163 75
July-March
2001-02 404,846 44,289 11 58,702 14 301,855 75
2002-03 * 461,479 52,703 12 52,528 11 356,248 77
* Provisional Source: Federal Bureau of Statistics

If semi-manufactures and manufactured Direction of Exports

goods are taken together, 88 percent of export
earnings during July-March, 2002-03 originated
from manufactured exports and only 12 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.
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 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 while that
of Japan has exhibited a continuous decline, mainly
on account of a protracted recession in the Japanese
economy. The share of exports to Germany, UK,
Chapter 9. Trade and Payments

Hong Kong and Saudi Arabia remained almost Dubai. The share of exports to Dubai has increased
stagnant with some fluctuations over the years. by 2.6 percentage points because of higher exports
By and large, the same trend continued during of textile manufactures. [See Table 9.6].
2001-02 with the exception of export share to

Table 9.6
Major Export Markets of Pakistan
(Percentage Share)
90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- 01-
Country
91 92 93 94 95 96 97 98 99 00 01 02
USA 10.8 12.8 13.9 14.4 16.2 15.5 17.7 20.5 21.8 24.8 24.4 24.7
Germany 8.9 7.1 7.8 8.0 7.0 6.8 7.5 6.3 6.6 6.0 5.3 4.9
Japan 8.3 8.3 6.8 8.0 6.7 6.6 5.7 4.2 3.5 3.1 2.1 1.8
UK 7.3 6.6 7.1 7.8 7.1 6.4 7.2 6.9 6.6 6.8 6.3 7.2
Hong Kong 6.0 7.3 6.6 7.3 6.6 9.1 9.4 7.1 7.1 6.1 5.5 4.8
Dubai 2.8 4.4 5.9 6.3 4.0 4.7 4.6 5.0 5.4 5.7 5.3 7.9
Saudi Arabia 3.6 4.3 4.7 3.5 2.7 2.4 2.6 2.5 2.4 2.5 2.9 3.6
Sub-Total 47.7 50.8 52.8 55.3 50.3 51.5 54.7 52.5 53.4 55.0 51.8 54.9
Other
Countries
52.3 49.2 47.2 44.7 49.7 48.5 45.3 47.5 46.6 45.0 48.2 45.1
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: Ministry of Commerce

Trends in Imports grew by 21.1 percent, primarily on account of

Imports were targeted at $ 11.1 billion for
the fiscal year 2002-03 – 7.4 percent higher than
last year ($ 10.340 billion). Imports grew by 22.5
percent and stood at $ 10099.5 million during
July-April 2002-03 as against $ 8244.9 million of
the corresponding period last year, thereby
achieving 91.0 percent of the target set for the
year. The overall import bills of the country was
higher by $ 1854.5 million to meet the domestic
requirements which were mainly the outcome of
additional imports spending on machinery ($
594.7 million) and POL products ($ 457.7 million).
Further analysis reveals that food group
accounting for only 8.1 percent of total imports,
substantial increase (48.4%) in imports of palm oil
(mainly due to 39.2 percent increase in its import
price) and soyabean oil to meet its domestic
consumption requirement. Import of machinery
was up by 35.6 percent, showing the signs of pick
up in domestic economic activity. Almost one-
fourth of imports are petroleum group which
were up by 20.6 percent – the rise was attributed
to the higher import price of both the petroleum
crude and petroleum products. All other groups
of imports have also registered significant growth
during July-April 2002-03 [See Table 9.7]. Non-oil
imports as well as non-oil non-food imports were
up by almost 23 percent. This is yet another
indicator of the pick up in domestic economic
activity.
Chapter 9. Trade and Payments

Table 9.7
Structure of Imports
($ Million)
JULY-APRIL %

Particulars 2002-2003* 2001-2002 Change

A. Food Group 813.0 671.1 21.1
Wheat Unmilled 28.7 43.7 -34.3
Soyabean Oil 41.9 9.9 323.2
Palm Oil 441.2 297.3 48.4
Sugar 1.7 23.0 -92.6
Pulses 98.6 108.0 -8.7
B. Machinery Group 2266.8 1672.1 35.6
Power Generating Machinery 215.7 165.2 30.6
Textile Machinery 405.5 336.1 20.6
Const. & Mining Machinery 76.9 91.1 -15.6
Electrical Mach. & Apparatus 168.4 99.6 69.1
Agricultural Machinery 27.6 11.8 133.9
C. Petroleum Group 2683.4 2225.7 20.6
Petroleum Products 1473.3 1222.1 20.6
Petroleum Crude 1210.1 1003.7 20.6
D. Textile Group 183.5 154.7 18.6
Synthetic Fibre 76.5 60.9 25.6
E. Agri/Other Chemicals Group 1744.8 1496.0 16.6
Fertilizer 212.1 157.1 35.0
F. Metal Group 402.2 367.0 9.6
Iron & Steel 325.3 285.3 14.0
G. Miscellaneous & Others 2005.8 1658.3 21.0

Total 10099.5 8244.9 22.5

Excluding Petroleum Group 7416.1 6019.2 23.2

Excluding Petroleum & Food Groups 6603.1 5348.1 23.5

* Provisional Source: Federal Bureau of Statistics

Imports during the first ten months (July-
April) of the current fiscal year increased in
absolute terms by $ 1854.5 million over the
corresponding period last year. The major
contributors to this additional import bill have
been machinery group ($ 594.7 million or 32.1%)
followed by petroleum group ($ 457.7 million or
24.7%), agricultural/chemicals group ($ 248.8
million or 13.4%) and food group ($ 141.9 million
or 7.7%). The details are given in Table 9.8 and
fig-3.
Chapter 9. Trade and Payments

Table 9.8
Major Contributors to Additional
Import Bill
(July-April, 2002-2003 *)

Net Increase %
Imports
$ Million Contribution
Additional Import Bill 1854.5 100.0
- Food 141.9 7.7
- Machinery 594.7 32.1
- Petroleum 457.7 24.7
- Textile 28.7 1.5
- Agricultural/Chemicals 248.8 13.4
- Metal 35.1 1.9
- Miscellaneous & Others 347.6 18.7
* Provisional Source: FBS & E.A.Wing, Finance Division

Fig-3: Major Contributors to Additional Import

Bill
(July-April, 2002-03)
Food
Misc.& Others 7.7%
18.7%

Metal
1.9%
Machinery
Agri/Chemicals 32.1%
13.4%

Textile
1.5%

Petroleum
24.7%

Month – Wise Imports period as against $ 824.5 million of the

The month-wise imports during July-April, 2002-
03 remained consistently higher than the
corresponding months of last year. Imports
averaged $ 1009.9 million per month during this
comparable period last year. In other words, on
average, imports have been higher by $ 185.4
million per month during this period. The
monthly imports are tabulated in Table 9.9 and
fig-4.
Chapter 9. Trade and Payments

Table 9.9
Month-Wise Imports
($ Million)
Month 2001-02 2002-03
July 791.6 927.2 Fig-4: Month Wise Imports
1350
August 937.9 969.3
1250
September 774.5 880.3
October 838.3 1018.0 1150

($ Million)
November 825.3 960.2 1050
December 707.7 1032.6
950
January 854.8 1053.1
February 738.1 918.7 850

March 886.6 1270.5 750

April * 890.1 1069.6

650
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Monthly
824.5 1009.9
Average 2001-02 2002-03

* Provisional Source: Federal Bureau of Statistics

Pakistan had to spent $ 730.9 million
more over last year on the import of major items
during July-April, 2002-03 due to higher import
prices prevailing in the international market [See
Table 9.10]. Had the unit values of these import
items remained at the last year’s level, the imports
would have been lower at $ 9368.6 million, as
against $ 10099.5 million, and the import growth
would have been 13.6 percent instead of 22.5
percent as achieved during the first ten months of
the current fiscal year.

Table 9.10
Additional Import Bill as a Result of the Rise in Import Prices
July-April 2002-03 *
($ Million)
Imports at Last Additional
Commodity Actual Imports Year’s Prices Bill
Soyabean Oil 41.9 26.5 15.4
Palm Oil 441.2 317.0 124.2
Petroleum Products 1473.3 1215.1 258.2
Petroleum Crude 1210.1 1009.5 200.6
Fertilizer 212.1 168.5 43.6
Plastic Material 342.0 324.0 18.0
Medicinal Products 170.8 158.6 12.2
Iron & Steel 325.3 266.6 58.7

Total 4216.7 3485.8 730.9

* Provisional Source: FBS & E.A.Wing, Finance Division
Chapter 9. Trade and Payments

Concentration of Imports have taken place in some categories of imports

Pakistan's imports are highly
concentrated in few items namely, machinery,
petroleum & petroleum products, chemicals,
transport equipments, edible oil, iron & steel,
fertilizer and tea. These eight categories of
imports accounted for 75.2 percent of total
imports during 2001-02. Among these categories,
machinery, petroleum & petroleum products and
chemicals accounted for almost 60.1 percent of
total imports. Considerable structural changes
over the years. The share of machinery has
declined on account of sliding investment but
during 2000-01 and 2001-02 its share has increased
due to higher imports of power generating
machinery, electrical & textile machinery and
construction & mining machinery. The share of
chemicals depicted a gradual rising trend, while
that of petroleum and petroleum products picked
up – mainly on account of rising domestic
demand and higher international prices [See
Table 9.11].

Table 9.11
Pakistan's Major Imports
(Percentage Share)

Commodities 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 01-02

Machinery * 20.5 27.0 24.3 22.0 22.8 21.6 23.1 18.9 17.9 13.9 19.3 17.1
Petroleum &
22.2 15.0 15.5 16.1 15.3 16.8 19.0 15.5 15.5 27.2 31.3 27.1
Products

Chemicals @ 12.8 13.1 12.5 14.4 14.0 15.6 13.4 15.7 16.6 17.5 20.0 15.9

Transport
6.7 9.0 12.5 9.7 5.9 4.7 4.7 4.8 5.7 5.5 4.0 4.8
Equipments

Edible Oil 5.3 4.4 5.9 5.7 9.6 7.3 5.1 7.6 8.7 4.0 3.1 3.8

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

Fertilizer 3.5 2.8 2.5 3.1 1.2 2.9 3.2 2.1 2.8 1.9 1.6 1.7

Tea 2.2 1.9 2.1 2.2 1.8 1.4 1.1 2.2 2.4 2.0 1.9 1.5

Sub-Total 76.5 76.7 78.5 77.0 74.2 74.4 73.5 70.0 72.7 75.0 83.8 75.2

Others 23.5 23.3 21.5 23.0 25.8 25.6 26.5 30.0 27.3 25.0 16.2 24.8

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: Ministry of Commerce

@ Excluding fertilizer

Composition of Imports the years. The share of raw material for consumer
The composition of Pakistan’s imports goods in the total imports continued to be higher.
has not witnessed any appreciable change over On the other hand, the share of raw material for
Chapter 9. Trade and Payments

capital goods was minimum. The share of capital
goods exhibited a declining trend — mainly
because of slow down of investment in the
country. The share of consumer goods over the
time remained flat.
During the current fiscal year (July-
March, 2002-03), the share of consumer goods
declined by two percentage points and came to 10
percent while the share of raw material for
consumer goods remained flat at 55 percent.
However, due to higher imports of machinery, the
share of capital goods increased from 27 percent
to 29 percent, whereas the share of raw material
for capital goods did not show any change during
this period and remained at 6 percent. The details
are given in Table 9.12.

Table 9.12
Composition of Imports
(Rs. Million)
Raw Material For
Capital Goods Consumer Goods
Total Capital Goods Consumer Goods
Year
Imports % % % %
Value Value Value Value
Share Share Share 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
2001-02 634,630 176,702 28 39,038 6 346,865 55 72,025 11
Jul-Mar
2001-02 455,177 123,424 27 28,779 6 249,376 55 53,598 12
2002-03 * 530,125 155,725 29 30,269 6 290,554 55 53,550 10
* Provisional Source: Federal Bureau of Statistics
same during 2001-02. The share of Japan exhibited
Direction of Imports
a declining trend because of the shift in the import
of machinery/capital goods from other sources.
Pakistan’s major imports are coming On the other hand, the shares of Pakistan’s
from few countries. Slightly below one-half of imports from Kuwait and Saudi Arabia have been
Pakistan’s imports continue to originate from rising with some fluctuations because of the
seven countries namely, USA, Japan, Kuwait, growing share of POL products in total imports.
Saudi Arabia, Germany, UK and Malaysia. By and Import share of Malaysia has been fluctuating
large, the relative shares of imports originating over the years mainly on account of fluctuations
from these countries have remained almost the in palm oil prices [See Table 9.13].
Chapter 9. Trade and Payments

Table 9.13
Major Sources of Imports
(Percentage Share)
90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- 01-
Country
91 92 93 94 95 96 97 98 99 00 01 02
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 6.7
Japan 13.0 14.3 15.9 11.8 9.6 10.7 8.6 7.8 8.3 6.3 5.3 5.0
Kuwait 0.7 0.9 3.3 5.3 5.8 6.4 6.9 5.6 5.9 12.0 8.9 7.1
Saudi Arabia 6.2 5.2 5.4 5.4 4.9 5.9 6.0 6.1 6.8 9.0 11.7 11.6
Germany 7.3 8.0 7.4 7.7 6.8 5.8 5.6 5.2 4.1 4.1 3.5 4.3
U.K. 4.9 5.5 5.2 4.9 5.1 4.4 5.0 4.1 4.3 3.4 3.2 3.4
Malaysia 4.0 4.2 5.1 5.5 8.8 7.2 4.7 7.1 6.7 4.3 3.9 4.4
Sub-Total 47.9 48.6 51.7 51.2 50.4 49.3 48.8 47.1 43.8 45.4 41.8 42.5
Other
52.1 51.4 48.3 48.8 49.6 50.7 51.2 52.9 56.2 54.6 58.2 57.5
Countries
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: Ministry of Commerce
Trade Balance 3.6 percent in the previous year (2001-02).
The deficit in trade balance during 2001-02 However, for the current fiscal year 2002-03, trade
narrowed significantly by 21.1 percent – declining deficit was targeted at $ 753 million. During the
from $ 1527 million or 2.6 percent of GDP (2000- first ten months of 2002-03, trade deficit stood at $
01) to $ 1205 million or 2.0 percent of GDP. The 1249.8 million, as against $ 920.8 million in the
improvement was attributed to lower imports of comparable period last year, showing a
petroleum group ($ 554 million) and sugar ($ 228 deterioration of 35.7 percent [See fig.5].
million) which caused total imports to decline by

Fig-5: Trends in Trade Deficit

3574

8
3500
3128

3098

7
3000
6.1 6
2348

2257

2500 5.7
As % of GDP
US $ Million

4.8 4.9 5
1761

1740

2000
1653
1488

1527

4
1490

3.7
1250
1205

1500 3.3 3.4

3
2.8 2.6
921

2.8
1000 2.4
2.0 2

500 1

0 0
96-97

97-98

98-99
90-91

91-92

92-93

93-94

94-95

95-96

99-00

00-01

01-02

01-02 (Jul-

02-03 (Jul-
Apr)

Apr)

Trade Deficit As % of GDP

Chapter 9. Trade and Payments

The deterioration of $ 329 million during
July-April, 2002-03 was mainly on account of
sharp increase in the import price of petroleum
products & crude which increased by 21.2 percent
and 19.9 percent, respectively due to build-up in
oil reserves, necessitated by the fear of Iraq war.
Excluding petroleum group’s increase, the trade
deficit posted an improvement of 14.0 percent or $
128.8 million. Given the buoyant nature of
domestic economic activity, higher than targeted
increase in trade deficit is quite natural.
Terms of Trade
The terms of trade with base year 1990-91
(equal to 100) remained flat at 90.8 during 2001-02
as compared to 91.0 of 2000-01. However, the
terms of trade during July-March, 2002-03 has
worsened by 12.1 percent and stood at 80.7 over
the level of 91.8 recorded in the same period last
year. The deterioration in terms of trade is the
obvious result of sharp increase in unit prices of
petroleum products and crude in the international
market. The export unit value index during this
period reflected a decline of 8.6 percent while
import unit value index showed a buoyancy of 3.9
percent. [See Table 9.14]. The trend depicted by
the terms of trade is also shown in fig.6.

Table 9.14
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
2001-02 271.2 298.6 90.8
July-March

2001-02 272.7 297.0 91.8

2002-03 * 249.1 308.7 80.7
* Provisional. Source: Federal Bureau of Statistics
Chapter 9. Trade and Payments

Fig-6: Terms of Trade (base year 90-91=100)

130

120

110

100

90

80

70

2001-02 (Jul-

2002-03 (Jul-
1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

99-2000

2000-01

2001-02

Mar)

Mar)
Trade Policy • Export of wheat and its milling
The trade policy for the current fiscal year products has been allowed.
(2002-03) was premised on the principle of
maximum participation of all the stakeholders for • Export of petroleum products allowed
the promotion of trade and industrial growth. Its to private sector.
framework has ensured consistency of policies
• Import duty of 15 percent on import
with minimum government intervention. The
of finished leather has been abolished
trade policy is guided by market driven forces and
to facilitate leather exports.
also aimed at to further liberalize & deregulate the
economy and provide incentives for reducing the
• To make export of gems and jewellery
cost of doing business in Pakistan. The focus has
easier, the condition of purchase up to
been placed on macro-economic stability,
$ 10,000 and provision of encashment
especially in terms of inflation, interest rates and
certificate has been removed, as well
exchange rate, with a view to expand and
as value addition requirement of
diversify the country’s export base – both market-
export of bangles reduced to 5
wise and product-wise. The salient features of the
percent.
policy, 2002-03 are summarized below:
• Export of old machinery allowed
• Freight subsidy up to 25 percent for
subject to no refund of import levies
new products and new markets.
or duty drawback.

• Registration requirement for exporters

• Export of carpets in baggage allowed
and importers has been waived and
without production of foreign
monetary limits on exports of samples
exchange encashment certificate.
enhanced from $ 5,000 to $ 10,000.
Chapter 9. Trade and Payments
• Amount of security deposit with
Export Promotion Bureau for export
of cotton reduced from 3 percent to 2
percent.
• Duty draw back made permissible on
all exports made in foreign exchange
to Afghanistan via land route except
items on negative list.
• Pakistan Export Finance Guarantee
Agency has been set up in the private
sector to facilitate SMEs to access
financing for working capital.
• Agricultural Produce Cess at the rate
of 0.5 percent on agricultural exports
withdrawn.
• The maximum tariff rate has been
brought down to 25 percent and the
number of tariff slabs have been
reduced from 5 to 4.
• Ban on the import of machinery more
than five years old has been lifted.
• Import of second-hand or used
surgical equipments like dialysis
machines, reverse osmosis
equipments and other electro-medical
equipments not more than five years
old has been 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.
• The condition of registration in the
name of the importer to import
vehicle under Transfer of Residence
Scheme has been reduced from two
years to one year prior to his/her
departure to Pakistan. 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.
• Import of gold and silver in bulk has
been allowed to all subject to
importer’s own foreign exchange.
• Import of mobile phones has been
allowed.
• Industrial consumers have been
allowed to import machinery and
parts up to value of $ 30,000 against
bank draft without opening of letter of
credit.
Balance of Payments
A sustained improvement was witnessed
in the balance of payments position of Pakistan
during 2001-02 when the deficit in current account
amounting to $ 513 million (2000-01) turned into
surplus by $ 1338 million or 2.3 percent of GDP
(excluding official transfers) - with official
transfers, the surplus was much higher at $ 2744
million. The substantial improvement, that is,
reversal from deficit to surplus was attributed to a
combination of factors. A marked reduction of 76.8
percent in trade deficit (f.ob.) was witnessed,
which was attributed to negative growth in
imports caused by lower POL and sugar imports.
Buoyancy was observed in the inflow under
private transfers which depicted an increase of 9.0
percent and aggregated at $ 4249 million. Buoyant
trend in private transfers was largely attributed to
119.8 percent increase in workers remittances.
Moreover, deficit on account of services (net)
narrowed by 16.7 percent or $ 525 million – due
mainly on account of 38.5 percent increase in
aggregate receipts. The long term capital (net)
Chapter 9. Trade and Payments

improved markedly by $ 1109 million. percent. The deficit under services account posted
Consequently the year ended with a sound build a significant contraction of $ 745 million or 41.7
up of $ 2792 million in foreign exchange reserves. percent, exclusively on account of 52.7 percent rise
in aggregate receipts. The trade balance
deteriorated because of higher imports of
The current account balance during July-
machinery and rise in unit prices of POL & edible
March, 2002-03 continues to remain in surplus.
oil. The higher imports of machinery were
Notwithstanding, the deterioration in trade
essential for pick up in domestic economic
balance, the improvement in services account on
activity. The private transfers in this period were
the one hand and significant improvement in
significantly up by 40.1 percent to $ 4215 million –
private transfers including workers remittances on
resulting from impressive increase of 98.6 percent
the other, the current account balance (without
in workers remittances. The flow under long term
official transfers) registered a surplus of $ 2562
capital (net) increased significantly by 73.0 percent
million (or 3.7% of projected GDP) in the first nine
and aggregated at $ 751 million. Thus, the first
months of the current fiscal year as against a
three quarters (July-March) of the current fiscal
surplus of $ 1014 million in the same period last
year 2002-03 ended with a strong build up of $
year – an increase of 152.7 percent. With official
4038 million in foreign exchange reserves [See
transfers, the surplus in current account jumps to $
Table 9.15].
4375 million as against a surplus of $ 2227 million
in the same period last year – an increase of 96.4

Table 9.15
Balance of Payments
($ Million)
July-March
Components 2000-01 2001-02
2001-02 2002-03 (P)
Trade balance -1269 -294 -206 -610
Exports (fob) 8933 9140 6658 7761
Imports(fob) -10202 -9434 -6864 -8371
Services (net) -3142 -2617 -1788 -1043
Private transfers (net) 3898 4249 3008 4215
Workers remittances 1087 2389 1627 3230
Current account balance
Excluding official transfers -513 1338 1014 2562
Including official transfers 326 2744 2227 4375
Long term capital (net) 171 1280 434 751
Changes in reserves (- = Increase) -1001 -2792 -1749 -4038
P: Provisional Source: State Bank of Pakistan.

Workers Remittances current fiscal year (2002-03), the workers

Workers remittances during 2001-02 remittances were targeted at $ 2.873 billion – 20.3
ended up with impressive growth of 119.8 percent percent higher than last year. During the first nine
and aggregated at $ 2.389 billion, as against $ months (July-March), the target for the whole year
1.087 billion recorded during 2000-01. For the was already achieved. Remittances during this
Chapter 9. Trade and Payments

period amounted to $ 3.230 billion, as against $
1.627 billion in the same period last year – thus
registering an increase of 98.6 percent.
Remittances have averaged $ 358.9 million during
the first nine months and if this trend continues,
total remittances for the fiscal year 2002-03 are
likely to be $ 4.3 billion—highest ever in the
country’s history [See Table 9.16]. Monthly
remittances which used to hover in the range of $
75 – 85 million during 2000-01 now averaging $
359 million in the current fiscal year, showing a
quantum jump, never experienced before [See fig-
7].

Fig-7: Month-Wise Workers Remittances

(July,2000 to March,2003)
450

400

350

300
($ Million)

250

200

150

100

50

0
Nov

May

Nov

May

Nov
Aug
Sep

Jan
Feb
Mar
Apr

Jun

Aug
Sep

Jan
Feb
Mar
Apr

Jun

Aug
Sep

Jan
Feb
2003-Mar
2000-Jul

2001-Jul

2002-Jul
Oct

Oct

Oct
Dec

Dec

Dec

Table-9.16
Workers Remittances
($ million)
Months 2002-03 2001-02 % Change
July 305.44 84.74 260.44
August 286.07 87.91 225.41
September 335.09 91.19 267.46
October 377.18 185.35 103.50
November 351.74 259.87 35.35
December 363.19 189.49 91.67
January 383.22 180.52 112.29
February 342.77 233.85 46.58
March 356.41 227.17 56.89
July-March 3101.11 1540.09 101.36
Total Remittances including Hajj and War
Compensation (July-March) 3230.08 1626.62 98.58
Source: State Bank of Pakistan
Chapter 9. Trade and Payments

With 29.2 percent share in total
remittances, the United States has emerged as the
single largest source of cash remittances.
Remittances from the US amount to $ 943.2
million or up by 95.0 percent over the
corresponding period of last year. Remittances
from the UAE are next in line with $ 665.9 million
or 20.6 percent of the total remittances.
Remittances from the UAE are also up by 91.4
percent against the corresponding period of last
year. Remittances from Saudi Arabia are at $ 422.8
million or 13.1 percent of the total and are higher
by 63.2 percent [See Table 9.17].

Table 9.17
Country-Wise Workers Remittances
($ Million)
July-March
Country 2002-03 % Share 2001-02 % Share
I. Cash 3200.63 - 1586.68 -
Bahrain 53.30 1.65 27.37 1.68
Canada 11.17 0.35 17.26 1.06
Germany 17.97 0.56 8.15 0.50
Japan 6.35 0.20 3.70 0.23
Kuwait 184.43 5.71 60.31 3.71
Norway 6.54 0.20 4.83 0.30
Qatar 66.79 2.07 22.30 1.37
Saudi Arabia 422.75 13.09 258.96 15.92
Sultanat-e-Oman 69.21 2.14 44.69 2.75
U.A.E. 665.88 20.61 347.87 21.39
(Abu Dhabi, Dubai, Sharjah, Others)
U.K. 197.45 6.11 103.51 6.36
U.S.A. 943.21 29.20 483.80 29.74
Other Countries 555.58 17.20 203.93 12.54
II. Encashment and Profit * 29.45 0.91 39.94 2.45
Total (I + II) 3230.08 100.00 1626.62 100.00
* Encashment and Profit in Pak. Rs. of Foreign Exchange Source: State Bank of Pakistan
Bearer Certificates & Foreign Currency Bearer Certificates.

Main factors contributed to the sharp
increase in the inflow of remittances include;
significant improvements in economic
fundamentals, confidence of the expatriate
Pakistanis on the economic management of the
country, better exchange rate offered in the inter-
bank market as against the open market,
aggressive marketing of Pakistani banks in
foreign countries and motivating the people to
send their remittances through banking channel,
and crackdown on hundi/hawala system in the
Middle East and other parts of the world.
Foreign Exchange Reserves
The foreign exchange reserves have
crossed the $ 10 billion mark, for the first time in
the history of Pakistan on 7th March, 2003. The
government’s macroeconomic policies that have
been pursued over the last three years have paid
Chapter 9. Trade and Payments

dividend. The rising trend continued and foreign
exchange reserves stood at $ 10.377 billion on end
April, 2003 – sufficient to finance around 11
months of imports. Since July 31, 2002 and until
April 30, 2003, Pakistan has added $ 3.352 billion
in its foreign exchange reserves. By the end of the
fiscal year 2002-03, Pakistan’s gross reserves are
likely to be around $ 11 billion. Pakistan has
added $ 7.109 billion (till end April, 2003) in its
reserves since July 31, 2001 [See Table 9.18 and
fig.8]. With the impressive build up in reserves,
Pakistan is in a position to meet any abnormal
shock on external front.

Table 9.18
Foreign Exchange Reserves – End Period
($ Million)

Month Reserves
July, 01 3268.3 Fig-8: Reserves - End Period
August 3373.4
September 3304.2 12000
October 3594.7
November 4399.9
10000
December 4814.2
January, 02 4907.3
February 5111.9 8000
March 5235.1
($ Million)

April 5292.3
6000
May 5566.0
June 6259.5
July 7025.3 4000
August 7543.6
September 8200.8
2000
October 8547.2
November 9016.6
December 9335.4 0
May
Mar

Mar
Aug

Sep

Nov

Dec

Aug

Sep

Nov

Dec
Jul, 01

Oct

Apr

Oct

Apr
Jun

Jul
Feb

Feb
Jan, 02

Jan, 03

January, 03 9503.9
February 9625.4
March 10307.0
April 10377.2
Source: State Bank of Pakistan

Exchange Rate and in open market. The inter-bank exchange rate

The free-floating exchange rate system,
which was adopted from July 21, 2000, remained
operative during the current fiscal year 2002-03.
The continued build up in foreign exchange
reserves, surplus in current account balance and
increased inflow of remittances through banking
channel has strengthened Pakistani rupee viz. US
dollar both in inter-bank foreign exchange market
per US dollar averaged Rs. 57.7757 during April
2003, as against Rs. 59.7907 averaged during July
2002 [See Table 9.19 & fig.9], thereby showing an
appreciation of 3.49 percent. In the open market,
Pak rupee also gained strength during this period
and appreciated by 3.25 percent.
The exchange rate of Euro against Rupee
has gradually gained strength. Pak-rupee
Chapter 9. Trade and Payments

exchange rate in terms of one unit of Euro during
January, 2002 averaged at Rs. 53.2444 which
picked to an average of Rs. 59.3382 in July, 2002.
In the month of April, 2003, the average parity
rate of Euro was further up at Rs. 62.7277. Thus,
Pak-rupee depreciated viz. Euro since the
beginning of the current fiscal year and untill
April, 2003 by 5.40 percent – mainly because the
Euro zone currency (Euro) has emerged as a
single preferred currency for the local as well as
for the global investors. The movement of Pak-
rupee exchange rate versus one unit of US dollar
and Euro is given in Table 9.19 and fig.9.

Table 9.19
Average Exchange Rate
($/Rs and Euro/Rs)

Month $/Rs Euro/Rs Fig-9: Average Exchange Rate

($/Rs and Euro/Rs)
65
January, 02 60.2011 53.2444 64
February 60.1611 52.3240 63
March 60.1020 52.6262 62
61
April 60.1232 53.2157 60
May 60.1253 55.1108 59
(Rupees)

June 60.1246 57.3807 58

57
July 59.7907 59.3382 56
August 59.5102 58.1881 55
54
September 59.2578 58.1051 53
October 59.0530 57.9203 52
November 58.5852 58.6465 51
50
December 58.4162 59.6908
May
Feb

Feb
Mar

Mar
Jun
Jan, 02

Apr

Jul

Aug

Sep

Oct

Apr
Nov

Dec

Jan, 03
January, 03 58.1828 61.8154
February 58.0811 62.5791
Dollar Euro
March 57.8675 62.4554
April 57.7757 62.7277
Source: State Bank of Pakistan

______________________
Chapter 10. Foreign Economic Assistance
10. Foreign Economic Assistance
Pakistan’s external debt, by the end of the
1990s, has reached alarming proportions and
posted great danger to the economic future of the
country. The debt crisis was essentially triggered
by the unsustainability of the level of current
account deficits and pattern of their financing in
the 1990s. During 1990-99, Pakistan ran current
account deficits [despite accruals of Resident
Foreign Currency Deposits (RFCDs) of $ 6.8
billion] totaling $ 24.4 billion or at an average rate
of 4.8 percent of GDP. If accruals to RFCDs are
treated as borrowing rather than earnings, the
cumulative current account deficit during 1990-99
was $ 31.2 billion or over 6 percent of GDP. This
means that about one-third of total investment
was financed from external borrowing as against
a little over 20 percent in the 1980s. The level of
current account deficit that Pakistan ran in the
1990s was not sustainable even with a rapid
expansion in the exports. Thus, the debt service
payments were not possible without exceptional
assistance from the International Financial
Institutions (IFIs) as well as debt rescheduling.
Considerable progress has been made
towards addressing Pakistan’s debt problem
during the last three years. Current account
balance has turned surplus in 2001-02 and is also
projected to remain in surplus in 2002-03, against
an average deficit of almost 5 percent of GDP in
the 1990s. As a result of the overall decline in the
term structure of interest rates, the cost of
borrowing from external sources have declined.
The Paris Club debt rescheduling has provided
substantial debt relief to Pakistan and also opened
an avenue to achieve debt sustainability. The
government has also set up a Debt Office in the
Ministry of Finance to institutionalize its debt
management capability. The progress towards
stabilizing the country’s debt situation for the last
three years in general and during the current
fiscal year (2002-03) in particular, is presented
below:
Total Stock of External Debt
And Foreign Exchange Liabilities
Pakistan’s total stock of external debt and
foreign exchange liabilities stood at $ 21.9 billion
in 1990 and reached almost $ 38 billion by end-
June 1999, thus registering a growth of 6.5 percent
per annum. Following a credible strategy of debt
reduction over the last three years, Pakistan has
not only succeeded in arresting the rising trend in
external debt and foreign exchange liabilities but
also succeeded in reducing them. External debt
and foreign exchange liabilities have been
reduced by $ 1.386 billion in two years, ending
June 2002. During the first nine months (July-
March) of the current fiscal year 2002-03, Pakistan
has also succeeded in reducing another $ 0.949
billion worth of debt and liabilities [See Table-10.1
and fig-1].
Chapter 10. Foreign Economic Assistance

Table 10.1
External Debt and Foreign Exchange Liabilities
($ Billion)
End June End March
Item 1990 1999 2000 2001 2002 2003 **
1.Public & Publicly Guaranteed Debt 18.2 28.3 27.862 28.145 29.235 29.381
A. Medium & long term (Paris Club,
Multilateral & other Bilateral) 14.7 25.4 25.359 25.586 27.276 28.133
B. Other medium & long term (Bonds,
Military & Commercial) 2.7 1.6 2.373 2.302 1.776 0.991
C. Short term (IDB) 0.8 1.3 0.130 0.257 0.183 0.257
2. Private Non-guaranteed Debt 0.3 3.4 2.842 2.450 2.226 2.029
3. IMF 0.7 1.8 1.550 1.529 1.939 2.069
Total External Debt (1 through 3) 19.2 33.5 32.254 32.124 33.400 33.479
4. Foreign Exchange Liabilities * 2.7 4.1 5.664 5.015 3.132 2.104
- Foreign Currency Accounts (2.1) (1.4) (1.7) (1.1) (0.4) (0.0)
5.Total Debt and Liabilities (1 through 4) 21.9 37.6 37.918 37.139 36.532 35.583
Official Liquid Reserves - - 0.989 1.679 4.329 9.085
6. Net Debt and Liabilities - - 36.929 35.460 32.203 26.498
Source: Debt Management Committee Report (1990 and 1999) & State Bank of Pakistan (from 2000 onward)
* Foreign Exchange Liabilities from 2000 onward are inclusive of National Debt Retirement Program & SWAP
** Provisional

Fig-1: External Debt and Foreign Exchange Liabilities

(End-June)
40
35
30
($ billion)

25
20
15
10
5
0
2000 2001 2002 2003 (Jul-Mar)

Total Debt and Liabilities Net Debt and Liabilities

It is important to note that Pakistan has
not only succeeded in reducing external debt but
at the same time built-up substantial foreign
exchange reserves. In other words, total external
debt and foreign exchange liabilities when
adjusted for SBP liquid reserves stood at $ 36.929
billion by end June 2000. The net debt and
liabilities have further been reduced to $ 26.498
billion by end March 2003—a reduction of $
10.431 billion in less than three years [See Table-
10.1 and fig-1]. As percentage of GDP, external
debt and liabilities stood at 64 percent in end June
1999; declined to 60.2 percent in end June 2002;
and projected to decline to 50.4 percent by end
Chapter 10. Foreign Economic Assistance

June 2003. More importantly, the net external debt however, remained flat at around $ 25 billion per
and liabilities have declined from 60.8 percent of annum during 1998-99 to 2000-01 – it did not
GDP in end June 2000 to 53.1 percent in end June show any appreciable increase due to reliance on
2002 and is projected to decline to 37.9 percent by short term borrowings. For the current fiscal year
end June 2003. (July-March, 2002-03), the disbursed and out
standing external debt (medium & long term) has
In order to achieve sustainability of provisionally been estimated at $ 28.4 billion, as
external debt, the government is contemplating to compared to $ 27.2 billion of last year (2001-02),
pre-pay some of the expensive debts. The Debt thereby showing a growth of 4.4 percent during
Office of the Ministry of Finance is currently the first three quarters of the current fiscal year.
engaged in identifying expensive debts and Medium and long term debt as percent of GDP
examining their terms and conditions associated during 2001-02 was 46.1 percent, as against 43.7
with pre-mature payments. Beginning from the percent of the preceding year (2000-01). The
next fiscal year, the government would like to increase in debt to GDP ratio is attributed to
start pre-paying the expensive debts. addition of capitalized interest in debt stock as a
result of first two debt rescheduling agreements
concluded with the donors [See fig-2]. The debt as
Medium and Long Term percentage of export earnings during 2001-02 was
Stock of External Debt 297.9 percent as compared to 278.3 percent of
2000-01, which is significantly higher than the
The medium and long term external debt sustainable limit of 225 – 250 percent. The debt as
has accumulated annually by almost one billion percentage of GDP and export earnings during
US dollar in the 1990s – because of large current 2002-03 is expected to be about 42 percent and 274
account deficits and heavy external borrowing. It, percent, respectively.

Fig-2: Debt Outstanding

28365

30000 (Medium & Long Term) 60.0

27215
25608
25423

25359

55.0

25000
22844
22509
22292

50.0
22117

(As % of GDP)
20322

46
($ Million)

45.0
.1
19044

20000
17361

43
43

40.0
.7
41

42
.3
15471

.4

.0
39

35.0
37

36
.3

36

15000
36
35

.1

.8
35

.1
.6
.8

.3
34
.0

30.0

10000 25.0
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-2000

2000-01

2001-02

2002-03 (Jul-
Mar)

Debt Outstanding As % of GDP

Chapter 10. Foreign Economic Assistance

The debt service payments in the current (including debt service payments arrears from
fiscal year, 2002-03 are projected to increase by July, 1998). The second debt rescheduling
18.0 percent to $ 1416 million, as against the agreement was signed in January, 2001 for debt
payment of $ 1200 million of last year (2001-02) service payments falling due during the period
due to higher cost and lower maturity of the from March 1, 2000 to September 30, 2001. The
previous loans. However, due to the debt relief amount of debt relief under this agreement was $
(resulting from rescheduling of debt) from the 1.7 billion. These two reschedulings were ‘flow’
Paris Club and Non-Paris Club donors/countries, rescheduling which limit rescheduling to the debt
the debt servicing has significantly dropped. [See servicing (principal plus interest) falling due
fig-3]. Debt servicing as a percent of GDP has within a specified period (consolidation period)
declined from 3.3 percent in 2000-01 to 2.0 percent which usually coincides with a country’s
during 2001-02. As percentage of export earnings, programme with the IMF. The flow rescheduling
debt servicing also declined from 21.3 percent in provides temporary relief, as after the
2000-01 to 13.1 percent in 2001-02, which is within consolidation period, the magnitude of debt
the sustainable limit of 20 – 25 percent. The debt servicing reverts to the former high level. The
servicing as percentage of GDP and export issue of debt overhang is only deferred and not
earnings during 2002-03 is expected to be about resolved.
2.1 percent and 13.7 percent, respectively.
The third rescheduling agreement was
negotiated with the Paris Club in December, 2001.
Fig-3: Debt Service Payments
($ Million) Unlike the previous two reschedulings, the third
3000
one received ‘stock’ treatment which takes into
2353
2265
2136

2500
account the entire outstanding stock (principal
2042

1961
1746

2000 plus accumulated arrears) and reprofiles it to over

1648

1530

1512
1513

1416

an extended period of time. The stock treatment is

1316

1200

1500

rare as it is restricted by the Paris Club to only

1000
Highly Indebted Poor Countries (HIPC). Pakistan
500
has been the fourth Non-HIPC country to get
0 stock treatment of its debt beside Egypt, Poland
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-2000

2000-01

2001-02

2002-03

and Yugoslavia. It is important to note that

Debt Service Payments
Rescheduling of Debt
Pakistan approached Paris Club thrice for
seeking debt relief/debt rescheduling on its
external bilateral debt. The first debt rescheduling
agreement was reached in January, 1999 for $ 2.4
billion, covering debt service maturities due
during January 1, 1999 to
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 and that
only the bilateral Paris Club debt received stock
treatment during the third rescheduling.
The third rescheduling agreement
29th February, 2000 provides rescheduling of Pakistan’s total bilateral
Chapter 10. Foreign Economic Assistance
public and publicly guaranteed debt of over one
year maturity, outstanding as on November 30,
2001. The total stock of bilateral debt, eligible for
debt rescheduling, was estimated at $ 12.5 billion,
outstanding as on November 30, 2001 (including
the debt service payments in arrears and the
amount of previously rescheduled debt). The
Paris Club also agreed to defer 100 percent of the
amount of principal and interest due and not paid
as on November 30, 2001 and those falling due
during December 1, 2001 to June 30, 2002 in
respect of loans, signed after September 30, 1997
(post cut-off date loans) including deferment of
100 percent of the amount of moratorium interest
on rescheduled debt due during November 30,
2001 to June 30, 2002 as well as 20 percent of the
amount of moratorium interest due during July 1,
2002 to June 30, 2003 and July 1, 2003 to June 30,
2004.
Out of the total debt of $ 12.5 billion, the
Official Development Assistance (ODA) debt
consists of $ 8.5 billion (68%) and Non-Official
Development Assistance (non-ODA) debt of $ 4.0
billion or 32 percent (approximately). The ODA
debt is owed directly by the governments or their
public sector agencies while the Non-ODA debt is
advanced by financial institutions,
suppliers/exporters and the private sector and is
guaranteed either directly by their governments
or their appropriate institutions. The ODA
rescheduled debt will be repayable over a period
of 38 years including 15 years of grace period and
carries an interest rate as favourable as per under
the original contracts whereas Non-ODA
rescheduled debt is to be repaid over a period of
23 years including 5 years of grace period at an
appropriate market rate. The deferred debt in
respect of post cut off date loans will be repaid in
4 consecutive equal semi-annual instalments
starting from May 31, 2005 and ending on
November 30, 2006.
As a result of the third debt rescheduling,
an estimated relief of $ 1.2 billion to $ 1.5 billion
will accrue annually in payments of debt
servicing on external debt in the medium term
during the years 2001-02 to 2004-05. This would
have favourable effect on the balance of payments
as well as on external/financial position of the
economy. This coupled with fresh disbursements
from multilateral (IMF, ADB and World Bank)
and bilateral creditors (USA, U.K, Japan & Saudi
Arabia, etc) , not only the balance of payments but
also the reserve position and credit rating of the
country has improved.
The Paris Club creditors, Denmark and
Commonwealth Development Corporation of
U.K. have waived off their entire outstanding debt
of $ 18.4 million and $ 29.5 million respectively,
while Netherlands has given remission in debt
service payments falling due during October 2001
to December 2002, equivalent to $ 14.3 million and
USA has cancelled an amount of $ 1.0 billion of
their debt. Thus, total cancellation of debt comes
to $ 1.062 billion. Total amount of $ 11.550 billion
has been rescheduled (all the bilateral agreements
have been signed except that of Republic of Korea
and Russian Federation which are under
finalization) and $ 0.071 billion have been
deferred in respect of post cut-off date loans.
These amounts also include Non-Paris Club
creditors. The country-wise detail is given in table
10.2.
Chapter 10. Foreign Economic Assistance

Table 10.2
Country-Wise Rescheduling / Restructuring of External Debt
($ Million)
S.No Country Amount Amount Amount deferred Total
Rescheduled Cancelled for 5 years
A. Paris Club
1 Austria 35.019 - - 35.019
2 Belgium 53.634 - - 53.634
3 Canada 392.913 - - 392.913
4 Denmark - 18.438 - 18.438
5 Finland 6.122 - - 6.122
6 France 1544.141 - 0.064 1544.205
7 Germany 1171.207 - 2.745 1173.952
8 Italy 180.649 - - 180.649
9 Japan 4561.119 - 3.007 4564.126
10 Netherlands 81.101 14.354 0.579 96.034
11 Norway 32.547 - 3.427 35.974
12 Spain 80.006 - - 80.006
13 Sweden 160.061 - - 160.061
14 Switzerland 72.839 - - 72.839
15 U.S.A. 1994.686 1000.000 6.067 3000.753
16 U.K. 10.525 29.481 3.621 43.627
17 Russian Federation 143.254 - - 143.254
18 Republic of Korea 812.336 - - 812.336
A. Total 11332.159 1062.273 19.510 12413.942

ODA 7524.233 1062.273 2.510 8589.016

Non-ODA 3807.926 - 17.000 3824.926
Total: ODA + Non-ODA 11332.159 1062.273 19.510 12413.942

B. Non-Paris Club
1 Saudi Fund 53.346 - - 53.346
2 China 119.009 - - 119.009
3 Kuwait 41.024 - - 41.024
4 CZECH 4.018 - - 4.018
5 Turkish Eximbank - - 51.602 51.602
B. Total 217.397 - 51.602 268.999

ODA 124.575 - - 124.575

Non-ODA 92.822 - 51.602 144.424
Total: ODA + Non-ODA 217.397 - 51.602 268.999

ODA (A + B) 7648.808 1062.273 2.510 8713.591

Non-ODA (A + B) 3900.748 - 68.602 3969.350
G. Total 11549.556 1062.273 71.112 12682.941
Source: Economic Affairs Division
Note: All the bilateral agreements have been signed except that of Republic
of Korea and Russian Federation which are under finalization.
Chapter 10. Foreign Economic Assistance

Foreign Aid-Commitments Economic sanctions further clouded the aid

commitments which declined to as low as $ 665
The commitments of foreign aid has
million in 1999-2000. Nevertheless, the restoration
exhibited a declining trend over time, especially
of relationships with the International Financial
in the second half of the 1990s, - declining from $
Institutions (IFIs) improved the environment for
3025 million in 1994-95 to $ 1759 million in 1996-
the aid commitments. During the current fiscal
97 because of decline in the global saving and
year (2002-03), these are expected to be $ 2299
subsequent poor international aid environment.
million [See Table 10.3].

Table 10.3
Commitments of Aid by Use
($ Million)
1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002-
95 96 97 98 99 00 01 02 03 (E)
I. Project Aid 2714 2219 1351 776 1382 260 193 1138 1202

II.Non-Project Aid 311 462 408 1330 837 405 916 2350 1097
a) Non-Food 3 57 1 751 650 0 914 2288 1090
b) Food Aid 279 395 405 578 185 403 0 41 0
c) Relief Assistance
for Afghan Refugees 29 10 2 1 2 2 2 21 7
Total (I + II) 3025 2681 1759 2106 2219 665 1109 3488 2299
E: Estimated Source: Economic Affairs Division

Foreign Aid-Disbursements However, with the restoration of relationships

Like commitments, the disbursements of
foreign aid with some fluctuations have also
continued to decline over the years as a result of
poor international aid environment. The
disbursements have declined from $ 2565 million
in 1995-96 to $ 1428 million in 1999-2000.
with the International Financial Institutions, the
aid disbursements (programme loans) have
improved. During the current fiscal year (2002-
03), a sum of $ 1851 million is expected to be
disbursed. The position of disbursements by type
and use is summarized in table 10.4.

Table 10.4
Disbursements of Aid by Use
($ million)
1995-96 1996-97 1997-98 1998-99 99-2000 2000-01 2001-02 2002-03
(E)
I. Project Aid 2151 1821 1552 1620 1110 919 640 807
414 412 1249 822 318 680 1676 1044
II. Non-Project Aid
a) Non-Food 21 1 626 550 125 678 1624 1027
b) Food Aid 383 409 622 270 191 0 31 10
c) Relief Assistance
For Afghan
Refugees 10 2 1 2 2 2 21 7
Total (I+II) 2565 2233 2801 2442 1428 1599 2316 1851
E: Estimated Source: Economic Affairs Division
Chapter 10. Foreign Economic Assistance

Debt Service Payments and Net Transfers during 1998-99 due to lower debt servicing,
resulting from debt rescheduling but turned
The increased liability of debt service negative again to the extent of $ 364 million in
payments has squeezed the net inflow of foreign 2000-01 due to economic sanctions and lower
resources. The net transfers of aid in the 1990s disbursements. However, the net transfers once
averaged at $ 534 million per annum. They were again improved substantially to $ 1095 million
as high as $ 853 million or 36 percent of gross (48% of gross disbursements) in 2001-02 due to
disbursements in 1991-92 but turned negative by $ exceptional support from USA and G-8 countries
34 million in 1996-97 due to lesser disbursements after 11 September. The projection of net transfers
and relatively more growth in debt service for current fiscal year 2002-03 is $ 428 million or
payments. However, the net transfers improved 23 percent of gross disbursements. The annual
to $ 910 million (37% of gross disbursements) details are given in table 10.5 and fig-4.

Table 10.5
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 2295 1200 1095 48
2002-03 (E) 1844 1416 428 23
* Excluding relief assistance for Afghan refugees Source: Economic Affairs Division.
** Excluding interest on short-term borrowings, IMF charges and Euro Bonds. Data since
1999-2000 onward is inclusive of IMF & bonds.
E. Estimated.

Fig-4 : Net Transfers as Percent of Sources of Aid

Gross Disbursements
60

50
The major sources of foreign economic
40

30
assistance to Pakistan have been the Consortium,
20 Non-Consortium and Islamic Countries.
10 Among these, the Aid-to-Pakistan Consortium,
0
that is, 'Pakistan Development Forum' (including
-10
assistance from Consortium sources under
-20

-30
outside Consortium arrangements) is the largest
source of economic assistance to Pakistan. The
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-2000

2000-01

2001-02

2002-03

share of Consortium sources in total commitments

NT as % of Gross Disbursements
during 2002-03 is likely to be 85.1 percent.
Chapter 10. Foreign Economic Assistance

Likewise the share of Consortium sources in the source-wise commitments and disbursements are
total disbursements during the current fiscal year summarized in table 10.6.
(2002-03) is expected to be 80.4 percent. The
Table 10.6
Sources of Foreign Aid *
($ million)
Commitments Disbursements
% 2002-03 % % 2002-03 %
2001-02 2001-02
Share (E) Share Share (E) Share
Consortium 2751 78.9 1957 85.1 2184 94.3 1488 80.4
Non-Consortium 369 10.6 210 9.1 43 1.9 199 10.7
Islamic Countries 347 9.9 126 5.5 68 2.9 157 8.5
Sub Total 3467 99.4 2293 99.7 2295 99.1 1844 99.6
Relief Assistance
For Afghan Refugees
21 0.6 6 0.3 21 0.9 7 0.4
Total 3488 100.0 2299 100.0 2316 100.0 1851 100.0
Source: Economic Affairs Division
* Excluding short-term credits of one and less than one year maturity.
E: Estimated
Project Vs Non-Project Aid counterpart financing. The share of non-project
aid on the other hand increased from 42.5 percent
The share of project aid in the 1990s
in 2000-01 to 72.4 percent during 2001-02 due
averaged 73 percent per annum or $ 1736 million
mainly to higher disbursements of the
with annual fluctuation in the range of 55-84
programme loans of World Bank and Asian
percent. The share of non-project aid during the
Development Bank. The project aid and non-
same period fluctuated even more widely (16-45
project aid during the current fiscal year (2002-03)
percent) and averaged at 27 percent per annum ($
has been estimated at $ 808 million (43.7%) and $
637 million). The share of project aid during 2000-
1043 million (56.3%) respectively [See Table 10.7
01 was 57.5 percent, which declined to 27.6
and fig-5].
percent in 2001-02 due to difficulties in

Table 10.7
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
2001-02 640 27.6 1676 72.4 2,316
2002-03 * 808 43.7 1043 56.3 1,851
* Estimated Source: Economic Affairs Division
Chapter 10. Foreign Economic Assistance
Fig-5: Disbursements of Project & Non-Project Aid
3000
2500
2000
($ Million)
1500
1000
500
0
90-91
91-92
92-93
Total
Composition of Aid
The composition of aid over the years has
considerably changed from grants and grant type
assistance to hard term loans. The share of grant
and grant type 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 type assistance continued to
exhibit a declining trend thereafter and averaged
at 16 percent during the Seventh Plan (1988-93). It
was 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
declined again to 4 percent during 2000-01 due to
economic sanctions and poor aid environment.
However in 2001-02, it again increased to 31
percent of total commitments due to higher inflow
of assistance from donor agencies and during the
current fiscal year (2002-03), it is expected to be
only 15 percent.
Terms of Loans and Credits
The terms of bilateral foreign loans and
________________________
93-94
94-95
95-96
96-97
97-98
98-99
99-2000
2000-01
2001-02
2002-03
Project Aid Non-Project Aid
credits have significantly become harder over the
years. The terms and conditions of the loans and
credits were soft during the 1960s and 1970s, as
compared to the terms of the 1950s. During the
1980s and 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 identified by higher average
interest rates and lower average maturity periods
of the loans have adversely affected Pakistan's
external debt servicing.
Chapter 11. Education
11. Education
Introduction
Education is an essential tool for Human
Resource Development and a necessary
ingredient for sustainable socio-economic growth.
Pakistan started with a very low education profile
but today a lot has been achieved. Literacy rate,
counted by number of people 'who could read
only' in 1951, was 16% has now been calculated
on the basis of those 'who are able to read with
understanding and can write a short statement' is
51.6% in 2003. The number of primary schools
increased from about 8000 in 1947 to around
170000 in 2003. Gross enrolment at this level
increased from 0.77 million to about 20 million.
The number of elementary/secondary schools,
colleges and universities has correspondingly
increased. However, there is still a lot to be done
in order to make Pakistan a prosperous country.
The challenges of the 21st Century could be faced
through identifying issues, developing strategies
and operational programmes in Education sector.
Ten Year Perspective Development Plan 2001-11
and Three Year Development Programme 2001-04
have been prepared in this context. Expansion of
education is dependent on fiscal resources.
During the last decade of the outgoing
millennium however, adverse macroeconomic
conditions and keen inter-sectoral competition for
public funds seriously impaired the government's
ability to continue expanding education. At the
highest policy level within the government, it is
readily conceded that investment in education
contributes to the accumulation of human capital,
which is essential for higher incomes and
sustained economic growth. Education, especially
basic (primary and lower-secondary) education
helps reduce poverty by increasing the
productivity of the poor, by reducing fertility and
improving health, and by equipping people with
the skills they need to participate fully in the
society. More generally, education helps
strengthen civil institutions and build national
capacity and good governance in the
implementation of sound economic and social
policies.
Despite this awareness, major challenges
remain to increase access to education, to improve
equity, to improve quality, and to commit
resources for educational reform. Delays in
reforming the education system to keep pace with
economic structure will most likely hinder
Pakistan's economic prosperity. Conversely,
timely reforms can pay off in terms of economic
growth and poverty reduction, as is evident from
the experience of East Asian countries who have
generally invested heavily in basic human capital,
both male and female.
Education has a positive impact on
individual earnings and also yields substantial
externalities: parents education and mother's
literacy and education are associated with low
infant mortality rates, higher enrollment and
achievement rates of children and less gender
differences in enrollment of children. Pakistan is
facing the challenges of coverage and quality in
education. The gender-gap has narrowed slightly
due partly to decline in male enrollment at
secondary level in public sector schools who have
shifted into private options. There are also
significant differences across provinces with
decline in enrollment in Sindh and Baluchistan in
public sector education.
Problems to ensure quality education are
widespread. These are acknowledged at all levels
and encompass teacher shortage and absenteeism,
minimal supervision, poor infrastructure and
shortage of teaching materials. While Social
Chapter 11. Education

Action Programme (SAP) succeeded in increasing
the number of schools, inadequate attention was
given to quality education including teacher's
availability and teacher's accountability. This
rendered many schools non-functional. The
growth in private schooling estimated at 30% of
total provision, especially in rural areas, suggests
that there is considerable demand for quality
education.
Literacy Rate, Population and GDP Growth
Literacy rate is estimated to be 51.6% in
2002-03. Under the Education Sector Reforms,
Table 11.1
Literacy Rate - Population and GDP Growth
National Literacy Campaign (Integrated approach
to comprehensive Literacy and Poverty
Reduction) has been launched through out the
country. The campaign envisages making 13.5
million people literate to enhance the literacy rate
to 60% by 2005. Around 270,000 adult literacy
centers would be open for this purpose.
The table and figures showing literacy
rate, change by percentage point, population
growth and GDP growth from 1991 to 2003 are
given below Table-11.1 and figure-I).

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
2003 51.6 1.1 2.10 5.1
Source: Federal Bureau of Statistics
Ministry of Education.

Fig-1: Literacy Rate

55
50
45
40
35
30
25
20
15
10
5
0
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003
Chapter 11. Education
Gender Education
Gender disparity in primary and
secondary education exists in low income
countries. The gender gap, on average, stood at 11
percentage points at the primary level and 19
percentage points at the secondary level. The gap
is widest in several Asian countries as well as in
several Africa and the Middle Eastern countries.
Eliminating gender gaps in basic
education/literacy is the cornerstone of
Government of Pakistan Policy for social
development in general and in education in
particular. Ministry of Education has a policy
framework in place to advance gender equality in
education. Each target is gender disaggregated in
Education Sector Reforms(ESR) and Education
For All (EFA) Programs. Diverse programs and
strategies have been developed, ranging from
compensatory programs such as stipends at
middle and secondary levels, free textbooks and
school nutrition support to girls schools.
Initiatives in Public Private Partnerships such as
school up-gradation program in the afternoons
has resulted in a higher coverage for girls at
middle, secondary and higher secondary levels.
Of the 6240 schools upgraded in Punjab and
NWFP, 3787 or 60.76% are girls schools, and 18%
are mixed schools. This program is an
outstanding example of addressing gender equity
in Pakistan for non-elite groups. In NWFP, of the
total 93 upgraded institutions, 80% are girls and
mixed schools. Furthermore all 50% development
allocations are being provided to girls schools.
Ministry of Education has a special desk for
Gender in the Education For All (EFA) Wing for
facilitating:
- Gender sensitization and training.
- Development of research, survey and
data tools/systems to analyze gender
issues and ensure the application of
pertinent sex-disaggregated data.
- Gender-responsiveness in planning,
implementing, monitoring & evaluating,
and gathering of lessons learned.
- Communication, information -sharing
and problem-solving on gender and
education issues.
- Experience sharing between government
and non-government stakeholders in
education.
National Education Policy 1998-2010.
Gross enrolment ratio at primary level
will be increased to 105% by year 2020 and
Compulsory Primary Education Act will be
promulgated and enforced in a phased manner.
Full utilization of existing capacity at the basic
level has been ensured by providing for
introduction of double shift in existing school of
basics education. One model secondary school
will be set up at each district level. A definite
vocation or a career will be introduced at
secondary level. It would be ensured that all the
boys and girls, desirous of entering secondary
education, are enrolled in secondary schools.
Curriculum for secondary and higher secondary
will be revised and multiple textbooks will be
introduced. The participation rate will be
increased from 31% to 48% by 2002-03. Both
formal and non-formal means shall be used to
provide increased opportunities for in-service
training to the working teachers, preferably at
least once in five years. To evolve an integrated
system of national education by bringing Deeni
Madaris and modern schools closer to each
stream in curriculum and the contents of
education Nazira Qur'an will be introduced as a
compulsory component from grade I-VIII while at
secondary level translation of the selected verses
from the Holy Qur'an will be offered.
Ten Year Development Plan
Ten Year Perspective Plan 2001-11 and
Three Year Development Programme 2002-05
Chapter 11. Education
have been prepared on the basis of National
Education Policy 1998-2010 to address the issues
of low literacy and participation rates at various
levels of education, quality of education, limited
options for technical/vocational education and
low participation of private sector. The Plan
proposes new initiatives for achieving accelerated
literacy rate, opening/upgrading of
primary/secondary schools, Teachers training
projects, Establishment of National Education
Assessment System, revamping of Science
Education facilities, establishing technical
institutions, improving quality of education at all
levels. Total size of the Plan is estimated at Rs.192
billion including federal provision of Rs.54 billion.
The Ten Year Perspective Plan 2001-11 and Three
Year Programme 2002-05 propose to increase the
literacy rate to 59% (69% for male & 47% for
female) by 2005. It is estimated that during 2002-
03, about 3.2 million additional population of age
10+ will become literate through primary
education. To equip the teachers and students of
Madaris with latest knowledge of Science and
Information Technology, it is intended to
introduce formal subjects in willing Madaris. The
Federal Government will provide financial
assistance to these Madaris for salaries of teachers,
books, computers and teachers training etc.
It is estimated that during 2002-03 gross
participation rate at Primary level will increase
from 85% to 88% (Male from 97% to 99% and
Female from 72% to 76%). At Middle level gross
participation rate is estimated to increase from
57% to 59% (Male from 57% to 60% and Female
from 46% to 49%). At Secondary level the
participation rate is estimated to increase from
38% to 40% (Male from 45% to 47% and Female
from 31% to 34%). Technical Education is being
introduced at district level. Technical stream at
Secondary level is also under implementation. A
virtual university has been established. Model
university ordinance has been approved.
Information Technology (IT) facilities have been
provided to universities. In order to improve
access and quality of Higher Education, Higher
Education Commission has been set up to
formulate policies, guiding principles and
priorities for higher education institutions for
promotion of socio-economic development of the
country.
Private Sector Educational Institutions
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.
Matching grants shall be provided for establishing
educational institutions by the private sector in
the rural areas or poor urban areas through
Education Foundations. 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. Schools running on
non-profit basis shall be exempted from all taxes.
Curricula of private institutions must conform to
the principles laid down in the Federal
Supervision of curricula, Textbooks and
Maintenance of Standards of Education Act, 1976.
The fee structure of the privately managed
educational institutions shall be developed in
consultation with the government.
Higher Education
The development of strong institutions of
higher education and quality research are crucial
for sustained education and economic
development. Pakistan's public and private
universities except a few are confronted with lack
of resources, ineffective governance and
institutional weaknesses. The Government has
Chapter 11. Education
dissolved university grants commission and has
established a Higher Education Commission
(HEC) under an Ordinance in 2002 to strengthen
higher education with a focus on science and
technology and research in Pakistan. The plan
aims at increasing access to higher education from
2.6 percent to 5 percent with substantial
contribution from the private sector, establishing
Endowment Funds in engineering universities in
the public sector, shifting emphasis from
humanities to science and technology, and
introducing IT education in all public universities.
To bring institutional improvement, a model
University Ordinance is under consideration that
regulates university structures. The government
has also established a Virtual University with
affiliate campuses. There are 96
universities/degree awarding institutions in the
country as against 48 in 1999. The Government
has begun additional funding and performance-
based incentives to universities to implement their
modernization program. Priority will be given to
investments in the areas of (a) institutional
capacity building to strengthen administration
and management capacity at the national,
provincial and university levels, (b) upgrading of
professional and academic skills of faculty
relevant to teaching and learning; (c) quality
inputs to make the teaching and learning
environment more effective; and developing
linkages with industry in Pakistan. Access to
higher education shall be expanded to at least 5%
of the age group 17-23 by the year 2010. Merit
shall be the criterion for entry into higher
education. Access to higher education, therefore,
shall be based on entrance tests, reputed degree
colleges shall be given autonomy and degree
awarding status. Split Ph.D programs shall be
launched in collaboration with reputed foreign
universities and at the minimum, 100 scholars
shall be annually trained under this arrangement.
All quota/reserve seats shall be eliminated.
Students from backward areas, who clear entry
tests, would compete amongst themselves.
A major development in higher education
is the establishment of the Higher Education
Commission which was established on 14th
August, 2002. The Commission has replaced the
University Grants Commission which will pursue
the following broad objectives:
- increasing access to higher education
from 2.6% to 5% by 2005.
- Increasing enrolment from 100,000 to
200,000 students by 2005.
- Private sector to raise its share of
enrolment to 40% of the total by 2005.
- Increasing allocation to higher education
from 0.39% to 1% of GDP by 2005.
- Increasing allocation for research through
an Endowment Fund.
- Shift from Humanities to Science &
Technology from current 70:30 ratio to
50:50 by 2005.
- Up gradation of social sciences programs
and staff development accordingly.
- Introducing IT Education in all public
universities.
- Introducing a one year honors course
after Bachelor's Degree and/or a three
years Master's Program.
Achievements
- Expansion from 48 Universities in 1999 to
77 in 2002, includes 35 public sector
universities.
- Rs.1 billion spent on shift from
Humanities to S&T in higher education.
- Rs.1 billion Endowment Fund for
promotion of research, for Engineering
Universities.
- IT Education facilities provided to 27
universities.
Chapter 11. Education
- An Ordinance on Higher Education
Commission (HEC) has been
promulgated and HEC established.
- Model University Ordinance approved
for better governance and management of
Public Sector Universities.
- Virtual University established.
Information Technology
Information technology has been
extended to over 4000 educational institutions
including schools in collaboration with private
sector and programs in large-scale teacher
training. Provincial Skill Development Centers
and |Institutes of Technical Education are
providing training to students and youth in
different computer courses to meet the market
demand. A program is underway to train federal
ad provincial government employees in IT skills.
Computers shall be introduced in
secondary schools in a phased manner. School
curriculum shall be revised to include recent
developments in information technology.
Education Sector Reforms (ESR).
Education Sector Reforms (ESR) program
is designed in the long term perspective of
National Education Policy (1998-2010) and Ten
Year Perspective Development Plan (2001-2011).
ESR is strategically positioned in the objective
conditions prevailing in the country. Education
planning and management has been devolved
from the Federal and Provincial Governments to
the District Governments. Much of the action
concerning education lies in the communities,
tehsils and districts. Educational planning and
decision-making will now take place where the
action is. Centralized systems and distanced
planning will be replaced by governance which is
people and learner-centered. Not only will this
make the system more objective and rational but
also more efficient.
ESR is a comprehensive sector-wide
program for increased access, enhanced equity
and improved quality at all levels of education.
The quality aspects of education are addressed
through modernization of curricula, up gradation
of teacher training and reforms of examinations.
A National Education Assessment System within
the school system is being established to carry out
assessment of students' achievement to be used as
a basis for improvement of policy and planning,
and teacher training. A comprehensive package of
education sector reforms (ESR) with medium term
targets (2001-05) has been finalized through a
consultative process with over six hundred
partners. ESR has linked with four concurrent
macro level initiatives, which include Devolution,
the Interim Poverty Reduction Strategy Paper,
SAP II restructuring and the National
Commission on Human Development (NCHD).
The major thrust areas of ESR are:
i) National Literacy Campaign-Integrated
approach to Poverty Reduction;
ii) Mainstreaming Madrassahas;
iii) Universal Primary/Elementary Education
(EFA);
iv) Improving the quality of Education:
Curriculum Reforms, Teacher Education
and Training Examination Reform and
Assessment;
v) Technical Stream at Secondary
level/Technical Education;
vi) Higher Education Sector; and
vii) Public Private Partnership.
The six thrust areas have been enhanced
to seven including mainstreaming of Madaris.
Chapter 11. Education

The ESR targets for each Sub-Sector are given in Table-11.2.

Table-11.2
Education Sector Reform Targets (2001-2005)
Sub-Sector 2001 Target 2005
Literacy(Percentage) 49% 60%
Gross Primary Enrolment (percentage) 83% 100%
Net Primary Enrolment (Percentage) 66% 76%
Middle School Enrolment (percentage) 47.5% 55%
Secondary School Enrollment (Percentage) 29.5% 40%
Higher Education Enrolment (percentage) 2.6% 05%
Technical Stream Schools (Nos) 100 1100
Polytechnics/Mono-technics (Nos) 77 160
Madaris Mainstreaming (Nos) 148 8000
Public-Private Partnerships (Nos) 200 26000

ESR Programmes have been launched in alleviation and promote public private
all Provinces and Federal Areas under Devolution partnerships. The Reforms focus on improvement
Plan. The Education Sector Reforms (ESR) Action of planning procedure, resource mobilization and
Plan (2001-2005) is a blend of home grown utilization through a sector wide approach to
initiative. Changing technology and economic develop all sub-sectors within the macro level
reforms are creating dramatic shifts in the framework including institutional reforms at all
structure of the country's economy. The rapid levels of governments engaged in planning and
increase in knowledge and the pace of changing service delivery for quality education. A
technology raise the possibility of sustained vocational technical education stream is being
economic growth with prospects of increased introduced at secondary education level.
human resource demand. These developments
have created two key priorities for education, it ESR Financial Requirements for 2001-05
must meet the country's growing demand for
adaptable workers who can readily acquire new The original ESR package was of Rs.55.5
skills, and it must support the continued billion for the years 2001-04. The duration of this
expansion of knowledge. package has been extended to 2001-05 to
accommodate President's Programs viz
The ESR is linked to Education For All Mainstreaming Madaris and setting up Mono-
(EFA) goals up to 2001-15. The Reforms seek to technics/Polytechnics at Tehsil level. Therefore,
enhance education entitlement for poverty the cost estimates have increased to Rs.100 billion
(Table 11.3).
Table 11.3
Financial Requirements for Education Sector Reforms
Action Plan 2001-05*
(Rs. In Billion)
Programs 2001-02 2002-03 2003-04 2004-05 Total %
Literacy Campaign 0.8 2.0 2.5 3.0 8.3 8.3
Elementary Education 4.0 9.0 10.0 11.0 34.0 34
Secondary Education 1.0 3.0 3.0 3.0 10.0 10
Technical education 0 3.0 5.0 7.0 15.0 15
College/Higher education 1.0 3.0 3.0 3.0 10.0 10
Mainstreaming Madaris 0 5.0 5.0 4.0 14.0 14
Public-private partnership 0.1 0.2 0.2 0.2 0.7 0.7
Quality Assurance 1.0 2.0 2.0 3.0 8.0 8
Total 7.9 27.2 30.7 34.2 100 100
Source: Ministry of Education
*: Education Sector Reforms, Action Plan 2001-05.
Chapter 11. Education
Education For All (EFA)
Education For All refers to the global
commitment to ensure that by 2015 all children
would complete primary education of good
quality (Universal Primary Completion), and that
gender disparity would be eliminated in primary
and secondary education preferably by 2005 and
no later than 2015. This commitment was made at
the World Education Forum in Dakar, Senegal in
April 2000 and reaffirmed in the Millennium
Declaration in New York in September 2000. The
Government of Pakistan is attaching top priority
of EFA. The country has ten year Perspective
Development Plan (2001-11) to visualize the long
term macro-economic and sectoral growth
strategies, Poverty Reduction and Human
Development is the priority area of the Plan.
Sector-wide development approach covering all
the sectors of education has been adopted under
the Perspective Plan. In order to address the EFA
implications linkage plan focusing on
development of other sectors of Education has
also been prepared.
Nearly 80% of the ESR covers different
goals of Education for All by 2015, reducing
illiteracy by 50 percent with a focus on reducing
the gender gap by 2015, life skills and learning
opportunities for youth and adults; and early
childhood education. The targeted groups for
EFA goals belong to disadvantaged communities
with minimal opportunities. These groups are
highly vulnerable, without access to learning
facilities, or public sector facilities, which are
functioning at sub-optimal levels.
Each sub sector of EFA targets the socially
excluded groups through.
- Integrated non-formal education
provision to different age groups where
there is no education provision: sensitive
to gender and development approaches
for disadvantaged girls and boys, women
and men (including child labour).
- Non-formal programs to target nomads,
reverine communities and women and
children in prison and darul amans.
- Early childhood provision in targeted
schools for improved "Katchi" programs.
- Shelterless schools given buildings at
elementary level.
- Primary schools upgraded to elementary
level especially for girls in far-flung areas
and under-developed districts.
- Incentives to be provided such as free
textbooks, school nutrition, scholarships
and loans to students in both government
and NGO institutions.
- Skill training of out of school youth in the
evening.
- Linkages of technical stream and model
technical high schools to micro-credit and
poverty alleviation programs.
- Linkages of women's literacy programs
and technical high schools to micro-credit
and poverty alleviation programs.
- Grant of charter to private universities to
incorporate provision for scholarship to
meritorious needy students.
- Public sector higher institutions to
become equitable in their fee schedules.
- Free meal and nutrition to girls under
Tawana Pakistan Program.
Chapter 11. Education

Funds required for the EFA Sectors under childhood education are given in the table-11.4.
primary education, adult literacy and early

Table 11.4
(Rs. In million)
EFA Sectors Phase-1 Phase-II Phase-III
(2001-02 to 2005-06) (2006-07 to 2010-11) (2011-12 to 2015-16)
a) Primary Education
Development 37,870 10,202 14,966
Recurring 21,640 52,690 64,810
Total 59,510 62,892 79,776
b) Adult Literacy
Development 16,582 16,775 17,811
Recurring 36,857 41,246 50,705
Total 53,439 58,021 68,516
c) Early Childhood Education
Development 2,450 3,075 6,375
Recurring 4,345 10,500 21,000
Total 6,795 13,575 27,375
Source: National Plan of Action, Ministry of Education, Islamabad.

Given the existing level of financing available. The pattern of national education
through the PSDP (Rs.2604 million for 2002-03), it budget for the years 1995-96 to 2002-03 is given in
is unlikely that the resources required for the Table-11.5.
achieving the above targets would become

Table 11.5
National Education Budget During (1995-96 to 2002-03)
(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 2.500 67.475 1.9
2002-03 67.270 2.604 69.874 1.7
Source: Ministry of Education

__________________________
Chapter 12. Health and Nutrition

12. Health & Nutrition

Heath is a priority area of Government
activities. The high correlation between the
expenditures on health and productivity in
developing countries like Pakistan is enough to
emphasize the importance of increasing health
services as an aid to growth. Hence in the health
sector, poverty and ill health needed to be
brought into sharp focus. Provision of better
health facilities to improve the standard of living
of the people in the country has been the
paramount aim of the efforts in this sector. In
Pakistan, health infrastructure has developed
significantly over the years. However, the
improvement so far made is far from impressive.
A number of inadequacies such as unhygienic
living conditions, spread of health facilities,
scarcity of potable water, paucity of capital
resources to meet the recurring expenditure,
malnutrition particularly among the children and
women of reproductive age and suffering from
the worse effects of Malaria, Tuberculoses, AIDS
and Drug Abuse are the major areas of serious
concern. The low level of life expectancy (63
years), high child mortality rate (110/1000) and
high population growth rate at 2.1 percent
provides the basis for rethinking of our national
health priorities and points out to the need for
better health care and preventive services. The
government in recent years has started giving due
priority to health planning by increasing the
health allocation and trying out prioritized
programmes with special focus on particular
diseases.

Table 12.1
Social Indicators
Country Life Expectancy Infant Mortality Mortality Rate Population
Year 2000 Rate per 1000 under 5 per 1000 Avg. Annual (%)
Year 2000 Growth 1990-2001
Pakistan 63.0 83.3 110.0 2.5*
India 63.0 69.2 88.0 1.8
Sri Lanka 73.0 15.0 18.0 1.3
Bangladesh 61.0 60.0 83.0 1.8
Nepal 59.0 73.6 105.0 2.4
China 70.0 32.0 39.0 1.0
Bhutan 62.0 57.6 - 2.9
Thailand 69.0 27.9 33.0 0.9
Philippines 69.0 30.7 39.0 2.1
Malaysia 73.0 7.9 11.0 2.4
Indonesia 66.0 40.9 51.0 1.6
Source: World Development Report 2003
*: Population growth rate for 2002-03 is estimated at 2.1%.
Chapter 12. Health and Nutrition

Comparative selected indicators (Table country. The present national infrastructure of

12.1) on the quality of life in Pakistan reflects that
the quality of life in Pakistan is not up to the mark
in relation to other regional countries and
emphasize to the need of taking all necessary
measures to ensure better health services and
improvement in quality of life by spending more
on health.
Health facilities
Both the pubic and private sectors are
providing medical facilities in the country.
Medical facilities are constantly increasing in the
health facilities with 906 hospitals, 4590
dispensaries, 550 Rural Health Centres, 5308 Basic
Health Units and 98264 hospital beds (see Table
12.2) compare well with other developing
countries. However, the availability of one Doctor
for 1466 persons, one Dentist for 29405 people,
one Nurse for 3347 and one Hospital bed for 1517
persons reflect poorly on the health status of the
country. The benchmarks of various physical
facilities and health manpower are as under:

Table 12.2
Health Facilities

Health Manpower Upto 2000-01 Upto 2001-02 Upto 2002-03

Registered doctors 91,823 96,248 101,635

Registered dentists 4,175 4,622 5,068
Registered nurses 37,528 40,019 44,520
Population per Doctor 1,529 1516 1,466
Population per Dentist 33,629 31579 29,405
Population per Nurse 3,732 3639 3,347
Source: Ministry of Health

Physical Targets and Achievements During
2002-03
The health sector performances in term of
physical infrastructure i.e. rural health centres,
basic health units and hospital beds has been
encouraging. The targets for health sector during
2002-03 include the establishment of 40 Basic
Health Units (BHUs), 8 Rural Health Centres
(RHCs), Upgradation of 20 existing Rural Health
Centres (RHCs), 30 Basic Health Units (BHUs)
and addition of 1600 hospital beds. The
manpower development targets covers the output
of 3700 Doctors, 250 Dentists, 2300 Nurses, 5000
Paramedics and 500 Traditional Birth Attendants
(TBAs). Under the preventive programme, 8
million children were to be immunized and 19
million packets of Oral Rehydration Salt (ORS)
were to be distributed during 2002-03. The
achievements have been largely in the vicinity of
the targets .The health programmes during the
year has realized 63-96 percent of its physical
targets. Physical targets and achievements in the
health sector during 2002-03 are given in Table
12.3.
Chapter 12. Health and Nutrition

Table 12.3
Physical Targets and Achievements During 2002-03

Targets Estimated Achievements

Sub-Sector (Nos) Achievements (%)
(Nos)
A. Rural Health Programme
i. New Basic Health Units (BHUs) 40 25 63
ii. New Rural Health Centres (RHCs) 8 5 63
iii. Upgradation of existing RHCs 20 15 75
iv. Upgradation of existing BHUs 30 25 83
B. Beds in Hospitals/RHCs/BHUs 1600 1400 88
C. Health Manpower Development
i. Doctors 3700 3500 95
ii. Dentists 250 200 80
iii. Nurses 2300 2000 89
iv. Paramedics 5000 4500 90
v. Training of TBAs 500 480 96
vi. Training of LHWs 17000 17000 100
D. Preventive Programme
8.0 7.5 93
i. Immunization (Million Nos)
19.00 18.00 95
ii. Oral Rehyderation Salt (ORS)
(Million Packets)
Source: Planning & Development Division

Health Expenditure expenditure on health is estimated at Rs.28.814

In Pakistan both the public and private
spending on health is very low. However, over
the years they have steadily been increased.
During the years under review (2002-03), the total
billion (Rs.6.609 billion development and
Rs.22.205 billion as recurring) showing an
increase of 13.4 percent over last year and works
out to be 0.7 percent of GNP [See Table 12.4].

Table 12.4
Health and Nutrition Expenditure
(Million Rs.)
Public Sector Expenditure As % of
Fiscal (Federal Plus Provincial) Change GNP
Year Development Current Total (%)
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 9.9 0.7
2001-02 6688 18717 25405 4.7 0.7
2002-03 6609 22205 28814 13.4 0.7
Source: Planning & Development Division
Chapter 12. Health and Nutrition
Health Programme
To maintain the expansion of health
facilities, a number of health programmes have
been undertaken. These programmes address to
the various health problems such as Malaria,
Tuberculoses (T.B), AIDS, Drug Abuse and
Malnutrition and have made good progress. Work
for expanded programme of immunization is in
progress. The number of reported polio cases
have been reduced. The TB DOTS programme has
been expanded to 46 Districts and the annual
parasite incidence (API) of Malaria has been
reduced to 0.69/1000 population in 2002.
1. National Programme for Family
Planning & Primary Health Care
The programme aims at delivering basic
health services at the door steps of the un-
privileged segment of the society through
deployment of Lady Health Workers
(LHWs) living in their own localities. The
programme is currently being
implemented with strength of 70,000
LHWs and 3,000 Lady supervisors
nationwide mainly in rural areas and
urban slums of the country. These
workers are providing services to their
communities in the field of child health,
nutrition, family planning and treatment
of minor ailments. The scope of LHWs
has been enlarged to include the wider
concept of Reproductive Health. LHWs
will be involved in vaccination of women
and children under the EPI. This will
augment the activities of the Expanded
Programme of Immunization. In view of
effectiveness of the LHWs at the grass
root level, the government has decided to
utilize their services in many other public
health programmes. At present, the
National Programme is covering 50%
population. This programme is expanding
in a phased manner and by the year 2005,
the target of 100,000 LHWs in the field
will be achieved. With this strength,
LHWs will be covering 90% of the target
population.
2. Expanded Programme of
Immunization
The programme with total cost of Rs.5,367
million for the period 1999-04 mainly
aims at reducing mortality by
immunizing children of 0-11 months and
women of child bearing age and with this
end in view providing vaccination against
six vaccine preventable diseases to 5
million children annually with
immunization coverage at 77% for
children and 50% for expected mothers.
Almost all the Lady Health Workers
(LHWs) in 57 districts have been trained
as vaccinators. The polio eradication
efforts have been intensified through the
surveillance for disease detection and
improved quality campaigns, and as a
result, there has been a significant
progress. During the current year upto
April 2003, the number of reported cases
throughout the country has been reduced
to only 18 against 76 in 1999, and 32 in
2002. Hepatitis B has been introduced in
the EPI regime with the help of grant
assistance from Global Alliance for
Vaccination and Immunization (GAVI).
Apart from Hepatitis B, the GAVI is also
providing grant assistance of US$ 33
million for the improvement of EPI
infrastructure in the provinces and
another US$ 11 million for injection
safety.
3. National AIDS Control Programme
HIV/AIDS as epidemic has now been
understood not as a health issue but as a
major threat to human security. The
disease continues to spread everywhere
Chapter 12. Health and Nutrition
including Pakistan. The objectives of the
AIDS/HIV prevention programme are to
prevent HIV transmission, reduce
morbidity associated HIV/AIDS, promote
safe blood transfusion and establish
surveillance system. The programme
strategies include creating awareness
among the public through information,
education and ensuring safe blood
transfusion. The Government has
prepared an enhanced National AIDS
Control Programme costing Rs.2.8 billion,
including assistance from the World
Bank. A provision of Rs.250.0 million
(Rs.100.0 million for ongoing National
AIDS Prevention Programme and
Rs.150.0 million for the Enhanced
Programme) has been made during the
current financial year 2002-03. This
constitutes a 100% increase in the budget
for combating HIV/AIDS in the country.
47 Surveillance Centres have been
established where 3.3 million test for
HIV/AIDS have been performed. During
the year, 1741 infected and 231 AIDS
cases reported to National AIDS Control
Programme against 3.526 million tests
carried out uptill 30th September, 2002
and more than 5722 spots (TV & Radio)
have been shown till February 2003.
Posters, leaflets, guidelines and brochures
have been printed and distributed.
4. Malaria Control Programme
The efforts aimed at preventing and
treating malaria by the Government has
resulted in low level of malaria. A project,
costing Rs.253.0 million, based on roll
back malaria strategy is in progress. The
Annual Parasite Incidence (API) has been
reduced to 0.69/1000 in 2002 as against
0.74/1000 in the year 2001. Districts
implementation plans for roll back
malaria have been finalized in 19 high
risk districts.
5. T.B. Control Programme
Pakistan has the 8th highest T.B. burden
globally. The government has included
T.B. Control Programme in the priority
list of the health programmes and has
reaffirmed its pledge to reduce the
burden of tuberculoses in the country.
The estimated prevalence is around 1.5
million patients and every year 250,000
new persons are infected with T.B. The
incidence of sputum positive
Tuberculoses in the country is 81/100,000.
The programme aims to control T.B.
through DOTS strategy with the
objectives of achieving 85% cure rate, and
70% detection rate, and reducing T.B.
cases by providing technical assistance,
and development of health education.
The programme was approved at
Rs.66.733 million for 2000-01 to 2003-04.
However, it was revised at Rs.159 million
after receiving an additional allocation of
Rs.121 million. During the year 2002-03 a
total allocation of Rs.63.000 million has
been made for T.B. Control Programme.
Main achievements of the programme
includes coverage of 47 districts under
DOTS strategy, DOTS coverage is being
expanded and has increased to 50% and
under the Global Drug Facility (GDF) the
first tranche of drugs for 150,000 T.B
patients has been received.
6. Women Health Project
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.
The project has been launched throughout
the country with total outlay of Rs.3750
Chapter 12. Health and Nutrition
million and support from the Asian
Development Bank. Its specific objectives
are to:
i) Expand basic women’s health
interventions to under-served
population.
ii) Develop women friendly district
health systems providing quality
women’s health care from the
community to first referral level
including emergency obstetric
care.
iii) Strengthen the capacity of health
institutions and develop human
resources to improve women’s
health in the long-term.
Cancer Treatment Programme
At present 13 nuclear medical centres are
providing diagnosis and treatment facilities to the
80% population of the cancer patients with most
modern facilities available at these centres. The
major disciplines available in these nuclear
medical centres are (a) nuclear medicines and
radioimmunoassay and (b) oncology and
radiotherapy. The nuclear medicine deal with the
diagnosis and treatment of various diseases while
oncology and radiotherapy deals with the
treatment of cancer. More than 320,000 patients
were attended during the year 2002-03 and about
133,592 patient were provided proper treatment
as well as follow-up.
Drug Abuse
The drug abuse addiction has emerged as
a major health hazard, affecting the socio-
economic life of the nation. Thousands of
productive youth have been rendered un-
functional by narcotic drug abuse. In view of the
sharply upward trend in prevalence of drug
abuse, it is considered a matter of high priority to
educate the nation on the adverse effects of drug
abuse.
Effective steps have been initiated by the
government for prevention of drug trafficking
and drug abuse. A five years Drug Abuse Control
Master Plan is under implementation. A mass
awareness programme has been launched
through the use of radio, newspapers and
pamphlets to inform and alert the general public
of the necessity for community awareness and
action. A community participation project for
drug demand reduction has also been initiated.
Cooperation between Pakistan and Iran on the
prevention of drug trafficking and drug abuse has
helped in reducing drug trafficking across
borders. A similar understanding has also been
reached between Pakistan, Saudi Arabia, Egypt,
China, Poland, Russian Federation and the
Central Asian States. A strict ban on poppy
cultivation has maintained during the year and
the poppy crop wherever cultivated is being
destroyed with the help of Law Enforcement
Agencies.
Area development projects in Bajaur,
Mohmand and Khyber Agencies are under
implementation. These projects aim at eradication
of poppy cultivation by providing alternative
means of income to the poppy growers in those
agencies. Besides, under the Border Security
Project, an amount of US$ 4.5 million was
allocated to enhance mobility, surveillance and
communication capacities of the Anti Narcotics
Force.
The statistics regarding seizure of
narcotics by the Law Enforcement Agencies
during the period from July 2002 to March 2003
are given as follows:-
Chapter 12. Health and Nutrition

Table 12.5
Cases of Narcotics
Items Opium Heroin Charas
1. No. of Cases 540 5167 26536
2. No. of Defendants 551 5210 26647
3. Drug Seized (Kgs.) 1644 11608 4784
Source: Narcotics Control Division

Food and Nutrition its use among population and

households.
Nutritional adequacy is one of the key
determinants of the quality of human resources. b. Control of Iron Deficiency through
Despite the rapid progress made in food Flour Fortification
production [See Table 12.6] and processing, mal-
nutrition continues to be a major area of concern To overcome the iron deficiency anemia, a
for public health. The problem of mal-nutrition in feasibility study for wheat flour
developing countries including Pakistan fortification with iron for the roller mills
encompasses a spectrum of deficiencies for which is under way. The study has four trials
the most devastating are the deficiencies of iron, viz. production, stability and
iodine and vitamin A. Together they contribute to acceptability, bio-availability and
a great deal of morbidity and ill health and as community-based efficacy trials.
such leads to health consequences, adding burden
to an individual’s resource in capabilities and lack Vitamin A
of one’s full participation in the social and
economic activities. Programme aims at reduction i. Fortification of edible oil/ghee
of infant mortality and low birth weight babies; The quality aspects for Vitamin A
better child and maternal health care; promotion fortification of ghee/oil are going to be
of breast feeding; and prevention of night adopted to ensure necessary
blindness, and iodine deficiency diseases. vitaminisation in ghee/oil by the
producers.
Micronutrient Deficiency Control
Programmes ii. Vitamin A Supplementation
Vitamin A supplementation of children
The major component of nutrition is from 6 months to five years of age is
micronutrients deficiencies e.g. Iodine, Iron, being implemented as regular part of
Vitamin A. Various programmes remained under National Immunization Days (NIDS and
implementation during the year are summarised Sub-NIDS) to protect them from
as under:- infections.

a. Control of Iodine Deficiency Disorder Nutrition in Primary Health Care (PHC)

The project aims to eliminate Iodine
Deficiency Disorders (IDD) through The objective of improvement of nutrition
universalising Iodized Salt by promoting through Primary Health Care is to improve in
qualitative terms the nutritional status of women,
Chapter 12. Health and Nutrition

girls and infants by providing and expanding reduce malnutrition in infants and
more PHC nutritional services. More than 70,000 children. As part of the early child hood
Lady health Workers working at village level protection, breast-feeding, promotion and
provided services for micronutrient protection remained in progress. More
supplementation and counseling on growth hospitals have been declared Baby
promotion, maternal and child nutrition, breast Friendly Hospitals, Lactation
feeding and complementary feeding on regular Management Curriculum was
basis. As part of the PHC component of nutrition, revised/upgraded incorporating recent
nutrition information, education and advances in the technical knowledge and
communication activities have been started. needs of the target groups which would
Training of health professionals regarding be used in future training programmes.
health/nutrition education focussing on nutrition
problems of women and children and their b) Tawana Pakistan Project, School
remedies has started. Nutrition Package for Girls
This programme addresses widespread
Community Nutrition Programme malnutrition in girls co-instituting almost
45% of population which will pay
a. Breast Feeding Promotion and dividends in short and long term.
Protection Awareness would be created within
The aim of this programme is to create communities about the need for balanced
awareness among the masses, particularly nutrition at critical periods of life such as
mothers, about the importance of pregnancy and early child hood. 26 poor
exclusive breast feeding of infant for first districts in 4 provinces have been selected
six months and appropriate with 5000 girls’ schools to cover 500000
supplementary feeding along with breast school girls (5-12 years). The programme
feeding subsequently upto 2 years to has been initiated.
Table 12. 6
Food Availability Per Capita
Items Year/ 49-50 79-80 89-90 95-96 97-98 98-99 99-2000 2000-01 2001-02
Units (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 Ltr107.0 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 5.1 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
___________________________
Chapter 13. Population, Labour Force, and Employment
13.Population, Labour
Force, and Employment
With population growing at 2.1percent
per annum and addition of 3.1 million persons
every year, Pakistan faces a formidable challenge
of tackling the issue of economic development
and poverty reduction. Such sizeable addition to
the population, not only dilutes the results of the
development efforts but also
unsustainable level of demand on already scarce
resources to cater for the needs of the population.
This also imposes restraints on efforts for
improving the living conditions of the population.
In the past, high population growth
significantly pushed the population
poverty line. If current trend persists, Pakistan's
population will reach 217 million by the year
2020. Based on present growth patterns and
trends, the economy would not be able to sustain
the growing pressure of population and resultant
deterioration in quality of life
government's recent efforts for social uplift. The
high population growth is, therefore, a matter of
national concern. Hence, the
improvement in quality of life, social uplift and
economic development can be augmented by
improving the effectiveness of population welfare
program.
Pakistan has been facing the ever-largest
adolescent population, because of its high level of
fertility over the last few decades, (decline in
fertility is a very recent phenomenon). The
adolescent population, in the age group of 15-24,
as it enters into its reproductive phase embodies
potential population growth for several decades.
It constitutes population momentum with serious
implications for provision of schooling, healthcare
and other basic amenities of life for the coming
decades. Almost one third of Pakistanis are living
below poverty line. The impact of population
creates growth on poverty is obvious, since poorer
families, especially women and marginalized
groups bear the burden of a large number of
children with relatively fewer resources, further
adding to the spiral of poverty and deterioration
has in the status of women. Thus, large part of the
below population is constrained to live in poor housing
and sanitation conditions, with lack of access to
safe drinking water. In particular, the income
poverty leads to pressure on food consumption
and adversely affects caloric intakes. This adds to
malnutrition in poorer families and contributes to
will foil high levels of child and maternal morbidity and
mortality. Furthermore, the rapid population
growth also contributes to environmental
thrust for degradation and depletion of natural resources,
data shows that during last three decades,
developing countries with lower fertility and
slower population growth have seen higher
productivity, more savings and more investments.
Investments in population welfare programme,
education and health sectors have contributed
substantially to fertility declines. Therefore,
addressing high population growth should
undoubtedly be magna cartae of the overall
planning perspective. The need to pursue an
Chapter 13. Population, Labour Force, and Employment
effective population program at all levels can
neither be ignored nor exaggerated.
With population of 149 million (2003),
Pakistan ranks at 7th position in terms of World's
population size. It is encouraging to note that the
demographic transition has started and the
growth rate is estimated to decline to 1.8 percent
by mid 2004. The country has to amass additional
resources to feed, cloth and provide various
services to population The population of the
country has marked with considerably high
proportion of young age, high dependency ratio
and big size. The increasing number of population
has resulted in low level of human development,
low savings & investment ratios, low labour force
participation rate and low per capita income.
Hence, Pakistan is classified among the low-
income countries.
Family planning programs have been
pursued in the country since 1950s. The frequent
changes in program strategies and inconsistent
political support remained main impediments in
the way of its successful implementation. Ministry
of Population Welfare have formulated an Interim
Population Sector Perspective Plan 2012.
Due to demographic transition, the share
of old age population has declined by 1.5
percentage points. This change in demographic
structure owes heavily to a steady decline in
population growth since 1981. With further slow
down in population growth, Pakistan may see its
shares of working-age population to rise while
that of young age population decline.
Demographic transition provides an opportunity
for raising economic growth and increasing
prosperity. Pakistan may succeed in mobilizing
sufficient capital (investment) and use it
efficiently with the rising working-age population
but this will depend largely on government's
socio-economic policies. If the workforce is better
educated, it will be better placed to contribute to
economic growth. If government's macro-
economic policies are such that lead to job
creation, the country will more likely to realize
the potential benefits of demographic transition in
terms of higher economic growth.
Population Size and Literacy Rate
Pakistan has experienced an accelerated
population growth rate. It's population has
increased from 32.5 million (1947) to an estimated
149 million in 2003. In 1951 the population of the
country was 33.7 million, which has increased to
85.1 million by 1981 and further to about 149
million by 2003. In other words, it has quard-
ruppled in the last 52 years. The population is
increasing but at a sliding scales i.e. from 3.06
percent to 2.1 percent per annum. However
during the last 25 years, the adult literacy has
increased from 26.2 percent in 1981 to 51.6 percent
in 2003. The population growth and literacy rates
since 1981 to 2003 are comparatively given in
Table 13.1.
The current population growth is still
high (2.1percent) and the government is making
every effort to reduce it to 1.8 percent by 2003-04
as per country's Interim Poverty Reduction
Strategy Paper (IPRSP). The various population
planning programmes launched by the
Government have effectively contributed in
slowing the population growth rate. Realizing the
importance of improving the country's social
indicators in general and education in particular
the government has prepared a medium-to-long
Chapter 13. Population, Labour Force, and Employment

run program with a view to educating its citizen under the Education for All Program.

Table 13.1
Population Growth and Literacy Rates (1981 to 2003)
Mid Year Total Population Growth Rate (%) Literacy Rate (%)
(Million) Rate % Change
1981 85.10 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
2003 149.03(E) 2.10 51.6 2.2
E: Estimated Source: Population Census Organization & Ministry of Planning & Dev. Division

Fig-1: Trends in Population Growth

4
3.8
3.6
3.4
3.2
3
2.8
2.6
2.4
% Growth

2.2
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

.
Chapter 13. Population, Labour Force, and Employment

Fertility, Mortality and Infant Mortality indicators i.e. Total Fertility Rate (TFR), Crude
rates. Birth Rate (CBR), Crude Death Rate (CDR), Infant
Mortality Rate (IMR) and Maternal Mortality Rate
The high rate of population is also due to (MMR) and life expectancy in the country.
decline in mortality rate, owing to elimination of
epidemic diseases. The decline in mortality rates Table No.13.2
can also be attributed to improved water supply, Selected Demographic Indicators.
drainage and other social services. However the Indicators Year (2003)
fertility has shown a modest decline over the Total Fertility Rate (TFR) 4.3
recent years. The crude death rate (CDR) of Crude Birth Rate (CBR) 27.3
Pakistan is estimated at 8 (per hundred thousand Crude Death Rate 8
Infant Mortality Rate (IMR) 83
live births), consequently every year about
Maternal Mortality Rate (MMR) 350-435
seventeen thousand of new born babies become (per 100 thousand live birth)
motherless. The life expectancy in Pakistan is 63 Life Expectancy Male} 63
years. The major reasons for the slow decline of Female}
mortality rate in Pakistan include complications of Source: Population Census Organization
& Ministry of Planning & Dev. Division.
pregnancies, repeated pregnancies and births. The
other major killers are accidents in adults,
Population Distribution:
cardiovascular diseases and cancer in the elders.

The population of Pakistan is unevenly

Despite considerable decline in total
distributed over it's four provinces (Punjab,
mortality in Pakistan, the infant mortality has
Sindh. NWFP AND Baluchistan) and Federally
been quite high. It is estimated at 83 per thousand
Administered Tribal Areas (FATA) and Federal
live births in 2003. The major reasons for high rate
Capital Islamabad. Table-13.3 reflects province
of infant and child mortality are diarrhea and
and area wise population.
neumonia. Table -13.2 reflects the demographic
Table No13.3
Province-wise Population, Land Area and Percent Distribution
1951, 1981, 1998 and 2003
(Population in Thousand)
Province Area Sq. Year Year Year Year
Kms 1951 1981 1998 (2003)
A PAKISTAN 796096 33816 84453 130,600 149,030(E)
(100) (100) (100) (100) (100)
i) PUNJAB 205344 20557 47292 72,585 82,710(E)
(25.8) (60.8) (56.1) (55.59) (55.5)
ii) SINDH 140914 6054 19229 29.991 34,240(E)
(17.7) (17.9) (22.6) (22.97) (22.97)
iii) NWFP 74521 4587 11061 17,577 20,170(E)
(9.1) (13.6) (13.1) (13,3) (13.54)
iv) BALUCHISTAN 347190 1187 4332 6,510 7,450(E)
(43.6) (3.5) (5.1) (4.99) (5)
v) FATA 27220 1337 2199 3,138 3,420(E)
(3.4) (3.9) (2.6) (2.4) (2.3)
vi) Islamabad 906 94 340 799 1,040(E)
(0.1) (0.3) (0.4) (0.61) (0.7)
E: Estimated Source: Population Census Reports & Planning Commission.
Chapter 13. Population, Labour Force, and Employment

Population Density Islamabad (capital) to 21 persons in Baluchistan

Table 13.4 reflects that population density
has increased from 43 (1951) to 185 (2003) persons
per sq.km. During the year 2003, the population
density ranges between 1137 persons per sq.km in
province. The most populous province is Punjab
having a population density of 398 persons per
sq.km followed by NWFP (267), Sindh (240),
FATA (125) and Baluchistan (21).

Table No13.4
Province Wise Population Density

Province 1951 1981 1999 2003

(Area Kms) (Density) (Density) (Density) (Density)
A Pakistan (43) (106) (164) (185)
i) Punjab (100) (230) (353) (398)
ii) Sindh (43) (135) (213) (240)
iii) N.W.F.P (62) (148) (235) (267)
iv) Baluchistan (3) (12) (19) (21)
v) FATA (81) (115) (125) (125)
vi) Islamabad (104) (376) (881) (1137)
Source: Population Census Reports and Planning Commission estimates.

Urban-Rural Distribution: four times since the first population census of

The migration from Rural areas to Urban
cities in the country is on rise. The urban
population at the time of independence (1947)
was 5 million (15.4%) which had increased to
23.84 million (28%) in 1981 and further to 42.445
million (32.5%) in 1998. During 1981 to 1998, the
total population increased by 55 percent whereas
the urban and rural population increased by 60
percent and 40 percent, respectively. However
during 2003, the urban and rural population
distribution is estimated to be 89.7 million (61 %)
and 53.3 million (39%) respectively.
Population Size and Growth
The population of Pakistan recorded an
increase of 57.02 percent over the last 17 years i.e.
1981-98. If we go back further, the intercensal
increase was 29.01,52.31 and 27.09 percent during
1972-81, 1961-72 and 1951-61, respectively.
Overall the population of Pakistan has increased
Pakistan in 1951.
According to the 1998 Population Census,
the population below 15 years is 43.4 percent of
the total population, a little less than in 1981 when
it was 44.5 percent. Out of these, 14.8 percent are
below 5 years of age including 2.3 percent infants.
The population of persons of 65 years and above
is 3.5 percent. The population of working age
group, i.e. 15 to 64 years thus comes to 53.1
percent, a little higher than half of the total
population.
Household Size
The average household size for Pakistan
as a whole is 6.8 persons in 1998. The household
size varies among all administrative units of
Pakistan. The highest household size in 9.3 in
FATA followed by 8.0 in NWFP and 6.9 in Punjab
province. The household size of Balochistan and
Sindh provinces is 6.7 and 6.0 respectively. The
Chapter 13. Population, Labour Force, and Employment

household size of rural and urban areas in
Pakistan is 6.5 and 7.4 respectively .
Population Distribution by Administrative
Unit
The population of Pakistan is unevenly
distributed among its administrative units. The
Punjab province has the largest population share
of 55.62 percent while Islamabad Capital Territory
has the smallest population share, i.e. 0.61
percent. The population share of Sindh, NWFP
and Balochistan is 22.99, 13.41 and 4.96 percent
respectively (Table-13.5).

Table 13.5
Area, Density and Household Size By
Administrative Units, 1998.

Admn. Unit Area(Sq.Km.) Population Population Household

(Percent) Density Size
Pakistan 796096 100 166 6.8
NWFP 47521 13.41 238 8.0
FATA 27220 2.40 117 9.3
PUNJAB 205345 55.62 358 6.9
SINDH 140914 22.99 216 6.0
BALOCHISTAN 374190 4.96 19 6.7
ISLAMABAD 906 0.61 889 6.2
Source: Ministry of Population Census Organization

for behavioural change of the males and to put

Population Welfare Programme
more responsibility on this segment of the society.
Pakistan still has an unacceptably high
rate of growth compared to other developing
An important hallmark of an Interim
countries. The Government of Pakistan is
Population Sector Perspective Plan, 2012 is the
therefore, attaching the highest priority to lower
seriousness of government to ensure
the population growth rate (PGR) from its current
responsibility for family planning services
level (2.1%) to 1.8 percent per annum by the year
delivery through all infrastructure outlets of the
2004.The Population Policy is specifically
health departments and other provincial line
designed to achieve social and economic revival
departments. The Plan focuses its attention on
by curbing rapid population growth and thereby
leading a nation-wide effort to contain population
reducing its adverse consequences for
growth through a comprehensive multi-sectoral
development. It is intended to achieve a reduction
program with the requisite political commitment
in dependency ratios, to alleviate pressures on
and administrative priority. The overall vision of
dwindling resources and help in poverty
the Plan/ Population Policy is to address various
reduction. The Population Policy has several
dimensions of population issues in an informed,
wide-ranging consequences for the economy,
voluntary and coordinated manner by
human rights and the long-term prosperity of
Government, NGOs, Private Sector and Civil
Pakistan. The young population, under 15 years
Society. In nutshell, the Population Policy sets out
of age, will be focused. The youth will be
a broad framework and provides futuristic vision
informed about the consequences of rapid growth
to achieve the ultimate aim of reducing poverty
of population. Concerted efforts would be made
and raising the quality of life of the common man
Chapter 13. Population, Labour Force, and Employment
and woman. As a follow up of International
Conference on Population and Development
(ICPD) decisions, a package of reproductive
health has already been introduced to target
population. A comprehensive reproductive health
(including family planning) approach has been
adopted. A holistic approach for population
welfare program will be focused to ensure
community participation.
Major Objectives of Population Welfare
Programme
The main objectives of the Population
Welfare Program, envisaged in Interim
Population Sector Perspective Plan (2012) are the
following:-
i) Decrease the population growth
rate to 1.82% in 2004 and 1.6% by
the 2012.
ii) Achieve a replacement level of
fertility (2.1) by the year 2020.
iii) Increase contraceptive prevalence
rate (CPR) to 43% in 2004 and to
57% in 2012.
iv) Increase Program coverage to
76% in 2004 and 100% by the
2010.
v) Sustain increase in "age at
marriage" of girls and ensure a
reduction in population
momentum through delay in
marriage, fertility decline and
changes in birth spacing patterns
which should reduce proportion
of under 15 population from 40%
to 30%.
Major Activities Pursued During 2002-03
(a) Service Delivery Infrastructure:
The envisaged service delivery during
2002-03 comprises programme outlets and service
units of Provincial Line Department (PLDs),
target group institutions, private sector
undertaking civil society initiative. The entire
network consists of 1,911 family welfare centers
(FWCs), 106 Reproductive Health Services (RHS)
'A' Centres, 151 Mobile Service Units (MSUs), 500
outlets of Target Group Institutions (TGIs), 7584
outlets of Provincial Line Departments (PLDs)
including those Provincial Health Departments.
Through these service delivery outlets, population
welfare program offers wide range of family
planning services including motivation,
counseling, full choice of contraceptives and
contraceptives surgery. To augment the family
planning component of National Project for
Primary Health Care & Family Planning 11000
Village Based Family Planning Workers (Female)
working under Ministry of Population Welfare
have been transferred to Ministry of Health to
form a unified cadre of Family Health Workers.
The responsibility to involve males in family
planning at the grass root level is being envisaged
to be handled by male workers. With the existing
work of about 1343 male workers, there is need to
expand the male village based family planning
workers to 7000 covering every union council.
(b) Social Marketing of Contraceptives.
Social marketing activities are
complementing the efforts of Population Welfare
Program in providing conventional and hormonal
contraceptives at subsidized rates to the low and
middle income groups of population in the urban
and peri-urban areas of the country. The interim
results are encouraging and continued donor
support for the program is expected.
(c) Advocacy and Information Education
and Communication.
According to various surveys, awareness
about Family Planning is almost universal
(around 97%)but the contraceptives use rate is
only 33%. There is still a wide gap between
knowledge and practice and the unmet need for
Chapter 13. Population, Labour Force, and Employment
family planning is 33%. The challenge is to reach
couples with unmet need and convert them into
service users. Focus is on regional and local
programs for presenting 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 700 Family
Welfare Workers/ Counsellors, 3-month training
of 75 Field Officers, Short-term training of 700
Medical Personnel of Provincial Line Departments
and Target Group Institutions and others,
advance-on-the job training of around 1200
Paramedics of the programme and 265
paramedics of NGOs. In addition, 65 faculty
members of Training Institutes will also be
imparted training by June, 2003. Similarly Non-
Clinical training activities are geared to update
knowledge, understanding and skills of the
programme personnel working in the field. At the
same time, social mobilization is undertaken
through orientation workshops, for elected
representatives, functionaries of other
departments and community based groups. A
cadre of male mobilizers is being introduced at
union councils level to enhance male
involvement.
(e) Monitoring and Evaluation
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 of Population
Welfare and by team of provincial monitoring and
evaluation cells to various categories of service
delivery outlets.
The emphasis of the programme is to
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. Trainings/orientations have been
accelerated to ensure application of the prescribed
standard for improving quality of services.
(f) Research Programme
Research Programme is executed by
National Institute of Population Studies (NIPS),
based at Islamabad, is an autonomous body
assigned the responsibility of undertaking
interdisciplinary research, impact studies of the
population welfare programme, dissemination of
information, training special surveys and action
oriented research focus is on population and
development, reproductive health and family
planning.
(g) Financial Utilization
The ADP allocation in respect of
Population Welfare Program during 2002-2003 is
Rs. 2200.0 million against which an expenditure of
Rs.516.0 million has been incurred up to
December 2002 and fund utilization shall gear up
in the 3rd and 4th quarter as per past trend.
LABOUR FORCE AND EMPLOYMENT
On the basis of estimated population of
149 million for mid-year 2003 and the
participation rate of 28.97 percent, the total labour
force comes to 42.75 million. Of this 29.69 million
or 69.45 percent is in the rural areas and 13.06
million or 30.55 percent in the urban areas.
Distribution of labour force from 1995 to 2003 is
given in Table-13.6.
Chapter 13. Population, Labour Force, and Employment

Table13.6
Rural-Urban Labour Force
Year Labour Force Rural Urban
Million Annual Million % Share Million % Share
Growth
1995 33.60 - 23.37 69.55 10.23 30.45
1996 34.43 2.5 23.83 69.21 10.60 30.79
1997 36.84 7.0 25.56 69.38 11.28 30.62
1998 38.88 5.5 27.31 70.24 11.57 29.76
1999 39.80 2.4 27.95 70.23 11.85 29.77
2000 40.13 0.8 27.88 69.47 12.25 30.53
2001(E) 41.00 2.2 28.48 69.46 12.52 30.54
2002(E) 41.84 2.0 29.07 69.50 12.77 30.50
2003(E) 42.75 2.2 29.69 69.45 13.06 30.55
E:Estimated. Source: Labour Force Surveys of respective years.

Labour Force Participation Rate percent in 1996-97. It slightly increased to 43.3

percent in 1997-98 but has declined to 42.8 percent
In Pakistan, labour force participation is in 1999-2000.
estimated on the basis of Crude Activity Rate
(CAR) and Refined Activity Rate (RAR). The CAR Inter-comparison of rural and urban
is percentage of labour force in total population participation rates reveal that labour force
and the PAR is the percentage of labor force in participation rates are higher in rural areas as
population of persons 10 years of age and above. compared to urban areas because Pakistan's
According to the Labour Force Survey, 1999-2000, economy is mainly agrarian and that the
the labour force participation rate (CAR) is almost agriculture is a family profession in rural areas.
30 percent (29.8) percent in rural areas and 27.1 The female labuor force participation rate is far
percent in urban areas). CAR was 27.5 percent in less as compared to male participation rate and as
1994-95. It increased to 28.7 percent in 1996-97 and such their participation in economic activities is
to 29.4 percent in 1997-98 but has slightly declined also low. The crude and refined labuor force
to 29 percent in 1999-2000. Similarly RAR was participation rates by area and sex for 1994-95,
41.2 percent in 1994-95 and increased to 43 1996-97, 1997-98 and 1999-2000 are given in Table-
13.7.
Table 13.7
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 54.1 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 Surveys of respective years.
Chapter 13. Population, Labour Force, and Employment

Employment Situation areas has increased from 11.52 million in 2002 to

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 labour force in 2003 is estimated at
39.41 million compared to 38.57 million in 2002.
The total number of employed persons in urban
11.78 million in 2003. Similarly rural employment
increased from 27.05 million in 2002 to 27.63
million in 2003. Employment increased at a rate of
2.2 percent in 2003 compared to 2.1 percent in
2002.
Distribution of employed labour force by
urban/rural areas from 1995 to 2003 is given in
table-13.8.

Table 13.8
Employed Labour Force by Area

Year Employed Annual Rural Urban

Labour Force Growth (%)
No.(M) % Share No.(M) % Share
1995 31.80 - 22.25 69.97 9.55 30.03
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 36.59 5.8 25.95 70.92 10.64 29.08
1999 37.46 2.4 26.56 70.88 10.90 29.12
2000 36.99 -1.3 25.95 70.15 11.04 29.85
2001 37.79 2.2 26.50 70.15 11.29 29.85
2002 38.57 2.1 27.05 70.13 11.52 29.87
2003 39.41 2.2 27.63 70.11 11.78 29.89
Source: Calculations of Employed Labor Force and its Rural Urban break-up is based on the Labour Force
Surveys of the respective years.

Employed Labour Force by Sectors.
Agriculture Sector is the largest employer
and employs 19.08 million or 48.42 percent of total
employed in 2003. This sector employed 17.29
million persons in 1998 and its relative share was
47.25 percent. Similarly the relative share of
manufacturing & Mining had increased from
10.15 percent in 1998 to 11.55 percent 2003. In
contrast i.e. the share of agriculture has increased
by 1.17percentage point in the last 5 years. The
relative share of employed labour force in the
finance, insurance and social services sector which
was 16.23 in 1998 has declined to 15.02 percent in
2003. The share of trade sector has also decreased
from 13.87 percent in 1998 to 13.50 percent in
2003. However the share of manufacturing sector
has increased from 10.15 percent in 1998 to 11.55
percent in 2003. The construction sector, and
transport sector absorbed 6.26 percent and 5.48
percent, respectively in 1998. Compared to it, their
relative share in 2003 declined to 5.78 percent and
5.03 percent, respectively.
Employed labour Force by sectors for
1998 and 2003 along with its sectoral share is
presented in Table-13.9.
Chapter 13. Population, Labour Force, and Employment

Table 13.9
Employed Labour Force By Sectors
(No. in million)
Sector 1998 2003
No. % Share No. % Share
Agriculture 17.29 47.25 19.08 48.42
Manufacturing & Mining 3.71 10.15 4.55 11.55
Construction 2.29 6.26 2.28 5.78
Wholesale & Retail Trade 5.08 13.87 5.32 13.50
Transport 2.01 5.48 1.98 5.03
Finance, Insurance, Community & Social Services 5.94 16.23 5.92 15.02
Others 0.27 0.76 0.28 0.70
Total 36.59 100.00 39.41 100.00
Source: Labor Force Survey 1999-2000.

Employment by occupation but has increased to 15.05 percent in 2003. The

Looking at employment by major plant and machine operators group comprised
occupational groups, agriculture sector's role is 3.68 percent of employment in 1998 but its share
again conspicuous. The data given in Table-13.10 in total employed persons have gone down to 3.29
for 1998 and 2003 reveals that major portion of the percent in 2003. The shares of service and sales
employed persons consists of skilled agricultural workers group, and professionals group have
and fisheries workers. The share of this gone down from 6.02 percent in 1998 to 4.58
occupational group was about 40 percent in 1998 percent in 2003 and from 3.03 percent in 1998 to
and has slightly increased to 40.03 percent in 2003. 2.21 percent in 2003, respectively. However, the
The next occupational group consists of share of legislators and managers group has
elementary unskilled occupations. Its share was increased from 9.76 percent in 1998 to 11 percent
20.13 percent in 1998 but has declined to 18.13 in 2003. Similarly the share of technicians group
percent in 2003. The share of craft and related has also increased from 2.92 percent in 1998 to
trades workers group was 12.71 percent in 1998 4.17 percent in 2003.
Table 13.10
Employed Persons by Major Occupational Groups
Major Occupational Groups 1998 2003
No. % Share No. % Share
Legislators, senior officers & managers 3.57 9.76 4.33 11.00
Professional, 1.11 3.03 0.87 2.21
Technicians & associate professionals 1.07 2.92 1.65 4.17
Clerks 0.67 1.84 0.61 1.55
Service workers and shop & market sales 2.20 6.02 1.80 4.58
workers.
Skilled agricultural and fishery workers. 14.60 39.91 15.78 40.03
Craft and related trades workers 4.65 12.71 5.93 15.05
Plant & machine operators & assemblers. 1.35 3.68 1.29 3.28
Elementary (unskilled occupations) 7.37 20.13 7.15 18.13
Total: 36.59 100.00 39.41 100.00
Source: Labour Force Surveys 1997-98 & 2003 on 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
3.34 million persons in the labour force are
estimated as unemployed in 2003 compared to
3.27 million in 2002. Unemployed labour force by
urban/rural areas from 1995 to 2003 is given in
Table 13.11.

Table 13.11
Unemployed Labour Force by Rural/Urban Area

Year Unemployed Labour Force Unemployment Rate(%)

Total Rural Urban Total Rural Urban
1995 1.80 1.12 0.68 5.37 4.80 6.90
1996 1.85 1.14 0.71 5.37 4.80 6.90
1997 2.25 1.44 0.81 6.12 5.65 7.17
1998 2.29 1.36 0.93 5.89 4.98 7.95
1999 2.34 1.39 0.95 5.89 4.98 7.95
2000 3.14 1.93 1.21 7.82 6.94 9.92
2001 3.21 1.98 1.23 7.82 6.94 9.92
2002 3.27 2.02 1.25 7.82 6.94 9.92
2003 3.34 2.06 1.28 7.82 6.94 9.92
Source: Labour Force Surveys of the respective years.

The above table reveals that
unemployment has increased from 5.89 percent in
1998 to 7.82 percent in 2003. Similarly
unemployment in rural areas which was 4.98
percent in 1998 has risen to 6.94 percent in 2003
and urban unemployment has enhanced from 7.95
percent in 1999 to 9.92 percent in 2003.
EMPLOYMENT PROMOTION POLICES
The government has fully acknowledged
prospective repercussions of growing
unemployment in the country and has taken
several steps to create job opportunities. Some of
the important employment promotion measures
are given below:
Realizing that a sound base of economic
development and its faster growth has a direct
bearing on the growth of employment, the
Government has taken various steps for reviving
the economy and accelerating the pace of
economic growth. These include, Revitalization of
Agriculture Sector, Development of Small and
Medium Enterprises Sector, Oil and Gas, and
Information Technology and Construction Sector.
An allocation of Rs.134 billion has been made for
the year 2002-03 in the Public Sector Development
Programme which is higher by Rs.7 billion or 5.2
percent, compared to Rs127 billion in the previous
year, 2001-2002. As a result of implementation of
the annual development programme/schemes, a
large number of job opportunities would be
created in the country.
The SMEs are labour intensive and
encompass a wide range of activities, size,
structure, productivity and input use. The SME
development is a critical target of the Government
for generating jobs on a large scale. In order to
Chapter 13. Population, Labour Force, and Employment
promote SME sector, the Government has
established a Small and Medium Enterprise
Development Authority (SMEDA) in 1999 to meet
the needs of SMEs and work for the growth of this
sector. The focus of these initiatives is on four
areas namely availability of credit reduction in the
cost of doing business, up-gradation of
technology and marketing of products in the
international markets. It is hoped that this will
have a positive impact on the job creation capacity
of the SME sector.
SME Bank was established on 1st January
2002 with a mission to support and develop SME
Sector in Pakistan by providing financial
assistance and business support. It also provides
financial assistance to women for self-
employment and also extends its cooperation in
the areas of management, product innovation and
development, quality control, acquisition of new
technology and product positioning and
marketing. As a result of its activities, around
2000 job opportunities were created in the SME
Sector.
Self-employment is an important vehicle
for arresting the rising trend in unemployment.
Emphasis is being placed on income generation
activities for promotion of self-employment at the
grass root level. Khushhali Bank has been
established to provide loans up to Rs.30,000/- to
poor people to set up their own business. The
operation of the Bank would be spread in every
district and loans given by it will generate
employment for the unemployed. By the end of
December, 2002, the Bank had its branches in 26
districts and had disbursed loans amounting to
Rs.883.77 million in 52,766 cases. As a result
316,596 persons had benefited.
Khushhall Pakistan Programme is the
Government's principal social intervention aimed
at generating employment through undertaking
public works in the country. The programme
includes (a) building farm to market roads,
(b)undertaking water supply schemes (c) lining of
water channels and de-silting of canals (d)
provision and renovation of civic amenities in
rural and urban areas and village electrification
etc. The schemes under the programme are
identified and selected at the district level through
active community participation. During the
period 2000-02, temporary jobs were provided to
about 6,70,000 individuals.
Technical/vocational training enhances
employability of the work force. At present
training capacity of 68024 trainee places for men
and 54638 places for women are available in the
country. Based on the changing trends in the
labour market domestically and internationally
and the demand for industry-wise and sector-
wise skilled labour, the existing technical training
curricula are being revised. Under the new
training policy, women are being encouraged to
participate in the training programme of the
country to bring them in the mainstream through
the formal and informal apprenticeship training.
Further initiatives are being undertaken to
involve the private sector more actively in
expanding technical/vocational training in line
with labour market needs.
During the current financial year 2002-03
(up to February, 2003), as many as 1,26,418
persons have proceeded abroad for employment
through the Bureau of Emigration & Overseas
Employment and Overseas Employment
Corporation. Compared to the financial year 2001-
02, the persons who went abroad for employment
were 1,16,067. Keeping in view the increasing
trend in manpower export, the target for the year
2003-04 has been fixed at 1,50,000 workers,
provided there is no big setback in the geo-
political situation in the region. During the fiscal
years 2003-04, the Bureau of Emigration &
Chapter 13. Population, Labour Force, and Employment
Overseas Employment plans to open two new
offices of Protectorates of Emigrants in Multan
and Malakand Divisions to facilitate intending
emigrants of these less developed areas in seeking
employment abroad.
The Overseas Employment Corporation
(OEC) will explore new opportunities and
avenues for employment of Pakistani manpower
in South Korea for employment of general
workers, USA for employment of nurses and
Europe for employment of doctors and nurses.
OEC has appointed a consultancy firm for
promotion of manpower export in the public
sector. It is expected that with the implementation
of the consultants report the export of manpower
from OEC would increase to between 4000-6000
workers in the years ahead. With a view to
facilitate Pakistanis in 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".
Information Technology (IT) has been
included as one of the four priority sectors
selected for unleashing the growth process in the
___________________
country. An IT policy has been announced under
which four areas have been identified which
include human resource development,
telecommunication, legal framework for IT Sector
and marketing support for IT sector. The Ministry
of Science and Technology has prepared a
programme to meet high level manpower needs
in science and technology. In this connection,
vocational training programme to produce
over100,000 professionals in Information
Technology has been launched.
With a view to lessening the suffering of
poorest segments of the population, Pakistan
Poverty Alleviation Fund (PPAF) was set-up in
April, 2000. Up to 31st December,2002, the PPAF
has made disbursement of Rs.2590 million to
739,416 beneficiaries in 75 districts through
34 partner organizations in the country.
Disbursement has been made towards credit and
enterprise development, community physical
infrastructure and human/institutional
development. So far 2735 such projects have been
initiated which were community identified,
locally managed and locally run. Implementation
of these programmes and projects helped in
reducing poverty and creating job opportunities
in the country.
Chapter 14. Transport and Communications

14. Transport and Communications

Transport and communications and the recent years as better roads and improved
services that flow from it are prerequisite to vehicles performance have revolutionized
attaining economic growth and improving overland transport. Secondly, on many routes
country’s productive capacity. An efficient with high traffic, this is the only feasible method
transport and communications network of mechanized transport. Finally, as the pace of
contributes to productivity improvement and economic development quickens, the importance
reduction in production costs, whereas inefficient of transport costs declines, and there is greater
network hinders economic growth and social concern for improved services.
development. It has been widely recognized that
economies with better road and communications Pakistan has a road network covering
network are positioned more advantageously in 251,845 kilometers including 151,028 high types
terms of overall competitiveness, compared to and 100,817 low types of roads. The total roads
economies having poor network. Because which were 170,823 KM in 1990-91, increased to
performance indicators vary significantly by 251,661 in 2001-02 and further to 251,845 KM in
transport mode, roads, highways, railways, 2002-03 or by 47.4 percent. During the out going
airlines, ports and shipping have been identified fiscal year, the length of high typed roads have
for analysis. increased by 1.5 percent over the last year but the
length of low type roads has declined by 1.9
A. ROAD NETWORK percent. In other words, the low type roads have
A marked and nearly universal trend has been converted into high type roads. This has
developed towards road transport for at least been made possible under the Khushal Pakistan
three reasons. Firstly, the economy and reliability Program. The annual growth of roads in Pakistan
of road transport has increased very rapidly in since 1990-91 to 2002-03 is given in Table 14.1 and
Fig-1.
Table 14.1
Length of Roads
(Kilometers)
Fiscal Year High Type Low Type Total
Length %Change Length %Change Length % 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
1999-00 138,200 0.6 110,140 0 248,340 0.3
2000-01 144,652 4.7 105,320 -4.4 249,972 0.7
2001-02* 148,877 2.9 102,784 -2.4 251,661 0.7
2002-03* 151,028 1.5 100,817 -1.9 251,845 0.1
* Estimated Source: Ministry of Communications
 Chapter 14. Transport and Communications

Fig-1: Length of Roads custodian of 17 National Highways, Motorways

and Strategic Roads. Road transport is the
00
00

dominant mode of transport for the people and

17
00

for the goods in Pakistan. The large segment of

00
15
Kilometers

00

the society prefer to take journey through road

00
13

networks. The National Highways Network

00
00

consisting of 8,845 Km is 3.5 percent of the total

11
0
00

road length in Pakistan. The government has

90
0

decided to increase the present National Average

00
70

Road Density from 0.23 km/sq. km areas to 0.3

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

2001-02

2002-03
0
00
50

km/sq. km areas.
Hight Type Road Low Type Road

The present status of the main road

National Highway Authority (NHA) projects is given in the Box-1

The NHA is Pakistan’s premier road

management and regulatory agency. It is the

Box-1
Road Projects

A) National Highway Projects

N-5 Karachi-Lahore-Peshawar-Torkhum Highway
The whole N-5 has been dualized except Hala-Moro (114 Km) and Rahim Yar Khan -
Trinda Muhammad Pinnah (80 Km). Hala-Moro section has almost been completed
whereas progress on Rahim Yar Khan-Trinda Muhammad Pinnah section is 85 percent.

N-10 Makran Coastal Road (653 Km).

The project is 653 km in length is to be completed within a period of 3 years instead of 6
years originally planned. The period of construction is reduced to synchronized with
deep-sea port.

N-15 Kaghan Valley Road (175 Km)

The construction work on 175-Km is in progress and near to completion.

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 have been completed.

N-35 Hassanabdal-Gilgit-Khunjrab (803 Km)

The Work on Thakot-Chillas-Khunjrab has been completed.
Chapter 14. Transport and Communications

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

The improvements work on Dalbadin-Nokundi (200 Km) section have been completed

N-45 Nowshera-Dir-Chitral Highway (309 Km)

Improvements have been planned and rehabilitation will be taken up soon.

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

About 67 percent civil work of D.I.Khan Mughal Kot section has been completed. Expected
completion date is March 2004.

N-55 Indus Highway (1265 Km).

Work on up gradation of Phase-I & II from Kotri-Manjhad (58 Km), Manjhad Sehwan (70 Km),
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) have been completed.

Construction work on 30 Km Kohat Tunnel Project (1.88 Km tunnel and 28 Km access roads) is in
advance stage of completion and 92 percent progress is achieved. The project is expected to be
completed by July 2003.

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

The civil work is in progress. The construction/replacement of existing steel bridges of N-65 have
been completed

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 (43 Km) is in progress, 42 percent work completed. Expected
completion date is December 2003.

B) Motorway Projects
M-I Islamabad-Peshawar Motorway (154 Km)
Civil work about 27 percent has been completed.
M-2 Lahore-Islamabad Motorway (367 Km)
M-2 is operational since 1997.
M-3 Pindi Bhattian-Faisalabad Motorway (52 Km)
The construction work on Pindi Bhattian-Faisalabad Motorway (M-3) is in full swing. The project
more than half is completed. Expected completion date is July 2003.

C. Miscellaneous Projects
Karachi Northern Bypass (56.8 Km)
The project includes widening & improvement of 18-Km existing road, construction of 38.8 Km
new 2-lane bypass road, construction of three flyovers, construction of 90m bridge over Lyari
River and construction of two interchanges. Project will be completed by April 2004.
Layri Express way (16.5 Km)
The project includes construction of 2-lane 16.5 Km long carriageway. 8+8 flyovers and four
Chapter 14. Transport and Communications

interchanges. Construction work is in full swing. The project will be completed by October 2004.
Bund Road Lahore
The project is substantially complete. The project is being financed by NHA from its own
resources through toll revenue.
Kohat Tunnal Link Road
The project includes construction of 2-lane 7.5 Km link road between Kohat Tunnel Road &
Kohat Dara Adam Khail Road. Work has been started.
Ghazi Ghat Bridge
Rehabilitation work on Ghazi Ghat Bridge has been completed
Sukkar Bypass including 1.6 Km long bridge on River Indus (11.5 Km)
Completed
Chiniot Bridge Project
Completed.
Tall-Parachinar (75 Km)
Completed.
Khuzdar to Khori
Completed.
Ratodero-Shahdadkot-Quba Saeed Khan
Completed.
Abbottabad-Nathiagali-Barian-Murree Road
Completed.
Rawalpindi Urban Area Project
The Work completed on Qasim Market- Golra More, Golra More- M-2 interchange and Pir
Wadhai Round about.
Installation of Tool Plaza
A fee-for-use culture in the country has been introduced. Toll Plazas at 47 points all over the
country have been established.

B. PAKISTAN RAILWAYS by the Government, an investment of Rs. 44

The network of Pakistan Railways
comprises 7,791 route kilometers,
locomotives, 1,901 passenger coaches and 23,939
freight wagons up to end of March 2003. The
Pakistan railways have introduced non stop
express trains in different routes including
comfortable passenger coaches. The Karakoram
Express, Karachi Express and Shalimar Express
Rails are operating between Lahore-Karachi
sections as non stop trains, while another new
train namely Jaffar-Jamali (Rawalpindi-Quetta)
Express has also been started. In addition to
structural and management changes introduced
billion for five years (2000-05) was approved for
Railway Sector. However this was included in an
577 over-all plan for 10 years for which Rs. 109.00
billion was visualized. The Perspective Plan
includes rehabilitation of infrastructure, rolling
stock, communication system as well as
modernization of three main constituents of
Railways Operation viz infrastructure, rolling
stock and communication, through transfer of
technology from China. It is also planned to
increase the speed of passenger & freight trains,
once infrastructure over the system is improved.
Chapter 14. Transport and Communications

An amount of Rs.6,922 million has been coaches under the scheme of rehabilitation of 240
provided for development programme for the passenger coaches (scheme completed) and
year 2002-03. The major activities include: rail rehabilitation of 100 passenger coaches under
renewal of 128 Kms and sleeper renewal of 217 another project of rehabilitation of 450 passenger
Kms, procurement of 15 locomotives, coaches, rehabilitation of 40 bridges on main and
procurement of 40 passenger coaches, branch lines and doubling of 16 Kms of track from
rehabilitation of 22 locomotives, procurement of Lodhran- Khanewal via Multan. The performance
material for fitment of roller bearings to 1,340 of Pakistan Railways can be seen from Table- 14.2
freight wagons, rehabilitation of 38 passenger

Table 14.2
Performance of Pakistan Railways
Fiscal Year Route Number of Freight Freight Locomotives Freight
Kilometers passengers carried Tones 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 6,711 678 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 4,330 596 24,456
1999-00 7,791 68.0 4.8 3,612 597 23,906
2000-01 7,791 68.8 5.9 4,520 610 23,893
2001-02 7,971 69.0 5.9 4,688 577 23,893
July-March
2001-02 7,791 49.2 4.0 3,341 610 22,192
2002-03* 7,791 52.0 4.4 3,397 577 23,939
*Provisional Source: Ministry of Railways

Table-14. 3
Earnings of Pakistan Railways.
The Pakistan Railways have improved its
(Rs. Million)
services both for passengers and luggage Year Earnings % change
handling. A sign of improvement is visible from 1998-99 9,310 -
the continuous increase in the earnings which 1999-00 9,889 6.2
have increased by 43.3 percent during 1998-99 and 2000-01 11,938 20.1
2001-02. During July- March 2002-03, the gross 2001-02 13,340 11.7
July-March
earnings increased by 12.7 percent over the same
2001-02 9,572 -
period last year. The details of earnings are given 2002-03 10,783 12.7
in Table- 14.3 and Fig-2. Source: Ministry of Railways.
Chapter 14. Transport and Communications

traffic has grown by 25 percent, as against an

Fig-2: Earning of Pakistan Railway
average decline of 4.8 percent per annum in the
16 1990s. A positive growth of 3.7 percent has also
14
been maintained in 2001-02. Furthermore, as
12
10 against an average decline in passenger traffic by
Rs. Billion

8 0.7 percent per annum during the 1990s, the

6
4 passenger traffic of Pakistan Railways has
2 increased by 5.9 percent in 2000-01 and further by
0
6.3 percent in 2001-02. A positive trend has also
1998-99

1999-2000

2000-01

2001-02

During the last 12 years (1990-2002), the
share of Railways, both in respect of passenger
traffic and freight traffic has declined from 13.5
percent to 9 percent and from 14 percent to 4.1
percent, respectively. However, the Pakistan
Railways has registered an impressive recovery in
2000-01 when
(Jul-Mar)
2002-03
been recorded during July-March 2002-03 in both
the passenger traffic and freight traffic by
registering an increase of 1.4 percent and 1.7
percent, respectively over the same period of last
year. Maintaining a positive growth for three
successive years can be attributed to the wide
range of improvements made by the Pakistan
Railways in the quality of services, timeliness, and
cleaniless. This trend is reported in Table 14.4 and
its freight Fig-3 & Fig-4.

Table 14.4
Trend of Passengers Traffic and Freight Traffic
(Road vs Rail)
Fiscal 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
2001-02 209,381 0.5 20,820 6.3 108,818 0.2 4,688 3.7
(Jul-Mar)
2001-02* 157,037 - 14,867 - 81,613 - 3,341 -
2002-03* 161,919 3.1 15,071 1.4 81,843 0.3 3,397 1.7
*Provisional Source: Ministry of Railways & Ministry of Communications
Chapter 14. Transport and Communications

Fig-3: Trend of Passenger Traffic

250 40

35
200
(Billion Passenger Km)

30

150 25
Road
20
Rail
100 15

10
50
5

0 0
1990-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

2001-02

01-02(Jul-

02-03(July-
Mar)

Mar)
Fig-4: 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
1990-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

00-01

2001-02

(July-Mar)_
01-02(Jul-

2002-03
Mar)

C. CIVIL AVIATION AUTHORITY (CAA) Terminal Complex, Lahore has been completed at
the cost of Rs. 10.3 billion. This terminal can
In spite of the adverse effects of handle 6.5 million passengers per annum. Rahim
September 11, 2001 events on the global and Yar Khan and Bahawalpur airports have been
national air traffic and the attendant decline in upgraded for operation of B-747 and B-737
revenues, the CAA has continued to undertake aircrafts, respectively. The up-gradation of
developmental work and also completed a Gwadar and Turbat airports is in progress.
number of projects. The construction of a New Construction of New Islamabad International
Chapter 14. Transport and Communications
Airport on Build, Operate and Transfer (BOT)
basis is being processed. The construction of
Sialkot International Airport in the private sector
is also in progress. A new Automatic Flight
Inspection System is in the final stage of
completion. According to the CAA, the number of
aircrafts movements and passenger traffic from all
the country’s airports were 0.091 and 5.2 million,
respectively.
Pakistan International Airline (PIA)
During the first nine months (July- March
2002-03) of the current fiscal year, the PIA’s
network covered 23 domestic and 28 international
stations. The capacity of both the passenger and
traffic has increased by 1.8 percent and 1.5
percent, respectively as compared to the same
period of last year. The airline has earned Rs.
8,764 million per kilometers (RPKs), against Rs.
8,633 million/ RPKs in the corresponding period
of last year. Domestic traffic in terms of RPKs has
increased by 3.2 percent over last year. Overall
traffic is up by 1.5 percent. A total of 3.387 million
passengers have been carried as compared to
3.385 million passengers in the preceding year.
During July- March 2002-03, freight traffic has
improved by 6.5 percent over the same period of
last year. Freight load factor is up by 59.0 percent,
as compared to 57.1 percent in the previous year.
The improvement is significantly evidenced on
the domestic routes where freight traffic has
increased by 17 percent over the same period of
last year. Closure of Indian airspace since January
1, 2002 has resulted in suspension of PIA flights to
Delhi, Mumbai, Khatmandu, Dhaka and
Colombo. While flights to Bangkok, Hong Kong,
Table 14.5
Financial Performance of PIA
Year
Items
Revenue
Cost & Expenditure
Profit/Loss Before Tax
Singapore, Manila and Tokyo have also become
highly uneconomical. The PIA’s aircraft fleet as
on 31st March, 2003 consisted of 4 Boeing 747-200s,
6 Boeing 747-300s, 8 Airbus A300B4s. 6 Airbus A
310s, 7 Boeing 737-300s, 11 Fokker F-27s and 1
Twin Otter.
During the first three quarters of the
current financial year, the airline has exercised its
purchase option on five Boeing 747—300 aircrafts
already on lease from Cathay Pacific Airways. A
sixth Boeing 747—300 aircraft from Cathay Pacific
Airways was also inducted in 2002. Syndicated
Murabaha financing of US was arranged $ 70
million through Pakistani Bankers Consortium for
the purchase of six Boeing 747—300 aircraft. The
airline is pursing a long term fleet modernization
plan which envisages induction of eight Boeing
777 family aircraft over the next 5 years. PIA
continues to focus on technological innovation to
improve its operation and customer service,
particularly the Ticketing & Reservation System in
order to restrict the possible misuse/malpractices
by the agents.
The financial result for the year 2002
(January-December) presents a significant turn
around in the airlines fortune. There is a pre-tax
profit of Rs. 2,111 million, as against a loss of Rs.
1,882 million in the 2001. This improvement has
been achieved as a result of various measures
initiated after June-2001, despite the fact that the
global economy in general and the Airline
industry in particular, has been passing through a
turmoil period. The financial performance of the
PIA is reported in Table 14.5 and Fig-5.
( Rs. Million)
2002 2001
43,674 43,608
41,563 45,490
2,111 (1,882)
Source: PIA
Chapter 14. Transport and Communications

Fig-5: Financial Performance of PIA

47,000
42,000
37,000
32,000
(Rs Million)

27,000
22,000
17,000
12,000
7,000
2,000
-3,000
Revenue Cost & Expenditure Profit/Loss Before Tax

2002 2001

D.PORTS & SHIPPING
(a) Karachi Port Trust
Karachi Port has made a steady and
continuous progress in its various sectors to boost
the national economy. It has established an annual
cargo handling record of over 26.692 million with
zero waiting time of vessels in 2001-02. During the
first nine months of current financial year (July-
March 2002-03), port has handled 20.011 million
tons of cargo which is slightly less by 0.2 percent
against the corresponding period of last year
(20.057 million tons). The traffic handled at
Karachi Port during last twelve years is as under:-

Table 14.6
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 22,566 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 25,981 9.3
2001-02 20,330 1.3 6,362 7.5 26,692 2.7
July-March
2001-02 15,265 - 4,792 - 20,057 -
2002-03 15,380 0.8 4,631 -3.4 20,011 -0.2

Source: Karachi Port Trust

Chapter 14. Transport and Communications

The KPT is committed to provide facilities handled during the period under review, as
at par with the modern age requirement, for against 9.44 million tones during the
which a number of projects have been formulated corresponding period of last year, showing an
for phased implementation, financed through its increase of 30.5 percent. A congenial atmosphere
own resources. The execution of the projects has been developed to boost box trade at the port.
together with improvement in cargo and ship Consequently, box trade surpassed all the
handling operations would enable the port to pervious handling targets and registered an
effectively meet the future requirement of increase of more than 75 percent during the first
shipping and cargo handling traffic. These nine months of the current financial year 2002-03
projects include deepening of channel, over the same period last year. The ship callings
refurbishment of oil Pier-II, procurement of new have also registered an increase of 25 percent and
floating crafts, and expansion of Keamari Groyne stood at 520 during July-March-2002-03, as
Complex. The ground breaking ceremony for compared to 415 during corresponding period of
refurbishment of oil Pier-II has been held on 29th last year. On financial account, the
April 2003. The terminal will have a capacity to accomplishments are equally parallel. The
handle 8 to 12 million tons per annum of POL and Authority has earned a net profit of Rs. 830.74
non POL products. With the reconstruction of Oil million during July.-March 2002-03, showing an
Pier-II, the annual handling capacity of Karachi increase of around 133 percent when compared
Port has increased from 24 to 28 million tonnes. with Rs. 356.62 million in the corresponding
Apart from the above development schemes, the period last year. Evenly important is the fact that
KPT has offered a number of projects to private the net surplus of Rs. 830.74 million is 149 percent
sector. higher than the target set for the current financial
year 2002-03.

Fig-6: Cargo Handled at Karachi Port

c) Gwadar Port
0
00
25
The port is geographically located at
0 00
20 Gwadar East Bay, about 460 k.m. from Karachi
00
0 and has immense strategic and political
000 Tonnes

15
significance. The port will play a vital role in
0
00
10 making Pakistan economically sound, it would
00 serve as a link between the East and the West. The
50
project would give a welcome fillip to economic
0
'2001-02
90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02(Jul-Mar)

'2002-03(Jul-Mar)

activity and help to improve the quality of the

local people. The port would step up trade and
Import Export
development activities, generate employment,
and help attract investment. It will be developed
in two phases. The port would be capable of
b) Port Qasim
handling ships of 30,000 DWT Bulk carriers and
25,000 DWT container vessels. The port is being
The performance of Port Qasim Authority
built with Chinese assistance and will be
has been impressive during July- March 2002-03.
completed in three years, ending March, 2005. The
A cargo volume of 12.32 million tones was
Phase-II will be implemented under BOT basis. It
Chapter 14. Transport and Communications
will comprise 10 additional berths, including 3
dedicated container terminals that includes one
bulk grain terminals with capacity handling
vessel upto 100,000 DWT and two oil berths for
vessels upto 200,000 DWT.
d) Pakistan National Shipping Corporation
(PNSC)
The PNSC is the National Flag Carrier of
Pakistan. Its main objective is to maintain a
commercially viable sea link between Pakistan
and its major trading partners. It also helps in
maintaining and stabilizing freight rates charged
by the other carriers and provides a strategic link
in the case of emergencies.
The fleet strength of the PNSC during July-March
2002-03 was 13 vessels with a deadweight
capacity of 229,579 tons. Estimated revenue was
approximately Rs. 3,826.00 million. The
corporation has handled all kinds of cargoes
including Rice, Fertilizer, Iron Ore, Coal and
Wheat. During the first nine months of the current
fiscal year, the PNSC has transported a total of 5.6
million tons of cargo including 4.6 million tons of
Crude Oil and 0.23 tons of Rock Phosphate. The
long term prospects for the company appear to be
reasonably good. The PNSC is actively in the
market for purchase of 2/3 Aframax tankers
which will boost the gross tonnage under
Pakistan flag.
e) Dryports
Beside the seaports and airports, eight
dryports have been established all over Pakistan.
The basic idea behind dryports proceeds from the
premise that trade and industry located far away
from sea ports/border posts, should be provided
import and export facilities at the doorsteps of the
business community in order to enable it to
participate in the country’s international trade
more actively and conveniently. Dryports
infrastructure also makes it possible to organize
an uninterrupted flow of imports and exports
from the door of the consignor to the door of the
consignee which is very essential for facilitation of
the country’s international trade in the globalized
world. It also places much emphasis on supply
chain management. Besides, operation of inland
container depots (ICDs) also gets facilitated in the
vicinity of dryports which makes it possible to
reduce the cost of import and exports.
The proposal for dryports in Pakistan
was first mooted by the Federal Ministry of
Industries in 1967. The Ministry had proposed to
establish inland dryports at a number of up-
country destinations. In 1968, the Lahore
Chamber of Commerce and Industry demanded
assignment of priority to Lahore for establishment
of the first dryport in the country. The Lahore
dryport was accordingly established in 1973. The
decade of the Seventies was spent in watching the
progress of Lahore dryport project which left
much to be desired in its operational success. The
basic problem was inefficient transport of dryport
cargo from Karachi to Lahore. With the
introduction of National Logistic Cell (NLC) in
the transport sector in the early Eighties, the
Lahore dryport started functioning well. Thus the
demand for dryport facilities increased
exponentially from almost all the potential cities
which had a sizable workload of import and
export business. As a result, the National Logistic
Cell (NLC) established the second dryport of the
country at Hyderabad in 1984. In 1985, the
enlightened exporters of Sialkot established the
first-ever dryport facility at Sambrial in the
private sector on self help basis. This dryport was
established at the central city of Sambrial to
effectively serve the entire triangular region
comprising Gujranwala, Gujrat and Sialkot - a
region which is also known as the Export Triangle
of Pakistan. Afterwards, Pakistan Railways
established dryports at Multan and Peshawar in
Chapter 14. Transport and Communications

1986; at Quetta in 1987 and at Chaklala
(Rawalpindi) in 1990. Faisalabad dryport was
established in the private sector in 1994.
The performance of dry ports shows that
the custom duty collected at the dry ports has
increased by 6 percent and 5 percent during 1998-
99 and 1999-2000, respectively. However, the
collection of custom duty has declined by 9
percent and 16 percent during the 2000-01 and
2001-02 respectively. On the other side, the total
value of imports has registered a mix trend. Table
– 14.7 indicates the performance of dry ports.

Table 14.7
Performance of Dryports
(Rs. Million)
Fiscal Year Imports Custom duty Exports

Total value % collected % Total value %

change value change change
1997-98 85,574 - 16,343 99,975 -
1998-99 80,315 -6.1 17,323 6.0 100,781 0.8
1999-00 71,344 -11.2 18,147 4.8 113,603 12.7
2000-01 73,917 3.6 16,551 -8.8 130,785 15.1
2001-02 78,562 6.3 13,868 -16.2 146,257 11.8
July-March
2002-03 65,115 - 9,483 - 115,809 -
Source: Central Board of Revenue

E) INFORMATION TECHNOLOGY (IT) sector. The vision of the Policy is to harness the
potential of Information technology as a key
Information technology (IT) has assumed
contributor to development of Pakistan. A broad-
unprecedented importance in the global economic
based involvement of the key stakeholders is a
arena. In Pakistan, Government is according a
must for its sustainable development. Core IT
high priority to this sector. One of the
Policy strategies have been proposed under
prerequisites for ensuring sustained growth of the
several focused areas: (i) E-Government, (ii) IT
industry is the provision of a definite framework
Industry Development, (iii) IT Education at
consisting of policy, legislative, financial, and
Schools/College Level and (iv) Targeted IT HRD
operational guidelines, which can provide a stable
Development as per Market Request. The new
umbrella for growth. Thus, the government is the
developments in the IT sector are given in Box-2
main facilitator, enabler, and promoter of the IT

BOX-2
E-Governance:
¾ The first ever Citizens Portal of the Government of Pakistan has been launched on
test/trail basis. Web sites of 34 Ministries/Divisions and 3 special purpose web sites
have been developed and connected with the portal.
¾ ATM network has been provided to facilitate low income federal government
employees.
¾ Seven Ministries are to be connected on Local Area Network (LAN).
¾ A project has been initiated by E-Government Directorate to train probationary officers
Chapter 14. Transport and Communications

in the field of IT. This would enable officers to make use of the tools of IT to increase
efficiency.
¾ Projects like computerization of arms licenses, computerization of registration, crime
control and FIR online are under implementation.
¾ Pakistan Computer Bureau is being strengthened to provide technical assistance and
bring uniformity in the architecture of nation wide applications.
IT Industry Development Program:
¾ Pakistan Softwear Export Board (PSEB) has organized exhibitions in collaboration
with ITCN to promote software industry of Pakistan.
¾ PSEB has implemented a pilot project for industrial automation. The main outcomes
of the project are demand for IT Industry, better productivity tools for conventional
industry and employment opportunities for IT professionals.
¾ PSEB has implemented ISO 9001 certification project to improve the product quality of
IT Industry.
¾ An internship project has been implemented to enhance the skill of young graduates
and establish a better linkage between IT Industry and Educational Sector.
¾ 4 IT parks have been established in the public sector. In these IT Parks, high-speed
bandwidth is brought to the premises, data network within the building is set up and
managed and space is rented out at affordable rates.
Human Resource Development:
Infrastructure Support for Degree and Post Degree Level IT Education
¾ Educational Intranet: Developed to provide high speed connectivity to 56 UGC
recognized universities.
¾ Multimedia Platform: The project will set up a Multimedia Asset Management system
capable of storing, compiling and content over digital satellite broadcast television,
internet and cable television channels.
IT Education at School & College Level
¾ Computer laboratories have been set up in 25 Federal Government Schools and
Collages, 25 PAF Schools and Colleges, 23 F.G Colleges and 20 Cantt Garrison Schools
through a project.
¾ Computers labs and other resources have been provided to Government college
Lahore and Lahore College for Women.
¾ Computer labs have also been established in two colleges for men and two colleges for
women in Northern Areas.
¾ Cadet College Sanghar and Military College Jhelum have been facilitated with the
computer labs and other resources.
Targeted IT HRD Training
¾ Professional training will be provided to 1400 Inter-Networking (Cisco) engineers.
¾ PGD program will be arranged for students from Baluchistan.
¾ 760 students trained in Legal Transcription.
¾ 1104 students trained in Medical Transcription.
¾ 536 students trained in Quality Control.
Chapter 14. Transport and Communications

i) Electronic Government Directorate: Training of Govt. officials is a regular activity of

The IT action plan is an integral part of
the IT Policy. It aims at promotion of information
and communications technologies (ICT) through
development in the following areas:
(i) Provision of ICT infrastructure in the country.
a) Provision of sound physical
infrastructure like telephone and
internet system.
b) Provision of legal infrastructure viz.
necessary law to encourage and
protect electronic transaction.
c) Improve quality and quantity of IT
students at university level.
d) Encouraging local IT Industry by
providing incentives and
opportunities.
(ii) Introducing ICT in government
organizations so that quality of public
services is enhanced through efficiency and
speed of delivery of services and bringing
in transparency in government operations.
(iii) Encouraging e-Commerce.
The government has set up an Electronic
Government Directorate (EGD) under the
Ministry of IT & Telecommunications. EGD will
prepare and implement all e-government projects
at federal level, prepare standards for IT sector
activities and provide technical support to
different provincial and federal organizations.
Financial year 2002-03 is a milestone in the history
of E-government in Pakistan. The first ever
Information and Services web portal called
“PAKISTAN GOV” (www.pakistan.gov.pk) was
launched in October 2002. By the end of February
2003, more than 1.3 million viewers had visited
the portal.
ii) Pakistan Computer Bureau:
Pakistan Computer Bureau completed the
training of 6000 Federal Govt. Employees at
Islamabad/ Rawalpindi and 6800 Provincial Govt.
employees at their Provincial Headquarters.
Pakistan Computer Bureau which also extends
advisory services to government department for
selection of hardware/software and related
matters. Pakistan Computer Bureau is
undertaking a number of projects: (i) “Provision
of 2000 I.T. Teachers in computer science and
establishment of 1500 Computer Laboratories in
High Schools, Higher Secondary Schools and
Intermediate Colleges in all the Provinces
including AJ & K”. (ii) The introduction of I.T. in
district administration which will initially include
the computerization of Land Records and Vehicle
Registration etc. A few selected Districts will be
taken up as pilot project.
job
iii) Pakistan Software Export Board (PSEB):
Pakistan Software Export Board (PSEB) is
undertaking various initiatives for the
development of IT industry capability in Pakistan.
In the domestic market, the PSEB has launched a
program, namely “Automation of Domestic
Manufacturing Industy” to automate 100
manufacturing units from various industries
sectors. It is working on the standardization and
quality improvement programs. The Project
“Standardization of Pakistani Software Industry-
ISO” has been launched for the certification of 80
software companies. The PSEB is managing
Software Technology Parks (STPs) in major cities
of Pakistan. The STPs are equipped with the top
class Internet bandwidth facilities. The company
can have the facility within 48 hours. In addition
to this, 24 hours technical support is also available
for the smooth execution of the IT business. The
International Software Market is continuously
expanding and taking on new dimensions. New
areas of Information technology are being
discovered and software companies are
diversifying their businesses. On the other hand,
the talent in Pakistan is looking for assistance,
support and resources to implement their ideas in
the IT field. The PSEB has also set up a one-
Chapter 14. Transport and Communications
window operation “Business Response Unit
(BRU)”. It is a one stop information source to the
foreign and local investors in the IT sector.
According to IT Division, the export of Software
stood at $ 18.2 million in fiscal year 1999-2000 has
reached $ 20.1 million in 2001-02, showing an
increase of 10 percent. During July-February of
the current financial year 2002-03, the export of
software has reached $ 14.6 million.
iv) Pakistan Telecommunication Company
Limited (PTCL)
The PTCL network consists of 99 percent
digital switching system exchanges, Optical Fiber
Cable Backbone, subsidiaries routes, long distance
media, digital radio systems, satellite
communications and alternate arrangements. It
has international Gateway exchanges at Karachi
and Islamabad. International communication
revenue is an appreciable source of PTCL
earnings. The PTCL is provider of infrastructure
for connectivity for internet system providers
(ISPs), data network operators, software
exporters, educational institutions, universities,
corporate customers and other users. Its tariffs
have been reduced by 25 percent on international
calls during 2001-02 and are expected to be
reduced further in 2002-03. Tariff has been
reduced by 60 percent on international IP
bandwidth, 10 to 68 percent on Lower than one
MB, and 70 percent on domestic lease circuits. For
promotion of Information Technology, 1,350
cities/towns/ villages have been provided
Internet facility, upto March, 2003, compared to
850 cities/towns/villages in June 2002 showing
Table 14.8
Bandwidth Capacity
Name of station Bandwidth capacity
Mega Byte
Karachi 94.65
Lahore 70.62
Rawalpindi 63.29
Total 228.56
an increase of 58.8 percent. Promotional traffic has
been introduced for ISPs, Software exporters and
educational institution/universities working in
the country. The PTCL has launched its domestic
and International Pre-Paid Calling Card Service
(Intelligent Network) in the country during 2000-
01, since its commissioning, the intelligent
network system at Islamabad, Lahore and Karachi
has met tremendous success. So far 9.73 million
cards have been floated in the market. Pakistan
Telecommunication network is expending each
year, thus providing telephone access to rural and
urban communities in record time. Total
telephone lines installed by March 2003 were 4.6
million as against 3.6 million up to June 2002 last
year, showing an increase of one million
telephone connections or 27.8 percent.
A system with a capacity of 110,000 Mail
Boxes has been installed at 10 major cities i.e
Faisalabad, Gujranwala, Hyderabad, Islamabad,
Karachi, Lahore, Multan, Peshawar, Quetta and
Sialkot. The Mobile Phone Service (Ufone) has
been launched in 60 cities/ towns and highways.
Its customer base is 425,978 which is expected to
increase further even in future.
Paknet, an Internet Service provider (ISP), is
a subsidiary of the PTCL. The PTCL has installed
Internet Exchanges (PIE) at Rawalpindi, Lahore
and Karachi, comprising of high-end routers,
multi-services switches, firewalls and proxy
services etc. The details of bandwidth with
capacity and total numbers of ISPs are given in
Table 14.8:
Total number of ISPs
81
60
66
207
Source: PTCL
Chapter 14. Transport and Communications
v)Pakistan Telecommunication Authority
(PTA)
Pakistan Telecommunication
Authority is promoting the telecom sector since
1996. The Authority is responsible for regulating
the establishment, operation and maintenance of
telecommunication system and provision of
telecom services. It promotes and protects the
interest of users of telecommunication services.
Pakistan under World Trade Organization (WTO)
commitment is now ready to deregulate the
whole of Telecom sector. Deregulation policy is in
final stages and to be announced shortly .In the
Year 2002-03, the PTA has moved forward to
encourage the telecom operators and transfer of
technology. In this regard, reduction in royalty of
Internet services provider (ISP) from 4 to 0.7
percent of the gross revenue, for card payphone
service and cellular mobile service it was from 4
to 2 percent and 4 to 1.5 percent respectively.
Similarly with the launching of prepaid
connection of U-Fone, the mobile phones have
reached 2 million by end of March 2003, as against
1.2 million upto June, 2002, showing a growth of
66.7 percent. The introduction of new services in
terms of technology advancement in the sector
including the broadband Internet services and
General Packet Radio Services (GPRS) facility,
which also include Internet connectivity on the
mobile phone . The PTA has issued 2,861 licenses
for telecom services up till March 2003, 153
licenses for card payphone service, 125 for
Internet services provider, for non-voice and vice
data communication network services 20 and 25
licenses were issued respectively. The PTA has
also issued 8 Audio tax licenses, 6 satellite license,
12 trunk radio licenses and 9 store & forward fax
service license, video conference 1, electronic
information service 125 and 25 data
communication network services.
vi) National Telecommunication Corporation
(NTC)
National Telecommunication Corporation
has an installed capacity of 78,000 lines with
60,000 working connections. The Corporation
plans to expand the network to 100,000 installed
lines during 2003-04 which will provide a total
number of 80,000 working connections. All NTC
exchanges are digital, which are linked to each
other through Optical fiber (OFC) media and
digital radio system (DRS). The Corporation is
also in process for establishment of Optical Fiber
back bone on Makran Coast to bring the people of
the area to the National mainstream of
development. The Corporation will set in own
gateway exchanges to provide international
connectivity to its designated customers during
2003-04 and will introduce/provide calling cards
for exclusive use by its customers. It will also set
up pay card phones at the premises of its
designated customer. NTC’s state-of-the-art Data
Communication Network has started to provide
infrastructure support for e-governance initiatives
of the Government during 2002-03 which is in the
process of expansion and provision of Internet
facilities to federal ministers and their regional
offices. In December 2002, allocated spatial slot of
380, the PAKSAT has been placed at the telecom
services of the country through satellite. During
the year 2003-04, an estimated 1000 designated
subscribers of NTC have also been planned to be
covered through wireless Local loop. Network
management system is responsible for the
management, on real time basis, of the exchanges
and the surrounding network. Network manager
reduces the negative effectives of over load &
faults in the network, through efficient utilization
of network resources and capacity. It provides an
efficient and reliable solution for the management
of EWSD nodes.
Chapter 14. Transport and Communications
F) ELECTRONIC MEDIA
a) Pakistan Television Corporation Limited
(PTV)
PTV is providing quality entertainment,
education and information to inform and educate
the people through wholesome entertainment and
to inculcate in them a greater awareness of their
own history, heritage, current problems and
development as well as knowledge of the world at
large. The PTV is operating with three Channels
in the country. The Re-broadcast Centers are
extending TV Signal to remote areas of the
country. The Government has desired to extend
the TV signal by setting up Re-broadcast Centers
in Baluchistan at Noushki (Chaghai), Wadh, Qilla
Saifullah and Ziarat, in Sindh at Umerkot and in
AJ&K. A TV Station at Muzaffarabad and 7 RBC’s
at Kotli, Rawala-Kot, Bagh, Plandri, Bhimber,
Neela Butt and Mirpur. The PTV has started 24
hours transmission on PTV-1 with effect from 11th
February 2003. This is in addition to news on the
hour every hour and views and current affairs
available round the clock on PTV-World.
b)Pakistan Broadcasting Corporation
(PBC)
Pakistan Broadcasting Corporation (PBC)
has been playing a very important role in
promoting national integration, projecting
Government policies at home & abroad,
providing information, education & Planned to modernize all services functions by
entertainment to the people. The PBC has a total
25 broadcasting stations in all parts of Pakistan. GPO’s/ HO’s.
________________________
Radio Pakistan broadcasts programmes for its
listeners at home and abroad round the clock in
national, regional and other languages of Pakistan
as well as 15 foreign languages in its Home,
World and External Services with the availability
of its programmes in 56 countries of Asia, Africa
and Europe. Radio Pakistan has launched an
exclusive entertainment channel FM-101 since
1998. All big cities of the country are linked in the
network. FM services are also available on
Motorway. The Central News Organization
(CNO) puts 142 News Bulletins of the different
durations in 33 languages daily keeping the
listeners informed for latest happenings in the
country and around the world.
G. PAKISTAN POST OFFICE
Pakistan Post Office is a state enterprise
dedicated to providing wide range of postal
products and public services. It is the premier
national postal communication service holding
together a vast country with a large population.
As a true emblem of federation, it is committed to
serving every one, every day and every where. It
provides postal facilities through a net work of 12,
267 post offices across the country. The
department is providing various traditional postal
services to the consumers at a reasonable price. Its
vast network of post offices in every nook and
corner of the country is of crucial importance. To
meet the modern requirements of rapid
communication the Pakistan Post Office has
providing integrated computing facilities at all
Chapter 15. Energy
15. Energy
At present, over a billion people in the
industrialized countries use some 60 percent of
the world’s commercial energy supply, while 5
billion people living in the developing countries
consume the remaining. Many of these people live
in the developing countries and a large number of
them are poor. The poor, in particular, need to be
provided with a minimum amount of energy at
an affordable price. To achieve this goal, the
energy needs to be produced and supplied at least
cost. In fact, efficient energy use plays an
important role in the social and economic
development. It contributes, for example, to slow
down population growth, and reduce pollution
and environmental pressures.
Energy sector in Pakistan comprises
power, gas, petroleum and coal. Total primary
energy supplies measured in terms of tones of oil
equivalent (TOE) in 2001-02 were 45.2 million.
The oil, natural gas, electricity and coal provide
41.3 percent, 42.9 percent, 11.2 percent and 4.6
percent, respectively of the total primary energy
supplies. The power and gas sector accounts for
3.6 percent of GDP in 2001-02.
Energy Consumption
During the last twelve years (1990-91 to
2001-02), average consumption of the petroleum
products showed upward trends. On average, the
energy consumption has increased by 4.6 percent
per annum. As regards the consumption of gas, it
increased by 3.5 percent per annum. Similarly, the
consumption of electricity increased by 4.9
percent. However the consumption of coal, which
showed wide fluctuation in its annual
consumption, has recorded an annual growth of
1.2 percent only. The annual trend of energy
consumption since 1990-91 to 2001-02 is given in
Table 15.1. The consumption of gas and coal
during the first nine months (July-March) of the
current fiscal year have increased by 7.8 percent
and 5.2 percent, respectively over the
corresponding period of last year.
A. PETROLEUM PRODUCTS
During the first three quarters of the
current fiscal year, the household, agriculture, and
other Govt. Sector showed declines in the use of
petroleum products to the extent of 12.3 percent,
16.8 percent and 43.0 percent respectively, for a
variety of reasons including the availability of
alternative and relatively cheaper fuels in the
form of natural gas and LPG; and declined in
demand of aviation fuels (JP-4 & JP-1) as airline
industry faced decline in traffic. However, the
industry and power sectors have recorded
substantial increase in the consumption of diesel,
LDO and fuel oil. The annual growth in the
consumption of petroleum products by major
sectors and their relative shares since 1990-91 to
2002-03 are given in Table 15.2 and Table 15.3,
respectively.
Chapter 15. Energy

Table 15.1
Annual Energy Consumption
Petroleum Products Gas Electricity Coal

Fiscal Year (000 tones) % (mmcft) % (Gwh) % (000 %

Change Change Change M.T) Change
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 3.4 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
2000-01 17,648 -0.7 777,610 8.8 48,584 6.6 3,095 -2.3
2001-02 16,960 -3.9 824,604 6.0 50,622 4.2 3,328 7.5
Avg.(12 4.6 3.5 4.9 1.2
years)
Jul-Mar 12,333 - 624,058 - 40,010 - 2,328 -
2001-02 12,665 2.7 673,034 7.8 40,472 1.2 2,450 5.2
2002-03
Source: Hydrocarbon Development Institute of Pakistan.

Table 15.2
Consumption of Petroleum Products
(000 tones)
Year House % Industr % Agri. % Trans. % Power % Othe %
holds Change y Change Change Change Change r Change
Govt.
90-91 944 - 1,14 - 26 -7.6 4,84 3.4 2,43 11.2 32 -
91-92 614 15.4 8 11.5 5 6.0 1 16.1 4 14.0 8 17.7
92-93 622 - 1,36 19.3 28 2.1 5,61 8.7 2,77 13.8 32 -1.5
93-94 590 35.0 9 8.1 1 7.3 9 5.0 5 23.6 3 10.5
94-95 585 1.3 1,48 11.7 28 - 6,10 3.6 3,15 8.0 35 0
95-96 596 -5.1 0 14.3 7 12.7 7 7.4 8 13.5 7 -0.6
96-97 510 -0.8 1,65 27.9 30 -7.0 6,41 0.5 3,90 6.8 35 17.5
97-98 499 1.9 3 - 8 7.6 4 2.7 2 18.5 7 -3.2
98-99 493 - 1,88 11.4 26 -8.9 6,64 6.8 4,21 -8.7 35 -5.7
99-00 477 14.4 9 -2.8 9 1.6 6 5.6 5 12.7 5 -1.3
2000-01 451 -2.2 2,41 2.8 25 17.8 7,13 -1.8 4,78 4.2 41 -8.0
2001-02 335 -1.2 6 -1.1 0 - 6 -1.7 6 -2.8 7 7.5
Jul-Mar -3.2 2,14 -9.1 26 13.0 7,17 5,11 40 24.7
2001-02 260 -5.5 1 - 9 - 2 - 0 - 4
2002-03 228 - 2,08 16.2 24 11.4 7,36 0.8 6,05 6.5 38 -
Chapter 15. Energy

25.7 1 5 4 4 1 -
2,14 - 24 - 7,86 5,52 37 43.0
- 0 17.4 9 - 4 6 6
- 2,11 29 16.8 8,30 6,22 34
12.3 6 3 8 8 6
1,92 25 8,15 6,48 37
4 5 8 8 2
1,61 22 8,01 6,30 46
2 6 9 5 4

1,22 17 5,85 4,44 37

8 3 7 3 2
1,44 14 5,90 4,73 21
2 4 6 2 2
Source: Hydrocarbon Development Institute of Pakistan.
As regards the average sectoral shares, industry (12.4 percent), household (4.1 percent),
transport sector was the largest consumer of the agriculture (1.9 percent) and others Govt. (2.6
petroleum products and accounted for 47.5 percent).(Table 15.3).
percent, followed by power sector (31.5 percent),

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 46.8 35.0 1.9
2000-01 2.6 10.9 1.4 46.2 36.8 2.1
2001-02 2.0 9.5 1.3 47.3 37.2 2.7

Avg.(12 4.1 12.4 1.9 47.5 31.5 2.6

years)
Jul-Mar 2.1 9.8 1.4 47.5 36.0 3.0
2001-02 1.8 11.4 1.1 46.3 37.4 1.7
2002-03
Source: Hydrocarbon Development Institute of Pakistan.
Chapter 15. Energy

B. CONSUMPTION OF GAS percent), commercial (2.9 percent) and cement (1.7

Table 15.4 gives the annual change in the
consumption of gas by various users since 1990-91
to 2002-03. The sectoral consumption of gas in
2001-02 exhibits a mix trend. The relative shares of
gas consumption by various users during the last
twelve years are documented in Table 15.5. Power
sector has emerged as the largest consumer of gas
(34.5 percent), followed by fertilizer (24.2 percent),
industrial (18.9 percent), households
percent). It may be noted that the share of power
sector in consuming gas is rising continuously
since 1998-99. The power sector is gradually
reducing its dependency on imported fuel oil
because of its escalating prices. The consumption
of gas during the first nine months of 2002-03 also
exhibits a rising trend. The consumption of gas by
power sector increased by 14 percent while
industry’s consumption grew by 10.7 percent
(17.8 followed by household (6.7 percent) (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. 96 7.9
92-93 76 7.0 14 7.7 12 0.0 119 17. 187 2 103 7.3
93-94 82 7.9 15 7.1 10 - 144 8 198 -3.6 101 -1.9
94-95 97 18.3 16 6.7 7 16.7 142 21. 181 5.9 104 3.0
95-96 110 13.4 17 6.3 8 - 150 0 186 -8.6 111 6.7
96-97 115 4.5 18 5.9 9 30.0 150 -1.4 194 2.8 110 -0.9
97-98 134 16.5 19 5.6 12 14.3 148 5.6 179 4.3 115 4.5
98-99 131 -2.2 21 10.5 8 12.5 167 0.0 184 -7.7 121 5.2
99-00 139 6.1 22 4.6 9 33.3 177 -1.3 230 2.8 135 11.
00-01 141 1.4 21 -4.5 8 - 175 12. 288 25. 139 6
01-02 144 2.1 22 4.8 7 33.3 178 8 315 0 151 3.0
Jul-Mar 12.8 6.0 25. 8.6
01-02 119 17 * - 131 -1.1 231 0 122
127 6.7 17 0.0 * 11.1 131 1.1 263 9.4 135
02-03
- 10.
12.5 7
0.0 13.
9
*included in Industrial Sector Source:Hydrocarbon Development Institute of Pakistan

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
Chapter 15. Energy

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 1.2 22.8 37.2 17.9
2001-02 17.6 2.7 0.9 21.7 38.5 18.5

Average (12 17.8 2.9 1.7 24.2 34.5 18.9

years)

July-March
2001-02 19.2 2.7 * 21.0 37.2 19.7
2002-03 18.8 2.6 * 19.4 39.0 20.1
* Included in Industrial Sector. Source: Hydrocarbon Development Institute of Pakistan.
followed by industrial (31.1 percent), agriculture
(14.5 percent), commercial (5.5 percent), other
C. ELECTRICITY CONSUMPTION government sector (7.5 percent) and street light
Tables 15.6 and 15.7 show the position of (0.7 percent). During the first 9 months of 2002-
electricity consumption since 1990-91 to 2002-03. 03, the overall consumption of electricity has
On average, the household sector has been the increased due to installation of new connections,
largest consumer of electricity, accounting for 40.7 incentive package offered to industrial consumers
percent of the total electricity consumption, and accurate meter reading. (Table-15.6).
Table 15.6
Consumption of Electricity By Sectors
(000 GWH)
House hold Commercial Industrial Agriculture Street Light Other Govt.
(Total)
Year Gwh % Gwh % Gwh % Gwh % Gwh % Gwh %
Change Change Change Change Change Change
1990- 10.4 11.2 2.1 5.5 11.2 8.8 5.6 11.8 - - 2.1 19.2
91 11.4 9.6 2.1 0 12.3 9.8 5.8 3.6 - - 2.1 00
1991- 13.2 15.8 1.7 -19.0 13.0 5.7 5.6 -3.4 297 - 2.6 23.8
92 14.0 6.1 1.8 5.9 12.6 -3.1 5.8 3.6 298 0.3 2.8 7.7
1992- 15.6 11.4 1.9 5.6 12.5 -0.8 6.2 6.9 324 8.7 3.0 7.1
93 17.1 9.6 2.2 15.8 12.1 -3.2 6.7 8.1 378 16.7 3.3 10.0
1993- 17.8 4.1 2.2 0 11.9 -1.7 7.0 4.5 390 3.2 3.4 3.0
94 18.8 5.6 2.3 4.5 12.3 3.4 6.9 -1.4 387 -0.8 3.9 14.7
1994- 19.4 3.2 2.4 4.3 12.0 -2.4 5.6 -18.8 224 -42.1 3.6 -7.7
95 21.4 10.3 2.5 5.2 13.2 10.0 4.5 -19.9 239 6.7 3.6 0
1995- 22.8 6.5 2.8 12.0 14.3 8.3 4.9 8.9 213 -10.9 3.5 -2.8
96 23.2 1.8 3.0 7.1 15.1 5.6 5.6 14.3 212 -0.5 3.5 0.0
1996-
97 16.8 - 2.1 - 11.1 - 4.1 - - - 2.7 -
1997- 17.0 1.8 2.3 9.5 12.1 8.1 4.3 4.9 - - 4.6 * 70.4
98
1998-
99
1999-
00
2000-
Chapter 15. Energy

01
2001-
02
July-
Mar
2001-
02E
2002-
03E
E-Estimated Source:Hydrocarbon Development Institute of Pakistan.
*Included traction
- : not available
Table 15.7
Consumption of Electricity(Sectoral Shares)
(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
2001-02 45.9 5.8 29.9 11.1 0.4 6.9
Average
(12 Years) 40.7 5.5 31.1 14.5 0.7 7.5
July-March
2001-02 45.4 5.7 30.0 11.0 0.7 7.2
2002-03 E 42.2 5.8 29.4 10.8 0.3 11.4*
E-Estimated Source: Hydrocarbon Development Institute of Pakistan.
*Including traction

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

1990-91 to 2002-03 are 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

Energy Supply Per Capita

Year Million TOE %Change Availability (TOE) % Change
Chapter 15. Energy

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
2001-02 45.237 1.8 0.310 (0.4)
July-March
2001-02 33.751 - 0.231 -
2002-03 E 34.412 2.0 0.231 0
TOE- Tons of oil equivalent Source: Hydrocarbon Development Institute of Pakistan.
E:Estimated

Fig-1: Energy Supply (Million TOE) Fig-2: Per Capita Availability (TOE)
0.32
50
0.31
45
0.3

40 0.29

0.28
35

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

2001-02

90-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02
Chapter 15. Energy

The supply of primary energy increased
from 28.469 million TOE in 1990-91 to 45.237
million TOE in 2001-02 or by 59 percent and per
capita availability from 0.253 TOE to 0.310 TOE or
by 22.5 percent. Because of the increase of primary
energy supplies, its per capita availability
recorded a rising trend over the decade of the
1990s, which greatly helped consumers meet their
ever-growing annual demand for energy. The
energy supplies have also increased from 33.751
million TOE in 2001-02 (July –March) to 34.412
million TOE in 2002-03 (July-March) or by 2
percent, but no change in the per capita
availability. The supply of primary energy by
various sources of energy as well as their rates of
increase are given in Table 15.9.

Table 15.9
Composition of Energy Supplies

Crude Oil Gas Petroleum Coal Electricity

Products
Year Mln. % (bcf)* % (Mln.T) % (Mln.T) % (000Gwh) %
Barrel Change Change Change Change (a) Change
s
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
00-01 73.6 38.0 857.4 4.8 18.7 4.5 4.1 2.5 68.1 3.7
01-02 75.1 2.0 923.8 7.7 18.4 -1.8 4.3 4.9 72.4 6.3
Jul-Mar
01-02 58.1 - 690.1 - 13.1 - 3.1 - 52.0 -
02-03P 57.1 -1.7 724.6 5.0 13.3 1.5 3.2 3.2 54.4 4.6
*: Billion cubic feet Source: Hydrocarbon Development Institute of Pakistan.
a: Gega Walt hour
(P)Provisional

a) Crude Oil :
The remaining recoverable reserves of
crude oil as of 1st April, 2003 were estimated at
302 million barrels in the country. The average
crude oil production during July-March 2002-03
was 64,907 barrels per day, as against 64,361
barrels per day during same period last year,
showing an increase of 0.8 percent. During the
period under review, 22,439 (35%) barrels per day
were produced in northern region and 42,466
(65%) barrels per day in southern region, as
against 21,136 (33%) barrels and 43,225 (67%)
barrels per day respectively, during the same
period last year. Production of crude oil during
July- March 2002-03 and corresponding period of
the last year is given in Table 15.10.
Chapter 15. Energy

Table 15.10
Average Production of Crude Oil
(Barrels per day)
Region 2001-02 July-March July-March % Change
2001-02 2002-03
Northern Region 21,500 21,136 22,439 6
- OGDCL 8976 8823 8281 (6.1)
- OPI 1299 1113 1621 45
- POL 8915 8788 9323 6
- PPL 2310 2412 3214 33.2

Southern Region 41798 43,225 42,466 (2)

- OGDCL 11451 11311 13341 18
- BP(Pakistan) 29639 31172 28407 (9)
- PPL 100 116 90 (22.4)
- BHP 566 626 554 (12)
- OMV/LASMO 42 - 74 -
Total: 63,298 64,361 64,907 0.84
Source: Ministry of Petroleum and Natural Resources.

B) Natural Gas increase of almost 5 percent. Main companies

currently engaged in oil and gas production
As of April 1st 2003, the recoverable activities are OGDCL, PPL, POL, OPI, LASMO,
reserves of natural gas have been estimated at 28.3 BHP, MGCL, BP (PAKISTAN), OMV and
trillion cubic feet. The average production of TULLOW. Table 15.11 shows the natural gas
natural gas during July-March 2002-03 was 2,648 production during 2001-02, and July-March 2002-
million cubic feet per day, as against 2,526 mmcfd 03 and corresponding period of last year.
during the same period last year, showing an

Table 15.11
Average Production of Natural Gas
(mmcft)
Company 2001-02 July-March July-March % Change
2001-02 2002-03
LASMO 65 64 76 18.8
MGCL 410 411 427 3.9
OGDCL 733 744 731 (1.7)
OPI 06 5 7 40.0
POL 46 46 40 (13.0)
PPL 905 915 888 (3.0)
BP (Pakistan) 213 209 226 8.1
BHP 92 94 89 (5.3)
TULLOW 30 27 28 3.7
OMV 61 11 136 1136.4
Total: 2,561 2,526 2,648 4.8
Source: Ministry of Petroleum and Natural Resources.
Chapter 15. Energy

c) Drilling Activities drilling activities of the public and private sector

companies, engaged in the exploration and
During July-March 2002-03, altogether 52 development of wells, with achievements for the
wells have been drilled, including 13 wells of the corresponding period of last year.
OGDCL in the public sector. Table 15.12 gives the

Table 15.12
Drilling Activities (Achievement)
Sector 2001-02 July-March July-March % Change
2001-02 2002-03
Public Sector 10 6 13 117
(OGDCL)
Exploratory 7 3 12 300
Appraisal/Dev 3 3 01 (66.7)

Private Sector 34 26 39 50
Exploratory 7 5 12 140
Appraisal/Dev 27 21 27 28.6
Total: 44 32 52 62.5
Source: Ministry of Petroleum and Natural Resources

d) Gas Infrastructure Development Plan.
As per present Government’s direction,
the two gas utility companies, namely, SNGPL
and SSGCL have embarked upon gas
infrastructure development projects to enhance
their gas handling capacity for the transportation
of 928 MMCFD gas expected to be available from
the new fields. This additional available gas
would be used mainly for replacement of furnace
oil in power plants to save foreign exchange.
These infrastructure augmentation plans of
SNGPL/SSGCL are being completed in two
phases, entailing huge capital outlay i.e. at an
estimated cost of Rs.20,243 million. On completion
of the infrastructure development project, the
transmission capacity of SNGPL will increase
from 1050 MMCFD to about 1500 MMCFD or by
42.9 percent and of SSGCL from 700 MMCFD to
1000 MMCFD i.e. also by 42.9 percent.
e) Liquefied Petroleum Gas (LPG)
Presently about 1000 tons/day LPG is
being produced locally. There are 29 LPG
companies, marketing the indigenous and
imported LPG. The government is making efforts
to ensure availability of domestic and imported
LPG at competitive and viable prices in far flung
rural areas where supply of natural gas through
pipelines is not economically feasible. The
government has deregulated the allocation and
price of LPG with effect from 15th September 2000
with a view to keep the price at a reasonable level.
f) Compressed Natural Gas (CNG)
The use of CNG in automotive vehicles is
being encouraged to reduce pressure on
petroleum imports and improve environment.
The government intended to promote CNG in the
transport sector as an alternate fuel. More than
1,052 licenses for installation of CNG stations
have been issued. So far 362 stations have been
established in different parts of the country. These
include 358 in private and 4 in public sector. More
than 300 stations are under construction in the
private sector. Up to March 2003, over 300,000
vehicles have been converted on CNG as
compared to 240,000 vehicles last year, showing
an increase of 25 percent. The use of this
indigenous fuel will help in saving foreign
Chapter 15. Energy

exchange 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 2002-03, over 150 provisional
permissions/licenses for setting up CNG stations
have been issued.
g) Performance of Major Oil and Gas
Companies:
(i) OGDCL
Oil and Gas Development Company
Limited (OGDCL) is the largest oil exploration
and production (E&P) company in the Pakistan.
Since inception to March 2003, the OGDCL has
drilled 176 exploratory wells and 229
development wells. As of March 2003, the
OGDCL is producing 21,613 barrels of oil per day,
731 million cubic feet per day of gas, 186 metric
tons per day of LPG and 44 metric tons per day of
sulphur. The company’s remaining recoverable
reserves as of December, 2002 comprised 10.05
trillion cubic feet of gas and 145 million barrels of
oil. The OGDCL’s average oil production
including non-operated JV’s was 29,318 barrels of
oil per day and 882 MMCFD gas. The OGDCL has
implemented a number of major projects for the
developments of oil and gas field including
Dhodak gas field, Qadirpur gas field, Pirkoh and
Uch gas fields, Nandpur and Panjpir gas fields.
Since March 2002, the OGDCL has made eight oil
and gas discoveries in Sindh province. Initial
production testing results gave a combined flow
of 2,872 barrels of oil/condensate per day and
48.3 million cubic feet per day of gas. These
discoveries are being appraised to determine their
full potential and will help country to save
millions of dollar in foreign exchange. The
physical performance of the OGDCL is given in
Table-15.13:

Table 15.13
OGDCL’s Physical Performance

July-March July-March,
2001-02 2002-03 % Change
S.No. Name of Activity
1. No. of Wells spudded
i) Exploratory 3 12 300
ii) Development 3 01 (67)
iii) Drilling Meterage (Meter) 16,654 43,315 160
2. Production*
i) Oil (US Barrels) 5,533,906 5,922,059 7
(20,197) (21,613)

ii) Gas MMcft 206,897 200,217 (3)

(755) (731)

iii) LPG (Tonnes) 50,741 50,944 0.4

(185) (186)

iv) Sulphur (Tonnes) 13,533 12,083 (11)

(49) (44)
*Figures in brackets show daily average production. Source: Oil and Gas Development Company Ltd.
Chapter 15. Energy

(ii) Sui Northern Gas Pipelines Limited
(SNGPL)
The principal task of the Company is
transmission and distribution of natural gas in
Punjab, NWFP, AJK and the Federal Capital.
During July-March 2002-03, the SNGPL has given
connection to 108 industrial, 1,780 commercial
and 75,299 domestic consumers, bringing the
progressive total number of customers to 2,621
industrial, 38,054 commercial and 2.1 million
domestic, respectively. The SNGPL has so far
supplied gas to 141 towns in Punjab, NWFP, AJK
and the Federal Capital.
(iii) Sui Southern Gas Company Limited
(SSGCL)
Sui Southern Gas Company Limited
(SSGCL) covers the natural gas supply to the
provinces of Sindh & Balochistan. Its core
activities comprise of transmission & distribution
of natural gas, designing and implementing gas
transmission & distribution projects and
supporting cross boarder pipelines through Inter-
state Gas Systems Limited while the none core
business activities cover manufacturing of
domestic gas meters and gas training institute.
The SSGCL has so far supplied gas to 735
towns/villages of Sindh and Baluchistan. During
the period July-March 2002-03, the company has
connected 130 industrial, 625 commercial, and
40,984 domestic consumers, bringing the total
number of industrial 2,360, commercial 17,493 and
domestic 1.6 million respectively.
Power Sector
With the normal demand-growth rate,
WAPDA will face shortages of 500 MW in the
year 2005-06 and further to 5,529 MW by the year
2010. To fill the upcoming shortfall, the
Government of Pakistan (GOP) has announced a
Policy for Power Generation Projects 2002 for
attracting private investors. The main thrust of the
policy is on the exploitation of indigenous
resources. Investor’s response to the policy is
encouraging. Twelve companies have already
shown interest in setting up power plants, having
cumulative generating capacity of 1,915 MW
promising investment in the country for more
then US$ 2 billion. The “Policy” has been
announced with a view to meet the energy
demand of the country through exploitation of
indigenous resources. The salient features of the
policy are presented in Box-1:

Box-1

General/Administrative:

¾ Applicable for projects in private sector, public sector and through private-public
partnership.
¾ One Window facility to be provided at federal level by Private Power and Infrastructure
Board (PPIB) for all projects above 50 MW Capacity.
¾ Provinces to manage the investment for projects upto 50 MW capacity. For projects above
50 MW, the provinces would be the main drivers and catalysts for marketing and
coordinating projects with PPIB.
¾ Hydel projects to be implemented on Build-Own-Operate-Transfer (BOOT) and thermal
projects on Build-Own-Operate (BOO) or BOOT basis.
Chapter 15. Energy

¾ Implementation of projects through solicited and unsolicited proposals.

¾ For hydel and indigenous fuels and renewable projects, unsolicited proposals to be
permitted from sponsors in the absence of feasibility studies for the projects.
¾ For competitive bidding selection process will involve prequalification, issuance of
Request of Proposals (RFP) bidding evaluation and award.
¾ For solicited proposals, tariff will be determined through International competition
Bidding (ICB) and for proposals on raw sites, tariff will be determined through
negotiations.
¾ For indigenous coal and gas based projects, integrated power generation proposals can be
furnished.
¾ GOP will guarantee the terms of executed agreements including payment terms.
¾ Availability of standardized security agreements.

Financial Regime:

¾ Permission for power generation companies to issue corporate registered bonds.

¾ Permission to issue shares at discounted prices to enable venture capitalists to be provided
higher rates of return proportionate to the risk.
¾ Permission for foreign banks to underwrite the issue of shares and bonds by the private
power companies to the extent allowed under the laws of Pakistan.
¾ Non-Residents are allowed to purchase securities issued by Pakistani companies without
the State Bank of Pakistan’s permission and subject to the prescribed rules and regulations.
¾ Abolition of 5 percent limit on investment of equity in associated undertakings.
¾ Independent rating agencies are operating in Pakistan to facilitate investors in making
informed decisions about the risk and profitability of the project company’s Bonds/ Term
Finance Certificate (TFCs).

Fiscal Regime:

¾ Customs duty at the rate of 5 percent on the import of plants and equipment not
manufactured locally. No levy of sale tax on such plants, machinery and equipment, as the
same will be used in production of taxable electricity.
¾ Exemption from income tax including turnover tax and withholding tax on imports;
provided that no exemption from these taxes will be available in the case of oil-fired power
projects.
¾ Exemption from Provincial and local taxes and duties.
¾ Repatriation of equity along with dividends is freely allowed subject to the prescribed
rules and regulation.
¾ Parties may raise local and foreign finance in accordance with regulations applicable to
industry in general. GOP approval may be required in accordance with such regulations.
¾ Maximum indigenization shall be promoted in accordance with GOP policy.
¾ Non-Muslims and Non-Residents shall be exempted form payment of Zakat on dividends
paid by the Company.
Chapter 15. Energy

Transfer of Complex:
¾ The ownership of hydel projects would be transferred to the GOP at his end of concession
period.

Hydrological Risk:
¾ For projects with a capacity above 50 MW, power purchaser will bear the risk of
availability of water.

Environmental Consideration:
¾ The environmental guidelines have to be met as per Pakistan Environmental Protection
Act (PEPA).

i) Electricity Generation Upper, Lower Sindh and Quetta power markets

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,
stood at 9,694 MW, hydel 5,009 MW (51.7 percent)
and thermal 4,685 MW (48.3 percent) during July-
March, 2002-03, followed by the IPPs (5,816 MW)
or 32.8 percent and KESC’s (1756 MW) or 9.9
percent and Karachi and Chashma Nuclear Power
Plants (462 MW). The total installed capacity
stood at 17728 MW during July-March 2002-03,
there by registering an increase of 0.2 percent. In
the total installed capacity, the share of WAPDA
system has been 54.7 percent followed by the IPPs
at 32.8 percent, KESC at 9.9 percent, and nuclear
at 2.6 percent during the fiscal year 2002-03.
Within the WAPDA system, the shares of thermal
and hydel were 48.3 percent and 51.7 percent
respectively. The details are given in Table 15.14:

Table 15.14
Total Installed Generation Capacity
(MW)
Name of Installed % Share Installed % Share % Change
Power Capacity 2001-02 Capacity 2002-03
Company
WAPDA 9930 56.1 9694 54.7 (2.4)
Hydel 5009 50.4* 5009 51.7* 0.0
Thermal 4921 49.6* 4685 48.3* (4.8)
IPPs 5549 31.4 5816 32.8 4.8
Nuclear 462 2.6 462 2.6 0
KESC 1756 9.9 1756 9.9 0

Total 17697 100 17728 100 0.2

* Share in WAPDA system Source: Hydrocarbon Development Institute of Pakistan
Chapter 15. Energy

ii) Electricity Generation months of current fiscal year. It may be noted that
The trend in the composition of in 1960 the share of hydel was 70 percent while
electricity generation between hydel and thermal that of thermal was only 30 percent. The ratio has
since 1992-93 is given in Table-15.15. It can be seen changed to 58 percent (hydel) and 42 percent
that the share of hydel has continuously declined (thermal) in 1980. By 2001-02 the ratio has
while that of thermal has been rising constantly. changed to 31.3 percent and 68.7 percent
The share of hydel was almost 52 percent in 1992- respectively. Since electricity generated through
93 and declined to 31.3 percent in 2001-02. It has thermal is much more expensive than hydel,
slightly increased to 34.7 percent in the first nine therefore, the massive shift to thermal has made
months of the current fiscal year. On the other electricity expensive in Pakistan. For reducing the
hand, the share of thermal has increased from 48.2 cost of electricity, it is essential that we make
percent to 68.7 percent during the same period effort to reverse the contribution of hydel and
but it has declined to 65.3 percent in the first nine thermal in medium-to-long-run.

Table 15.15
Electricity Generation
(Million kWh)
Year Hydel Percentage Thermal Percentage Total
share share
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
2001-02 19,059 31.3 41,804 68.7 60,863
(July-March)
2002-03 15,999 34.7 30,110 65.3 46,109
Includes purchase from IPPs. Source: Water and Power Development Authority

iii) Growth in Electricity Consumers

Fig-3: Electricity Generation by WAPDA

70

60
The number of consumers has increased
50 due to rapid urbanization, extension of electricity
grid supply to un-electrified areas and
Billion KWH

40 31.2 31.2 37 41 41.8

23.3 25.7 29.9
30 19.7 23 rural/village electrification. The number of
20
consumers has increased to 13.0 million by March,
10 21.1 19.4 22.9
23.2 20.9 22.1 22.5 19.3
17.2 19
2003, as compared to 12.7 million in 2001-02 or by
0
2.4 percent. Table-15.16 indicates the annual trend
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02

since 1992-93 to 2002-03.

Hydel Thermal
Chapter 15. Energy

Table 15.16
Consumers by Economic Groups
(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
2001-02 12.3 0.2 0.2 12.7
July-March
2002-03 12.6 0.2 0.2 13.0
Source: Water and Power Development Authority

Fig-4: Total Electricity Consumers

iv) Village Electrification
(Nos. Million)
14
The rural/village electrification programme is an
13
integral part of the total power sector
12
11 development in order to increase the productive
10 capacity and socio-economic standard of 70
9 percent of population living in the rural areas. The
8 number of villages electrified has increased to
7
73,063 by March 2003, as per growth given in
6
Table-15.17 and Fig.5.
5
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02

Table 15.17
Village Electrification
(Number)
Year Target Realization * Progressive Total % Growth
1992-93 2,070 4,824 45,644 -
1993-94 4,500 5,283 50,927 11.6
1994-95 2,000 6,243 57,170 12.3
1995-96 5,000 4,957 62,127 8.7
1996-97 4,000 2,441 64,568 3.9
1997-98 4,000 1,383 65,951 2.1
1998-99 4,000 1,232 67,183 1.9
1999-00 1,852 1,109 68,292 1.6
2000-01 - 1,595 69,887 2.3
2001-02 - 1,674 71,561 2.4
July-March
2002-03 - 1502 73,063 2.1
*Including FATA Source: Water and Power Development Authority
Chapter 15. Energy

Fig.5 Village Electrification (000 Nos).

v) Electricity consumption by Economic
80 Groups
69.9 71.6
66 67.2 68.3
70 64.6
62.1
57.2 The sectoral consumption of electricity by
60
50.9
45.6
economic groups identifies the domestic group as
50
the largest consumer of electricity during July-
40
March 2002-03 by accounting 44 percent, followed
30
by industrial (28.8 percent), agriculture (12.7
20
percent ), bulk supply (9.2 percent), commercial
10
(5.3 percent) and traction (0.02 percent). Table
0
15.18 and Fig-6 shows electricity consumption by
92-93

93-94

94-95

95-96

96-97

97-98

98-99

99-00

2000-01

2001-02 economic groups since 1992-93 to 2002-03.

Table 15.18
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
1999-00 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
2001-02 45.5 5.1 28.0 12.3 9.2 0.03
July- March
2002-03 44.0 5.3 28.8 12.7 9.2 0.02
Source: Water and Power Development Authority.

Fig-6 Electricity Consumption by Economic Groups (% Share)

Bulk Supply 1992-93 2001-02

Bulk-Sup.&
& Public
Pub. Lighting
Lighting
9.2%
7.1%
Agriculture
Agriculture 12.3%
Domestic
17.9%
35.9% Domestic
45.5%

Industrial
Commercial 28.0%
4.2% Commercial
Industrial 5.1%
34.9%
Chapter 15. Energy

vi) Power Losses losses and thefts. The transmission and

distribution (T & D) losses were 25.8 percent
Despite considerable efforts, the power during 2001-02 but slightly declined to 25.6
losses have not been reduced appreciably. The percent during the first nine months of current
WAPDA has invoked vigorous technical and financial year . Table 15.19 shows the annual
administrative measures to improve operational trend of power losses since 1992-93 to 2002-03.
and management efficiency to reduce power
Table 15.19
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
2001-02 2.2 23.6 25.8
July- March
2002-03 2.1 23.5 25.6
* 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 2008. In order to meet the
power demand in the coming years, the WAPDA
has proposed to install two high efficiency
combined cycle power plants on natural gas of
450 MW each at Faisalabad and Balloki, planned
to be completed in 2006 and 2007, respectively.
h) Karachi Electric Supply Corporation Ltd.
(KESC)
The installed capacity of KESC's various
generating stations remained at 1,756 MW during
July-March of the current financial year, 2002-03.
The policy for power projects 2002-03 has recently
been announced by the Government. The KESC is
pursuing to seek permission to undertake power
projects, so that the increasing gap between
demand and supply could be minimized. During
first nine months of current financial year 2002-03,
the KESC generated 6,381 million kWh from its
own sources, as compared 6,448 million kWh in
the same period last year, showing a decline of 1
percent due to carrying out of major
overhauling/rehabilitation works on some of the
KESC's units. The total energy made available
to KESC system, after taking into account the
imports from various agencies, including
auxiliary consumption, stood at 9,005 million
kWh during July-March 2002-03, as against 8,664
million kWh in the same period last year, thus
registering a growth of 4 percent. The Bin Qasim
Chapter 15. Energy
Power Station, the largest power plant of KESC,
has been converted to gas. As a result of this
conversion, 1,760 million kWh were generated on
gas at the Bin Qasim Power Station, compared to
1,275 million kWh in the same period last year,
showing an increase of 38 percent. The Tapal
Energy Limited and Gul Ahmed Energy limited
are the two independent power projects (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 1,232 million kWh,
representing more than 14 percent of the total
energy supplied to the KESC system. The KESC’s
T&D losses increased marginally to 39.8 percent
from 39.5 percent in the same period last year.
The KESC’s income has, however, increased from
Rs. 28.9 billion in 2000-01 to Rs. 30.7 billion in
2001-02, registering an increase of 6.6 percent but
its expenditure has also recorded an increase of
7.6 percent in the same period.
i). Nuclear Power Energy
Pakistan Atomic Energy Commission
(PAEC) made a beginning in the field of nuclear
power production in 1971 by establishing a 137
MW Karachi Nuclear Power Plant (KANUPP).
During July-March 2002-03, the KANUPP has
generated 235.9 million kWh of electricity, raising
the life time generation to 10.7 billion kWh. A
second nuclear power plant has been built at
Chashma (CHASNUPP) having a gross capacity
of 325 MW, generated 885 million kWh of
electricity during July-March 2002-03. Both the
power plants are working according to safety
standards set by the Pakistan Nuclear Regulatory
Authority. The successful functioning of
KANUPP and CHASNUPP has given the country
great confidence and a sense of direction to plan
more nuclear units in future in a manner that
would progressively lead to a high degree of self-
reliance.
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 had gradually reduced. Currently,
the share of coal in the overall energy mix is less
than 5 percent. Owing to discovery of large coal
field having 175 billion tons resource potential at
Thar, the government has decided to enhance the
share of coal in the overall energy mix from 5
percent to 20 percent by the end of decade. With
the pragmatic government policies, the cement
industry is in the process of switching over the
indigenous coal from furnace oil that would save
50 percent foreign exchange being spent on
import of coal. It would also generate demand of
about 2.5 million tons coal/annum in the country
by 2005. Almost all the energy consumed in the
cement industry is now being generated by a mix
of imported and indigenous coal.
E. NATIONAL ELECTRIC POWER
REGULATORY AUTHORITY (NEPRA)
NEPRA regulates in conformance with
the objectives of providing safe, reliable, efficient
and affordable electric power to the country.
During July-March 2002-03, the NEPRA granted
generation licence to three WAPDA successor
generation companies. The KESC was also
granted a generation licence. The Transmission
License to National Transmission and Dispatch
Company (NTDC) was granted on December 31,
2002. This licence also provides a road map for
the transitional phases of the competitive market
structure. The NEPRA has also determined a
Multi Year Tariff formula for the KESC which is a
forward looking rate adjustment mechanism,
designed to provide reasonable return to the
investors in privatized KESC while the excessive
returns to be adjusted in tariff reductions in
favour of consumers. Thus the objective is to
Chapter 15. Energy

induce the KESC to achieve efficiencies in related and one KESC related rate of adjustments
delivery and production of electric power. under Automatic Tariff Adjustment formula
Moreover during July - March 2002-03, the (ATA). The NEPRA has established a Consumer
NEPRA has determined one WAPDA related and Affairs Division to address the complaints, lodged
one KESC related tariff petition. In addition the by the consumers against utility companies.
NEPRA has also determined three WAPDA
____________________________
Chapter 16. Environment and Housing

16. Environment and Housing

I. Environment development projects. To implement NEAP, the
Government of Pakistan signed a NEAP Support
The efforts to address the environmental Program (NEAP-SP) with the UNDP in October
concerns at policy, planning, and development 2001. Under NEAP-SP, the Ministry of
level which gained momentum with the Environment, Local Government and Rural
establishment of a high level inter-ministerial and Development is planning to undertake projects in
multi-stakeholder committee, called Pakistan the following six sub-programs over the next five
Environment Protection Council (PEPC) under years:
the chairpersonship of the President of Pakistan in i. Policy coordination and environmental
1993, remained active during the fiscal year 2002- governance;
03. During the last decade, Pakistan has made ii. Pollution control;
diligent progress in institutional strengthening iii. Ecosystems management and natural
and capacity building of policy and planning resources conservation;
institutions, environmental awareness, and the iv. Energy conservation and renewables;
promulgation of environmental legislation, v. Dry land management and water
National Environment Quality Standards (NEQS), conservation;
and the establishment of environmental tribunals. vi. Grassroots initiatives.
The energy sector introduced lead-free petrol and
since July 2002, all refineries in the country are During the fiscal year 2002-03,
supplying lead-free petrol and promoting clean institutional arrangements to implement NEAP-
fuels including CNG. However, rehabilitation and SP were carried out, including the constitution of
improvement of biophysical environment and the Programme Steering Committee (PSC),
enforcement of environmental legislation establishment of the Programme Management
remained rather slow. and Implementation Unit (PMIU), as well as
constitution of various Sub-Programme
The PEPC has approved the National Implementation Committees (SPICs) etc. To
Environment Action Plan (NEAP) for improving achieve the objectives of the NEAP, the
the state of environment in Pakistan. The major representatives of non-governmental sector, civil
objectives of NEAP are to achieve a healthy society organizations, and environmental
environment, and sustainable livelihood by advocacy groups are included in SPICs.
improving the quality of air, water and land with
civil society cooperation. In this regard, Initial Pakistan has also revived its
Environmental Examination (IEE) and environmental commitments during the World
Environment Impact Assessment (EIA) have also Summit on Sustainable Development (WSSD:
been made mandatory for public sector August 26 to September 4, 2002). The country
Chapter 16. Environment and Housing

assessment report for WSSD focused on the Table 16.1

protection of atmosphere; integrated approach to Index of Motor Vehicles on the Road
the planning and management of land resources; (1980=100)
combating deforestation and drought; sustainable
mountain development; promoting sustainable Vehicle Type
agriculture; conservation of biological diversity; Motor
Year Cycles/ Rickshaws Total
environmentally sound management of
Scooters
biotechnology and protection of the oceans. 1981 113 105 111
NEAP can be one of the means to implement the 1982 131 108 124
WSSD commitments. To be consistent with 1983 147 113 138
National Environmental Action Plan (NEAP), 1984 180 116 167
1985 202 118 189
pollution in air, water and land are discussed in
1986 228 120 211
the ensuing pages. 1987 243 121 227
1988 261 123 245
Impact of Pollution 1989 284 126 270
1990 311 129 292
a. Air
1991 335 132 310
Air pollution levels in Pakistan’s most
1992 397 145 361
populated cities are among the highest in the 1993 434 158 389
world and climbing, causing serious health 1994 467 167 414
impacts. The levels of ambient particulates – 1995 506 176 445
1996 549 185 477
smoke particles and dust, which cause respiratory
1997 598 195 513
disease – are generally twice the world average 1998 641 259 544
and more than five times as high as in industrial 1999 691 284 581
countries and in Latin America (See Asian 2000 735 292 627
Environmental Outlook, 2001). Auto and 2001 744 295 635
2002 (E) 755 299 644
industrial emissions are the main source of dirty
Source: Sustainable Development Policy Institute
air. The average compound growth of vehicles in
(SDPI).
Pakistan is about 12% per annum. Over the last
Note: Base year numbers of motorcycles,
two decades, the total number of motor vehicles
scooters, rickshaws and total vehicles on
on the road has jumped from 0.8 million to 4.0
the road in thousands were 287.6, 32.0
million showing an overall increase of more than
and 682.2
500 % (WSSD Country Assessment Report, MOE (E) Estimated.
2002). Motorcycles and rickshaws, due to their
two-stroke engines, are the most inefficient in The combustion of coal is another main
burning fuel and contribute most emissions. contributor of air pollution. The three main uses
Fortunately, the rickshaws have only tripled in of coal are power, brick-kilns and domestic. Since
numbers, but motorcycles and scooters have gone 1998-99, coal use has decreased gradually for all
up more than seven fold in the last two decades the three above-mentioned purposes, which is a
(Table 16.1). However, 28.7% of the total vehicles healthy sign. However, coal is being replaced by
on the road are running on CNG. With improved natural gas that should be used in a sustainable
design of new car engines and conversion of manner and the focus should be to explore
300,000 vehicles to CNG, pollution load in many renewable energy sources. As indicated in Table-
urban centers has started declining. 16.2, the coal consumption in the power sector
Chapter 16. Environment and Housing

was steady from 1991-92 to 1994-95 but it
increased by almost ten fold in 1995-96 due to the
ten-fold increase in the use of coal for thermal
electricity generation. However, over the last four
years, the use of coal in power sector is gradually
decreasing. Likewise, for domestic consumption,
it increased by 211 percent in 1996-97 over 1995-96
and since then there is a considerable reduction
(almost eight time reduction) in its usage for
domestic purposes.
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 ministry of
Petroleum and Natural Resources has planned to
phase out sulphur from diesel by first introducing
the sulphur content from 0.5% to 0.05%.

Moreover, run-offs from chemical According to WHO guidelines, the

insecticides, fertilizers and solid wastes generated amount of sulphur dioxide (SO2), carbon
in urban and rural areas are other important monoxide (CO) and Ozone (O3) in the
source of environmental pollution. A study of the atmosphere are well below danger levels.
Ministry of Environment estimated that 47,920 However, the particulate matter in the
tonnes of waste are generated daily and only 53.6 atmosphere is well above safety levels across all
percent are collected while the rest lies around. the major industrial cities in the Punjab. Table–
Even the waste collection system and dumping 16.3 shows the rapid pace of increase in air
sites are inadequate. emissions over two decades between 1977-78 and
Table 16.2 1997-98 across the major commodity producing
Index of Consumption of indigenous coal sectors. The average increase in sulphur dioxide
by sector (1990-91=100) (SO2) across all the sectors was twenty-three fold
over these two decades. Similarly, nitrogen oxides
Year Sector (NOx) increased twenty-five fold in the power
Power Brick kilns Domestic sector and carbon dioxide (CO2) increased an
1991-92 160 101 180 average of four fold across all the sectors.
1992-93 190 106 85
1993-94 177 115 87 b. Water
1994-95 165 99 85
1995-96 1,621 107 82 Safe fresh water supplies are at risk in
1996-97 1,430 105 255 many areas of Pakistan. Pakistan exceeds the
1997-98 1,408 93 53 threshold of “high water-stress” conditions,
1998-99 1,688 101 34 which occur when the ratio of use to availability
1999-00 1,415 93 26 exceeds 40 percent (AEO, 2001). Various
2000-01 837 95 26 estimates have been made over the years in
2001-02 (E) 773 70 26 connection with water quality. The National
Source: Sustainable Development Policy Institute Environmental Quality Standards (NEQS) are
(SDPI). used as a reference point to compare how the
E: Estimated. average quality of water fares on various
Note: Base Year Consumption value was 24,603; parameters. On most counts (including
3,025,520; and 3785 tonnes for power brick- temperature, pH content, total dissolved solids
kilns & domestic respectively. and biological Oxygen demand), the water is safe.
Chapter 16. Environment and Housing

Table 16.3
Estimated Air Pollutants from various economic sectors
Sector 1977-78 1997-98
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
Commercial 1726 11 N.A 4261 25 N.A
N.A Not applicable Source: Sustainable Development Policy
Institute
CO2 Carbon dioxide
SO2 Sulphur dioxide
NOx Nitrogen Oxides

However, in terms of total suspended also contributes to the deteriorating quality of

solids (TSS), the counts are much 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. Water pollution has three main
sources: bacterial and organic liquids and solids
from domestic sewage; toxic metals, organic,
acidic, and other polluting industrial discharges;
and agro-chemical pollution in the form of
fertilizers and pesticides run-off from agricultural
lands. The irrigation run-off feeds into surface
water and also seeps into sub-soil waters. As
crops do not utilize all the chemicals, tubewells
and pumps draw this up in turn as source of
drinking water. The growing incidence of salinity
ground water, with excessive amounts of salt in
the water rendering it impotable. Untreated
industrial effluents and untreated disposal of
solid wastes intensify the problem.
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 level
BOD COD TSS TDS
(mg/I.) (mg/I.) (mg/Tj) (mg/I.)
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
Source: Sustainable Development Policy Institute
BOD =Biological Oxygen Demand
COD = Chemical Oxygen Demand
TSS = Total Suspended Solids
TDS = Total Dissolved Solids
Chapter 16. Environment and Housing

c. Land increased environmental stress from reduced

fresh water flows, sewage and industrial pollution
Pakistan is one of more than 100 countries and over exploitation of other natural resources.
of the world affected by desertification, which is
resulting in environmental degradation, loss of Forests are the lungs of any country.
soil fertility, biodiversity and reduction in land Forests play an important role in land
productivity. Pakistan comprises 79.61 million conservation, regulated flow of water for
hectare (ha) of land, of which 59.45 million has irrigation and power generation, reduction of
been surveyed. Of the total reported area, sedimentation in water channels and reservoirs
approximately 22.15 million (ha) is total cropped and maintenance of ecological balance. The area
area, 24.36 million (ha) is not available for under forests has increased steadily since 1990-91
cultivation, while 9.15 million (ha) is culturable with little fluctuations, however the overall
waste. The cropped area registered about 19 increase in the forests area in 2001-02 is higher by
percent increase from 1980-81 to 1997-98, i.e., 10.1 percent over 1990-91 (Table-16.5). Although
about one percent each year, while it decreased Pakistan has limited area under forest cover, yet
from 23.04 million hectares in 1997-98 to 22.15 11.25 percent of the total land area is protected as
million ha in 2001-2002. The recent trends national parks, wild life sanctuaries or game
indicate that Pakistan is approaching its physical reserves while a rough percentage recommended
limits, resulting in the indiscriminate use of by the experts is 12 percent. It has been pointed
chemical fertilizers and pesticides to grow more out in the report of Sustainable Development
out of already degrading land. The trend to sow Policy Institute that Baluchistan and NWFP,
the cultivatable area more than once is increasing, which require more protection, have only 6
and area sown more than once increased from percent of their land protected while Punjab has
5.71 million hectare in 1990-91 to 6.71 million 16 percent protection. For Pakistan, currently the
hectares in 2001-02 indicating an increase of 17.5 real issue is not the amount of land demarcated as
percent. a protected area but the poor management of the
areas already protected.
The impact of land degradation varies Table 16.5
among different geographical regions of Pakistan. Year Forest Area % Increase/
North mountains are the major source of water for (Ml. Hectares) Decrease
country’s two major reservoirs: Tarbela and 1990-91 3.46 -
Mangla Dams. However, due to heavy soil 1991-92 3.47 0.3
erosion, these reservoirs are silting up, thus 1992-93 3.48 0.3
1993-94 3.45 -0.9
reducing the capacity of power generation and
1994-95 3.60 4.3
availability of irrigation water. Barani lands are 1995-96 3.61 0.3
subject to heavy soil erosion, primarily due to 1996-97 3.58 -0.8
improper land use by crop cultivation, livestock 1997-98 3.60 0.6
grazing, and illegal removal of vegetation cover. 1998-99 3.60 -
Deserts have acute problem of shifting sand 1999-00 3.78 5.0
dunes and salinity. The irrigated areas are 2000-01 3.77 -0.3
2001-02 3.81 1.1
infected with twin menace of water logging and
% Increase 10.1 -
salinity. Underground water resources in western in 2001-02
dry mountains of Baluchistan are shrinking due to over 1990-91
overexploitation of the meager quantity of water Source:Ministry of Food, Agriculture and
for horticulture and crop cultivation. The arid Livestock.
coastal strips and mangrove areas are under
Chapter 16. Environment and Housing
Status of Pakistan in global and regional
partnership on environment
To join international efforts
conservation of natural resources, Pakistan has
become signatory to many international
Conventions/Protocols/Agreements. Pakistan as
signatory to these international protocols and
conventions, is meeting various obligations with
the technical and financial assistance of developed
countries. Under the Montreal Protocol, the
Ozone Depleting Substances (ODS)
industry such as Chloro Floro Carbons (CFC))
under renovation and consumption of ODS will
be eventually phased out by the year 2005.
Government has imposed a ban on the import of
used ODS-based equipment, and maximum
duties are levied on import of new CFC based
equipment.
Pakistan is also responding to
Framework Convention on Climate Change by
preparing national Green Houses Gases (GHG)
inventories. Several projects aiming at “mitigation
of climate change” and “adaptation to changing
climate” are in the pipeline, which will be
implemented with the technical and financial
assistance of developed country parties to the
Convention. Some initiatives have been launched
under the UN Convention on Biological Diversity
and UN Convention on Desertification such as
preparation of Biodiversity Action Plan (BAP) and
Desertification Combat Action Plan. However, the
pace of implementing international obligations is
not up to the mark, which is largely due to lack of
in-country capacity and partial fulfillment of
commitments by the developed countries.
Environment Sector Programs/Projects
During the fiscal year 2002-03, major
projects are under implementation in
following programs areas;
i. Institutional Strengthening, Capacity
Building, Mass Awareness
for 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
based PSDP project include “Strengthening of Forestry
Wing at the Federal Level for sustained
monitoring of the implementation of Forestry
Sector Master Plan”, for which an amount of
Rs.11.0 million was allocated during 2002-03. The
NGOs and other environmental pressure groups
have largely undertaken mass awareness
campaigns.
UN
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
2002-03, Rs.60.0 million were allocated to
conclude the ongoing 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.689.05 million, to which Rs.34.2
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 2002-03, 14 acres
of nurseries have been raised, 2576 acres planted,
7086 acres afforestation maintained and 189
training/exchange visits have been conducted
with the total expenditure of Rs.32.9 million till
March, 2003. Ministry of Water & Power is
implementing another watershed project named
the “Mangla Watershed Management Project” at a
total cost of Rs.168.99 million. During the current
Chapter 16. Environment and Housing
fiscal year, Rs.30.0 million were allocated to this
project and about 3640 acres/avenue miles of
planting/afforestation have been completed with
the total expenditure of Rs.18.2 million until
March, 2003.
iii. 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 2002-03, Rs.15.81 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 2003, Rs.8.11 million
have been utilized against PSDP 2002-03.
iv. Industrial Efficiency and Environmental
Management Sector Development Program
The project is designed to undertake a
comprehensive study and analysis of
environmental impact and issues in the industrial
sector including status of National Environment
Quality Standards (NEQS) implementation. The
project was approved by the CDWP in September
2000 at a capital cost of Rs.52.00 million to be
financed by the Technical Assistance of the Asian
Development Bank (ADB).
The project has not yet started because
ADB has not released the funds. However, an
amount of Rs.12.00 million in foreign exchange
has been allocated in the PSDP 2002-03.
II. Housing Sector
Housing is one of the fundamental
human needs as every family requires a roof.
Provision of house to every family has become a
major issue as a result of rapid population
growth and massive rural to urban migration.
According to the 1998 census, about 32.5% of
Pakistan’s population lives in metropolitan or
urban areas, which means that every third
Pakistani is living in a city or town. The projected
rate is 45.4% for 2010, attesting to the high rate of
urbanization.
The number of cities with a population
over a million people increased from three in 1981
to seven in 1998. Towns and cites with a
population above 100,000 increased from 29 in
1981 to 50 in 1998. The current trend suggests that
urban population is increasing at a faster pace
than the total population which is likely to
continue in the future as well.
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, 67.7 percent were in rural and 32.3
percent in urban areas, 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 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.
Chapter 16. Environment and Housing
Table 16.6
Housing Units by Tenure
Tenure All Areas
i) All types 19.3
(100)
ii) Owned 15.6
(80.8)
iii) Rented 1.7
(9.0)
iv) Rent Free 2.0
(10.2)
Note: The figures in parenthesis are percent shares
On the basis of the World Bank’s
recommended occupancy rates of 6 persons per
house, the total number of required housing units
in the country would be roughly 24.8 million by
the end of June 2003, based on the population of
149 million at present. According to one estimate
(National Housing Policy), the country needs an
additional supply of 570,000 units per annum
while the actual supply does not exceed 300,000.
Thus there is a net shortfall of 270,000 units per
annum and the backlog is increasing every year.
The rate of construction of new dwellings
needed to meet the growing demand has been
falling far short of requirement. Therefore, the
present government appreciating the gravity of
situation and realizing the linkage 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, Ministry of Housing and Works
formulated a new National Housing Policy –2001,
taking into consideration the multifarious
problems including housing shortage, lack of
housing finance, non-existence of foreclosure
laws, lack of planning, outdated building and
zoning regulations, etc. The major emphasis of the
policy is on resource mobilization, land
(In million)
Census 1998
Rural Urban
13.1 6.2
(100) (100)
11.4 4.2
(87.1) (67.6)
0.3 1.4
(2.3) (23.2)
1.4 0.6
(10.6) (9.2)
Source: Population & Housing Census 1998
availability, incentives for home ownership,
incentives to developers and constructors and
promotion of research and development activities
to make construction cost effective. The main
objective of the policy is to create affordability,
especially, for the middle and low income groups.
One of the cornerstones of the policy is to ensure
construction of housing for the poor and needy
and housing for the majority of rural population
through the use of different instruments like free
land, cross-subsidy and concessionary finance etc.
Fortunately, the general conditions in the
country are quite conducive to achieving a rapid
growth in the construction industry. The country
is witnessing stable macroeconomic environment
and a foundation has been laid for sustained high
growth in the medium – term. However, one
major area that has lagged behind is the housing
finance, a critical input required for the promotion
of construction industry. In developed countries,
on an average, housing finance (outstanding
stock) represents over 25% of GDP (US, 53%;
European Union, 36%). In the developing
countries the corresponding numbers are 21
percent for Malaysia, 16 percent for Thailand, 12
percent for Chile, 7 percent for Morocco, 5.5
percent for Tunisia, 4-5 percent for Brazil and
Chapter 16. Environment and Housing
Mexico, 3 percent for Srilanka and Iran and 2.2
percent for Bangladesh.
In contrast, the number is hardly 1% of
GDP in Pakistan. This low number does not
represent any lack of demand. Instead it is
function of absence of a properly organized
approach to housing finance, hitherto rather high
interest rates, and somewhat lack of competition
in the financial sector. There are also other
significant constraints in housing sector that either
increase the cost of transaction or increase risks
for the lender to unmanageable levels (poor
record/retrieval of property rights, high stamp
duties, bureaucratic delays, corruption,
disorganized state of the real estate market, etc.).
Therefore, realizing the slump in the housing
market and feeling the need to revive the
economy of this important sector and narrow the
backlog, the government has assigned a high
priority to promoting the housing finance sector.
To facilitate this sector, a number of steps have
been taken which include:
i) Tax incentives were provided to home
owners in the form of tax deductibility of
mark ups (up to Rs.100,000 per annum)
on home loans;
ii) The legal framework for the loan
recovery of financial institutions has been
further streamlined and strengthened
through promulgation of Financial
Institutions (Recovery of Finances)
Ordinance, 2001; and
iii) Through a more effective macroeconomic
management the government has
succeeded in reducing the general
interest rates in the country. This will
provide an opportunity for banks and
other financial institutions to provide
more affordable mortgage loans.
iv) State Bank of Pakistan has issued
guidelines for banking companies to
undertake asset securitization, increased
the lending limit for such loans to Rs.5
million and allowed banks to issue long-
term debts to facilitate financing of
housing loans;
v) The House Building Finance Corporation
(HBFC) - the country’s largest specialized
housing finance provider has been put
under a new and professional Board of
Directors and management with a
mandate to restructure the institution in
to a commercially viable and self-
sustaining entity with reliance on
subsidized official sources of funding.
Eventually, HBFC will have to compete
in the market for business and resources
at par with private sector institutions;
vi) HBFC Act was amended to enable it to
provide sharia-complaint housing finance
product, which has now been introduced.
The present program involves
construction of approximately 4564 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 Pakistan
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. Generally, over 78 percent of
work has been completed.
Chapter 16. Environment and Housing
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.
For the financial year 2002-03, Rs.535.55
million were allocated in the Housing Sector
________________________
under PSDP of Ministry of Housing and Works.
Out of 480 housing units 450 units are expected to
be completed by June, 2003.
Ministry of Housing and Works gave
approval to Federal Government Employees
Housing Foundation to acquire three sub-sectors
of G-14 i.e. (G-14/2-3-4) for housing scheme for
government employees. Land acquisition process
has been initiated in these sub-sectors.

CONTINGENT LIABILITIES
Contingent liabilities are costs which the
government will have to pay if a particular event
occurs. These are obligations triggered by a
discrete but uncertain event. Relative to
government policies, the probability of a
contingency occurring and the magnitude of the
required public outlays are exogenous (such as
natural disasters) or endogenous (such as
implications of market institutions and
government programs for moral hazard in
markets). Contingent liabilities therefore not yet
recognized as direct liabilities. However,
contingent government liabilities are associated
with major hidden fiscal risks. A common
example of a contingent liability is a government-
guaranteed loan. At the time a guarantee is
entered into there is no liability for the
government, since this is contingent on the
borrower failing to repay the loan as contracted.
However, in the event of default, the lender can
Explicit Contingent Liabilities:
These are specific government obligations
defined by a contract or a law. The government
is legally mandated to settle such an obligation
when it becomes due.
Implicit Contingent Liabilities:
These represent a moral obligation or expected
burden for the government not in the legal
sense, but based on public expectations and
political pressures.
Annexure 1
invoke the guarantee and the government will be
obliged to repay the amount of the loan still
outstanding. At that point, the contingent liability
will become an actual liability of government, and
a payment must be made. These liabilities support
specific policy objectives by creating financial
incentives, without an immediate financial outlay.
However, when these contractual guarantees or
non-contractual commitments are realized, the
government faces significant fiscal costs at the
expense of other outlays. Thus analysis of
country’s fiscal position is incomplete if it skips
over obligations made by the government outside
the budget.
The following framework highlights the
two types of contingent liabilities. Contingent
liabilities grow with weaknesses in the financial
sector, macroeconomic policies, regulatory and
supervisory system, and information disclosure.
• Guarantees for borrowing and obligations of
provincial governments and public or private
entities.
• Umbrella guarantees for various loans (SME
loans, agriculture loans)
• Guarantees for trade & exchange rate risks
• Guarantees for private investments
• State insurance schemes.
• Defaults of provincial governments and public
or private entities on non-guaranteed debt and
other obligations.
• Liability clean-up in entities being privatized
• Bank failures
• Disaster and relief financing.
• Failure on other non-guaranteed funds.
Explicit Contingent Liabilities:
Explicit contingent liabilities legally
oblige government to make a payment if a specific
event occurs. Because their fiscal cost is invisible
until they are triggered, contingent explicit
liabilities represent a hidden subsidy, blur fiscal
analysis, and can drain future government
finances. Nevertheless, government guarantees
and financing through government guaranteed
institutions are more politically attractive than
budget support even if they are more expensive
later. The budgetary cost of these legal obligations
during FY 2001-02 amounted Rs. 23.60 billion, in
FY 2002-03 Rs. 16.18 billion and projected at Rs.
15.54 billion during FY 2003-04. These comprise
payments made on account of contractual
guarantees issued on Ghee Corporation of
Pakistan (GCP), Rice Export Corporation of
Pakistan (RECP), Trading Corporation of Pakistan
(TCP), Cotton Export Corporation (CEC) and
Saindak bonds; Pakistan Steel Mills Corporation’s
liability payments contractually assumed by
Government; payments to oil refineries on
account of guaranteed rates of return; and
payments to FFC Jordan on account of 1989
Investment Policy pertaining to fertilizer industry.
Key organizations with explicit and implicit
Explicit Liabilities (Cash outflow streams from federal budget)
guarantee structure have been discussed below.
The following table analyses the trend.
PIA: During FY 2002-03, an amount of Rs 1.7
billion has been given for fleet renewal and Rs. 1.7
billion have been paid out as interest (equity) to
the restructured loans and Term Finance
Certificates to PIA. GOP has guaranteed interest
payments (restructured loans and TFCs) for five
years starting FY 2001-02.
Railways: During FY 2002-03, an amount of Rs.
4.98 billion has been paid on account of debt
servicing liability (Government guaranteed loans)
and Rs. 3.12 billion on account of other
operational shortfalls.
WAPDA: GOP is injecting into WAPDA Rs. 26.4
billion through subsidy, Rs. 21 billion on account
of non-recovery of loans and Rs. 2.7 billion as
fresh loans, totaling to Rs. 50.1 billion during FY
2002-03. An anticipated amount for FY 2003-04
comes out to be Rs. 35 billion.
KESC: GOP has injected fresh equity amounting
to Rs. 6.1 billion and loans/subsidy payments of
Rs. 20.3 billion during FY 2002-03. Budget
estimates for FY 2003-04 amount to Rs. 16.9 billion
subsidy.

Enterprise 2001-02 2002-03 2003-04

GCP, RECP, TCP & CEC (GOP guaranteed) 4.70 5.20 4.90
Saindak Metal Limited (GOP guaranteed) 2.00 2.30 1.80
Pakistan Steel Mills (GOP guaranteed) 0.90 0.80 0.75
PIA (Interest on GOP guaranteed TFCs and loans) - 1.70 1.66
Oil Refineries (GOP guaranteed) 9.00
FFC Jordan (GOP guaranteed) 1.00 0.70 1.05
Utility Stores Corporation (GOP guaranteed) - - 0.30
Pakistan Engineering Company (GOP guaranteed) - 0.19 0.18
Peoples Steel Mill (GOP guaranteed) 0.75 0.31 -
Pakistan Railways (GOP guaranteed debt servicing) 6.00 4.98 4.90
TOTAL (Rs in billion) 24.35 16.18 15.54
Source: Ministry of Finance. Figures for FY 2004 are budget estimates.
In consonance with the Macroeconomic and the
Medium Term Budgetary Framework adopted by
the Government and containing risk exposure, a
policy of limiting guarantees and risk analysis of
contingent liabilities has been institutionalized.
During FY 2002-03, the Government has issued
guarantees equivalent to Rs.16.18 billion that is
31.5% lower than FY 2001-02. Additionally,
Government’s Fiscal Responsibility Law, pending
Cabinet’s approval and to be enacted before June
30, 2003, proposes specific limits on contractually
binding guarantees (i.e. explicit contingent
liabilities) including those in rupee lending,
bonds, rates of return, output purchase
agreements and other claims that may threat
future fiscal stance of the Government.
Implicit Contingent Liabilities:
Implicit contingent liabilities are not
officially recognized until a failure occurs. The
triggering event, the amount at risk, and the
required government outlay are uncertain. In
most countries the financial system is the most
serious contingent implicit government liability.
Markets expect government support far beyond
its legal obligation if financial stability is at risk.
These include government’s quasi-fiscal activities
including mainly the bail-outs of strategically
important State Owned Enterprises and the non-
performing loans of banking sector. Through
robust financial sector reforms, prudent monetary
management and strengthening of State Bank of
Pakistan’s regulatory role, the non–performing
loans of the banking sector stand at Rs.266 billion
as on December 2002. These were Rs. 258 billion
as on June 30, 2002 and Rs. 279 billion as on June
30, 2001 respectively.
It can be inferred from the above table
that Water and Power Development Authority
(WAPDA), Karachi Electric Supply Corporation
(KESC), and Pakistan Railways have been the
largest drain on the budget. Financial
Improvement Plans of the two power utilities are
currently under implementation to curtail these
outflows. Privatization of KESC and successful
corporatization of WAPDA in the years ahead
would eventually plug these financial leakages.

Impact of implicit contingent liabilities on the federal budget

Enterprise 2001-02 2002-03 2003-04
WAPDA subsidy 13.5 26.4 15.0
WAPDA non recovery of loans 22.00 21.0 20.0
WAPDA new loans 3.3 2.7 -
KESC Equity (injection of fresh equity) 83.20 6.1 -
KESC shortfall in debt servicing 4.00 - -
KESC Loans - 9.2 3.7
KESC Subsidy (Cash shortfall) - 11.1 13.2
Utility Stores Corporation 0.15 0.15 0.15
Karachi Shipyard (GOP investment) 0.30 - -
Pakistan Railways (Other operational shortfalls) - 3.12 3.01
Equity in Government Holdings Private Ltd - 3.0 1.0
PIA (Fleet Renewal) - 1.7 3.5
TOTAL (Rs in billion) 126.45 84.47 59.56
Source: Ministry of Finance. Figures for FY 2004 are budget estimates.

Guarantees Issued (Explicit and Implicit liabilities)

Fiscal Year Rs in billion As % of GDP
2001-02 150.80 4.04%
2002-03 100.65 2.47%
2003-04 (Budget Estimates) 75.10 1.34%

TAX EXPENDITURES
While taxes are an essential source of
revenue for all state economies, the manner in
which they are imposed varies widely from
country to country. Tax expenditures are
provisions in the tax code, such as exclusions,
deductions, credits, and deferrals that are
designed to encourage certain kinds of activities
or to aid taxpayers in special circumstances. When
such provisions are enacted into the tax code, they
reduce the amount of tax revenues that may be
collected. In this sense, the fiscal effects of a tax
expenditure are just like those of a direct
government expenditure. Some tax expenditures
involve a permanent loss of revenue, and thus are
comparable to a payment by the government;
others cause a deferral of revenue to the future,
and thus are comparable to an interest-free loan to
the taxpayer. Tax expenditures include
exemptions from the tax base, allowances
deducted from gross income, tax credits deducted
from tax liability, tax rate reductions, and tax
deferrals (such as accelerated depreciation). Since
tax expenditures are designed to accomplish
certain public goals that otherwise might be met
through direct expenditures, it seems reasonable
to apply to tax expenditures the same kind of
analysis and review that the budget appropriation
receives.
It is essential to distinguish between those
provisions of the tax code that represent tax
expenditures and those that are part of the "basic
structure" of a given tax. The basic structure is the
set of rules that defines the tax; a tax expenditure
is an exception to those rules. In general, most
taxes have a series of features that define their
basic structure. These features are a base on which
the tax is levied, such as net income, or a
particular class of transactions; a taxable unit,
such as a person or a corporation; a rate, to be
applied to the base; a definition of the geographic
limits of the state's exercise of its tax jurisdiction;
and provisions for the administration of the tax.
The estimates of total tax expenditures in
Pakistan for FY 2002-03 come around Rs. 17.5
billion. The figure signifies vast improvement
Annexure-II
over the previous years when the total tax
expenditures stood at Rs. 31 billion during FY
2000-01 and Rs. 25 billion during FY 2001-02.
Details for the FY 2002-03 are discussed below:
Income Tax:
Section 53 of the Income Tax Ordinance
2002 empowers the Federal Government to
exempt from tax any income or classes of income,
or person. However, these powers were sparingly
exercised by the Government as it is following a
conscious policy of not only phasing out the
existing exemptions gradually but also not to
allow fresh ones. As a result thereof, fifty-one
exemptions form the Part-I of the Second
Schedule and four rebates available under the
First Schedule were withdrawn through Budget
2002. Categories of exemptions listed in Part-I of
the Second Schedule to the Income Tax Ordinance
2001 are broadly as under:
a) Exemption related to pensions, provident
funds and superannuation funds
b) Exemption of interest on borrowings from
external sources
c) Exemption to non-profit charitable,
religious and welfare activities
d) Exemption to non-profit educational
institutions
e) Exemption relating to electric power
generation
f) Unexpired period to tax holidays for
industrial undertaking.
Total number of exemptions under the
aforesaid categories contained in Part-I of Second
Schedule to the Ordinance 2001 is 114. The cost of
these exemptions (excluding agricultural income
that is liable to tax under the relevant Provincial
Agricultural Income Tax Laws) is Rs. 6.8 billion.
It may be noted that exemption expenditure
merely relates to National Savings Schemes
interest income in respect of investment which
has been made up to the year ending June 30,
2001, pensions, provident fund and
superannuation fund. Furthermore, exemption
related to charitable activities and non-profit Following is the estimated cost of
educational institutes are common in both exemptions if FY 2002-03 compared to FY 2001-02
developed and developing countries. Similar is and FY 2000-01 respectively.
the position with regards to basic threshold of
income for charging tax.
Table 1
Income Tax Expenditure
(Rs. billions)
No Major Income Tax Expenditure Items Estimated Revenue Loss
FY 2000-01 FY 2001-02 FY 2002-03
1 Pensions 0.7 0.7 0.7
2 Allowances 1.0 1.1 1.1
3 Income from funds (eg NIT Units) 0.6 0.6 0.6
4 NSS interest income 3.2 2.9 2.7
5 Other interest income 0.1 0.1 0.1
6 Capital gains 0.9 0.9 0.9
7 Sector & enterprise specific exemptions 0.7 0.7 0.7
8 Agricultural Income 4.0 3.2 *
TOTAL 11.2 10.2 6.8
* Income tax on agricultural income is now a provincial subject. Income tax thereon is being levied by the
concerned Provincial Governments. Accordingly, the cost of the exemptions has not been included in FY
2002-03.

Sales Tax: pharmaceutical products. As per international

Key exemptions on Sales Tax are food
items (wheat, grain, pulses and edible oils
excluding palm oil and soybean oil). In addition
to food items, exemptions also include phosphatic
fertilizer, information technology equipment and
practices, the bulk of such items cannot be taxed,
for example food grains etc. Cost of Sales Tax
exemption is estimated to be around Rs. 10.37
billion for FY 2002-03.

Table 2
Sales Tax Expenditure
(Rs. billions)
No Major Sales Tax Expenditure Items Estimated Revenue Loss
FY 2000-01 FY 2001-02 FY 2002-03
1 Retailers (includes those in turnover scheme) 1.00 0.00 0.55
2 Turnover manufacturers 0.00 0.00 0.35
3 Domestically produced edible oils 2.00 2.10 2.30
4 Pharma (excluding life saving drugs) 4.00 4.30 4.60
5 Tractors and other agri machinery 1.30 1.50 1.75
6 Fertilizers 4.00 0.60 0.69
7 Pesticides 0.80 0.00 0.00
8 Others (eg. agri-seeds, cattle feed) 0.10 0.10 0.10
9 Exemption on supply of locally manufactures 0.00 0.00 0.05
machinery to petroleum sector
TOTAL 13.20 8.60 10.37
Central Excise:
Tax expenditures involved on account of
Central Excise is relatively minimal vis-à-vis other
taxes. Cost of Central Excise exemptions for the
FY 2002-03 is around Rs. 8.0 million. This
exemption was granted to Aga Khan
Development Network on the purchase of cement
for its on going projects of human development
work in Northern Areas and Sindh province.
raw material and components i.e plant, machinery
and equipment imported by high tech industry,
priority and value added industries, imports for
energy sector projects, exemption to exploration
and production companies including OGDC
exemption for WAPDA, and imports by CNG
companies. Some of these exemptions are on
account of international commitments and
contractual obligations.

Customs: Table 3 provides the break-up of key

Customs exemptions are mainly given on exemptions in customs duties over the years:
Table 3
Exemption in Customs Duties
(Rs. Billion)
No Old SRO Existing Description of SRO Estimated Revenue
No & Date SRO No & Loss
Date FY FY
2001-02 2002-03
1 369(I)/2000 439(I)/2001 Conditional exemption of customs duty on 0.627 0.327
17-06-00 18-06-01 import of plant, machinery and equipment
not manufactured locally
2 400(I)/97 361(I)/2002 Exemption of customs duty on import of 0.637 0.0
31-05-97 18-06-01 machinery, equipment, materials specialized
vehicles, accessories, spares and chemicals as
are not manufactured locally, if imported by
exploration and production companies
including OGDC
367(I)/94 367(I)/94 Exemption of customs duty as is in excess of 1.215 2.037
09-05-94 09-05-94 10% ad val. On machinery equipment
materials etc imports for petroleum sector
projects
3 555(I)/98 444(I)/2001 General conditional exemption 2.214 1.438
12-06-98 18-06-01
358(I)/2002 0.048
15-06-2002
4 504(I)/94 357(I)/2002 Partial exemption of customs duty on raw 0.025 0.438
09-06-94 15-06-2002 materials sub-components as are not
5 24(I)/96 manufactured locally of specified goods
08-01-96
6 557(I)/97 438(I)/2001 Exemption of customs duty on machinery and 0.393 0.275
28-07-97 18-06-2001 equipment and construction materials
7 38(I)/98 38(I)/98 Exemption of whole of customs duty and 0.263 0.194
21-01-98 21-01-98 sales tax on import of machinery, equipment
on conversion kits and cylinders, if imported
by CNG companies during the period
commencing from November 01, 1997 to
October 31, 2002.
TOTAL 5.422 4.709
Following is the consolidated summary of tax increase/decrease for the FY 2002-03 compared to
expenditures showing percentage previous years.

Table 4
Summary of Tax Expenditures (Tax Wise)
(Rs. Billion)
Type of Tax Cost of Exemptions
FY FY % FY FY % Change
2000-01 2001-02 Change 2001-02 2002-03
Income Tax 11.20 10.20 -8.92% 10.20 6.80 -33.3%
Sales Tax 13.20 8.60 -34.84% 8.60 10.37 20.6%
Customs Duties 6.20 5.42 -12.74% 5.41 4.71 -13.0%
Central Excise 0.50 0.50 0.00% 0.50 0.01 -98.0%
TOTAL 31.10 24.72 -20.54% 24.71 21.89 -11.4%
Note: Since quantification of Tax Expenditures is subjective and estimated, therefore there is slight
variance in the provisional tax expenditure numbers reported in Economic Survey 2001 and 2002.

Table 5
Summary of Major Tax Expenditures for FY 2002-03 (Item Wise)
(Rs. Billion)
No Major Tax Expenditure Items Estimated Revenue Loss FY 2003
1 Pharmaceutical (excluding life savings drugs) 4.60
2 NSS interest income 2.70
3 Domestically produced edible oils 2.30
4 Import of machinery, equipment materials etc 2.04
5 Tractors and other agriculture machinery 1.75
6 General conditional exemption 1.44
7 Allowances 1.10
8 Capital gains 0.90
9 Pensions 0.70
TOTAL 17.53

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