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Macroeconomic and Financial Development of Pakistan



Macroeconomic and Financial Development of Pakistan

Introduction

Pakistan emerged in August 1947 from Indian partition and is located on the north-west border of India. The country shares borders with Afghanistan, China and Iran. Pakistan is the sixth populous country with 169.3 million population and is also the second populous Muslim country in the world. Pakistan is also a member of the United Nations (Kardar, 2008, Pp. 85-90).

It is predicted that economy of Pakistan will see modest growth in the current year but may accelerate in the medium term. The damages caused by 2010 flooding are estimated up to US$10 billion. In the current year, Pakistan's inflation rate will remain in double digits. The uncontrolled rural-to-urban flow of population far exceeds growth of urban infrastructure.

Key Points

In 2011, GDP is forecasted to rise up to 4.8% with the gains accelerating in later years.

The unemployment rate will decrease up to 6.7% during the current year. However 6% more growth is necessary to contain unemployment.

There is more then 10% rate of youth unemployment.

Real growth of 3.8% is expected in 2011. Private consumption is supported by steady gains in remittances.

In the year 2009 there was an increase in real value by 14.9% in the final private consumptions. However the gains in the following year only 3.8%

Due to the devastating floods, the country's budget must bear the cost which is estimated up to US$10.8 billion (Haque, 2005, Pp. 68-75).

Tax evasion is also another complicating fact.

Government Finance

There has been a strain in the finances of the Pakistani government in the last ten years because of the decrease in demands of exports in the last few years. Another reason for this strain was the on-going military effort against the terrorist groups. Last year, there was PKR8, 607 billion public debts. In 2009 there was an 8.7% fiscal deficit of real GDP (Haque, 2005, Pp. 68-75).

In the last ten, almost a fifth of the total government's budget was taken up in subsidies like fuel. The recent effort to raise the petrol prices resulted in strong objections that threatened to bring the current government down.

The result in per capita income is growing by 24% and poverty level is decreased as the economy in this decade has performed better. The financial situation in the year 2008 worsened and Pakistan was forced to enter the IMF rehabilitation program (Kardar, 2008, Pp. 85-90). A 6% economic expansion is required to contain the unemployment rate. The government estimates that approximately 40% of the population lives below the poverty line, up from about 18% in 2000.

Foreign Trade

Pakistan is at an economically advantageous geographical location. However the unstable political issues the country has failed to take the full advantage of the benefits (Kardar, 2008, Pp. 85-90). During the past ten years, the share of exports in GDP has seen a downward trend. Last year the exports amounted to 12.5% of GDP.

In the last ten years, 45.1% of all exports of Pakistan went to other ...