Pakistan Economic performance

Pakistan

Economic performance

Economic growth in Pakistan in FY2001 decelerated to 2.6% primarily due to the impact of drought on agriculture and hydroelectric power generation. The drought caused a loss in national income estimated at about 2.0%. Nonagriculture GDP grew by 4.3%, which was significantly higher than in the previous year. Agriculture sector output declined by 2.5%, with output of major crops falling by 10.0%. Growth in large-scale manufacturing, however, accelerated to 8.4%—the highest growth rate since the 1980s. While increased capacity propelled output growth in FY2001, the underlying tone for a majority of the constituent subsectors of large-scale manufacturing remained firm. Excluding the subsectors that recorded significant capacity addition (oil refining, automotive, and fertilizer), large-scale manufacturing output grew by 7.0% in FY2001. Investment as a percentage of GDP continued to decline, reaching a new low at 14.7% in FY2001. The decline largely resulted from low private sector confidence, despite improvement in Pakistan’s macroeconomic fundamentals. The major success during the year was a reduced inflation rate of 4.4%, resulting largely from improved macroeconomic and financial policy management. The fiscal deficit in FY2001 was 5.3% of GDP—the lowest in 23 years. The deficit decreased because of stringent control over public expenditure, particularly current expenditure that was reduced by 1.5% of GDP. Development expenditure also declined to only 2.9% of GDP, a record low. In FY2001 exports increased by 7.4%, to over $9.0 billion for the first time. Export volume expanded by over 15.0%, with 8 out of 10 top export items recording double-digit growth. The current account deficit declined to 0.9% of GDP, with improvement from a reduced trade deficit and increased workers’ remittances. Further slowdown in economic growth in FY2001 and declining development expenditure resulted in higher unemployment.

ADB operations

Operational strategy: In 2001, ADB’s operational strategy was anchored on poverty reduction, increasing economic growth, and providing assistance for governance-related reforms. A significant amount (78.0%) of ADB’s assistance was in program lending. While program loans finance the cost of adjustment and complement the economic reform agenda to be pursued under the 3-year $1.3 billion IMF-financed Poverty Reduction and Growth Facility, the counterpart rupees were envisaged to be used for poverty reduction and social sector development. ADB’s 2001 loan program for Pakistan was a record $957 million in the aftermath of the 11 September attacks. ADB’s commitment to help mitigate the impact of the post-11 September events on the Pakistan economy was reiterated by ADB President Tadao Chino, who visited Pakistan in November 2001 and met Pakistan President Pervez Musharraf and Finance Minister Shaukat Aziz.

Policy dialogue: In the context of 2001 operations, policy dialogue focused on agriculture sector reform, designed to ensure a greater role for the private sector in domestic trading of major agriculture commodities, gradual phasing out of administered prices with market forces, and enhancing food security and poverty reduction. Another major initiative was the Access to Justice Program loan, which supported legal and judicial reforms, focusing on helping the Government improve access to justice by strengthening the subordinate judiciary, supporting policy reforms, and enhancing the judicial system to ensure timely commercial adjudication and a mechanism for enforcing contracts, thereby providing a greater comfort for prospective international investors. Policy dialogue also continued under the Energy Sector Restructuring Program and the Trade, Export Promotion, and Industry Program.

Loans and technical assistance: ADB approved 11 loans for 5 projects and programs in 2001 totaling $956.8 million. These are for the urban sector development in the North-West Frontier Province, road sector development (a program loan and two sector loans), access to justice program (two program loans and a technical assistance loan), agriculture sector program (a project loan and a technical assistance loan), and reproductive health. ADB approved 17 technical assistance grants totaling $6.6 million in 2001. Twelve grants were to provide advisory assistance on fiscal decentralization, a forum on poverty analysis, supporting access to justice under the local government plan, institutional strengthening of the State Bank of Pakistan, environmental assessment, institutional reform and road maintenance financing study, poverty reduction study, social impact analysis and resettlement planning, support for the implementation of the national policy and action plan to combat child labor, capacity building for capital market development and corporate governance, and restructuring the gas sector. Five were assistance in project preparation for the preliminary engineering update of the provinces of Punjab and Sindh; additional preparatory work on the Sindh Rural Development Project; and supporting government restructuring and reform.

Project implementation: Since joining ADB in 1966, Pakistan has received 203 loans—including 21 private sector loans without government guarantee—of which 59 were active at the end of 2001. Contract awards totaled $418.9 million, bringing the cumulative figure to $8.0 billion. The contract award ratio was 18.1%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $512.3 million, bringing cumulative disbursements to $8.4 billion. The disbursement ratio was 28.2%, higher than the ADB-wide average of 20.5%.

The Pakistan Resident Mission initiated quarterly provincial project review meetings in the four provinces and held two review meetings at the federal level. To enhance further project and portfolio performance, the resident mission conducted two provincial level and one federal level workshops on project management with staff of executing agencies, line ministries, and other government offices concerned. ADB also conducted a country project implementation and administration workshop for executing agency and line ministry staff. Proactive project implementation has improved key portfolio monitoring indicators and overall portfolio performance.