June 09, 2007	Saturday	Jamadi-ul-Awwal 23, 1428

ISLAMABAD, June 8: The government on Friday issued the Economic Survey 2006-07. Following is the text of the Executive Summary of the survey:

EXECUTIVE SUMMARY

01. GROWTH AND INVESTMENT
Pakistan’s economy continues to maintain its strong growth momentum for the fifth year in a row in the fiscal year 2006-07. With economic growth at 7.0pc in the current fiscal year, Pakistan’s economy has grown at an average rate of almost 7.0pc per annum during the last five years. This brisk pace of expansion on sustained basis has enabled Pakistan to position itself as one of the fastest growing economies of the Asian region. The growth that the economy has sustained for the last five years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong growth in domestic demand. Real GDP grew strongly at 7.0pc in 2006-07 as against the revised estimates of 6.6pc for last year and 7.0pc growth target for the year.

Growth of value addition in Commodity Producing Sector (CPS) is estimated to increase by 6.0pc in 2006- 07 as against 3.4pc in 2005-06. Within the CPS, agriculture and manufacturing grew by 5.0pc and 8.4pc, respectively. Large-scale manufacturing registered a growth of 8.8pc in 2006-07 against the target of 12.5.0pc and last year’s achievement of 10.7pc. As a result of structural transformation, the share of agriculture in GDP has declined by 3.2 percentage points in the last 6 years alone and the share of the manufacturing sector has increased by 3.1 percentage points in the same period.

The performance of all the sub-sector of agricultural remained robust with the exception of minor crops and fishing. Major crops witnessed an impressive growth of 7.6pc as against a negative growth of 4.1pc last year. Livestock, a major component of agriculture, exhibited signs of moderation from its buoyant growth of 7.5pc last year to 4.3pc in 2006-07.

The services sector grew by 8.5pc in 2004-05, by 9.6pc in 2005-06 and by 8.0pc in 2006-07. Finance and insurance sector spearheaded the growth in the services sector and registered stellar growth of 18.2pc during the current fiscal year 2006-07 which is slightly lower than 33.0pc of last year. Value added in the wholesale and retail trade sector increased by 7.1pc in 2006-07 compared to 8.6pc growth in 2005-06.

Value added in the transport, storage and communications sector grew by 5.7pc from the previous year compared to 6.9pc growth in 2005-06. Public administration and defence posted a growth of 7.0pc while ownership of dwellings grew by 3.5pc and social services sector improved its growth performance to 8.5pc from 6.3pc last year.

Pakistan’s per capita real GDP has risen at a faster pace during the last four years (5.5pc per annum on average in rupee terms) leading to a rise in average income of the people. Such increases in real per capita income have led to a sharp increase in consumer spending during the last three years. As opposed to an average annual increase of 1.4pc during 2000-2003, real private consumption expenditure grew by 12.1pc in 2004-05 but declined in the subsequent two years to 3.3pc in 2005-06 and 4.1pc in 2006-07. The per capita income in dollar term has grown at an average rate of 13.0pc per annum during the last five years rising from $ 586 in 2002-03 to $ 833 in 2005-06 and further to $ 925 in 2006-07. The main factor responsible for the sharp rise in per capita income include acceleration in real GDP growth, stable exchange rate and four fold increase in the inflows of workers’ remittances.

The commodity producing sectors (agriculture and industry) has contributed 30.2pc or 2.9 percentage points to this year’s growth while the remaining 59.8pc or 4.2pc point’s contribution came from services sector. Within the CPS, agriculture contributed 1.1 percentage points or 15.1pc to overall growth while industry contributed 1.8 percentage points or 22.7pc. The contribution of wholesale and retail trade has increased to19.4pc or 1.4 percentage points to GDP growth in 2006-07. Finance and insurance has also contributed 13pc or 0.9 percentage points to this year’s growth. If we analyze the contributions from aggregate demand side for 2006-07, it emerged that consumption accounted for 49.8pc or 3.2 percentage points to economic growth and while investment accounted for 52.7pc or 3.4 percentage points to growth.

The investment rate is on the rise since 2004-05, reaching as high as 23pc of GDP in 2006-07. This is the highest investment rate ever in recent economic history. This year’s economic growth is largely investment-driven but ably supported which provides source of optimism that a growth of 6–8pc in the next 5 years is quite achievable. National savings are financing a large part of this investment boom. The national savings rate is now at 18.0pc of GDP.

Total investment has reached record level of 23.0pc of GDP in the current fiscal year (2006-07) as against 21.7pc of GDP last year. Fixed investment has increased to 21.4pc of GDP from 20.1pc last year. Total investment has increased from 16.9pc of GDP in 2002-03 to 23.0pc of GDP in 2006-07— showing an increase of 6.0pc of GDP in five years. Fixed investment grew, on average, by 17.3pc in real terms and 30.3pc in nominal terms per annum during the last three years (2004-07). Private investment grew by 18.7pc per annum in real terms and 32.0pc per annum in nominal terms during the same period. The composition of investment between private and public sector has changed considerably during the last three years. The share of private sector investment in domestic fixed investment has increased from less than two-third (64.2pc) to more than three-fourth (76.0pc) in the last seven years clearly reflecting the growing confidence of private sector in the current and future prospects of the economy.

Private sector investment grew by 20.4pc this year as against 37.5pc increase in last year in nominal terms. Public sector investment has also increased by 25.7pc per annum during the last three years and 25.7pc during the current fiscal year in nominal terms. Major nominal growth in private sector investment is witnessed in manufacturing (27.0pc), mining & quarrying (93.6pc), construction (10.7pc), transport and communication (20.8pc), and wholesale and retail trade (25.4pc). National Savings at 18.0pc of GDP has financed 84pc of fixed investment in 2006-07 as against 85.5pc last year. National savings aspc of GDP stood at 18.0pc in 2006-07 fractionally higher than last year’s level of 17.2pc. Domestic savings has risen from 15.3pc of GDP to 16.1pc of GDP.

The overall foreign investment during the first ten months (July-April) of the current fiscal year has touched $ 6 billion — highest ever in the country’s history. The overall foreign investment stood at $5979.2 million during the first ten months (July-April) of the current fiscal year as against $4048.9 million in the same period last year – an increase of 47.7pc. Public foreign investment depicted modest 2.5pc growth in Jul-April 2006-07 by moving to $671.4 million as against $655 million in the comparable period of last year. It is the private sector which took the major task of providing impetus to foreign investment. During July-April 2006-07, total foreign private investment reached $5307.8 million as against $3393.9 million in the comparable period of last year, thereby, depicting 56.4pc increase. Total foreign direct investment has reached $4160.2 million as against $3038.2 million in the comparable period of last year, thereby, depicting 36.9pc increase Almost 78pc of FDI has come from five countries, namely, the UAE, US, China, UK and Netherlands. Netherlands with 18.1pc ($753.4 million) has topped the list of foreign investors followed by the UK (17.4pc or $724.4 million), China (17.0pc or $708.9 million), US (16.3pc or $676.7 million), and UAE (8.8pc or $364.2 million). If we look at sectoral break-up, the communication sector (including Telecom) spearheaded the FDI inflows by accounting for 34.2pc stake during July-April 2006-07 followed by financial business (20.9pc), energy including oil & gas and power (14.1pc), and food, beverages and tobacco (11.8pc). These four groups accounted for almost 80pc of FDI inflows in the country.

02. AGRICULTURE
Agriculture continues to be the single largest sector, a dominant driving force for growth and the main source of livelihood for 66pc of the country’s population. It accounts for 20.9pc of the GDP and employs 43.4pc of the total work force. As such agriculture is at the centre of the national economic policies and has been designated by the Government as the engine of national economic growth and poverty reduction. 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. Thus any improvements 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.

The agriculture growth has experienced mixed trends over the last six year. The country witnessed unprecedented drought during the first two years of the decade i.e. (2000-01 and 2001-02) which resulted in contraction of agricultural value added. Hence agriculture registered negative growth in these two years. In the following years (2002-03 to 2004-05), relatively better availability of irrigation water had a positive impact on overall agricultural growth and this sector exhibited modest to strong recovery. The performance of agriculture remained weak during 2005-06 because its crops sector particularly major crops could not perform up to the expectations. Growth in the agriculture sector registered a sharp recovery in 2006-07 and grew by 5.0pc as against the preceding year’s growth of 1.6pc. Major crops posted strong recovery from negative 4.1pc last year to positive 7.6pc, mainly due to higher production of wheat and sugarcane. Wheat production of 23.5 million tons is highest ever in the country’s history, registered an increase of 10.5pc over last year. Sugarcane production likewise improved by 22.6pc over last year to 54.8 million tons, both being record high production. Cotton production at 13 million bales remained mostly unchanged in comparison to 13.02 million bales of last year. Rice production at 5.4 million tons was marginally less than 5.5 million tons produced last year. Despite the lower yield, higher demand abroad for Pakistan Basmati rice and high international prices are expected to surpass the last year’s export earning from Basmati Rice. Amongst the other major crops, gram crop, exhibited an impressive growth of 75.4pc in 2006-07 due to the increase in intervention price of the crop and good rains in “Thal” area where the gram crop is mainly concentrated. Minor crops registered a weak growth of 1.1pc while it was 0.4pc last year. However, amongst the minor crops, production of potato increased by 67.2pc, mung and masoor pulses improved by 21.5pc and 17.9pc respectively. Livestock registered a strong growth of 4.30pc over the last year’s impressive growth of 7.5pc due to increase in the livestock and poultry products. Fishery performed positively at 4.2pc though the previous year’s growth stood at 20.5pc. Forestry has decreased by 3.8pc in 2006-07 while it had decreased by 43.7pc last year. Pakistan’s agricultural output is closely linked to the supply of irrigation water. Against the normal surface water availability at canal heads of 103.5 million-acre feet (MAF), the overall (both for Kharif and Rabi) water availability has been less in the range of 5.9pc (2003-04) to 29.4pc (2001-02). However, it remained less by 2.6pc in 2005-06 against the normal availability. Relatively speaking, Rabi season faced more shortage of water than Kharif during these periods. During the current fiscal year (2006-07), the availability of water for Kharif 2006 (for the crops such as rice, sugarcane and cotton) has been 6.0pc less than the normal supplies and 10.8pc less than last year’s Kharif. The water availability during Rabi season (for major crop such as wheat), as on end- March 2007 was estimated at 31.2 MAF, which was 14.3pc less than the normal availability, and 3.7pc more than last year’s Rabi. Sufficient water supplies coupled with timely winter rains in Rabi season had a good impact on Rabi crops particularly on gram, masoor and wheat as production of these crops increased by 75.4, 17.9 and 10.5pc, respectively.

Amongst major crops, cotton production estimated at 13.0 million bales for 2006-07 remained mostly same at the last year’s production of 13.02 million bales. Wheat production is estimated at 23.5 million tons in 2006-07, as against 21.3 million tons last year, showing an increase of 10.5pc. Rice production has, however, decreased by –2.0pc in 2006-07 from 5.547 million tons last year to 5.438 million tons in 2006-07. Sugarcane production increased from 44.666 million tons in 2005-06 to 54.752 million tons in 2006-07, showing an increase of 22.6pc. As regards the minor crops, the production of potatoes, mung and masoor increased by 67.2pc, 21.5pc and 17.9pc, respectively. The production of chillies, onion and mash decreased by 49.6pc, 14.3pc and 3.6pc, respectively. Lesser production over last year is due to shortfall in area. Agriculture credit disbursement of Rs 104.844 billion during July-March, 2006-07 is higher by 15pc, as compared to Rs 91.161 billion over the corresponding period last year. The fertilizer off-take stood at 2825 thousand nutrient tons in July-March 2006-07 or lower by 5.6pc, as compared to 2991 thousand nutrient tons for the corresponding period last year. The offtake pattern of nutrients has changed in the country because of subsidy factor on phosphatic and potassic fertilizers. Nitrogen offtake has decreased by 12.0pc while that of phosphate and potash increased by 14.2 and 63.6pc, respectively during July-March 2006-07. However, the share of phosphate and potash is low as compared to nitrogen in total offtake, so the overall offtake reduced. Moreover, erratic rainfall pattern in the Kharif 2006 also negatively affected the offtake.

According to the Livestock Census 2006, the share of livestock in agriculture growth has jumped from 25.3pc in 1996 to 49.6pc in 2006. The higher growth in the livestock sector was mainly attributed to growth not only in the headcount of livestock, which is commercially important but also in the milk production. The population of total animals registered a significant increase of 30pc in 2006 when compared with 1996. Overall, the milk production increased by 35.6pc in 2006 over 1996.

Likewise, the total number of animals slaughtered registered 36.7pc increase in 2006 over 1996.

03. MANUFACTURING AND MINING
The overall manufacturing sector continued on its strong positive trend during the current fiscal year. Overall manufacturing recorded an impressive and broad based growth of 8.45pc, against last year’s growth of 9.9pc. Large-scale manufacturing, accounting for 69.5pc of overall manufacturing registered an impressive growth of 8.75pc in the current fiscal year 2006-07 against last year’s achievement of 10.68pc. There has been a slight decline in growth in the manufacturing sector due to multiple reasons like reduced production of cotton crop, sugar shortage, steel and iron problems and the last but not the least global oil prices. All of these reasons contributed to reduced growth in 2006-07 but high levels of liquidity in the banking system, an investment friendly interest rate environment, a stable exchange rate, low inflation, comfortable foreign exchange reserves, stronger domestic demand for consumer durables and high business confidence among other things will again boost the manufacturing sector growth rate up to a reasonable level.

The main contributors to this impressive growth of 8.75pc in July-April 2006-07 over last year are cotton cloth (7.0pc) and cotton yarn (11.9pc) in the textile group; cooking oil (6.8pc), sugar (19.6pc) and cigarettes (4.14pc) in the food, beverages and tobacco groups; cement (21.11pc) in the non-metallic mineral products group and Jeeps & Car (3.0pc), LCV’s (17.04pc), motorcycles/scooters (12.30pc) and tractors (11.40pc) in the automobile group. The individual items exhibiting negative growth include; both nitrogenous and phosphatic fertilizers (0.08pc and 3.10pc), petroleum products (5.59pc) and galenicals (24.49pc).

The Government is fully committed to making the mineral sector in Pakistan one of the most profitable for the country. During the current fiscal year the mining and quarrying sector has registered a growth rate of 5.6pc as against 4.58pc of last year. This increased growth rate was propelled by strong positive growths recorded in magnetite, dolomite, limestone and chromites.

During the period July 2006 to February 2007, the privatization commission completed five transactions that fetched an amount of Rs. 67.664 billion. OGDCL’s 10pc listing and domestic offering was over subscribed yielding a total of $ 811 million, which reflected the confidence of investors in the policies of present government. The privatization transactions of Pakistan State Oil (PSO), Roosevelt Hotel, New York, Services International Hotel, Lahore, National Investment Trust Limited (NITL), Genco-1 Jamshoro, Hazara Phosphate Fertilizers Limited are at various stages of processing and are likely to be brought to the bidding soon.

Given the significance of the SME sector, recent years have witnessed increasing government/ private sector focus. Studies have been undertaken to identify the constraints the SMEs face, an SMEs policy has been announced, commercial banks are now enhancing their to lending to SMEs, some universities are offering programs in Entrepreneurship and SME Management . In its endeavours, Pakistan like some of the other developing countries has received support from the Asian Development Bank.

Non-availability of financing has been recognized as a major impediment to SME development. To meet the financing needs of the SME sector, the SME Bank was formed by converting the Regional Development Finance Corporation in 2002, with loans beings extended for working capital and medium to long term financing, programs lending and leasing through its subsidiary, SME leasing. The SME Bank has lent to areas like CNG station, health development, surgical instrument, fan manufacturers, power looms, carpet manufacturer, gems & jewellery etc. Small & Medium Enterprise Development Authority (SMEDA) is another institution dedicated solely to the promotion of SMEs in the country. During FY07 SMEDA has started establishing on ground demonstration projects and Common Facility Centres to enable the private sector catch up with fast changing global trends in technology and management processes with enhanced productivity and quality standards. These include projects in sports, agro based industry, leather and light engineering sectors.

These projects are spread all over the country.

04. POVERTY AND INCOME DISTRIBUTION
As Pakistan’s economy entered the fourth year (FY 2006-07) of above 7.0pc growth, its poverty headcount had fallen from one-third to less than one-fourth of the population. The confluence of growth accelerating government policies, nature’s blessings and annual growth of 21pc in pro-poor expenditures during the period contributed to approximately 13 million people moving out of poverty. In the immediate to short-run the challenge is to maintain the hard won improvement in poverty levels and even improve upon it through sustained growth (a necessary condition) in the range of 6-8pc per annum. However growth alone does not suffice to reduce poverty levels. It has to be reinforced by job creation. Since FY 02, the economy created 10.62 million jobs, thereby reducing the open unemployment rate to 6.2pc by FY 05-06. Foreign inflows in the form of remittances also have salutary impact on poverty. Development expenditure as a ratio of GDP, increase in human capital base, and openness of the economy are some of the other important factors that reduce the absolute poverty levels in Pakistan. On the debit side, food inflation increases poverty levels. The economy has witnessed a gradual increase in all the former set of determinants, while food inflation remained benign till 2004-05.

An appreciable decline in poverty rates has occurred between 2000-01 and 2004-05. At the national level, headcount decreased from 34.46pc in 2000-01 to 23.94pc in 2004-05, depicting a substantial reduction of 10.52 percentage points over this period. In absolute numbers the count of poor persons has fallen from 49.23 million in 2001 to 36.45 million in 2004-05. The absolute fall in poverty headcount in rural areas from 39.3pc in 2001 to 28.1pc in 2005 was much higher than in urban areas. However inpc terms, urban poverty fell by 34 and rural poverty by 28pc during the period.

The percetnage of population (1.0pc of total population) classified as “extremely poor” remained unchanged between the two periods, the proportion of “ultra poor” and “poor” have declined appreciably during the same period. At the higher end, thepc of “quasi non-poor” and “nonpoor” has increased notably.

Pakistan’s poverty reduction strategy has yielded handsome result in the shape of sharp reduction in poverty. Although, poverty has declined but the fact remains that 23.9pc people of Pakistan still live below the poverty line. Further reduction in poverty is a major challenge for the government. A clear lesson from the past five years of Pakistan and from other countries’ experience is that sustained growth on a consistent basis is needed to reduce poverty. Macroeconomic stability is, of course, a prerequisite for the sustained economic growth that brings the poverty reduction and rising living standards that we all want to see. But macroeconomic stability is not sufficient. Rather, it is the foundation on which to build a thriving economy. Successfully targeted social programs, fair and broad based fiscal regimes, labour markets that promote job creation, and high quality education opportunities for the neediest, are also the key to permanent and sustained reduction in poverty.

05. FISCAL DEVELOPMENT
A sound fiscal position is an essential pre-requisite for achieving macroeconomic stability, which is increasingly recognized as a critical ingredient for promoting strong and sustained economic growth and lasting poverty reduction. Considerable efforts have been made over the last seven years to inculcate financial discipline by pursuing a sound fiscal policy. Pakistan has succeeded in reducing fiscal deficit from an average of 7.0pc of the GDP in the 1990s to an average of 3.5pc during the last seven years. The associated public debt accumulation also declined sharply from over 100pc of GDP to 53pc this year. Pakistan’s hard earned macroeconomic stability is therefore, underpinned by fiscal discipline.

The underlying fiscal deficit is targeted at 3.7pc of GDP (excluding earthquake spending) for the current fiscal year (2006-07) which is slightly higher than the deficit level of the previous year (3.4pc of GDP). Higher deficit was targeted to finance higher public sector development program (PSDP), particularly towards financing infrastructure projects. Pakistan needs to strengthen its physical and human infrastructure to sustain growth momentum.

Total revenues are budgeted at Rs. 1163.1 billion in 2006-07 compared to Rs. 1087.0 billion in 2005-06, showing an increase of 7.0pc. This was primarily due to a rise of 15.5pc in tax revenue on the back of increases in federal tax revenues are projected to rise by 17.5pc. Provincial tax revenue is projected to decline by 12.6pc. Non-tax revenue are targeted to decline by 13.3pc by moving to Rs.277.3 billion in 2006-07 as against Rs.320.0 billion last year.

The wide-ranging tax and tariff reforms as well as reforms in tax administration have started paying dividends. During the last seven years tax collection by the Central Board of Revenue (CBR) has increased by 112.8pc. During the current fiscal year (2006-07), CBR has exceeded the revenue target of Rs. 645.2 billion fixed for the first ten months of current fiscal year (July-April) by Rs. 11.3 billion. The net collection stood at Rs. 656.5 billion as against Rs.547.0 billion in the comparable period of last year, thereby showing an increase of 20pc. The direct taxes contributed most of the increase as they have surpassed the target by Rs.52.4 billion and recorded massive growth of 50.9pc. This increase has compensated much of the revenue shortages on account of sales tax and customs duties by Rs. 22.5 billion and Rs. 19.0 billion, respectively owing to slowdown in imports, resulted in negative growth in dutiable imports with adverse implications for import related taxes.

The gross and net collection has increased by 17.9pc and 20.0pc respectively during July-April 2006-07. The overall refund/ rebate payments during first ten months of current fiscal year have been Rs. 73.0 billion relative to Rs. 71.9 billion paid back during the corresponding period of past fiscal year. Among the four federal taxes, the highest growth of 50.9pc has been recorded in the case of direct tax receipts, followed by FED (20.7pc) and sales tax (7.5pc). On the other hand, customs duties have witnessed a negative growth of 2.3pc. The share of direct taxes in total taxes (collected by the CBR) has increased from 18pc to over 38.5pc in July-April 2006-07. The share of indirect taxes declined from 82pc to 61.5pc during the same period. The collection from custom duty used to account for 45pc of total tax collection and 55pc of indirect taxes in 1990-91, its share has now been reduced to 18.6pc and 32.3pc, respectively. The share of sales tax increased at a tremendous pace from 14.4pc to 41pc of total taxes and from 17.6pc to 60.3pc of indirect taxes during the same period.

Total expenditure is targeted at Rs. 1536.6 billion or 17.4pc of GDP for the fiscal year 2006-07. Total expenditure was projected to be 8.6pc higher than last year (2005-06). During the first nine month (July-March) of the current fiscal year total expenditure is estimated at Rs.1168.5 billion or 76pc of the annual target.

Current Expenditure is targeted at Rs. 1126.2 billion for the current fiscal year (2006-07) which means it would remain almost stagnant at the level of 2005-06. During July-March 2006-07, provisional estimates suggest an expenditure of Rs.925.3 billion which is 83.6pc of the target. The higher increase in current expenditures during the last two years is mainly on account of earthquake-related spending amounting to 0.5pc to 0.8pc of GDP. The major components of current expenditure include interest payments and defence spending which also show increases. Interest payments are targeted at Rs. 239.5 billion for the current fiscal year which are slightly lower than Rs. 241.2 billion but during July- March 2006-07, it already exceeded the target. Defence spending for the year is targeted at Rs. 250.2 billion — 3.8pc higher than last year and during July-March 2006-07, the spending has reached Rs.172.8 billion which is 69pc of the full year target.

Development expenditure is targeted at Rs. 435 billion for the year 2006-07 as against revised estimate of Rs.313.7 billion in 2005-06. During the first nine months (July-March) of the current fiscal year 2006-07, development expenditure amounted to Rs.241.8 billion or only 58.3pc of the yearly allocation. This expenditure is likely to pick-up in the last quarter of the year. The size of the federal PSDP was budgeted at Rs.270 billion and provincial PSDP was estimated at Rs.115 billion; totalling Rs.385 billion. An amount of Rs.50 billion was budgeted for earthquake related spending; therefore, the total size of the PSDP was budgeted at Rs.435 billion. However, an operational shortfall of Rs.20 billion in PSDP was anticipated in 2006-07. During the last seven years the development expenditure improved from 2.2pc of GDP in 2000-01 to 4.9pc of GDP in 2006-07.

The overall fiscal deficit is targeted at Rs. 373 billion or 4.2pc of GDP for 2006-07. The Government is well placed to meet this target as fiscal deficit during the first nine months remained at 3.1pc of GDP or 73pc of the yearly target. On the basis of the developments on revenue and expenditure front, the overall fiscal deficit during the first nine months (July-March) of the current fiscal year stood at Rs. 272.8 billion or 3.1pc of GDP. Earthquake accounted for sizeable amount of fiscal deficit and underlying fiscal deficit excluding earthquake expenditure is targeted at 3.7pc of GDP for 2006-07. Revenue balance (revenue minus current expenditure) — a measure of government’s savings or dissavings, was targeted to be in surplus to the extent of 0.6pc of GDP. During the first nine months (July-March) of the current fiscal year, the revenue balance has remained in deficit to the extent of Rs.29.6 billion or 0.3pc of GDP. The primary balance (total revenue minus non-interest total expenditure) remained in surplus for the last seven years. However, primary balance turned negative for the first time in 2005-06.

The public debt- to-GDP ratio, which stood at almost 85pc in end June 2000, declined substantially to 56.9pc by the end of June 2006 — 28.0 percentage points decline in country’s debt burden in 7 years. By end March 2007, public debt further declined to 53.4pc of the GDP for the year. In absolute terms public debt grew by 7.6pc during July-March 2006-07. Public debt was 562.5pc of revenue by the end of the 1990s. Following the debt reduction strategy in which raising revenue was one of the key elements, the public debt burden in relation to total revenue has declined substantially to 401.0pc by end-June 2006 and further to 400pc by end-March 2007.

By end-June 2006 total domestic debt stood at Rs. 2312 billion which was 30pc of GDP. The outstanding stock of domestic debt rose by Rs 211.8 billion and domestic debt stock stood at Rs.2523 billion by endMarch 2007 which is 28.4pc of GDP. It has risen by 9.1pc by end-March 2007 over end-June 2006.

06. MONEY AND CREDIT
The development of financial markets and institutions is a critical and inextricable part of the economic growth. In countries with better financial development, an efficient financial system ameliorates market distortions and reduces information and transaction costs. It thus identifies and funds good business opportunities, mobilizes domestic savings, monitors the performance of businesses, enables the trading, hedging and diversification of risk and facilitates the exchange of goods and services. There has been a remarkable improvement in Pakistan’s financial sector as it initiated a broad-based program of reforms in the early 1990s.The pace of reforms; however, has increased manifold since 2000. As a result of successful reforms in the financial sector the M2/GDP ratio, which is an indicator of financial deepening and development has been showing rising trend since 199091.M2/GDP ratio has increased from 39.3pc in 1990-91 to 45pc in 200506.Credit to private sector/GDP ratio is also rising from 21.7pc in 1990-91 to 27.4pc in 2005-06.

During the fiscal year 2006-07, the SBP took several additional policy measures in different phases as part of monetary policy tightening. In the first phase, the SBP raised the Statutory Liquidity Ratio (SLR) from 15pc to 18pc and Cash Reserve Ratio (CRR) for commercial banks from 5 to 7pc.

The State bank of Pakistan prepared the Credit Plan for the year 2006-07 with a view to maintain price stability and promoting economic growth. The money supply during Jul-May 12’2007 of the current fiscal year expanded by Rs.477.9 billion or 14pc as against an expansion of Rs358.2 billion or 12.1pc in the same peri od last year .The high monetary growth during this period was caused mainly by a sharp rise in the net foreign assets of the banking system as the growth in the net domestic assets of the banking system accelerated only slightly. Pakistan has seen large foreign inflows during the period which has resulted in an expansion of the NFA of the banking system. The NFA portrayed an expansion of Rs.88.1 billion as against the target of Rs.9.8 billion .The major factors responsible for large foreign exchange inflows included a relatively higher growth in workers’ remittances and foreign investment (both FDI and portfolio), foreign inflows through Global Depository Receipts (GDRs), PTCL privatization proceeds and relatively slower increase in trade-related foreign currency loans.

While the increase in the NFA reflects the improvement in country’s external account; the higher growth in the NDA was caused entirely by a sharp increase in government sector borrowings that more than offset the deceleration in the credit to non-government sector. The NDA of the banking system registered an expansion of Rs.389.68 billion Jul-May FY 07 compared with Rs.314.38 billion expanded during the corresponding period of the preceding year. The sustainability of private sector credit take-off (Rs.273.9 billion) and sizable government borrowings for budgetary support (Rs.212 billion) were the major factors responsible for the current hefty buildup in NDA. However, with the inflows of receipts from the issuance of Euro bond and other expected external inflows before the current fiscal year, the picture will change substantially and government borrowings for budgetary support may come back to the target for the year.

Consistent with its objective of shaving off domestic demand with a view to reducing inflation, the SBP not only raised reserve requirements for banks with effect from July 22, 2006 but also increased the discount rate by 50bps to 9.5pc from 9pc. In addition, SBP continued its frequent open market operations (OMO’s) to drain excess liquidity from the inter-bank market. In addition, SBP also raised the cutoff yield on 6 months and 12 months treasury bills which had increased gradually by 41 and 29 basis points to 8.9pcand 9.07pc respectively during July-April FY 07. Interest rates of 3, 5 and 10 years maturities of the Pakistan Investment bonds (PIBs) exhibit an increase in the range of the 14 basis points to 33 basis points during the FY 07 over last year. The weighted average lending rate has increased by 240 basis points in a period of 21 months from June 2005 to March 2007 from 8.2pc in June 2005 to 10.6pc in March 2007.

The banking sector of Pakistan is regarded as one of the best performing sectors in the region Microfinance sector in Pakistan has recorded substantial growth over the past six years as an outcome of a conducive policy and regulatory framework as well as supportive investments undertaken by the Government of Pakistan towards the development of the sector. Khushali Bank continues to lead and is the largest microfinance Institution in the country in term of its network, clients and portfolio. The bank has a presence in 85 districts of the country through a network of 110 service outlets and processed over a million loans worth Rs.10 billion across 550,000 households with a portfolio that is pre-dominantly rural.

The importance of Small and medium Enterprise Sector in achieving and sustaining higher levels of growth in the economy is now well recognized based upon the fact that SMEs are a source of low cost employment. SME Bank responds to the need of Small and Medium Entrepreneurs by providing them with the necessary financial assistance in the form of medium to long term funds. The bank and its leasing company both financed 1402 SMEs during the year 2006 by extending to them record credit of Rs.1.95 billion.

07. CAPITAL MARKETS
Pakistan’s capital and stock markets have witnessed impressive growth over the last several years on account of market-friendly and investment-friendly policies pursued by the government. The KSE-100 index (Pakistan’s benchmarked stock market) has increased from 1521 points in June 2000 to 12370 points in April 2007 – a rise of over 10,800 points or an increase of 713pc. Similarly aggregate market capitalization has increased from Rs 392 billion ($ 7.6 billion) in June 2000 to Rs 3604 billion ($ 59.4 billion) in April 2007, showing a rise of over Rs 3200 billion (or $ 53 billion) or an increase of 819pc. The KSE 100-index reached all time high of 12961 points on 31st May 2007. Aggregate market capitalization also increased by 35.0pc from Rs 2801 billion in June 2006 to Rs 3781 billion ($ 62.3 billion) as of 31st May 2007. Portfolio investment has increased from a negative $ 140 million in fiscal year 2000-01 to $ 1819 million during July-April 2006-07.

The impressive performance in the stock markets during the current fiscal year has been driven by a number of factors including: (i) continuous improvement in the country’s economic fundamentals, (ii) government’s commitment to maintain its economic reform and promarket policies, (iii) stability in exchange rate as a result of strong build up in foreign exchange reserves, (iv) regionally cheap valuation driving foreign interest in Pakistan’s stock market, (v) large-scale merger and acquisition in the banking, telecom and other sectors of the economy (vi) improving Pakistan’s geo-political relationship with neighbours as well as globally, resulting in decline in political risk premium of the country, (vii) successful GDR offerings of the OGDC and MCB Bank, amounting US dollars 888 million and (viii) increase in Pakistan’s coverage by large international brokerage firms and investment banks. Extraordinary performance in the stock markets during the current fiscal year was driven by some major sectors of the economy including banks and other financial institutions, transport and communication, engineering, fuel & energy and auto & allied.

Large-scale merger of banks and a telecom company (PakTel) along with continued momentum of privatization programme have promoted growth of Pakistan’s stock markets during the current fiscal year. Over the past few years, the Securities & Exchange Commission of Pakistan (SECP) has taken measures to restore confidence of both foreign and domestic investors. In the current fiscal year the SECP in consultation with the stock exchanges, has introduced significant capital market reforms in the fields of risk management, governance, transparency and investor protection.

08. INFLATION
During the first ten months (July–April) of the current fiscal year 2006-07, the average inflation rate as measured by the change in consumer prices index (CPI) stood at 7.9pc compared with 8.0pc last year. Food inflation during this period increased to 10.2pc from 6.9pc in the same period last year whereas the non-food inflation is estimated at 6.2pc against 8.8pc in the comparable period of last year. The core inflation which represents the rate of increase in cost of goods and services excluding food and energy prices also subdued from 7.7pc to 6.0pc. The major contributors to the high pick up in food inflation and there by overall (CPI) inflation include the rise in prices of vegetable ghee, various kinds of pulses, rice, poultry, meat, milk, fresh vegetables and fruits on account of imbalance in demand and supply of these commodities. Besides, the soaring global price of key importable food items such as edible oil, milk powder, tea, medicine and food related components have boosted domestic inflation. The government attaches high priority to controlling inflation in the country owing to its impact on the economy as well as its implications on the purchasing power and monthly budgets of the low income and poor households. A number of measures were initiated during the current year 2006-07 to contain the price hike in the country including easing of imports for commodities facing supply shortage, reforms geared towards increase in agricultural output and improvement in marketing mechanism. It may be pointed out that although inflationary pressure has been eased considerably and the current level of inflation at 7.9pc is within manageable limits, it is still above the target of 6.5pc set for fiscal year 2006-07. However, due to a bumper crop of wheat and steps taken by government to ease the pressure on supply side factors it is expected that inflation will decelerate in coming months.

09. TRADE AND PAYMENTS
Pakistan has recorded laudable export performance during the last several years, with exports growing at an average rate of almost 16pc per annum over the last four years (2002-03 to 2005-06). Despite improvements in the international trading environment. Pakistan’s export growth witnessed abrupt and sharp deceleration to less than 4.0pc in the first ten months (July-April) of the current fiscal year after growing at an impressive rate of 16.0pc per annum in recent years.

Exports were targeted at $ 18.6 billion or 12.9pc higher than last year. Exports during the first ten months (July-April) of the current fiscal year are up by 3.4pc – rising from $ 13457.0 million to $ 13909.0 million in the same period last year.

After growing at an average rate of 29pc per annum during 2003-2006 Pakistan’s import growth slowed to a moderate level in the current fiscal year. Pakistan’s imports grew by 8.9pc or $ 2047 million in the first ten months of the current fiscal year. Imports were targeted to decline by 2.1pc in 2006-07 to $ 28.0 billion from last year’s level of $ 28.6 billion. As expected, growth in import decelerated to 8.9pc during the first ten months (July-April) of the current fiscal year as against hefty increase of 40.4pc in the same period last year. The deceleration in import growth is caused by several factors which include: the pursuance of tight monetary policy to shave off excess demand, softening of international price of oil, decline in imports of cars as a result of change in policy, decline in the imports of fertilizer because of large carryover stock of last year, and decline in the imports of iron & steel as Pakistan Steel coming back to its normal production level.

Almost 31pc contribution alone came from petroleum group, mainly on account of the surge in imports of petroleum products both in value and quantity. Imports of machinery contributed almost 30pc to this year’ rise in imports bills. This is followed by imports of telecom which accounted for 13pc to the overall rise in imports. Almost three-fourth contribution came from three categories (machinery, petroleum and telecom) to this year’s rise in imports. Interestingly, consumer durables’ contribution was negative (-1.8pc) mainly on account of a decline in the imports of cars. Therefore, contrary to the general perception, the contribution of consumer durables was negative.

Pakistan’s balance of payments shows a record increase in capital flows that has substantially offset a gradual widening of the current account deficit. The magnitude of the inflows has overwhelmed the State Bank of Pakistan and complicated monetary policy. Pakistan’s current account deficit further widen to $ 6.2 billion (4.3pc of GDP) in the first nine months (July-March) of the current fiscal year from $ 4.6 billion (3.6pc of GDP) in the same period last year. A striking feature of this year’s current account deficit is that it has widened even though the import growth has slowed to 10.2pc but the performance of exports has been lack lustre at best, resulting in widening of trade deficit. Deficit in services account also widened and as such even a robust growth of 7.8pc in private transfers could not narrow the current account deficit The current account deficit for the year is likely to be around 5.0pc of GDP as against 4.4pc last year. The strong inflows in capital account will more than offset the current account deficit and add to the stock of foreign exchange reserves. The flow under long-term capital (net) has surged to $ 5.7 billion in the first nine months (July-March) of the current fiscal year as against $ 3.1 billion in the same period last year, showing an increase of 82pc.

Exchange rate remained more or less stable during the FY07. However, rupee depreciated only marginally (0.7pc) from Rs.60.2138 per dollars as at end June 2006 to Rs.60.6684 as of end April 2007. In the open market, rupee traded at 60.655 to a dollar, that is at a discount of 0.02pc as at end-April 2007.

Workers’ remittances, the third largest source of foreign exchange inflows after exports and foreign investment, continue to maintain its rising trend. Workers’ remittances totalled $ 4.45 billion in the first ten months (July-April) of the fiscal year as against $ 3.6 billion in the same period last year, depicting an increase of 22.6pc.

Pakistan’s total liquid foreign exchange reserves stood at $ 13,738 million at the end of April 2007, considerably higher than the end-June 2006 level of US$ 13,137 million. A number of factors contributed towards the accumulation of reserves. The most prominent among these are; private transfers that include remittances, floatation of bonds, higher foreign investment and privatization proceeds.

10. EXTERNAL DEBT AND LIABILITIES
Due to a credible debt reduction strategy and successive high growth rates, Pakistan has reduced its public debt burden (including Rupees debt and foreign currency debt) from 100.3pc of GDP in end- FY99 to 53.4pc of GDP by end-March FY07. The external debt component of public debt (excluding private non-guaranteed debt and liabilities) has decreased from 40.8 at end-FY02 to 24.6 at endMarch FY07.

External debt and liabilities (EDL) at the end of March FY07 were US$ 38.86 billion. This is an increase of US$ 1.6 billion which represents a 4.3pc increase over the stock at the end of FY06. Pakistan has succeeded in reducing the country’s debt burden by ensuring that the growth in EDL is less than the GDP growth. Consequently, the burden of the debt has declined substantially during the same period. The external debt and liabilities (EDL) declined from 50.9pc of GDP at the end of FY02 to 26.3pc of GDP by end-March 2007. Similarly, the EDL were 236.8pc of foreign exchange earnings but declined to 119.7pc in the same period. The EDL were nearly 5.8 times foreign exchange reserves at the end of FY02 but declined to 2.8 by end March 2007. Interest payments on external debt were 7.8pc of current account receipts but declined to 3.2pc during the same period.

Continuing the credible debt policy, Pakistan successfully issued a US$ 750 million 10 year note at a fixed rate of 6.875pc on May 24, 2007 lead managed by Deutsche Bank, Citi Group and HSBC. This was the largest 10 year deal to date, beating the previous deal of US$ 500 million. The transaction has provided a true liquid benchmark for other issuers to follow. The transaction priced at an impressive UST (US Treasury) +200 basis point which is 40 bps (basis points) tighter compared to last year’s deal that priced at UST +240 basis points. The deal priced at the tight end of a revised price guidance of 6.875-7.00pc. The issue was highly oversubscribed with the largest ever order book amassed for Pakistan. The order book of US$ 3.7 billion meant an oversubscription of over 7 times on the original deal of US$ 500 million. The resounding demand allowed Pakistan to upsize the deal by 50pc to US$ 750 million. The transaction was announced and priced within 72 hours, an impressive feat and testament to investor confidence in Pakistan. Furthermore, an astounding 60pc of the deal went to first-time investors who had never bought Pakistan paper before and that 75pc of investors met on the roadshow placed orders. The offering was well balanced by geographically with an increase in US participation to 35pc from 19pc on previous transaction.

11. EDUCATION
Education is the driving force of growth and progress in an increasingly interconnected and globalizing world. The multifaceted impact of education on every aspect of human existence makes it an essential area for policy framework especially for developing countries. Developing countries where majority of the world’s population resides need to maximize on productivity and capabilities of the advanced human capital. Today’s global economy and the demographic shift towards a large bulge of working-age population provide Pakistan with a perfect opportunity towards growth and development.

In the recent years, the literacy levels in Pakistan have improved over time albeit at a moderate pace. The overall literacy rate (10 years & above) was 45pc in 2001 which has increased to 54pc in 200506, indicating a 9.0 percentage points increase over a period of only five years. The literacy rate for nonpoor went up from 51pc in 2001 to 59pc in 2005 whereas for poor it improved from 30pc to 40pc in the same period. The rate of improvement is higher for poor as compared to non-poor. Males literacy rate (10 years & above) increased from 58pc in 2001 to 65pc in 2005-06 while it increased from 32 to 42pc for females during the same period highlighting the gender gaps that still persist in access to education. Thepc of children aged 10-18 that left before completing primary level has decreased from 15pc in 2001 to 10pc in 2005. This underlines the government’s effort to improve the access and quality of education.

The government has taken several strong initiatives to improve and overhaul the existing system of education. It has taken prudent step towards streamlining the education sector at the national level. Education sector reform Action Plan 2001-2005 is one of the examples of this multi-pronged strategy which envisage in it the devolution of responsibility of the delivery of the education to local governments along with improving the overall literacy, enrolment and access to education. Also, the National Education Policy 1998-2010 is currently under review to include to participation of all the stakeholders and ensuring ownership of the policy by federating units and other stakeholders.

According to 2005-06 PSLM Survey data there is a marked difference in literacy rate as recorded in PIHS (2001-02) and PSLM (2005-06). A 9pc point increase has taken place over a period of just five years. Thus, showing a sharp and substantial rising trend in all the three indicators that is; literacy, Gross Enrolment rates (GER) and Net Enrolment Rates (NER). Within the literacy rates sex wise division shows that, as expected, literacy among males is higher. However, the rate of increase in literacy for females is faster as compared to the males. Province wise literacy data for PSLM (2005-06) as against PIHS (2001-02) show Punjab to be on the top (56pc Vs 47pc) followed by Sindh (55pc Vs 46pc), NWFP (46pc Vs 38pc) and Balochistan (38pc Vs 36pc).

According to the Education Census 2005, there are currently 227791 institutions in the country. The over all enrolment is recorded at 33.38 millions with teaching staff of 1.357 million. As shown in Fig.1, out of the total institutions 151,744 (67pc) are in public sector catering to 22 million (64pc) of enrolled students and 0.723 million (53pc) of the teaching staff. In case of private sector, there are 76047 institutions (33pc) catering to 12 million student and 0.632 (47pc) of the teaching staff. In terms of physical infrastructure out of the total covered institutions 12737 (5pc) have been found non-functional. From the covered institutions 12737 (11589 schools and 1148 others) almost all in the public sector have been reported as non- functional.

12. HEALTH AND NUTRITION
Access to essential health care is a basic human need and a fundamental human right. A healthy population is not only valued in its own right, but it also raises the human capital of a country thereby positively contributing to the economic and social development. This recognition of health and human development is reflected in cohesive agenda of Millennium Development Goals (MDGs) to which Pakistan is one of the signatories. The Constitution of Pakistan ensures the provision of basic necessities of life including health and medical relief for all citizens, irrespective of sex, caste, creed or race. The public health sector has been a priority area of the Government activities and the current health sector reforms focus on equitable, efficient and effective health interventions. The Government’s commitments regarding health sector are spelled out in the form of MDGs, PRSP and MTDF.

A considerable improvement in health sector facilities over the past year is reflected in the existing vast network of health care facilities which consist of 4712 dispensaries, 5,336 basic health units/sub health centres (BHUs/SHCs) , 560 rural health centres (RHCs) ,924 hospitals, 906 maternal and child health centres (MCHs), and 288 TB centres (TBCs). Available Human resource for the fiscal year 2006-07 turns out to be 122798 doctors, 7388 dentist and 57646 nurses which make the ratio of population per doctor as 1254, population per dentist as 20839 and population per nurse as 2671. The new health facilities added to overall health services include construction of 87 new facilities (63 BHU and 24 RHCs) ,upgrading of 65 existing facilities (20 RHCs and 45 BHUs) and addition of 5000 new doctors, 2300 nurses and 14000 lady health workers. The total outlay on health sector is budgeted at Rs. 50 billion which shows an increase of 25pc over the last year and turns out to be 0.57 pc of GDP. To reduce incidence of disease and to alleviate people’s suffering and pain so as to improve their health status, various health programmes remained operative during fiscal year 2006-07. These include the national programs for the prevention and control of tube            rculosis, malaria, HIV/AIDS, hepatitis, blindness and program on maternal, neonatal and child health etc.

During the fiscal year 2006-07 the caloric availability per day is likely to increase from 2423 to 2425.

13.POPULATION, LABOUR FORCE & EMPLOYMENT
At the time of independence in 1947, 32.5 million people lived in Pakistan. By 2006-07, the population is estimated to have reached 156.77 million. Thus in roughly three generations, Pakistan’s population has increased by 124.27 million or has grown at an average rate of 2.6pc per annum. While Pakistan has more mouths to feed, more families to house, more children to educate, and more people looking for gainful employment, the high population also represents an abundance of labour which can be used for productive purposes. The large population also represents a large potential market for goods and services. This large consumer base with increasing disposable income may attract even more foreign investment. The large population therefore represents a big opportunity for Pakistan to benefit from demographic dividend which can fuel Pakistan growth for the next fifty years. The interest in relationship between population change and economic growth has reignited in Pakistan which is experiencing declining fertility and mortality rates and therefore declining growth in population. Consequently, Pakistan is witnessing changes in age structure with proportion of working age population increasing and offering a life time window of opportunity to turn demographic transition into demographic dividend.

Where exactly is Pakistan in this demographic transition? The Population Census data depicts two phases of demographic transition. During the first phase when fertility rates were higher the share of young age (0-14) population continued to rise thereby creating bulge in young age population while the share of working age (15-59) continued to decline until 1981. Pakistan appears to have entered the second phase of demographic transition from 1981 onward. As a result in decline in fertility rate from 6pc to 3.8pc during 1981 and until 2006 the share of working age (15-59) population continued to rise from 48.5pc to 57.2pc and accordingly the share of young age (0-14) continued to exhibit declining trend (from 44.5pc to 36.8pc). Thus, Pakistan is currently passing through the demographic transition phase which provides a lifetime window of opportunity to convert this transition into demographic dividend. Empirical evidence support the fact that Pakistan is in the second phase of demographic transition as more resources are available for investment , economic growth is accelerating and per capita income is rising at a faster pace. In other words, Pakistan has already started reaping its first dividend on the back of a large-scale spending on social sector (education, health vocational training, etc.) over the last several years.

In Pakistan, The labour force participation rate is measured on the basis of Crude Activity Rate (CAR) and Refined Activity Rate (RAR). The CAR is thepc of the labour force in the total population while RAR is thepc of the labour force in the population of persons 10 years of age and above. The labour market in Pakistan demonstrates a lower labour force participation rate (LFPR). It has been in the range of 28.6pc -32.3pc over a decade; even the RAR is low and hovered at 43pc over a decade (see Table-13.6). It is nevertheless important to point out that both these ratios are increasing in recent years. This is mainly attributed to increasing economic activities that are fairly diversified and thus are not only generating employment opportunities but also motivating others to join workforce. The crude activity rate has stayed roughly constant since 1980, but has started to rise in the last few years: from 29.6pc in year 2001- 02 to 32.3pc in 2005-06. Similarly, the RAR has also started to increase from past trend of 43.3pc in 2001-02 to 46pc in 2006-07. Participation rates are highest in Punjab and lowest in NWFP. These rising rates of participation point towards an increasing optimism in the labour market.

Agriculture remains the dominant source of employment in Pakistan. The share of agriculture in employment has increased from 43pc in 2003-04 to 43.37pc by the year 2005-06 however it has decreased from 47.5pc in 1990, with manufacturing and trade and services absorbing a growing share of the work force. Targeting of labour intensive livestock and dairy sectors proved to be an important strategy for employment augmentation in rural areas. These are complemented by public sector funded small area development schemes. These strategies have successfully expanded rural employment, particularly at the local level. Agriculture is followed by wholesale and retail trade, community and social services and manufacturing sector. These sectors employ 14.67pc, 14.35pc and 13.84pc workforce, respectively. An increase in the share of agriculture and manufacturing sector, however, is an indication that employment opportunities are created in both rural and urban dominated sectors. The policy of deregulation, privatization and liberalization helped in increasing the participation of private sector in the economy.

14. TRANSPORT AND COMMUNICATION
A well functioning Transport and communication system is a critical pre-requisite for a country’s development. Investment in the infrastructure directly affects economic growth through many changes such as allowing producers to find the best markets for their goods, reducing transportation time and cost and generating employment opportunity. In addition, efficient transport and communication systems also have network effects and allow adoption of latest production techniques such as just-in time manufacturing.

Infrastructure development has been a priority area for Pakistan as evidenced by a number of projects completed or in progress. Major infrastructure projects completed during the last seven years include: Islamabad-Lahore Motorway (M-2), Makran Costal Highway, Nauttal-Sibi section including Sibi Bypass, Dera Allah Yar-Nauttal Section, Khajuri-Bewata Section N-70, Kohat Tunnel and Access Roads, Mansehar-Naran Section, Karachi Northern Bypass, Qazi Ahmed & Shahpur Jehania road, Ratodero-Shahdadkot-Qubo Saeed Khan, Pindi Bhattian-Faisalabad Motorway (M-3), Lahore-Sahiwal Section, Rahim Yar Khan-TMP Section, Baberlo-Pano Aqil Section, Torkham-Jalalabad road, rehabilitation of Band Road Lahore and inauguration of Gwadar Port etc. Major on-going projects including, Islamabad- Peshawar Motorway (M-1), Lakpass Tunnel, Gwadar-Turbat-Hoshab (M-8), Khuzdar-Shahdadkot Section, Kalat-Quetta-Chaman Section, Sibi-Dhadar Section, Lyari Expressway, D.I. Khan-Mughalkot Section, Islamabad-Murree Dual Carriageway and R.Y. Khan-Bahawalpur Section. In the long term the transport system is likely to experience tremendous improvement with the implementation of the National Trade Corridor (NTC) programme.

The total length of roads in Pakistan was 259,197 Km, including 172,827 Km of high type (67pc) and 86,370 Km of low type roads (33pc) by the end of March, 2007. During the outgoing fiscal year, the length of high type roads has increased by 3.2pc over the last year but the length of low type roads has declined by 5.6pc.

The Pakistan Railways have carried 66 million passengers and 4.5 million tons freight. Its gross earnings stood at Rs.14.1 billion during July-March 2006-07.

PIA carried 4.2 million passengers during July-March 2006-07 as against 4.3 million in the same period last year showing decrease of 2.3pc. Its fleet consists of 39 aircrafts of various types. Along with PIA, there are three private airlines are operating in the country and providing both domestic and international services.

Karachi Port has handled 22,427 thousand tons of cargo during July-March, 2006-07, compared to 24,572 thousand tons during the same period last year, showing decrease of 8.7pc. The Port Qasim has handled 19.7 million ton of cargo during July-March 2006-07 as against 16.8 million cargo handled during corresponding period last year, registering a growth of 17pc. The Gawadar Port was inaugurated on 20th March 2007.

In 1999-2000, there were only 0.3 million cellular mobile subscribers in Pakistan which jumped to 2.4 million by 2002-03 as a result of introduction of cord pay phone (CPP) regime and addition of more mobile operator. Mobile subscribers continued to rise at an unprecedented pace, reaching 34.5 million by 2005-06. In a short period of 9 months in the outgoing fiscal year, more than 24 million new subscribers have been added to the list, reaching over 58.6 million by end April 2007. In other words more than 70pc increase in subscribers in just 9 months. Accordingly, the total teledensity (Fixed + Cellular + WLL) has jumped form 3.7pc in 2001-02 to 40.2pc by end March 2006-07.For promotion of Information Technology, 2444 cities/towns/villages have been provided Internet facility, upto March, 2007.

15. ENERGY
Pakistan’s economy has been growing at an average rate of over 7.6pc per annum over the last three years and the government is making efforts to sustain the momentum going forward. Knowing well that there exists strong relationship between economic growth and energy demand government is making efforts to address the challenges of rising energy demand. These include, import of piped natural gas from Iran and Turkmenistan, import of LNG; increase in oil and gas exploration in the country; utilizing 175 billion tones of Thar coal reserves; setting up of new nuclear power plants; exploiting the affordable alternate energy resources and overhauling existing power generation plants to enhance their generation capacity. In addition to increasing supply, there is a need to promote efficient use of energy resources as well.

Production of crude oil per day has increased to 66,485 barrels during July-March 2006-07 from 65,385 barrels per day during the same period last year, showing an increase of 1.7pc. The overall production of crude oil has increased to 18.2 million barrels during July-March 2006-07 from 17.9 million barrels during the corresponding period last year, showing an increase of 1.7pc. On average, the transport sector consumes 50.7pc of the petroleum products, followed by power sector (32.1pc), industry (11.4pc), household (2.2pc), other government (2.3pc), and agriculture (1.3pc) during last 10 years i.e. 1996-97 to 2005-06.

The average production of natural gas per day stood at 3,876 million cubic feet during July-March, 2006- 07, as compared to 3,825 million cubic feet over the same period last year, showing an increase of 1.3pc. The overall production of gas has increased to 1,062,124 million cubic feet during July-March 2006-07 as compared to 1,048,190 million cubic feet daily in the same period last year, showing an increase of 1.3pc. On average, the power sector consumes 36.4pc of gas, followed by fertilizer (21.6pc), industrial sector (19.1pc), household (17.8pc), commercial sector (2.7pc) and cement (1.1pc) during last 10 years i.e. 1996-97 to 2005-06.

The total installed capacity generation witness no change during July-March 2006-07, it was 19,440 MW in first nine months of current financial year. Total installed capacity of WAPDA stood at 11,363 MW during July-March 2006-07 of which, hydel accounts for 56.9pc or 6,463 MW, thermal accounts for 43.1pc or 4,900 MW. During first three quarters of current fiscal year 71,033 GWh electricity has been generated as against 66,110 GWh were produced in the same period last year showing an increase of 7.4pc. The number of villages electrified increased to 113,605 by March 2007 from 103,231 up to 2005-06, showing an increase of 10pc.Presently, some 1414 CNG stations are operating in the country in 85 cities and towns. By March 2007 about 1.35 vehicles were converted to CNG as compared to one million vehicles during the same period last year, showing an increase of 35pc. On average 29,167 vehicles are being converted to CNG every month. With these developments Pakistan has become the leading country in Asia and the third largest user of CNG in the world after Argentina and Brazil.

16. ENVIRONMENT
Pakistan recognizes the importance of incorporating environmental concerns as a cross-cutting theme in its sustainable development strategy. In Pakistan, environmental degradation is intrinsically linked to poverty because of the overwhelming dependence of the poor on natural resources for their livelihoods— whether agriculture, forestry, fisheries, hunting etc. Poverty combined with a burgeoning population and rapid urbanization, is leading to intense pressures on the environment.

Pakistani cities are facing problems of urban congestion, deteriorating air and water quality and waste management while the rural areas are witnessing rapid deforestation, biodiversity and habitat loss, crop failure, desertification and land degradation. The Government has initiated the National Environment Action Plan (NEAP) in 2001 as an umbrella programme to address these environmental concerns in a holistic manner. The United Nations Development Programme has been supporting the implementation of this initiative though the NEAP Support Programme (NEAP-SP). In March 2007, NEAP-SP programme entered its second phase. The NEAP-SP Phase-II will be guided from the experiences gained in Phase-I and help translate the NEAP into action, while enhancing the poverty-environment nexus aspects in operational terms.

The Government has also committed itself to achieving the Millennium Development Goals (MDGs) as adopted by the UN member states in the year 2000. The MDG target for “land area to be protected for the conservation of wildlife” is 12pc by 2015. Pakistan already has 11.3pc of its area under protection for conservation of wildlife. Thus, it is very likely that this target can be met by 2015. The Government’s MDG target for number of vehicles using CNG (which previously used diesel and petrol) is 920,000 whereas the current estimate for 2005-2006 is 1.4 million. Therefore, Pakistan has already met its MDG target well in advance. This achievement has been made possible because of the tremendous growth in the number of vehicles that are converting to CNG due to the Government’s resolve regarding the development of the CNG sector as a cleaner and economical energy alternative. The MDG target of environmental sustainability aims to “halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation”. It is also concerned with improvement of the lives of slum dwellers. In Pakistan, this target has been adapted to mean proportion of katchi abadis that have been regularized. The major cities of Pakistan have been suffering from deteriorating air quality due to a relatively higher population growth; absence of public transport services and tremendous increases in the number of privately owned vehicles.

Pakistan’s steady economic growth has been accompanied by rising urbanization, higher income and affluence, and an increase in the private ownership of motor vehicles. In the absence of any urban transport policies and sustained investments in public transport, most urban citizens rely either on their private motor vehicles or the informal transport sector for urban transport. The resulting urban congestion is straining the capacity of the Government to resolve the urban transport issues and fund sustainable solutions. As a consequence, urban areas of Pakistan are experiencing a deterioration in air quality. The Government’s response to vehicular pollution and to improve ambient air quality has been to promote CNG as a cleaner alternative. Currently, 1,450 CNG stations were operational throughout the country while another 1,000 are under construction. To date, Oil and Gas Regulatory Authority (OGRA) has issued more than 5700 provisional licenses for the establishment of CNG Stations in the country. Pakistan’s CNG fleet is the largest in Asia and the third largest in the world after Argentina and Brazil. The sector has already attracted the investment of Rs. 60 billion and more is expected. The tremendous growth in this sector has led to job creation and till date approximately 60,000 new jobs have been created. In line with a Cabinet directive, the Federal Government is providing incentives in the form of payment of the markup (either complete or partial) of the loans required to purchase new CNG vehicles. In this regard, the cities of Karachi, Hyderabad, Lahore, Rawalpindi, Islamabad, Peshawar and Quetta are phasing out diesel vehicles in favour of CNG buses for intra-city transportation. All new buses, mini buses and wagons will be dedicated CNG – or dual fuel vehicles. Provincial governments are also taking initiatives to promote CNG conversions. For example, the Punjab Government is giving 20pc of the capital cost for purchasing new CNG vehicles.

The increased groundwater utilization for domestic and agricultural use has adversely affected groundwater quality particularly in the irrigated areas with almost 70pc tube wells now pumping hazardous sodic water. Due to greater dependence on this resource for meeting the ever-growing agricultural requirements, water table decline has also been observed in many areas. Despite the generally arid nature of Pakistan’s climate, 10pc (780,000 ha) of the total surface area of the country is covered by wetlands, which are of global importance. In addition, almost all of Pakistan’s wetlands are inhabited by people. Due to growing population pressures and habitat loss induced by climate change, the wetlands are facing increasing pressures. It is feared that these wetlands may not be able to take on much additional pressure and their productivity needs to be preserved, enhanced and sustained. Target 10 of MDG 7 deals with sustainable access to safe drinking water and basic sanitation. Currently, only 54pc of the population of Pakistan has access to safe sanitation and 66pc to safe drinking water, whereas the targets for 2015 are 90pc and 93pc respectively. Even though there has been an improvement in water supply coverage from 53pc in 1990 to 66pc in 2005, however, the MDG target of 93pc poses a considerable challenge. Pakistan has committed to increasing forest cover to 5.7pc by 2011 and to 6pc by the year 2015. An increase of 1.2 per cent implies that an additional 1.051 million hectares area has to be brought under forest cover within the next ten years. This will include all state lands, communal lands, farmlands, private lands and municipal lands. In terms of the MDG target with respect to protected areas established to conserve rapidly declining wildlife species in their natural environment, Pakistan has committed to improve and enhance its existing network of protected areas in terms of quality and quantity from 11.25pc in 2001 to 12pc by 2015.

To address the various challenges mentioned above, the Government is implementing various policies and programmes; many of which have come out of the National Environment Action Programme of the Ministry of Environment. In this regard, the National Environment Policy prepared under NEAP serves as an overarching framework for various interventions in the environment sector. Some of the key policies and programmes that have stemmed from NEAP are: Air and water Quality Monitoring, Clean Drinking Water for all, Pakistan Wetlands programme, National Sanitation Policy, Sustainable Land Management to Combat Desertification in Pakistan, Environmental Rehabilitation and Poverty Reduction through Participatory Watershed Management in Tarbela Reservoir and Energy Efficiency and Renewable Energy etc.