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Key Economic Data 
 
  2004 2003 2002 Ranking(2004)
GDP
Millions of US $ 96,100 82,300 73,300 44
         
GNI per capita
 US $ 600 520 480 160
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 029 - (30/06/08)

Political turmoil casts shadow over economy
The ruling coalition’s troubles have so far not contributed to improve Musharraf’s popularity which remains very low. A large majority of Pakistanis wish him impeached or would like him to resign, according to opinion polls. A change of coalition with Musharraf’s PML-Q replacing Nawaz Sharif’s party has not happened yet, even if the PML-Q remains outside the cabinet. However, PPP leader Zardari and Musharraf have some interests in common which have so far saved the former general from impeachment. In particular, they both despise Nawaz Sharif and have something to fear from former chief justice Chaudhry, whom Sharif wants reinstated. Some observers argue that Zardari’s popularity is already fading as he increasingly behaves like an autocrat; if the trend continues, it might push him closer to Musharraf. In public, while Sharif argues for impeachment, Zardari says he wants to offer to Musharraf the chance of a ‘dignified’ exit. The resulting uncertainty is hurting the stock exchange of Karachi, which is now at a 14-month low. The stock exchange had already been badly shaken in May by the Central Bank’s decision to raise interest rates from 10% to 12.5%, in order to fight the rising inflation, which in April had reached 17%. 

Acknowledging the slowdown
The latest estimates of GDP growth in 2007-8 put it at 5.8%, lower than previously forecast. The agricultural sector was the worst performer, services the best one. The investment rate decreased noticeably, while foreign exchange reserves are being rapidly depleted. Several sectors might suffer from the desire of the government to increase government revenue without challenging the landholding classes; there are talks of increasing taxation of banks and refineries, both of which have been doing well until now. Politicians have traditionally paid little attention to the industrial and services sectors; in the past, pressure on power producers discouraged further investment and left the country facing a serious power crisis, while more recently the liberalisation of car imports badly hurt the car industry. The latest forecast for the current year (2008-9) places GDP growth at 5.5%, down from the 6.5% previously. Only the financial sector is expected to maintain its growth rate. 

The financial landscape of Pakistan looks increasingly worrying and international firms have reduced Pakistan’s rating. The Central Bank forecasts the fiscal deficit of 2007-8 to reach 6.5% to 7%, well above the target of 4%. The current account deficit of the balance of payments is forecast to reach around 7.5% of GDP, which would be an all time high, while the rupee depreciated 7.3% over the last year. Foreign currency reserves keep falling and stood at US$10.9 billion in June, down from $16.5 billion in October. The fact that as a result of the change in government politicians openly criticise the economic policies of recent years adds to uncertainty and weaken trust in the Pakistani economic and financial system. 

The burden of subsidies
Despite IMF and World Bank pressure, the Pakistani government is delaying any move to cut its subsidies on oil, gas and electricity. The government is committed to cut its fiscal deficit from 7% to 4.7% next year, which arguably cannot be done if the subsidies are not cut too. The plan is to gradually phase them out, but it is not clear when the process will start. Islamabad thinks it can afford the delay because it does not seeks any more loans from the IMF and the US$1.5 billion which it expects from the World Bank, is not linked to any cut in subsidies. When the reductions will actually starts, it is likely that they will affect subsidies on wheat rather than fuel. Indeed the government hinted that it plans to completely eliminate wheat subsidies, despite the current high prices. 

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