1

Growth and Stabilization

Introduction
The resilience of the economy of Pakistan has been
tested several times by one crisis after another. The
economy has witnessed numerous domestic and
external shocks from 2007 onwards. The sharp rise
in international oil and food prices, the internal
security hazards brought on by the campaign
against extremism and the repeated natural
disasters in the form of successive floods have
buffeted the macroeconomic strategy with shock
after shock. Domestically, two floods, the difficult
security situation and the energy crisis have
combined to drastically impact economic growth.
The campaign against extremism with its
associated destruction of physical infrastructure,
the displacement of thousands of people from the
affected areas and the associated rise in
expenditure to support the moved people has all
taken their toll. The growth in our export markets
has slowed down compared to last year. Gross
Domestic Product (GDP) growth has been stuck at
a level, which is half of the level of Pakistans
long-term trend potential of about 6.5 percent per
annum and is lower than what would be required
for sustained increases in employment and income
and a reduction in poverty.
Amidst the critical challenges of the floods and
heavy rains of 2010 and 2011, skyrocketing oil
prices and global contraction, the governments
strategy continued to focus on regaining
macroeconomic stability. There have been some
successes. Pakistan has been able to withstand the
pressures and improve its performance in some key
areas such as the check on inflation, the increase in
exports and revenue generation and maintenance of
comfortable foreign exchange reserve levels. The
focus on reforms and austerity through the control
of public expenditures despite the difficulties has
continued.
The economy is now showing signs of modest
recovery. The commodity producing sectors and
especially the agriculture sector are doing better.
Some improvement is also witnessed in the Large
Scale Manufacturing (LSM) sector. The Service
sector also gained from healthy trade activities and
the improvements in the commodity producing
sectors. The smooth functioning of the supply
chains is playing a key role in improving the
economic situation and ensuring the availability of
essential items. Pakistan has the potential to grow
at 6 to 7 percent in the next couple of years.
The GDP growth for 2011-12 was projected at 4.2
percent on the back of 3.4 percent growth in
Agriculture, 2 percent growth in LSM and 5
percent in Services sectors. However, the torrential
rains in Sindh province during August 2011
compelled the government to revise its GDP
growth target to 3.6 percent from 4.2 percent on
the basis of 2.5 percent growth in Agriculture, 1.5
percent in LSM, and 4.4 percent growth in services
sector.
The revised growth targets have been met and
marginally exceeded. The economy has shown
resilience. GDP growth for 2011-12 has been
estimated 3.7 percent based on nine month data as
compared to 3.0 percent (revised) in the previous
fiscal year 2011. The Agriculture sector recorded a
growth of 3.13 percent against a target of 3.4
percent and previous years growth rate of 2.38
percent. The Large Scale Manufacturing sector
grew by 1.78 percent as compared to the target of
2.0 percent and against the growth of 1.15 percent
Chapter 1
Pakistan Economic Survey 2011-12
2
in the last year. Although the Services sector
recorded steady growth of 4.02 percent as
compared to 4.45 percent in 2010-11, this was
lower than the target of 5.0 percent set for the
outgoing year. Figure-1.1 presents an overview of
GDP growth over the previous years.

The 3.7 percent growth based on the nine months
data 2011-12, up from 1.7 percent in 2008-09 and
3.0 percent last year, indicates the potential growth
trajectory. The country has enormous potential to
grow at much higher rates which is demonstrated
by the achievement of the 3.7 percent growth this
year despite the numerous internal and external
shocks that the economy has been forced to
withstand.
Some of Pakistans economic problems are
structural in nature. The objectives of sustaining
high growth, low inflation, and external payment
viability can not be achieved without removing
certain structural barriers. To this end the major
structural reforms of the government have included
tax legislation, trade reforms, further privatization
of State Owned Enterprises (SOEs), financial
sector reforms, human resource development and
social protection. The EU approval of duty waiver
on textile items is being pursued aggressively,
which would help in improving the exports and
providing support to the business environment. In
recent times, Pakistan has also undergone political
and constitutional changes. Civil societies and
other organizations are now playing a more active
and independent role and this coupled with
government reforms are helping economic growth.
Global Developments
The International Monetary Fund (IMF) has
warned that the euro zone debt crisis is escalating
and dragging down the entire world economy. In
this scenario China has remained a bright spot. Its
growth rate, although down to a forecast of 8.2
percent for this year compared to 9.2 percent last
year, has remained relatively high. If China can
maintain its growth, its good for the world,
providing support for commodities markets and
growth in other countries.
The IMF maintained its forecast of 2.1 percent
growth for the US in the year 2012 and 2.4 percent
for the year 2013. For J apan the growth rate
projected for 2012 is 2.0 percent and for 2013 it is
1.7 percent. Overall, economic activity in
advanced economies is likely to expand by 1.7
percent on average in 2012 and 2013. Growth in
emerging economies is projected at 5.7 percent in
2012. The IMF expects growth in oil exporting
countries in the Middle East and North Africa to
slow to 3.9 percent in 2012, from 4.9 percent in
2011. Net oil importers in the Middle East and
North Africa region are expected to record 2.6
percent growth in 2012, after sluggish growth of
1.4 percent in 2011. GDP growth across the Gulf
Cooperation Council (GCC) countries is expected
to be moderate at a rate of 4 percent in 2012.
Unfortunately, Europe is now caught in a vicious
cycle of high debt and low growth. Highly
burdened by debt, most of the economies in the
region may not attain respectable levels of growth
to improve their fiscal position. This will imply
2.0
3.1
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Fig-1.1 GDP Growth (%)
Growth and Stabilization
3
potential debt servicing difficulties and limit their
abilities to unshackle their growth potential.
Almost 17 percent of total exports of Pakistan are
to the Euro zone as are a reasonable portion of its
total import from this region. Problems in this area
can impact on Pakistans trade and hence its
overall growth.
Asia on the other hand, continues to move ahead,
with China and India leading the growth. There is
some hope that perhaps Asia has created some
distance from the OECD, and has therefore, not
been dragged down so far. However, if the OECD
continues its downward slide, the export-led Asian
giants could see their growth prospects diminish.
Table-1.1: Comparative Real GDP Growth Rates (%)
Region/Country 2009 2010 2011 2012 2013 (P)
World GDP -0.5 5.3 3.9 3.5 4.1
Euro Area -4.1 1.9 1.4 -0.3 0.9
United States -2.6 3.0 1.7 2.1 2.4
J apan -6.3 4.4 -0.7 2.0 1.7
Germany -4.7 3.6 3.1 0.6 1.5
Canada -2.5 3.2 2.5 2.1 2.2
Developing Countries 2.7 7.5 6.2 5.7 6.0
China 9.2 10.4 9.2 8.2 8.8
Hong Kong SAR -2.7 6.8 5.4 2.6 4.2
Korea 0.2 6.1 4.5 3.5 4.0
Singapore 0.6 2.8 3.3 2.7 3.9
Vietnam 5.3 6.8 5.9 5.6 6.3
ASEAN
Indonesia 4.6 6.2 6.5 6.1 6.6
Malaysia -1.6 7.2 5.1 4.4 4.7
Thailand -2.3 7.8 0.1 5.5 7.5
Philippines 1.1 7.6 3.7 4.2 4.7
South Asia
India 6.6 10.6 7.2 6.9 7.3
Bangladesh 5.9 6.4 6.1 5.9 6.4
Sri Lanka 3.5 8.0 8.2 7.5 7.0
Pakistan 1.7 3.1 3.0 3.7 4.3
Middle East
Saudi Arabia 0.1 4.6 6.8 6.0 4.1
Kuwait -5.2 3.4 8.2 6.6 1.8
Iran 3.9 5.9 2.0 0.4 1.3
Egypt 4.7 5.1 1.8 1.5 3.3
Africa
Algeria 2.4 3.3 2.5 3.1 3.4
Morocco 4.9 3.7 4.3 3.7 4.3
Tunisia 3.1 3.1 -0.8 2.2 3.5
Nigeria 7.0 8.0 7.2 7.1 6.6
Kenya 2.6 5.6 5.0 5.2 5.7
South Africa -1.5 2.9 3.1 2.7 3.4
Source: World Economic Outlook (IMF), April 2012.
P: Projected.

Pakistans economy is very closely linked to the
rest of the world due to its high external sector
exposure. Several countries of the euro zone are
important trading partners of Pakistan. As such,
any untoward development in these countries could
have a substantial negative impact on the economy
of Pakistan. A contraction or stagnation in
economic activity in the global economy, can
potentially affect the level of our exports, Foreign
Direct Investment (FDI) and home remittances
adversely. Similarly further increase in oil prices
Pakistan E
4
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activities
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Growth and Stabilization
5

Table 1.2: Growth Performance of Components of Gross National Product
(% Growth at Constant Factor Costs of 1999-2000)
Sectors/Sub-Sectors 2007-08 2008-09 2009-10 2010-11 R 2011-12 P
Commodity Producing Sector 1.3 1.8 3.56 1.47 3.28
1. Agriculture 1.0 4.0 0.62 2.38 3.13
-Major Crops -6.4 7.8 -2.28 -0.23 3.18
-Minor Crops 10.9 -1.2 -7.72 2.68 -1.26
-Livestock 4.2 3.1 4.28 3.97 4.04
-Forestry 9.2 2.3 2.20 -0.40 0.95
-Fishing -13.0 -3.0 1.47 1.94 1.78
2. Mining & Quarrying 4.4 -0.5 2.23 -1.28 4.38
3. Manufacturing 4.8 -3.6 5.46 3.06 3.56
-Large Scale 4.0 -8.1 4.79 1.15 1.78
-Small Scale 7.5 7.5 7.51 7.51 7.51
-Slaughtering - - 4.33 4.38 4.46
4. Construction -5.5 -11.2 16.34 -7.09 6.46
5. Electricity & Gas Distribution -23.6 59.0 6.16 -7.25 -1.62
Services Sector 6.0 1.7 2.63 4.45 4.02
6.Transport,Storage and Communication 3.8 3.6 1.89 0.87 1.25
7. Wholesale & Retail Trade 5.3 -1.4 4.49 3.53 3.58
8. Finance & Insurance 11.1 -7.6 -12.16 -1.41 6.53
9. Ownership of Dwellings 3.5 3.5 3.51 1.79 3.51
10. Public Administration & Defence 1.2 3.6 2.52 14.17 2.61
11. Social, Community & Public Services 9.8 8.9 7.83 6.90 6.77
12. GDP (Constant Factor Cost) 3.7 1.7 3.07 3.04 3.67
Source: Pakistan Bureau of Statistics
P : Provisional, R : Revised, - : Included in Small Scale

Commodity Producing Sector
The commodity producing sector (CPS) comprises
of agriculture and industry. It is the most important
sector of the economy, with relatively stronger
forward and backward linkages for economic
development and prosperity of the country. It
accounted for 46.5 percent of GDP during the
outgoing fiscal year. This is a decline from 49.1
percent of GDP in 2001-02, indicating that the
share of the non-commodity producing sector has
increased. The commodity producing sector has
performed much better in outgoing fiscal year
compared to last year; its growth rate this year was
3.28 percent against only 1.47 percent in last year.
The recovery in both agriculture and industrial
sector, though moderate, has helped to achieve this
level. However, the growth of the commodity
producing sector remained far below its potential
due to largely unforeseen climatic factors.
Agriculture Sector
Agriculture is a key sector of the economy. It
provides food items and raw materials for
industrial units and accounts for 21 percent of
GDP, 45 percent of employment and 60 percent of
exports. In the inevitable process of structural
transformation its share shrank to 21.1 percent in
fiscal year 2011-12 compared to 24.1 percent ten
years earlier in 2001-02. Despite its declining
share, it is the single largest sector of Pakistans
economy. Moreover, an overwhelming majority of
the population depends directly or indirectly on
income generated by this sector. The agriculture
sector has strong backward and forward linkages.
As a result its growth has a larger impact on the
overall economic performance. The performance
of the agriculture sector remained weak due to
recent catastrophic floods.
However, the governments supportive polices in
this sector resulted in a growth of 3.13 percent

Pakistan Economic Survey 2011-12
6
against the growth of 2.38 percent last year and
0.62 percent in fiscal year 2009-10. The improved
performance is mainly attributed to a sharp pick-up
in the production of rice; cotton, and sugarcane.
Livestock also registered a significant growth. The
agriculture sector consists of various sub-sectors
which include crops, livestock, fisheries and
forestry. The crop sub-sector is further divided into
major crops, namely, wheat, cotton, rice,
sugarcane, maize and gram and minor crops
namely, pulses, potatoes, onions, chilies and garlic
etc.
Major Crops: Major crops account for 31.87 of
agricultural value added and registered an
accelerating growth of 3.18 percent compared to a
negative growth of 0.23 percent last year and -2.28
percent in fiscal year 2009-10. The major crops
including cotton, sugarcane and rice witnessed
growth in production of 18.6 percent, 4.9 percent
and 27.7 percent respectively. However, wheat
registered a negative growth of -6.7 percent. The
main reason for the negative growth of wheat is the
2.6 percent decline in area under cultivation. In
lower Sindh, in particular, sowing was delayed
mainly because of late receding rain water which
resulted in a decline in both the acreage as well as
the yields. Moreover, in Punjab also the extended
fog season delayed the planting of seed beyond the
optimal period. The other major crops bajra, jowar,
maize, sesamim, gram, barley, rapeseed and
mustard and tobacco showed mixed trends but
their share in the overall sector is small.
Minor Crops: Minor crops contributed 10.11
percent to value addition in overall agriculture.
Production in this sub-sector declined by -1.26
percent. This negative growth is far below the 2.68
percent positive growth last year. The main reason
for this negative growth of minor crops is the
heavy flood in Sindh and Balochistan provinces.
The growth of pulses is estimated at -3.50 percent,
vegetables -10.0 percent, chilies -78.4 percent,
onion -15.4 percent and oil seeds -26.9 percent.
Livestock: Global integration, rising income and
living standards as well as changing dietary
patterns across regions have brought a paradigm
structural shift. This shift is visible in Pakistan
also. The share of livestock in agriculture has
increased to 55 percent. Livestock includes cattle,
buffalos, sheep, goat, camel, horses, asses, mules
and poultry and their products. The demand for
livestock has grown at a phenomenal pace. The
increase in prices has provided incentive for
greater production and spurred growth. The
importance of this sector may be recognized by the
fact that the majority of people living in rural areas
depend directly or indirectly on the livestock and
dairy sector. This sub-sector is highly labour
intensive. It has also emerged as a major source of
income for the small farmers as well as the
landless rural poor.
Livestock has witnessed a marginally higher
growth of 4.04 percent against the growth of 3.97
percent last year. The production of milk, poultry
products and other livestock items has increased at
the rate of 3.3 percent, 7.1 percent and 2.24 percent
respectively.
Fisheries: The fisheries sector witnessed a growth
of 1.78 percent against the growth of 1.94 percent
last year. Components of fisheries such as marine
fishing and in-land fishing, contributed to an
overall increase in value addition in the fisheries
sub-sector. The gross value addition of marine fish
increased by 1.35 percent and that of inland fish by
1.96 percent.
Forestry: The growth of the forestry sub-sector is
recorded at 0.95 percent as compared to the
contraction of -0.40 percent last year. Forests are a
key component of our environment and
degradation of forests can pose severe socio-
economic challenges for the coming generations.
The main components of forestry, timber and fire
wood, grew at 0.90 percent and 0.46 percent
respectively.
Manufacturing Sector: The manufacturing sector
contributes much to the progress of our economy.
The manufacturing sector has remained under
stress for the last several years, due to energy
shortages, poor law and order situation. The heavy
floods also depressed the supply chain and affected
market demand. The share of the manufacturing
sector in GDP was 17.7 percent in 2001-02. This
has increased in 2011-12 to 18.6 percent of GDP.
The manufacturing sector has been hard hit by
international and domestic factors, which caused
the slowing down of its output. The growth of the
Growth and Stabilization
7
manufacturing sector was 3.56 percent compared
to the growth of 3.06 percent last year.
Manufacturing has three main sub-components;
namely the Large-Scale Manufacturing (LSM),
Small Scale Manufacturing and Slaughtering.
Small scale manufacturing maintained its growth
of last year at 7.51 percent and slaughtering growth
is estimated at 4.46 percent against 4.38 percent
last year. Large Scale Manufacturing (LSM) has
also witnessed a slight improvement. It has shown
a growth of 1.78 percent against the growth of 1.15
percent last year. The major LSM industries which
registered notable growth include; refrigerators
7.56 percent, sugar 27.09 percent, beverages 10.60
percent, liquid/syrup 15.93 percent, injection 6.53
percent, soaps and detergents 8.15 percent, buses
25.0 percent, electric bulbs 15.02 percent, electric
transformers 27.72 percent etc. On the whole 38
major industries group recorded positive growth.
The industries which reported negative growth
include; cooking oil -1.61 percent, motor tyres -
25.73 percent, T.V. sets -22.19 percent and
deepfreezers -49.47 percent etc.
Construction Sector: The construction sector has
shown 6.46 percent growth as compared to
negative growth of -7.09 percent in last year. The
increase in growth is due to rapid execution of
work on the rehabilitation of the flood affected
areas, increased investment in small scale
construction and rapid implementation of PSDP
schemes which are near completion.
Mining and Quarrying: Extraction of minerals
and ores through efficient mining and quarrying
provides convenient and economical access to raw
materials and a competitive edge to the country.
The mining and quarrying sector recorded positive
growth of 4.38 percent during the year 2011-12
against the negative growth of -1.28 percent last
year. The contribution of this sector in GDP has
expanded remarkably and now accounts for 9.45
percent of the industrial value addition. The output
of chromite, bauxite, gypsum, chalk and fluoride
increased by 591.54 percent, 82.15 percent, 24.43
percent, 82.18 percent and 111.28 percent
respectively. This growth was also made possible
in some part due to the increase in natural gas
production. The extraction of bentonite, however,
registered substantial decline of -47.82 percent.
Much of the countrys mining reserves exist in
remote areas. Infrastructure improvements are
necessary to sustain and achieve higher growth
rates in future. Improvement in the security
situation in the country would also lead to greater
production.
Services Sector:
The importance of the services sector has been
recognized all over the world. This sector has
emerged as the main driver of economic growth.
The services sector also plays a vital role in
sustaining economic activities in Pakistan. The
economy has gone through a major transformation
in its economic structure. The share of the services
sector has increased to 53.5 percent in 2011-12. In
developed countries the share of services sector in
GDP is around 75 percent. This share is 65 percent
in Singapore, 52 percent in India and 42 percent in
Indonesia.
The services sector consists of the following sub-
sectors: Transport, Storage and Communication;
Wholesale and Retail Trade; Finance and
Insurance; Ownership of Dwellings; Public
Administration and Defense; and Social Services.
The Services sector has registered a growth rate of
4.02 percent in 2011-12. This performance is
dominated by Finance and Insurance at 6.53
percent, Social and Community Services 6.77
percent and Wholesale and Retail Trade 3.58
percent. The contribution of transport, storage and
communication is estimated at 1.25 percent. The
recovery in agriculture and industry have resulted a
positive impact on the performance of the whole
sale and retail trade. Our services sector has a great
potential to grow at a rapid pace. In order to
develop the services sector, Pakistan has
recognized the needs to liberalize operating rights
and has separated regulators from operators.
Finance and Insurance Sector: The finance and
insurance sector comprises the State Bank of
Pakistan; all scheduled banks (domestic and
foreign), Development Financial Institutions
(DFIs), all insurance (life and general) companies,
Modaraba/Leasing companies, Money Changers
and stock exchange brokers. The financial sub-
sector consists of all resident corporations
principally engaged in financial intermediations or
Pakistan Economic Survey 2011-12
8
in auxiliary financial activities related to financial
intermediation. Pakistans financial sector is
integrated with the world economy and this is
reflected in its performance. Finance and Insurance
sector recorded positive growth of 6.53 percent in
2011-12 as against contraction of -1.41 percent last
year.
Transport, Storage and Communication: The
role of Transport, Storage and Communication
(TS&C) sector is very important in boosting the
economic activities of the country. The current
global economic crisis and the level of integration
of these sub-sectors in the globalized economy
including the presence of multi national enterprises
(MNEs) in the markets of all countries of the world
puts a greater need for major investments in
physical and qualitative terms to meet expected
demand. Information and Communication
Technologies (ICTs) are perhaps the most critical
tool for a dynamic and flexible services sector. The
TS&C sub-sector grew at 1.25 percent as
compared to 0.87 percent last year. Water
Transport has declined by -3.14 percent during
2011-12, and Air Transport by a massive -27.93
percent. Sub-sectors that showed a positive growth
are; pipeline transport 34.64 percent, road transport
2.88 percent, storage 2.10 percent and
communication 0.93 percent.
Wholesale and Retail Trade Sector: The
wholesale and retail trade sector is based on the
margins taken by traders on the transaction of
commodities traded. In 2011-12, this sector grew
at 3.58 percent as compared to 3.53 percent in the
last year.
Public Administration and Defense: Public
Administration and Defense posted a growth of
2.61 percent as compared to 14.17 percent last
year. The positive change in the wage component
of public sector employees, and an increase in
defense and security related expenditures were
largely responsible for this growth.
Ownership of Dwellings: Ownership of
Dwellings has recorded a growth of 3.51 percent
during the year 2011-12 compared to 1.79 percent
last year. Social Services grew by 6.77 percent
against the last years growth of 6.90 percent. The
rise in the growth of Ownership of Dwelling and
social services is mainly due to the fast track work
on reconstruction and rehabilitation of flood
affected areas by government, NGOs and private
sectors.
Contribution to Real GDP Growth
(Production Approach)
As in previous years the improvements in
economic growth in the fiscal year 2011-12 came
mainly from the services sector. The services
sector contributed 58.58 percent to overall
economic growth; while the commodity producing
sector (CPS) contributed only 41.4 percent. The
agriculture sector contributed 17.98 percent to
economic growth compared to 23.43 percent
contribution by the industrial sector.
The overall growth of 3.67 percent is shared
between the Commodity producing sector and
Services sector. Within the commodity producing
sector, agriculture contributed 0.66 percentage
points to overall GDP growth, while industry
contributed 0.86 percentage points. The services
sector contributed the remaining 2.15 percentage
points. The percentage share of agriculture,
manufacturing and services in overall growth was
17.98 percent, 23.43 percent and 58.58 percent
respectively. The sectoral contribution to the GDP
growth is shown below in Table-1.3.
Table 1.3: Sectoral Contribution to the GDP growth (% Points)
Sector 2007-08 2008-09 2009-10 2010-11 2011-12
Agriculture 0.23 0.86 0.13 0.50 0.66
Industry 0.38 -0.03 1.57 0.18 0.86
- Manufacturing 0.92 -0.69 0.10 0.57 0.66
Services 3.08 0.89 1.37 2.36 2.15
Real GDP (Fc) 3.68 1.72 3.07 3.04 3.67
Source: Pakistan Bureau of Statistics

Growth and Stabilization
9

Contribution to Real GDP Growth
(Aggregate Demand Side Analysis)
Consumption is the largest and relatively smooth
component of aggregate demand; the other two
components are investment and net exports. In
every economy of the world consumption may be
disaggregated into the public and private sector
consumption. Similarly investment may be
classified into public and private investment.
Aggregate demand is the sum of consumption,
investment and net exports (exports minus imports)
of the goods and services. Pakistani society like
other developing countries is a consumption
oriented society, having a high marginal propensity
to consume. As a result private consumption is the
major sub-component of aggregate demand.
Private consumption expenditure has increased to
75 percent of GDP, whereas public consumption
expenditures are 13 percent of GDP. Total
consumption has reached 88.35 percent of GDP in
fiscal year 2011-12 compared to 83 percent in the
last fiscal year. Private consumption has increased
on the back of sustained growth in remittances.
Furthermore, increase in rural income due to
higher production of crops and the sharp increase
in commodity prices also supported the
consumption demand.
The share of investment in GDP growth remained
negative. A number of factors may be responsible
for this decline. These include: slow down in
global business activities affecting foreign direct
investment, the decline in the external demand of
the domestic production, serious energy shortages,
unstable law and order situation and higher interest
rates in the recent years. The contribution of net
exports has also been negative. The balance
between investment and consumption has been
disturbed from 2008-09 onwards due to domestic
and external shocks. The composition of aggregate
demand highlights an alarming factor. The
contribution of fixed investment to economic
growth has become negative since 2008-09.
Domestic demand continued to be the most
significant driving force for economic growth, with
private consumption being the major driver for
sustaining aggregate demand.
Table-1.4: Composition of GDP Growth
Point Contribution
Flows 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Private Consumption 0.8 3.4 -1.9 8.3 -1.5 2.3 8.5
Public Consumption 3.9 -1.1 3.8 -4.2 5.1 0.4 0.9
Total Consumption [C] 4.7 2.3 1.9 4.1 3.6 2.7 9.4
Gross Fixed Investment 2.9 2.2 1.3 -2.7 -1.5 -1.3 -1.5
Change in Stocks 0.1 0.1 0.0 0.1 0.1 0.1 0.1
Total Investment [I] 2.9 2.3 1.3 -2.7 -1.4 -1.2 -1.4
Exports (Goods & Serv.) [X] 1.8 0.4 -1.0 -0.6 2.2 2.4 -2.1
Imports (Goods & Serv.) [M] 3.2 -0.7 0.6 -2.7 0.9 0.9 1.7
Net Exports [X-M]
-1.5 1.1 -1.6 2.2 1.3 1.5 -3.8
Aggregate Demand (C+I+X) 9.4 5.0 2.2 0.9 3.5 3.0 5.9
Domestic Demand (C+I) 7.6 4.6 3.2 1.4 2.2 1.5 8.0
GDP MP
6.2 5.7 1.6 3.6 3.5 3.0 4.2
Source: Pakistan Bureau of Statistics

Composition of Gross Domestic Product
The economy of Pakistan, like all developing
economies, is in the process of structural
transformation during the last few decades. There
has been a clear shift away from the Commodity
Producing Sector (CPS) which accounted for
almost 62 percent of the GDP in 1969-70 to 46.46
percent in 2011-12, a decline of 15.54 percent. The
decline in the share of CPS is offset by the increase
in the share of the services sector. A further
breakdown of the CPS shows that the share of the
agriculture sector has been falling over time. In
1969-70, agriculture accounted for 38.9 percent of
Pakistan Economic Survey 2011-12
10
GDP. This has gradually declined to 21.1 percent
in 2011-12. The decline in the share of agriculture
in GDP indicates that the non-agriculture sectors
grew more quickly as compared to the agriculture
sector.
Scientific development and revolutionary
innovations in the business climate have
encouraged the manufacturing and services sectors
more than the agriculture sector. Structural, social
and cultural problems of the agriculture sector, the
higher risk and vulnerability to natural calamities
have encouraged investors to switch to the non-
agriculture sectors. The contribution of agriculture
to overall GDP will continue to decline as
development takes place. This is an inevitable
consequence of the process of growth and
development.
It has been observed during the last two decades
that the major momentum to economic growth has
come from the services sector which has emerged
as the main driver of the economic growth. Within
the services sector, almost all the sub-sectors have
increasing contributions. The share of
manufacturing in GDP has remained stagnant, at
around 14.7 percent, for 30 years until 1999-2000.
Its contribution to GDP has increased after 1999-
2000 from 14.7 percent to 18.65 percent in
2011-12.

Table 1.5: Sectoral Share in Gross Domestic Product (GDP)
(At Constant Factor Cost-in percentage)
1999-00 2004-05 2008-09 2009-10 2010-11 2011-12 P
Commodity Producing Sector 49.3 48.7 47.1 47.6 46.7 46.46
1. Agriculture 25.9 22.4 21.8 21.2 20.9 21.1
- Major Crops 9.6 8.4 7.3 6.9 6.5 6.71
- Minor Crops 3.5 2.7 2.5 2.2 2.3 2.13
- Livestock 11.7 10.6 11.3 11.4 11.5 11.61
- Fishing 0.4 0.3 0.4 0.4 0.4 0.37
- Forestry 0.7 0.4 0.3 0.3 0.2 0.24
Industrial Sector 23.3 26.3 25.3 26.4 25.8 25.40
2. Mining & Quarrying 2.3 2.7 2.5 2.5 2.4 2.40
3. Manufacturing 14.7 18.3 18.2 18.6 18.7 18.65
- Large Scale 9.5 12.9 12.1 12.3 12.1 11.90
- Small Scale 5.2 4.1 4.7 4.9 5.1 6.74
4. Construction 2.5 2.1 2.1 2.6 2.5 2.15
5. Electricity & Gas Distribution 3.9 3.2 2.5 2.8 2.2 2.19
Services Sector 50.7 51.3 52.9 52.4 53.3 53.54
6. Transport, Storage & Communication 11.3 10.4 10.2 10.1 10.0 14.12
7. Wholesale and Retail Trade 17.5 18.7 16.8 17.0 17.2 17.12
8. Finance and Insurance 3.7 4.0 5.7 4.9 4.5 4.79
9. Ownership of Dwellings 3.1 2.9 2.8 2.7 2.7 2.72
10. Public Admn. & Defence 6.2 5.9 6.1 6.0 6.6 6.62
11. Other Services 9.0 9.5 11.3 11.8 12.3 12.65
12.GDP (Constant Factor Cost) 100.0 100.0 100.0 100.0 100.0 100.0
Source: Economic Advisers Wing, Finance Division
P: Provisional

Fig-1.4 presents the structural shift in the
economy. During the last 10 years the sectoral
share of the agriculture sector has decreased from
23 percent to 21.1 percent. The sectoral share of
the manufacturing sector has increased from 18
percent to 18.6 percent and the share of other
industries has remained more or less stagnant
around 7 percent of the GDP over the last 10 years.
The share of the services sector has increased from
50.9 percent to 53.5 percent in the same period. It
may be concluded that on the whole structural
transformation has been slow during the decade
under discussion. The share of the commodity
Growth and Stabilization
11
producing sector and the services sector has increased marginally.
Fig-1.4: Contribution to GDP


The government has approved the Framework of
Economic Growth which lays out a wide-ranging
strategy for long term competitiveness and growth.
The strategy focuses on governance, institutions,
markets, connectivity and cities. The government
is making efforts to accelerate the
operationalization of the growth strategy by
initiating specific policies and programs in key
strategic areas. The salient features of the new
growth strategy are summarized in Box-2.
Box-2
New Growth Strategy
New growth strategy is an approach to accelerate economic growth and sustain it. It identified a coherent
approach to growth that goes well beyond projects and targets public service delivery, productivity,
competitive markets, innovation and entrepreneurship
The strategy is based on sustained reform that builds efficient and knowledgeable governance structure, and
markets in attractive and well-connected locations. It focuses on the software of economic growth (issues
of economic governance, institutions, incentives, human resources, etc.), and provides an environment in
which the hardware of growth (physical infrastructure) could be expanded and made more productive at
every level.
Targeting Growth
Around 68 percent of Pakistans population is in the youth category (under 30 years) with the size of the
workforce increasing by over 3 percent annually. To absorb this youth bulge productively, Pakistan's real
GDP needs to grow at an annual average rate in excess of 7 per cent
Efforts will be undertaken to revive the economy to its short term potential GDP growth rate of about 56
percent annually. Resolving issues regarding energy and governance and ensuring credible macro stability,
this could be achieved in a short time
Deep and sustained reforms for a number of years in areas such as public sector management, developing
competitive markets, urban management and connecting people and places are the way forward for
accelerating growth to above 7 percent. This is precisely what fast growing economies have done. This is
also the direction towards which Pakistan is now aimed to move.
Thrust of Growth Strategy
Pakistan is facing several external and internal challenges. In order to achieve economic growth in this scenario the
new growth framework has the following characteristics. It does the following:
Puts emphasis on productivity and efficiency beyond brick and mortar perspective
Seeks to build a better government and markets, taking the view that good government complements
Agriculture
24.1%
Manufactu
ring,17.7%
Services
50.9%
Other
Industries
7.3%
2001-02
Agriculture
21.1%
Manufactur
ing 18.6%
Services
53.5%
Other
Industries
6.8%
2011-12
Pakistan Economic Survey 2011-12
12
efficient, competitive and connected markets
Recognizes that economic well-being is a result of the variety and frequency of economic transactions.
Policy, law and regulation must seek to minimize transaction costs and allow speedy and frequent
transactions.
Focuses on urban development as a crucible for the nurturing of innovation entrepreneurship and
productivity
Includes youth through community development and the provision of market opportunities while
continuing to impart skills and education.
Source: Planning and Development Division

Per Capita Income:
Per capita income is defined here as Gross
National Product at market price in dollar term
divided by the countrys population. Per capita
income is widely used and recognized as one of the
important indicators of economic growth and
general well-being of a society. Per Capita Income
in dollar terms grew at a modest rate of 9.1percent
in 2011-12 compared to 17.8 percent growth last
year.
The per capita income in dollar terms has increased
from $ 582 in 2002-03 to $ 1,372 in 2011-12. The
major factors, which contributed in the rise of per
capita income, include acceleration in real GDP
growth, inflows of workers remittances and the
stable exchange rate. Fig 1.5 shows the
improvement in per capita income during the last
ten years.

Investment and Savings
Investment plays an important role in the economic
growth of a country. It raises the productive
capacity of the economy, affects the employment
levels, and promotes technological progress
through embodiment of new techniques.
Investment spending is usually volatile, because it
depends on multiple factors. That is why it is
responsible for much of the fluctuations of the
GDP. Investment has been hard hit by international
and domestic factors during the last few years.
Total investment has declined from 22.1 percent of
GDP in 2007-08 to 12.5 percent of GDP in 2011-
12. Fixed investment has decreased to 10.9 percent
of GDP in 2011-12 from 20.5 percent of GDP in
2007-08. Private investment witnessed a
contraction of 7.9 percent in 2011-12 compared to
15.0 percent of GDP in 2007-08. Public investment
as a percent of GDP also declined to 3.0 percent in
2011-12 against the 5.4 percent in 2007-08. The
composition of investment between the private and
public sector has also changed during the period
under review.
The contribution of national savings to domestic
investment is indirectly the mirror image of foreign
582
663
724
823
904
1015
990
1068
1258
1372
0
200
400
600
800
1000
1200
1400
1600
2
0
0
2
-
0
3
2
0
0
3
-
0
4
2
0
0
4
-
0
5
2
0
0
5
-
0
6
2
0
0
6
-
0
7
2
0
0
7
-
0
8
2
0
0
8
-
0
9
2
0
0
9
-
1
0
2
0
1
0
-
1
1
2
0
1
1
-
1
2
Fig-1.5: Per Capita Income ($)
Growth and Stabilization
13
savings required to meet investment demand. The
requirement of foreign savings needed to finance
the saving investment gap, reflects the current
account deficit in the balance of payments.
National savings are 10.7 percent of GDP in 2011-
12 compared to 13.6 percent in 2007-08. Domestic
savings have also declined from 11.5 percent of
GDP in 2007-08 to 8.9 percent of GDP in 2011-12.
Net foreign resource inflows are financing the
saving investment gap. Theoretically, there are two
ways of improving the savings investment gap.
One is through increasing savings and the other is
through decreasing investment. Pakistan needs to
gear up both savings and investment to enhance the
employment generating ability of the economy as
well as increase resource availability for
investment.
Public sector investment is crucial for catalyzing
economic development. It creates spillover effects
for private sector investment because private sector
development is facilitated through public sector
development spending particularly on
infrastructure. However, curtailment of
development expenditures limits private sector
development. Public sector investment decreased
from 5.4 percent of GDP in 2007-08 to just 3.0
percent in 2011-12. Saving and Investment as
percentage of GDP are presented in Table 1.6.
Table 1.6: Structure of Savings and Investment (As Percent of GDP)
Description 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 P
Total Investment 16.6 19.1 22.1 22.5 22.1 18.2 15.4 13.1 12.5
Changes in Stock 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6 1.6
Gross Fixed
Investment
15.0 17.5 20.5 20.9 20.5 16.6 13.8 11.5 10.9
-Public Investment 4.0 4.3 4.8 5.6 5.4 4.3 3.6 2.9 3.0
-Private Investment 10.9 13.1 15.7 15.4 15.0 12.3 10.2 8.6 7.9
Foreign Savings -1.3 1.6 3.9 5.1 8.5 5.7 2.2 -0.1 1.8
National Savings 17.9 17.5 18.2 17.4 13.6 12.5 13.2 13.2 10.7
Domestic Savings 15.7 15.4 16.3 15.6 11.5 9.8 9.3 13.3 8.9
Source: EA Wing Calculations
P: Provisional

Foreign Direct Investment
Pakistan has a very fertile market for foreign
investors given its very large consumer base of 180
million people. People need food, energy and other
amenities to live and thrive. There is a great
potential in the power and infrastructure sector and
in natural resources. There seems to be huge scope
for investment in hydel and coal based power
projects, alternative energy like wind power, and
natural gas transmission from foreign lands. The
country also needs infrastructure, world class
education systems, exploration of its natural
resources and mechanization of industries. Foreign
investors can exploit all such opportunities.
Global foreign direct investment will be close to $
800 billion during 2012; less than the $ 1 trillion
achieved in 2007. The Euro crisis has dampened
enthusiasm. However, prospects from East Asia
are looking good. The United States is focusing on
economic revival and its stock markets are
responding positively. China, India, Turkey, Brazil
and Indonesia also appear to be moving in a
positive direction.
Foreign Direct Investment (FDI) in Pakistan stood
at $ 666.7 million during J uly-April 2011-12 as
against $ 1292.9 million last year. This is a decline
of 48.4 percent. Oil & Gas Exploration remained
the major sector for foreign investors. The share of
Oil and Gas Exploration in total FDI during J uly-
April 2012 stood at 69.8 percent.
Pakistan will certainly attract foreign direct
investment with the resolution of the energy
shortages and improvement in the law and order
situation. The Board of Investment (BOI) under the
Prime Ministers Secretariat is making efforts to
provide an increasingly investment friendly
environment to investors. Efforts are being made to
facilitate foreign investors in Pakistan with
improved infrastructure and a better working
Pakistan Economic Survey 2011-12
14
environment so that the favorable business climate
may induce investors to initiate new investment
projects. In particular, efforts are also going on to
encourage the setting up of fruit processing
industries and more export processing zones in the
country, so that sustained high economic growth
through exports may be achieved.
Workers Remittances
Remittances from overseas Pakistanis have been an
important source of foreign exchange during the
last four years. These have not only provided
critical support to the balance of payments but
have helped in stimulating the domestic economy
and helped to alleviate poverty. Significant flows
of remittances also helped Pakistan to partially
counter the adverse effects of the oil price shocks,
reduce the unemployment problem, and improve
the standard of living of recipient households.
The upsurge in the remittances may be attributed to
the governments efforts for redirecting these flows
from informal to formal channels. Bilateral
arrangements of commercial banks with foreign
entities under Pakistan Remittance Initiatives (PRI)
have helped facilitate movement in this direction.
Furthermore, initiatives under the PRI such as
introduced Xpress money, Inter bank Fund
Transfer (IBFT) facility have also helped to
improve the remittance flow to Pakistan. Increase
in remittances is also the result of the higher
demand of Pakistani workers. An overview of
country wise remittances is presented in Table 1.7.
Table-1.7: Country Wise Workers Remittances US$ Million
Country 06-07 07-08 08-09 09-10 10-11
July-April*
11-12
USA 1459.64 1762.03 1735.87 1771.19 2068.87 1922.35
U.K. 430.04 458.87 605.59 876.38 1199.67 1263.67
Saudi Arabia 1023.56 1251.32 1559.56 1917.66 2670.07 2987.86
U.A.E. 866.49 1090.30 1688.59 2038.52 2597.74 2386.26
Other GCC Countries 757.33 983.39 1202.65 1237.86 1306.18 1226.61
EU Countries 149.00 176.64 247.66 252.21 354.76 304.59
Total 5493.65 6451.24 7811.43 8905.90 11200.97 10,876.99
Source: SBP
* : Provisional

Workers Remittances totaled $ 10,876.99 million
in J uly-April of 2011-12, as against $ 9,046.61
million in the comparable period of last year. This
is an increase of 20.23 percent. Remittances from
Saudi Arabia recorded massive growth of 43.25
percent, followed by U.K. (27.52 percent), USA
(14.57 percent), Other GCC countries (15.34
percent) and UAE (14.10 percent) during the
period under review. Monthly data on remittances
suggests that the monthly average for the period of
J uly-April 2011-12 stood at $ 1,087.70 million
compared to $ 904.66 million during the
corresponding period last year.
Prospects of Economic Growth
Pakistans economy is resilient. This resilience
comes from the potential as well as the growth in
remittances and in the informal economy. Despite
positive developments including the easing of
inflation and reduction in fiscal deficit, Pakistans
economy remains in an unsteady state with slow
growth, fragile macroeconomic fundamentals, and
heightened vulnerability to balance of payments
shock. Key problems affecting the economy
include energy shortages and a host of structural
impediments that have held back investment and
growth. Necessary reforms are under process to
remove the structural impediments.
Reinitiating the privatization process will attract
foreign investment for Pakistan. Foreign
investment may also be attracted from the Middle
East in agriculture and livestock sectors. Many of
these countries need an assured supply of items
like wheat, rice, milk, poultry meat, edible oil,
flowers, fruit and vegetables and are ready to
invest on the basis of long-term supply contracts.
Growth and Stabilization
15
Savings are the mover of growth. Policies are
being implemented which give savings incentives
such as, tax breaks and compulsory savings in
employee provident funds. The government is
aware that several long term savings instruments
may need to be developed to increase household
savings. There is also need to expand the network
of National Savings Schemes, microfinance
institutions, banks and postal savings to far flung
areas of the country. These have been and are the
focus of the governments attention.
Measures to stimulate growth will not yield full
potential unless the structural weaknesses
responsible for the decline in the investment are
addressed. This decline is due largely to the
unstable security situation. The shortage and high
cost of energy, and the rising cost of doing
business in Pakistan are also contributing to the
decline. The government is making efforts to
address these negative factors in order to improve
investment climate in the country.
Pakistans middle class has expanded and is
currently estimated at 35 percent of the population.
Having substantial size and composition primarily
urban and associated with professional white-collar
occupations the middle class may play a major role
in boosting economic growth. A vibrant middle
class not only generates demand of goods and
services but also the savings required to fund
productive investments. Moreover, the middle
class households provide a breeding ground for the
professional and skilled labour force. Such human
capital is essential for growth in the long run. With
the existence of such a vibrant middle class the
consumer goods industry can provide a strong
impetus to economic growth. Despite an overall
slump in the economy, the consumer goods
industry in Pakistan has registered a steady growth
and has a great potential for further expansion.
There is rising trend of youth entrepreneurship in
Pakistan. Many young entrepreneurs have
succeeded in establishing various businesses that
are booming. This has produced a strong
demonstration effect for others to follow. These
young entrepreneurs have the potential to cause a
paradigm shift in the economic fortunes of
Pakistan. The opening up of trade with India is
another major initiative that can boost economic
growth by providing greater market access as well
as easy and cheaper availability of raw materials
for domestic producers.