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Economic survey 1989-90.

Economic Survey 1989-90

Growth of the economy during 1989-90 shows an improvement over last year. A growth rate of 5.2 per cent in GDP in real terms has been estimated for the year, in comparison to 4.8 per cent last year. This becomes significant in the context of reduction in the level of overall fiscal deficit and tighter monetary management. This is also in contrast to high level of growth sustained by relatively higher level of domestic and foreign borrowing during the Sixth Plan period. Net factor income from abroad has also shown positive improvement and is estimated to represent a growth of 0.9 per cent in sharp contrast to a negative growth of 15 per cent last year. GNP growth in 1989-90 is likely to be 5 per cent compared to 4.3 per cent last year.

The year 1989-90 can be regarded as a year of growth with economic viability and stability. It is the first full year of economic performance that reflects the outcome of the policies and programmes pursued since December 1988 that were directed towards correction of imbalances and bringing about viability in the domestic and external sectors of the economy while maintaining price stability and a reasonable level of growth in the output that assures real improvement in the per capita income. The strong demand management stance adopted by the Government in the previous year has been sustained through further reduction in the fiscal deficit, tight monetary control and a flexible exchange rate regime. The measures have brought about not only a significant reduction in the rate of inflation but also in the current account deficit of the balance of payments. The macro policies were supplemented by measures to improve the performance of the public enterprises assuring self-sustained investment and growth. Simultaneously in order to stimulate expansion of the economy via private enterprise, the economic reforms implemented include privatisation and further de-regulation of domestic and foreign investment. Public Sector investment was directed towards improvements in economic and social infrastructure, in particular, education, health and rural development.

The year 1989-90 was also the second year of a four-year structural adjustment programme (1988-89 to 1991-92) being implemented with the assistance of IMF and the World Bank. The adjustment period of the programme that was originally three years has now been extended by another year in order to lighten the burden of adjustment on the common man.

The outcome of these adjustments is now becoming visible. Exports have become buoyant. Exports, other than rice and cotton, which were stagnant last year, have registered a growth of 23 per cent and imports have remained contained at last year's level during the first ten months of 1989-90. The deficit in the current account of balance of payments is, therefore, likely to be lower than last year with a promise of a further significant reduction in the next year. Federal revenues have improved while non-development expenditure is held in check. Inflation rate has been subdued. Private investment is rising and manufacturing sector has regained its lost momentum despite disturbances in some industrial cities. Large scale manufacturing is expected to grow by 7.7 per cent compared to a lack-lustre growth of 2.4 per cent last year.

Growth of the economy during 1989-90 shows an improvement over last year. A growth rate of 5.2 per cent in GDP in real terms has been estimated for the year, in comparison to 4.8 per cent last year. This becomes significant in the context of reduction in the level of overall fiscal deficit and tighter monetary management. This is also in contrast to high level of growth sustained by relatively higher level of domestic and foreign borrowing during the Sixth Plan period. Net factor income from abroad has also shown positive improvement and is estimated to represent a growth of 0.9 per cent in sharp contrast to a negative growth of 15 per cent last year. GNP growth in 1989-90 is likely to be 5 per cent compared to 4.3 per cent last year.

With an increase of 7.8 per cent in the level of prices as measured by GNP deflator* and population growth of 3.1 per cent per capita, GNP for 1989-90 at current market prices has been estimated at Rs. 8190 which is 9.6 per cent higher than last year. In real terms the GNP growth rate being 5 per cent, the increase in per capita income is about 2 per cent.

GDP growth of 5.2 per cent was contributed by sectoral growth rates of 4.0 per cent and 7.9 per cent in agriculture and manufacturing respectively. The agricultural growth of 4 per cent is on top of a high growth rate of 7.1 per cent experienced last year. Implicit in this growth is the estimated production of wheat at 15 million tonnes, cotton at 8.6 million bales and sugarcane at 36.2 million tonnes. Growth in manufacturing sector which was 4.0 per cent last year, picked up commendably at 7.9 per cent in line with its past normal growth of around 7-8 percent. The consolidated sectoral growth indicates that commodity producing sector rose by 5.5 per cent and services sector by 4.8 per cent maintaining their relative share at 52:48, almost the same as witnessed last year.

GDP Growth Rates(%)
 1988-89 1989-90
Commodity Sector 5.9 5.5
(Agriculture) 7.1 4.0
(Manufacturing) 4.0 7.9
(Construction) 2.3 3.1
Services Sector 3.7 4.8
(Trade) 5.4 4.9
(Transport/Communication) 0.6 4.7
GDP 4.8 5.2

Savings and Investment

The current policy environment in particular, fiscal and monetary restraint is reflected in the improved performance of savings and investments. Total investment outlay for 1989-90 is estimated Rs. 157.7 billion, 16 per cent higher than last year. This amounts to 17.6 per cent of GNP as compared to 17.2 per cent last year. About 78 per cent of the total investment was financed through national savings while the 22 per cent was through external resources. In 1988-89 the share of external resources was 28 per cent. Implicit in these estimates are the average national saving rate of about 14 per cent and marginal rate of 24 per cent. Last year these rates were 12.4 per cent and 6.5 per cent respectively.

Money & Credit

For the year 1989-90, the National Credit Consultative Council (NCCC) planned an expansion of Rs. 30.4 billion in total monetary assets. Of this expansion, domestic credit was targeted at Rs. 29.4 billion with the remaining Rs. 1 billion emanating from net increase in foreign assets. By end March 1990, total expansion amounted to Rs. 21.1 billion or 7.5 per cent which is about 70 per cent of the full year's target. This is in line with the quarterly phasing of monetary expansion.

The causative factors have shown an improvement over the position envisaged in the credit plan. Foreign assets have added as much as Rs. 5.5 billion or 26 per cent to the total expansion while its contribution for the year as a whole was fixed at 3 per cent. This reflects improved foreign exchange reserve position as a result of improvement in the balance of payments. Credit to private sector recorded expansion of Rs. 15.7 billion contributing 74 per cent to the total expansion, as against the targeted proportion of 70 per cent. Domestic credit, as a whole increased by Rs. 15.6 billion against the full year target of Rs. 29.4 billion.

Under the budgetary support head, there has been a net contraction of Rs. 4.2 billion during the nine months period as against the planned expansion of Rs. 5.0 billion for the full year. The contraction at the end of the third quarter is attributable to seasonality in the flow of budgetary resources and expenditures. Last year also by end March, this head was showing a contraction of Rs. 5.2 billion though the year ended with an expansion of Rs. 933 million.

An analysis of the components of monetary assets shows that liquid assets (i.e. M1 including currency plus demand deposits and other deposits) have expanded substantially. Marginal share of these three components together in the total expansion was 128 per cent which was duly balanced by negative share of 28 per cent of time deposits. Compared to a 7.5 per cent increase in total monetary assets (M2), M1 registered a growth rate of 13.3 per cent (expansion in M2 and M1 in 1988-89 was 4.7 and 10.5 per cent respectively). If such a trend continues in the remaining 3 months also, the velocity (GNP(mp)/M1) is likely to be reduced.

Public Finance

The consolidated budget for 1989-90 envisaged 11.3 per cent increase in Government revenues with an 8 per cent increase in Government expenditure. This was meant to bring down the budget deficit from the level of 7.3 per cent of GDP (mp) last year to 6.3 per cent during the current year. Implicit in this scenario was on the one hand the effort to mobilize additional resources worth Rs. 15 billion through various tax and non-tax sources and adjustments in the administered prices of fertilizer, gas, POL, products and power tariff and on the other allowing only 4.4 per cent expenditure growth implying a reduction in real terms of over 3 per cent. In absolute terms, the overall deficit was envisaged at Rs. 56 billion, to be financed to the extent of 39 per cent from external resources, 53 per cent from domestic non-bank borrowing and 8 per cent from the banking system.

The revised budget estimates for 1989-90 will be available with the next year's budget. However, present indications are that federal tax collection from major heads of income and wealth tax, central excise, sales tax and custom duties, registered 17 per cent increase in the first 9 months of the current fiscal year as against 16.4 per cent increase envisaged for the full year. Similarly, data relating to domestic and foreign borrowings for the budget for the period ending 31st March, 1990 indicates that the overall deficit reduction target for that period was achieved.


The rate of inflation, having witnessed an upsunge of 10.4 per cent during 1988-89, slowed down again during the current fiscal year. The average Consumer Price Index (CPI) during July-March 1989-90 in comparison to the average during the same period last year, indicates an annualized rate of inflation of 5.7 per cent. For the same period last year, this rate was 10.7 per cent. The increase of 5.7 per cent in CPI in the current year was contributed to the extent of 2.1 percentage points by food group, 1.1 points by house rent, and 0.7 points by fuel and lighting.

Despite a lower inflation rate, anxiety was expressed by various sections of society about price increases. This was possibly due to higher increase in prices of certain sensitive items like wheat flour, sugar, beef/mutton, bread, milk, and shoes. These items registered price increases of over 10 per cent. However, their impact on overall inflation was partly offset by sharp decline in prices of certain other items like onions, potatoes, tomatoes, other vegetables, eggs, gram and other pulses. In the case of vegetables, the decline was over 40 per cent while for pulses it averaged at around 13 per cent.

Balance of Payments

The balance of payments has shown improved performance during the year 1989-90 with reduction in current account deficit and increase in net international reserves. The current account deficit is likely to decline from $ 1.93 billion in 1988-89 to $ 1.70 billion in 1989-90. The improvement is attributable to a high growth of over 22 per cent in non-primary exports, which was somewhat clouded by sharp decline in primary exports of rice and cotton. Effective demand management contained imports growth at 2.7 per cent despite rise in the POL prices and further trade liberalization. Home remittances are also estimated to rise from $ 1.90 billion in 1988-89 to $ 1.98 in 1989-90.

Exports in the first 9 months of the year grew by 6.1 per cent. Exports of cotton, rice and carpets declined while those of cotton yarn, cloth, synthetic textiles, hosiery, bed wear, readymade garments and other non-traditional exports recorded high growth.

In contrast to exports, imports during the 9 months period remained at the same level as that recorded during 9 months of previous year, despite increase in POL prices and heavy imports of wheat and sugar. Imports of these two items together amounted to $ 448 million.

Workers' remittances which started declining continuously after the peak year of 1982-83, again showed some sign of improvement as remittances in July-March 1989-90 increased by 4.8 per cent.

To meet the balance of payments deficit, an amount of $ 1.90 billion has been borrowed from abroad in the form of long term capital inclusive of IMF(SAF) loan. An amount of $ 786 million was paid back in the form of amortization. The external debt (disbursed and outstanding) as on 30th June 1990, is, thus, estimated at $ 15.6 billion, which is 9.9 per cent higher than the last year. Besides these long term borrowing, short term borrowing worth $ 155 million is also likely to be made during the year. The year is expected to end with a build up of reserves of $ 141 million. Last year the build up was limited to $ 12 million.


An expected growth rate of 4 per cent in agriculture during 1989-90, though significantly below the last year's growth rate of 7.1 per cent, is in line with the normal growth trend. Last year's higher growth was basically due to depressed base of 1987-88 when a growth of only 2.7 per cent was recorded largely because of drought condition in the country. The estimated production of 15.0 million tonnes of wheat in 1989-90 will be 4.1 per cent higher than the last year. Output of rice is estimated at 3.22 million tonnes indicating an increase of 0.6 per cent over last year. Production of cotton has been estimated at 8.56 million bales indicating a rise of 2.1 per cent. Gram output estimated at 570 thousand tonnes this year represents 26.7 percent increase over the relatively bad crop last year. There is a slight fall of 2.1 per cent in output of sugarcane which is estimated at 36.18 million tonnes in 1989-90.

Overall water availability is estimated to increase by 2.48 million acre feet (MAF) to 117.14 MAF in 1989-90. The increase would be shared by surface water resources of 1.48 MAF and ground water resources of 1 MAF. The off-take of fertilizer during the first 9 months of the current year stood at 1466 thousand nutrient tonnes, indicating a rise of 5.9 per cent over the corresponding period last year. A quantity of 121,900 tonnes of improved seeds of various crops is expected to be distributed during the 1989-90 as compared to 85,000 tonnes in the preceding year. Agricultural credit worth Rs. 19.3 billion is estimated to be disbursed by different agencies in 1989-90 as against Rs. 14.4 billion in the previous year.


The growth in manufacturing sector during 1989-90 is estimated at 7.9 per cent as compared to an unusually depressed growth rate of 4.0 per cent last year. This improvement has occurred in the large scale manufacturing sub sector which is estimated to grow by 7.7 per cent as against 2.4 per cent last year. The small scale manufacturing sub sector maintains its conventional growth of 8.4 per cent.

During July-March 1989-90, the increase has been recorded in the output of cotton cloth (6.5%), vegetable ghee/ cooking oil (11.6%), cigarettes (3.8%), paper & chip board (4.0%) pig iron/hot metal(4.2%) and billets (17.8%), after a negative growth witnessed in their production during the corresponding period last year. Other selected items which registered increase during July-March 1989-90 included: cotton yarn (21.7%), phosphatic fertilizer (2.6%), cement (5.1%), soda ash (7.1%), caustic soda (12.2%) and sugar (9.6%).

Equally important is the acceleration in the private investment in manufacturing sector. During 1989-90 it is likely to rise by 31 per cent compared to 24 per cent last year. Streamlining of sanctioning procedure and deregulation of investment controls have strengthened the confidence of private investors. The policy of privatization and opening of some restricted fields to the private sector is another major step taken by the government.


According to the latest estimates, the recoverable reserves of crude oil stand at 108.914 million US barrels and that of natural gas at 500,062 million cubic meters. Oil production which averaged at 46767 US barrels per day during 1988-89, rose by 12.9 per cent to 52808 US barrels during July-March 1989-90. The production of natural gas during July-March 1989-90 was recorded at 9939.37 million cubic meters, showing an increase of 5.4 per cent over last year. The production of coal this year is expected to be around 240,000 tonnes. The installed power generating capacity of WAPDA and KESC were 6409 MW and 1,108 MW respectively till March, 1990. In 1988-89, per capita consumption of energy amounted to 0.18 TOE. This was 0.14 TOE in 1981-82.

Government has intensified its efforts to discover new oil and gas fields. It has recently inducted the private sector in power generation. An amount of Rs. 29.8 billion was allocated for energy sector for 1989-90, which represented 30 per cent increase over last year. About 67 per cent was allocated to power sub sector and the remaining 33 per cent to fuel sub sector. Sub sector allocation represented rates of increase over last year's allocations of 25 per cent and 42 per cent respectively.

Transport & Communications

For the year 1989-90 the Annual Development Programme allocated Rs. 11.6 billion for transport and communication sector which was 23 per cent higher than last year. Up to March 1990, 36,000 new telephones and 303 new Public Call Offices were installed while 93 post offices have been opened. Post Office introduced Electronic Mail & Money Order Services and Urgent Money Order Service. Government is intensifying its efforts to develop and modernise this sector.

By 1989-90 the total length of low & high type roads is expected to increase to 111,432 kilometers as against 111,331 kilometers at the end of last year. By December 1989 motor vehicles on road are estimated to be 68,660 trucks, 35,465 buses, 355,605 motor cars and 841,140 motorcycles/scooters. Pakistan Railways' carried 48.8 million passengers (during July-January 1989-90) and 5.31 million tonnes freight during the same period. The growth of traffic at Karachi Port continued and it handled a cargo of 14.464 million tonnes during July-March 1989-90. Pakistan National Shipping Corporation operated with 22 vessels having 352,716 dead weight tonnage. The Pakistan International Air Lines with a fleet of 41 aircraft earned a revenue of Rs. 11,687.35 million during July-March, 1989-90.

Population and Employment

Pakistan is the ninth most populous country in the world, having one of the highest population growth rate (3.1%). The population of Pakistan on 1st January, 1990 is estimated at 110 million. According to the Labour Force Survey 1987-88, the labour force participation rate of 10 years and above is 43.22 per cent (Rural 45.51% and Urban 38.04%). For 1989-90, this implies a total labour force of 31.82 million out of which 30.82 million (96.86 per cent) is employed and one million (3.14 per cent) is unemployed. Sectoral employment indicates that 51 per cent of labour is engaged in agriculture and 13 per cent in manufacturing.

Education, Health and Other Social Sectors

According to 1981 census the national literacy rate was as low as 26.2 per cent. To improve the literacy rate a programme for universalization of primary education throughout the country has been launched. In 1989-90, 3500 primary schools and 4000 mosque schools have been opened besides construction of 3000 primary schools building. Moreover, 750 schools have been upgraded from primary to middle and 600 from middle to high level. In addition, 20,000 educated unemployed youth have been trained as school teachers. It is estimated that more than Rs. 12 billion would be invested in these projects in next 5 to 10 years to improve educational facilities and literacy rate in the country. It is also planned to recruit 40,000 matriculates, intermediates and bachelor degree holders to receive training in different fields through Allama Iqbal University and National Bureau of Training. These trainees would also impart literacy to around 3 million illiterates.

Health facilities are quite deficient in Pakistan. During 1989 there was one doctor for 1790 persons, one dentist for 56900 persons and one nurse for 3.3 hospital beds. The National Health Policy recently announced aims at improving the existing health facilities both in the public and private sector and to provide health care coverage to the entire population within the shortest possible time. At present 10 Nuclear Medical Centers and 4 Radio Theraphy Departments are providing diagnosis and treatment facilities to over 160,000 cancer patients every year.

Safe water supply was provided to an additional 2.8 million urban and 5 million rural population during 1989-90. Thus the facility of safe water has been extended to 74 per cent of population (88 per cent urban and 66 per cent rural). Similarly sanitation facilities to 2.5 million urban and 3.0 million rural population are likely to be provided extending thereby the facilities to 34 per cent of total population (urban 66 per cent and rural 19 per cent).

Housing facilities in the urban areas for poor and katchi abadis in the country are being developed both by Federal and Provincial Governments. National Housing Authority is coordinating the implementation of shelter programme for development of housing for the low income groups in the country under various sources of financing, namely, Zakat Fund, Special Development Programme and House Building Finance Corporation.

The Peoples' Programme which was launched in March 1989 provide basic amenities of life (education, health, drinking water, sanitation, farm to market roads, rural electrification) through peoples participation. An amount of Rs. 3 billion has been allocated for this programme during 1989-90 and the programme has been extended to Azad Jammu and Kashmir, Federally Administered Tribal Areas and Federal Capital territory with additional allocation Rs. 40 million.
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Title Annotation:Pakistan
Publication:Economic Review
Date:Jul 1, 1990
Previous Article:Pakistan Railways - maladies and remedies.
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