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Economies of Pakistan

The economy of Pakistan is the 26th largest in the world in terms of purchasing power parity (PPP), and 44th largest in terms of nominal GDP. However as Pakistan has a population of over 183 million (the world's 6th-largest), thus GDP per capita is $4,056 ranking 140th in the world. Pakistan is a rapidly developing country. However, after decades of war and social instability, as of 2013, serious deficiencies in basic services such as railway transportation and electric power generation had developed. The economy is semi-industrialized with centers of growth along the Indus River. Pakistan ranks as the 15th largest trader of goods in the world ranking above Spain and Australia, while it is the world’s 6th largest trader of services. Major industries includes textiles chemicals processing agriculture, fertilizer, cement, dairy and rugs. Growth poles of Pakistan's economy are situated along the Indus River the diversified economies of Karachi and major urban centers in the Punjab coexisting with lesser developed areas in other parts of the country. The economy has suffered in the past from decades of internal political disputes a fast growing population, mixed levels of foreign investment. Foreign exchange reserves are bolstered by steady worker remittances but a growing current account deficit – driven by a widening trade gap as import growth outstrips export expansion could draw down reserves and reduce GDP growth in the medium term. Pakistan is currently undergoing process economic liberalization with includes privatization of all government corporations aimed to attract foreign investment and decrease budget deficit. The economy today Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of Balance of Payment crisis. The International Monetary Fund bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July last year increased the loan to $11.3 billion from an initial $7.6 billion. The middle term however may be less turbulent, depending on the political environment. The EIU estimates that inflation should drop back to single digits in 2010, and that growth should pick up to over 5% per annum by 2011. Although less than the previous 5 year average of 7%, it would represent an overcoming of the present crisis where in growth is a mere 3.54%.

Current situation of Pakistan

Pakistan economic environment is affected by strengthening of war on terror and deepening of the global financial crisis which penetrated into domestic economy through the route of substantial decline in Pakistan’s exports and a visible slowdown in foreign direct inflows. Pakistan economy continues to remain exposed to the vagaries of international developments as well as internal security environment. The intensity of the global financial crisis has further added to Pakistan fix. Despite support from the IMF and other bilateral and multilateral donors, Pakistan external account remains exposed to a host of uncertainties.

Capital Markets

Financial markets perform a key function in the form of intermediation by mobilizing savings from a large pool of small savers and channelizing these funds into productive investments by a generally much smaller number of borrowers. Trading in securities enables a match between the differing maturity preferences of lenders and borrowers. Stock markets also potentially endorse broad basing of ownership of financial assets and the reallocation of funds among corporations and sectors. Moreover, developed bond market helps in providing liquidity to domestic growth and credit expansion.

Trade and Payments

The global economic downturn is affecting the Pakistan economy through three indirect channels the sharp drops in oil prices, has led to sharp easing of import demand pressures the contraction in global demand trade and related activity, is impacting adversely demand for exports and remittances from EU and US in particular and constricted access to the international credit markets and lower investor hunger for risk is affecting capital inflows depressing local asset prices and reducing already low investment level. Pakistan economy needs an integrated policy to deal with external sector weaknesses like removing structural rigidities in the exports and imports sectors.

External and Domestic Debt

The government boarded a plan of Economic Stabilization to regain macroeconomic stability. The measures taken under this program by the government have placed the economy on the path to recovery. The support from the international Monetary Fund and Saudi Arabia is a key incentive to this stabilization process. Pakistan last week received $750 million in the newly established Pakistan Development Fund (PDF) from a country which was termed as a Muslim Friendly Nation by the Finance Minister. The minister neither revealed the identity of the country nor told the nature of the receipt i.e. if it was a donation or loan. With the recent transaction, the total receipts in PDF have exceeded $1.5 billion in just one month. According to some commentators, Pakistan received the $750 million receipt from Saudi Arabia.

Appreciation of pak rupee and exchange rate

The rupee continued to appreciate on Tuesday as the value of the US dollar fell to below from PKR 108 to PKR 100 after receiving $750 million funds from Kingdom of Saudi Arabia over military support against Bashar-al-Asad government in Syria. According to the forex.pk website, the open market rates for the greenback were Rs99.90 in buying and Rs100.45 in selling. However, the inter-bank rates dropped further to Rs99.50 in buying and Rs99.70 in selling. It is the first time that any country has generously given $1.5-billion assistance to Pakistan within one month, as Islamabad never received such an amount as upfront payments. However it was not clear whether the money received is a grant or depository loans aimed at temporarily bailing out the country. The Pakistani rupees strong showing against the US dollar over recent days has taken financial analysts and currency traders by surprise. The prime reason for rupee to revert back sharply in the last week is the building up of SBP reserves which are up from the low of $2.84 billion to $3.92 billion in a span of three weeks. Some of the flows like CSF money were well anticipated but the market was surprised by around $700 million jump in reserves in the third week of February. That is probably due to $750 million in aid coming from Saudi Arabia for some military related supports to the Kingdom. The market has been changing after the inflow of investment in fiscal year 2013-14. The State Bank of Pakistan stated that the country received foreign direct investment of USD 523 million in the first seven months of 2013-14, and USD 106.9 million in January alone. A rise in the value of rupee would suppress inflation, but will make exports less competitive. Finance minister Ishaq Dhar, in a statement last evening, said he expects the rupee-dollar parity to come down to Rs 98, and the government has taken substantial measures to enhance the overall external position by ensuring substantial capital and financial inflows, in the country. Pakistan has seen better forex reserves in the previous month as it received larger inflows from multilateral and bilateral resources, along with forex flows through capital markets and better home remittances. Pakistan Government is satisfied with the forex reserves of the country, which surged from USD 7.59 billion as on February 7, 2014 to USD 9.37 billion as on March 7, 2014. He said that the first half of FY 2014 saw some decline in foreign exchange reserves due to the timing of large debt repayments and some speculative tendencies putting pressure on the value of the Pakistani Rupee.

Conclusion

Summing up we can say about the continues decreasing the value of dollar and increasing the Pak rupee will grow the economy of Pakistan and also helpful for the other economy factor of Pakistan like inflation. Due to the increase the value of Pak rupee against dollar reduce the price of goods and services and increase the buying power of lay man. The export of Pakistan increase which is beneficial for the economy of Pakistan. Contat us: asadhussain975@gmail.com/ mobi2nice@gmail.com