Project

Assigned by: Maam Riffat Gill Assigned to:

 Waqas Nazir  Arfan Ali  Haroon Ghaffar  Waqas  Ehtasham  Mustahsan

(226) (199) (232) (223)

 Shuja-ur-Rehman (198)
(220) (239)

GC University FSD

Acknowledgement
All praises are for Allah almighty that has bestowed upon human being. The crown of creation and has endowed him with knowledge and wisdom. After Allah, is the last prophet Mohammed (SAW) who brought for us revelation and unlimited knowledge and civilized the barbarian human being. We are highly thank full to Maam Riffat Gill who make us able to work on the Pakistan economy and through that we know a lot about our Pakistan economic situation. He really cooperated with us and provides us their complete guidance.

Poverty
i. The lack of daily necessities  Water  Food  Clothing  Shelter  Education

ii.

A condition in which a person or community lacks the financial resources and essentials to enjoy a minimum standard of life and well-being that's considered acceptable in society.

Poverty types
i. Absolute poverty: Income poverty happens when a household takes in less than one US dollar per day. This means that people will not have enough food or medicine and they will have poor clothes and houses.

ii.

Relative poverty: Is the condition of having fewer resources or less income than others within a society or country, or compared to worldwide averages.

Poverty line
i. A minimum income level used as an official standard for determining the proportion of a population living in poverty. ii. The international poverty line was originally set to roughly $1 a day. In 2008, the World Bank came out with a revised figure of $1.25 at 2005 purchasing-power parity (PPP).

Poverty in Pakistan
Poverty in Pakistan is a growing concern. Although the middle-class has grown in Pakistan to 35 million, nearly one-quarter of the population is classified poor as of October 2006. As of 2008, 17.2% of the total population lives below the poverty line, which is the lowest figure in the history of Pakistan.

Population below poverty line (%)

Country Pakistan 2000 34% 2001 40% 2002 35% 2003 35% 2004 35% 2005 32% 2006 32% 2007 24% 2008 24% 2009 24%

population
population

40% 34% 35% 35% 35% 32% 32%

24%

24%

24%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Trends in Poverty of Pakistan

Poverty in Provinces of Pakistan

Poverty rate 2002
population
88%

51% 31% 25%

Punjab

Sindh

Baluchistan

Pakhtun Khwa

Poverty in Pakistan provinces of rural and urban areas

Chart Title
Rural 60% Urban

28% 20% 15% 10% 11%

30% 20%

Punjab

Baluchistan

Sindh

Pakhtun Khwa

Causes of Poverty in Pakistan

 Population Pressure  Large Scale Import  Lack of Education  Law and Order  Government Policies  Corruption  Division of Agricultural Land  Privatization  Unequal income distribution  Defense expenditure  Increase in utility charges  Increase in unproductive expenditure

Measures to remove poverty in Pakistan

 The population of the country controlled and greater facilities of health, education, residence and water supply should be provided to population.  Labor intensive technology promoted in the country. Promote development of small scale industries in villages. Framers in the villages are educated and they are able to increase their income.  Steps taken to reduce unequal income distribution in the country. Make a system by which private sectors cannot charge higher prices of their products.  Improve agriculture sector and government should provide credit, sprays, and water facilities to farmers.  Decrease the sales tax which has badly affected the purchasing power of the people.  Utility charges, transportation charges, medicine prices kept lower.  Reduce unproductive expenditures like defense and administration amount kept lower.  Loans of smaller amounts for development of industrial sector.  Improve quality of domestic goods.  By decreasing corruption.

Vicious Circle of poverty

Vicious circle of poverty is a kind of curse which is feared by all the countries because it is said to be that a country is poor because it is poor. Causes: i. ii. iii. iv. Low income Low saving Low investment Low productivity

There are both internal and external factors which affect a countrys development. One internal factor affecting a countrys development is its economy. By economic factors one usually means factors that are essential for production, for example labor, land resources and capital. In the

model "The vicious circle of poverty" the link between lack of capital and underdevelopment is emphasized. The theory of the vicious circle of poverty can be used both at the national and individual levels, but we will explain the individual level in this report. On the individual level, the vicious circle of poverty starts with the statement that a poor person.

(F) The circle starts all over again with a situation where the person does not have money to get nutritious food. (G) This process goes on and on.

Gross Domestic Product (GDP)

Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. It is often considered an indicator of a country's standard of living. GDP = C + G + I + NX Where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital

"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports) GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living.

Pakistan GDP growth rate

The Gross Domestic Product (GDP) in Pakistan expanded 3.76 percent in 2009/10 fiscal year. Unlike the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full year of economic activity, thus avoiding the need to make any type of seasonal adjustment. From 1998 until 2009, Pakistan's average annual GDP Growth was 4.92 percent reaching an historical high of 9.00 percent in December of 2005 and a record low of 2.00 percent in December of 2001.

Latest Indicators for Pakistan

     

GDP (official exchange rate): $124 billion (2006 EST.) GDP - per capita (PPP): $2,600 (2006 EST.) GDP - real growth rate: 6.6% (2006 EST.) GDP (purchasing power parity): $437.5 billion (2006 EST) GDP - composition by sector: agriculture: 22% industry: 26%

GDP - real growth rate

Year GDP - real growth rate Rank Percent Change Date of Information 2003 2004 2005 2006 2007 2008 2009 2010 2011 4.50 % 5.50 % 6.10 % 6.60 % 6.60 % 5.30 % 2.70 % 4.30 % 2.70 % 48 45 47 48 59 104 139 41 135 22.22 % 10.91 % 8.20 % 0.00 % -19.70 % -49.06 % 59.26 % -37.21 % FY01/02 est. 2003 2004 2005 2006 2007 2008 2009 2010

GDP- growth rate

GDP- growth rate
6.60% 6.10% 5.50% 4.50% 5.30% 4.30% 6.60%

2.70%

2.70%

2003

2004

2005

2006

2007

2008

2009

2010

2011

Impact of GDP on Pakistan Economy

Pakistan GDP or the Gross Domestic Product of Pakistan decides the growth of Pakistan's economy. In spite of the fact that Pakistan is among the highest populated nations and that much of the citizens do not even earn a decent living, the country is fast improving its economic status. The economy growth of Pakistan is among the top three developing nations in the world, the other two being China and India. The growth percentage of Pakistan GDP was calculated as 8.45% in 2005. Much of the success of the economy owes it to the telecommunication industry as well as the growing Information Technology sector.

Gross National Product (GNP)

GNP is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country. Basically, GNP measures the value of goods and services that the country's citizens produced regardless of their location. Higher GNP leads to a higher quality of living, all other things being equal.

Impact of GNP on Pakistan Economy

Real Gross National Product (GNP) per capita is a useful aggregate measure of annual income per person, net of growth in population and prices. Data shows that in 1947 real GNP per capita was Rs. 1,476 which has multiplied three and a half fold to Rs. 5,128 in 2001. In other words, an average Pakistani today commands purchasing power that is three and half times greater than in 1947.

Trade Cycle
i. ii. iii. Business cycle, Trade cycle recurring fluctuations in economic activity consisting of recession and recovery and growth and decline. A period during which trade expands, and then slows down, then expands again. The recurrent fluctuation between boom and depression in the economic activity of a capitalist country also called business cycle.

The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession). Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity do not follow a mechanical or predictable periodic pattern.

The economy tends to experience different trends. These can be categorized as the trade cycle and may feature boom, slump, recession and recovery

i.

BOOM:
Boom is a period of fast economic growth. Output is high due to increased demand, unemployment is low. Business confidence may be high leading to increased investment. Consumer confidence may lead to extra spending.

ii.

SLUMP:
Slump is a period when output slows down due to a reduction in demand. Confidence may begin to suffer.

iii.

RECESSION:
A period where economic growth slows down and the level of output may actually decrease. Unemployment is likely to increase. Firms may lose confidence and reduce investment. Individuals may save rather than spend.

iv.

RECOVERY:
Recovery is a period when the economy moves between recession and a boom.

Income distribution
National income divided among groups of individuals, households, social classes, or factors of production, to compute an average for comparison purposes.

Income distribution in Pakistan

According to a study conducted by the Centre for Research on Income Distribution 63 per cent of poor in Pakistan fall in the category of 'transitory poor'. The State Bank of Pakistan (SBP) has also admitted in its annual reports that the standard definition of 'transitory poor' includes those households that are below the poverty line for most of the time, but not always, during a defined period. The remaining 32 per cent and five per cent of the population that subsist below the poverty line are 'extremely poor', respectively. extremely' poor are those households that are below the poverty line all the time during a defined period. Similarly, on the other side, 13 per cent and 21 per cent of total non-poor (above the poverty line) are classified as 'transitory vulnerable' and 'transitory non-poor', respectively.

All studies, however, confirm that income inequality in 2000-2007 was more than in any other time period in the history of Pakistan. The poorest 30 per cent lost their share, while the richest 20 per cent gained in both the urban and rural areas during the Musharraf-Shaukat era. The income inequality in Pakistan has increased drastically in the last eight years and the trend continues unabated despite all claims of poverty reduction. The main factors that govern personal income distribution include distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. However, the single most devastating factor for increased income and wealth inequalities in Pakistan remains the regressive tax system. Incidence of tax on the poor in the last 10 years has increased substantially (by about 35 per cent), while the rich are paying almost no direct tax on their colossal income and wealth. Study of Pakistan from this political economy perspective is very crucial, as our society is fast adopting dehumanizing characteristics. We are faced with economic disparities, shortage of food and lack of essentials services. The great divide between the rich and the poor in today's Pakistan is assuming alarming proportions, and may eventually lead to a civil war if preventive measures are not adopted immediately.

Income distribution in Pakistan

year

Household gini coefficient 0.386 0.335 0.336 0.366 0.330 0.345 0.373 0.69 0.355 0.3476 0.346 0.407

Household income share Lowest 20% 6.4 7.69 8.4 8.0 8.4 7.9 7.47 7.3 7.6 7.9 8.0 5.7 Middle 60% 48.3 49.0 49.8 50.2 50.1 49.1 47.6 47.7 48.4 48.5 48.3 45.0 Highest 20% 45.3 45.4 42.0 41.0 41.5 43.0 45.0 45.2 44.0 43.6 43.7 49.3

Ratio of highest 20% to lowest 20% 7.1 5.7 5.1 5.2 4.9 5.4 6.1 6.2 5.8 5.5 5.5 8.6

1963-64 1966-67 1968-69 1969-70 1970-71 1971-72 1979 1984-85 1985-86 1986-87 1987-88 1990-91

Rural and Urban distribution of income

Year 1968-69 1979 1985-86 1986-87 1987-88 1990-91 Monthly average household rural/urban income(rupees) Urban Rural 303 197 1364 836 2537 1638 2739 1775 2956 1815 3701 2931

Income distribution
Urban Rural
3701 2956 2537 1815 1638 1364 836 303 197 2931

1969

1979

1987

1988

1991

Causes of disparities in income distribution in Pakistan

We have told above that 20% of the household with the highest share got 49.3% of national income while the 20% household with the lowest share got 5.7% moreover the share of 20% high income group is increase as it increase from 44% in 1995-86 to 49.3% .in 1990-91 while the share of 20% low income group id decrease as it decrease from 7.6% in 1985-86 to 5.7% in 1990-91. All this shows that there exists a clear cut unequal income distribution in the country. Furthermore, the gulf between have and have nets is increasing day by day. This is gloomiest

picture of economy. It creates unrest dissatisfaction and deprivation which may in turn jeopardize the process of economic growth. Accordingly we first trace the causes of income inequality in Pakistan, and then we will suggest the measures to reduce such inequality and disparities.           Difference in productive assets Government policy Corruption and dishonesty Inflation Rising population A blend of socio-economic factors Poverty Capital intensive techniques Regional disparities Agriculture backwardness

Inflation
A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.

Types of Inflation
There are four main types of inflation. The various types of inflation are briefed below.

   

Wage Inflation Cost-push Inflation Pricing Power Inflation Sectoral Inflation

Pakistan Inflation rate

Year Inflation rate (consumer prices) Rank Percent Change Date of Information 2003 2004 3.90 % 2.90 % 90 123 -25.64 % 2002 est. 2003 est.

2005 2006 2007 2008 2009 2010 2011

4.80 % 9.10 % 7.90 % 7.60 % 20.30 % 13.60 % 13.40 %

143 186 168 162 204 213 214

65.52 % 89.58 % -13.19 % -3.80 % 167.11 % -33.00 % -1.47 %

FY03/04 est. 2005 est. 2006 est. 2007 est. 2008 est. 2009 est. 2010 est.

The inflation rate in Pakistan was last reported at 13.4 percent in April of 2011. From 2003 until 2010, the average inflation rate in Pakistan was 10.15 percent reaching an historical high of 25.33 percent in August of 2008 and a record low of 1.41 percent in July of 2003. Inflation rate refers to a general rise in prices measured against a standard level of purchasing power. The most well known measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole of the domestic economy.

Inflation rate (consumer prices)

This entry furnishes the annual percent change in consumer prices compared with the previous year's consumer prices.

Inflation rate
Inflation rate 20.30% 13.60% 9.10% 3.90% 2.90% 4.80% 7.90% 7.60% 13.40%

2003

2004

2005

2006

2007

2008

2009

2010

2011

Reasons of Inflation in Pakistan

There are many reasons for the inflation in the Pakistan.       Rise of oil, gas, sales tax prices. Increase in the number of sick units. Fall in industrial production due to strikes. Electricity breakdowns cause decrease in production and lead to higher costs. Rise of utility tariffs. Government raised the support prices of cotton, wheat, sugarcane to protect the interest of farmers.  Government increase direct taxes to boost up its revenues.

In inflation situation
      Decelerating Economic Growth Loose Monetary Polices Output set backs Higher duties and taxes Depreciating Pak rupee Frequent adjustments in the administered prices of Gas, Electricity, POL (petroleum, oil and lubricants)  Frequent adjustment in support price of wheat  Political instability

Impact of inflation on Pakistan economy

Inflation:
A sustained increase in the general level and service: of prices for goods and services.

Causes of inflation:
       International inflation Increase in wages Increase in money supply Fall in production Population pressure No limit to growth Persistent deficit in BOP

Measure to control inflation

 Because of inflation the real output relative prices, interest rate and the reserves from taxes all are affected.  Inflation discourages the savings and encourages consumption.  Inflation leads to income inequality, it promotes financial investment rather physical investment.  Inflation encourages flight of capital.  Inflation result in promotion of social evils like bribery, black marketing, rummaging, suicidal action and kidnapping.