By IRNA,
Islamabad : A UN report launched Thursday said that Pakistan’s economy has been affected not just by the global economic crisis but also by the declining security situation and intensification of conflict linked to terrorism.
Industry, especially large-scale manufacturing, suffered the worst of all sectors from the drop in international demand, while also having to cope with acute shortages of electricity, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) report said.
In Pakistan, GDP growth fell from 4.1% in 2008 to 2.0% in 2009 while inflation rose sharply from 12% in 2008 to 20.8% in 2009 mainly because of food price increases, it said.
Pakistan witnessed a contraction in both of its exports and imports in 2009 while global economic crisis led to a decline in exports by 6%, imports contracted at a much faster rate by 11% due to lower domestic demand coupled with massive fall in international oil prices, the report said.
Fiscal deficit has been rising in recent years, standing at 7.6% of GDP in 2008 and in November 2008, the Government of Pakistan signed a $7.6 billion, 23-month Stand-By Arrangement with the IMF to support the country’s stabilization program and help the country remedy balance of payments difficulties, the report added.
“Fiscal performance improved substantially in 2009 due to more stringent fiscal policy. The budget deficit came down to 5.2% of GDP”.
While performance on the revenue side was not very encouraging, the fiscal improvement in 2009 was largely based on reduction in oil subsidies and development spending which is likely to impinge on the medium-term growth rate, the report said.
The report said the Government needs to improve the tax base and raise the very low tax-to-GDP ratio in order to reduce the fiscal deficit to sustainable levels.
The tax burden can be made more equitable by spreading it across different sectors of the economy, particularly services and agriculture.