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Syed Masoud Ali Naqvi Senior Partner KPMG Taseer Hadi Co. Karachi 9 June 2006

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Syed Masoud Ali Naqvi Senior Partner KPMG Taseer Hadi Co. Karachi 9 June 2006

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    2. 2 Budget at a glance

    3. 3 Budget at a glance

    4. 4 Budget at a glance

    5. 5 Components of Receipts

    6. 6 Components of Expenditure

    7. 7 Components of Tax Revenue

    8. 8 Components of Expenditure

    9. 9 GDP Growth Trend

    10. 10 Composition of Sectorol GDP growth

    11. 11 Sectoral contribution to GDP growth

    12. 12 Overall Fiscal Deficit

    13. 13 Overall Deficit

    14. 14 Inflation

    15. 15 Inflation

    16. 16 Domestic Debt

    17. 17 Domestic Debt

    18. 18 Interest Payments

    19. 19 Savings & Investment

    20. 20 External Debt & Foreign Exchange Liabilities

    21. 21 External Debt & Liabilities

    22. 22 Trends in External Debt & Debt Burden

    23. 23 Trend in EDL to Foreign Exchange

    24. 24 BMI Political Outlook Core Scenario Pakistan has been ruled by dictators for half its 56 year history, and the political tug-of-war between civilians and soldiers will continue during our forecast period. President Pervez Musharraf has won the contest hands down since he toppled the elected government of former Prime Minister Nawaz Sharif in October 1999. The national parliament and the countrys four provincial assemblies have voted to elect him president until November 2007 while far-reaching constitutional changes have strengthened the powers of the presidency. The chief threat to Musharraf now comes from outside parliament, particularly from militants opposed to Pakistan pivotal role in the US-led war against terror. Efforts to combat militancy are being frustrated, among other reasons, by the close ties between some militant groups and the state Inter Services Intelligence unit.

    25. 25 BMI SWOT Analysis Political Outlook Strengths Condemned for testing a nuclear bomb in May 1998, Pakistan has since won Western acclaim for its leading role in the US-led war on terror. Washington has lifted sanctions and, in June 2004, President George W. Bush named Pakistan a major non-NATO ally. Weaknesses Civilian institutions are weak in Pakistan. Parliament, comprising the National Assembly and the Senate, has had its powers vastly reduced since President Pervez Musharraf overthrew the elected government of former prime minister Nawaz Sharif in October 1999. Poor relations with India. The two nuclear-armed neighbours have gone to war three times since they were partitioned after independence from colonial master Britain in 1947.

    26. 26 BMI SWOT Analysis Political Outlook Opportunities Pakistan could build stronger civilian institutions through meaningful democratic reform. However, we believe these are unlikely for the time being. Ongoing peace talks with India provide Pakistani leaders with an opportunity to ease tension in the worlds most dangerous nuclear flashpoint. Threats Escalating violence by militants opposed to President Pervez Musharrafs leading role in the US-led war on terror poses a key risk to stability. Musharraf has survived atleast three attempts on his life.

    27. 27 BMI Economic Outlook Core Scenario Pakistans economy has strengthened considerably due, firstly, to wide-ranging reforms aimed at reining in the governments budget deficit, and, secondly, to generous assistance from foreign governments eager to reward Islamabad joining the US-led coalition against terror. Key rewards have included debt relief, trade concessions, grants and loans. Although economic growth will moderate as expected monetary tightening raises borrowing costs, inflation should be kept in check. Meanwhile, the challenge facing the authorities is dealing with the aftermath of the 2005 earthquake, with an estimated US$ 5.2 bn needed for the rebuilding of local infrastructure and homes.

    28. 28 BMI SWOT Analysis - Economic Outlook Strengths On going structural reforms have strengthened Pakistans economy. Real GDP expanded by 8.4% during the fiscal year (FY) 2005, ending June 30, 2005, its fastest rate of expansion in two decades. A gradual tightening of monetary policy by the State Bank of Pakistan should moderate high inflationary pressures. Weaknesses As a result of the massive earthquake hitting Pakistan in October 2005, some widening in the fiscal deficit from its 3.3% level in FY05 is unavoidable. Subsidies to loss making, state-run enterprises continue to stretch public finances. Public debt has fallen from a high of 91% of GDP in FY01 but is still at high levels.

    29. 29 BMI SWOT Analysis - Economic Outlook Opportunities The lapsing in January 2005 of the WTOs Multifibre Agreement, which regulates the global textile trade, will provide Pakistan with an opportunity to boost exports. The local textile industry is competitive enough to prosper in a free-trade environment. Threats Pakistans military-backed government lacks legitimacy and may abandon economic reforms for fear of alienating public opinion. Persistently high global oil prices pose a threat to Pakistans balance of payments. Pakistan imports more than 50mn barrels of oil a year to satisfy local demand for fuel products and record-high prices have led to widening of the trade deficit.

    30. 30 BMI Business Environment Pakistan has one of South Asias most liberal foreign investment regimes. Pro-market reforms during the 1990s opened most sectors of the economy to foreign participation. One hundred percent foreign ownership is permitted in the manufacturing sector, though ownership restrictions remain in place in agriculture and services. Foreign firms are allowed to repatriate capital, profits and dividends. Security risks are the chief concern for investor with foreign-owned businesses targeted by anti-Western militants in recent attacks. Businesses must also contend with poor infrastructure, bureaucratic bottlenecks and widespread corruption. Ongoing reforms will help here.

    31. 31 BMI SWOT Analysis Business Environment Strengths Pakistan has one of the most liberal foreign investment regimes in South Asia. One hundred percent foreign equity is permitted in the manufacturing and infrastructure sectors. Ongoing reform of Pakistans trade regime is reducing tariff barriers. Duty on capital goods, plant and machinery not manufactured locally was cut to just 5% from an earlier range of 5-25% in the budget of June 2004. Weaknesses Failing infrastructure, bureaucratic delays and widespread corruption are key concerns for investors looking to do business in Pakistan. Intellectual property rights are poorly enforced. Pakistan, a leading producer of counterfeit goods, was one of 36 countries named on the Office of the US Trade Representatives Priority Watch List.

    32. 32 BMI SWOT Analysis Business Environment Opportunities Pakistan is committed to selling off state-owned assets and a series of firms are expected to going under the hammer in the coming years. Threats Anti-western militants have targeted foreign-owned businesses in recent attacks. A suicide bomber killed eleven French engineers employed by the Naval Construction Directorate in May 2002 as they boarded a bus in Karachi.

    33. 33 Pakistan Economy SWOT Analysis

    34. 34 Pakistan Economy SWOT Analysis

    35. 35 Pakistan Economy SWOT Analysis

    36. 36 Contribution to Tax Revenue

    37. 37 Pakistan Economy SWOT Analysis

    38. 38 Pakistan Economy SWOT Analysis

    39. 39 Pakistan Economy SWOT Analysis

    40. 40 BMI Views: Discussions celebrated the impressive growth of the economy, with macroeconomic stability, recent graduation from the IMF and growing consumer and investor confidence in the economic outlook. However, many challenges still remain, including high inflation and the external deficits, alongside structural concerns. Continuing high inflation and the external deficits present challenges for Pakistans economic outlook. Structural factors, such as Pakistans reliance on energy imports and poor infrastructure are further concerns.

    41. 41 BMI Views: Pakistans economy will slow slightly in fiscal year 2006 (ending June 30), amid weaker agricultural production and a slowdown in large-scale manufacturing. BMI View: While strong growth is expected over our forecast period, downside risks remain, including the shortage of skilled labour, sustained high oil prices and faltering domestic demand. Pakistans current account will remains in deficit due to a deterioration in the trade balance. BMI View: The reliance on both oil imports and US export demand will continue to undermine the prospects for any significant improvement over our forecast period.

    42. 42 Pro Poor Expenditure

    43. 43 Thank you

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