Medium Term Development Framework (MTDF) 2005-10

The  National  Economic   Council  at  its  meeting  held  on  May  27,  2005  approved  the Annual  Plan  2005-06  and  authorized  the  Planning  Commission  to  release  it  at  the time  of  presentation  of  the  Federal  Budget.    The Plan covers the 1st Year of Medium Term Development Framework (MTDF) 2005-10.  It  comprises  Growth,  Saving  and Investment,  Balance  of  Payments,  Fiscal  and  Monetary  Development,  Poverty Reduction  and  Human  Development  and  main  features  of  PSDP  and  Sectoral Programmes.  It  is  in  line  with  the  Government’s  agenda,  priority  and  programmes highlighted in the MTDF. This agenda marks a paradigm shift towards the knowledge economy through an integrated approach.  Financial and physical review of Annual Plan 2004-05 and projections and prospects for the year 2005-06 are given as follows:

Growth, Saving and Investment:

The  Medium  Term  Development  Framework  (MTDF)  2005-10  has  been  conceived  in  the light  of  recent  socio-economic  performance  of  the  country,  continuing   supportive  public policies and challenges and opportunities emerging  from the  global  economy.  The targets of the year 2004-05 have been surpassed.  The low growth trend experienced during 1990s has been reversed. Wide-ranging economic and financial reforms have made the economy open, liberalized and market friendly. As a result, private sector has begun to play an active role in shaping   structural   changes in the economy.

The  principal   objective  of  the  MTDF  is  to  attain  high  growth  of  8.2  percent  by  the terminal  year 2009-10 with a sustained annual  average  growth of 7.6 percent during  the five-year period  without  compromising   macroeconomic  stability.  The  second  key  objective  is to achieve higher  level  of investment to meet the targeted  growth and to effectively address the perennial   issues  of  poverty  reduction,  employment  generation,  better  access  to  basic necessities  of  life  including   quality  education  and  skill   development  for  upgrading   the human  resources,  better  health  and  environment  for  the  common  man.  The  third  crucial objective  is  to  attract  foreign  investment  to  a  level   required  to  become  a  fast  growing economy  like Malaysia. Last but not the least, the MTDF will focus on growth which is just and equitable.  

Growth Strategy:

The key elements of the MTDF strategy are as under:

(a)   In  agriculture,  not  only  crops  but  livestock  and  fisheries  will   also  be developed  where  a  substantial   improvements  in  yields,  product  quality and  market  efficiency  are  required  to  meet  the  growing   demand  for domestic consumption and exports.

(b)   In  manufacturing ,  the  production  base  would  be  expanded  through  the development  of  engineering   goods, electronics, chemicals and other high technology-based  and  value  added  industries.  Its share in GDP will   be increased from 18.3 percent in 2004-05 to 21.9 percent in 2009-10.

(c)    The  social   and  physical   infrastructure  would  be  expanded  by  investing more  in  water,  energy,  education  and  health  and  encouraging   private sector to move into these sectors.

(d)   Adequate  infrastructure  and  supply  of  trained  and  skilled  manpower would be ensured to meet the requirements of a fast  growing  economy.

(e)   To generate employment and to reduce poverty, investment will   be encouraged in agriculture and livestock, SMEs, housing and construction sectors.

(f)     In the export sector, efforts will be made to increase the role of technology and improve comparative export sophistication. 

(g)   To  encourage  higher  investment  and  savings,  efforts  would  be  made  to provide  the  enabling   environment  to  foster  local   and  foreign  investment and enhance both public and private savings.

Sectoral Growth:

With  an  average  growth  rate  of  7.6  percent  of  real   GDP  targeted  for  the  five-year period of MTDF, it is envisaged that it would be  gradually rising  from 7.0 percent in 2005-06 to  8.2  percent  in  the  terminal   year  2009-10.  The  agriculture  sector  is  projected  to  attain  a growth  rate  of  5.6  percent  by  the  terminal   year  and  on  an  average  would  grow  at  a  rate  of 5.2 percent per annum during  the MTDF period.  The  manufacturing   sector  is  projected  to  row  at  the  average rate  of  11.6  percent  per  annum.  To  achieve  this  growth  target,  the  government  would have to  make  all   out  efforts  to  further  boost  production  in  various  sub-sectors  like  textiles,  food and  beverages,  electronics,  automobiles,  chemicals  (including   fertilizers)  and  engineering goods.  The  services  sector  which  consists  of  transport  and communication,  trade,  banking and insurance, ownership of dwellings, public administration and defence and personal  and community  services  is  projected  to  row  from  6.8  percent  in  2005-06  to  7.9 percent in 2009-10, giving  an average  growth rate of 7.3 percent per annum for the MTDF period.

GDP and Sectoral Growth Rates

(Percentage)

Investment and Savings:

The  growth  rate  of  GDP  depends  on  the  level   of  investment,  addition  to  the  labour force,  HRD  and  technological  change.    Traditionally, in projecting   the growth rate of GDP, investment is considered to be the binding constraint.  Depending  upon the targeted  growth rate,  the  level   of  investment  is  determined  through  the  parameter  of  incremental   capital output ratio (ICOR).  The MTDF projections keep this in view, but are essentially the result of the Planning Commission’s macro model.

The ICOR for Pakistan on the average has been estimated at 3.9 from 1980-81 to 2002-03.  The  ICOR  during   the  1980s  has  been  3.5;  the  growth  rate during   the  1980s  was  6.5  percent  and  the  total   factor  productivity  increased  by  2.6 percentage  points  per  annum.  Over the last couple of years, growth rate has increased sharply.  The ICOR declined to 2.5 in the 2003-04. In the past, under-utilised capacity existed in  the  power,  cement,  automobiles,  consumer  durables  and  textiles  industries  and  only recently  high  growth  rate  has  been  achieved  due  to  better capacity  utilization  in  these industries.  Current y  in  power  and  automotive  sectors,  capacity  has  been  fu y  utilized, whereas  in  the  cement  industry  very  little  idle  capacity  exists.  Nevertheless, there may still exist under-utilised capacity in textiles and construction related input industries.

The  ICOR  can  be  brought  down  if  the  future  growth  is  concentrated  in  the  sectors with  lower capital-output ratios and through factor productivity improvement.  The capital  output  ratios  are  lower  in  agriculture,  small-scale  manufacturing ,  construction,  wholesale and  retail   trade  and  services  sectors.  They  are  higher  in  mining   and  quarrying ,  electricity and  as,  transport  and  large-scale  manufacturing   sectors.  Since  Pakistan  is  deficient  in infrastructure  and  energy  demand  is  expected  to  rise  rapidly, the ICOR would tend to rise. 

Services Sector:

The  services  sector  is  projected  to  attain  growth  rates  from  6.6  percent  in  2005-06  to 7.4  percent in 2009-10, with an average growth rate of  6.9 percent during the period 2005-10.  Within  the  services  sector,  its  various  sub-sectors,  like  transport,  storage  and communications  would  grow  from  6.4   percent  in  2005-06  to 6.8 percent in 2009-10 with an average  growth  of  6.4  percent  during  2005-10.  Similarly,  the  other  sub-sectors  including wholesale  and  retail   trade,  finance  and  insurance,  ownership  of  dwellings,  public administration  defence,  and  community  and  social   services  on  the  average  during  2005-10 are  expected  to  grow  by  8.6  percent,  5.4  percent,  4.6  percent,  6.3  percent  and  5.1  percent respectively.

The  services  sector  plays  a  vital  role  in  sustaining   the  growth  rate  of  Pakistan’s economy.  With a share of over 50 percent in GDP, it makes substantial  contribution towards poverty  alleviation  and  improvement  of  the  living   conditions  of  the common  man.    The MTDF  broadly  aims  at  achieving   the  following   objectives  for  the  development  of  services sector: 

(a)   To  sustain  an  average  growth  rate  of  7.3  percent  per  annum  in  the combined output of services.

(b)   To  reduce  the  gap  between  receipts  and  payments  of  services  in  the balance of payments.

(c)    To  diversify  the  existing   structure  of  output  of  services  by  inducing domestic  and  private  investment  in  business,  finance,  information technology (IT) and foreign trade related services.

(d)   To  encourage  private  sector  participation  (exclusively  or  through  public-private  partnership)  in  areas  still   dominated  by  the  public  sector  e.g. ports, roads,  highways,  mass  transit,  civil   aviation,  telecommunication, broadcasting, telecasting , health and education services.

(e)   To  encourage  and  assist  private  sector  in  setting   up  specialized  research establishments  and  training   institutions  to  cater  to  the  state  of  the  art services both for domestic as well as foreign markets.

(f)     To improve regulatory framework by encouraging   individuals to form professional bodies/associations in areas of their interest.

(g)   Standardization, recognition and accreditation of services institutions and facilities with international standards and bodies.

Balance of Payments:

For  MTDF,    exports  (gross)  are  projected  to    increase  from  US$  14,050  million  in  2004-05  to    US$  28,125  million  in    2009-10  at  an    annual  compound  growth  rate  of  14.9 percent.  Imports (c&f) are projected to increase from $ 19,291 million in 2004-05 to $ 36,491 million in 2009-10 at an annual compound growth rate of 13.6%.  The deficit trade balance is projected to increase from $ 3,555 million in 2004-05 to $ 5,211 million in 2009-10.

Investment Requirements in Pakistan:

To  sustain   a   average  GDP  growth  of  7.4  percent  per  annum  during  2005-10,  the  investment level will have to be raised from 19.7 percent in  2004-05 to 25.6 percent of GDP in 2009-10. To support higher levels of investment, the ratio of fixed investment to GDP would have to rise from 18.1 percent in 2004-05 to 24.2 percent in 2009-10. For this purpose the level of investment in private sector would be raised from 13.5 percent of GDP in 2004-05 to 16.5 percent during 2009-10.    The  public  sector  investment would  increase  from  4.6  percent  of GDP  in  2004-05  to  7.7  percent  in 2009-10.  The investment requirements for the plan period are summarized in Table I:

Investment Requirements

(As percent of GDP)

Public Sector Development Programme:

Public spending on major infrastructure and goals will be as follows:

Public Sector Development Programme

(All figures in Rs. billion)

Agriculture Development:

Following are the targets for production of different crops:

Agriculture Production (2005-10)

(All figures in 000’ tonnes)

Export Development:

Following are the targets for export during the MTDF 2005-10:

Export Projections for 2005-10

(All figures in US$ million)

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