ANNUAL PLAN 2007-2008 Foreword Executive Summary i Part – 1 Macroeconomic Framework Chapter 1. Performance of Pakistan Economy 1999-2007 1 2. Growth, Investment & Savings 11 3. Balance of Payment 23 4. Fiscal and Monetary Developments 33 5. Public Sector Development Program 45 Part – II Achieving Millennium Development Goals 6. Poverty Reduction and Human Development 53 Part – III Main Features of Sectoral Program 7. Agriculture Development 71 8. Livestock 87 9. Water Resources Development 91 10. Energy 99 11. Manufacturing Sector 113 12. Minerals 117 13. Transport and Communications 119 14. Physical Planning and Housing 131 15. Mass Media 139 16. Culture, Sports, Tourism and Youth 143 17. Education for the Knowledge Society 149 17.1 School and College Education 149 17.2 Higher Education 154 17.3 Science and Technology 161 18. Information and Communication Technologies 167 18.1 Information Technology 167 18.2 Telecommunication 177 19. Health and Nutrition 183 19.1 Health 183 19.2 Nutrition 189 20. Population and Development 193 21. Employment 197 22. Women Empowerment and Social Welfare 205 23. Rural Development and Special Areas 211 23.1 Rural Development 211 23.2 Drought Recovery Assistance Program 219 23.3 Special Areas 223 24. Environment 233 25. Governance 239 Foreword The Medium Term Development Framework (MTDF) 2005-10, the first of the 5 five - year strategic milestone to achieve the Vision 2030 approved by the NEC in May 2005. The Annual Plan, an operational document, provides tactical framework towards realization of the cherished goals of knowledge-based, prosperous and just society set in the Vision and MTDF. As a conscious policy, the Planning Commission is pursuing an integrated, holistic and coordinated approach to ensure stable economic development with consistency and continuity of various social economic policies. The National Economic Council (NEC) in its meeting chaired by the Prime Minister on May 31, 2007 reviewed the economic performance and acknowledged the robust average growth rate of real GDP of 7.5 percent for the fourth consecutive year culminating in 2006-07. It is in line with the MTDF 2005-10 growth strategy of achieving 7.6 percent on an average for the five year period. The GDP growth for the year 2006-07 is broad based with agriculture and services sectors playing more significant role in achieving the targeted growth rate of 7 percent. During the year 2006-07 significant progress has been made in developing physical, technological and social infrastructure. On social front, reduction in poverty and unemployment and improvement in social indicators are also visible. These achievements in the economic domain have been made possible by following consistent strategies and policies. Implementation of the Annual Plan however, faced some challenges resulting slow growth in exports, increase in current account deficit and high inflationary pressure. These challenges, inter alia, are fully accounted for, in the policies and programs defined in the Annual Plan 2007-08. The Plan highlights the macroeconomic development of Pakistan, outlines sectoral issues focusing GDP growth, budgetary performance, monetary expansion and prices, balance of payments and implementation of the Public Sector Development Program (PSDP). The NEC formally approved the macro economic targets set in the Annual Plan 2007-08. The PSDP amounting to Rs 520 billion was also approved along with an outlay of Rs 204 billion out side the PSDP. The members of the NEC including Federal Ministers, Provincial Chief Ministers/Ministers, Prime Minister (AJK) and senior representatives of NAs and FATA appreciated the role of the Planning Commission in bringing provinces and other areas closer together. They all expressed their full belief in common and shared destiny and resolved to make Pakistan one of the greatest nations as stated by the Quaid-i-Azam in his famous speech of 11th August, 1947. They also complemented the Prime Minister for restructuring the Planning Commission and putting committed people at the helm of affairs. I would like to thank all the stakeholders both from the public and private sectors for their valuable contribution towards the preparation of the Annual Plan 2007-08. The hard work and long hours put in by the Annual Plan Formulating Committee is deeply appreciated and acknowledged. Engr. Dr. Muhammad Akram Sheikh Minister of State/Deputy Chairman Planning Commission Islamabad June 8, 2007 Executive Summary Overview of Economy The economy of Pakistan has grown on an average of 7.5 percent over the last four years 2003-07, whereas during the current year 2006-07 a growth rate of 7 percent has been achieved. The size of GDP increased three times from Rs 2,938 billion in 1998-99 to Rs 8,716 billion in 2006-07, while per capita income increased more than two times from $ 438 to $ 926, investment by five times from Rs 409 billion to Rs 2,004 billion and national savings 4.6 times from Rs 344 billion to Rs 1,572 billion in the same period. On the basis of rapid and sustained growth achieved in the recent past, Pakistan has joined the fastest growing economies of the Asian region. Impressive growth of Pakistan’s economy is attributed to the continuity and consistency of policies initiated by the present regime within the overall framework of deregulation, privatization and liberalization. Efficient management and structural reforms introduced in the recent past have brought about healthy changes in almost all sectors of the economy. A major breakthrough has been achieved in managing the domestic and external debt. Total debt (domestic and external), which was 100.3 percent of the GDP in 1998-99, has been reduced by half to 51.1 percent in 2006-07. The ability of the country to borrow from international and regional capital markets at relatively low rates and long maturities has improved substantially. The recent floatation of Euro-Bond in the international market was subscribed by seven times to over $ 3.5 billion. The steep decline, both in the stock of debt and debt-servicing as a ratio to GDP has provided ample fiscal space to pursue expansionary economic policies. Total investment has increased substantially and reached an all time record of Rs 2,004 billion (23.0 percent of GDP) in 2006-07. The public sector development expenditure (PSDP) excluding allocations for earthquake has witnessed a sharp increase, from 2.2 percent of GDP in 2002-03 to 4.1 percent in 2006-07. In the last seven years, Pakistan has spent over Rs 1,450 billion on poverty related and social sector programs. The confidence of foreign investors in Pakistan economy has improved as non-debt creating capital inflows are expected to touch around $ 7.5 to 8.0 billion during 2006-07. The foreign direct investment has risen from $ 485 million in 2001-02 to $ 6.0 billion in 2006-07. The economy has also witnessed a sharp rise in the workers’ remittances, which increased to $ 5.5 billion during 2006-07, showing a five times increase from a level of $ 1.1 billion in 1998-99. As a consequence of tight monetary policy, inflation is expected to marginally decline from 8.0 percent in 2005-06 to 7.7 percent in 2006-07. The food inflation, however, still remains high. The government has maintained an expansionary fiscal stance to ensure higher investment for growth and increase in pro-poor expenditures. It is expected that the CBR tax collection would meet the target and the fiscal deficit would be close to the projected level of 4.2 percent of GDP. High economic growth, targeted poverty reduction, social protection programs and increase in pro-poor spending has created gainful employment opportunities and lifted millions of people out of poverty in the rural and urban areas. The unemployment rate has declined from 8.3 percent in 2001-02 to 6.2 percent in 2005-06. The poverty measured on head count basis, decreased from 34.4 percent in 2000-01 to 23.9 percent in 2004-05. The trend of poverty reduction is more pronounced in the rural areas. GDP Growth: The 7 percent real GDP growth in 2006-07 has been supported by the robust growth in agriculture and services sectors. The agriculture sector is estimated to record a growth rate of 5.0 percent. However, the growth of large-scale manufacturing (LSM) is likely to be around 8.8 percent. Agriculture: The record output of wheat at 23.5 million tonnes and sugarcane 54.7 million tonnes would be significantly higher than the output in 2005-06 and would exceed the targets for the current year. The cotton crop at 13.0 million bales is close to the production level of 2005-06, while the rice output is slightly lower than the previous year level. The strong livestock production has significantly contributed to the increased growth in the agriculture sector. Manufacturing: A large number of industrial items show significantly higher growth. The production of sugar, paints and varnishes, cement, steel products, cotton yarn, caustic soda, electric motors, refrigerators, bicycles all posted double-digit growth. The cement industry’s high growth (18.4 percent) is mainly attributable to enhanced installed capacity during the last five years and the rise in local as well as external demand. Similarly, the growth in sugar production at around 46.3 percent is partly due to about 23 percent increase in the sugarcane production during the kharif of 2006-07. Services: Based on the growth in value-added in agriculture and manufacturing sectors and increase in imports, the services sector is estimated to grow by 8.0 percent, well above the target of 7.1 percent. The growth is likely to be much higher in services sub-sector such as Transport, Storage and Communications (5.8 percent), Finance and Insurance (18.2 percent), Ownership of Dwellings (3.5 percent), Public Administration and Defence (7.0 percent) and Social, Community and Personal Services (8.5 percent).