Pak Growth Investment

Chapter 01

GROWTH AND INVESTMENT

I. INTRODUCTION Pakistan’s economy continues to maintain its strong growth momentum for the fifth year in a row in the fiscal year 2006-07. With economic growth at 7.0 percent in the current fiscal year, Pakistan’s economy has grown at an average rate of almost 7.0 percent per annum during the last five years. This brisk pace of expansion on sustained basis has enabled Pakistan to position itself as one of the fastest growing economies of the Asian region. The growth that the economy has sustained for the last five years is underpinned by dynamism in industry, agriculture and services, and the emergence of a new investment cycle supported by strong growth in domestic demand. The State Bank of Pakistan (SBP) attempted to shave off some of the excess demand which was causing general price hike by changing its monetary policy stance to aggressive tightening. Successive hikes in policy rates have led to higher interest rates across the spectrum, but higher inflation means that real interest rates remain low and their dampening effect on growth remained minimal. The prerequisites for a sustained economic growth appear to have gained firm footing during the last five years. The past few years of strong economic growth has brought Pakistan to the attention of an ever-wider set of investors and leading companies of the world. Resultantly, foreign investment has attained new heights and likely to touch $ 6.5 billion mark this year. Never before have conditions been so well aligned for a major push toward sustainable growth and poverty reduction. The current economic upturn is substantially different from the occasional economic rebounds of short duration that Pakistan has witnessed in the recent past. The gradual build-up of the investment momentum this time also suggests that investment recovery is likely to be more sustainable. The monetary tightening has therefore not derailed the ongoing economic upsurge because balance between...