PakistanAgriculture Economy and Policy 1

PakistanAgriculture Economy and Policy

February 2009

The Indus Valley, home to ancient civilizations, has been settled for over 5,000 years.

Subjected to frequent invaders, includingAlexander the Great, the region flourished under

the Mughal Empire in the 16th and 17th centuries. British rule began to dominate in the

18th century, ending when the Muslim state of Pakistan was established in 1947 with the

partition of the Indian sub-continent.

Macroeconomic Situation and Trends

Pakistan has a population of about 165 million people in an area slightly less than twice

the size of California. It is bordered by Iran, Afghanistan, China, India and the Indian

Ocean. Pakistan is subject to frequent earthquakes, flooding during the summer

monsoons, and a severe lack of potable water. Highly pathogenic H5N1 has been

identified in Pakistan with one confirmed human death.

In 2008, Pakistan’s economic growth slowed to an eight-year low of 5.7 percent, and is

project at only 2.2 percent in 2009. The economy was pulled back from the brink of crisis

by a $7.6 billion, International Monetary Fund (IMF) loan agreement agreed to in

November 2008. The IMF program is anchored on fiscal and monetary tightening that

will drain further momentum from the economy. The IMF program highlights the array of

structural problems that continue to hamper sustained economic development and a

reduction in pervasive poverty rates. Infrastructure shortcomings and lack of skilled labor

constitute a major deterrent to sustainable medium-term growth. Unreliable power and

telecommunication networks may be the main difficulties that businesses face, but the

transport sector in particular is in need of investment to meet increasing demand from

personal and freight traffic. Endemic corruption, a slow and opaque bureaucracy, a weak

legal framework, and inconsistent policy implementation continue to thwart investment

activity.

The Agricultural Economy

Agriculture is the single largest sector of the Pakistani economy. This sector accounts for

22 percent of GDP and employs nearly half of the labor force. Agriculture contributes to

economic growth as a supplier of raw materials to industry, as a market for industrial

products, and is Pakistan’s main source of foreign exchange earnings.

Approximately 67 percent of the country’s population lives in rural areas and directly or

indirectly relies on the agricultural sector for their livelihood. The average farm size has

declined from 13.1 acres in the early 1970’s to 7.7 acres in 2000. While per capita

income is approaching $1,000, there is wide disparity between urban and rural incomes.

TheWorld Bank estimates that about 14% of the population in urban Sindh Province lives

below the poverty line, while 41% of people living in the rural North West Frontier

Province borderingAfghanistan live in poverty.