Updated: Tuesday February 03, 2015/AthThulatha Rabi' Thani 14, 1436/Mangalavara Magha 14, 1936, at 07:24:12 PM
Chapter 2-Economic Growth, Savings and Investment
Gross Domestic Product
GDP, of a country is one of the ways of measuring the size of its economy. GDP is defined as the total
market value of all final goods and services produced within a given country in a given period of time (usually a calendar year). It is also considered the sum of value added at every stage of production (the intermediate stages) of all final goods and services produced within a country in a given period of time, and it is expressed in monetary terms.
Followings are the three approaches to measuring and understanding GDP:
i. Expenditure Based
Expenditure-based gross domestic product is total final expenditures at purchasers’ prices
(including the f.o.b. value of exports of goods and services), less the f.o.b. value of imports of goods and services.
ii. Income Based
Income-based gross domestic product is compensation of employees, plus taxes less subsidies on
production and imports, plus gross mixed income, plus gross operating surplus.
iii. Output Based
Output-based gross domestic product is the sum of the gross values added of all resident producers
at basic prices, plus all taxes less subsidies on products.
Gross Fixed Capital Formation
of GFCF in
economic activity as well as by capital assets. It comprises expenditure incurred on the acquisition of fixed assets, replacement, additions and major improvements of fixed capital viz. land improvement, buildings, civil and engineering works, machinery, transport equipment and furniture and fixture.
Gross National Product
The Gross National Product (GNP) is the value of all the goods and services produced in an economy,
plus net factor income from abroad.
Net National Product
NNP is the total market value of all final goods and services produced by citizens of an economy during
a given period of time (Gross National Product or GNP) minus depreciation.
Flow of Funds
Flow of Funds Accounts gives a picture of lending, borrowing operations and moments of funds within
domestic sectors and with rest of the world along with instruments used in the transactions.
Chapter 3- Prices
Consumer Price Index
Consumer Price Index (CPI) is main measure of price changes at retail level. It measures the changes in
the cost of buying representative predefined basket of goods and services and to gauge the increase in the cost of living in reporting period.
Laspeyer’s formula used to compute CPI is:-
CPI = å ( Pn / P0 )Wi
Pn = Price of an item in the current period
P0 = price of an item in base period
Wi = Weight of the ith item in the base period.
Wholesale Price Index
Wholesale Price Index (WPI) is designed to measure the directional movements of prices for a set of
selected items in the primary and wholesale markets. Items covered in the series are those, which could be precisely defined and are offered in lots by producers/manufacturers. Prices used are generally those, which conform to the primary sellers realization at ex-mandi (market), ex-factory or at an organized wholesale level
Sensitive Price Indicator
The Sensitive Price Indicator (SPI) is computed on weekly basis to assess the price movements of
essential commodities at short intervals so as to review the price situation in the country.
(Implicit price deflator for GDP) is a measure of the level of prices of all new, domestically produced,
final goods and services in an economy.
Chapter 4- Public Finance
A tax levied directly on the taxpayer such as income and property taxes.
A tax levied on goods or services rather than individuals and is ultimately paid by consumers in the form
of higher prices such as sales tax or value added tax.
Chapter 5- Money and Credit
Broad Money (M2)
It is an indicator used to measure liquidity in the economy and includes currency in circulation, other
deposits with State Bank of
Commodity operation means advances provided either to government, public sector corporations or
private sector for the procurement of commodities such as cotton, rice, wheat, sugar, fertilizer etc. Advances to government provided for other purposes are not the part of commodity operation.
Currency in Circulation
Currency in circulation refers to currency held by public i.e currency outside the banking system.
Reserve Money (M0)
It is an indicator used to measure liquidity in the economy and includes currency in circulation, other
deposits with State
Market Treasury Bills (MTBs)
They are the short term instruments of the Government of Pakistan with tenors available in 3, 6 and 12 months. They are also sold through Primary Dealers in auctions held on fortnightly basis. They are zero-
coupon securities and are sold at discount to the face value
Auction of Government of
MTB auctions are held fortnightly (Wednesday) on multi-priced basis. Only Primary Dealers are allowed
to participate in the auctions. Announcement of auctions are done two days prior to auction date. SBP
decides the target and cut offs.
They are the long term instruments of the Government of Pakistan with tenors available in 3, 5, 10, 15
and 20 years. They are sold through Primary Dealers (Institutions appointed by the SBP to participate in Government Securities Auctions) in auctions as and when announced (on quarterly basis). They are coupon bearing instruments and issued in scrip less (without physical form) form with interest payment on biannual basis.
PIB auctions are held on as and when indicated with target amount and Coupon rates by the MOF. Primary Dealers are allowed to participate in the auction which is decided on multi-priced basis. SBP
announces the auction prior to 14 days of auction date to allow short selling to the Primary Dealers on when issued basis. SBP decides the cutoff in consultation with MOF.
Call Money Rate
Interbank clean (without collateral) lending/borrowing rates are called Call Money Rates
Coupon rate is interest rate payable on bond’s par value at specific regular periods. In PIBs they are paid
on biannual basis.
Discount is the rate at which SBP provides three-day repo facility to banks, acting as the lender of last
Government of Pakistan Market related Treasury Bills
They are the instruments created when Government borrows from the State Bank. They are six month
T-bill and their rates are determined on the basis of weighted average arrived in last six month Market
Treasury Bill auction. They are also called as ‘Market Replenishment Treasury Bills’.
Open Market Operation
They are the operation carried out by the SBP for liquidity Management to keep interest rates in line with its monetary policy objectives. Through these operations either the liquidity is mopped up from or
injected in the market by Repo/Out right basis. They are normally short term operations and are done as and when market condition desires.
Repo Facility MTBs/FIBs/PIBs (Outstanding)
They are the short term funding arrangement for getting funds on selling the security as collateral and to
buy back the same on maturity. The funds can be arranged under this by using MTB/FIB’s/PIBs. The reverse is called Reverse-repo.
KIBOR – (
Interbank clean (without collateral) lending/borrowing rates quoted by the banks on Reuters are called
Kibor Rates. The banks under this arrangement quote these rates at specified time i.e. 11.30 AM at Reuters. Currently 20 banks are member of Kibor club and by excluding 4 upper and 4 lower extremes, rates are averaged out that are quoted for both ends viz: offer as well bid. The tenors available in Kibor are one week to 3 years. KIBOR is used as a benchmark for corporate lending rates.
Chapter 6-Banking System
“Scheduled Banks” means,”All Commercial banks and specialized banks (like IDBP and ZTB etc) which
are included in the list of scheduled banks maintained under sub-section (1) of section 37 of the State
Balances with Other Scheduled Banks
These are balances of scheduled banks amongst each other and exclude balances with National Bank of
Bills Purchased & Discounted
These refer to advances extended through discounting or purchasing of inland and foreign bills.
comprises of paid-up
capital of Pakistani banks and equivalent rupee amount kept by foreign banks with the State Bank of
The data on deposits include the following types:-
i. Call Deposits:
These include short notice and special notice deposits
ii. Current Deposits:
Cheque account deposits wherein withdrawals and deposit of funds can be made frequently by the accountholders. Generally, these are return free deposits kept with the banks.
iii. Fixed Deposits:
Deposits having fixed maturity dates and a rate of return determined or determinable on the basis of a bank’s financial performance during a period.
iv. Other Deposits:
These generally include security deposits, margin deposits and sundry deposits etc.
v. Savings Deposits:
Deposits held by the scheduled banks, consisting of cheque accounts on which a certain return is paid by the institution.
Rate of Margin for advances
Margin for collateral is the excess of the market/assessed value of the collateral over the amount of advance.
A non-performing loan is a loan that is in default or close to being in default. Many loans become non-
performing after being in default for 90 days, but this can depend on the contract terms.
Chapter 7- Capital Market
Stock market index is a used for measuring changes in the prices of stock market securities in respect of
the base year prices. The index is used as an indicator of the overall performance of the economy.
The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index
comprises of 100 companies selected on the basis of sector representation and highest market capitalization, which captures over 80% of the total market capitalization of the companies listed on the Stock Exchange. One company from each sector on the basis of the largest market capitalization and the remaining companies are selected on the basis of largest market capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted.
All Share Index
The KSE all share indexes was constructed and introduced on September 18, 1995. This is also a total
return index (dividend, bonus and adjusted rights shares) computed for all companies listed at KSE.
Market Capitalization of ordinary Shares
The Market Capitalization is the total market value of ordinary shares comprising the General Index. The
market value is worked out by multiplying the market price by the total number of shares outstanding and added together for the component groups as also for the entire list to compile the series.
Chapter 8-Domestic and External Debt
Domestic debt refers to the debt owed to creditors resident in the same country as the debtor. It can be of
sovereign nature, i.e., borrowed by a government
or non-sovereign, i.e., borrowed by the corporate.
Sovereign domestic debt in
i. Permanent Debt
Permanent debt includes medium and long-term debt such as Pakistan Investment Bonds (PIB)
and prize bonds.
ii. Floating Debt
Floating debt consists of short-term borrowing in the form of T-bills.
iii. Unfunded Debt
Unfunded debt refers mostly to outstanding balances of various national saving schemes.
National Saving Schemes
There have been different saving schemes in
position as on end Month. Followings are the definition of existing schemes.
i. Bahbood Savings Certificates
This is a ten years' maturity scheme, launched by the Government on 1st July, 2003. Initially it
was meant for widows only, however, later on the Government. extended the facility for senior citizens aged 60 years and above from 1st January, 2004. These certificates are available in the denominations of Rs.5,000/-, Rs.10,000/-, Rs.50,000/-, Rs.100,000/-, Rs.500,000 and Rs.1,000,000/-. Profit is paid on monthly basis reckoned from the date of purchase of the certificates. Only widows and senior citizens aged 60 years and above are eligible to invest. The minimum investment limit in this scheme is Rs.5,000, whereas, the maximum limit is Rs.3,000,000/-.
ii. Defence Saving Certificates
The Government of Pakistan introduced Defence Saving Certificates scheme in the year 1966.
This is the only scheme having 10 years' maturity with built-in feature of automatic reinvestment after the maturity. These certificates are available in the denominations of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000. The minimum investment limit is Rs.500/-, however, there is no maximum limit of investment in this scheme.
iii. Pensioners' Benefit Account
This ten years' maturity scheme was launched by the Government on 19th January, 2003. The
deposits are maintained in the form of accounts and the profit is paid on monthly basis reckoned from the date of opening of the account. The pensioners of Federal Government, Provincial Governments, Government of Azad Jammu & Kashmir, Armed Forces, Semi Government and Autonomous bodies are allowed to invest.
iv. Regular Income Certificates
This five years' maturity scheme for general public was launched on 2nd February, 1993.Profit
on this scheme is paid on monthly basis reckoned from the date of issue of certificates. These certificates are available in the denomination of Rs.50,000, Rs.100,000, Rs.500,000, Rs.1,000,000, Rs.5,000,000 & Rs.10,000,000.
v. Savings Accounts
These are ordinary accounts and frequent withdrawals (twice a week) can be made from this
account. The minimum investment limit is Rs.100 in the scheme besides no maximum limit. However, only one account can be opened by person at an office of issue. The deposits can be withdrawn any time from the date of deposit. However, there is a limit of two withdrawals within a week's time.
vi. Special Savings Accounts
This three years maturity scheme was introduced in February, 1990. The deposits are
maintained in form of an account. Profit is paid on the completion of each period of six months. The minimum investment limit in this scheme is Rs.500. There is no maximum limit, however, the deposits are required to be made in multiple of Rs.500.
vii. Special Savings Certificates (Registered)
This three years maturity scheme was introduced in February, 1990. These certificates are
available in the denomination of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000. Profit is paid on the completion of each period of six months. The
minimum investment limit is Rs.500, however, there is no maximum limit of investment in the scheme.
External debt, at any given time, is the outstanding amount of those liabilities that require payment(s) of
principal and interest by the debtor at some point(s) in the future and that are owed to nonresidents by the residents of an economy.
Private non-guaranteed debt
Private non-guaranteed debt is defined as the external liabilities of the private sector, the servicing of which is not guaranteed by Government.
Public and Publicly guaranteed debt
External obligations of a public debtor including national government control banks and autonomous
bodies and external obligations of a private debtor that are guaranteed for repayment by a public entity.
Chapter 9- Balance of Payments and Foreign Trade
Nominal Effective Exchange Rate:
An index of the bilateral nominal exchange rates of one country relative to its major trading partners. The bilateral nominal exchange rate index with each trading partner is weighted by that country’s share in imports, exports, or total foreign trade.
Foreign Exchange Kerb Market
Authorised Money Exchange Companies operating in the market.
Balance of Payments
The balance of payments (BOP) is a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world.
Current account covers all transactions (other than those in financial items) that involve economic values
and occur between resident and nonresident entities. Also covered are offsets to current economic values provided or acquired without a quid pro quo. Specifically, the major classifications are goods and services, income, and current transfers.
These are offsetting entries for real resources or financial items provided, without a quid pro quo, by one
economy to another.
Direct investment income
It is the profit on equity participation and interest on debt earned by direct investor abroad
Capital account covers capital transfers and acquisition / disposal of non-produced, non-financial assets.
(i) Capital transfer
Capital transfers relate mainly to investment grants used for financing the gross fixed capital
formation of the recipient economy. It consists of the transfer of ownership of a fixed asset or the debt forgiveness.
(ii) Acquisition / disposal of non-produced, non-financial assets
These refer to the purchases and sales of assets such as land, copyrights, licenses, patents etc.
Financial account records all transactions associated with changes of ownership in foreign financial
assets and liabilities.
Errors & Omissions
It is a balancing item intended to offset overstatement or understatement of recorded components due to statistical discrepancies.
Workers’ remittances are current transfers for family maintenance by migrants who are employed and
residents in new economies. (A resident is a person who stays, or is expected to stay for a year or more in an economy.)
held with a bank outside
Foreign Direct Investment
Direct investment implies a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence by the direct investor on the management of the direct
investment enterprise. Direct investment comprises the initial transaction between the two entities—that is, the transaction that establishes the direct investment relationship—and all subsequent transactions between the entities and among affiliated enterprises, both incorporated and unincorporated. For direct investment, direct investor owns 10 percent or more of the ordinary shares or voting power (for an
incorporated enterprise) or the equivalent (for an unincorporated enterprise).
Foreign Portfolio investment
Portfolio investment implies holding by non-resident of less than 10% share in equity securities,
investment in debt securities (in the form of bonds and notes) and investment in money market instruments of local company.
Balance of Trade
The balance of trade is the difference between the monetary value of exports and imports for an economy
over a certain period of time.
Balance of trade statistics
compiled by Federal Bureau of Statistics is based on physical movements of merchandise goods into and out of the custom
The trade data of SBP is, on the other hand, based on realization of export proceeds and import payments made through banking channel for goods exported and imported. The trade transactions such as land borne trade, imports through foreign economic assistance, exports & imports by Export Processing Zones and personal baggage etc. are not covered in the reporting by the banks. Data on these transactions are collected from the relevant sources and included in the exports receipts and import payments reported by the banks to arrive at the overall trade data. Still some discrepancies may arise in the two sets of trade data due to valuation, timing and coverage of transactions.
Unit Value & Quantum Indices:
These indices are used to measure changes in the unit value and quantity of Exports & Imports with reference to base year. Laspeyer’s formula is used for the computation of these indices that is as under.
Unit Value Index =
å Pn ´ Q0
å P0 ´ Q0
å Qn ´ P0
å Q0 ´ P0
Pn = Price (Unit Value) of each item during the current period
P0 = Price (Unit Value) of each item during the base period
Qn = Quantity data (Volume) of each item during the current period
Q0 = Quantity data (Volume) of each item during the base period.
Goods imported and returned to the exporting country for any reason without any modification or change
in its original shape or form, is termed as re-export.
Goods exported and returned to the consignor country without any modification or change in the original
shape or form is termed as re-import.
Terms of Trade:
It shows the change in the average price of a country’s aggregate exports in relation to the change in average price of its imports.
Terms of Trade = Index of Unit Values of Exports x 100
Index of Unit Value of Imports
The Income component of balance of payments is restricted to income earned from the provision of two
factors of production viz, labor and capital. Accordingly income earned from the labor is called compensation of employees while income earned from capital is called investment income.
Portfolio Investment Income
Portfolio Investment Income includes dividend on equity securities (share holding of less than 10 %) and
interest from holding of foreign bonds, notes, and money market instruments.
Reserve assets consist of those external assets that are readily available to and controlled by monetary
authorities for direct financing of payments imbalance. In BOP, they cover monetary gold, SDRs, reserve position in the fund, foreign currency reserves and other claims.
Services component implies receipts & payments for provision and acquisition of services of an
economy to and from the rest of the world.
Real Effective Exchange Rate:
An index of the price of a basket of goods in one country relative to the price of the same basket in that country's major trading partners. The prices of these baskets should be expressed in the same currency using the nominal exchange rate with each trading partner. The price of each trading partner's basket is weighted by its share in imports, exports, or total foreign trade.