Pakistan’s Economy

Pakistan is the 27th largest economy in the world placing it in the top 13% globally.  It has a population exceeding 180 million, and more than 50% of the urban population is below 22. Its GDP is $623 billion based on purchasing power parity and this data is in 2013 U.S. dollars.

In the period of sixty two years, 1950-2012, Pakistan’s economy grew at 4.83% annually, and it did not experience a single recession. Further, during these six decades, Pakistan did not default on any sovereign obligations. In reviewing this composite performance over more than half a century, there are very few economies that have consistently demonstrated this level of performance.  Superficial criticism of Pakistan’s economy is seriously misplaced. 

UPSIDE POTENTIAL

Harnessing the true potential of the emerging Chinese-Pakistan alliance, is not limited to the initial offering of $42 billion in economic, infrastructure   and industrial development assistance. Neither is it limited in scope to only building economic corridors. It has to be managed in a much broader context of the geo-strategic balance of power in south and Southwest Asia, foreign policy, and sustained economic development. Further, we should be building on these pillars, which have the potential of sustaining through a good part of the 21st Century.  

Since 1947 Pakistan never had the opportunity to architect an alliance with a superpower, though the country pursued the U.S for the better part of the last sixty eight years. Pakistan also attempted to be a part of the U.S.S.R’s sphere of influence for a number of years. Both foreign policy directions have yielded inconsequential results. The current and future political leaderships have a serious responsibility not to squander away this huge opportunity.

UPSIDE POTENTIAL 

Inflation has continued to come down and is showing signs of being range bound.

Foreign remittances are expected to be around $15 billion during the current financial year (FY 14/15), which is one of the best years.

We have eventually begun to review and debate our role in the disastrous war on terror, and the Afghan end game has become reasonably clear. 

To-date, Pakistan’s banking system’s remains insulated from the western banking system’s meltdown. It faired well during the 2008-10 economic crisis in most of the first world countries.

Pakistan remains food secure.

There were serious earthquakes and floods, but those shocks were effectively absorbed by the country, without any significant external aid. 

It is reassuring to see the corporate sector rapidly moving towards food, live-stock and value-added processing.

While most of the globe is dealing with an aging population, Pakistan’s youth represents a major strength for the society.

DOWNSIDE RISKS

Poor governance and lack of transparency.

Chronic energy shortages and the lack of a cohesive national plan, which provides a line of sight for the next 10-15 years.

Effective implementation of the national action plan to restore internal security. Needs to be done with a sense of urgency, and a firm non-partisan commitment. 

Karachi’s vulnerabilities must be addressed and the gains cannot be marginalized by political expedience.

Poor social indicators and lack of a national reform agenda. Right at the top of the list is education. The country ranks in the bottom 10 percent of the world in literacy and related indicators. This one factor is large enough to hold us back. 

WAYFORWARD

The central question that most Pakistanis seek to answer is how to reverse the prolonged period of low growth, and to suggest measures that would decisively move the economy into a higher and mores sustainable growth rate. Here are eight key recommendations  that emerge as essential, in order to deliver this mission. 

The first is to review investment which has fallen dismally low to a level, which is about half of its peak of 22.5% in 2006/07. This must be reversed by improving the investment climate and removing binding constrains, especially in energy and in new domestic and foreign investment. Pakistan needs to increase its investments –to- GDP ratio to over 30% by 2025, if it is to generate sufficient employment to productively employ its fast growing labor force, and compete effectively with other rapidly growing emerging countries.

The second is that Pakistan’s economic problems are structural in nature, and not cyclical. Deep economic reforms are needed to remove structural imbalances to increase efficiency and competitiveness, and to spur entrepreneurship and innovation in the economy. Undertaking these reforms will require political will and a carefully sequenced pace of critical reforms, so as to ease the burden of adjustment.  

The third is to overcome the binding constraints to Pakistan’s growth. These include overcoming the crippling energy shortage, increasing revenues to regain in macroeconomic stability and reduce the unsustainable fiscal deficit. Further, to ensure the availability of water to meet the needs of the agriculture economy.  

The fourth area is to make exports a major driver of economic growth. This will mean reversing Pakistan’s past poor performance in integrating   with global markets, reflected in the country’s stagnant share in international markets. It will need bold steps to create and take advantage of regional trade opportunities, including trade with India. Critical to the success of this strategy will be improved quality of Pakistan’s human resources, which could provide the cutting edge in a highly competitive global economy.

Fifth, the economy has been poorly managed not just in recent years, but also over a long period of time. This has considerably hampered    its economic performance and reflects weak decision-making, uncoordinated responses, lack of implementation, corruption and poor governance.

Sixth, the country must aim not only for sustained and higher growth, but also inclusive growth, such that poor and vulnerable both participate in as well as share the gains of economic growth, and the development spreads to the country’s less developed areas.  

Seventh, after the passage of the National Finance Commission (NFC) award and the 18th constitutional amendment, a much greater responsibility falls on the federating units. The province, will have to play a responsible role in economic management and imparting welfare to the people.    

Eighth and the final theme concerns the roles of the state and the private sectors. Having alternated between the ascendance of the state and private enterprises for decades, the country need to settle into a mutually supportive relationship between these two components of the economy. The private sectors should play the leading role in all economic activity but within a well-defined regulatory environment developed by the government. GOP’s primary role should be to provide social and physical infrastructure, support cutting edge research, affordable social protection and safety nets for the poor. 

These measures, if planed and implemented in earnest, have the potential to move Pakistan back into a vibrant, and a resilient nation-state.