Pakistan's Economic History 101



Pakistani economy grew at a fairly impressive rate of 6 percent per year through the first four decades of the nation's existence. In spite of rapid population growth during this period, per capita incomes doubled, inflation remained low and poverty declined from 46% down to 18% by late 1980s, according to eminent Pakistani economist Dr. Ishrat Husain. This healthy economic performance was maintained through several wars and successive civilian and military governments in 1950s, 60s, 70s and 80s until the decade of 1990s, now appropriately remembered as the lost decade.



In the 1990s, economic growth plummeted to between 3% and 4%, poverty rose to 33%, inflation was in double digits and the foreign debt mounted to nearly the entire GDP of Pakistan as the governments of Benazir Bhutto (PPP) and Nawaz Sharif (PML) played musical chairs. Before Sharif was ousted in 1999, the two parties had presided over a decade of corruption and mismanagement. In 1999 Pakistan’s total public debt as percentage of GDP was the highest in South Asia – 99.3 percent of its GDP and 629 percent of its revenue receipts, compared to Sri Lanka (91.1% & 528.3% respectively in 1998) and India (47.2% & 384.9% respectively in 1998). Internal Debt of Pakistan in 1999 was 45.6 per cent of GDP and 289.1 per cent of its revenue receipts, as compared to Sri Lanka (45.7% & 264.8% respectively in 1998) and India (44.0% & 358.4% respectively in 1998).



After a relatively peaceful but economically stagnant decade of the 1990s, the year 1999 brought a bloodless coup led by General Pervez Musharraf, ushering in an era of accelerated economic growth that led to more than doubling of the national GDP, and dramatic expansion in Pakistan's urban middle class.

Per Capita PPP GDP



Pakistan became one of the four fastest growing economies in the Asian region during 2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program.



The above facts were acknowledged by the current PPP government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008. The document clearly (but grudgingly) acknowledged that "Pakistan's economy witnessed a major economic transformation in the last decade. The country's real GDP increased from $60 billion to $170 billion, with per capita income rising from under $500 to over $1000 during 2000-07". It further acknowledged that "the volume of international trade increased from $20 billion to nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Large capital inflows financed the current account deficit and contributed to an increase in gross official reserves to $14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the government's social policies contributed to a reduction in poverty and improvement in many social indicators". (see MEFP, November 20, 2008, Para 1)


 
The decade also cast a huge shadow of the US "war on terror" on Pakistan, eventually turning the nation into a frontline state in the increasingly deadly conflict that shows no signs of abating. Along with the blood and gore and chaos on the streets, there are hopeful signs that rule of law and accountability is beginning to prevail in the country with the restoration of representative democracy and independent judiciary, largely in response to an increasingly assertive urban middle class, vibrant mass media and growing civil society.



The Zardari-Gilani government inherited a relatively sound economy on March 31, 2008. It inherited foreign exchange reserves of $13.3 billion, exchange rate at Rs62.76 per US dollar, the KSE index at 15,125 with market capitalization at $74 billion, inflation at 20.6 per cent and the country's debt burden on a declining path. The government itself acknowledged in the same document that "the macroeconomic situation deteriorated significantly in 2007/08 and the first four months of 2008/09 owing to adverse security developments, large exogenous price shocks (oil and food), global financial turmoil, and policy inaction during the political transition to the new government". (Para 3 of the MEFP, November 20, 2008.



Why is it that Pakistani economy has done well under military governments and performed poorly when led by politicians? To put it all in perspective, let's recall how late Dr. Mahbub ul-Haq, the renowned Pakistani economist who is credited with the idea of UNDP's human development index (HDI), explained the corrosive impact of political patronage on economic policy in Pakistan.





In a 10/12/1988 interview with Professor Anatol Lieven of King's College and quoted in a recent book "Pakistan-A Hard Country", here is what Dr. Haq said:


"..every time a new political government comes in they have to distribute huge amounts of state money and jobs as rewards to politicians who have supported them, and short term populist measures to try to convince the people that their election promises meant something, which leaves nothing for long-term development. As far as development is concerned, our system has all the worst features of oligarchy and democracy put together.

That is why only technocratic, non-political governments in Pakistan have ever been able to increase revenues. But they can not stay in power for long because they have no political support...For the same reason we have not been able to deregulate the economy as much as I wanted, despite seven years of trying, because the politicians and officials both like the system Bhutto (Late Prime Minister Zulfikar Ali Bhutto) put in place. It suits them both very well, because it gave them lots of lucrative state-sponsored jobs in industry and banking to take for themselves or distribute to their relatives and supporters."




Here is how Pakistani economist and NUST Professor Ashfaque Husain Khan explains the current situation:

What went wrong? Why one of the fastest growing economies in the Asian region until two years ago has been totally forgotten in the region? Firstly, the speed and dimension of exogenous price shocks (oil and food) were of extraordinary proportions. Secondly, the present government found itself totally ill-prepared and clueless in addressing the challenges arising out of the shocks. While rest of the world was taking corrective measures and adjusting to higher food and fuel prices, Pakistan lurched from one crisis to another.



Despite peaceful election and a smooth transition to a new government, political instability persisted. For a protracted period there were no finance, commerce, petroleum and natural resources and health ministers in the country. The government lost six precious months in finding its feet. It gave the impression of having little sense of direction and purpose. A crisis of confidence intensified as investors and development partners started to walk away. The stock market nosedived, capital flight set in, foreign exchange reserves plummeted and the Pakistani rupee lost one-third of its value. In short, Pakistan's macroeconomic vulnerability had grown unbearable. It had no option but to return to the IMF for a bailout package. There were no Plan A, B and C. There was only one plan, that is, to return to the IMF.

While the country was moving rapidly towards the IMF, the ministry of finance had prepared the plan to bring $4 billion by June 30, 2008 through four transactions. A kick-off meeting was scheduled on April 23, 2008 at the ministry to give a final touch to the various roadshows. These transactions were canceled on April 20, 2008. Who ordered the cancellation of $4 billion transaction? This cancellation prompted balance of payment crisis and the rest became history.

The economy continues to remain in intensive care unit and is barely breathing thanks to the injection of funds from the IMF, World Bank and Asian Development Bank. The economy is not on the radar screen of the government and as such the economic managers have no relevance in the current political set up. The exit of Shaukat Tarin is a classic example. At least he tried his best to inject financial discipline but paid the price of teaching prudent financial management.


Since Tarin's departure, Abdul Hafeez Shaikh has assumed the position of finance minister. It is still early to judge him, as the economy has suffered yet another major jolt from the widespread devastation caused by recent floods. This has added to the already extreme challenge Pakistan's leadership faces in bringing political and economic stability to the nation.

Here's a video titled "I Am Pakistan":



Related Links:

Haq's Musings
Ishrat Husain: Structural Reforms in Pakistan's Economy
Role of Politics in Pakistan Economy

Pakistan's Economic Performance 2008-2010

Incompetence Worse Than Corruption in Pakistan
Pakistan's Circular Debt and Load Shedding
US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

India Pakistan Contrasted 2010
Pakistan's Foreign Visitors Pleasantly Surprised
After Partition: India, Pakistan and Bangladesh

The "Poor" Neighbor by William Dalrymple
Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?
India Worse Than Pakistan, Bangladesh on Nutrition
UNDP Reports Pakistan Poverty Declined to 17 Percent

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector

Pakistan's Decade 1999-2009

South Asia Slipping in Human Development
Asia Gains in Top Asian Universities

BSE-Key Statistics
Pakistan's Multi-Billion Dollar IT Industry

India-Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

IMF-Pakistan Memorandum of Economic and Financial Policies

Comments

Riaz Haq said…
Here is the latest news from State Bank of Pakistan reported by The Nation newspaper:

KARACHI – In the backdrop of widespread losses caused by the unprecedented rains and devastating floods to the economy in the early months of current fiscal year, the State Bank of Pakistan has predicted that the real GDP growth would be in the range of 2 to 3 per cent in FY11 against the annual plan target of 4.5 per cent.
The SBP, in its Annual Report on the State of the Economy for the year 2009-10 released here on Monday, stated that the annual average inflation for FY11 is likely to remain between 13.5 to 14.5 per cent, up from both, the 9.5 per cent target and earlier SBP forecast of 11.0- 12.0 per cent for the year.
Moreover, the provisional SBP projections indicate that the current account deficit will likely to rise between 3-4 per cent while the fiscal deficit is anticipated to be in the vicinity of 5 to 6 per cent of GDP during FY11. In addition, it projected that workers’ remittances are likely to stay between $9.5 billion to $10.5 billion whereas exports and imports are likely to be between $20 billion to $21 billion and $34 billion to $35 billion, respectively in the entire course of ongoing fiscal year.
The Report pointed out that financing even the moderate increase in the current account deficit may prove stressful for the economy, with rising pressures on the country’s foreign exchange reserves and exchange rate.
The Report said, “Negative shocks stemming from the floods have further exposed the existing structural weaknesses in the economy. Addressing these will require improvements in macroeconomic discipline as well as continued reforms to improve the resilience of the economy. The required reforms include those to improve productivity, strengthen public institutions, improve economic governance, and build social safety nets to protect vulnerable segments of the population.”
The Report while referring an independent study, warned that the occurrence of poverty, which started to decline over the last decade, is expected to increase in the wake of the floods in the time to come.
According to the Report, the direct impact of the flood-related supply shock is likely to be limited. For example, the impact of flood/rain damages and shortages of minor crops are not expected to persist beyond 2 to 3 months as supply line improves and as fresh crops (e.g., vegetables) enter the market. Similarly, for some other products, any rise in domestic prices would be capped by low international prices.
It is important to note here that prices of dairy products were already continuing on a secular rise, even prior to the floods, due to sustained strong domestic and external demand. Livestock losses in the flood would exacerbate this rising trend, but only to a small extent.
It said that the extended persistence of double-digit inflation had already been a source of concern even ahead of the floods, particularly given the risk that an upward trend in food-commodity prices (e.g. wheat, edible oil, sugar, corn, etc.) could be compounded by any weakness in the exchange rate. Moreover, inflationary pressures were also expected to strengthen as a result of the recent 50 percent increase in government sector salaries, and anticipated rise in energy tariffs (as the government continued to reduce subsidies) and removal of GST exemptions to broaden the tax base.
Riaz Haq said…
After agriculture, textile sector is the second largest employer in India, according to fiber2fashion.com :

The Textile Sector in India ranks next to Agriculture. Textile is one of India’s oldest industries and has a formidable presence in the national economy in as much as it contributes to about 14 per cent of manufacturing value-addition, accounts for around one-third of our gross export earnings and provides gainful employment to millions of people. The textile industry occupies a unique place in our country. One of the earliest to come into existence in India, it accounts for 14% of the total Industrial production, contributes to nearly 30% of the total exports and is the second largest employment generator after agriculture.

About 27% of India's foreign exchange earnings are on account of export of textiles and clothing alone. The textiles and clothing sector contributes about 14% to the industrial production and 3% to the gross domestic product of the country. Around 8% of the total excise revenue collection is contributed by the textile industry. So much so, the textile industry accounts for as large as 21% of the total employment generated in the economy. Around 35 million people are directly employed in the textile manufacturing activities. Indirect employment including the manpower engaged in agricultural based raw-material production like cotton and related trade and handling could be stated to be around another 60 million.


Here are excerpts from a NY Times report on how the situation is changing in Coimbatore, a big textile center in Tamil Nadu:

The clear losers of India’s currency approach right now are garment makers. From April to August, exports were down 6.4 percent from a year earlier in the $10 billion Indian clothing industry. Although it represents only about 1 percent of the nation’s economy, the garment industry is India’s largest employer after agriculture.

“All the other countries are protecting their currencies, so why are we not?” said Premal Udani, chairman of India’s Apparel Export Promotion Council.

Indian policy makers are eager enough for foreign investment that, for now at least, they are willing to endure the damage a stronger rupee inflicts on exports, especially for lower-value goods like clothes. Exports of other Indian goods and services, like software and pharmaceuticals, have not been as hard hit because they are not as price-sensitive.

India also places a premium on the higher-value jobs that are fueled by foreign investment. Not far from where that old textile mill once stood, the German engineering company Bosch and the American software concern Perot Systems have opened offices in a new technology park.

The influx of capital has helped fuel a nearly 9 percent annual growth rate for India’s economy. It has also powered the Indian stock market to near record highs. A big beneficiary of the stock rally has been the government, which is selling shares in state-owned firms like Coal India, the world’s largest coal miner.

The government, which has a large budget deficit, plans to raise $9 billion in the current fiscal year from share sales and spend the money on jobs for the rural poor and other welfare programs. A stronger rupee also reduces India’s bill for commodities, like oil, that it needs to import.

“If India is to sustain 8 percent growth or 9 percent growth, the only constraint on that can be capital,” said Nikhil Chaturvedi, managing director of Prozone, the Indian real estate firm that is building the Alliance Mall development. “Free flow of capital should be allowed in all sectors” of the economy, he said.
Riaz Haq said…
Here is a quick comparison of different sectors of the economy in India and Pakistan in terms of employment and GDP contribution:

Country....Agri(emp/GDP)..Textiles..Other Mfg..Service(incl IT)

India........60%/16% ...........10%/4%.....7%/25%...........23%/55%

Pakistan......42%/20%...........12%/8%......8%/18%...........38%/54%



Assuming India's PPP GDP of $3.75 trillion (population 1.2 billion) and Pakistan's $450 billion (population 175 million), here is what I calculated in terms of per capita GDP in different sectors of the economy:

India vs. Pakistan:

Agriculture: ($833 vs. $1,225)

Textiles: ($1,242 vs. $1,714)

Non-Textile Mfg ($11,155 vs $5,785)

Services ($7,246 vs $3,654)

It shows that Indians in manufacturing and services sectors add more value and produce higher value goods and services than their Pakistani counterparts.

The income range in India is much wider from $883 to $11, 155 accounting for the much bigger rich-poor gap relative to Pakistan's range from $1225 to $5,785.
Riaz Haq said…
Here's a Dawn news report on US bipartisan panel recommending Pakistan's membership of G20:

WASHINGTON: The United States should seek Pakistan’s membership or at least observer status in major international forums, such as the Group of Twenty, a US task force recommended on Friday.

The panel – led by Richard Armitage and Samuel Berger, top aides to former presidents George W. Bush and Bill Clinton – notes that Pakistan’s presence in such groups would enable it “to connect with new power structures and familiarise it with emerging norms and responsible international behaviour”.

In a report released on Friday, the task force, which enjoys support of the administration, endorses the Obama administration’s effort to cultivate cooperation with Pakistan as the best way to “secure vital US interests in the short, medium, and long run”.

It recommends that this approach should include significant investments in Pakistan’s own stability, particularly after this summer’s floods. But in order for US assistance to be effective over the long-term, Washington must make clear that it “expects Pakistan to make a sustained effort to undermine Pakistan-based terrorist organisations and their sympathisers.” The task force warns that “two realistic scenarios” could force a fundamental reassessment of US strategy and policy.

First, it is possible that Pakistan-based terrorists conduct a large-scale attack on the United States and that the Pakistani government – for any number of reasons – refuses to take adequate action against the perpetrators. In the aftermath of a traumatic terrorist attack, it would be impossible for US leaders to accept Pakistani inaction.

The United States most likely would launch a targeted strike on Pakistani territory led by Special Forces raids or aerial attacks on suspected terrorist compounds. Even limited US military action would provoke a strong backlash among Pakistanis. Public anger in both countries would open a rift between Washington and Islamabad.

In a second scenario, Washington could reach the conclusion that Pakistan is unwilling to improve its cooperation on US counter-terrorism priorities. The panel warns that frustration over Pakistan’s persistent relationships with groups like Lashkar-e-Taiba and the Afghan Taliban at some point could cause the United States to shift its approach towards Pakistan.

In this case, Washington will have a number of points of leverage with Pakistan. It could curtail civilian and military assistance. It could also work bilaterally and through international institutions, such as the International Monetary Fund and the UN, to sanction and isolate Pakistan.

US operations against Pakistan-based terrorist groups could be expanded and intensified.
In the region, the United States could pursue closer ties with India at Pakistan’s expense.
“Sticks would be directed against Pakistan-based terrorists, but also against the Pakistani state, in an effort to alter its policies. The US-Pakistan relationship would become openly adversarial.”

But the panel warns that “Americans and Pakistanis must understand that these options carry heavy risks and costs. Both sides have a great deal to lose”.
Riaz Haq said…
Here's Dr. Ashfaque H. Khan, Dean of NUST Business School, opposing SBP's latest 0.50% discount rate hike in Pakistan:

...another objective of tightening monetary policy is to discourage the government from borrowing heavily from the SBP to finance fiscal deficit. Government borrowing from the SBP is the main source of the surge in reserve money growth. During the last four-and-a-half-months, the government has borrowed Rs265 billion, against Rs16 billion in the corresponding period last year. As a result, reserve money has grown by 18.4 per cent, against 9.7 percent last year.

Perhaps the SBP believes that a rise in discount rate will discourage the government from borrowing from the central bank. The SBP has forgotten that by raising the discount rate by 100 basis points in the current fiscal year, it has increased the interest payment of the government by almost Rs50 billion. Thus, everything being held constant, the budget deficit will increase by Rs50 billion. Hence, more deficit, more borrowing, a further hike in the discount rate, further increase in interest payment, and further increase in budget deficit. Do we want to create a vicious circle?

Perhaps the SBP believes that by increasing the discount rate it will encourage commercial banks to participate actively in auction of government debt. In other words, it will shift government borrowings from the SBP to scheduled banks. Government borrowings from the scheduled banks stood at Rs76 billion, against Rs164 billion in the same period last year. Perhaps the scheduled banks are deliberately avoiding participation in the auction to the extent they should have been. They have thereby signalled that they need a higher interest rate.

Should the SBP, as monetary authority, be guided by the animal spirit of the scheduled banks, or should it be in the driving seat? Perhaps the governor of the SBP would like to be guided by the scheduled banks. I personally believe that the hike in discount rate was unwarranted and the status quo should have been maintained. The hike was an act of overreaction and could have been avoided.
Riaz Haq said…
There seems to be consensus developing among Pakistani economists that "prompt measures needed to control rising inflation", according to a report in Daily Times:

LAHORE: Pakistan is fast heading towards higher inflation and to overcome this grim scenario; improvement in governance coupled with a drastic cut in expenditure and revenue generation is crucial.

The doom and gloom scenario needs an urgent handling. Good governance, good policies, good institutions, good macroeconomic management are the drivers of economic growth that have gone dormant for quite some time. This was the crux of the speeches delivered at Economic Dialogue 2011 held at Lahore Chamber of Commerce and Industry on Tuesday. Senior economist Dr Akmal Hussain said the country is facing its gravest economic crisis in history after 1971. He said the economy is in deep recession, poverty along with high inflation is a recipe for disaster.

Unfortunately, he added, the government has zero fiscal space. He warned that Pakistan was heading towards higher inflation if immediate improvement in governance is not accompanied with cut in expenditure and substantial increase in revenue.

The former WB Executive Abid Hassan said that the institutional decay has now started taking its toll and the government should take appropriate measures on emergent basis to stop this decay. He said that with every passing day the country is going deeper and deeper into the economic mire. “Today we have reached a situation where even an economic stimulus would not work. The government should concentrate on tax collection and controlling unnecessary expenditures. Unless and until these two measures are not taken, the economy would not be able to be back on rails,” he said. The PIDE Vice Chancellor Dr Rashid Amjad said that the present day doom and gloom scenario could be changed by overcoming the acute energy shortage being witnessed by the country. The issue of circular debt needs to be taken care of by those sitting at the helm of affairs. “PSDP has a multiplier effect on the employment and economy. It should not be cut,” he said.

Former chief Economist Planning Commission Dr Pervaiz Tahir blamed the political chaos for our economic woes and termed the dictatorship democracy cycle as mother of all ills.

Energy sector expert Munawar Baseer, ex Executive committee member Almas Hyder and LCCI President Shahzad Ali Malik while appreciating the input provided by the economists said that most of the issues and challenges faced by the country are more of political. The political leadership while realizing the sensitivity of the situation should come up with a solid solution with close coordination with the chambers. “The policies are being made in isolation without the consultation of real stakeholders and that’s why the economic situation today has become more complex and directionless,” he said. The speakers said that the business community should be involved for the sake of correct decision-making.

They urged the government to evolve a more realistic and pragmatic framework by putting an end to inter-provincial disparity and the disparities within the province. The government should re-do its priority list and concentrate on the few areas that come on the top of that priority list.

It is very unfortunate, the speakers said, that the country has become the most inhospitable for both the local and the foreign investors for security reasons.

“Our inability to reach a consensus on water issue and inability to tap hydrocarbon potential of Balochistan has virtually pushed us to the wall,” they said. staff report
Riaz Haq said…
Here are summary and salient points of Anatol Lieven's Pakistan: A Hard Country:

In the past decade Pakistan has emerged as a country of immense importance. Large, heavily populated, strategically placed between Iran, Afghanistan and India, Pakistan has since its creation just over sixty years ago been pulled in several different, irreconcilable directions.

In the wake of Pakistan's development of nuclear weapons, Osama Bin Laden's presence in its unpoliceable border areas, its shelter of the Afghan Taleban, and the spread of terrorist attacks by groups based in Pakistan to London, Bombay and New York, there is a clear need to understand this remarkable and highly contradictory place.

Far from seeing Pakistan as the failed state often portrayed in the media, Lieven's extraordinary new book instead treats it as a viable and coherent state that, within limits and by the standards of its own region rather than the West, does work. Lieven argues strongly against US actions that would risk destroying that state in the illusory search for victory in Afghanistan.

This work is based on a profound and sophisticated analysis of Pakistan's history and its social, religious and political structures. Lieven has interviewed hundreds of Pakistanis at every level of society, from leading politicians and soldiers to village mullahs and rickshaw drivers. In particular, his examination of the roots of popular sympathy for the Taleban in Pakistan draws on the testimony of people whose views are rarely consulted by Western analysts.

1. For most of the years since 1947, Pakistan has had higher economic growth rates than did India. Pakistan does not have the same pockets of extreme poverty, or for that matter the extreme wealth. The level of economic equality in Pakistan is relatively high.

2. Charitable donations run almost five percent of gdp, one of the highest percentages in the world and this reflects the emphasis on alms-giving in Islam.

3. A good quotation from a businessmen: “One of the main problems for Pakistan is that our democrats have tried to be dictators and our dictators have tried to be democrats.”

4. Agriculture pays virtually no tax and the government lends lots of money to businesses and doesn’t seriously ask for it back. As a result Pakistan collects far less revenue than does India, even comparing areas of comparable per capita income. If Pakistan were a state of India, it still would be considerably richer per capita than India’s poorest regions, such as Bihar.

5. The Pakistani state is nonetheless a lot more stable than most people think. In part this is because of the conservative structure of kinship and landholder power in the country.

6. The main threats to the future of Pakistan have to do with ecology and water, not politics.

7. The end of the book has a very interesting discussion about how U.S. actions in Pakistan affect different coalitions, feelings of humiliation, relative status relationships, etc.

Definitely recommended, as are Lieven’s books on the Baltics and Ukraine.


Sources:

http://www.penguin.co.uk/nf/Book/BookDisplay/0,,9781846141607,00.html

http://marginalrevolution.com/marginalrevolution/2011/05/pakistan-a-hard-country.html
Riaz Haq said…
Here's an except from a piece written by Mudassar Mazhar Malik, an MIT (Sloan) and LSE (London) educated Pakistani economist and investment banker, for Maleeha Lodhi's compendium "Pakistan Beyond The Crisis State" on his assessment of Pakistan today:

"First, despite seven changes in government in the past twenty years, Pakistan has maintained an average growth rate of 5 percent per annum. Until recently, Pakistan was being touted as one of the most dramatic turn-around stories of the last decade. Driven by domestic demand and population growth, GDP growth averaged over 6% a year from 2003-2008. This translated into an investment and infrastructure led growth cycle cycle fueling expansion in the housing, health care, education, food, infrastructure, energy, telecommunications, IT and financial services sector. This has meant that Pakistan's economy has moved progressively from its traditional agricultural base to manufacturing and increasingly to services. In that sense, Pakistan's economic structure is closer to that of India and China, and is unlike many smaller Asian countries, which are more dependent on export growth."
Riaz Haq said…
Karachi's HDI is about 0.799, much higher than Pakistan's national human development index and comparable to European nations of Portugal and Poland, and higher than Malaysia's.

Here's a brief UNDP description of human dev in Pakistan:

According the Human Development Report 2010, Pakistan’s HDI value increased from 0.311 to 0.490 during 1980 to 2010, an increase of 58% or average annual increase of about 1.5% which ranked it 10 in terms of HDI improvement in comparison to the average progress of other countries. Pakistan’s life expectancy at birth increased by more than 9 years, mean years of schooling increased by about 3 years and expected years of schooling increased by almost 4 years. Pakistan’s GNI per capita increased by 92 per cent during the same period.
Pakistan’s 2010 HDI of 0.490 is below the average of 0.516 for countries in South Asia. It is also below the average of 0.592 for medium human development countries. From South Asia, Pakistan’s 2010 “HDI neighbours”, i.e. countries which are close in HDI rank and population size, are India and Bangladesh, which had HDIs ranked 119 and 129 respectively. Pakistan is also compared to the Islamic Republic of Iran, a high human development country.


http://undp.org.pk/about-pakistan.html
Riaz Haq said…
Here's an Express Tribune story on a discussion at Inst of Business Admin in Karachi, Pakistan:

A vigorous difference of opinion among technocrats, economists and corporate leaders on a number of socio-economic issues was witnessed during an interactive session held at the Institute of Business Administration (IBA) on Saturday. And at the end it was unclear whether democracy was the answer, or a dictatorship, as advocates for both arguments came up with pretty convincing logic.

Speaking at the session organised by IBA in collaboration with Blinck, a youth resource group, under the title of “New Year Resolutions for the Economy of Pakistan,” panellists candidly expressed disagreements over the questions of foreign aid, democracy and the interplay of policy-making and implementation at the national level.

“Many people think that a non-democratic set-up is a panacea for the economic problems of Pakistan. They’re wrong. A non-democratic government is not sustainable,” said Ishrat Husain, former governor of the State Bank of Pakistan, who is currently serving as dean and director of IBA. “Democracy is slow and messy. It takes two steps forward and four steps backwards. Yet it’s the only option. The democratic process shouldn’t be interrupted.”

Husain said military regimes do make an extra effort in the beginning to improve the economy because they have not yet developed a constituency of their own. “But later on, they start making compromises.”

Claiming that a democracy needs low poverty and high literacy rates to prosper, Gillette Pakistan CEO Saad Amanullah Khan said Pakistan had only two eras of development: first, in the early 1960s, and second, during the first three years of the Musharraf government. “I don’t care if a dictator is there as long as he revamps the economy,” Khan said.

He said that the idea of a government led by technocrats that could bring the economy back on its feet had its relative merits. Khan emphasised the need for adopting a national vision for long-term growth, adding that the entire nation should work towards its realisation. “Go to Proctor & Gamble or Gillette, and they’ll tell you their five-year goals in detail. But ask a government representative what the vision for Pakistan is for the next five years, you won’t get any definite answer.”

Disagreeing with Khan, Husain said Pakistan did not need any more “visions,” as the problem existed in their implementation only. “The country is full of pious documents. These are beautifully written policy papers that nobody reads. We all agree on the substance of policy, but the implementation is the real issue.”

Responding to a question, former Asia editor for The Economist Simon Long said it was wrong to attribute Pakistan’s dismal economic performance of six decades to its culture or laid-back attitude to work. He said that 35 years ago people often assumed China’s poor economy was a consequence of Confucianism. He said it was now obvious that Confucianism had nothing to do with the slow growth in the economy of China.

Talking about Pakistan’s economic indicators, Long said an economy with a tax-to-GDP ratio of less than 9% was not sustainable. He said it was hard for him to understand how Pakistan’s economic managers would bring down the fiscal deficit in next two to three years.

In response to the comment of a business student that Pakistan should stay away from all kinds of foreign aid and assistance to achieve self-reliance, Husain said the assumption that the Pakistani economy depended on US aid to survive was wrong. “Isolationism won’t solve our problems. Transfer of knowledge and technology is important. You’ve to be outward-oriented.”


http://tribune.com.pk/story/301827/failed-rescue-act-too-many-visions-for-pakistan/
Riaz Haq said…
There's much talk of disparity between East and West Pakistan before Bangladesh separated from Pakistan in 1947:

Let's see what has happened in BD vs Pakistan since 1971:

1. In 1969-70, the ratio of per capita income between West and East Pakistan was 1.6, as published by Bangladesh's Daily Star.

In 2010, the ratio has increased to 1.7, according to IMF.

2. Bangladesh is still categorized by the Word Bank among the least developed countries of the world because it started with a lower base than West Pakistan, and the loss of its Hindu business elite in 1947 left it worse off. It also didn't have the benefit of the large number of Muslim businessmen who migrated to West Pakistan, particularly Karachi, after partition.

3. Pakistani economist Dr. Ishrat Husain explains it well when he says that "although East Pakistan benefited from Ayub’s economic reforms in 1960s, the fact that these benefits were perceived as a dispensation from a quasi-colonial military regime to its colony—East Pakistan—proved to be lethal."
Riaz Haq said…
Here's Wall Street Journal on Bilawal Bhutto's first ever Op Ed published in Pakistan's Express Tribune:

Mr. Bhutto Zardari uses his op-ed, published in the English-language Express Tribune newspaper, to enumerate what he sees as his mother’s achievements, including pushing women’s rights. The PPP in the 1980s could have used its popular position to unseat the military-run government of the time, but did not do so, he writes. “The PPP has always been careful to distinguish between the army as an institution and the dictator who abuses his position,” he says.

It’s a challenge to the military to stay out of politics. And it seems that army chief Gen. Ashfaq Parvez Kayani for now has no designs to take over the government.

Still, the PPP is a lot less popular in Pakistan than it was in Ms. Bhutto’s day and you sense her son feels that. In many places of the op-ed, it feels as if he is writing as the head of an opposition party, not co-chairman of the ruling PPP.

“We can only dream of what might have been had she lived,” he writes at one point of his mother.

He enumerates the challenges facing Pakistan –from education, to energy shortages to the investment-starved economy – but offers no solutions. It’s easy to forget reading it that the PPP is in power.


http://blogs.wsj.com/indiarealtime/2011/12/27/bilawal-bhuttos-first-pakistan-op-ed-marks-mothers-death/?mod=google_news_blog

Here's an excerpt from Bilawal's Op Ed:

What we do know is that there are 86,000 more schools because of Shaheed Benazir Bhutto. That, under her government foreign investment quadrupled; energy production doubled; exports boomed. Under her government, 100,000 female health workers fanned out across the country, bringing health care, nutrition, pre and postnatal care, to millions of our poorest citizens. It was under her government that women were admitted as judges to the nation’s courts, that women’s police departments were established to help women who suffered from domestic violence and a women’s bank was established to give micro loans to women to start small businesses. It was under Shaheed Benazir Bhutto’s leadership that cell phones, fibre optics and international media were introduced, and the Pakistani software industry blossomed. And it was on her very first day as prime minister, that all political prisoners were freed, unions legalised and the press uncensored. It was an amazing record of accomplishment, made even more remarkable by the constraint of aborted tenures, by constant pressure from a hostile establishment and presidents with the power to sack elected governments.

http://tribune.com.pk/story/312290/on-the-fourth-death-anniversary-of-my-mother/
Riaz Haq said…
Here are some excerpts from an interesting Friday Times Op Ed on Pakistan's undocumented (informal & illegal) economy:

The economy is in the doldrums, but that is not news any more. What is more interesting, and more difficult to investigate, is what is happening in the world beyond the survey operator and tax collector's ambit. Papers published by the Social Policy Development Center (SPDC) in Karachi and the State Bank place the informal economy in a range of 20 to 30 percent of GDP. But most of this undocumented economy does not include strictly illegal, or shall we say criminal, practice.
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that militant groups are running their own businesses (during the TNSM's movement in Swat, emerald mines were reputed to be in the hands of Maulana Fazlullah's men); that militants and terrorists are even coming up with new ways to generate funds (kidnapping for ransom being a case in point).
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According to data from the UN, Afghanistan produced about 90% of the global output of opium in 2007. This fell to just over 62% by 2010 (with Myanmar accounting for most of the rest). Three quarters of the poppy production was in the provinces of Helmand and Kandahar, which border Pakistan. Domestic consumption of opium in Afghanistan is next to nil. Also, the country does not legally import the chemicals needed to process opium into heroin, although these are imported in Pakistan for legitimate uses. Almost 7,000 metric tons of opium, both raw and processed, in the form of morphine and heroin, leaves Afghanistan and finds its way to the lucrative markets of Western Europe.
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Given that the global trade in opiates is estimated to have a value of some $70 billion, even a small proportion of the proceeds can make life comfortable for a lot of people in Pakistan.
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With close to 80 suicide attacks in 2010, about 400 rocket attacks, and about 350 bomb blasts in addition to target killings, use of improvised explosive devices etc, its not hard to deduce that there is a significant trade in arms and ammunition in Pakistan. The ISAF container scam case led to some interesting findings. There were the obvious conclusions - including that the abuse of the Afghan Transit Trade facility is massive. More tellingly, the Supreme Court's suo moto case found that 7,922 ISAF containers simply went missing. In addition to the packed meals, the alcohol and the camp supplies stamped with ISAF logos that appear in border markets, the possibility of pilferage of more dangerous items cannot be ruled out.

The smuggling masked by the Afghan Transit Trade is another story altogether, and according to some stakeholders extends to the illegal trade in timber, antiquities and gemstones stemming from that unfortunate nation. Being a neighbor to a land-locked, war-ravaged country with no semblance of law and order was never going to be easy. But Pakistan's governance failures have made a bad situation worse.

There's much more to Pakistan's economy than meets the eye, and many of the more interesting activities are practically impossible to investigate unless someone is prepared to take considerable personal risks. The few pieces of the jigsaw puzzle that are available from public data and information paint a tantalizing picture. If the downslide of the formal economy continues, things could get even more interesting.


http://www.thefridaytimes.com/beta2/tft/article.php?issue=20120113&page=7
Riaz Haq said…
Here are excerpts from a Dawn report on World Bank's assessment of Pakistan's economy:

...Pakistan is South Asia’s second largest economy, representing about 15 per cent of regional GDP.
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The portion on Pakistan points out that the country’s economy firmed in the second half of 2011. Industrial production surged to grow at a robust 32.1pc annualised pace during the three months ending in October, after falling at 9.1 and 10.1pc rates during the first and second quarters, respectively.

Part of the strengthening in growth reflects base effects due to the widespread flooding that had hampered activity in the second half of 2010. Since the floods occurred in July and August 2010, GDP growth on a fiscal year basis (ending June-2011) slowed to 2.4pc.

The report notes that Pakistan’s weak growth outturns are also tied to “worsening security conditions, accompanied by greater political uncertainty and a breakdown in policy implementation”.

The report also notes that “infrastructure bottlenecks, including disruptions in power delivery,” remain widespread.

A notable bright spot has been a strengthening of exports, evident particularly in the first half of 2011, led by textiles that surged 39pc in the first half of the year.However, like India, Pakistan’s export volume growth saw a sharp fall-off in October.

Indeed, Pakistan’s export volumes fell to a minus 46pc rate in the three-months ending October.

Along with an upswing in worker remittances inflows, robust exports have supported Pakistan’s external positions and contributed to an improvement in the current account from a deficit of 0.9pc of GDP in 2010 to a surplus of close to 0.5pc of GDP in the 2011 calendar year.

The World Bank notes that monetary tightening in Pakistan brought about positive real lending rates in early 2011 as well, the first time since late 2009.
------------
The bank points out that for South Asian nations, including India and Pakistan, domestic crop conditions and price controls are more important determinants of domestic food price inflation.
------------
Regional monetary policy authorities face several challenges in reducing inflation.

More recently, currency devaluation has contributed to inflation as well. In Pakistan, monetary authorities have also been monetising the deficit, complicating the efficacy of other monetary policy efforts to reduce inflation.

A key factor working against monetary policy efforts is the overall stance of fiscal policy, which despite some consolidation, remains very loose.

Monetary authorities in Pakistan have responded to persistent price pressures by raising policy interest rates and/or introducing higher reserve requirements.

Lower revenue growth has contributed to larger fiscal deficits in Pakistan. Terms of trade losses are estimated at about 1.9pc of GDP for the region in aggregate. India and Pakistan saw negative impacts of close to 1.8pc of GDP – estimated January through September 2011 terms of trade impacts relative to 2010.

Remittance inflow to Pakistan rose by an estimated 25pc in 2011, partly in response to the widespread flooding in the second half of 2010.

International reserve positions in South Asia have generally improved since mid-2008. Latest readings of foreign currency holdings were equivalent to at least three-months of merchandise imports in Pakistan.
-----------
A good crop year (2011-12) in much of South Asia and sustained high regional stocks are providing a buffer for grain prices and import demand in 2012....


http://www.dawn.com/2012/01/19/pakistans-economy-recovering-wb.html

http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1322593305595/8287139-1326374900917/GEP_January_2012a_FullReport_FINAL.pdf
Riaz Haq said…
Here's a Dawn report on ADB's assessment of Pakistan economy:

...After devastating summer floods caused economic growth to slow to 2.4 per cent in the 2010/11 fiscal year, ADB country director for Pakistan Werner Liepach forecast growth to pick up to just 3.6 per cent in 2011/12. The government targets an expansion of 4.2 per cent.

“Short-term there are huge challenges… (the) next few months will continue to be protracted as there are repayments and not enough inflows, reserves will go down,” Liepach said.

“But I don’t see a crash coming, and I don’t see the economy taking off either and that’s not good enough.”

There is grave concern amongst analysts about a possible balance of payments crisis as Pakistan’s current account deficit has widened to $2.154 billion in the first six months of the 2011/12 fiscal year.

Pakistan had a surplus of $8 million in the same period last year.

The deficit is likely to widen further in the coming months because of debt repayments and a lack of external aid.

The country’s foreign exchange reserves stood at $16.90 billion in week ending Jan. 13, compared with its record of $18.31 billion in July last year.

The pressure on reserves is likely to continue especially as IMF repayments start from next month.
---------
Pakistan has to repay IMF about $1.1 billion by the end of 2011/12 fiscal year.

“Pakistan has huge potential and not all is negative or gloom and doom,” said Liepach. “I am positive in the long term if right decisions are taken today.”

Pakistan has been criticised over its slow implementation of fiscal reforms which include elimination of energy subsidies and restructuring of the state owned utilities.

The government also received criticism for not being committed towards implementing the necessary reforms to bring the economy back on track.

“The people who we are talking to in the government, technocrats, they are committed and want to see the benefits and improvements in Pakistan, they are very sincere in bringing a change in Pakistan,” said Liepach.

“But when you move away from the technocrat level, that’s when it becomes more complicated. It is a complex decision making system.”

Focus on projects and delivery of results

ADB’s focus and therefore assistance largely now revolves around projects with four core areas, energy, urban services, water infrastructure and irrigation, and transport.

“We want to fight poverty through growth and right now our business is focused on implementation of projects and to get results on ground,” said Liepach.

ADB does not require a letter of comfort from the IMF for approval or disbursement of project-based assistance.

ADB has an envelope of $2.9 billion for energy for Pakistan until 2016, out of which $1.4 billion has been utilised and $1.5 billion remains to be drawn down by the government.

Pakistan’s power sector faces a shortfall that often peaks at 5,000 megawatts per day.

For urban services, the board has approved $300 million, out of which $260 million remains, water infrastructure and irrigation $900 million has been approved with about $400 million left to be drawn down and $1.1 billion has been approved for transport, and $700 million is left.

Government can draw down the assistance when a project is approved and made effective.

“It’s a success when power reaches families and industries or when water becomes available to the families etc,” said Liepach.


http://www.dawn.com/2012/01/20/pakistan-growth-challenging-dependant-on-reform-pace-adb.html
Riaz Haq said…
Here are some excerpts from a Businessweek piece titled "India, Interrupted":

For much of India’s post-independence history, the country was an economic basket case—a textbook example of financial mismanagement, wasted potential, and stunted growth. Then, in the 1990s, after India embarked on market reforms and began opening its closed, semi-socialist economy, the narrative changed. As native companies aggressively acquired international brands, and as growth rates approached double digits, the media was full of triumphalist rhetoric about impending “economic superpowerhood.”

Over the last few months the narrative appears to have shifted again. Growth has slowed from more than 10 percent in 2010 to around 7 percent today. Inflation is persistently high, agricultural productivity has declined, and foreign investment and the stock market are down. Social unrest and deteriorating law and order in many parts of the country have potential investors spooked. Corruption is estimated to cost India at least $18.4 billion a year.

A recent Economist headline on the nation’s growth prospects read: “Slip-sliding away.” At the meeting of the World Economic Forum in Davos, Switzerland, India’s trade minister, Anand Sharma, was questioned by journalists about everything from corruption to inflation to social inequality. “Why are you picking on India?” the minister was reduced to asking. “What is going wrong with us?”

The truth is that India’s prospects were never quite as bright as they were made out to be—nor are they quite as dire as they are held to be today. Instead, the recent swings in the Indian narrative are another reminder of the role of sentiment in investors’ perceptions and decisions. Nations, like markets, are subject to often irrational (and certainly ill-informed) cycles of boom and bust.
------------------
Over the last few years, I’ve had occasion to spend considerable time in the Indian countryside, in villages and farms in the southern state of Tamil Nadu. These places are important to understanding India. For all the hype about the cities and their technology industries, some 70 percent of the population still lives in the countryside.

What I’ve seen is considerably more nuanced than is suggested by either the optimistic or pessimistic narratives of modern India. The villages around here are layered with stories of triumph and hardship, success and failure. Farming is dying, a reminder of the nation’s declining agricultural productivity, which threatens food security and rural livelihoods. The environmental damage wrought by India’s rapid growth is apparent in polluted bodies of water and steaming mounds of uncollected waste.

But for all these problems, there are also signs of India’s promise. People who have quit farming become entrepreneurs; they open cell-phone stores and restaurants and other small enterprises that drive an emerging new rural economy. Young men (and increasingly women) go to college; their horizons are far wider than their parents could have ever imagined.


http://www.businessweek.com/articles/2012-03-01/india-miracle-interrupted
Riaz Haq said…
Here's an excerpt from "The Proudest Day: India's Long Road to Independence" by Anthony Read:

The affair of the printing press highlighted the biggest problem being faced by Pakistan. India, which had finally been recognized by the British government as the successor state on 17 June after further pressure from Mountbatten, would simply take over a going concern with everything in place. Pakistan, on the other hand, would be starting from scratch without any established administration, without armed forces, without records, without equipment or military stores.

As early as 9 May, during his stay in Simla with Nehru, Mountbatten had admitted the problem. "What are we doing?" he had asked then. "Administratively, it's the difference between putting up a permanent building, a nissen hut, or a tent. As far as Pakistan is concerned, we are putting up a tent".


http://books.google.com/books?id=q9ebuSG64dkC&pg=PA468&lpg=PA468&dq=mountbatten+pakistan+tent+nissen&source=bl&ots=XyTeE-ehA0&sig=kleWlYGRLYziLqh3GejR_KQtm3Q&hl=en&sa=X&ei=9cgEUYq3IcTmiwKwq4DwDA&ved=0CEAQ6AEwAw#v=onepage&q=mountbatten%20pakistan%20tent%20nissen&f=false
Riaz Haq said…
Here's a Daily Times report on State Bank Governor Yaseen Anwar's assessment of Pak economy:

KARACHI: Pakistan’s economy has the ability to navigate through choppy waters and the economic potential this country holds encourage all to become a part of the country’s future.

The Governor State Bank of Pakistan (SBP) Yaseen Anwar at Pakistan Navy War College Lahore said while our current economic situation was less than optimal and it was also very far from what might be described as an economic calamity.

Anwar said in 65 years, Pakistan has never gone through an episode of hyperinflation, Pakistan has never defaulted on its international and domestic debts, in fact our economy has grown consistently, but not spectacularly, over the past six decades.

This has been despite periods of international alienation and sanctions, three expensive wars, two hostile fronts, regular political upheaval, social unrest, sharp increases in the price of oil, and much, much more, he added.

State Bank has always ensured that the financial system of the country remains safe and stable. The robustness of our financial system is a direct consequence of the reforms process and the State Bank’s constant vigilance, he said.

There is a lot that can be improved in our financial system. He called for the development of efficient debt markets, even better regulatory and reporting practices and the broadening of the financial sector’s scope to include largely unbanked sectors of the economy, such as agriculture, small and medium enterprises and housing.

‘Despite this wish-list, the fact remains that our financial system is, by design, secure and does not pose any threat to the economy as a whole,’ he added.

The size of Pakistan’s undocumented economy is by some estimates, as large as the formal economy. The informal economy does not file taxes and while it does absorb a significant chunk of the labour force, it also evades corporate and labour laws, he said.

Although close informal relationships do make the economy more resilient, they do so at a cost to the overall economy, by eroding the ambit of the regulators.

He stressed the need for the greater integration of country’s domestic market with global markets but observed it does not mean that we should not have proper controls and mechanisms in place to safeguard our own interests. ‘Greater integration with financial markets will mean that capital will flow more quickly through our borders. It’s definitely something that will boost the national economy, but, as most East Asian countries learned in the 90s, it can be a double-edged sword.

Therefore having some capital controls in place, which reduce the volatility of capital flows, is a necessary regulation in this day and age, Anwar added.

More effective regulation is the need of the hour for our own economy, he said, adding it is an essential part of what is needed today to get the economy on a track for steady and sustainable growth.

He said the government’s footprint in some sectors of the economy was very large and quite negligible in other sectors.

Such divergence is unhealthy. Effective regulation is sorely lacking in other sectors. The tax machinery can be tightened considerably. One of the country’s most challenging problems today is the size of the fiscal deficit-and a large part of the solution lies in increasing our tax base by enacting regulation that encourages tax compliance, and punishes tax evasion, he added.

The government will need to borrow less money from the central bank. Borrowing from the central bank is popularly known as printing money, he said, adding if government borrowing from the central bank falls, inflation will follow suit.

Therefore, better tax collection is a necessary condition for faster economic growth. And for that we need to have more effective tax regulation, he added.

....


http://www.dailytimes.com.pk/default.asp?page=2013\03\06\story_6-3-2013_pg5_1
Riaz Haq said…
Here's an interesting Op Ed by Mazur Ejaz in Friday Times:

The condition of an economy is often confused with the financial health of its government. Pakistan's economy is perceived to be in a deep hole because of its near-bankrupt fiscal conditions. Similarly, America's inability to settle on a national budget is taken to be an indicator of the collapse of the US Empire.

In some ways, the condition of the economy and the financial health of the government are separate matters. Major stock market indexes at Karachi Stock Exchange and the Wall Street are at their highest level, but both governments are facing serious financial problems. Most of the countries around the world are facing similar dichotomous situations. So how does one solve the riddle of the corporate sector making record profits while governments around the world are in serious financial jeopardy?

The phenomenon needs to be analyzed at grass-roots level. A shopkeeper from my village comes to mind. He told me that he sells PTCL internet cards grossing about Rs 9,000 every day. There are several other such shops in the village. That means that just in one village, the total sale of PTCL internet cards is up to 50,000 rupees. This consumer item was not present five years ago, which means hundreds of computers have been bought in the village recently. Furthermore, if such luxury products are making such huge profits for village shops, traders throughout the country must be making much larger profits selling essentials every day. One of the indicators of booming business in our village is that the United Bank branch in the village is doing very well, according to its manager.

There are thousands of such villages in the country, and that gives one an idea of the mammoth growth of rural markets. Such an undocumented economy is not even factored in estimating the economic growth of the country. From these supposedly marginal markets, one can extrapolate the profits of the corporate sector in towns and cities.

It may be astounding for some that Pakistan's banking sector is considered fourth in profitability in the entire world. Producers of other major industrial and agricultural products are also making huge profits. Cement, fertilizer, automobile, construction and telecommunication industries are doing extremely well. Other than the textile industry, which has been hit by power shortages, there is hardly any manufacturer or importer/exporter of any kind of goods who is not making money. The stock markets look at the profits of these industries and price them accordingly. Therefore the claims of Pakistan's economic growth are not a fairy tale. The evidence is out there in the market.

The government is also like a large corporation whose income depends mainly on tax revenue. Most of the goods and services (such as roads, defense, education and health) provided by the government are public goods which are not priced directly. The government has to price its public goods through direct taxes on income and sales, or indirectly. Following a certain brand of capitalism, countries like Pakistan and the US are not collecting enough taxes to cover the cost of public goods. They have failed mainly in collecting direct taxes on income. While Pakistan cannot implement an appropriate tax collection mechanism because of corruption, the US has leaned towards favoring high income groups and ended up in a jam. The net result is the same: the rich are getting richer, appropriating most of the new wealth generated....


http://www.thefridaytimes.com/beta3/tft/article.php?issue=20130322&page=9
Riaz Haq said…
Pakistan's GDP as percentage of world GDP remained flat 0.58% from 1990 to 2000, and then increased to 0.63% in 2010, according to Global Finance website.

http://www.gfmag.com/gdp-data-country-reports/204-pakistan-gdp-country-report.htm
Riaz Haq said…
Here's Daily Times review of "Pakistan: Moving Economy Forward":


Ultimately the economic or material base of a society determines its politics and other societal forms and manifestations. Most certainly this adage is as true today as it was in the past, and nobody put it better than Bulleh Shah:

Panj rukan Islam de te cheyaan tukk/Cheyaan jai na hovey te panje jaande mukk.

(Islam comprises five pillars of faith, but the sixth is food/If the sixth is not available the five pillars crumble.)

Two of Pakistan’s senior most economists, Rashid Amjad and Shahid Javed Burki, have in cooperation with a galaxy of respected experts — Parvez Hasan, Afia Malik, Hamna Ahmed, Naved Hamid, Mahreen Mahmud, Hafiz A Pasha, Aisha Ghaus-Pasha, Ehtisham Ahmad, Shahid Amjad Chaudhry, Ishrat Husain, Khalil Hamdani, M Irfan, G M Arif, Muhammad Imran, Sara Hayat, Eric Manes, Azam Chaudhry, Theresa Chaudhry, Muhammad Haseeb, Uzma Afzal, Akmal Hussain and Khalid Ikram — taken up cudgels on behalf of the citizens of Pakistan for a programme of change and transformation. This if pursued with sincerity and discipline can help Pakistan achieve the necessary break with the sordid past of missed opportunities and spoilt chances of the last 66 years. No doubt Pakistan is in dire straits at present.

The book under review is a comprehensive, all-round evaluation of the Pakistani economy. It identifies its weaknesses and bottlenecks as well as proposes practical solutions imperative for sustainable recovery. The clarion call is for fundamental structural change. I have yet to see something comparable in terms of quality scholarship assembled in a brief that favours the primacy of economics over vain ideological state building.

I was pleasantly surprised to learn that even in the worst of circumstances the Pakistani economy had been growing at 5.2 percent annually during 1960-2010. The situation is bad since then but there are some impressive developments. Pakistan is performing better than even Bangladesh when it comes to microfinance while private initiative is helping education go forward significantly.

However, investment has fallen dismally. Therefore, the investment climate and the constraints imposed by a woefully bad energy crisis have to be tackled with determination in order to attract foreign and domestic investment. The article on energy is rigorous and informative, but the need to tap alternative renewable energy sources is not sufficiently emphasised. Pakistan should be ideally suitable for solar energy technology. Needless to say, proverbial corruption and mismanagement of our meagre resources are a great shame. Defence expenditure has to be reduced. It is a huge drain on national resources. A very strong emphasis is laid by the experts on the rule of law, transparency and institution building. Equally, a very powerful argument is developed in favour of inclusive growth by Akmal Hussain.

Attention is also given to the menace of unbridled population growth. Strong emphasis on an effective taxation policy is also made. Regional disparities need to be addressed in the light of the 18th Constitutional Amendment, which presupposes a greater role of provincial economic managers, argues Khalid Ikram. Shahid Amjad Chaudhry highlights the urgent need to tackle the issue of water scarcity and replenish the Indus Water Irrigation System, the “heartthrob of the Pakistan economy”. This is a most timely intervention indeed....


http://www.dailytimes.com.pk/default.asp?page=2013%5C08%5C18%5Cstory_18-8-2013_pg3_4
Riaz Haq said…
Pakistan is a rapidly growing country despite a lot of political and economic challenges. However, its growth rate since 1947 has been better than the global average.
A wide range of economic reforms has resulted in a strong economic outlook.
There has been a great improvement in foreign exchange and currency reserves.
New businesses are opening up across Pakistan which is reshaping its landscape.
The GDP growth accelerated to 4.14 percent in 2013-14 and the momentum of growth is broad based, as all sectors namely agriculture, industry and services are supporting economic growth.
The per capita income in dollar terms has reached to $1,386 in 2013-14.
The agriculture sector accounts for 21.0 percent of GDP and 43.7 percent of employment. It has strong backward and forward linkages. It has four sub-sectors including: crops, livestock, fisheries and forestry.
The industrial sector contributes 20.8 percent in GDP; it is also a major source of tax
revenues for the government and also contributes significantly in the provision of job opportunities to the labor force.
The government has planned and implemented comprehensive policy measures on fast track to revive the economy.
As a result, Pakistan’s industrial sector recorded remarkable growth at 5.8 percent as compared to 1.4 percent in the previous year.
The services sector contains six sub-sectors including: transport, storage and communication; wholesale and retail trade; finance and insurance; housing services (ownership of dwellings); general government Services (public administration and defense); and other private services (social services).
The services sector has witnessed a growth rate of 4.3 percent.
The growth performance in the services sector is broad based, all components contributed positively in growth, Finance and insurance at 5.2 percent, general government services at 2.2 percent, housing services at 4.0 percent, other private services at 5.8 percent, transport, storage and communication at 3.0 percent and wholesale and retail Trade at 5.2 percent.
The three main drivers of economic growth are consumption, investment and export.
Pakistan has a consumption-oriented society, like other developing countries.
The private consumption expenditure in nominal terms reached to 80.49 percent of the GDP, whereas public consumption expenditures are 12.00 percent of GDP.
The government has launched a number of initiatives to create enabling environment in the country including steps to improve the energy situation, law and order, auction of 3G and 4G licenses, and other investment incentives for the investors.
Moody’s recent ratings in favor of Pakistan coupled with jacking up from negative to positive rating of five of its banks — Habib Bank Limited (HBL), Muslim Commercial Bank (MCB), Allied Bank Limited (ABL), United Bank Limited (UBL) and National Bank of Pakistan (NBP) — would definitely boost investor confidence.
The current government has launched a comprehensive plan to create an investment-friendly environment and to attract foreign investors to the country. As is evident, the capital market has reached new heights and emitting positive signals for restoring investor confidence.
The European Union (EU) granted Generalized System of Preferences (GSP) Plus status to Pakistan with an impressive count of 406 votes, granting Pakistani products a duty free access to the European market.
The GSP Plus status will allow almost 20 percent of Pakistani exports to enter the EU market at zero tariff and 70 percent at preferential rates. Award of GSP Plus status depicts the confidence of international markets in the excellent quality of Pakistani products.
Pakistan emerged as one of the best performers in the wake of the global financial crisis, even with a backdrop of a country which waged a costly war against militants.


http://www.arabnews.com/saudi-arabia/news/721866
Riaz Haq said…
How to Fix Pakistan’s Crashing Economy
To change course, the country’s leaders must take on the moneyed elite and religious extremism.

By Atif Mian
Mr. Mian is an economics professor at Princeton

https://www.nytimes.com/2019/12/10/opinion/pakistan-economy.html

It wasn’t always so. During the 1980s, in per capita terms Pakistan was richer than India, China and Bangladesh by 15, 38 and 46 percent. Today Pakistan is the poorest. Its most recent gross domestic product growth estimate was only 3.3 percent, barely sufficient to keep pace with population growth.

------------------

Pakistan’s leadership must muster the courage to take on two primary forces of the status quo that hold the country back. First, the moneyed elite who tip the scales of markets in their favor through unfair business practices, tax evasion and preferential access to power. They use their privilege to grab the fruits of other people’s labor rather than create something of value through their own enterprise.

The second force inhibiting Pakistan’s progress is religious extremism. Decades of patronage by successive military and civilian governments for promoters of religious hate has created a culture of institutionalized intolerance. The result has been devastating for society. Thousands have been killed, communities have been ripped apart and hundreds of thousands of people have been displaced or forced to flee the country altogether. It is no wonder then that few want to invest in an environment afflicted with violence and intolerance. Many whose talents are sorely needed in Pakistan are forced to flee the country because of extremism.


The combined effect of extremism and an unproductive rent-seeking elite is that Pakistan has one of the lowest investment rates in the world. Pakistan invests only 15 percent of its output compared with 30 percent for the rest of South Asia. This has led to diminished productivity. Pakistan’s total volume of exports has not risen since 2005. It has become a nation of consumers with limited capacity to produce and innovate. Last year, the country imported more than two times as much as it exported.

-------------------


Reversing those trends requires a courageous commitment to fight the entrenched elements and extremists. Consider the unproductive moneyed class which instead of investing in real businesses buys urban land and sits on it. This is an idle activity that adds nothing to the country’s output and contributes directly to Pakistan’s low investment rate. The value of land keeps rising, not because of any effort by the landowners but because of an urbanizing population.

The correct policy response to discourage such activity would be to tax the value of land appropriately. This would dissuade the rich from hoarding land and instead incentivize them to invest in real businesses. Land would then be available for more productive uses and at cheaper prices. Moreover, the revenue generated from land taxes could fund much-needed urban infrastructure.

While instituting a land tax addresses multiple problems in a single strike, carrying through with the policy requires courage as a large percentage of urban land is held by the powerful elite. Pakistan’s leadership must develop the courage to put the interests of the collective above those of the privileged few.

Similar challenges exist in other parts of the economy. For instance, sugar cane, which is one of the most water-intensive crops, is grown on nearly 2.5 million acres in Pakistan. This makes no economic sense for a country with a very serious water shortage. Rationalizing agriculture toward more efficient farming choices requires that the government take on the landed aristocracy by removing subsidies and charging for excessive water use.

Riaz Haq said…
How to Fix Pakistan’s Crashing Economy
To change course, the country’s leaders must take on the moneyed elite and religious extremism.

By Atif Mian
Mr. Mian is an economics professor at Princeton

https://www.nytimes.com/2019/12/10/opinion/pakistan-economy.html

It wasn’t always so. During the 1980s, in per capita terms Pakistan was richer than India, China and Bangladesh by 15, 38 and 46 percent. Today Pakistan is the poorest. Its most recent gross domestic product growth estimate was only 3.3 percent, barely sufficient to keep pace with population growth.

If an airplane took off a dozen times only to come crashing down each time, the only logical conclusion would be that the aircraft requires a fundamental redesign. Pakistan’s economy, like the airplane, has crashed 13 times in the last 60 years, each time requiring an International Monetary Fund bailout.

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The government also continues to dole out large export subsidies without an iota of proof that these subsidies have helped increase exports. Will the government develop courage to say no to special interests and devise a performance-based assistance mechanism? The auto sector is another example that has not innovated in decades but continues to be protected heavily by the government. And the power sector is dominated by private producers who enjoy high government-guaranteed returns in dollars only to run grossly inefficient plants.

It is even harder to find courageous leadership when it comes to dealing with religious extremists. One would have hoped that decades of suffering at the hands of religious extremism would convince at least one government or major political party to roll back the purveyors of hate. But no one seems interested. Or perhaps no one has enough courage.

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Prime Minister Khan was known for his fearless play on the cricket field as if he were a “cornered tiger.” Pakistan needs similar spirit in the political field today as its politicians have unfortunately developed a habit of conniving with vested interests and those who trade in religious hatred. Pakistan will change only when its leadership develops the courage to act otherwise. For the sake of Pakistan’s children, may that day come soon.
Riaz Haq said…
On economic growth, there is much we can learn from our past and from Pakistan
The 73 years of post-Independence India has generated a lot of evidence across different political-economic regimes. This period has also provided us with the contrasting experiences of India and Pakistan, two countries that share history, geography and socio-cultural mores.

https://indianexpress.com/article/opinion/columns/way-to-grow-7059539/

To put India’s economic record in perspective, it is useful to compare with Pakistan. In 1950, Pakistan’s per person GDP was US$1268, which was almost 50 per cent greater than India that year. However, in the backdrop of sustained political uncertainty and upheaval, Pakistan stagnated throughout the 1950s while a politically stable India grew. As a result, by 1960, India had almost caught up with Pakistan in per capita GDP terms with the per capita income gap having shrunk to 15 per cent. Unfortunately, from 1964, India went into two decades of economic stagnation while Pakistan, under the military rule of Ayub Khan, opened up to foreign capital which funded a period of rapid industrialisation and economic growth, albeit at the cost of worsening inequality. By 1984, Pakistan’s per capita income was more than double that of India’s.
Riaz Haq said…
India’s economy has outpaced Pakistan’s handily since Partition in 1947 – politics explains why.

By Surupa Gupta
Professor of Political Science and International Affairs, University of Mary Washington

https://theconversation.com/indias-economy-has-outpaced-pakistans-handily-since-partition-in-1947-politics-explains-why-187053


Pakistan's economy grew at a faster pace than India's from the 1960s through 1980s thanks in large part to generous outside aid and cheap loans, as well as more foreign trade...... The growth script flipped in the 1990s, with India growing at a 6% rate over the next 30 years, outpacing Pakistan’s 4%.

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What explains the role reversal (starting in 1990s)? Economics and politics both played a part.

Pakistan has long relied on external sources of funding more than India has, receiving $73 billion in foreign aid from 1960 to 2002. And even today, it frequently relies on institutions such as the International Monetary Fund for crisis lending and on foreign governments like China for aid and infrastructure development.

The aid has allowed Pakistan to postpone much-needed but painful reforms, such as expanding the tax base and addressing energy and infrastructure problems, while the loans have saddled the country with a large debt. Such reforms, in my view, would have put Pakistan on a more sustainable growth path and encouraged more foreign investment.

While India also got a fair amount of support from international aid groups and a few countries such as the U.S. earlier in its existence, it never depended upon it – and has relied less on it in recent decades. In addition, in 1991, India liberalized trade, lowered tariffs, made it easier for domestic companies to operate and grow, and opened the door to more foreign investment.

These reforms paid off: By integrating India’s economy to the rest of the world, the reforms created market opportunities for Indian companies, made them more competitive, and that, in turn, led to higher growth rates for the overall economy.

Another way to measure the different paths is in gross domestic product per person. In 1990, India and Pakistan had almost identical per-capita GDPs, a little under $370 per person. But by 2021, India’s had surged to $2,277, about 50% higher than Pakistan’s.


The reasons for their different choices have a lot to do with politics.

Pakistan has suffered from near-constant political instability. From 1988 to 1998 alone, it had seven different governments as it alternated between civilian and military governments following coups. This discouraged foreign investment and made it much harder to make reforms and follow through on them. Through all these changes, Pakistan’s military spending as a share of its GDP remained higher than India’s during the entire post-independence period.

India, on the other hand, has managed to maintain a steady democracy. Though it’s far from perfect, it has kept leaders more accountable to the people and led to more inclusive growth and less reliance on foreign institutions or governments. In one decade alone, India lifted over 270 million people out of poverty.

At a time when democracy is under threat in so many parts of the world, this history, in my view, reminds us of the value of democratic institutions.

Riaz Haq said…

MoWaq
@mowaqsh
@MiftahIsmail
at
@MAP_Pakistan
:

"Our growth model is based on import substitution. Richest ppl get loans to kickstart manufacturing at subsidized rates. This fuels import driven consumption from cars to machinery. It's not a competitive model. We fall in elite capture. 1/n

https://twitter.com/mowaqsh/status/1576905324657004544?s=20&t=d6vjRJYgQz8UUgURupmObg

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MoWaq
@mowaqsh
"When we slowdown the economy, the middle class & poor segments get hit the most. The protection amount is almost equal to value addition. No reason to become efficient.

We need to think abt exports, education & building the #Pakistan brand."

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MoWaq
@mowaqsh
"We need to introspect what is wrong with us as an individual. Do the religious minorities feel safe in Pakistan or are ready to move to Canada on the first opportunity.We need to do 4 things

1) Focus on exports
2) Improve agri sector. We import $2b cotton,$1b pulses. Our agri..


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MoWaq
@mowaqsh
productivity is lower than the world in everything yet we call ourselves agri country.

3) We need to live within our means.
4) Educate our children. Most important job is parenting. 2 schools Aitchison & KGS account for all Ministers etc. There's no social mobility in Pak.

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MoWaq
@mowaqsh
"1/3 of #Pakistan is under water. Many have lost everything they had. Yet the nation moves on. We are resilient. But I don't want us to just be resilient. I want Pakistan to be richer, not be hungry & more educated."

https://twitter.com/mowaqsh/status/1576905346236678145?s=20&t=d6vjRJYgQz8UUgURupmObg

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