Per Capita PPP GDP
Although Pakistan's per capita GDP rose by only 0.7% in real terms, the much higher 16.9% nominal per capita income increase reflects a combination of the nation's double-digit inflation rate and the the rupee's stable exchange rate with the US dollar which has been losing ground to most major world currencies in 2010-2011.
Similar to Pakistan's nominal growth, at least a part of India's nominal growth in per capita gdp and income is also driven by rising domestic inflation of over 10% and appreciating Indian rupee (5.5% from 48.32 in 2009 to 45.65 in 2010) from strong hot money inflows from the Fed's quantitative easing in the United States and elsewhere. India's FDI has declined by a third from $34.6 billion in 2009 to $23.7 billion in 2010. Its current account deficit is being increasingly funded by significant short-term capital inflows (FII up 66% from $17.4 billion in 2009 to $29 billion in 2010) rather than more durable foreign direct investment (FDI). This alarming trend of declining FDI and surging FII in India has continued into 2010-2011.
The idea of PPP or purchasing power parity is quite simple. A US dollar can be exchanged today for about 85 Pakistani rupees. But with Rs 85 you can buy more goods and services in Pakistan than one US dollar can buy in the United States. So Pakistan's GDP expressed in dollars at current exchange rates is about 40% of what it is when adjusted for PPP. The current ratio for both Indian and Pakistani GDP conversion from nominal US dollars to PPP dollars is about 2.5, calculated as follows:
Country......Official Rate....Purchasing Power.....Ratio
India...........INR 45.................INR 18..........2.5
Pakistan.......PKR 85................PKR 34..........2.5
Looking at the increase in per capita income alone is quite misleading in judging the health of Pakistan's economy. Other indicators, such as real GDP growth and investments, show that the state of the economy is very poor. The nation's GDP grew only 2.4% in real terms in 2010-2011. Domestic investment dropped to a 40-year low of 13.4% of GDP, and foreign direct investment (FDI) declined by 29 percent to $1.232 billion during July-April 2010-11 from $1.725 million in the same period a year earlier.
In addition to improved security environment, Pakistan has an urgent need for serious economic reform, greater social justice and better governance. Unless the PPP government acts to improve this situation, no amount of foreign aid, external loans and other help will suffice. The first step in the process is for the ruling elite to lead by example by paying their fair share of taxes and adopting less extravagant personal lifestyles to get Pakistan's fiscal house in order.
Related Links:
Haq's Musings
Incompetence Worse Than Corruption in Pakistan
Comparing US and Pakistani Tax Evasion
Pakistan's Economic Performance 2008-2010
Brief History of Pakistan's Economy 1947-2010
Daily Carnage in Pakistan
US Raid in Abbottabad
Economic Survey of Pakistan 2010-2011 Highlights
Pakistan's Rural Economy Showing Strength
Shaukat Tarin on Pakistan's Regressive Tax Policies
Economic Survey of Pakistan 2010-2011
