Pak­istan’s Eco­nomic Fu­ture

Enterprise - - Contents - Dr. Ishrat Hu­sain

Econ­o­mists have a very poor track record of fore­cast­ing the fu­ture as the dy­namic in­ter­ac­tions be­tween com­plex vari­ables, an im­per­fect un­der­stand­ing of the noneco­nomic fac­tors and the oc­cur­rence of unan­tic­i­pated ex­oge­nous shocks turn their judg­ments into hit and miss episodes. De­spite th­ese weak­nesses eco­nomic fore­cast­ing flour­ishes as a dis­ci­pline and the econ­o­mists show in­domitable courage to sketch out their sce­nar­ios of an un­cer­tain and un­known fu­ture. This ar­ti­cle there­fore ex­am­ines the past de­vel­op­ments, cur­rent trends of Pak­istani econ­omy and the fu­ture global and re­gional out­look and builds the most likely sce­nario for the medium term eco­nomic prospects of the coun­try (next 10 years or so) and then reviews the down­side risks and up­side gains around this sce­nario.

Pak­istan is still a low in­come coun­try and it would re­quire at least next 14 years of 7 per­cent av­er­age an­nual GDP growth to dou­ble its per-capita in­come to around $ 2000 (of­fi­cial ex­change rate con­ver­sion). This growth rate should also be able to re­duce the in­ci­dence of poverty by half and meet the Mil­len­nium De­vel­op­ment Goal.

It is easy to make this nor­ma­tive state­ment but more dif­fi­cult ques­tion is how can this growth rate be achieved on a sus­tained ba­sis? The prophets of doom and gloom in Pak­istan (and there are plenty of them) who are con­stantly pol­lut­ing the minds of our younger gen­er­a­tion and turn­ing them into cyn­ics at very early age sap­ping their en­er­gies for con­struc­tive think­ing and ac­tions would dis­miss this ex­er­cise as a fig­ment of imag­i­na­tion or at best a fan­tasy. To them, all the eco­nomic gains have ac­crued due to the wind­fall of 9/11 and Pak­istan’s support to the US in the war against ter­ror. When con­fronted with the stark fact that Pak­istan was one of the few coun­tries that grew by 6 per­cent an­nu­ally be­tween 1960 and 1990 and re­duced the in­ci­dence of poverty to as low as 18 per­cent they again dis­miss this as out­come of US as­sis­tance. The wide­spread neg­a­tive mind­set of our elites and lack of con­fi­dence in the ca­pa­bil­i­ties of our own work­ers, farm­ers, traders, busi­ness­men and over­seas Pak­ista­nis, is one of the ma­jor stum­bling blocks that can un­ravel our pro­jec­tions. Growth mo­men­tum can also dis­si­pate if other ex­ist­ing or emerg­ing struc­tural con­straints and bot­tle­necks are not re­solved on time.

Leav­ing that aside my own reck­on­ing is that if we are able to ful­fill some crit­i­cal pre­con­di­tions it is pos­si­ble to reach this goal of dou­bling the per-capita in­come by 2020 and re­duc­ing the poverty by half by 2015. What are th­ese pre­con­di­tions? In my view the main pre­con­di­tions are:

• Fa­vor­able global eco­nomic con­di­tions

• Suc­cess­ful in­te­gra­tion of Pak­istan into the global econ­omy

• Pur­suit of sound, cred­i­ble and con­sis­tent eco­nomic poli­cies

• Strong in­sti­tu­tional de­liv­ery and gov­er­nance frame­work

• In­vest­ment in phys­i­cal in­fra­struc­ture and hu­man de­vel­op­ment and

• Con­tin­ued po­lit­i­cal sta­bil­ity and peace­ful se­cu­rity con­di­tions. Be­fore ex­am­in­ing each one of the above fac­tors let us re­ca­pit­u­late the jour­ney we have tra­versed so far. Pak­istan has been a rel­a­tively fast grow­ing econ­omy in com­par­i­son to other de­vel­op­ing coun­tries but has lagged far be­hind the dy­namic economies of East Asia and China. It was a leader of the pack in the South Asia un­til 1990 but In­dia has over­taken us dur­ing the last 15 years. Po­lit­i­cal in­sta­bil­ity and fre­quent changes of gov­ern­ments, poor gov­er­nance, nu­clear ex­plo­sion, eco­nomic sanc­tions and un­fa­vor­able ex­ter­nal en­vi­ron­ment brought about a de­cline in Pak­istan’s growth rates in the decade of 1990s be­low the trend and also re­sulted in macroe­co­nomic in­sta­bil­ity.

The re­forms ini­ti­ated since 2000 have put Pak­istan back on its his­toric growth tra­jec­tory, re­vived in­vestors’ con­fi­dence and ac­cess to in­ter­na­tional cap­i­tal mar­kets, and de­vel­oped re­silience to face ex­oge­nous shocks. Struc­tural re­forms in the ar­eas of fi­nan­cial sec­tor, tar­iff and tax ad­min­is­tra­tion, pri­va­ti­za­tion of state-owned en­ter­prises, cre­ation of an en­abling en­vi­ron­ment for pri­vate sec­tor, lib­er­al­iza­tion of for­eign ex­change and for­eign di­rect in­vest­ment, mar­ket ori­en­ta­tion and open­ness to the global econ­omy have brought about at least 2 per­cent­age point in­crease in to­tal fac­tor pro­duc­tiv­ity. If this is em­pir­i­cally valid then the out­put po­ten­tial of

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