Pop­u­la­tion & econ­omy

The Pak Banker - - FRONT PAGE -

Pak­istan's pop­u­la­tion is grow­ing rapidly, pos­ing a threat the eco­nomic growth process. World Bank Coun­try Di­rec­tor re­cently said that Pak­istan will have to re­duce its cur­rent pop­u­la­tion growth rate to half in the next 30 years to achieve the sta­tus of a high mid­dle-in­come coun­try, as the cur­rent pace of in­crease in pop­u­la­tion is a bar­rier to be­com­ing a pros­per­ous na­tion: "Pak­istan will re­main a low-in­come coun­try even after 30 years when it turns 100, if it does not con­trol the ex­plod­ing pop­u­la­tion bomb." Ac­cord­ing to him, for the next 30 years, there are two pos­si­ble path­ways for Pak­istan's econ­omy and two dif­fer­ent fu­tures. The re­cent pop­u­la­tion cen­sus re­vealed a num­ber of 218 mil­lion. If we project that to 2047, then Pak­istan's pop­u­la­tion will be 400 mil­lion peo­ple.

If we project the eco­nomic growth rate of the last 70 years to next 30 years, then the GDP per capita of Pak­istan could be the same as to­day. Pak­istan's per capita in­come is $1,629, which clubs it among low-in­come na­tions. On the other hand, if Pak­istan is able to con­tain its pop­u­la­tion growth rate to around 1% or below and the econ­omy grows at a higher rate than 8%, Pak­istan's GDP per capita will be around $10,000 in 2047. At slightly over $12,000 per capita in­come, a coun­try is treated as a high in­come na­tion. Thus the next 10 years are crit­i­cal to lay the foun­da­tion for a more pros­per­ous econ­omy when Pak­istan turns 100 years old.

The pop­u­la­tion is­sue needs to be viewed in the wider eco­nomic con­text. Pak­istan's econ­omy is fac­ing short-term head­winds that are largely caused by an ex­ter­nal trade sit­u­a­tion. The head­winds are likely to con­tinue un­til ad­just­ments are made in the macroe­co­nomic frame­work. Even after 5.2% re­cent de­val­u­a­tion of the rupee, Pak­istan needs more flex­i­bil­ity to en­hance the for­eign cur­rency re­serves in or­der to sta­bilise them around two and half months of im­port bill cover. It may be added here that the coun­try booked seven-month high­est ever cur­rent ac­count deficit of $9.2 bil­lion dur­ing July-Jan­uary pe­riod, which was higher than its an­nual pro­jec­tion. With widen­ing cur­rent ac­count deficit, the for­eign cur­rency re­serves de­clined to only $12.8 bil­lion.

The tax-to-GDP ra­tio has in­creased to 12.4% but still it is not ad­e­quate, as less than 1% of the pop­u­la­tion is cur­rently in the tax base. To ad­dress the sit­u­a­tion ex­perts say there should be greater co­or­di­na­tion be­tween the fed­eral and pro­vin­cial gov­ern­ments on tax pol­icy and their op­er­a­tions. To avoid go­ing to IMF again, it is im­por­tant that we should have rev­enues grow­ing, ex­ports earn­ings go­ing up and im­port bill is man­age­able within lim­its. Pak­istan did well dur­ing the first two years of IMF pro­gramme in 2013 and 2014 when the gov­ern­ment took sta­bil­i­sa­tion mea­sures. Re­sul­tantly, Pak­istan had the best growth rate in 2016-17 in 10 years. The tax-to-GDP ra­tio rose and bud­get deficit was fairly man­aged.

But in the last one year, the ex­ter­nal sec­tor sit­u­a­tion has caused the cur­rent prob­lems that Pak­istan's econ­omy is fac­ing to­day. Many eco­nomic chal­lenges ex­ist be­cause of lack of po­lit­i­cal con­sen­sus. If po­lit­i­cal con­sen­sus is reached among ma­jor po­lit­i­cal par­ties and other key stake­hold­ers, then the di­rec­tion of the econ­omy will be on a sus­tain­able path. The gov­ern­ment's of­fi­cial tar­get is 6% GDP growth but the lat­est re­ports show that the World Bank was still look­ing at GDP pro­jec­tions and would give its num­ber for the cur­rent fis­cal year in the next few weeks. In a nut­shell, all eco­nomic progress will be nul­li­fied if we do not check pop­u­la­tion growth.

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