Population & economy
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.