Wednesday, April 14, 2021

2010-2020: Pakistan's Lost Decade

Until 2010, Bangladesh was a laggard in South Asia region. Its per capita income was about half of Pakistan's. Now Bangladesh has surpassed Pakistan as the Pakistani economy has suffered significant slow-down from the previous decade. In fact, the Pakistan economy grew at the slowest rate in South Asia as reflected in per capita incomes. However, the income inequality in Pakistan continues to be the lowest in South Asia. 

Per Capita Income Growth in Pakistan Lags in South Asia. Source: World Bank

Lower income inequality in Pakistan is reflected in its abysmal domestic savings and investment rate of around 10% of GDP. It shows in Pakistan's lower economic growth rate compared to Bangladesh and India. The distribution of national income in a country is a key socioeconomic variable with broad economic and societal implications. Income inequality and wealth inequality are related because the flow of income determines savings and investments, which in turn determine GDP growth and accumulation of wealth. An economic model offered by Galor and Zeira predicts that the effect of rising inequality on GDP per capita is negative in relatively rich countries but positive in poor countries like Pakistan.

Source: The Economist

Investment as Percentage of GDP Source: State Bank of Pakistan 

US Aid to Pakistan 2001-2020

While Pakistan's per capita income more than doubled from $500 to $1,000 in the ten years 2000 to 2010, the growth has slowed to less than 30% from 2010 to 2020. Faster GDP growth in the decade of 2000-2010 was partly the result of significant increase in Pakistan's savings and investment rates.  Meanwhile, rising worker remittances from overseas Pakistanis have been boosting Pakistan national savings rate and helping reduce current account deficits

Savings Rate in Pakistan. Source: Dawn

Pakistan also saw rapid economic growth in the 1960s in spite of low domestic savings rate. This can be explained by foreign development aid of as much as 10% of GDP that Pakistan received in that decade.

Foreign Aid to Pakistan as Percent of GDP Source: World Bank

Pakistan's exports doubled from $10 billion to $20 billion in years 2000-2010. In the last decade 2010-2020, the nation's exports have grown only about 25% to $25 billion. Exports have declined in terms of percentage of the country's GDP from 13% to 10% in the most recent decade. . 

Pakistan Exports Since Year 2000. Source: World Bank

Return on money invested in Pakistani stock market has also been cut in half in 2010-2020 when compared with the return in 2000-2010.  Shares of companies making up the Karachi Stock Exchange 100 index have returned 8% in US$ terms in 2010-2020, less than half of the 20% during 2000-2010 period. KSE100 still managed to achieve 14% return over the 20-year period from 2001 to 2021, among the highest in the world. 

Stock Market Returns. Source: Tundra 

Foreign direct investment (FDI) in Pakistan ramped up in 2000-2010, reaching the peak of $5.6 billion (3.67% of GDP) in 2007. FDI inflow has since suffered a steep decline.

Foreign Direct Investment in Pakistan. Source: World Bank

Pakistan FDI inflows have significantly lagged behind those of the rest of South Asia.

FDI Inflows in Pakistan. Source: World Bank

Pakistan's manufacturing output tripled from $7 billion in 2000 to $21 billion in 2010. Then it rose just 60% to $34 billion in 2019. The nation's industrial output declined as percentage of GDP from 14% to 12% in the last decade, according to the data from UNIDO, the United Nations Industrial Development Organization. 

Pakistan's Manufacturing Output Trend Since 2000. Source: World Bank

Pakistan's literacy rate has been flat at about 59% in the last decade (2010-2019) after substantial rise from 45% to 55% in the decade of 2000-2010. 

Pakistan Literacy Rate. Source: World Bank

The net primary enrollment rate in Pakistan jumped from 55% in 2000 to 65% in 2010. The progress on this metric slowed as it increased just two percentage points to 67% in 2019. 

Net Primary Enrollment Rate in Pakistan. Source: World Bank

Pakistan has seen a major decline in the rate of human development growth in the country over the last decade. Pakistan saw HDI (Human Development Index) average annual growth of 1.4% in 2000-2009 and 0.80% in 2010-2019, according to Human Development Indices and Indicators 2018 Statistical Update.  The fastest growth in Pakistan human development was seen in 2000-2010, a decade dominated by President Musharraf's rule, according to the latest Human Development Report 2018.

Pakistan Human Development Index Growth Rate. Source: Human Development Report 2020

Bangladesh surpassing Pakistan in socioeconomic indicators has brought into sharp focus the contrast between Pakistan's decades of 2000-2010 and 2010-2020.What changed? The biggest change is Bangladeshi leader Shaikh Hasina's decision to stifle the unruly Opposition and the media to bring political and economic stability to the South Asian nation of 160 million people. It has eliminated a constant sense of crisis and assured investors and businesses of continuity of government policies. With development taking precedence over democracy, Shaikh Hasina followed the example of Asian Tigers  by focusing on export-led economic growth of her country. She incentivized the export-oriented garment industry and invested in human development. Bangladesh now outperforms India and Pakistan in a whole range of socioeconomic indicators: exports, economic growth, infant mortality rate, primary school enrollment, fertility rate and life expectancy.       

South Asian Countries' Export Growth. Source: Wall Street Journal

Bangladesh's garment exports have helped its economy outshine India's and Pakistan's in the last decade. Impressed by Bangladesh's progress, the United Nations’ Committee for Development Policy has recommended that the country be upgraded from least developed category that it has held the last 50 years. 

The next challenge for Bangladesh is to move toward higher-value add manufacturing and exports, as Vietnam has done. Its export industry is still overwhelmingly focused on garment manufacturing. The country’s economic complexity, ranked by Harvard University’s Growth Lab, is 108 out of the 133 countries measured. That is actually lower than it was in 1995, according to the Wall Street Journal

Pakistan Growth By Decades. Source: National Trade and Transport Facility

Vietnam ruled by autocrats is rapidly becoming an Asian Tiger. With rising manufacturing costs in China and the US-China trade war,  many major manufacturers are relocating to other countries in Asia. This situation has helped Vietnam emerge as a hub of foreign direct investment (FDI). FDI flow into the country has averaged more than 6% of GDP, the highest of any emerging economy. The country’s recent economic data shows a rise of 18% in exports, with a 26% jump in computers/components exports and a 63% jump in machinery/accessories exports.  These figures have earned Vietnam the moniker of the newest "Asian Tiger".

Musharraf Years & History of Pakistan's GDP Growth Rates. Source: PBS 

It was in 2007 that Pakistan caught the "democracy" fever led by the lawless lawyers of Lahore. This led to the return of corrupt dynastic rule of Asif Zardari and then Nawaz Sharif. The year 2007 also marked the beginning of yet another lost decade that saw Pakistan's per capita gdp's continuing lag behind South Asia region and other emerging economies. 

Pakistan was the original "Asian Tiger" back in the 1960s when  other developing Asian economies sought to emulate its development model. It became an export powerhouse in the 1960s when the country's manufactured exports exceeded those of Thailand, Malaysia and Indonesia combined.  The creation of major industrial estates in Karachi under President Ayub Khan's industrial policy incentivized industrial production and exports of value added manufactured products such as textiles. Now the country's industrial output lags its neighbors'. 

History of Pakistan's Manufactured Exports

With Chinese looking to relocate some of their industrial production to low-cost countries, Pakistan has a golden opportunity to grow its industrial output and exports again. Here's Karen Chen explaining why:

“Vietnam is too crowded already and moved into automobiles and electronics. There is no space for investment in Vietnam. Myanmar doesn’t have infrastructure. India is terrible. In Bangladesh you don’t have right conditions for setting up fabric units. So Pakistan is the ideal location for such garment manufacturing because of abundance of cheaper labour. The investment and tax policies for SEZs and new projects are also good. We’ve confidence to be at here.”

Seizing the opportunity to attract export-oriented investors will help Pakistan become the next Asian Asian Tiger economy. It will help the country avoid recurring balance-of-payments crises that have forced the nation to seek IMF bailouts with all their tough conditions. Focusing on "Plug and Play" Special Economic Zones (SEZs) is going to be essential to achieve this objective.


Mayraj F. said...

I doubt Bangladesh will "move toward higher-value add manufacturing and exports, as Vietnam has done."
Vietnam invested in education (which is a prerequisite that Asian Tiger countries understood ) and performs very well in PISA and TIMSS tests.
How far has Bangladesh come since 1980s and Vietnam by comparison? That all tells you that Bangladesh has peaked!

The Low-Wage Strategy in the South: Is It the Future for Your State?

Vietnam understands what Singapore understood; and maybe because Singapore has been an adviser. Singapore also advised China which also moved up the value chain. Singapore itself was guided by the advice of Albert Winsemius.

Unfortunately Bangladesh has not had an advisor who had this wisdom.

Also, the US economy is due to decline substantially because of the twin effects of debt ridden financialization and demographic shifts. It doesn’t appear Bangladesh is aware of that either-even though it is a major RMG market.

Kamran Baig said...

Lost decade = decade of corruption and money laundering (2010 -2018)

Moh said...

The 2010 floods and the administrations by the PPP and PML-N, along with the spill over of the war from the west didn't help things. You can can me a PTI supporter all you want (rhetorical statement, not directed at anyone) but macroeconomic reforms and regaining the public’s trust are key to getting the political capital to make the tough changes that will be unpalatable. If the Afghan war ends and some stability is achieved in Afghanistan, PM Khan could claim a hand in his advocacy of dialogue, and may gain the political capital in certain parts of society to make more reforms.

One thing that PML-N did, which was a double edged sword, but on the whole their greatest legacy was getting China interested enough in Pakistan via CPEC. Managing the debt (from CPEC and past borrowing) is part of what’s creating a drag on the economy. The double edge sword of this debt is that financing may be hard to come by in the near future, and a bird in hand is worth two in the bush.

the forty years of war next door doesn’t help economic growth, and unless global support can be assured to create a soft landing after western forces withdraw, Afghanistan will be a basket case on Pakistan’s door and a pull on our resources if Pakistan is forced to deal with the subsequent spillover.

Pakistan has had a lot of challenges over the past ten years, it’s was inevitable Bangladesh would surpass Pakistan and India on a GDP per capita basis and Pakistan in raw exports.

The 2020s will have to be the decade Pakistan caught up.

Majumdar said...

Brof sb,

Good article as usual, sir. But saying that Pakistan's lost decade was purely due to "democratic rule" is too simplistic.

Mushy completely neglected the power sector which was to bite the Pak economy in 2010s. And resulted in the overexeburant addition to capacities under MNS through the CPEC project.

Riaz Haq said...

Majumdar: "Mushy completely neglected the power sector which was to bite the Pak economy in 2010s. And resulted in the overexeburant addition to capacities under MNS through the CPEC project"

In 2009, Pakistan's installed generating capacity was about 20,000 MW. It exceeded demand of 17,000 MW and actual supply of just 10,000 MW. The capacity utilization was only 50% mainly because the producers did not buy sufficient fuel and chose to operate at only 50% of capacity and still enjoyed soaring profits. A third of the installed generating capacity was owned by the independent power producers (IPPs). The IPP contracts guaranteed payments such as capacity charges and profits with no requirement for fuel efficiency.

Bad IPP contracts signed during PPP & PMLN governments are now costing the taxpayers burdened with mounting "circular debt".

Fahad said...

Dear Sir and Readers

Unfortunately after Ayub Khan who was the President of Pakistan in 1960s and after Gen.Musharaf ,Pakistan never got any honest ,sincere and good leadership .

Now Pakistan is fortunately ruled by PTI which is far better then former politicians and rulers .

Fahad said...

Sir education is very important, what i have understood since last few years is that academic qualification plays an important role in the life of every individual, and as an individual becomes academically qualified and skilled, he or she becomes an asset for his or her country and as academically qualified person works in his or her respective field, it also adds value to HDI(Human Development Index).

The ranking of any nation on HDI(Human Development Index), actually depends on the development of that nation ,and development a nation is not possible without quality education.

Fahad said...

Sir Majumdar

I agree, Gen.Musharaf as a human being was prone to mistakes, nobody is perfect. Gen.Musharaf did make some mistakes during his rule as a President but still Pakistan saw real progress and development when he was the President of the country.

Even UN(United Nation) reports have confirmed that Pakistan was much better and stronger when Gen.Musharaf was ruling the country.


Fahad said...


Jub tak Pakistan ke ranking , HDI(Human Development Index) mein behtar nahi hogi, Pakistan can never be considered as a developing and progressive nation or a country.

It was fortunate that Pakistan has seen real development and progress when Gen.Musharaf was ruling and the ranking of Pakistan in HDI(Human Development Index) was much better when he was ruling, but after when he completed his tenure, the ranking of Pakistan started to fall in HDI(Human Development Index), if we study the overall history of Pakistan, we will come to know that as soon as these incompetent and corrupt politicians came into power after the end of his tenure, they started neglecting the sector of education and health. They mostly invested in infrastructure development which was obviously important, but nations don't develope by having quality highways, when politicians neglect the education and health sector, they ruin the life and future of new generation(youth) because it is the youth which takes the country forward. If the youth will not be qualified,skilled and educated enough, it will be useless youth ,instead of being an asset.

This is exactly what 1st world countries do, they focus on the education of their youth ,and this is exactly what India also did.

Fahad said...

Sir according to my limited understanding and knowledge, Pakistan needs an overall revolution in Political system. Unfortunately the political system of Pakistan is not just outdated but it is also very complex and useless.

Can you imagine that,till now,what I have heard from different sources that the police law and law enforcement system which the police departments in Pakistan follow was introduced in 18th century by British in Indian sub-continent, and still Pakistan follows this outdated and old police law and law enforcement system.

Not just in police sector, but their are many flaws in different sectors of Pakistan which needs to be revived and improved.

Riaz Haq said...

Economy to stay in low growth spiral: think tank

Despite the apparent short-term control over current account deficit (CAD), the government’s policies suggest Pakistan’s economy is to stay in the low growth, low export and close to default position, a report issued on Tuesday by a think tank said.

The Institute of Policy Reforms (IPR), a think tank led by PTI leader Humayun Akhtar, in its latest report on foreign aid and purpose advised that the government should slow down foreign borrowing instead of trying to grab every opportunity to procure more foreign loans.

It said the government has controlled the CAD at present but “the respite is precarious and likely short lived”. All indications suggest “the economy would stay in its present state of low growth, low exports, and close to default”, it added.

The IPR report anticipated further devaluation of the rupee or a more restrictive monetary policy and even more increase in administered prices. If all of that happens, the cure may turn out to be worse than the disease, the report said, adding the people of Pakistan were paying a huge cost for years of poor economic management.

IPR advises govt to slow down foreign borrowings

The most critical problem faced by Pakistan’s economy is repayment and servicing of external debt and years of ill-advised financial management has brought this stage. In the last ten years, external debt servicing (principal and interest) has ranged between one per cent of GDP in FY14 to almost 5pc of GDP in FY20. Remitting such large sums of money overseas without drawing any productive benefit from it, is a loss to the economy.

In FY20, principal and interest paid to Rs2.3 trillion to foreign creditors – almost twice the Rs1.2tr amount spent on all development, federal and provincial. Just interest paid to foreign creditors stood at Rs406 billion – one-third of total development.

New external loans, often at high commercial rates, are taken to service past debt, a solution fraug1ht with risks, but one that has become especially acute in recent years. “In essence, the economy is in a debt trap,” the report underscored.

In addition, Pakistan remits over 0.5pc of GDP in foreign direct investment (FDI) profits annually. While this is a necessary part of FDI, these are not export oriented investments. Remittance of profits adds to forex squeeze.

Also, in FY 19 and FY 20, outflow of foreign private funds invested in Pakistan government’s debt instruments amounted to $1,002 million and $241 million, respectively. This debt was incurred at a very high cost of up to 13pc. “Pakistan must end its preference for accessing any available foreign fund regardless of interest cost,” the report said, adding the country must take a deep look at its public fiscal management, i.e., how it raises funds (revenue and debt) and what it spends that money on.

In the last twenty years, Pakistan has paid external creditors more than it has received from them. Yet its external debt has grown by over 200pc from $37.2bn in FY01 to $112.9bn in FY20. We may have paid back the original loan more than once and still owe it to the creditor, the think tank noted.

Between FY01 and FY20, external debt disbursed to Pakistan totalled $112.6bn. During the same period, it has paid to foreign creditors a sum of $117.9bn in principal and interest. That is, it has paid back $5.2bn more than it received, a negative resource transfer. Of the $117.9bn paid, $90.6bn was principal, and $27.2bn was interest. Average annual interest paid was US $1.4bn. This is the result of borrowing to service past debt and the effect of compounding, which makes even concessional credit expensive. As a result, most solvency and liquidity indicators have worsened in recent years.

Riaz Haq said...

Pakistan performed better than India in apparel exports to the United States in February 2021.

Pakistan had an outstanding performance among apparel export destinations globally during February, according to Sourcing Journal, a credible source for textile sector information.

“We were the only main exporter with increased apparel supply to America during Covid-19,” said Adviser to PM on Commerce Abdul Razak Dawood in comments to The Express Tribune.

Pakistan was on top position in the list of countries that export textile, according to a report released by Apparel Resources, another international platform that gives insights into apparel industry exports.

Normally, India and Bangladesh perform better than Pakistan but this time Pakistan has fared better than its neighbouring countries despite all the challenges of Covid-19 faced worldwide.

Although the apparel import value of the US, a prominent destination for textile exports, decreased 8.7% year-on-year to $5.39 billion in February 2021, its volume increased 3.2% and Pakistan was on top of the list of countries which witnessed a hike in their apparel exports.

Other countries that recorded growth in exports included China, Bangladesh and Egypt. Pakistan and China managed to increase their apparel shipments to the US both in terms of value and volumes.

“Pakistan is showing the world that we are a reliable supply destination,” Dawood emphasised.

India, Vietnam and Indonesia experienced a decline in apparel exports to the US both in value and volume terms.

The PM aide added that government policies for the textile industry played a significant role in exports. “Our vision is to promote ‘Make in Pakistan’,” Dawood remarked.

Even though the country is performing well in textile exports, it is facing many challenges to keep up with the performance. The biggest hurdle is the decrease in cotton production in the country, which is the main raw material for the textile sector.

The country is facing shortage of around half of its requirement of cotton, estimated at seven million bales. Giving in to the pressure from the textile industry, the government recently allowed duty-free import of cotton yarn.

During the pandemic, the medical segment of textile industry such as bed wear also grew as bed sheets were discarded frequently, said DH Corporate Research Lead Karim Punjani.

After coronavirus, the world learnt the lesson regarding supply chain sustainability, which indicated that no country should rely on only one destination for imports, he said.

“Countries now want to diversify their supply chain and this is a good chance for Pakistan to grab its share in countries which imported products from other countries previously,” the analyst added.

“This will be a challenge for Pakistan; either it increases exports through existing companies or helps new players to venture into this sector.”

Through its policy, Pakistan can encourage foreign direct investment in this sector by inviting companies to move their factories from other countries to the free economic zones in Pakistan.

Riaz Haq said...

Performance legitimacy in the age of COVID

How regime type and governance quality affect policy responses to COVID-19: A preliminary analysis

The coronavirus disease 2019 (COVID-19) pandemic has slowed down economies, upended societies, and tremendously affected the daily lives of ordinary people throughout the world. In the international context, various government responses have thus given rise to many political debates and discussions centered around the handling of these impacts and the novel coronavirus itself. Here, emphasis is often placed on how regime type (i.e., democratic or non-democratic) and governance quality influence policies aimed at responding to the ongoing crisis. By examining relevant scientific resources, including the COVID-19 Global Response Index (developed by FP Analytics), Worldwide Governance Indicators (WGI), and Bjørnskov-Rode regime data, this study found that regime type was indeed related to governmental policy responses to COVID-19. Results specifically showed that governance quality (especially effectiveness) had moderate impacts on how well these policies were implemented. Due to several limitations, however, these findings should be regarded as preliminary evidence.

As a worldwide pandemic, coronavirus disease 2019 (COVID-19) had already caused more than one million deaths fewer than nine months after the outbreak was first reported in Wuhan, China. Still, the number of infections continues to increase at an unprecedented rate due to the dangerous transmission speed of the virus (Harb and Harb, 2020). As with many previous pandemics, scientific research has been pivotal in fighting COVID-19 through the development of drugs and other treatments. By contrast, political discourse has contributed very little to these life-saving measures, but has nonetheless resulted in the formation of targeted policy responses. However, little is currently known about how related political factors have impacted government responses to the pandemic.

Given this situation, Greer et al. (2020) called for synergistic collaboration between individuals working in comparative politics and scientific research. They further identified four variables that require continued investigation in order to explain how nations are responding to COVID-19, including (a) social policy, (b) regime type, (c) political institutions, and (d) state capacity (Greer et al., 2020). A variety of political science studies have addressed issues related to COVID-19 and past pandemics, particularly in regard to the debate on regime type, state responses, and how good governance affects outcomes.

Recent political science debates have focused on a possible link between regime type and national response to the COVID-19 crisis. Judging the timeliness of various government responses, Alon et al. (2020), Cepaluni et al. (2020), and Piazza and Stronko (2020) have argued that authoritarian regimes more promptly impose stringent public health measures, compared to democracies. Indeed, research has shown that nations with stronger democratic institutions tend to implement measures for combating coronavirus at a slower pace (Sebhatu et al., 2020). This tendency is also evident in historical events (Stasavage, 2020), such as the SARS outbreak of the early the 2000s (Schwartz, 2012). In contrast, while authoritarian regimes can more rapidly impose stringent health measures, they may also exercise their power to devise cover-ups that turn local contagions into a global pandemic (Alon et al., 2020). Frey et al. (2020) provided a contrast to the abovementioned studies, contending that democracies mount more effective responses to control the spread of COVID-19 by reducing its geographic mobility.

Fahad said...

Dear Sir Riaz and the team of this blog .

This is to inform you that PM Imran Khan has just given a press conference in which he has addressed different Pakistani High Commissioners in different countries . PM Imran Khan has recieved lot of complains from overseas Pakistanis who go to Pakistani Embassies in those countries for any documentation work and they have mentioned how staff in those Pakistani Embassies misbehaves with them and doesn't take their case or issues seriously .

It is a shame that these Pakistani high commissioners whose job is to provide service to overseas Pakistanis are not actually full filling their duties and responsibilities . They are embassadors and high commissioners of Pakistan in those countries and their job is to represent Pakistan internationally and serve their Pakistani citisens .

The question is that what have these Pakistani ambassdors done for Pakistan ? What role have they played in attracting foreign investment in Pakistan ?

These Pakistani ambassies and consulates in other countries can play an important role in attracting foreign investment in Pakistan which can boost economy of the country .

PM Imran Khan has also mentioned in his speech that Indian ambassadors in other countries are pro active in attracting foreign investment in India and this is another reason why the economy of India has grown fast in the last few years .

I would appreciate if you could make a video on this issue of Pakistani high commissioners performances in other countries .


Riaz Haq said...

#Pakistan expects #GDP growth of 3.94% in current FY ending June 2021, almost 2X #IMF, #WorldBank forecasts, despite #COVID19 #pandemic. #agricultural, #industrial & #services sectors are expected to grow at 2.77%, 3.57%, and 4.43%, respectively. #economy

Pakistan estimated provisional GDP growth for the 2020-21 financial year at 3.94 per cent, which is almost double the forecasts from the International Monetary Fund (IMF), the planning ministry said on Friday.

In a statement, the ministry attributed higher economic growth to the better performance in the agricultural, industrial and services sectors.

“The provisional growth of GDP for the year 2020-21 has been estimated at 3.94 per cent which is based upon growth estimates of the agricultural, industrial, and services sectors,” the ministry said.

The IMF and World Bank has estimated GDP growth of 1.5 per cent and 1.3 per cent, respectively, as the Covid-19 pandemic forced the government to impose curbs on businesses in order to slow the spread of the infection.

The agricultural, industrial and services sectors are expected to grow at 2.77 per cent, 3.57 per cent, and 4.43 per cent, respectively.

Pakistan’s economy contracted 0.4 per cent during fiscal year 2019-20 due to a worldwide economic slowdown due to the coronavirus pandemic.

Newly-appointed Finance Minister Shaukat Tarin said Pakistan will go for an ambitious six per cent economic growth target in the next two years as the IMF shows its willingness to renegotiate tough conditions for a $6 billion loan in the wake of rising Covid-19 cases. “The federal government will earmark as much as Rs900 billion [$6 billion] for development expenditure in the year beginning July. That’s the bare minimum we need for a country this size,” he said.

Dr Reza Baqir, governor of the State Bank of Pakistan, said the national economy is on the brink of higher growth after key sectors reboubded during the fiscal year ending on June 30.

He attributed the growth to large-scale manufacturing, automobiles, agriculture and other important sectors.

“We have strong economic indicators this year despite the Covid-19 pandemic challenges and this is a good omen for the economy,” Dr Baqir told Khaleej Times in Dubai last week.

Dr Ashfaq Hassan Khan, member of the Economic Advisory Council that is headed by Pakistani Prime Minister Imran Khan, said the economy registered a smart recovery after a 0.4 per cent contraction in the previous financial year. “It is a positive surprise as the economy still facing multiple challenges,” Dr Khan told Khaleej Times on Friday.

“I will atttribute higher economic growth to large-scale manufacturing and agriculture sectors,” Dr Khan elaborated.

“Our main crops wheat, rice and maize helped agriculture to post 2.7 per cent growth, while large-scale manufacturing also recorded strong improvement this financial year,” he added.

Muzammil Aslam, chief executive of Tangent Capital Advisors, said the GDP estimate now revised up at 3.94 per cent, “[has] further room to improve to five per cent once final numbers” come.

“Importantly, Pakistan is gaining food security. All major crops increased from eight to 22 per cent. This will improve the livelihood of masses,” Aslam told Khaleej Times on Friday.

Samiullah Tariq, head of research at Pakistan Kuwait Investment, said the country’s economy has a potential to achieve higher growth in coming years.

He said IT, e-commerce, the Internet and cellular sectors have huge potential to help achieve much higher GDP growth in the next five years.

“High single-digit growth is going to be a new normal in years to come,” he said.

Riaz Haq said...

The government says the size of Pakistan’s economy will grow to $296 billion at the end of current fiscal year in June from $263 billion last year.

This massive growth in dollar terms is partly due to an estimated 4% economic growth in rupee terms this year against 0.4% slump in the previous year and partly because of a record appreciation in the rupee value.

In 10 months and three weeks of the current fiscal year (from July 1, 2020 to May 21, 2021), the rupee gained 8.5% of its value against the US dollar.

What is more heartening is the fact that the rupee’s gain is not artificial. It is very much real. It is not that the State Bank of Pakistan (SBP) has pumped in lots of dollars into the forex market to pamper the rupee. On the contrary, thicker inflows of remittances from overseas Pakistanis have contributed the most to the rupee’s strength.

However, it is unwise to expect that remittances will continue to grow in the next fiscal year at the same pace that they grew during this fiscal year. In 10 months of current fiscal year (between July 2020 and April 2021), the remittances surged to about $24.25 billion from about $18.8 billion in the same period of previous fiscal year. This 29% increase in remittances is a very welcome development.

Read: Economy back on growth track as predicted: Umar

But let’s not forget that so far Pakistanis living abroad have not only been sending foreign exchange back home to support their families, but also they have been repatriating funds to invest in the housing sector and in government debt papers via the Roshan Digital Account.

Meanwhile, export of manpower from Pakistan fell drastically in CY20 to only 224,705 from 625,203 in CY19, according to the Bureau of Immigration and Overseas Employment. This decline in the number of new overseas job-seekers is bound to affect inflows of remittances after a time lag, most likely from the beginning of upcoming fiscal year in July.

Between January and April this year, 107,418 Pakistanis went abroad for jobs. If this number keeps on rising and touches the level seen two years ago, that may help ensure sustained high inflows of remittances.

But that seems a remote possibility given the economic issues facing Saudi Arabia and the UAE (two main host countries for Pakistani diaspora) and given the fact that Pakistan’s strategic relationship with these countries is not as friendly as in the past.

Exports and imports

Merchandise export earnings in 10 months of current fiscal year rose 13.6% to $20.9 billion from $18.4 billion in the year-ago period.

But the problem is imports which grew faster – about 17.8% – and the merchandise import bill in 10 months of FY21 swelled to about $44.75 billion from about $38 billion in the same period of last year, according to the Pakistan Bureau of Statistics. So, unlike remittances, merchandise exports cannot be relied on for providing real support to the external sector because of expansion in the trade deficit.

Total foreign investment, including foreign direct investment (FDI) and portfolio investment, almost doubled to $3.76 billion in 10 months of current fiscal year against $1.88 billion in the year-ago period, according to the SBP. But this has been solely due to a massive foreign investment in government debt securities (read hot money). FDI, in fact, fell 32.5% to just $1.55 billion from $2.30 billion. This is alarming. Isn’t it? Foreign portfolio investment in government debt securities can fly out of the country if investors find better investment opportunities elsewhere in the world notwithstanding the fact that the bulk of it is from overseas Pakistanis.

Besides, unlike FDI, the foreign portfolio investment does not play a significant role in promoting industrialisation, modernisation of agriculture and expansion in the services sector, which will lead to better economic growth prospects. It just helps the government to fix the holes in its current account and stabilise the rupee for the time being.

Riaz Haq said...

The government says the size of Pakistan’s economy will grow to $296 billion at the end of current fiscal year in June from $263 billion last year.

Large-scale manufacturing (LSM) output that grew 9% year-on-year in nine months of current fiscal year is estimated to finish the full year in June with even higher growth of 9.3%, according to the government’s provisional estimates.

If this turns out to be true and if the agriculture sector’s estimated growth of 2.8% also turns out to be accurate, then a near 4% economic growth for this fiscal year seems likely.

However, the LSM growth this year is entirely due to last year’s low base effect, when it had slumped more than 10%. This means achieving LSM growth in the next fiscal year will be a really tough task, more so because of the planned energy price hikes as demanded by the IMF.

Read more: ‘ADP aims to revive pandemic-hit economy’


Much depends on whether new Finance Minister Shaukat Tarin will be able to win relaxation in the IMF demand for accelerated withdrawal of energy subsidies and rationalisation of subsidies meant for export-oriented sectors.

The estimated 2.8% agricultural growth this fiscal year will still fall short of last year’s 3.3% expansion. This effectively means despite all the tall claims of PTI about bringing agricultural revolution, nothing has so far happened.

In the next fiscal year, all eyes will be fixed on what exactly is done by the federal and provincial governments to boost agricultural output.

Sindh is already complaining that it is constantly being kept in the dark about the details of Sino-Pak cooperation in agriculture under the next phase of CPEC. Besides, agriculturists across Pakistan are irked by a steep rise in prices of farm inputs. That, too, is a serious issue.

Riaz Haq said...

Pakistan’s investment to GDP ratio declined to 15.2 percent from 15.5 percent of Gross Domestic Product (GDP) though savings to GDP ratio improved to 15 percent from 13.8 percent of GDP during the outgoing fiscal year of 2020-21.

According to approved working paper of National Accounts Committee, the total Gross Fixed Capital Formation (GFCF) is projected at Rs6,492 billion but remained short to achieve the fixed target.

The low investment and savings in terms of GDP resulted in repetition of history of the boom, bust cycles for the country’s economy. The outgoing fiscal year GDP growth forecast of 3.94 percent demonstrates that the growth is fueled by higher consumption as an investment both at domestic and foreign levels failed to get the desired results.

The annual plan for outgoing fiscal year 2020-21 had envisaged that investment to GDP ratio would increase to 15.5 percent of GDP in order to achieve sustained and inclusive growth keeping in view post Corona crisis. Fixed Investment was projected to grow to 13.9 percent of GDP in 2020-21.

National Savings is targeted at 13.8 percent of GDP. The focus is to replace consumption-led growth with investment-led growth. New Monetary policy posture with the reduction in interest rate will encourage investors and consumer financing will boost economic activity. Numerous measures to improve ease of doing business (such as tax holiday to special economic zones, withdrawal on constricting taxes on banking transactions) are expected to boost capital formation and attract both domestic and foreign investment.

The low growth phenomenon re-emerges after every few years mainly because of the country’s inability to generate investment and savings in the percentage of the GDP to fuel desired GDP growth at a sustained level.

The incapability of generating the desired level of investment and savings forced the regimes to increase reliance on financing from external avenues, which ultimately shoved the country deeper into twin deficit crisis soon after achieving growth of slightly over 5 to 5.5 percent for two to three years’ period. India’s GDP growth has averaged 6.5 percent over past two decades, compared to 4.4 percent for Pakistan. Vietnam’s growth has averaged over 6.7 percent and even Bangladesh’s has averaged 5.4 percent, outperforming Pakistan.

Pakistan requires investment for sustained growth. In the decade of 90s, Pakistan’s Gross Capital Formation was at par (or better) than its peers. Since 1995, Pakistan’s GCF has gone down, while that of peers has increased substantially.

Private sector has remained shy due to high cost of doing business and energy & security constraints. Pakistan’s Public Sector Development Program (PSDP) spending has declined sharply from average of 10 percent of GDP in 1980s to just 4.7 percent in FY18 and now it is going to fall further in the next fiscal year. Bottom line, Pakistan needs 20 percent growth in investment to get a GDP growth rate of 5 percent. Secondly, Pakistan lags behind its peers mainly because of its failure to jack up savings as savings ratio in Pakistan was pathetically low around 16 percent, while in China it is 46 percent, India 31 percent, Bangladesh 33 percent, Sri Lanka 25 percent, and in Vietnam it hovered around 24 percent.

The investment to GDP ratio was estimated at 16.7 percent of GDP when the PML (N) was ruling over the country in 2017-18.

Now savings to GDP ratio improved in the current fiscal year because the current account deficit is projected at negative 0.2 percent of GDP as overall there is projection of current account surplus of $400 million for the outgoing fiscal year.

The low investment and savings in percentage of GDP continued to remain the largest challenges for the country’s economy because such low level cannot fuel long and sustainable growth trajectory.

Riaz Haq said...

From Musharraf to the PTI

The IMF recommends privatisation. PIA’s accumulated losses from 1998 to 2007 were Rs23 billion (6 percent). The PPP added Rs119 billion (33 percent) while the PML-N added Rs222 billion (61 percent) to end at about Rs364 billion. It is difficult to imagine PIA competing with Gulf airlines. Steel Mills profit were Rs9.5 billion during Musharraf’s time. The PPP recorded a loss of Rs119 billion; the PML-N increased it by Rs81 billion to Rs200 billion.

Oil prices increased from $25 in Dec 1999 per barrel to $90 by Dec 2007 (313 percent increase) during Musharraf’s period. The PPP faced over $90 in their term. The average in the PML-N’s time was $55. The PTI started at $73 but is now faced with $85. Gasoline’s average price increased from Rs26/litre to Rs56 (115 percent increase) during Musharraf’s period. The PPP increased it to Rs101 (80 percent) but the PML-N decreased it to Rs78 (-23 percent). In October this year, it increased to Rs93 (19 percent).

The total installed capacity increased to 29,573 MW by February 2017. In this, Musharraf’s contribution is 16 percent, PPP 28 percent and PML-N 56 percent. Considering the last four years of each government, Musharraf’s contribution was 30 percent, PPP 32 percent and PML-N 38 percent in electricity generation. In 2006, the circular debt was Rs87 billion. In August 2018, it was Rs1,200 billion. Musharraf added Rs145 billion (12.6 percent), PPP Rs727 billion (63.2 percent) and PML-N Rs279 billion (24.2 percent). No government has found a solution.

There is no doubt that the economy has been mismanaged. Past governments have been facing similar economic circumstances and governance realities as the PTI, whose main problem is tackling the expectations of its voters. International agencies are also culprits of the mess due to their propensity to provide loans for perpetuating poor governance and corruption. After signing the agreement with the IMF, the PTI’s 100-day agenda and election promises will be compromised. The new captain, the IMF, will carry out a heart transplant as it is not satisfied with Asad Umar’s bypass. ‘IMF ka Pakistan’ will replace ‘Naya Pakistan’.

The writer is a former member of the National Reconstruction Bureau.

Riaz Haq said...

Pakistan textile boom

Officials said the sector invested $3-3.5 billion on modernisation and expansion in the last few years and the investment is likely to match $5 billion, witnessed during Musharraf era when the sector was undergoing major modernisation, balancing and replacement (BMR).

“The figures can be matched in next six to eight months provided the government provides the sector level-playing field”, Zubair Motiwala, a leading textile industrialist told The News International.

Exports of various categories of value-added textile goods went up substantially in July-October period of this financial year compared to the corresponding period of previous year, as per latest figures released by Ministry of Commerce.

Exports of men’s garments jumped by a massive 32 percent to $1.584 billion in the months under review compared to $1.201 billion in the same period last year.

Home textile exports grew 22 percent to $1.575 billion in July-October of 2021-22 against $1.294 billion in the same months a year ago.

Exports of cotton fabric increased 20 percent to $745 million in first four months of current fiscal compared to $622 million in the same months of last fiscal.

Likewise, exports of jerseys and cardigans soared 60 percent and women’s garments increased 20 percent in the period under review compared to same months during the last fiscal.

Motiwala attributed the growth in value-added textile exports to global Covid lockdowns when India was closed and orders were diverted to Pakistan.

Similarly, buyers also moved to Pakistan after being dismayed by Bangladesh child labour issues.

“Buyers do not change their suppliers swiftly. Luckily, Pakistan captured these buyers in Covid times and it is very hard for them to again switch to new suppliers,” said Motiwala.

He pointed out that export figures of value-added textile goods would have been much bigger if the shipping charges had not been raised massively in recent times.

“Textile sector only wants even-playing field from the government in the form of continuous supply of gas to the sector as disruption will pose serious threat to the sector, which is presently buoyant by registering the much-needed growth for the country.”

He said more investment in the import of machinery for textile sector expansion and modernisation would boost sector’s prospects in terms of high growth in exports.

“We believe that $5 billion investment in Musharraf era would be matched in next six to eight months as the sector has invested $5 billion so far,” Motiwala hoped.

Riaz Haq said...

3 Myths About ‘Un-Governable’ Pakistan
Pakistan needs to be saved from those that rule it, and especially from those want to rule it forever.

By Hussain Nadim

Calls to improve Pakistan’s image from that of a weak economy with rising extremism and corruption to a stable, internationally responsible and progressive nation are often raised in the country’s policy making circles. However, what is conveniently ignored is that Pakistan’s ruling elite has coproduced this fragility/failed state narrative to perpetuate its hold over power. Having worked in the Pakistani policy sector for over a decade, I would like to dispel three deeply-imbedded myths about Pakistan, specific to governance.

Myth #1: Pakistan is Impossible to Govern:

For decades, Pakistan’s ruling elite has justified its poor performance by claiming that it is a country that is hard to govern and whose people are “jaahil” (savages). “It is not us but you,” is the message that the ruling elite has fed the public and also transmitted to foreign countries about Pakistan to achieve short-term personal objectives over long-term national goals. After the Cold War, this messaging included a new line of narrative, pitching Pakistan as a country with a deep level of Islamist extremism that only the “moderate minded” ruling elite could help keep at bay.

The truth is that Pakistanis are easy to govern, they have very basic demands. You cut the gas, they turn to using wood. You cut electricity, they sleep on rooftops. They have little expectations from the government beyond the primitive life needs.

As for extremism, it is less to do with Islam or the public at large and more to do with how the ruling elite sowed and cultivated the seeds of religious and ethnic extremism to pursue its domestic political and geopolitical interests, especially during the Cold War.

The Pakistani ruling elite adopted a fear-based governance model instead of a rule of law-based governance. This facilitated the flow of foreign funds into the country and secured international political support to its supposedly “liberal minded” rulers so they may “de-radicalize” the “extremist” masses.

The latest in the line of fear-based and victim-driven narrative is pitching the 140-million strong youth of the country as a “ticking time-bomb,” instead of presenting them as a game-changer to the global community in the digitalized world.

Pakistan is neither an impossible country to govern nor are the people inherently extremist. It is those in power that have hijacked the system for decades and have forced a functioning country into a dysfunctional state, keeping it deliberately on a brink of failure. It is this state of brink that creates a hyper sense of fear and victimhood, providing the ruling elite leverage with actors at home and abroad.

Myth #2: It is the Incompetence:

There is only so much that the ruling elite can blame Pakistan or its people for being hard to govern, especially 70 years after it emerged an independent country. Incompetence is simply a narrative to mask and perpetuate deep corruption.

The incompetence myth played well, both at home and abroad. It has convinced the public at home and the foreign audience that a moderate/liberal minded incompetent government is better than a worst-case scenario of an Iran like “Islamist takeover” of the country. But this begs a question; how is it that the same ruling elite that is so incompetent in governance of the state is internationally competent when it comes to its private businesses?


Myth #3: The System is Complicated and Broken:

The ruling elite also uses the myth of a dysfunctional and broken system to continue its power grab on the state. The narrative on “broken system” helps the ruling elite buy sympathy and time from the public to undertake the pipedream of “reforms” and also touches the right chords with foreign powers to secure technical assistance in capacity building projects and development aid.