Tuesday, May 14, 2024

Global Baby Bust: Pakistan is A Rare Bright Spot Among Most Populous Nations in Asia

There is an alarming rapid decline in fertility rates in both developed and developing nations, according to the United Nations.  Here is how the Wall Street Journal describes it: "The world is at a startling demographic milestone. Sometime soon, the global fertility rate will drop below the point needed to keep the population constant. It may have already happened". 

Total Fertility Rates in 12 Most Populous Nations. Source: Wall Street Journal


Birth rates are low and fertility is rapidly dropping for women across all levels of income, education and labor-force participation around the world. Fertility is falling among Pakistani women too but more slowly than elsewhere in Asia. In fact, Pakistani women have the third highest fertility rate (3.47) among the 12 most populous nations of the world. 

Pakistan Fertility Rate. Source: Data Commons


Birth rates have economic, social and geopolitical consequences. "The falling birthrates come with huge implications for the way people live, how economies grow and the standings of the world’s superpowers", says the Wall Street Journal report titled "Suddenly There Aren’t Enough Babies. The Whole World Is Alarmed". 

No challenge is greater than the irreversible decline in female fertility rates that China, Japan, South Korea and the West are now experiencing. It's an existential threat. Nations and civilizations with sub-replacement fertility rates will eventually cease to exist. Automation can not replace young curious minds responsible for new ideas, innovation and social and economic vitality. Nor can automation replace consumers needed to buy and pay for products and services produced by robots.


Back in 2022, Goldman Sachs analysts Kevin Daly and  Tadas Gedminas projected Pakistan's economy to grow to become the world's sixth largest by 2075.  In a research paper titled "The Path to 2075", the authors predicted Pakistan's GDP to rise to $12.7 trillion with per capita income of $27,100.  India’s GDP in 2075 is projected at $52.5 trillion and per capita GDP at $31,300.  Bangladesh is projected to be a $6.3 trillion economy with per capita income of $31,000.  By 2075, China will be the top global economy, followed by India 2nd, US 3rd, Indonesia 4th, Nigeria 5th and Pakistan 6th. The forecast is based primarily on changes in the size of working age populations over the next 50 years.  


Economic Growth Rate Till 2075. Source: Goldman Sachs Investment Research 

Economic Impact of Slower Population Growth: 

Daly and Gedminas argue that slowing population growth in the developed world is causing their economic growth to decelerate. At the same time, the economies of the developing countries are driven by their rising populations.  Here are four key points made in the report:

 1) Slower global potential growth, led by weaker population growth. 

2) EM convergence remains intact, led by Asia’s powerhouses. Although real GDP growth has slowed in both developed and emerging economies, in relative terms EM growth continues to outstrip DM growth.

3) A decade of US exceptionalism that is unlikely to be repeated. 

4) Less global inequality, more local inequality. 

Goldman Sachs' Revised GDP Projections. Source: The Path to 2075

Demographic Dividend: 

With rapidly aging populations and declining number of working age people in North America, Europe and East Asia, the demand for workers will increasingly be met by major labor exporting nations like Bangladesh, China, India, Mexico, Pakistan, Russia and Vietnam. Among these nations, Pakistan is the only major labor exporting country where the working age population is still rising faster than the birth rate. 

Pakistan Population Youngest Among Major Asian Nations. Source: Nikkei Asia

World Population 2022. Source: Visual Capitalist

World Population 2050. Source: Visual Capitalist

Over 10 million Pakistanis are currently working/living overseas, according to the Bureau of Emigration. Before the COVID19 pandemic hit in 2020,  more than 600,000 Pakistanis left the country to work overseas in 2019. Nearly 700,000 Pakistanis have already migrated in this calendar year as of October, 2022. The average yearly outflow of Pakistani workers to OECD countries (mainly UK and US) and the Middle East was over half a million in the last decade. 

Consumer Markets in 2030. Source: WEF


World's 7th Largest Consumer Market:

Pakistan's share of the working age population (15-64 years) is growing as the country's birth rate declines, a phenomenon called demographic dividend. With its rising population of this working age group, Pakistan is projected by the World Economic Forum to become the world's 7th largest consumer market by 2030. Nearly 60 million Pakistanis will join the consumer class (consumers spending more than $11 per day) to raise the country's consumer market rank from 15 to 7  by 2030. WEF forecasts the world's top 10 consumer markets of 2030 to be as follows: China, India, the United States, Indonesia, Russia, Brazil, Pakistan, Japan, Egypt and Mexico.  Global investors chasing bigger returns will almost certainly shift more of their attention and money to the biggest movers among the top 10 consumer markets, including Pakistan.  Already, the year 2021 has been a banner year for investments in Pakistani technology startups

Record Remittances From Overseas Pakistanis:

Pakistan is already seeing high levels of labor export and record remittances of over $30 billion pouring into the country. Saudi Arabia and the United Arab Emirates(UAE) are the top two sources of remittances but the biggest increase (58%) in remittances is seen this year from Pakistanis in the next two sources: the United Kingdom and the United States.

Remittances from the European Union (EU) to Pakistan soared 49.7% in FY 21 and 28.3% in FY22, according to the State Bank of Pakistan. With $2.5 billion remittances in the first 9 months (July-March) of the current fiscal year, the EU ($2.5 billion) has now surpassed North America ($2.2 billion) to become the third largest source of inflows to Pakistan after the Middle East and the United Kingdom. Remittances from the US have grown 21%, second fastest after the EU (28.3%) in the first 9  months of the current fiscal year. 

Pakistan ranks 6th among the top worker remittance recipient countries in the world.  India and China rank first and second, followed by Mexico 3rd, the Philippines 4th, Egypt 5th and Pakistan 6th.  

Pakistan Demographics

About two million Pakistanis are entering the workforce every year. The share of the working age population in Pakistan is increasing while the birth rate is declining. This phenomenon, known as demographic dividend, is coinciding with declines in working age populations in developed countries. It is creating an opportunity for over half a million Pakistani workers to migrate and work overseas, and send home record remittances. 

4 comments:

Vineeth said...

Your view that high fertility rate in Pakistan is a good thing is rather interesting. Nearly everyone else I have read (including prominent Pakistani columnists like Khurram Husain in DAWN) say such high fertility rates and large working age population is at best a double-edged sword for developing countries like Pakistan (and to an extent, India) due to their high levels of poverty, low literacy and social development, low industrialization, low levels of economic growth, looming water shortages and other socio-economic and ecological challenges magnified by destabilizing effects of climate change. If things are challenging enough for India in these circumstances (as any respected Indian economist would say), it would be worse for Pakistan as it faces greater prospects of ecological threats and instability.

Also, we need to keep in mind how growth of automation could progressively reduce opportunities for unskilled labour in the Western world. I wouldn't count on exports of unskilled or lower-skilled workforce to save Pakistani economy at this point, since they would have to contend with surplus of immigrants waiting to fill in such vacancies from Africa and Middle East too thanks to raging civil wars and poverty. Besides, remittances are a poor foundation to build an economy on, as the experience of my own state in southern India shows. Kerala is a relatively affluent state with high HDI thanks to the flow of Gulf remittances since 1970s, but is an import-dependent consumer state with high levels of unemployment and lack of employment opportunities due to low industrialization, not to mention that the state government is essentially bankrupt and is struggling to pay even salaries and pensions these days thanks to lack of tax revenues - a situation that somewhat mirrors Pakistan.

As for the prospect of companies queueing to invest in Pakistan, I guess it depends on a lot many factors other than merely a large consumer population. FDI and economic growth requires sustained and sound economic policies, political stability, social development, infrastructure, security and a skilled workforce. Otherwise, one would have seen India growing into an economic powerhouse rivalling China rather than being hobbled by high levels of unemployment as it is at present. Pakistan with its ad-hoc rentier economy and its recurring boom-bust cycles, chronic political instability and security challenges has a poorer record at attracting investment. Also, Pakistan's economic planners have a history of chasing mirages ("game-changers") and quick-fixes rather than pursuing sound economics and difficult, but necessary reforms. For instance, we know how the CPEC hype unravelled. After a decade, Chinese trucks aren't exactly queuing at Gwadar and Pakistan isn't making billions out of their rent and toll fares. Chinese companies have not relocated their factories en masse to Pakistan, and is unlikely to do so due to slowing economic growth and growing levels of unemployment in China itself.

In a nutshell, lets not count the chickens before they hatch. The hyped "demographic divident" of a large working-age population could very well turn into a "demographic nightmare" of legions of restive, unemployed youth going berserk if your optimistic prognosis does not come to pass.

Riaz Haq said...

Vineeth: "Pakistani columnists like Khurram Husain in DAWN) say such high fertility rates and large working age population is at best a double-edged sword for developing countries like Pakistan (and to an extent, India) due to their high levels of poverty, low literacy and social development, low industrialization, low levels of economic growth, looming water shortages and other socio-economic and ecological challenges..."

No challenge is greater than the irreversible decline in female fertility rates that China, Japan, South Korea and the West are now experiencing.

It's an existential threat. Nations and civilizations with below-replacement fertility rates will cease to exist.

Automation can not replace young curious minds responsible for new ideas, innovation and social and economic vitality. Nor can automation replace consumers needed to buy and pay for products and services produced by robots.

Vineeth said...

Wealthier nations do indeed adapt to the new demographic reality by taking in skilled and unskilled immigrants to run their systems. After all, countries like United States, Canada, Australia and New Zealand developed out of nothingness during the last few centuries thanks to a steady flow of immigrants from other continents. Nevertheless, my argument is that this demographic shift in the developed world may not necessarily turn out to be another "game-changer" for Pakistan as its largely unskilled workforce (like India's) would end up having to compete with similar desperate immigrants from other poor nations. Remember that India itself has a huge population of working age who would need to find employment somewhere. The developed world would have no dearth of aspirants for even menial jobs from such countries. Pakistani job aspirants would have to jostle with them.

Therefore, it would be foolish for Pakistan to bet its future on remittances from exporting its "demographic dividend". That's a mistake my state made in the past when its left-wing governments and militant trade unions closed down factories and scared away private entrepreneurs, leaving its working age population with no choice but to migrate to other states or countries. Now investors avoid Kerala altogether and instead setup factories in neighbouring Karnataka and Tamil Nadu states. If Gulf economies (where most expatriates from Kerala are employed) enter into a crisis and start laying off foreign workers, Kerala's society would be turned upside down.

Rather than chasing such uncertain hopes, Pakistani authorities should concentrate their energy on fixing the country's unstable economic, political and security situation to attract more investment into its underdeveloped industrial sector. A large middle class consumer base isn't going to automatically attract investment unless there is predictability in policies and stability in the economic and political system. Take for instance the recent case where the government of Pakistan had to halt repatriation of profits by foreign firms to their home countries ostensibly due to forex reserve crunch. Why would foreign companies risk their money in investing in a country with such unpredictable political and economic landscape and recurring crisises, and where they are unsure whether they would even be able to repatriate their profits?

Without adequate employment opportunities at home to absorb most of its workforce, the possibility of the "dividend" turning into a "nightmare" and then a "disaster" is very real for both Pakistan and India.

Finally, lets call a spade a spade. In the modern world, high fertility rates are a sign of patriarchy and social backwardness. Developed societies have low birth rates as women have become more educated, independent and empowered, and prioritise their career over producing babies. Yes, falling birth rates has its drawbacks, but it is also a sign of social progress and gender equality, not to mention the beneficial effects that a lower human population has on the ecology as a whole.

The world can do with less people. But that's my personal opinion.

Riaz Haq said...

Vineeth: "In the modern world, high fertility rates are a sign of patriarchy and social backwardness. Developed societies have low birth rates as women have become more educated, independent and empowered, and prioritise their career over producing babies. Yes, falling birth rates has its drawbacks, but it is also a sign of social progress and gender equality, not to mention the beneficial effects that a lower human population has on the ecology as a whole"

Your arguments reflect the conventional thinking that still prevails in the developing world. The reality of low birth rates is changing this thinking in the West.

Almost every rich country is now trying very hard to reverse the declining birthrates without success. This reality is starting to worry many in the developing world as well. Here are some excerpts from a recent Wall Street Journal story:


"Fertility is below replacement in India even though the country is still poor and many women don’t work—factors that usually sustain fertility.

Urbanization and the internet have given even women in traditional male-dominated villages a glimpse of societies where fewer children and a higher quality of life are the norm. “People are plugged into the global culture,” said Richard Jackson, president of the Global Aging Institute, a nonprofit research and education group.

Mae Mariyam Thomas, 38, who lives in Mumbai and runs an audio production company, said she’s opted against having children because she never felt the tug of motherhood. She sees peers struggling to meet the right person, getting married later and, in some instances, divorcing before they have kids. At least three of her friends have frozen their eggs, she said.

“I think now we live in a really different world, so I think for anyone in the world it’s tough to find a partner,” she said.

Sub-Saharan Africa once appeared resistant to the global slide in fertility, but that too is changing. The share of all women of reproductive age using modern contraception grew from 17% in 2012 to 23% in 2022, according to Family Planning 2030, an international organization.

Jose Rimon, a professor of public health at Johns Hopkins University, credits that to a push by national leaders in Africa which, he predicted, would drive fertility down faster than the U.N. projects.

Once a low fertility cycle kicks in, it effectively resets a society’s norms and is thus hard to break, said Jackson. “The fewer children you see your colleagues and peers and neighbors having, it changes the whole social climate,” he said".