Divergent Perspectives

Spearhead Opinion – 19.03.2019

By Farrukh Karamat
Senior Research Coordinator, Spearhead Research

Divergent PrespectivesThe recent World Bank report ‘Pakistan @ 100 – Sharing the Future 2047’ should be an eye-opener for the government and key policy makers in the country. As usual the euphoria appears to be on the upside that Pakistan could be a US$2 Trillion economy by 2047, without assessing the hard requirements that need to be met to make that a reality. Since 1947, the country has experienced ups and downs in socio-economic activity without any sustained trends that could define the long-term socio-economic growth trajectory. At best the past can be viewed as a hotchpotch of ad-hoc policies often based on the whims of an individual. As a consequence, the country has suffered as it has continued to drift without any long-term sustainable direction. It is hard to believe that the governments of the future would change their ways to bring about a revolutionary disruptive transformation in Pakistan. The PTI government, which brought with it high hopes of change, can at best be described as floundering on the socio-economic front up to now as it tries to grapple with the intricacies of managing a country. 

As per the World Bank report, the country has the potential to be a US$2 Trillion economy in the next three decades with a per capita income of US$5,702 IF it can steadfastedly implement and follow a structured reform programme AND bring about a reduction in the population growth rate to 1.2 per cent. The problem is that Pakistan in the past has been unable to implement structured reform programmes and the population growth rate has never been a priority. If anything there is vehement opposition by certain quarters towards any efforts to control the population. So the US$2 Trillion target might just be a trite optimistic forecast given the current state of affairs.    

A more realistic and achievable forecast is perhaps a US$1 Trillion economy and a per capita income of US$2,110, with a population of 376 Million by 2047 at the current growth rate. Pakistan is at cross roads being held captive by certain influential vested groups that continue to thwart efforts for real reforms and the direction Pakistan adopts today will define its status in the comity of Nations in the years to come. The Report states that the elite continue to constrain economic policy-making as a result of their vested interests with a rising number of industrialists elected in Parliament, which allows them to constrain real broad-based socio-economic growth. Continued uncertainty in policy-making and a lack of trust borne out of frequent U-turns make any policy implementation and planning difficult and ineffective.   

The Report identifies four groups that continue to exert control over the “political system for personal gains” – Civil servants, Landowners, Industrialists, and the Military. Any reforms that could curtail the influence of these groups have not been implemented, creating the issue of trying to bring about any real structural change in Pakistan. The current institutional framework in Pakistan remains personality driven rather than being institution driven, which has severely impeded regional cooperation for trade, revenue enhancement through tax collection, improvement in productivity and competence, or buildup of the resource base through implementation of the required socio-economic policies.

A politically unstable system that is gradually evolving continues to impede long-term reforms, as a result of frequent regime changes in the past that proved disruptive and an incumbency disadvantage, which made reelection difficult. As a result short-term extractive projects are preferred to maximize personal gains as opposed to national objectives being met.

The reality is that:

  • Pakistan has a population growth rate of 2.4 per cent.
  • Stunting in children under the age of 5 years is 38 per cent
  • Pakistan ranks 136th on ease of doing business
  • Pakistan ranks 150th on the Human Development Index
  • Pakistan ranks 107th on the Global Competitiveness Index
  • Pakistan ranks 3rd among the countries facing water shortage.

The World Bank report has highlighted:

  • The high population growth rate, which threatens to undermine education and health services with low spending levels in these areas.
  • The revenue system cannot meet the financing needs and a consumption-led growth continues to exert pressure on the external sector.
  • With limited resources the investment in infrastructure and human capital continues to remain low, impacting productivity.

World Bank Recommendations:

  • Broaden the tax net by including the agriculture sector, which accounts for over 20 per cent of the GDP.
  • Reforms the tax system to stop the incidence of tax evasion.
  • Open up of Pakistan’s economy for trade through improved connectivity.
  • Improve productivity through enhancing energy, urban living, health, education, and security.

In the meantime the debt continues to pile up and Pakistan continues to struggle with fiscal and current account deficits, with no long-term sustainable plan evident to date. The energy situation is volatile with limited clarity on its long-term potential. The cities are coming under increasing pressure on account of infrastructure development that lags population growth. The key macroeconomic indicators are vulnerable and Pakistan has been through a spate of rating downgrades.

It is great to have a dream and to aspire to be a US$2 Trillion economy, but for that to become a reality hard decisions need to be taken and implemented now to reap the benefits in the future. For now, we continue to see a government focused on reforms that are more of optics, and an over-emphasis on corruption without any meaningful results. No doubt the potential is there for growth and there has been stability in recent years, with an improved security situation but now it is time to assume a growth trajectory through investor-friendly policies and a move away from vested interests towards national interests. The World Bank has shown a path that could be followed, it is up to us to either realize it or continue to flounder. Pakistan can start by investing in its people, improving productivity, reforming institutions and protecting the natural environment and these will be the decisions that will define Pakistan’s future in the coming decades and where it will be in the next 30 odd years.