The State of Pakistan

Pakistan Link

By Dr. Nayyer Ali

At the end of each fiscal year in June, the Economic Survey of Pakistan is released to the public.  As such it provides some very deep insights into the status of Pakistan and where it currently stands.

Economic growth came in at 4.7% for the previous 12 months.  This is below the long run 5% average Pakistan has achieved since 1947, but it is the fastest rate of growth since Musharraf was still in power.  The industrial sector grew at a much faster 6.8% pace, led by a 23% rise in auto sector output.  What held back the overall economy was agriculture.  In particular, a 27% decline in cotton output due to low world cotton prices resulted in an overall contraction.  Inflation was very low at about 3% for the year, which has allowed the State Bank to sharply lower interest rates, which should help economic growth in the next two years to accelerate.  In dollar terms, per capita income reached 1560, about the same as India.

  The government was also able to lower the budget deficit to 5% of GDP, which is sustainable given an economy that is growing faster than that in nominal terms.  Total revenues rose 10% last year. The bill for subsidies, mostly in petroleum and power sectors, but also for some loss-making state owned enterprises, declined from 180 billion rupees to about 120 billion.  Foreign exchange reserves held stable at about 20 billion dollars.  Overall debt to GDP ratio was steady at about 63%, which is not very high, but the composition of debt has changed.  In 2010, foreign debt, mostly in dollars, was 29% of GDP, it is now down to 19% of GDP.  Domestic debt, in rupees, has risen from 31% of GDP to 44% of GDP.

Both imports and exports actually declined in the last year.  Exports were down from 23 billion dollars to 21 billion, while imports fell about a billion dollars to 45 billion.  The shrinkage in imports was mostly due to falling cost of imported oil.  Exports were hurt by the weak global economy, with sluggish EU and US markets joined by a slowing China.  Pakistan has been able to finance its 24 billion dollar trade deficit due to the very high flow of remittances from overseas workers.  In the last year, they sent 20 billion dollars back to Pakistan, hard currency that ended up paying for the very high import bill.

Life for the average Pakistani continued to slowly improve.  Life expectancy rose for women to 68 years and for men to 66 years.  Population has risen to 195 million, compared to 35 million in West Pakistan in 1947.  The TFR (Total Fertility Rate, or number of children born to the average woman) has slowly declined but remains high at 3.2.  It needs to go down to 2.1 to be at “replacement”, where the population will eventually stabilize and stop growing.  Extreme poverty declined from 55% of the population in 2005 to 39% in 2015.  Depending on the measurement used, there is a persistent gap in poverty rates between Pakistan and India that tilt in Pakistan’s favor.  This gap would seem hard to explain, given that India’s economy has grown faster for the last 10 years, and it has a higher per capita income.  But the key difference is income inequality, which is much, much worse in India.  Almost all the benefit of India’s growth has gone to the upper reaches, with hundreds of millions still mired in deep rural poverty.

Literacy has climbed to 60% of the overall population, with male rates at 70% and female at 50%.  The urban rates are much higher with males at 82% and females at 69%, while rural Sindh continues to perform very poorly, just 55% of males are literate and only 24% of females.  The government continues to underfund education, spending only 2.2% of GDP on education, compared with India spending 3.8%.  In the nation as a whole, 81% of children ages 6-16 are in school.  76% in government schools, 21% in private, and 2% in madrassahs.  In urban areas, the enrolled rate is 94%, with 63% attending private schools.

There are now 130 million cell phones in Pakistan, though many people have more than one phone.  There has been rapid uptake of broadband phones, with 30 million smart phones now in use.  The number of vehicles on the roads has doubled in the last 10 years from 7 million to over 15 million.  Electric shortages are still a major problem with widespread load-shedding.  The installed grid has a capacity of 24 gigawatts, but thanks to a number of projects related to the China Pakistan Economic Corridor (CPEC), 10 gigawatts of power are supposed to be added to the grid by 2018.  In addition, a few hundred megawatts of solar power are in the pipeline.

In term of health, infant mortality has slowly dropped from 71 per thousand births in 2012 to 66 last year, and under 5 mortality has dropped from 88 to 81 per thousand births.  Both statistics are significantly worse than India, and there is room for marked improvement.  Maternal mortality is the same as India, at 178 per 100,000 births.

The number of polio cases has declined but has not been eradicated yet.  There were 306 cases in 2014, 54 in 2015, and only 9 so far in 2016.  Outside of remote pockets of Pakistan and Afghanistan polio has been eradicated from the planet.

Over the last five years the number of doctors has risen from 150,000 to 185,000, and dentists from 11,000 to 16,000.  Fifty years ago there were less than 10,000 doctors and 1,000 dentists in the country.

Pakistan continues to show slow but steady progress as it makes the transition to a modern society.  Every year it becomes more urban, literate, and prosperous.  The job of the government is to ensure effective economic management to boost the growth rate, combined with necessary investments in education, power, and infrastructure needed to take Pakistan to the next level.

If the government can raise GDP growth rate to 7% and keep it there for 20 years, Pakistan would have the standard of living of Turkey, and be a major global economy due to the size of its population.