Outline
- Introduction.
- Development in the Post-Independence Scenario.
- Current Scenario.
- Comparison with India and Bangladesh.
- Causes of Slow Economic Development.
- Institutional decay.
- Political instability.
- Unsustainable policies.
- Water and energy crises.
- Lack of skilled labour.
- Corruption and weak leadership.
- Effects of Slow Economic
- Worsening fiscal deficit.
- Trade imbalance/deficit.
- Abysmal growth in industrial and agricultural sector.
- Sluggish revenue collection.
- High income disparity.
- Massive debt liabilities.
- Way Forward.
- 3D Strategy.
- Adequate utilization of resources.
- Empowering women.
- Promotion of tourism industry.
- Harnessing the true potential of CPEC.
- Conclusion.
Growth is never by mere chance; it is the result of forces working together — James Cash Penney
In India, the IT industry generated a total of USD 194 billion in revenue during the fiscal year of 2021, whereas Pakistan’s entire revenue was between USD 45 and 50 billion during the same period. These numbers boldly proclaim Pakistan’s progress over the past 75 years. However, I have only touched on this one aspect. On the eve of Pakistan’s 75th anniversary, celebrations may be muted if we compare the country’s economic and social indicators to those of other developed countries. This will serve as a constant reminder of how little we have accomplished in the name of nation-building. Moreover, it will be a timely reminder that composing patriotic songs and affiliating religious sentiments are not enough to create great nations. Instead, sincere and honest countries put in extra effort to better themselves. They are willing to put their bodies on the line for their goals. On the other hand, laggard nations set off a spiral of social and economic problems from which they seldom emerge. In this piece, I would take a quick but informative look at Pakistan’s development history, compare it to other countries, and figure out why we have not done better. Because of their historical ties, Pakistan can only draw parallels with India and Bangladesh.
Before delving deep into the topic, we will first discuss the development of Pakistan in the post-independence scenario.
Pakistan was founded during a period when it was struggling with several domestic and international issues. The future looked particularly dismal for many reasons, including the enormous in flux of migrants, the problem of princely states, the economic downturn, and so on. Despite its rocky beginnings, Pakistan has become the 42nd largest economy globally, with a per capita GDP of around USD 1500 (compared to USD 100 in 1947).
Additionally, Pakistan has a respectable track record of economic growth. The country’s GDP has increased by slightly more than 5% yearly over the past seven decades. The average yearly expansion rate was 2.5% when measured in terms of growth in GDP per person. Per capita incomes have increased by a factor of four or five over the same period. Consequently, poverty has reduced from 40 per cent to less than 20 per cent.
A country of 30 million people in 1947 couldn’t feed itself and had to import all its food from overseas. But in 2016, Pakistani farmers produced enough wheat, rice, sugar, and milk to provide for the country’s 190 million people at a far higher per capita consumption level and even exported some of it. This has allowed Pakistan to become the third-largest rice exporter worldwide. The cotton harvest peaked at almost 14 million bales, up from just 1 million in 1947, while agricultural output increased five-fold. Thus, Pakistan has become a significant player in the global textile industry. If we adjust for 1947’s low manufacturing production index base of 100, we find that we are now well over 13,000. In addition, the production of goods that did not exist before independence, such as steel, cement, vehicles, sugar, fertilizer, textiles, vegetable ghee, industrial chemicals, refined petroleum, and many more, has increased substantially. In 2016, Pakistan produced 10,160 kWh (kilowatt hours) of electricity, a significant increase from the 100 kWh produced per person in 1947.
After seven decades of work, Pakistan has doubled its cultivated land area to 22 million hectares, thanks to its extensive network of irrigation canals, dams, and barrages. Further, nearly a third of the supplementary water to canal irrigation comes from tubewell irrigation.
With a total length of 260,000 kilometres, Pakistan’s road and highway systems are considerably longer than the 80,000 kilometres they inherited in 1947. Modern motorways, superhighways, and four-lane national highways connect the country’s secondary and tertiary roadways.
In the 1950s, natural gas was discovered in Pakistan, and since then, the country’s supply has increased. Until recently, 40–50% of the country’s energy needs were met by the over 4 billion cubic feet of natural gas being produced and delivered daily for industrial, commercial, and home consumption.
Increases in personal disposable income have resulted in no decline in private consumption levels. In 2012, there were 52 cars per 1,000 residents, but in 1947 there was just one car per 1,000 residents. The number of telephone connections per one thousand persons has increased from 0.4 to 683.
After having discuss the development in the post-independence scenario, we will now have a look at the current scenario.
Within its first four decades of independence, Pakistan’s economy ranked among the top 10 worldwide among developing nations. There was an average yearly growth rate of 6% in Pakistan’s first 40 years of existence. Pakistan outperformed India and Bangladesh across all economic and social metrics.
Pakistan’s potential growth rate has dropped from 6.5 percent to 4.5 percent since 1990 as a result of boom and bust periods. However, the growth spurts never lasted for very long and were easily reversed. Also, it’s possible that the sluggish pace of economic activity in the 1990s was caused by investor concern brought on by political instability and frequent government changes.
After having seen the current status of development in Pakistan, it is pertinent to draw its comparison with some other Asia countries.
India’s GDP in 2020–2021, at $3,150 billion, is roughly ten times bigger than Pakistan’s GDP in that same year, at $348 billion. However, the disparity is more than ten times larger when comparing nominal and PPP values. India’s economy ranks fifth in terms of nominal size and third in terms of PPP size. Pakistan ranks 46th on the nominal scale and 24th on the PPP scale. Maharashtra, India’s most populous and economically important state, has a GDP of $398 billion, significantly higher than Pakistan’s GDP. The disparity between their respective nominal gross domestic products (GDPs) was at its narrowest in 1993, when India’s GDP was 5.39 times that of Pakistan’s.
The fact that Bangladesh is no longer classified as one of the world’s least developed demonstrates the country’s amazing progress over the past decade. The value of the taka, the currency of Bangladesh, has practically doubled compared to the value of the Pakistani rupee, and the country’s exports are twice as high as those of Pakistan. In comparison to Pakistan’s 1.5%, Bangladesh’s GDP growth rate is 7.9%. Bangladesh’s $41 billion in foreign exchange reserves is significantly larger than Pakistan’s $20 billion. Pakistan outranks Bangladesh in terms of remittances alone. In comparison to Pakistan’s 220 million people, Bangladesh’s is only around 164 million. In 1971, 70 million people lived in what is now East Pakistan, while only 60 million lived in what is now West Pakistan. The passport index, literacy rate, micro-credit finance, and female economic participation all place Bangladesh above Pakistan.
After having fully understood the depressed status of economic development of Pakistan, it is pertinent to understand some of the causes of such abysmal state.
Pakistan’s potential was stymied by the country’s inadequate institutions. Institutions are frameworks of laws and norms created by humans to guide and limit how people act. Governance, law enforcement, justice, regulations, tax administration, and institutions managing monetary and fiscal policies are important factors affecting economic growth. In the book “Pakistan: Beyond a Crisis State”, the author Ishrat Hussien maintains that the reason why economic policies failed to materialize results lies in the institution intermediating these policies. Over time, these institutions have been deteriorated in terms of economic governance and decision-making. Therefore, it is important to retool them.
Further, political instability is a constant problem in Pakistan. If the rule of law prevails, the country’s sovereignty is recognized by other countries, the economy provides for the needs of the population, and there is a broad sense of social contentment and equality, then the country can be said to be politically stable. Policymakers’ short-term horizons caused by political instability will likely result in less-than-ideal macroeconomic measures being implemented in the short term. Additionally, it may cause policy shifts to occur more frequently, which can be disruptive to markets and have a chilling effect on the economy as a whole.
Furthermore, unsustainable policies hinder progress. Sustainability is the practice of making sure that the right things get done during development as well as the right things get done during development. As a result, there are no contradictions between substance and procedure that must be resolved. For instance, the previous government constructed Langer Khanas across the country. Although the intentions behind this endeavour was benign, the entire planning was not well-thought of. The reason is a country that is already reeling under burden of debts as it cannot meet its needs in the current budget, from where is it going to stash extra funds for such projects. A sustainable policy would have been capacity building by providing some makeshift jobs.
Water and power shortages are also becoming increasingly problematic in Pakistan. Both of these resources are essential to the progress of the human, industrial, and agricultural sectors. A serious lack of water affects almost 80% of the population. Furthermore, as temperatures across Pakistan rise, reaching 50 degrees Celsius in certain regions, Reuters reports that the country has endured hours-long power shortages over the past month, with urban centres experiencing four to six-hour outages a day and rural areas over eight hours.
In addition, Pakistan suffers from a surplus of unskilled workers. Labor Force Survey data from 2016 shows that only 11% of Pakistanis have completed high school. When we divide this tiny “matriculate” population into age groups, we find that 2.61 percent are between the ages of 15 and 19, while only 1.66 percent are between the ages of 20 and 24. Lower educational attainment, like a lack of a high school diploma, is frequently associated with unskilled labour, which in turn leads to lower income.
Corruption and weak leadership are also detrimental to a country’s progress. This is a sad turn of events for Pakistan. According to the Transparency International 2021 Corruption Perceptions Index, Pakistan ranks 140th on the list of least corrupt countries. In addition, good governance contributes positively to economic expansion. Lack of good governance makes poverty and inequality worse by making growth and investment less likely.
Following the discussion of the reasons behind slow economic development of Pakistan, we will see some of its flagrant effects.
Firstly, Pakistan is facing a worse fiscal deficit. A fiscal deficit refers to a situation where a government’s expenditures exceed its revenue, resulting in a shortfall in income. A government with a fiscal deficit is engaging in expenditures that exceed its available financial resources. The revised deficit corresponds to 7.1% of the gross domestic product (GDP) in relation to the economy’s magnitude. The current level of unsustainability is significant and has resulted in the country being compelled to consider debt restructuring as the sole feasible alternative.
Secondly, Pakistan is experiencing a worse trade deficit. A situation of trade deficit arises when the value of a country’s imports surpasses that of its exports within a specified duration. The term “negative balance of trade” (BOT) is also commonly used to describe this phenomenon. In 2021, Pakistan’s trade deficit was $42.87 billion, which marked a 37% increase from the previous year. This was due to a more significant decrease in imports, which was counterbalanced by an unexpected decline in exports.
Thirdly, there is abysmal growth in the industrial and agricultural sectors. The agricultural sector has a significant impact on society in various aspects such as sustaining livelihoods through the provision of food, habitat, and employment opportunities, supplying raw materials for food and other commodities, and fostering robust economies through trade. However, the significance of this matter has not yet been fully acknowledged in Pakistan. Our food crops yield very little, and the value addition of the food processing businesses is not keeping pace. Furthermore, the productivity of animals is low, and the meat processing sector is still in its infancy. Moreover, farms, orchards, and fields that produce fruits, vegetables, pulses, oilseeds, and pulses have not yet been structured and maintained in accordance with national requirements. Moreover, the Pakistani government has displayed a concerning lack of attention towards resolving the issues plaguing the industrial sector. For instance, The Pakistan Bureau of Statistics (PBS) reported that from $918.13 million in FY17 to $833.19 million in FY21, exports of leather and leather goods decreased. Earnings for the industry increased by 8.86% from $765.35 million in FY20 to $833.19 million in FY21. But the poor base of the year before was largely to blame for this growth.
Fourthly, sluggish revenue collection is another depressing concomitant. The World Bank conducted its Mid-Term Review (MTR) of the $400 million World Bank-funded project from October 17 – November 11, 2022. The objective of the $400 million loan was to enhance the tax-to-GDP ratio of the nation to 17% by June 2024. According to the report, the tax-to-GDP ratio has experienced a significant decline from 13% in June 2018 to 10%. The monitoring and reporting of tax arrears has not exhibited any discernible progress. According to the report, the analysis of the arrears remains incomplete. Consequently, these deficiencies, in addition to others, are significantly impacting Pakistan’s ability to generate revenue.
Fifthly, there is high income disparity in Pakistan. The term “income inequality” pertains to the uneven distribution of income among individuals within a given population. Greater income inequality is directly proportional to a less equal distribution. As per the findings of Dr. Mahbub-ul-Haq in 1968, it was observed that 22 families possessed 66% of Pakistan’s industrial assets. Currently, the income disparity between the bottom 10% and top 10% of the population is reflected in a ratio of 6.5. Stated differently, the mean earnings of the wealthiest individuals surpass the mean earnings of the most impoverished individuals by a factor of over 16.
Lastly, there are massive debt liabilities on Pakistan thanks to slow economic growth. By the end of September 2021, Pakistan's total debt and liabilities stood at a record high of Rs. 50.5 trillion, up Rs. 20.7 trillion during the preceding three years and three months. The total amount of debt owed by the nation has grown by around 70%.
Although the current economic status of Pakistan is terrible, it can be fixed through rigorous measure.
Although the energy sector may have seen more investment thanks to tax relief and guaranteed returns from the government, this is an unsustainable strategy. Advancement in the economy is not something that can be borrowed or imported. For this to happen, long-term goals need to be set, policies need to be followed consistently, and there needs to be good leadership. Every good national growth plan is built on the three pillars of deregulation, decentralization, and digitalization.
Besides, land, people, water, oil, and minerals are all readily available here. The issue is how to make the most of the available resources. The rivers here are enormous. Every year, we deal with the worst floods possible. However, we are unable to force the dams to provide low-cost electricity. Water is wasted when it is released into the ocean. To add to that, we have oil and coal as natural resources. However, there is nobody to reap the rewards of these assets. To the fullest extent possible, we must utilize the available means.
In addition to that, in order to have the strongest economy, more women need to be given the tools to succeed. Women have more to offer than men. Just one individual is responsible for providing food for the household. Why should women, the elderly, and children have to work? No single member of the family can provide for the needs of the full household. Therefore, young women need to be integrated into the system of the state so that there will be more manpower and innovative minds available. If men can be taught to teach themselves, but if we educate women, they will educate their children. And that’s the key point of differentiation.
Furthermore, more than that, Pakistan has to work on its tourism infrastructure. Business and job opportunities are generated by the tourism sector. Hotels, travel agencies, tourist information centres, the transportation sector, and retail operations at tourist attractions all present promising business prospects. All of these spheres of industry contribute to the creation of jobs. Four out of every ten jobs in the Maldives may be traced back to the tourism industry. Unfortunately, Pakistan’s tourism industry is rather tiny, and thus it doesn’t provide many job or business opportunities. That’s why Pakistan needs to figure things out.
Besides, investment in Pakistan’s export sector must rise, tariffs must be lowered so that the country can more deeply penetrate international markets, and infrastructure and technological progress must be improved. Moreover, export-led growth plans that feature high rates of savings and investment are essential for businesses to effectively manage expansion.
In addition, Pakistan needs to make efforts to reap CPEC’s full benefits. Pakistan should go beyond energy and infrastructure development. It should focus on its economic outreach initiative. Gwadar port is in a prime location to enable governments participating in the Central Asia Regional Economic Cooperation (CAREC) with efficient and effective access to global markets thanks to greater economic connectivity and integration with landlocked Central Asian countries. That way, Pakistan may take advantage of its central location and become the economic centre of Central, West, and South Asia. Standards, sanitary and phytosanitary measures, customs processes, rules of origin, e-commerce, and intellectual property rights are all areas where ties to the CAREC countries should be strengthened.
To summarize, in its first four decades of independence, Pakistan’s economy ranked among the top 10 worldwide among developing nations. Pakistan’s economy grew throughout its first four decades of existence. In comparison to India and Bangladesh, Pakistan performed better economically and socially. But by the turn of the 21st century, things had started to change. It is noteworthy that Pakistan’s potential growth rate has been on a downward trend since 1990. This is in contrast to India, whose GDP is a staggering ten times larger than that of Pakistan. It is noteworthy to mention that Bangladesh has made significant strides in its economic growth in recent years. As a matter of fact, the country has now surpassed the status of a developing nation thanks to its impressive GDP growth rate. These catastrophic changes did not occur for no reason; rather, there were a number of factors at play. The inadequacy of Pakistan’s government structures stifled the country’s potential. In addition, political instability in Pakistan emerged as a chronic issue. Additionally, a huge number of people are threatened by a severe lack of water. Pakistan also fared poorly on a number of other socio-economic measures. The time has arrived to put aside our quirks and mistakes of the past and start building a better future for ourselves. Otherwise, we will be bequeathing the worst shape of Pakistan to our posterity.
Links and Resources for Development Journey of Pakistan from 1947 to 2022
- Seventy-five years of Pakistan’s economy
- How the economic fortunes of ‘Partition’s children’ diverged
- India’s economy has outpaced Pakistan’s handily since Partition in 1947 – politics explains why
- An Outlook of Pakistan’s Economic History: 1947-2021
- Pakistan: A Political History