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Pakistan’s fragile economy and its paradoxes

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If Pakistan has to shed the fragility of its economy, it must be diversified and industrialised on a massive scale. Both the public and the private sectors have
to take initiatives towards this end, as it is a critical prerequisite for entering
the “take-off” stage which has eluded the country for the last six decades

By Dr. Aqdas Ali Kazmi

All the major macro and micro level indicators of Pakistan’s economy for the fiscal year 2008-09 lead to one principal conclusion, that Pakistan has a fragile economy and it suffers from numerous built-in paradoxes. The current year’s developments have shown that the economic fundamentals remain weak, and only serious and well-coordinated efforts can help restore its health and sustainability.

 The real GDP (gross domestic product) of Pakistan has registered a growth rate of 2.0 per cent in the current year, whereas other countries like India has grown by 7.5 per cent and China has achieved a growth rate of 9.0 per cent. The ‘Hindu growth rate’ of 2 to 3 per cent, which was the hallmark of the Indian economy for the earlier decade have been replaced by a robust growth rate of 7 to 8 per cent in the last two decades and half. In China the economy had continuously grown by 12 to 13 per cent per annum for many years in the nineties, and the later period. However, China’s economic planners had to devise special measures and strategies to lower the growth rate of the economy, which started getting ‘over-heated’.

Paradoxically, the dismal performance of Pakistan in the current year calls for a rethinking of the development strategies pursued so far and evolving an approach to economic management which can fully meet the contemporary challenges which are multiple in nature and deep-rooted at the same time.

A clear sign of fragility of Pakistan’s economy is provided by the negative growth of industries (-3.6 per cent) emerging from large-scale manufacturing (LSM) sector growth (-7.7 per cent), construction (-10.8 per cent) and electricity and gas distribution (-3.7 per cent). Within the LSM, important industries have suffered deceleration in the current year. These industries are petroleum industries, cotton yarn, cotton cloth, sugar, billets / ingots, automobile and electrical industries, such as in the production of electric transformers and refrigerators.

An analysis of data on growth rates in GDP along with the growth rates of major sectors such as agriculture, major crops, LSM and services within the 17 years of 1992-93 to 2008-09 exposes the fragile aspects of Pakistan’s economic fabric. The growth rate indicates that the real GDP of Pakistan grew by 4.5 per cent only on an average annual basis during the last 17 years including the current fiscal year. The average annual growth of agriculture comes to be 3.4 per cent, major crop 2.3 per cent, LSM 5.6 per cent and services sector 5.0 per cent only.

These growth rates when compared with the growth rates of competitor countries such as India and China are too low and establish clearly that Pakistan is caught in a vicious circle of underdevelopment and poverty. If a growth rate of less than 3.5 per cent is identified as low, a growth rate of 3.5 to 5 per cent as medium (M) and a growth rate of above 5.0 per cent as high (H), then Pakistan has had a high growth rate only in six years out of total seventeen.

Out of those 17 years, only in one year, which was 2004-05, Pakistan registered a robust ‘Chinese-type’ growth rate of 9 per cent supported with the growth rate in the agricultural sector of 6.5 per cent, major crops 17.7 per cent, LSM growth of 19.9 per cent and in the services sector 8.5 per cent. When taking poverty into consideration, to eliminate it, it is imperative that the economy of Pakistan should maintain a ‘robust’ growth rate of 8.0 per cent to 9 per cent for a couple of decades so that there is a visible and substantive rise in the per capita income of the country, leading to reduction in unemployment and poverty.

Data in the table establishes one critical characteristic of fragility of Pakistan’s economy, which stems from the deterministic role of major crops and agriculture sector in the growth rate of real GDP. For eleven years out of seventeen, the growth rates of major crops, agriculture and the real GDP have behaved in a symbiotic manner, For four specific years out of seventeen, when the major crops registered a low or negative (-) growth rate, both agriculture and GDP growth rates remained depressed. For seven years when the major crops had a high and positive (+) growth rates, the growth rates of agriculture and real GDP were jacked up. However, for six years, this correlation between major crops, agriculture and GDP growth rates did not hold as indicated by the symbol (N) in the table.

The performance of Pakistan’s economy for the year 2008-09, again points out its fragile nature and weak foundations. In this particular year, major crops grew by 7.7 per cent generating a growth rate of 4.7 per cent in the agriculture sector but GDP growth rate was only 2.0 per cent primarily due to 7.7 per cent decline in the large scale manufacturing (LSM) value-added. The growth momentum provided by major crops and agriculture was lost due to extremely poor performance of large-scale manufacturing sector.

For quite a few decades, it is the output of cotton, which has ‘cradled’ the real GDP growth rate so much so that Pakistan’s economy has been identified as ‘cotton economy’ or a ‘monocrop economy’. This leads to an important result, i.e. if Pakistan has to shed the fragility of its economy, it must be diversified and industrialised on a massive scale. This is what has been spelled out in Planning Commission’s Pakistan’s Vision 2030. Both the public sector and the private sector have to take initiatives towards this end, as it is a critical prerequisite for entering the “take-off” stage which has eluded Pakistan for the last six decades while India entered this stage as early as the sixties.



Year    GDP          Agri-          Major          Live-          LSM          Services       Type          Corre-           (fc)          culture          crops          stock          sector          Growth          of GDP          lations

1992-93          2.1          -5.3          -15.6          6.0          4.1          4.6          (L)          (-)

1993-94          4.4          5.2          1.2          6.0          4.3          4.2          (M)          (+)

1994-95          5.1          6.6          8.7          5.5          1.5          4.8          (H)          (+)

1995-96          6.6          11.7          6.0          26.4          3.1          5.0          (H)          (+)

1996-97          1.7          0.1          -4.3          4.2          -2.1          3.6          (L)          (-)

1997-98          3.5          4.5          8.3          -0.8          7.6          1.6          (M)          (+)

1998-99          4.2          1.9          0.0          3.2          3.6          5.0          (M)          (N)

1999-00          3.9          6.1          15.4          1.9          0.0          4.8          (M)          (N)

2000-01          2.0          -2.2          -9.9          3.8          11.0          3.1          (L)          (-)

2001-02          3.1          0.1          -2.5          3.7          3.5          4.8          (L)          (-)

2002-03          4.7          4.1          6.8          2.6          7.2          5.2          (M)          (+)

2003-04          7.5          2.4          1.7          2.9          18.1          5.8          (H)          (N)

2004-05          9.0          6.5          17.7          2.7          19.9          8.5          (H)          (+)

2005-06          5.8          6.3          -3.9          15.8          8.3          6.5          (H)          (N)

2006-07          6.8          4.1          7.7          2.8          8.7          7.0          (H)          (+)

2007-08          4.1          1.1          -6.4          4.2          4.0          6.6          (M)          (N)

2008-09          2.0          4.7          7.7          3.7          -7.7          3.6          (L)          (N)

Avg. 17 years          4.5          3.4          2.3          5.6          5.6          5.0          —          —

Notes: (L)           Low (below 3.5 percent), (M): Medium (3.5 to 5 percent) and (H): High (above 5.0 percent)

          (-)           Negative growth of major crops bringing down agriculture and GDP growth rates.

          (+)           Positive growth of major crops associated with higher agriculture and GDP growth rates.

          (N)           No correlations between major crops, agriculture and GDP growth rates

Courtesy: The News International, 22nd June, 2009

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