WHERE WE ARE HEADED?

SHAMSUL GHANI
(feedback@pgeconomist.com)
Aug 15 - 21, 2011

The anemic economic performance during the last three years and the ashy faces of the poverty-stricken masses belie the Goldman Sachs 2005 forecast that placed Pakistan among the N-11 - the next eleven emerging economies with the potential of becoming, along with the BRIC countries, the largest economies in the twenty-first century. The Goldman Sachs paper was the followup of its 2003 paper that identified BRIC countries (Brazil, Russia, India and China) as the economic leaders of the century. The year 2005, when the paper was released, Pakistan's economy bore all the marks of excellence to suggest what the US investment bankers decided to admit and show to the world.

The N-11 list included beside Pakistan, Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Philippines, South Korea, Turkey, and Vietnam. While the economic performance of the other ten nations has proved Goldman Sachs economic forecast right on many accounts, Pakistan's economic achievements during the period 2008-11 have put us to shame.

The criteria of Goldman Sachs forecast were macroeconomic stability, political maturity, openness of trade and investment policies, and the quality of education. This suggests that the policies covering these critical indicators were moving in the right direction at the time the forecast was made. Goldman Sachs viewed the then form of governance as "partially democratic" and not as dictatorship - the stigmatic description our biased political leadership attaches to any form of governance that is not to its liking.

ECONOMIC INDICATORS (1960-2011)

INDICATORS 1960S 1970S 1980S 1990S 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
GDP Growth % 6.8 4.8 6.5 4.6 7.5 9.0 5.8 6.8 3.7 1.2 4.1 2.4
-Agriculture 5.1 2.4 5.4 4.4 2.4 6.5 6.3 4.1 1.0 4.0 2.0 1.2
-Manufacturing 9.9 5.5 8.2 4.8 14.0 15.5 8.7 8.3 4.8 -3.7 5.2 3.0
-Services 6.7 6.3 6.7 4.6 5.9 8.5 6.5 7.0 6.0 1.6 4.6 4.1
Investment (as % of GDP) - 21.8 4.2 8.1 14.4 32.6 36.1 15.7 15.6 6.9 0.7 13.4
-Fixed Inv 14.8 20.5 3.7 7.8 14.7 34.3 38.0 15.9 15.4 5.5 -0.6 11.8
Savings (as % of GDP) - 11.2 14.8 13.8 17.9 17.5 18.2 17.4 13.6 13.3 13.8 9.5
CPI Inflation 3.2 12.5 7.2 9.7 4.6 9.3 7.9 7.8 12. 20.8 11.5 14.0
Fiscal Deficit % 2.1 5.3 7.1 6.9 2.4 3.3 4.3 4.3 7.6 5.2 4.9 6.2
Tax to GDP % - - 13.8 13.4 11.0 10.1 10.6 10.2 10.6 9.5 10.9 9.2
Population (Mil) - - 96.3 124.6 149.7 152.5 155.4 158.2 161.0 163.8 166.5 *176.9
Education Exp. (as % of GNP) - - 0.8 2.3 2.1 2.1 2.2 2.4 2.4 2.1 2.0 1.8
Health Exp. (as % of GNP) - 0.6 0.8 0.7 0.6 0.6 0.5 0.6 0.6 0.5 0.5 0.2
Per-capita Income(mp-US$) - - - - 669 733 836 921 1,038 1,018 1,102 1,207
*August 2011 estimate of United Nations Department of Economics and Social Affairs

Pakistan's poor economic performance can be traced to three basic factors: political infighting, educational deficit, and reporting inexactitude. On political front, we are found struggling to choose between the two much-publicized forms of governance: democracy and the so-called dictatorship. The latter can, at worst, be described as autocratic form of governance as the army rule is invariably shared by the national political parties.

The Western description partially democratic is perhaps the most appropriate one. The involvement of army in the matters of governance should never be encouraged but the low-quality deliverance by our corrupt political system has charted a role for the army.

Unfortunately, the lust of power has blinded our religious factions who have their political representation and who join hands with the politicians to get their fair share in the democratic rule. On the other extreme, there are religious outfits engaged in armed struggle to establish "Islamic rule" of their choice.

It is this political scenario that often makes a case for the army to interfere when the things go worse. Army's interference, though undemocratic, is invariably found beneficial from economic standpoint.

PAKISTAN'S ECONOMIC PROGRESS

DIFFERENT PERIODS AVERAGE GDP GROWTH DURING THE PERIOD (%) COMPARATIVE GDP GROWTH BETWEEN TWO PERIODS (%) AVERAGE PER CAPITA GNP DURING THE PERIOD (US$) COMPARATIVE GROWTH IN AVERAGE GNP (%)
1951-58 (Democratic era) 3.03 NA NA NA
1958-69 (Gen Ayub Khan rule) 5.84 92.74 118 NA
1969-71 (Gen Yahya Khan rule) 5.51 -5.65 173 46.61
1971-77 (Z.A Bhutto democratic era) 4.42 -19.78 170 -1.73
1977-87 (Gen Zia-ul-Haq rule) 6.60 49.32 346 103.53
1988-1999 (Benazir-Nawaz democratic rules) 4.13 -37.42 412 19.08
1999-2008 (Gen Pervez Musharraf rule) 5.17 25.18 709 72.09
2008-2011 (Current democratic era) 2.60 -49.71 1109 56.42

On education front, the country has lacked miserably. We claim to have a literacy rate of 57.4 percent, which does not conform to the international standards of literacy measurement. The depth of our educational standing can be assessed from the fact that only 4.3 percent of our population has reached degree level (or above) while 37.5 percent population has given up education before completing matriculation.

The only redeeming aspect is that our female education is showing signs of improvement. We cannot expect to see democracy flourish in this bleak educational scenario. The US-made democracy is something we can use only in rhetoric but cannot even dream of establishing it in practice.

The feudal lords that occupy the top slot can never go through the rigors of the US democratic process. They are not capable of standing their ground in the US-style primaries where the aspiring candidates are grilled by the commoners and the elites of the society on economic, financial, and geo-political issues.

The reporting inexactitude has been the bane of our economic growth. We love to understate unfavorable economic indicators and overstate the favorable ones. To quote an example, country's population is being reported variously on various forums. And, we all know that how important it is to know the real size of our population on national, provincial, city and village levels.

Pakistan Economic Survey 2009-10 shows the population at 166.5 million and this number is used for the calculation of per capita GNP. AT another place, it shows the 2010 population at 173.51 million quoting the source as Sub Group II on Population Projections for the 10th Five Year People's Plan 2010-15. Pakistan's population is reported as 176.9 million under the August 2011 estimate of United Nations Department of Economics and Social Affairs.

Yet another source, the CIA World Factbook, estimates our July 2011 population at 187.3 million. Obviously, there is a wide gap between 166.5 million and 187.3 million, which cannot be justified using a year time as excuse. This is more than enough to distort any economic outlook.

The post-birth pains, instead of subsiding, are become literally insufferable. The toll taken by them during the last 64 years has pushed the country to the brinks, both politically and economically.