May 16 ,2014
How Poor is Pakistan?
Pakistan is a poor country, a fact that is obvious to all. But how poor is it? And how does it compare to other countries? That is not so easy a question to answer. The simplest approach is to take the average income in Pakistan (known as the per capita GDP) in rupees and convert it into dollars using the exchange rate (known as per capita GDP at market exchange rate). But this is a flawed comparison, because many common items purchased in Pakistan are much cheaper than they are in the US.
For example, a haircut in the US costs 15 dollars for a man, but it does not cost 1200 rupees in Pakistan. So we need to somehow adjust for the relative prices in the two countries to understand the real purchasing power that a Pakistani has compared with an American.
The World Bank, in a massive research project, just released their International Comparison Program 2011 results. This project collected price data on over 800 items in the economies of almost all the world’s countries and thereby was able to construct accurate relative prices for each country. With that, the World Bank could then generate an accurate assessment of incomes and living standards around the world. The results are fascinating, and provide a revealing picture of the state of the global economy.
The total global output of goods and services now reaches 90 trillion dollars annually, when adjusted for purchasing power (known as GDP at PPP). At market exchange rates it is only 70 trillion dollars. The US makes up the single biggest slice of that, with 15.5 trillion dollar economy, and GDP per capita at 50,000 dollars. China is second with a 13.5 trillion dollar economy, but that works out to 10,000 dollars per person. The average Chinese has a living standard that is 20% of the average American. Japan, Britain, and France all have per capita GDP around 35,000 dollars, while Germany is at 41,000 dollars.
Pakistan comes in around 4500 dollars, while India is slightly higher at 4700 dollars per person. Bangladesh is a much poorer 2800 dollars, while Sri Lanka has the highest living standard in South Asia at 8100 dollars.
The poorest countries are all in Sub-Saharan Africa, places like Ethiopia at 1200 dollars, or Nigeria at 3100, or the Democratic Republic of the Congo at a tiny 655 dollars. Only South Africa and the small oil exporters of Africa have much higher numbers.
Among the Muslim countries the most successful have been Turkey, Malaysia, and Indonesia. Turkey has a GDP per capita of 18,000 dollars, Malaysia is at 21,000, and Indonesia is at 8500 dollars. The oil states are even richer, but their economies are artificial, producing little or nothing of value internally.
Pakistan has had spurts of growth over the last 50 years, mostly under military rule, with civilian governments offering such corrupt and inept governance that the economy usually sputters, as it has done in the last five years. But despite that off and on performance, Pakistan has kept relatively even with India up till now. In fact, the average Pakistani is much better off than the average Indian. This is because Pakistan has much less income inequality than India does. India has many billionaires for example, while Pakistan has none. And India has both lower castes and a Muslim minority that have little or no economic opportunity. India has a far higher rate of people in poverty, and in extreme poverty, than Pakistan. It is better to be in the top slice of the population in India, but it is better to be an average Pakistani than an average Indian.
At what point can a country be considered no longer “Third World” or “developing” and instead be considered a “developed” economy? Looking back at the American track record, US per capita GDP was 15,000 dollars around 1950, and 25,000 around 1975. It seems that around 20,000 dollars a country is a reasonably developed modern state. For Pakistan, this would mean per capita income would have to double twice, a task that could be achieved in 25 years if the country could manage 6% annual growth in the economy. It is not that far off, and is a reasonable goal, but it takes an effective government and a country that is at peace with itself and its neighbors and focused on delivering a rising standard of living to its citizens.
