Economic Progress
June is budget
season in Pakistan, and the time when the data on
the outgoing fiscal year is presented. For fiscal
2004-2005, the government presented an outstanding
record of achievement that placed Pakistan only
second to China in both overall economic growth,
and in industrial sector expansion. This is after
two prior years of strong growth, the combined effect
of which is starting to become visible in the lives
of real people.
For the last twelve months, the economy expanded
a whopping 8.4%, which trails only China’s
9.5% expansion. India in comparison grew 7.3%. If
we look at the last 36 months, Pakistan has grown
slightly faster than India. For a country that was
written off as a “failed state” compared
with the fawning coverage of India’s economy
over the last few years, this is an eye-opener.
The growth was well balanced, but more importantly
led by the industrial sector, which is the key to
a prosperous future for the majority of Pakistanis.
Large-scale manufacturing grew 15.4%, services grew
7.9%, and agriculture did very well too with 7.5%
growth. Agriculture makes up 23% of the economy,
still a large chunk, but this share will decline
as industrial and service sectors grow faster over
time.
Per capita income, which is the size of the economy
divided by the population, has hit 700 dollars.
In 2001 it was under 500 dollars. Adding in the
effect of foreign aid and the remittance money,
the per capita figure rises to 736 dollars. Both
numbers are well above India’s.
Some critics claim the government is exaggerating.
Given the fact that previous governments were caught
falsifying some figures to the IMF, this is not
totally unbelievable. But a reality check that looks
at what is going on in the real economy fits a pattern
of surging growth. Cell phones are being activated
at a million a month. Car production and sales have
surged 30%. Tax revenues are up almost 20%. Exports
and imports are surging to record levels. Cotton
production was up 40% this year. Banks are reporting
record loans to the private sector with declines
in defaults and non-performing loans. The rupee
is stable in the open market. Foreign investment
is climbing. The stock market was up strongly in
the last 12 months. Corporate profits are at record
levels. The government is not having trouble in
finding buyers for its privatization program. The
growth is real and not just statistical manipulation.
The real source of this growth lies with many factors.
But if there is one that stands out, it is the reforms
of the banking sector. Credit, properly allocated
to the most useful sectors, is the fuel that keeps
an economy growing. The privatizing of the banks
in the last few years turned around the performance
of the Pakistani banking sector, through which most
of the economic resources in the country flow. The
banks acted in their best interest, and provided
loans that were economically useful. Credit for
consumers to purchase appliances and cars, credit
for housing, and credit to farmers. Credit also
flowed to businesses, including small and medium
enterprises. Five years ago, none of these sectors
had much access to bank credit.
Can Pakistan keep this up? As long as good policies
continue to be pursued, Pakistan can grow at 7%
or more for twenty years. That level of growth is
what is needed to transform the country. A single
good year is not sufficient. It took the US 200
years of economic growth to reach its present level.
China began growing strongly around 1980, and it
is still a poor country, although much richer than
it was.
For Pakistan to reach a European standard of living,
its per capita income (currently about 3500 dollars
when measured with purchasing power taken into account)
would need to double three times. This will take
about 35 years, or really just one generation. But
if Pakistan reverted to the mismanagement of the
1990’s, when growth averaged 4%, it would
take over 100 years. Good governance is hugely important
to the lives and prospects of the average Pakistani.
Comments can reach me at Nali@socal.rr.com.
