June 25 , 2021
Pakistan’s Coming Boom
Pakistan is now a few years past its 70 th birthday, and is still a relatively poor country. But after decades of fitful growth, the country is on the brink of a major transformation. The next twenty years are about to witness it becoming a very successful nation that will be unrecognizable to most Pakistanis today.
Pakistanis tend toward excessive pessimism and negativity about the country. Certainly it has had its ups and downs. The failure to hold East and West Pakistan together was predictable but still seen as a failure of sorts. More importantly, Pakistan has not achieved the level of development seen in the East Asian nations, while its political system has oscillated between venal democracy and military dictatorships. Despite all that, Pakistan has performed moderately well. Economic growth averaged 5% per year for the last 70 years, which has resulted in the economy expanding 30-fold. Because population has grown six-fold, the rise in per capita income has been five times that of 1950. But if one takes into account the value of all the new technology also available since 1950, living standards have risen tremendously.
Meanwhile, after a civilian political system that has been dominated for 50 years by the Bhutto family, and for the last 30 years also by the Sharif clan, Pakistan appears to have broken the hold of those criminally corrupt patronage parties on the government. The rise of Imran Khan and the PTI has been a breath of fresh air. Khan’s party is the first time Pakistan has had a political party that was genuinely concerned with developing the nation and pursuing the national interest, rather than lining the pockets of its supporters. The PTI assumed power in 2018, when Pakistan faced a crippling balance of payments crisis brought on by an overvalued Rupee and excessive imports. Pakistan had to go to the IMF, devalue the Rupee, and grant independence to its central bank, along with other key reforms. That caused growth to slow sharply in 2019, with 2020 looking like a year of recovery. But COVID then upended the landscape, and Pakistan had to deal with the economic consequences. Fortunately, the PTI handled the issue very well, without a nationwide lockdown, and the economy through June 2020 only declined by less than 1%.
The big question was how well would Pakistan navigate the ensuing 12 months. While many expected the economy to continue to perform poorly and perhaps even shrink, it turned out Pakistan grew by at least 4%. Final numbers are not in yet, but many observers think there was enough momentum in the last 90 days for growth to reach 5%. Exports have boomed. Car sales and cement sales are up sharply, and large-scale manufacturing has shown strong growth. The only blemish is inflation is still running about 10%, but that is driven by the worldwide surge in food and oil prices, and will likely moderate in the next year to more tolerable levels.
The more important point is that Pakistan is now set up for strong growth for the next two decades. Economic policy is being handled far more professionally, and the full benefit of the infrastructure investments of CPEC (the Chinese investment project in Pakistan) will be reaped. Motorways connecting the nation have been built up, railroads are being upgraded, and electric power capacity has surged. Pakistan’s grid has now grown to 40 gigawatts, and will add another 20-30 gigawatts in the next 10 years. Several large dams, particularly the 4.5 gigawatt megadam at Diamer-Bhasha, are under construction. Electricity consumption is up 20% over last year.
Pakistan’s GDP has reached 47 trillion Rupees this year, which is 307 billion dollars at market exchange rate, or 1,400 dollars per person. But it is more accurate to convert using PPP rate (Purchasing Power Parity, which accounts for different price levels between nations). At that rate it is about 5,600 dollars per person. Even that is a gross underestimate as Pakistan has not rebased its national income accounts (used to calculate GDP) since 2006. Actually GDP is likely 25% higher, so really about 7,000 dollars.
The miracle of steady economic growth comes from the effects of compounding. To grow 5% per year for 70 years expands the economy 30-fold, but Pakistan remains relatively poor because in 1950 it was little more than millions of impoverished, illiterate, rural, subsistence farmers. But the next two doublings of the economy will raise incomes to 28,000 dollars, the level of a developed nation. I expect Pakistan’s growth to pick up to 6% in fiscal 2022, and average 6-7% for the rest of the decade. Pakistan is now perhaps 25 years away from being a developed nation. For those Pakistanis in school or university today they will be astonished by how much Pakistan is about to change.
