PAKISTAN’S 65th Independence Day was celebrated amidst what appears to be greater angst and self-introspection than before. A confluence of factors — a moribund economy, the energy crisis, the deteriorating situation with regard to Karachi and Balochistan, and a deep crisis of governance — has conspired to induce feelings of gloom and doom.
Amidst the deepening frustration and despair, some attempts have been made to infuse hope. These are not the worst of times, we are told by some commentators, who feel loot and plunder in the name of an NRO-delivered ‘democracy’ is an acceptable price to pay on the road to good things in some distant future for the masses (as opposed to the perpetual state of bliss for the power elites). In terms of the economy, an eminent commentator (Dr Ishrat Husain) listed in a recent article the progress Pakistan has made since Independence in almost all spheres.
While fostering a sense of optimism and hope in difficult times (during the ‘state of hallucinated idiocy’ that Pakistan is living through) is absolutely essential, my concern is that by blunting our capacity to critically self-examine what has gone wrong, the ‘feel-good’ (or ‘things are not as bad’) narrative may have an unintended consequence: of breeding complacency and possibly a feeling that somehow things will self-correct.
We have already seen a variant of this narrative employed with regard to overall governance. How many times have politicians implied in TV talk shows that corruption is a tolerable by-product of democracy or a part of ‘growing up’ pains. One politician articulated a variant of this self-serving view, one that was used quite profusely in the first three years of this government: ‘we need at least 15 years before the system will self-correct’ (not the exact words, but something to that effect).
We need to appreciate some home truths before we can overcome our challenges. The first of these is that Pakistan’s economy is in a secular, long-run decline. While Pakistan has indeed travelled a good distance since Independence — and has immense, undeniable potential — lumping its performance into one 65-year period hides uncomfortable truths. This line of analysis is akin to the classic joke about two economists who went on a duck shoot. As the duck flew from the marshes, the two would-be hunters fired — one to the left of the bird, one a similar distance to the right. To the amazement of onlookers, the two economists high-fived each other and gleefully stated: “on average, we shot that duck!”
The performance of Pakistan’s economy since 1947 can roughly be split into two periods — the period from Independence to the late 1980s, and the period thereafter. The economy has visibly lost momentum over the years, with declining rates of GDP growth or per capita income reflecting this. Between 1951 and 1989, the economy averaged an annual rate of growth of 5.3 per cent. From 1990 to 2012, this had declined almost a full percentage point, to 4.5 per cent. For the past five years, the economy has expanded at a paltry three per cent annual rate. Even more alarmingly, the fixed investment rate has declined to a multi-decade low, with foreign investors voting with their feet on the desirability of investing in Pakistan.
Per capita income trends are equally worrying. After achieving a fairly healthy rate of growth in per capita GDP over an extended period till around the 1980s, Pakistan’s progress on this score has slackened as well in subsequent decades. In 1980, Pakistan’s nominal per capita GDP in US dollars was 1.7 times that of China, and 1.3 times that of India. Twenty years later, by 2000, Pakistan’s nominal per capita GDP was 60 per cent of China’s, but still 1.2 times that of India’s. India achieved parity with Pakistan around 2005.
By 2010, Pakistan’s per capita income was only roughly 20 per cent of China’s, and 75 per cent of India’s (i.e. India’s per capita GDP was 1.33 times larger). The differential in purchasing power parity (PPP) terms is even starker, with Pakistan’s per capita income in US$ PPP remaining well above India’s for decades, before a sharp reversal since 2005.
To put this in perspective, since 1980, China’s per capita income has expanded over 25 times; India’s nearly six times. Over the same period, per capita income in Pakistan has increased slightly over three times. Over the past five years (2008-12), the rate at which real per capita national income is growing has slowed to 1.4 per cent a year — implying that at this rate it will take almost exactly 50 years before the next doubling of per capita income will take place.
The sad fact is that the global proliferation of growth since the early 1990s has bypassed Pakistan for a number of well-documented reasons: institutional failings, missed opportunities, political instability, internal insecurity, a ‘bad’ neighbourhood and external dependence. The uncomfortable truth is that Pakistan is surviving, and not thriving. Despite all the celebration about Pakistan’s resilience and ‘hardiness’, these attributes are hardly measures of viable, sustainable progress.
We have to face these issues squarely and honestly if Pakistan is able to restore a degree of lost vigour and vitality to its economy.
The writer is a former economic adviser to government, and currently heads a macroeconomic consultancy based in Islamabad.