WHILE the country’s gross domestic product crawled at a snail’s pace, the per capita income in dollars recorded an impressive increase over the past three years, giving an impression of rising prosperity.
As shown in the Pakistan Economic Survey 2010-11, the GDP had grown at the rate of 1.7, 3.8 and 2.4 per cent, during 2008-09, 2009-10 and 2010-11, respectively. As against this, the per capita income in dollars moved up from $1,015 in 2007-08 to $1,254 in 2010-11, showing a handsome increase of 23.5 per cent in the comparative period..
On the basis of its per-capita income, Pakistan enjoys the status of a middle-income country.
The Economic Survey identifies three factors that are responsible for the remarkable increase in the per capita income in dollars.
First, the nominal GDP had grown sharply in recent years, due to the double-digit inflation rates.
Second, as a result of exchange rate stability, the GDP in rupee had not lost its value at the time of conversion into dollars. The rupee had depreciated only by 2.2 per cent vis-à-vis the dollar during 2010-11.
Third, since the per capita income is calculated on the basis of gross national product (GNP) and not gross domestic product (GDP), income from workers remittances is also included in the GNP. As a result of an upsurge in this income in recent years, per capita income has also shown a remarkable improvement. Income from home remittances jumped from $6.5 billion to about $11.2 billion over the last three years.
How much the people gained from the increase in the per capita income? The per capita income is calculated by dividing the gross national product at market prices over the country’s population. The per capita income is thus the average income per person. It does not provide any information about various income categories.
A country’s population usually includes rich, poor, upper and lower middle classes. Increase in the per capita income during the last three years might have raised the income of some people substantially, while many people may not have seen any increase in their incomes.
Since inflation had been an important component of the higher per capita income, the gain for the common man would have been minimal. A small number of beneficiaries would be those who gained from higher prices, such as industrialists, traders, importers, exporters and certain categories of self-employed persons.
Over the last few years, a large number of families reportedly gained from the surge in income from home remittances. The increase in the income from home remittances had helped in raising living standards of many families. By virtue of the income received from abroad, the families were able to spend much more on food, healthcare, education of the children and consumer durables. The victims of recent floods, also reportedly received valuable financial help from their relatives employed abroad.
Various sectors of the economy also benefited from higher income in the hands of the people as a result of increase in the income from home remittances. Stock markets had remained buoyant, despite the multiple challenges facing the economy. The slowdown witnessed in the real estate and construction sectors recently had not worsened due to good liquidity position as a result of increase in income from home remittances.
Over and above all, the unprecedented increase in income from workers remittances helped the State Bank of Pakistan (SBP) to build its foreign exchange reserves, which recently crossed the $18 billion mark, for the first time.
However, the higher per capita income and increase in income from home remittances could not resolve the problems facing the economy. Last year, the current account deficit was turned into a nominal current account surplus, due to higher remittances.
But, the first month of fiscal 2011-12 has now witnessed a current account deficit, because the government had not been able to reduce the massive import-export gap.
Similarly, despite the robust foreign exchange reserves, the rupee has started to weaken against the dollar and other leading foreign currencies. This is because the demand for dollars from the importers is considerably greater than its supply, brought by exporters. The rupee stands at more than 86 to a dollar. Compared to this, the Indian rupee stands at 44 rupees to a dollar, while 74 Bangladesh Taka is equivalent to a dollar.
The government needs to take difficult decisions and put its economic house in order.
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