PAKISTAN’S ranking on the World Bank’s political stability index dropped sharply in 2006 and 2007 before stabilising somewhat during 2007 and 2008.

In 2009, Pakistan’s percentile rank on political stability dropped a further 0.5, placing it the lowest in South Asia, behind Afghanistan. The responses to instability, regionalism and economic stagnation need drastic improvement.

There has been some good news as well, such as the 18th Amendment to empower provincial governments. The amendment might be viewed through the prism of its impact in rebalancing the elite bargain away from the centre. However, there are centrifugal provinces as well, despite signs of provincial empowerment.

The continuing hegemony of wealthy landowners over the political elite is illustrated by the lack of interest in sustaining local government reforms. The implementation of the 18th Amendment needs to be accompanied by measures to address indirect rule, otherwise it will not provide a manifesto for more representative, transparent and accountable politics.

In the midst of rising instability and economic stagnation, a process of rebalancing elite politics away from the centre and in favour of provincial government is under way. The 18th Amendment and seventh National Finance Commission award put in place the legal and public financial instruments to redistribute power more equitably. The rebalancing envisaged needs to be accompanied by on-the-ground implementation.

Public opinion needs to be mobilised for any social development. But in Pakistan’s case, it is divided by the country’s partnership with the US in the ‘war on terror’ and American and western powers’ belligerent stance in Iraq and Afghanistan. Public opinion surveys consistently show very little tolerance for American intervention in Afghanistan and Pakistan.

In years past, natural disasters and the global recession have hit Pakistan hard too. Growth plunged to an all-time low of 1.4 per cent in 2009. Pakistan’s targeted GDP growth rate for 2010 was revised downwards from 3.5 to 2.5 per cent and the government negotiated changes to the medium-term assistance package with the IMF.

Within the services sector, much of the growth impetus prior to 2008 came from the availability of cheap credit on international money markets and increasing flows of remittances through the formal financial sector, mainly due to the worldwide crackdown on informal systems of international cash transfer (hundi, hawala) in the aftermath of 9/11.

Reflecting this influx of cash, the finance and insurance sub-sector posted a growth rate of nine per cent in the financial year 2004, rising to 42.9 per cent in 2006 before levelling off at around 16 per cent in the years leading up to the financial crisis.

Growth in the large-scale manufacturing sector was built on more solid ground and was particularly high in 2004 (18.1 per cent) and 2005 (19.9 per cent). A loose monetary policy has fed inflationary trends. By 2009, inflation had risen to a record 21 per cent. Food-price inflation, recorded at over 22 per cent in 2009 and over 14 per cent in 2010, has hit the country particularly hard.

Pakistan’s current account balance has been negative for most of its history. A notable exception was the period from 2002 to 2004, largely due to strong export performance in the textile sector. Food and oil price rises reversed this trend and the deficit began to grow at an alarming rate, reaching almost nine per cent of GDP by the financial year 2008. In 2010, the deficit contracted and exports grew by eight per cent on previous years as commodity prices recovered. The foreign exchange reserve position has been stable in the last few years due to the infusion of capital flows from international financing institutions.

Fiscal deficit is a systemic problem linked to energy subsidies which may be phased out, loss-making public enterprises, resistance to agricultural income taxation and cuts in input subsidies by the landowning political class. Beyond the agricultural sector, growth in Pakistan had been positive over the decade but highly unstable.

GDP growth averaged just 2.46 per cent between 2000 and 2002. It took off in the following two years, reaching more than eight per cent in 2004 and 2005, only to fall back to 1.4 per cent in 2009.

There is an absence of incentives for reducing subsidies, widening the tax base and countering corruption, all of which are required to effectively administer the strained economy. Due to inflation and the state-society divide, budget allocations for social services have always been well below regional and international norms. Pakistan spends less than all its neighbouring countries on education — 2.4 per cent of GDP — compared with the United Nations’ recommended norm of four per cent in developing economies.

Nevertheless, over the last 10 years Pakistan has made modest progress in providing services. Net enrolment at the primary level increased by five percentage points while literacy rates increased by four percentage points. While the 18th Amendment makes access to education a constitutional right, the education system is low on capacity and service delivery.

When government statistics are disaggregated by region, a different picture of development emerges reflecting the concentration of resources in central Punjab. Both male and female literacy increased by around 20 per cent from 1995-2009 in Punjab, both in rural and urban areas, while increases in Sindh and Balochistan were less than 10 per cent. In Khyber Pakhtunkhwa, literacy rates increased by only one per cent in urban areas and five per cent in rural areas over the past four years. Girls’ literacy rates remain low, particularly in rural areas.

In 2008-09, as few as 16 per cent of girls over the age of 10 living in rural areas in Balochistan could read and write compared to nearly 40 per cent in Punjab and more than 20 per cent in Khyber Pakhtunkhwa and Sindh.

Statistics gathered during the Pakistan Social and Living Standards Measurement Survey in recent years show that reliance on foreign and domestic remittances is high as a proportion of household expenditure, particularly in Khyber Pakhtunkhwa.

Foreign and domestic remittances amounted to more than 20 per cent of household expenditure per adult equivalent in Khyber Pakhtunkhwa, around 12 per cent in Punjab, around 2.5 per cent in Balochistan and less than one per cent in Sindh.

In place of a social welfare system, remittances continue to flood into Pakistan in ever-increasing amounts. These may no longer be enough to plug the economic sink, and more long-term measures are now needed critically.

The writer is a security analyst.