Will Pakistan be the sixth-largest world economy by 2075? The “Path to 2075”, a paper issued by Goldman Sachs earlier this month, says yes.

According to the paper, China will rank first, followed by India, the United States, Indonesia and Nigeria. As a point of reference, the US National Intelligence Council, citing Oxford Economics, predicts that by 2040, India’s economy will rank 3rd, China’s 1st and Pakistan’s 23rd.

Using a popular macroeconomic model, the Goldman Sachs paper predicts the economic outlook for 104 countries. It updates an analysis that was published in 2003 which was limited to the BRICS (Brazil-Russia-India-China-South Africa) economies and a subsequent study that expanded it to 70 countries.

Being the sixth-largest economy in the world would represent a massive change of fortunes for Pakistan, which has been struggling with economic growth for the past several decades. But how realistic is this forecast?

The paper comes with an important caveat: “The risks involved in projecting far into the future remain substantial.” The authors, Kevin Daly and Tadas Gedminas, acknowledge that the forecasts they made 10 years ago were overly optimistic, since economic growth ran into headwinds, especially for Russia, Brazil and Latin America. They say the contents should not be viewed as a forecast per se, but more as a guide on how global dynamics may evolve across countries.

They state that short-term forecasts are affected by business cycles and events such as the Covid-19 pandemic which are difficult to predict. Thus, they focus on long-term trends but do indicate that “populist nationalism”, a slowdown in the rate of technological progress and climate change pose significant risks.

Their forecast is primarily driven by growth in population and productivity. Population projections are usually not controversial. They are based on factors such as the birth rate, life expectancy, and the percentage of the population that is working.

Since populations are aging in the Asian Tigers, their ranking in the economic forecast begins to diminish. For example, the Philippines moves ahead of South Korea.

Read: India to surpass China as most populous country in 2023, UN report says

The problem with the forecast

When all is said and done, the Goldman Sachs methodology is based on projecting past trends. No error bands are presented. No scenarios are created to account for structural uncertainties in their model. No allowance is made for disruptive events.

Scenarios allow the forecaster to capture uncertainties in the model structure. Each scenario represents a different state of the world, not just different outcomes in the same world. In Pakistan’s case, the biggest uncertainty is political, both domestic and international. When Pakistan was created in 1947, no one could have forecasted that the nation would split into two less than 25 years later. In fact, in the early 60s, then-US national security adviser Walt Rostow said Pakistan’s economy was poised to take off. Then came the war with India in 1965, which unleashed a political upheaval that led to the imposition of a second martial law.

Pakistan’s history has alternated between military and civilian rule. It has fought three major wars and several minor ones with India. The Kashmir issue has still not been resolved. Both countries are engaged in an arms race which, since 1998, also includes nuclear weapons.

Finally, since the Soviet invasion of Afghanistan in 1979, Pakistan has experienced bouts of terrorism. Even when terrorism is not active, the body politic is riven with controversies arising from the injection of religion into politics.

The Goldman Sachs paper does not address these underlying uncertainties and should be taken with caution. In December 2000, a report prepared by the US National Intelligence Council stated that Pakistan faced multiple challenges: “political and economic mismanagement, divisive policies, lawlessness, corruption and ethnic friction”. Twenty-two years later, these continue to cloud the country’s economic future.

Read: Pakistan emerges as 24th largest economy in 75-year journey

Different scenarios

Several scenarios can be imagined for Pakistan. On one end, there is a “super high-performance” scenario where the country acquires the characteristics of the Asian Tigers. To do that, it would have to raise its investment rate, boost exports, reduce foreign debt, create a budget surplus, and lower defence spending. It would have to liberalise the economy with significant incentives for private enterprise and a modicum of red tape, have a booming tech sector and domestic harmony, and become part of a free trade zone in South Asia.

On the other end is a “super low-performance” scenario, where Pakistan would resemble Afghanistan, Sudan or most of sub-Saharan Africa. There would be no growth in gross national product. Per capita income would decrease by three per cent a year. Poverty levels would be in excess of 80pc, and public services would be dysfunctional. The military would disintegrate into rival militias, each headed by a senior military commander-turned-warlord. There would be no semblance of law and order in either urban or rural areas. Special interest groups would bring political decision-making to a halt. Leaders of tribes, clans, and sects would demand absolute loyalty. There would be extreme inequalities of income and no respect for women and minorities.

In between these scenarios, however, a “status quo” scenario can be imagined.

Disruptive events

Compounding the uncertainties, Pakistan can experience disruptive events. These have a very low probability of occurrence but a very large impact. Disruptive events — such as this year’s Russian invasion of Ukraine, the Covid pandemic, the fall of the Berlin Wall in 1989, or the Arab Oil Embargo of 1974 — should be factored into any forecast, especially one that runs half a century out.

Read:

• How the Ukraine-Russia war rattled global financial markets
• As Ukraine war drags on, Europe’s economy succumbs to crisis

Extremely disruptive events based on geopolitical developments, such as the following hypothetical ones, can precipitate a crisis for Pakistan.

• A crisis unfolds tied to the East Turkestan Islamic Movement (ETIM) which demands Pakistan to side with it and threatens retaliation in case of non-compliance.

• India’s unprecedented military expansion causes all of its neighbours to band together, forming a ring around her. Ultimately, it responds by attacking Pakistan, leading to a full-scale war between the two nuclear powers. The threat of nuclear war between Pakistan and India exists, especially over territorial conflicts involving Kashmir, which has been a flashpoint between the two countries for over seven decades now

• Inter-provincial disputes in Pakistan over the allocation of increasingly scarce water and energy resources spin out of control. The military seeks to restore the writ of the federal government in the smaller provinces by launching a sustained counter-insurgency campaign. A war of attrition sets in.

None of these disruptive events, admittedly worst-case scenarios, or the highly complex regional politics are taken into account in the Goldman Sachs paper, whose projections are largely driven by population growth. Since Pakistan’s population grows faster than most countries, that allows it to become the sixth-largest economy by 2075. However, if the population grows without commensurate or faster growth in GDP, the quality of life will not improve and economic collapse could ensue.

In my career as an economist, I learned three things about forecasting: forecasts are nearly always wrong, one should avoid making point forecasts, and always discuss the uncertainties in the forecast and present scenarios.

It’s best to regard Goldman Sachs’ projection as a super high-performance scenario, a best case, which will be realised if Pakistan achieves internal and external harmony, resolves its fiscal and trade deficits, pays off its debt, ends the arms race with India, and becomes a tech-intensive, export-focused economy. Such a utopia was envisioned by Nadeemul Haque in his book Looking Back: How Pakistan became an Asian Tiger.

It is the opposite of the cases laid out by Daron Acemoglu and James Robinson in their book Why Nations Fail. They point out that even China is not immune to failure. Despite its rapid rate of growth, if it does not improve its political balance, China could collapse at some point like the Soviet Union did in the early 1990s.

Pakistan has always had a lot of potential for economic growth. Currently, however, it is trailing both India and Bangladesh in the subcontinent. For it to get ahead of Bangladesh, it will have to do a lot more than simply grow its population at a faster rate. The realisation of high performance scenarios will require not only institutional reform but also a change in the strategic culture of the country.

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