Against heavy odds

By Rashid Amjad
Published in DAWN on August 17, 2022

WITH the country reaching its 75th anniversary, there has been much doom and gloom as the economy passes through another downturn triggered by its recurring trade imbalance and debt crises. Yet, it is important to remind ourselves that notwithstanding its near-insurmountable challenges, the economy has achieved some remarkable successes — even if it has not realised its full potential.

Pakistan has increased its per capita income from around $100 in 1950 to (a vastly underestimated) $1,750 in 2022. Starting with a non-existent modern manufacturing sector, it has built one up thanks to an earlier generation of dynamic entrepreneurs and traders, many of whom had migrated from India. It today contributes 15 per cent of GDP. Literacy rates have increased from overall 15pc to 70pc for males and 50pc for females, with significant growth in higher education in recent years.

Pakistan’s most impressive performance has been in reducing extreme poverty from well over half of its population in 1950 to 12pc in 2019, which is much lower than in India and Bangladesh, according to the World Bank. Only 22pc of the population (though still a high proportion) is unable to meet their basic needs. Equally impressive has been the growth of a vibrant middle class, which the ADB has estimated as comprising around 25pc of all households. Contributing substantially to these impressive developments has been the rise of a large Pakistani diaspora that has remitted near 10pc of our GDP as well as transferred knowledge, entrepreneurship and badly needed skills.

Pakistan’s credible economic performance must be viewed against the daunting challenges it has confronted over the last 75 years.

The economy has seen losses — but also some successes.

The first was the 1965 war with India, in which an unforgivable change of command halted a successful blitzkrieg to stop the Indian army’s brutal suppression of an indigenous revolt for freedom. This conflict led to a substantive increase in defence expenditure and broke the momentum of the Ayubian economic boom.

The second was the break-up of the country in 1971 after a tragic and avoidable civil war. Here too, the loss of the East Pakistan market for goods from West Pakistan was overcome, although the loss can never truly be measured in economic terms.

The third was the Soviet invasion of Afghanistan in 1979 and the subsequent civil war, which led to an inflow of 3.2 million Afghan refugees and a peaceful country without arms becoming heavily weaponised (‘Kalashnikov culture’). Most unfortunately, the resulting loss of business confidence prevented a relatively open economy from reaping the economic gains of the rapid globalisation which unfolded over the next three decades — something that India, a much more shielded economy in 1980, was able to do by attracting large volumes of foreign investment.

The fourth, the post-9/11 invasion of Afghanistan by US-led Nato forces, which thrust Pakistan into the position of a front-line state in the war against terror, was to result in very high losses: some 80,000 precious lives were lost and near $130 billion in economic and infrastructure losses incurred between 2002 and 2018 as estimated by the finance ministry.

The cost of the unending war in Afghanistan and its spill-over into Pakistan has far outweighed any compensation we may have received in return.

External factors aside, Pakistan’s ruling elite have always put their own interests ahead of the country with active state collusion. A glaring example of this was the permission given to resident nationals to open foreign exchange accounts with complete freedom to transfer unlimited amounts abroad in 1992; this still exists today with minor changes.

A high growth rate of the population, together with low levels of education and skills of its workforce, has resulted in hardly any growth in total factor productivity, which was the driving force behind the performance of the East Asian Tiger economies. There is also the criminal neglect of the manmade irrigation system we inherited, the largest in the world, which has resulted in rising food insecurity and energy shortfalls. The continuing reliance on foreign loans has resulted in the economy being caught in a debt trap — borrowing more to repay existing debt — which only a policy of zero net borrowings can break.

A real strength of the economy which, sadly, remains exploited and neglected, are women — despite some significant progress since the 1980s with the rise of an active women’s rights movement. Together with its youth bulge, Pakistan’s women could propel the economy to a higher, more sustainable and equitable growth path if given the opportunity to realise their full potential.

There is much to be proud of and much to learn in the journey to becoming an upper-middle income economy by our 100th anniversary.

The writer is a professor at the Lahore School of Economics and former vice chancellor of the Pakistan Institute of Development Economics.

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