Too often one hears of a gloomy prognosis predicting doom for the Pakistani economy. Lets see what kind of story the actual numbers tell in comparison to more advanced economies of the world.
In March 2009, Pakistan’s trade deficit narrowed by almost 50%, as imports declined faster than exports. Good news for the currency one would think.
Worker remittances were a record high in March 2009 at US$743 million an increase of 23% over last year. Cheerful news that.
While Japan’s exports plummeted by 50%, China’s by 26% and India’s by 33%, Pakistan’s exports were down by 25%. Even though, the competitive peer group is formidable, Pakistan is the best performer.
On the corporate profitability front, during the worst global down turn in a century, Pakistan’s corporate profitability of listed companies declined by a mere 3% in aggregate in the 3rd quarter of 2009.
Now let’s focus our attention on what is believed to be the most important measure of the long term health of an economy, Total debt to GDP. Total debt is defined as all debt in an economy including domestic and foreign, public and private. As the credit crunch has duly reminded the world, the best of human endeavor cannot endure the burden of debt. The largest, most technologically advanced, most innovative, most well governed countries in the world have fallen victim to the debt trap. How ironic.
Pakistan’s total debt is around US$113 billion. US$45 billion foreign debt plus US$37 billion domestic bank credit plus US$45 billion domestic government debt minus US$14 billion of domestic government debt held by banks. Pakistan 2008 GDP at current exchange rate was about US$160 billion. As a percentage of GDP Pakistan’s total debt is roughly 70% of GDP. USA’s government debt alone is around 100% of GDP. Total debt, domestic and foreign, public and private is about US$53 trillion or about 378% of GDP.
USA owes US$11 Trillion in government debt [9], US$17 Trillion in financial sector debt, US$13.8 Trillion in household debt, and US$11.10 trillion in corporate non financial debt. UK’s personal debt (mortgage, credit cards, auto loans to households) alone is more than a 100% of UK’s GDP, and government debt is an additional 52% of GDP. Total domestic credit is about US$5.4 trillion or about 250% of GDP. However, UK’s external debt around US$10.5 trillion or roughly 500% of GDP, a staggering number–UK GDP is around US$2.2 trillion. A soft reminder that a pull back by foreigners on the their deposits can create nothing short of mayhem in the country. Japan’s government debt is about 170% of GDP, total domestic credit (less euphemistically known as domestic debt) is about US$10 trillion or about 210% of GDP. Japan’s GDP is about US$4.8 trillion.
The developed economies have paid for their progress through a mountain of debt and that mountain is starting to slide. If you follow the debate on the subject amongst the experts, the consensus is that there is no honest way out of it, bail out packages notwithstanding. The viability of these economies is now an open question.
USA, Japan and UK economies are going to shrink by between 5-10% over this year. Pakistan’s is expected to grow by about 2%.
I think the numbers bear testimony to the resilience of this nation. It takes a beating, but keeps on going. Yet if anyone concludes from the above that things are not as bad as they seem and therefore no need to get all worked up it would be the wrong conclusion. For the same reason that a doctor puts the most effort in a patient that has a hope for survival, and not in the one that is almost dead, Pakistanis must focus their efforts on Pakistan. Exactly how, is up to their imagination and resolve.
Pakistan has issues, very serious ones and most of them are related to governance. It is nothing short of a miracle that with such serious governance issues the economy is doing better than some top economies in some specific yet critical areas. Compared to the task that the OECD economies face, which has technical intractibilities, the resolution of Pakistan’s problems require political will. In other words Pakistan has the luxury to be able to choose and it has a fighting chance. It can choose to reform and decide which direction it is going to go. If, the country makes the right choice, it can emerge as a major global power house in 20 years or less.
Maulana Rum said, if an ant seeks the rank of Solomon, don’t smile contemptuously upon its quest. Everything you possess of skill, and wealth and handicraft, wasn’t it first merely a thought and a quest?
Pakistan is no ant, out of 233 countires in the world, it is 6th largest in terms of population, 45th in term of GDP and 34th in terms of area. But maybe it needs to be as industrious.
Let the thought flourish, let the quest begin.
Pakistanis should stop beating themselves up too much. Their economy is fine, though could be better.
If you want to feel good about it, you can compare with India (Indian GDP is about the same as the Pakistani one, even after our so-called “high and rapid” growth!).
If you want to see where you should go, compare yourself with Turkey, Malaysia,or other culturally similar countries that are doing really well economically.
By GDP per capita (PPP) Pakistan is no 130 ( US$2739) 23 dollars behind no 129 India ( US$2762) as per IMF numbers from wikipedia.
Rupee has not depreciated, dollar has appreciated.
There is a difference between the two phenomenon. If rupee had depreciated it would also depreciate against other major currencies which it has not.
Rupee has actually strenghtened against the EURO and GBP (Pound), while declining against the dollar and that is because dollar has appreciated against those currencies. The only currency that has appreciated against the dollar in the past year is the yen and guess what, the rupee has depreciated against the yen as well.
In July 2008 Dollar was Rs72 Euro was Rs114 and GBP was Rs143. Today Dollar is Rs81 Euro is Rs110 and GBP is Rs125.
In short rupee has depreciated against he dollar, but actually appreciated against the EURO and GBP. WHY ?
In July 2008 Euro was USD1.57 and GBP was USD2
Today Euro is USD1.36 and GBP is USD1.54.
I hope it is clear now why rupee would be lower against the Euro and GBP as well had dollar appreciation been due specific and isloated weakness in the rupee.
Response to Asad’s Comment: “When the stock market goes down the rich loose more than the poor be case the poor have nothing invested in the market. ”
Actually, I disagree with this statement. The fact is that when investors become shy and stop driving the market up, the poor person working for companies where the investors stop investing (or lending to) ends up losing his or her job. The loss of basic livelihood for an average Abdul is a far bigger loss than the millions of dollars lost by the rich investors when the they lose confidence or consumers stop spending and the stock markets nosedive.
If you are interested to learning more about Pak-Indian or South Asian economy, please visit http://southasiainvestor.blogspot.com/
Pakistan’s per-capita gdp or income being lower than India’s is a myth being perpetrated by some Indians and their buddies in the financial press.
The most recent real per capita income data as calculated and reported by Asian Development Bank. The report says that Pakistan had the highest per capita income at HK$ 13,528 in South Asia. It reports India’s per capita as HK $12,090
The “real” here refers to the actual purchasing power and living standard comparisons, not international exchange rates.
Check out complete list in Table H at http://www.adb.org/Documents/Reports/ICP-Purchasing-Power-Expenditures/Highlight s.pdf
As this ADB report explains, “The most celebrated example of a PPP is the