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.
The posts back and forth fighting over Indian and Pakistani per capita GDP are quite amusing. It’s like two beggars with torn clothes fighting over who has an extra inch, while the well-dressed gentlemen and ladies watch them amused.
Folks, whether it’s 2800 vs 2600 PPP, or 800 vs 1000, or 2367 over 2359, or who has a couple of extra dollars is irrelevant when both numbers are near the bottom of the pile in the rankings. Other neighbouring developing Asian countries like Malaysia for instance have twice or thrice our GDPs – what are we stuck fighting over a hundred here or there! They are the ones countries in South Asia should be comparing against – not with each other.
If you are interested in seeing an OECD graph showing Pakistan’s economic performance over three decades under both civilian and military governments, please visit: http://www.riazhaq.com/2009/05/is-pakistani-econom y-poised-to-rebound.html
A couple of comments.
1. For purposes of comparison, Pakistan’s economic trends should not be compared to the United States or Japan. Other developing countries such as India, Indonesia, South Africa, Brazil, etc should be used as a point of comparison. For e.g. comparing Pakistan’s debt/GDP ratio to the U.S. doesn’t tell the reader anything, due to the unique circumstances of the U.S. debt. Developing countries are more vulnerable to a debt crisis, so, in order to get a better a comparison, we should examine Pakistan’s figures with respect to another developing country.
2. Similarly, comparing Pakistan’s growth rates to the U.S. doesn’t tell us anything. Our economy was not linked to the global financial system in the same way, so Pakistan did not face the adverse impact of the financial crisis. Once again, a comparison with the BRIC countries would be more effective.
3. Finally, getting cheerful about a rise in worker remittances isn’t a good idea. Remittances are, at best, a temporary source of foreign income, and should never be considered an integral part of a country’s development strategy.
What it actually needs is a serious land redistribution programme, so that it speople can actually see the fruits of their labour. The ordinary people are more than industrious – they have no choice but to work their fingers to the bone. Your critique is probably aimed at the upper classes. What we need is a better educated, healthier work force. We need better infrastructure, especially electricity. We need to break the hold of the old power elite, esepcially the army and the landowners. The political will for that will not magically appear at the top, since our rulers are shortsighted enough to kill the goose that lays the golden eggs if left to themselves. The push for all this has to come from us.
@Riaz
“Pakistan