Economy Review: The Good News from Pakistan

Posted on May 19, 2009
Filed Under >Kathay Kalame, Economy & Development
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Kathay Kalame

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.

37 responses to “Economy Review: The Good News from Pakistan”

  1. X0 says:

    B.A.Q please elaborate.

  2. B.A.Q. says:

    I am sorry but this author has no idea of economics. just throwing a bunch of numbers that cannot be reasonably compared does not make analysis. Sorry to see such shoddy work appear at ATP.

  3. Wahab says:

    There is plenty of good news in Pakistan but that will go nowhere until the bad news from Pakistan is taken care of. These cursed TALIBAN. Until we deal with them all else will be submerged. The tragedy is that we have jokers like Zaradri who are incapable and unwilling to crush the Taliban fully.

  4. Arjun says:

    I forgot to answer your question about negativity – I think it’s a tie. We Indians are unbelievably cynical about our own country, and in many cases, justifiably so (I’m one of them remember ;)).

  5. Arjun says:

    “Well said Arjun !

    In your experience do you find the Pakistani elite more self critical / negative or Indian. OR would you say its a tie.

    In my experience I find Pakistanis to be more negative / self critical.”

    Thanks, XO.

    To be honest, as an Indian, I’m usually perplexed at why Pakistan isn’t doing much better economically. It has a nicely sized moderate population (150 or so million, I think – large enough to generate economic activity, small enough to have a good standard of living given the country’s size), a vast landmass, a lot of it highly fertile, the two largest markets in the world right next door, a strategic geographic location that could be a highly enriching hub of Indian, Iranian and Central Asian economic activity given half a chance, a population and state united in one religion and no dearth of natural or human resources in general. Pakistan should theoretically be able to be as well off as Malaysia quite easily, even if all it did was sell basic goods to India and China, and other countries around Asia and the world.

    It should be relatively fairly easy to raise the standard of living and economic well-being of a small population like Pakistan’s.

    When you compare that with the astronomical scale of problems that India faces every day, with its ginormously unmanageable population of 1.1 billion, squeezed in and living cheek-by-jowl, diverse and often divided along religious, linguistic, regional, tribal and caste-based lines, with various insurgencies and deprivement situations draining the exchequer, it is a wonder the country even gets a percent of growth or upliftment of its population, let alone 7. To me, Pakistan’s economic problems look trivial by comparison; its social problems, self-created. That it doesn’t perform stellarly economically and the reasons thereof are quite instructive.

    Disclaimer: This is just the opinion of one person here and you may choose to disagree. Please do not make the mistake of taking this as “the Indian opinion” or “how Indians think” as so often happens. It is an individual opinion and that’s what it should remain.

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