Double Digit Gains in Pakistan's Per Capita Income

Pakistan’s nominal per capita income rose 16.9 percent to $1,254 in 2010-11 from $1,073 in 2009-2010, according to the Economic Survey of Pakistan. Using the IMF's purchasing power parity exchange rate of Rs. 34 to a US dollar (versus official exchange rate of Rs. 85 to a US dollar), Pakistan's per capita income in terms of purchasing power parity works out to $3,135.00.

Per Capita PPP GDP

Although Pakistan's per capita GDP rose by only 0.7% in real terms, the much higher 16.9% nominal per capita income increase reflects a combination of the nation's double-digit inflation rate and the the rupee's stable exchange rate with the US dollar which has been losing ground to most major world currencies in 2010-2011.

Similar to Pakistan's nominal growth, at least a part of India's nominal growth in per capita gdp and income is also driven by rising domestic inflation of over 10% and appreciating Indian rupee (5.5% from 48.32 in 2009 to 45.65 in 2010) from strong hot money inflows from the Fed's quantitative easing in the United States and elsewhere. India's FDI has declined by a third from $34.6 billion in 2009 to $23.7 billion in 2010. Its current account deficit is being increasingly funded by significant short-term capital inflows (FII up 66% from $17.4 billion in 2009 to $29 billion in 2010) rather than more durable foreign direct investment (FDI). This alarming trend of declining FDI and surging FII in India has continued into 2010-2011.

The idea of PPP or purchasing power parity is quite simple. A US dollar can be exchanged today for about 85 Pakistani rupees. But with Rs 85 you can buy more goods and services in Pakistan than one US dollar can buy in the United States. So Pakistan's GDP expressed in dollars at current exchange rates is about 40% of what it is when adjusted for PPP. The current ratio for both Indian and Pakistani GDP conversion from nominal US dollars to PPP dollars is about 2.5, calculated as follows:

Country......Official Rate....Purchasing Power.....Ratio

India...........INR 45.................INR 18..........2.5

Pakistan.......PKR 85................PKR 34..........2.5

Looking at the increase in per capita income alone is quite misleading in judging the health of Pakistan's economy. Other indicators, such as real GDP growth and investments, show that the state of the economy is very poor. The nation's GDP grew only 2.4% in real terms in 2010-2011. Domestic investment dropped to a 40-year low of 13.4% of GDP, and foreign direct investment (FDI) declined by 29 percent to $1.232 billion during July-April 2010-11 from $1.725 million in the same period a year earlier.

In addition to improved security environment, Pakistan has an urgent need for serious economic reform, greater social justice and better governance. Unless the PPP government acts to improve this situation, no amount of foreign aid, external loans and other help will suffice. The first step in the process is for the ruling elite to lead by example by paying their fair share of taxes and adopting less extravagant personal lifestyles to get Pakistan's fiscal house in order.

Related Links:

Haq's Musings

Incompetence Worse Than Corruption in Pakistan

Comparing US and Pakistani Tax Evasion

Pakistan's Economic Performance 2008-2010

Brief History of Pakistan's Economy 1947-2010

Daily Carnage in Pakistan

US Raid in Abbottabad

Economic Survey of Pakistan 2010-2011 Highlights

Pakistan's Rural Economy Showing Strength

Shaukat Tarin on Pakistan's Regressive Tax Policies

Economic Survey of Pakistan 2010-2011


Riaz Haq said…
The PPP conversion factor changes every year for both India and Pakistan as the inflation erodes the buying power of currencies in South Asia.

For example, here is the history of the purchasing power dollar exchange rate for Indian and Pakistani rupees as calculated by the World Bank:

Year India Pakistan

2006 15 20

2007 15 21

2008 16 24

2009 17 29

I have used Rs 34 to a US dollar for Pakistan in 2011 to convert to PPP from nominal in my post.

IMF PPP conversion estimates for India and Pakistan for 2010 are INR 18 and Pak Rs 34 to a US dollar in 2011.
Riaz Haq said…
Here's a recent piece on FDI decline and FII upsurge in India:

In 2010-11, inbound FDI into India fell by as much as 28%, the second consecutive year of decline and the first such large decline since the opening up of the economy in 1991-92. As a result of this decline, the present level of $27 billion of FDI inflows is the lowest in four years.

A large part of the progress made in FDI inflows over the boom years has now been reversed, with flows down by almost 29% from their high in 2007-08. This trend, more than just being odd, is also worrying when seen in the context of the fact that the past four years cover the recessionary period as well.
The decline in FDI in 2009-10 could be explained by the fact that it was a year when recessionary effects were visible in the global economy. All BRIC countries (Brazil, Russia, India and China) saw declines in FDI flows during that year.

According to the United Nations Conference on Trade & Development (Unctad), flows into China fell by over 12% and to Russia and Brazil by as much as 49% and 42% from the previous year.

However, a number of emerging markets have shown substantial recovery in 2010. The RBI pointed to Unctad figures to show that countries like China, Brazil, Mexico and Thailand had in 2010 shown a rebound in FDI of between 6-53 percent. Indonesia apparently showed a three-fold rise from the previous year.

In India itself, FII flows have been on the rise over the past two years on an annual basis, with only 2008-09 being a year of sharp outflows. In fact, the outflow of $15 billion was more than made up by inflows of $29 billion — their highest ever — in 2009-10. This level was largely maintained in 2010-11 as well, with a small increase.

Both these factors go on to show that the decline in FDI into India in 2010-11 is not the result of a weak global situation or investor risk-aversion. The causes really lie elsewhere.
FDI flows showed a dismal performance in almost every month of the previous financial year, with May being the only exception. By the end of the third quarter, it became clear that FDI inflows would be nowhere close to what they were the year before.

The RBI highlighted this in its quarterly ‘Macroeconomic and Monetary Developments (MMD) study released in January 2011 and suggested some reasons for the trend as well.

According to the bank, the “major reason for the decline in inward FDI is reported to have been the environment-sensitive policies pursued, as manifested in the recent episodes in the mining sector, integrated township projects and construction of ports, which appear to have affected the investors’ sentiments.”

The Ministry of Environment had recently questioned the ecological viability of the Korean steel giant, Posco’s proposed plans in Orissa, which could be one of India’s biggest FDIs ever.

The MMD review further goes on to observe that there are other reasons for the decline as well, such as “persistent procedural delays, land acquisition issues and availability of quality infrastructure”.

Indeed, delays in decision-making are visible in sectors like defence and multi-brand retail, discussions on which have been long in the works. The Department of Industrial Policy and Promotion (DIPP) had floated a discussion paper on defence in May 2010 and on multi-brand retail in July 2010.

Feedback on these was received by parties interested in the sector, but a decision on allowing FDI into these sectors is still nowhere in sight.
This is corroborated by the numbers. Both telecom and real estate have seen an above-average decline in FDI flows during the year. While flows into telecom declined by 35% to $1.6 billion, the flows to housing and real estate declined by as much as 60% to $1.1 billion...
Riaz Haq said…
Here's a Nepal Monitor report on MPI poverty in South Asia:

Among the 104 countries, Nepal ranks 82 in the Multidimensional Poverty Index (MPI) by Oxford Poverty and Human Development Initiative (OPHI) with UNDP support. Sri Lanka (32) tops South Asia followed by Pakstan (70), Bangladesh (73), India (74) and Nepal.

UNDP’s Human Development Report for this year, to be published in late October, will be based on this new MPI method. The new method incorporates 10 indicators of poverty, and these are clustered under three dimensions— education (years of schooling and child enrolment), health (child mortality and nutrition), and standard of living (electricity, drinking water, sanitation, flooring, cooking fuel, and assets).

UNDP’s earlier reports measured poverty in terms of survival, access to knowledge and decent standard of living (overall economic provisioning).

The latest MPI is based on surveys conducted on various countries between 2000 to 2007. Nepal’s statistics are from 2006.

Nepal is better positioned than Pakistan and India in terms of years of schooling for children and enrolments. Pakistan had 32.50 percent and India had 23.99 percent deprivation in the educational dimension whereas Nepal had 21.32 percent deprivation. Sri Lanka (6.26) and Bangladesh (18.70) fared better than Nepal and other countries in the region.

In the health dimension Nepal is better than the other surveys countries in the region—Sri Lanka (35.40 percent), Pakistan (36.35), Bangladesh (34.68), and India (33.53).

In the living standard measure Nepal was better than Sri Lanka (58.34) or Bangladesh (46.81), but worse than Pakistan (31.14) or India (41.33).

For the surveyed year 2006, Nepal’s MPI value was 0.350, the highest in the region. The MPI value reflects the percentage of people who are MPI poor and the average intensity of their poverty. Nepal’s Incidence of Poverty was 64.7 percent and her Average Intensity Across the Poor was 54.0 percent.

Slovenia, Czech Republic, Belarus, Latvia, Kazakhstan, Georgia, Hungary, Bosnia and Herzegovina, Serbia, and Albania, respectively, are the countries ranking in the top ten on the index for 104 developing countries. The surveyed countries have a combined population of 5.2 billion, which comprise 78 percent of the human total. The study reveals that a third of population in all surveyed countries combined live in multidimensional poverty.

Half of the world’s poor, according to the MPI, live in South Asia (51 percent or 844 million people). India, in particular, has more MPI poor people in eight of her states alone (421 million in Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh, and West Bengal) than in the 26 poorest African countries combined (410 million). The overall figure for the entire of African developing countries is 28 percent (458 million).
Riaz Haq said…
Here's a Jan, 2011 NDTV-PTI report on India's per capita income:

Per capita income of Indians grew by 14.5 per cent to Rs. 46,492 in 2009-10 from Rs. 40,605 in the year-ago period, as per the revised data released by the government on Monday.

The new per capita income figure estimates on current market prices is over Rs. 2,000 more than the previous estimate of Rs. 44,345 (one nominal US dollar equals INR 44.34909, and PPP USD equals INR 18) calculated by the Central Statistical Organisation (CSO).

Per capita income means earnings of each Indian if the national income is evenly divided among the country's population at 117 crore.

However, the increase in per capita income was only about 6 per cent in 2009-10 if it is calculated on the prices of 2004-05 prices, which is a better way of comparison and broadly factors inflation.

Per capita income (at 2004-05 prices) stood at Rs. 33,731 in FY10 against Rs. 31,801 in the previous year, the latest data on national income said.

The size of the economy at current prices rose to Rs. 61,33,230 crore in the last fiscal, up 16.1 per cent over Rs. 52,82,086 crore in FY'09.

Based on 2004-05 prices, the Indian economy expanded by 8 per cent during the fiscal ended March 2010. This is higher than 6.8 per cent growth in fiscal 2008-09.

The country's population increased to 117 crore at the end of March 2010, from 115.4 crore in fiscal 2008-09.

Read more at:
Riaz Haq said…
India's GDP likely to hit $2 trillion this year, reports Rediff:

India is poised to join the coveted club of economies whose national income, or gross domestic product, exceeds $2 trillion.

According to recently released data, India's nominal GDP is expected to grow at 14 per cent in 2011-12, to reach Rs 90 lakh crore (Rs 90 trillion). At a dollar exchange rate of Rs 45, this works out to $2 trillion.

However, if inflation is assumed to be 7 per cent and the real growth rate is 9 per cent as projected, the growth rate of 14 per cent may actually understate nominal growth rate by 2 percentage points, which means India's nominal GDP in dollar terms will actually exceed $2 trillion this fiscal!

India's nominal GDP crossed the $1-trillion mark in 2007-08, which implies GDP has doubled in four years.

First, the magic number of $2 trillion is based on an exchange rate of $45 to the dollar. If the rupee were to depreciate, India's nominal GDP would be lower for the same level of output.

Second, in celebrating the nominal as opposed to the real GDP, we may be losing sight of the contribution of inflation.

The difference between real and nominal GDP is inflation, and so for a given level of real GDP, the higher the inflation the more rapidly would nominal GDP increase. This is clearly an undesirable outcome for everybody.
Statistical convolutions aside, the health of the Indian economy needs a candid review, particularly in light of potential downsides that could derail the genuine progress the Indian economy has made over the past two decades.

The slowdown in virtually all sectors of the economy, barring a few select industries like 'transport, logistics and communication', which has been growing annually at 25 per cent, is indeed worrisome.

Growth in the agriculture sector continues to be dampened by under-investment, despite some increase during the past five years. This has resulted in the sector being caught in a classic low productivity trap.

Manufacturing too is spinning on its wheels, with annual growth rates stubbornly in the single digits. This reflects deeply embedded structural problems, which have been discussed in this space.

India's economic growth continues to rely on the service sector growing at or around 10 per cent annually, which renders it vulnerable to global shocks.

The situation on the supply side also leaves a lot to be desired. This particularly applies to the tardy progress in the development of infrastructure and investment in human development, which is already holding India back.
Riaz Haq said…
Nominal per capita incomes in both India and Pakistan stand at just over $1200 a year, according to figures released in May and June of 2011 by the two governments. This translates to about $3100 per capita in terms of PPP (purchasing power parity). Using a more generous PPP correction factor of 2.9 for India as claimed by Economic Survey of India 2011 rather than the 2.5 estimated by IMF for both neighbors, the PPP GDP per capita for Indian and Pakistan work out to $3532 and $3135 respectively.

Nominal per capita income of Indians grew by 17.9 per cent to Rs 54,835, or $1218, in 2010-11 from Rs 46,492 in the year-ago period, according to the revised data released by the government in May, 2011 as reported by Indian media.

In June 2011, Economic Survey of Pakistan reported that the nominal per capita income of Pakistanis rose 16.9 percent to $1,254 in 2010-11, up from $1,073 in 2009-2010.
Riaz Haq said…
Rising per capita income and a growing, young population spending more time online and at Western movies are helping build a mass market in Pakistan, according to Businessweek:

One way to take a city’s economic pulse is to check out where locals shop. In Karachi, Pakistan, shoppers are flocking to Port Grand, which opened in May. Built as a promenade by the historic harbor for almost $23 million, the center caters to Pakistanis eager to indulge themselves. This city of 20 million has seen more than 1,500 deaths from political and sectarian violence from January to August. At Port Grand the only hint of the turmoil is the presence of security details and surveillance cameras. “The whole world is going through a new security environment,” says Shahid Firoz, 61, Port Grand’s developer. “We have to be very conscious of security just as any other significant facility anywhere in the world needs to be.”

Young people stroll the promenade eating burgers and fries and browsing through 60 stores and stalls that sell everything from high fashion to silver bracelets to ice cream. Ornate benches dot a landscaped area around a 150-year-old banyan tree. “Port Grand is something fresh for the city, very aesthetically pleasing and unique,” says Yasmine Ibrahim, a 25-year-old Lebanese American who is helping set up a student affairs office at a new university in Karachi.

One-third of Pakistan’s 170 million people are under the age of 15, which means the leisure business will continue to grow, says Naveed Vakil, head of research at AKD Securities. Per capita income has grown to $1,254 a year in June from $1,073 three years ago.

The appetite for things American is strong despite the rise in tensions between the two allies. Hardee’s opened its first Karachi outlet in September: In the first few days customers waited for hours. It plans to open 10 more restaurants in Pakistan in the next two and a half years, says franchisee Imran Ahmed Khan. U.S. movies are attracting crowds to the recently opened Atrium Cinemas, which would not be out of place in suburban Chicago. Current features include The Adventures of Tintin and the latest Twilight Saga installment. Mission: Impossible—Ghost Protocol is coming soon. Operator Nadeem Mandviwalla says the cinema industry in Pakistan is growing 30 percent a year.

Exposure to Western lifestyles through cable television and the Internet is raising demand for these goods and services. Pakistan has 20 million Internet users, compared with 133,900 a decade ago, while 25 foreign channels, such as CNN (TWX) and BBC World News, are now available. And for many Pakistanis, reruns of the U.S. sitcom Everybody Loves Raymond are a regular treat.

The bottom line: With per capita income rising quickly, Pakistan is developing a mass market eager for Western goods.
Riaz Haq said…
Here's a News report on Pakistan's 2011-12 GDP estimates:

The size of Pakistan’s economy increased to Rs20.653 trillion and per capita income in dollar terms stood at $1,372 after the revision of GDP growth estimates from 3.2 percent to 3.7 percent for the outgoing fiscal year 2011-12.

“The per capita income on market price basis has increased by 9 percent in the outgoing fiscal year as it went up to $1,372 in 2011-12 compared to $1,258 in the last fiscal year 2010-11,” an official working paper available with The News disclosed. The per capita income will be officially unveiled in the Economic Survey 2011-12 which will be launched a day ahead of the upcoming federal budget 2012-13.

The economic managers, sources said, have used average exchange rate at Rs88.31 against a dollar for the first nine months (July-March) period of the outgoing fiscal year and estimated population at 178.9 million. If average exchange rate of first ten months (July-April) is used, which is at Rs88.7 to a dollar, then per capita income will fall to $1,354 for outgoing fiscal year. It is yet to see which average of exchange rate is taken by the government to estimate per capita income.

After revision of GDP growth estimates up to 3.7 percent by National Accounts Committee (NAC) by abandoning rebasing exercise and deciding to use the previous base year of 1999-2000, the size of the economy increased by Rs2 trillion and went up to Rs20 trillion from earlier estimates of falling around Rs18 trillion.

The rise in size of the economy has helped the government to restrict its budget deficit in the range of 6.7 percent to 7 percent of GDP for the outgoing fiscal year. The one percent of GDP, equivalent to Rs206 billion, means that the budget deficit in rupee terms will be standing at Rs1,442 billion in case of deficit of 7 percent of the GDP.

The Pakistan Statistical Bureau (PSB) had committed blunders in this rebasing exercise as authorities estimated that the financial sector that was shown falling by negative 11 percent in 2011-12 by using base year of 2005-06 but it actually achieved plus 6 percent growth in 2011-12 on the basis of previous base year 1999-2000.

The economic deflator grew by 9.5 percent in outgoing fiscal year from revised estimates of over 18 percent in last fiscal year 2010-11, indicating that it declined by almost 100 percent.

The reasons for this massive decline in deflator was attributed to highest ever increase in cotton prices in international market that surged up to 129 percent in last fiscal year 2010-11 resulting into jacking up deflator in a massive way.

The prices of cotton are not catered into CPI based inflation so it was reflected by end of the last fiscal year through deflator while in outgoing fiscal year the prices of cotton dropped significantly so the deflator in outgoing fiscal year also declined.

In the last Economic Survey 2010-11, it was stated that Pakistan’s per capita real income had risen by 0.7 percent in 2010-11 as against 2.9 percent last year. Per capita income in dollar terms rose from $1,073 last year to $1,254 in 2010-11, thereby showing an increase of 16.9 percent.

This is mainly because of stable exchange rate as well as higher growth in nominal GNP. Real private consumption rose by 7.0 percent as against 4.0 percent attained last year. However, gross fixed capital formation lost its strong growth momentum and real fixed investment growth contracted by 0.4 percent as against the contraction of 6.1 percent in last fiscal year.
Riaz Haq said…
Here's an interesting explanation in The Hindu on PPP or purchasing power parity correction factor:

...A $ 100 note is exchangeable today at around Rs 4,500. But with Rs 4,500, you can buy more goods and services in India than with $100 in the US.

Therefore, India's GDP expressed in dollars at current exchange rates is lower than what it would be when adjusted for PPP, i.e. the exchange rate reflecting a currency's effective local buying power.

The Survey estimates India's PPP correction factor at 2.9, meaning the stuff available here for $100 will cost $290 in the US. That corresponds to an exchange rate of roughly Rs 15.5 to the dollar. But the interesting bit is about the linkage with GDP. Countries with per capita GDP of $1,000-1,400 in 2009 – which include India, Pakistan and Vietnam — have an average PPP adjustment factor of 2.3.

In comparison, those with per capita GDP (unadjusted for PPP) between $8,000-12,000 — the likes of Brazil, Mexico, Russia and Turkey – require a correction of only 1.6 or thereabouts.

From this follows the conclusion that as economies grow, the required PPP adjustment also falls. Thus, India currently has a per capita GDP of $1,300 with a PPP correction of 2.9.

If the present high growth rates continue, its per capita GDP would touch $10,000 in 2039. By then, its PPP correction factor, too, would have dropped to 1.6, implying that the same basket of commodities costing $290 in the US (assuming no inflation there) will now be available here for $181, as against the earlier $100 level.

The fall in the PPP adjustment factor from 2.9 to 1.6 by 2039, in turn, entails either (a) an appreciation of the rupee to Rs 24.9 to the dollar or, (b) prices in India rising cumulatively by 81 per cent or 2 per cent per annum in constant dollars or, (c) a combination of both. Assuming three-fourths of the reduction to happen via (b), it would translate into an average annual dollar price inflation of 1.5 per cent in India. And that is what the Survey (more precisely, Dr Basu) calls ‘PPP catch-up inflation'.

Elegant though this formulation is — as is to be expected from our erudite Professor — it is not without flaws.
The order of catch-up

The main problem has to do with the direction of causality. Does inflation result from PPP levels aligning themselves closer to market-determined exchange rates? Or, is it just the other way round, wherein inflation is a cause rather than effect of PPP catch-up? The Basu formulation — an adaptation of the so-called Balassa-Samuelson effect — seemingly presumes PPP catch-up to be the causal variable, which necessarily engenders inflation.

To quote from the Survey: “…due to this apparent fall in the PPP correction factor, there would be some increase in prices…(The country) would face an inflation of 2 per cent per annum solely on account of this PPP adjustment”.

In the real world, however, things probably work in the reverse. As inflation erodes the rupee's domestic purchasing power, the basket of goods and services that can be bought with Rs 4,500 will shrink over time. Assuming no corresponding depreciation of the rupee, domestic prices would increasingly approach global levels.

In the process, the PPP exchange rate is driven nearer to the market-determined exchange rate. We are, in other words, talking of ‘inflation catch-up PPP' as opposed to ‘PPP catch-up inflation'!
Lamb vs. Tiger

The phenomenon of ‘inflation catch-up PPP' can be seen in India, where the rupee has, over the years, emerged as a ‘lamb' at home and a ‘tiger' abroad. Since 2004-05, it has depreciated by hardly 4 per cent against the dollar, which is way below the 46 per cent rise in the all-commodities wholesale price index..
Riaz Haq said…
Here's a Business Standard story on falling Indian rupee's impact on India's GDP calculations:

India may turn into a $2-trillion economy by the end of this financial year, provided the rupee remains below 50.79 against the dollar during this period. The government has projected India's gross domestic product (GDP) for 2012-13 at Rs 101 lakh crore, against Rs 88 lakh crore in 2011-12—a growth of 14.7 per cent.

In 2011-12, when the rupee stood at an average of 47.95 against the dollar, the size of the economy was $1.84 trillion at current prices (including indirect taxes). A growth of 14.7 per cent would mean the economy would expand to $2.11 trillion.

The catch, however, is the rupee stood at 47.95 against the dollar in 2011-12, while its average exchange rate against the dollar so far this financial year is 53.24. At this rate, by the end of 2012-13, India would be a $1.9-trillion economy. Any further depreciation in the rupee would further reduce the size of the economy in dollar terms.

On Thursday, the rupee fell to a record low of 56.52 against the dollar. It has depreciated 14 per cent from its high this year, exerting pressure on the trade and current accounts.

With limited foreign exchange reserves and reforms unlikely, analysts expect the rupee to depreciate further in the coming days, with a recovery unlikely anytime soon. “The high inflation, sluggish growth, poor flows and the strengthening dollar index would continue to drive the rupee to new lows. We expect the rupee to breach 57-levels soon,” said Abhishek Goenka, chief executive, India Forex Advisors.

In 2010-11, when the rupee stood at an average of 45.57 against the dollar, India’s GDP stood at $1.68 trillion, while it was $1.36 trillion in 2009-10, at an average exchange rate of Rs 47.42/dollar. GDP growth at constant prices (excluding indirect taxes) stood at 5.3 per cent in the quarter ended March 31, with growth in financial year 2011-12 at 6.5 per cent—the lowest in nine years.

“This persistent sluggishness in the economy puts the Reserve Bank of India in a conundrum. It has to cut interest rates to stimulate growth. However, it can’t cut much, as this would lead to more depreciation in the rupee,” said Bundeep Singh Rangar, chairman of London-based consulting firm IndusView.

Though the central bank had cut policy rates by 50 basis points in April, it had warned it saw limited scope for more any cuts, partly because inflation remained high.
Riaz Haq said…
Some questions about public policymaking in Pakistan
By Shahid Javed Burki

Serious public policy work was put on track by president Ayub Khan soon after he took over the country in October 1958. He developed the Planning Commission into a well-endowed policymaking institution. Told that Pakistan did not have the skills that were needed to staff such an institution, he turned to the United States for help. That came in the form of advisers mostly from the Harvard Development Service who were appointed in the Planning Commission in Karachi and in the Planning and Development Departments in East and West Pakistan.

When Ayub Khan surrendered his office in 1969, the Planning Commission began to wither. A series of blows were delivered to the planning process by the government headed by Zulfikar Ali Bhutto, who ably led Pakistan to recover from the loss of East Pakistan in December 1971 but destroyed much of what Ayub Khan had done for the country. Bhutto, an arrogant man, had much greater confidence in his ability to develop the country on his own and bring about social change than base his moves on institutional advice. He had no use for the Planning Commission.


What follows is a brief discussions relating to some of the questions asked above. Taking all of them in detail would take up a more than one newspaper article.

One, our leaders must recognise that a negative narrative prevails about Pakistan in the foreign press. Whenever a story appears about Pakistan in the western media, its content and tone are negative. This situation can only be remedied if the current leadership comes forward and presents to the world a believable plan of action that would restore people’s confidence in their future as well the future of their country. As economists emphasise all the time, confidence is an important driver of growth, confidence leads to increase in domestic and as well as foreign investment.

Two, there is an urgent need to strength the Federal Board of Revenue. Those who don’t pay taxes or pay only nominal amounts must be made to fear the revenue collector. It is that fear that has made the Internal Revenue Service the most feared part of the United States government. In America, April 15, the day taxes are due, is by far the most important day on the calendar.

Third, we need to focus on three sectors as the future determinants of economic growth and social change: they are high value-added agriculture, small- and medium-scale industries and modern services. Development of the human resource would be an important part of this strategy. CPEC could play an important part in this endeavour.

Fourth, our policymakers need to recognise that Pakistan is no longer a rural place but an urban country. No single urban policy would serve the purpose. We will need separate policies for the metropolitan areas, peripheral areas of large cites, medium-sized cities and small towns.

Fifth, the government must get closer to the people and this requires the formation of a multi-tiered system of local government on the lines of Ayub Khan’s system of ‘basic democracies’.

And sixth, working with Afghanistan, we should use the local system of government to bring economic and social development to these areas. It is only then that we will be able to prevent the tribal youth from being attracted to extremist causes.

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